[SmartCat]

Originally Posted by ashokrajagopal

Quoting from a recent news article on commodity prices. Copper is a good indicator of mfg activity. Copper vs crude correlation is like below. There's also a nice correlation between US 10 year Treasuries and copper prices in the link above.

Commodity markets have always been a better indicator of global economic health than the stock or bond markets. That's because central banks and governments can mess around with the stock market and manipulate prices (in the short term). But it is tough for American or European or Japanese govt/central bank to artificially influence copper or crude prices.

Many people believe that low commodity prices (especially crude) is good for India. It is most definitely not! Because low commodity prices (esp crude) means global economic distress. So yeah, India saves on the import bill. But exports will fall dramatically too.

[Samurai]

Originally Posted by V.Narayan

^^^^^^
Samurai, Ashok, Please could you explain this in layman's terms and what if anything does it mean for the Indian economy. Thanks in advance for your trouble.

What we are doing here is conjecture. This is the greatest black swan event in a globalized world. We may need a Markov chain prediction model to assign a probability to each possibility. Even I wouldn't put any money on what I am saying.

Originally Posted by ashokrajagopal

Lets first put a pin on GDP -- because GDP is a specific kind of accounting activity, which may or may not correlate with excess money supply in a given period of time, because it does not necessarily account for excess money that is spent to buy overvalued stuff.

Agreed, I said GDP by habit. Right now it is all crazy. Essentials are in very high demand, and non-essentials have no takers. Since everyone has cut their budgets, vendors are desperate for sales and are dropping prices drastically. Since this is a worldwide phenomena, I wonder who has the model to predict the drop in GDP under such a scenario, and would it mean anything.

Originally Posted by ashokrajagopal

I wholeheartedly agree, this is not a normal scenario. But the last few decades' history can rhyme again with minor variances. And I also assume no major changes in geo politics. Anything can happen if those kind of changes occur, but its not very realistic to expect a revolution now.

I think this is where we diverge. The greatest event that shook the world in the last 100 years, was world war II. It literally changed the world order, making USA the leader of the world, while dethroning UK. The end of WWII also marked the switch from British pound to US dollar as the premium reserve currency. That happened because USA built the greatest manufacturing base during the war when everyone else was losing their industries.

I was expecting that WW-III may happen in my life time. I didn't expect it will be against a virus. Now the whole world is fighting against a virus, it is literally WW-III, and USA is the worst hit country. Globalization and resulting inter-dependency is crippling everyone right now. Unless a vaccine is invented and deployed fast, we may be looking at a change in world order, at least economically. It doesn't help that US is now led by a most unfit president for the task. Economically powerful countries who have managed to keep a tight leash on COVID-19, will be able to emerge out of the crisis lot stronger.

Originally Posted by ashokrajagopal

The government is going to strictly enforce policies that control price increase (as has been happening for a long time now). Whatever it takes to keep the retail prices low for goods are going to be done. Services may zigzag for a while, but they are also going to continue into a low inflation mode.

Which government are you referring to? The US government? They love free market, and they are not willing to control even Coronavirus treatment cost.

Originally Posted by ashokrajagopal

What seems as Amazon winning the market is actually an effect of the following all happening at the same time
a) salaries and wages not increasing.
b) social security decreasing
c) people generally very concerned about prices
d) people automatically choose cheaper goods
e) volume players with low margin gain more market

You are explaining what Walmart and Amazon already did in the last 20 years. But this was enabled by massive globalization, the very thing that is crippled by Coronavirus. Haven't you noticed that none of the online stores are working these days, their supply chain is totally broken. Only the services that depend on local vendors (like Swiggy) are able to function these days.

Originally Posted by ashokrajagopal

So, what role does USD play in a scenario like above ? USD is the global safe asset.

Only since WW-II. Dr.Fauci is predicting that USA will see close to 2 lakh deaths, that is more than they lost in WW-II. Under the leadership of a leader like FDR, may be they can navigate these dangerous times and retain their leadership status. But they have Trump, who doesn't imbibe any confidence.

Unless we get a grip on this virus and return to normal life in another 3 months, I suspect we will see changes in economics and politics much beyond our imagination.

