Globonomics!

Consulting|Technology|International business

Why am I crazy about Wall Street/US monetary policies?

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Simply because, it has a huge impact – no matter where you are in this world!

What happens out there impacts every single country in this world. It impacts you you and you. It impacts the decision making we make on our jobs etc. It impacts our local domestic economy. No matter how much we claim of ourselves being insulated from Wall Street, the truth is its just an eyewash. We will all get affected by the mayhem on Wall Street and the effects take at least 6 months to trickle into economies such as India and China. This is what happened in the dot com bubble burst of late 2000.

If a proud Indian corporate chief/CEO is sitting in a conclave with his/her peers and bragging about how India relies on domestic consumption and gives all the BS of domestic consumption contributing to 64% of our GDP growth, trust me – they only need to wait and see the effects for themselves if this financial crunch caused by the US credit bust is not contained.

Business policies in USA also saw another sector emerging in India – the burgeoning BPO sector that saw its birth in 2002 thanks to a globalized economy and a ‘flat world’ as the term ‘offshoring’ and ‘outsourcing’ gained visibility thanks to articles such as the one published by then Fortune magazine (part of CNN Money now) on how Western jobs were getting “Bangalored”!

Above was mentioned to highlight the fact that – Business climates change but business cycles don’t. Its only human to make mistakes and we humans are greedy- many Wall Street companies have proven this recently.

I saw the last recession very closely that helped me be a better analyst which led me to keep that as an objective (to learn more about the way companies and countries set monetary and economic policies) do a Masters in International business from the prestigious Indian Institute of Foreign Trade (IIFT), New Delhi and gain a rich and accomplished peer circle. This blog, and the group I founded in 2003 among my peer circle globally, owe their very existence to my love for Economics and Finance and my quest to seek answers. I am definitely in a much better position today to understand fiscal and monetary policies and I shudder to think that this recession we are going to see is not going to be a short one. I hope I am wrong but its too deep and has entrenched itself into the very fundamentals in the way Corporate America/their financial system does business especially in credit policies and lending and has far reaching consequences well beyond the housing bubble or sub prime mortgages or the Federal reserve or the current credit crunch.

I believe the bailout is only trying to create a market for the illiquid assets and toxic assets that no one wants to buy. The basic idea is that once the Fed buys it, the others will follow suit or the situation would improve dramatically. I doubt it. These may be coming at a huge discount to the Fed (subject to Congress approval, which I believe will come – sooner or later) but unfortunately, though I think it might prevent a systemic collapse but will not cause a rejuvenation of the US economy. That needs a new growth area which is yet to be identified. One thing is for sure – the Financial sector is definitely not that vehicle!

Did you see the Indian rupee that has depreciated to a new high of over Rs. 46 to a US Dollar. While it is great news for exporters (that is why we don’t hear of a cry foul from the Infosys’ and TCS’ and Wipro’s of India) but it definitely has a bearing on the importers.

The RBI will be forced to intervene to put sufficient liquidity into the system as other counterparts are doing across the world (US, UK, Japan etc.) UK and Belgium have already seen government takeovers of some corporations there. This shows the US bubble is no longer confined to continental USA – its spread far too wide.

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