American Politics (continued from the 'If Outsourcing.....' thread

[kunjuppu]

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A few years ago one Canadian dollar bought 66 u.s. cents. Today it is on par. And there is real fear in the rest of the world, that the recent U.S. Federal Reserve Bank policy to pump 600 billion dollars into the U.S.. economy by purchasing government bonds.

The Federal Reserve, though supposed to be an independent body, like the RBI, often has to play the political tune. With the elections, Obama’s hope of passing legislations for further stimulus is bound to fail. In fact I wonder how much of his previous reforms will still be functional ie they will law, but starved of funds, how can they be enforced?

What the rest of the world fears, is that there are few goods in the U.S. to chase these 600 billion and if I remember my Macro right (studied 35 years ago) the multiple effect is x7 ie we will have 4.2 trillion of paper U.S. dollars backed by nothing floating around the world.

The Indian Government has already indicated that there will be restrictions on NDI from abroad. China is increasing its interest rates to make its own currency desirable.

The U.S. has done this before during the 1960s when it was funding the Vietnam war and also President Johnson’s Great Society public programs. At that time, the U.S. had far more influence on the world economy as a producer of goods than today, when it is the primary consumer and barring a select set of industries, a declining manufacturing base.

What this bodes for the rest of the world is yet to be seen. For pensioners in the U.S. it is another bad news, as their saved dollar will buy even less.Imports will be more expensive. There is not much for U.S. to export except planes & armaments. Not exactly price sensitive widely used consumer stuff. …

That Obama could make a statement that a prosperous U.S. economy will benefit the world, is not convincing anymore. Atleast for now, when that prosperity increasingly appears to be fading.

 

[sangom]

A few years ago one Canadian dollar bought 66 u.s. cents. Today it is on par. And there is real fear in the rest of the world, that the recent U.S. Federal Reserve Bank policy to pump 600 billion dollars into the U.S.. economy by purchasing government bonds.

The Federal Reserve, though supposed to be an independent body, like the RBI, often has to play the political tune. With the elections, Obama’s hope of passing legislations for further stimulus is bound to fail. In fact I wonder how much of his previous reforms will still be functional ie they will law, but starved of funds, how can they be enforced?

What the rest of the world fears, is that there are few goods in the U.S. to chase these 600 billion and if I remember my Macro right (studied 35 years ago) the multiple effect is x7 ie we will have 4.2 trillion of paper U.S. dollars backed by nothing floating around the world.

The Indian Government has already indicated that there will be restrictions on NDI from abroad. China is increasing its interest rates to make its own currency desirable.

The U.S. has done this before during the 1960s when it was funding the Vietnam war and also President Johnson’s Great Society public programs. At that time, the U.S. had far more influence on the world economy as a producer of goods than today, when it is the primary consumer and barring a select set of industries, a declining manufacturing base.

What this bodes for the rest of the world is yet to be seen. For pensioners in the U.S. it is another bad news, as their saved dollar will buy even less.Imports will be more expensive. There is not much for U.S. to export except planes & armaments. Not exactly price sensitive widely used consumer stuff. …

That Obama could make a statement that a prosperous U.S. economy will benefit the world, is not convincing anymore. Atleast for now, when that prosperity increasingly appears to be fading.

Dear Shri Kunjuppu,

I feel a radical structural change should come to the US economy. It could either be engineered by the Government or may come automatically, but with less speed and more suffering to more people. In agriculture US, like many other developed (so called rich) countries gives enormous subsidy while compelling countries like India to do away with all subsidies, which India has almost complied with. This is like a "dada" in the market quoting a lower price but threatening others if they reduce their price in order to compete. As for US manufacturing, you had already dealt with it extensively somewhere else. In regard to the services sector, I think US should (will?) adopt a practice similar to what it has been doing so far for its agricultural sector, viz., subsidise heavily and make it competitive. But i have no idea about what sort of services the US can export.

Does this expose the inherent inefficacy of democracy as a long term measure, just like what the downfall of USSR did to communism?

The situation is very much like that which the Namboodiris of Kerala had to face. From being absentee landlords, lording it over socially, economically, etc., for centuries, they found that all those privileges are vanishing rapidly. They had very little skill saleable in the market of the times, but many of them adapted to the changes and improved. In much the same way US will have to rethink its strategies and adapt to the changing world realities. It is strange coincidence that the bad results of all the past mistakes have come down now, when the first African-American President is in office.

 

[kunjuppu]

Dear Sangom,

With the election of Obama, I thought that the U.S. was finally turning to a social welfare state a la Western Europe or Canada with a large safety net for its citizens.

The Americans have, with the current election, effectively turned back the clock. Atleast that is the way it looks to me. They have these new representatives, who have vowed not to fund any of Obama’s progressive programs. Nothing of this kind has happened in the US before, to the best of my knowledge.

There will be different takes on this phenomenon, and we have two good reps KRS & Nara, who can coherently present the two opposing viewpoints, I hope.