[ashokrajagopal]

Originally Posted by SmartCat

Commodity markets have always been a better indicator of global economic health than the stock or bond markets. That's because central banks and governments can mess around with the stock market and manipulate prices (in the short term). But it is tough for American or European or Japanese govt/central bank to artificially influence copper or crude prices.

Many people believe that low commodity prices (especially crude) is good for India. It is most definitely not! Because low commodity prices (esp crude) means global economic distress. So yeah, India saves on the import bill. But exports will fall dramatically too.

But a certain metal most often gets manipulated by actions of the central banks and general behavior of the markets.
Here is another interesting graph, ratio of Copper to Gold price.
Clearly it has dipped to 2008 levels.
But take a look at the graph pre 2008, just before the crisis year. And see how it never reached anywhere near in the last decade. Gold is practically a useless metal other than as a store of wealth. This is a ratio graph, so irrespective of demand for Copper and Mfg activity, demand for gold was many times more.
I am pretty sure the run on Gold time and again is clear indication that there is excess money chasing assets.

Source: Twitter

Originally Posted by ashokrajagopal

Source: Twitter

Graph below, some technical issue

[ashokrajagopal]

Originally Posted by Samurai

I think this is where we diverge. The greatest event that shook the world in the last 100 years, was world war II. It literally changed the world order, making USA the leader of the world, while dethroning UK. The end of WWII also marked the switch from British pound to US dollar as the premium reserve currency. That happened because USA built the greatest manufacturing base during the war when everyone else was losing their industries.

I was expecting that WW-III may happen in my life time. I didn't expect it will be against a virus. Now the whole world is fighting against a virus, it is literally WW-III, and USA is the worst hit country. Globalization and resulting inter-dependency is crippling everyone right now. Unless a vaccine is invented and deployed fast, we may be looking at a change in world order, at least economically. It doesn't help that US is now led by a most unfit president for the task. Economically powerful countries who have managed to keep a tight leash on COVID-19, will be able to emerge out of the crisis lot stronger.

Certainly WW II shaped most of the world and how humans live ever since it happened. No questions on that.
Finance switched from a golden straitjacket standard to USD as reserve currency based on Bretton woods agreement after that. USA also ran a surplus recycling regime-world finance regime has been running for quite some time now, and there is no pole to oppose this. There are plenty of reasons for this, but the global safe asset status and control indeed is the number one thing.
Its in the interest of almost all rich people around the world, to hold the USD stable now. For that reason, I do not see how this hegemony can even start to get affected.

Originally Posted by Samurai

Which government are you referring to? The US government? They love free market, and they are not willing to control even Coronavirus treatment cost.

Yeah, but the freemarket always go to one direction only for the prices, right? If a population is demanding more wages, or costlier environmental standards, you find another place to build it where these things do not exist. Typically, one can never exhaust the global workforce right ? The financial hegemony is enough to provide access to new centres to build stuff cheaply.

You are explaining what Walmart and Amazon already did in the last 20 years. But this was enabled by massive globalization, the very thing that is crippled by Coronavirus. Haven't you noticed that none of the online stores are working these days, their supply chain is totally broken. Only the services that depend on local vendors (like Swiggy) are able to function these days.

No, think about the other global winner, Uber. There is really no globalization there, other than possibly moving the profits around. Massive globalization certainly helped build this in the beginning, but it is only the means, not the end in itself right?
Yes, the supply chains are crippled for now, but once a few weeks pass, the whole world has to bring this back up at least for the essential stuff. There may be some paradigm changes in "HOW", but I am pretty sure the "WHO" is going to remain the same.
For example, think of India now, as govt puts up plan to allow complete online operation of groceries. Lets say Amazon pantry and Big basket are going to compete. Who do you think will win ?

Only since WW-II. Dr.Fauci is predicting that USA will see close to 2 lakh deaths, that is more than they lost in WW-II. Under the leadership of a leader like FDR, may be they can navigate these dangerous times and retain their leadership status. But they have Trump, who doesn't imbibe any confidence.

Unless we get a grip on this virus and return to normal life in another 3 months, I suspect we will see changes in economics and politics much beyond our imagination.

