{"id":5325,"date":"2016-05-04T15:48:28","date_gmt":"2016-05-04T10:18:28","guid":{"rendered":"http:\/\/13.201.39.237\/?p=5325"},"modified":"2016-05-04T15:48:28","modified_gmt":"2016-05-04T10:18:28","slug":"economic-slowdown-recession-financial-meltdown","status":"publish","type":"post","link":"https:\/\/www.arre.co.in\/?p=5325","title":{"rendered":"Can We Escape Another Financial Meltdown?"},"content":{"rendered":"\n

W<\/span><\/p><\/div>

hile we weren\u2019t looking, globalisation has turned from the \u201cthing we all love\u201d to \u201cthat crazy fad when we all thought we could work together\u201d. Protectionism has crept up on us via a series of bad decisions. The <\/span>most influential nations<\/span> \u2013 including the US, UK, and China \u2013 are beginning to signal to the world that they\u2019re not above undermining capitalism and its preaching of free trade if doing so allows them to safeguard their own<\/span> economies.<\/span><\/a> Even Europe \u2013 where any talk against the benefits of the European Union has traditionally been considered sacrilege \u2013 is seeing a resurgence of right-wing politicians that talk of disbanding the gang and going back to their respective currencies and insulated economies.<\/span>\n\nAmid all this, the Indian economy had slowly chugged along like a chowkidar with true purpose. While not completely immune to the outside world, India has somehow weathered the storm thanks to steady domestic demand. The auto industry \u2013 an at home pregnancy test for the health of the economy in general \u2013 had pottered on at a respectable seven per cent annual growth rate and this, not entirely a coincidence, mirrored our <\/span>GDP growth<\/span><\/a> (or at least, the GDP growth our government kept convincing us is true, thoroughly vetted and subject to change, as required). Nonetheless, overall numbers had suggested that despite Trumpian economics, demonetisation, and a China slowdown, India had managed to keep its ship afloat. A lot of this has been due to the emergence of a consumer class \u2013 albeit at a low-income level \u2013 that has allowed companies to continue to sell goods and services even while global demand faltered. It is also somewhat likely that two Ambani weddings in the same year have given our GDP a shot in the arm.<\/span>\n\nBut how long did we expect this to last? There\u2019s only one Ambani child left; we\u2019re almost out of magic bullets.<\/span>\n\nIn his wonderful book <\/span>Sapiens<\/span><\/i>, Yuval Noah Harari describes at one point the invention of \u201cCredit\u201d. Credit, as he illustrates, was one of humanity\u2019s greatest achievements, as it allowed us to scale up rapidly by effectively borrowing from the future.<\/span>\n

Amid all this, the Indian economy had slowly chugged along like a chowkidar with true purpose.<\/p><\/blockquote>\nIf this is confusing at first, think of how you take a loan from a bank to buy the house of your dreams. You\u2019re effectively agreeing to pay <\/span>EMIs <\/span><\/a>for 15-odd years because you are confident enough on your future income stream to take that chance.<\/span>\n\nIt is for this reason that credit, or an economy\u2019s willingness to embrace it, is one of the clearest signals of economic confidence. It is precisely why most economists will point out that to gauge the health of the economy, it is the bond market and not the stock market that gives better indication.<\/span>\n\nSo, how does this impact India?<\/span>\n\nOver the last few months, economists in the US have been pointing to what they call \u201cthe inverted yield curve\u201d. While this is cryptic, what it basically says is that people\u2019s long-term expectations are worse than their short-term expectations. In other words, your<\/span> loan shark <\/span><\/a>is happy to lend you money for a few days and expects he will get it back, but his optimism fades considerably when you request for a month-long or a year-long loan.<\/span>\n\nBack in India, however, the credit markets are somehow still holding their own. Banks may point to a steep decline in the number of loan disbursements for items such as <\/span>consumer durables, <\/span><\/a>but much of this is due to stores offering interest-free EMI options. Indians may be confident in their future income streams, but no Indian is willingly taking credit if offered a free option.<\/span>\n

India\u2019s GDP growth rate number keeps coming in lower and lower, like the average daily collections on a Rohit Shetty film.<\/p><\/blockquote>\nRecent news, however, has shaken our faith that all is hunky dory. When Finance Minister Nirmala Sitharaman stepped forward to present the budget, expectations were high. This was partly because, as a woman, we were hoping Ms Sitharaman would apply some of that fiscal black magic that has had people across generations wondering how their mothers managed to stretch a 1000-rupee <\/span>budget<\/span><\/a> to cover everything from groceries, to household help, and stationery.<\/span>\n\nHowever, there was little in the budget to really cheer. Fast-forward two months from the budget and things couldn\u2019t look gloomier. India\u2019s GDP growth rate number keeps coming in lower and lower, like the average daily collections on a <\/span>Rohit Shetty<\/span><\/a> film. As an economy that was used to seeing numbers like 7.5 per cent and 8 per cent, we\u2019re now coming to terms with five per cent. At the same time, the government\u2019s GST income is falling, the banking system is faltering, and interest rates have already been slashed to little or no avail.<\/span>\n\nA few hastily implemented stimulus moves and <\/span>bank mergers<\/span><\/a> put into force over the last 10 days have had the markets shrug and go \u201cmeh\u201d, even as the auto industry continues to report numbers so terrifying, auto execs have been booking tickets to watch <\/span>IT Chapter Two<\/span><\/i>, just to lighten the mood a little. In the midst of all this, the RBI released <\/span>\u20b91.76 lakh crore <\/span><\/a>(or, roughly half an Ambani wedding\u2019s worth) of funds to the government and the economy licked its lips thinking money was going to rain down on everyone. But in a move of fiscal prudence, the government is likely to use the money to offset the fiscal deficit instead. Think of it like using a lump some of money you received in paying off your credit card bill rather than buying a new pair of jeans. It is certainly the sensible option\u2026 unless you\u2019re naked at the time.<\/span>\n\nSo, how did everything start going so drastically wrong for the Indian economy? And is there any hope that things will swing around?<\/span>\n\nThe answers are far from simple, sadly. Remember what we said about credit? It only works if we believe strongly enough about the future. The truth is that since the great crash of 2008, not much has changed. Economies around the world \u2013 in order to avoid collapse \u2013 have played every available trick in the book to convince consumers that the future was rosy. This played well until the future arrived and things seemed just the same. With very little wiggle room left to play, it\u2019s unlikely that the world can escape another <\/span>financial meltdown.<\/span><\/a> India is simply getting swept away in this tide. Whether we can hold our own like we have done before depends entirely on whether our government is able to sell us a story worth believing.<\/span>\n","protected":false},"excerpt":{"rendered":"

Since the great crash of 2008, not much has changed. Economies around the world \u2013 in order to avoid collapse \u2013 have played every available trick in the book to convince consumers that the future was rosy. This played well until the future arrived and things seemed just the same.<\/p>\n","protected":false},"author":309,"featured_media":5326,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6984],"tags":[4058,9075,9065,4496,7148,9067],"class_list":["post-5325","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-economy","tag-financial-meltdown","tag-global-economy","tag-money","tag-recession","tag-save-money"],"yoast_head":"\nCan We Escape Another Financial Meltdown?<\/title>\n<meta name=\"description\" content=\"Since the great crash of 2008, not much has changed. 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