Like you dear Sangom, I too am an observer, albeit at closer quarters and much more immediate impact. Indian Canadians especially have close links with the US. In my case my oldest son works in New York City and we have always assumed access to job opportunities in the US as done deal. This is another strangely unique Canadian tradition, ie talented Canadians go south to seek their fortunes, and seldom denied visas or discriminated against.

However, last week for the first time I met a gentleman, whose two daughters had to leave the US because they lost their jobs and found new employers reluctant to hire them, and where they did, the US government refused to transfer their H1B visas. This from a country which has always treated Canada as a younger sister, with a lot of affection and tolerance. Suddenly with Obama all that has changed, and while Canadians still like him, they are ambiguous about his policies. His tendency to equate Canada with Mexico as border states, strikes a raw nerve here.

A large percentage of Canada’s trade is tied to the US and we do not have any alternate market for our products. So if the greenback value tank, and there is no other market for Canadian wood and water, then I suppose we will revive an old call, that can be heard occasionally – Canada becomes the 51 state of the USA.

Let us hope it does not come to that…but who predicted the fall of the USSR even as late as 1988? Nowadays history turnsover faster than a speeding atom.

Just consider that the US reign as #1 power was absolute only in the late 40s, 50s and early 60s. The downfall started with Vietnam and now with Iraq/Afghan & the economy, I am wondering how the US will reinvent itself. I would never write off that great country, but I am curious to see in what form the next rebirth of the USA.

Good to be talking to you. Bestest regards…

 

[tbs]

hi folks,
USA will come back in new design way.....it has power to come back....this time may be short fall.....USA will get oil from iraq...

minerals/ other precious metals from afganisthan..... arms/ammumition export to afganisthan/pakistan on long term basis....USA will

bounce back....no doubt.....

regards
tbs

 

[sangom]

Dear Shri Kunjuppu,

Thank you. In today's Hindu paper there is an article:

The Hindu : Opinion / Editorial : Structural change and inequality

The importance of a thriving mfg. sector may be seen from that article.

Though China has criticised the $600 bn. plan of the US, MMS has been, I would say, non-committal and leaving enough room for suitably modifying India's reaction at a later date, if necessary. For Canada, as an exporter, it may be necessary to devalue its currency in tune with USD, or cut costs drastically to achieve price competitiveness. In China the latter course will be not very difficult, especially in their special Economic Zones, which are like large prisons from which no one can re-enter the Chinese mainland unless he/she produces the stipulated minimum foreign currency plus the bribe for the officials at the checkposts, I understand. Hence, wages can be reduced overnight and still the industries will run. It is pure slave labour. India may be somewhat successful especially in the unorganised sector. What will happen to the IT sector is the big question mark.

I think the Americans will (can be expected to) behave in one of two ways. One, they may feel that they are being cheated by "others" and build the American version of the "sons of the soil" theory which is powerful in most parts of India, or, the second, they will band themselves together and face the oncoming crisis with a sense of determination, sacrifice and patriotism to rise again like the Phoenix. The treatment of Canadian H1B visa holders makes me suspect that the sons of the soil theory is taking roots, slowly but surely.

It all depends on what type of statesmanship leads them during this period.

Let us wait for the views of KRS and Nara.

 

[RVR]

Dear Shri Kunjuppu,

Thank you. In today's Hindu paper there is an article:

The Hindu : Opinion / Editorial : Structural change and inequality

The importance of a thriving mfg. sector may be seen from that article.

Though China has criticised the $600 bn. plan of the US, MMS has been, I would say, non-committal and leaving enough room for suitably modifying India's reaction at a later date, if necessary. For Canada, as an exporter, it may be necessary to devalue its currency in tune with USD, or cut costs drastically to achieve price competitiveness. In China the latter course will be not very difficult, especially in their special Economic Zones, which are like large prisons from which no one can re-enter the Chinese mainland unless he/she produces the stipulated minimum foreign currency plus the bribe for the officials at the checkposts, I understand. Hence, wages can be reduced overnight and still the industries will run. It is pure slave labour. India may be somewhat successful especially in the unorganised sector. What will happen to the IT sector is the big question mark.

I think the Americans will (can be expected to) behave in one of two ways. One, they may feel that they are being cheated by "others" and build the American version of the "sons of the soil" theory which is powerful in most parts of India, or, the second, they will band themselves together and face the oncoming crisis with a sense of determination, sacrifice and patriotism to rise again like the Phoenix. The treatment of Canadian H1B visa holders makes me suspect that the sons of the soil theory is taking roots, slowly but surely.

It all depends on what type of statesmanship leads them during this period.

Let us wait for the views of KRS and Nara.

