Global markets are at or close to all time highs on back of signs of better US economic growth outlook, liquidity push by global central bankers & recovery in commodity prices from its 2015 lows.
Time for a global recession again ?
The next global recession the world is going to witness shall be from Europe / China or both.
China has been BORROWING $ 6 for a GDP growth of $ 1. On detailed historical observation The United States of America pre Lehman crisis, borrowed $ 3 for a GDP growth of $ 1.
There has been observed stagnant or negative growth in European continent as a whole. Major European banks are at the verse of bankruptcy. Post brexit the situation has worsened. Much below IIP growth posted by the European growth engine Germany, was the confidence breaker. When a country as fundamentally powerful as Germany fails to post results, investors can expect no gold rush in other European countries. Several European banks are in extreme stress with a total pile of 1 trillion $ debt. If one major bank fails, it shall have major ripple effect on whole financial framework. European banks have started to trim EM exposure. RBS has already sold it’s india business to RBL bank, HSBC & standard chartered are trimming their operations.
If European banks fail, the first ones to get caught in the ripple effect will be Chinese banks which are most vulnerable in present scenario, amplifying it’s impact making it the worst recession the globe has ever witnessed.
Unless growth does not pick up in europe, which is not likely to, investors should be ready to face the worst.
In the recent course of event, the finance ministers of G20 countries pledged to use all monetary instruments under their comprehension to ease the stress spread by growth laggards. Helicopter money is the only thing they opt to in intense conditions like this, just the way they conventionally did in the past.
This decision when implemented shall bring a global glut of liquidity. This will bring more amount of surplus at people’s discretionary spend while global investors would take this opportunity by investing in the best asset class that would be spurred by the surplus liquidity I.e., equity.
The brightest spot is india.. why ?
2. Positive interest rates.
3. More FDI allowed & ease of doing business.
4. Public expenditure at highs & private expenditure has bottomed out.
No matter how much provisions a bank makes, considering the figure of NPA’s of over 6 lakh crores provisions won’t be a sufficient measure.
By merging banks the government only seems to be creating a time bomb which might burst if it is not quick to infuse sufficient capital ‘within a calculated time frame ‘.
RBI can only tweak norms to make recovery more believable & ensure more smoother working.
I wonder why RBI doesn’t bring a rule which creates a specific MCLR ‘margin’ regime which if strictly followed could inherently help banks improving their books without worrying about market competition.
Till now the government has only made the figures bigger & announced only 25,000 crores of funds for PSU Banks.
Even China faced similar, in fact worse problems half a decade back but it managed to solve it’s NPA mess.
The good part is, The Reserve Bank was quick to notice the problem but as the track record suggests, implementing the policy might much take a longer time which makes it the major hurdle for Indian Public Sector Banks.
It is a routine for countries in the European Union to vote their stance for a possible stay or exit. Mostly its a mere Formality as they always vote in favor of a stay as the common consensus suggests , a union collectively makes the European region stronger in this adverse economic scenario.
Britain’s referendum on 23rd is no mere formality. It is a country where now a majority believes that being in EU makes them more dependent & not at its full potential. There are certain by-laws that need to be followed by every EU member country as a due diligence to other member countries which felicitates problems of each other at both macro & micro levels.
Recently the European Central Bank has adopted Negative interest rate regime just as other struggling major economies like Japan has adopted. Which Infact doesn’t seem to be helping much.
You pay the banks for keeping your deposits safe & banks pay you if you borrow money from them. This is a against all rational of the principal reason of having a central bank & suggest a failure in keeping up with good quantitative & qualitative monetary policy measures.
Even if this negative interest rate regime has started, it should not stay for long. The major question now will be, how much will Europe sacrifice at time when they bring the interest rates from negative to positive ?
& is UK clever enough to recognize its possible implications in advance and react comparatively proactively as against reactive EU members ?
Who was once a well ranked officer in IMF to being the governor of The Central Bank of India. Yes, that’s RBI governor to me and I am sure to most of the Indians. The world appreciates his work of the past and present. His being a governor has helped the country garner investor confidence which only brings more and more foreign investment. Since the inception of his tenure the governor has been astonishingly successful in keeping the Indian rupee less volatile which in fact has generated immense investor confidence in the currency & country. Now since no perks might seem to influence Rajans decision of moving into academia.
Now, what can the businessmen of the country expect from the RBI after his term ?
Well that’s pretty simple to predict. The government is trying to bring the interest rates down. It won’t work with the new governor too as any central bank govorner would prefer quantitative assurance more than short to medium term fundamental sentiment. Since inflation is perking up, the actionable margin is no longer available in the RBI’s warchest.
May be the governor has left because of too much politics, may be because he says he wants to focus into teaching, but I am not convinced.
Why would he not prefer an extension of being the govorner of the largest democracy & the fastest growing economy in the world ?
Is there too much politics to handle for an honorary & responsible position ?
Sure seems to me.
The Civil Aviation Policy ‘A REFORM’.