Sri Sangom sir,

So far the entire western world has been preaching free market philosophy but suddenly they are at the receiving end of the same free market philosophy. Except Germany which is still a real free market even today, almost all the western world is bringing controls either directly or indirectly through back doors. Raising Visa fee for Indian software professionals by USA is one such thing. I am sure western world will bring environmental issues in the manufacturing practices in India and other countries in the future. When Union Carbide killed several people in Bhopal, these issues were sidelined.All these things are mainly with a single objective of stopping imports to their countries.

According to S Gurumurthi, an eminent columnist, India was the richest country on earth from the first century AD to 15th Century AD. It slipped to second position in 16th and 17th Centuries behind China and slipped further subsequently during British rule. Some people here may term him as RSS ideologist but he is producing facts of the history. He is confident that with proper economic policies, we may get back to the top position during this century.

We have a strong regulator of banking system in Reserve Bank of India. SEBI is definitely regulating the stock markets much better. Insurance Regulatory Authority is also doing a wonderful job. With such a financial discipline along with almost double digit GDP growth, India can manage its affairs on its own without the support of any foreign country.

All the best

 

[sangom]

Sri Sangom sir,

So far the entire western world has been preaching free market philosophy but suddenly they are at the receiving end of the same free market philosophy. Except Germany which is still a real free market even today, almost all the western world is bringing controls either directly or indirectly through back doors. Raising Visa fee for Indian software professionals by USA is one such thing. I am sure western world will bring environmental issues in the manufacturing practices in India and other countries in the future. When Union Carbide killed several people in Bhopal, these issues were sidelined.All these things are mainly with a single objective of stopping imports to their countries.

Dear Shri RVR,

I agree.

According to S Gurumurthi, an eminent columnist, India was the richest country on earth from the first century AD to 15th Century AD. It slipped to second position in 16th and 17th Centuries behind China and slipped further subsequently during British rule. Some people here may term him as RSS ideologist but he is producing facts of the history. He is confident that with proper economic policies, we may get back to the top position during this century.

This topic/issue was discussed sometime back in a thread. The India of the first or 15th.century A.D. was very much larger than today's India. Whether Gurumurthy's calculations allow for this change in area is not known to me. Secondly, even now India's gold stock (household holdings) was reported a few days back to be of the order of Rs. 50 lakh crores of rupees or so. This is one-third of what is involved in the spectrum scam. We have already noted that. So, I am not at all sanguine about Gurumurthy's confidence about India getting back its premier position; may be if the British had continued they would have taken away much less than one Raja during all these 60 years!!

We have a strong regulator of banking system in Reserve Bank of India. SEBI is definitely regulating the stock markets much better. Insurance Regulatory Authority is also doing a wonderful job. With such a financial discipline along with almost double digit GDP growth, India can manage its affairs on its own without the support of any foreign country.

In my opinion, none of the regulators are independent or strong. Luckily, MMS changed Chidambaram from finance portfolio; otherwise we would have had another monumental scam and all the PF balances would have evaporated into thin air in no time. Most of these regulators are those who lock the stables after the horse has flood. Of course they make a lot of brouhaha when they lock but always ensure to keep a side door open for the next horse to flee!! After all, if everything is foolproof the regulator loses his importance, is it not?

I differ from your assessment that "India can manage its affairs on its own without the support of any foreign country". You have not said which all types of support. So I take it that you include all. Take your own unit for example. Will it be possible to find internal demand for the entire production? Can you switch over to item/s which have good market within India? Will you be able to continue without machinery, raw materials, designs, etc., from the foreign countries? Just consider these aspects and let us know how you think your hope will be fulfilled?

 

[RVR]

Sri Sangom said

I differ from your assessment that "India can manage its affairs on its own without the support of any foreign country". You have not said which all types of support. So I take it that you include all. Take your own unit for example. Will it be possible to find internal demand for the entire production? Can you switch over to item/s which have good market within India? Will you be able to continue without machinery, raw materials, designs, etc., from the foreign countries? Just consider these aspects and let us know how you think your hope will be fulfilled?

We have an inhouse Research and Development Centre which is recognised by Ministry of Science and Technology. We have few global patents in countries like USA, European Union and India. We don't depend for technology from abroad.

Our production unit supplies components as per the design of the customers. Some of our customers are multinational companies.

We are unable to satisfy the local demand right now. But things may change in future and we may go for exports also.

Major raw materials are procured locally except one or two critical items. As a country we may have to look for foreign sources for some critical components but majority is procured locally only.

Machineries off course we have to go for global sources only. Indian machineries definitely lack technology, productivity and quality. Here also we procure only once and we are able to duplicate locally.

I am not saying that we can live in isolation but we can definitely achieve maximum self sufficiency in several fields. Definitely imports and exports will be there but as a country, we are working mostly towards self sufficiency. For example, we have designs, production & erection capabilities up to 250 MW nuclear plants and we are highly cost competitive. We have started exporting up to 250 MW plants and depend on other countries for imports beyond the above capacity. Now we are global hub for small car production but we are importing bigger cars still.

All the best