I have no doubt this is the most remarkable incident in my lifetime globally and I do not doubt that it will change a whole lot of realities everywhere. But, in my opinion it is going to go the following way. I mean, if I was a ruling elite in US or any other ally on the West, this would be my plan

• wade 3-4 months with bailouts and salary assistance etc while massively skewing the market to incentivize production for the West. Use the financial hegemony to that effect. Of course, account money as much as required.
• expect a maintenace medicine and protocol to fight the disease like the antiviral set, and channel effort to that.
• ensure markets stay up and keep pumping money to keep them intact or limit the damage.
• open up the country step by step and influence doing it globally. Say, businesses like Restaurants, Cinemas and Salons remain shut, but factories, farms and kitchens open and start functioning.
• wade a year or so in this condition, supporting a percentage of the population, and channeling medical supplies and global finance to own people's advantage.

If they can manage to do this until we have a vaccine or cure without a political revolution from within, thats all that US needs to maintain the hegemony going forward.
All countries would be planning to do this. But, due to the way the world is wired right now, US businesses and capital flow controls most of the world's markets. Countries like China can try to form regional alliances, but they have been trying that for some years from 2017 climate change summit onwards right ?
And this crisis, has China written all over it to turn popular perception against it, so I doubt there is a way a regional alliance can change much in the world.

Two reasons why I think there is no possibility of political revolutionary changes from bottom up
a) The antidote for this crisis is social distancing. There are not many ways people can forge new solidarity from that environment.
b) As Slavoj Zizek said, yes, we can have a revolution, but what happens on the day after ? 2019 is ample proof for this with protests around the world to no coherent follow up effect.

There are very important marked differences from the mid 20th century to now, that points to not having large scale political shifts now.

1. There is a middle class now in many countries unlike the large poor population and the rich few of that era. The middle class is of varied proportions in different places, but it is in middle class's interest not to have a large scale political change.
2. There is a globalized citizen who is not really rooted anywhere and is quite mobile. This is a major side effect of the neo liberal era, where every person is just an individual, not really committed to any place. We have ample examples of this in this country.

In many cases, people are both the above. As long as status quo is okay for a large class of people, no major changes happen.


Does that mean globalization is going to continue like before ? Absolutely not, and I expect it to go really really bad for the global south. There is a special type of globalized supply chain followed by clothing giants, lets say Ralph Lauren.

• The designers and marketers arrange a conference in say Singapore or Dubai
• The contractors from different countries and vendors attend.
• Contracts are awarded all around. Buttons to a Chinese company, threads to an Indian company, label to a Vietnamese company, and the stiching happens in Bangladesh.
• In 3 months, Spring collection is ready.
• By the 5th month Spring collection is sold out.

40% of the price goes to Ralph Lauren. 15% of the price goes to the transportation and logistics. 10% for the material cost and the rest is shared between all the vendors across South Asia.

The above is illustration of how it happens as of today for many industries. It takes about a week for RL to switch the contract from India to Vietnam and get the supply chain reset. Which means there is really no bargaining power for individual vendors. So, they are forced to squeeze the workers further.
Obviously for the system to work, you need some enablers in individual countries and they have to be paid very well by the system.

For any item, I mean any important item that needs to be manufactured in the post Corona world, what would stop the US and the rest of the West from executing the above plan of action ?

The plan obviously would be to be a country of Designers (US and Allies) "providing" capital and work to a list of vendors(south Asia for example) who compete against each other. Being a country of designers is not easy, and that would be the only change that the Right and Left in the West will have to work on. You can already see this at play in the way Right vs Left is playing out in the West as of now, right ? The xenophobia and anti immigrant politics point in this direction.
So, technically, there will be less migration for good jobs out of countries like India, but more of low end work coming to countries like India, Bangladesh and Vietnam.


Edit: Just as I finished writing the above, read this news
https://finance.yahoo.com/news/feder...123005282.html

This is a new method. If a central bank holds US Treasuries, no need to sell them in open market, just draw on this line to get dollars for a small punitive charge.
So, theoretically, now the US Treasuries will never reach an open market dumping stage (by any other central bank) at all for want of dollars ever in the near future.
No country that avails this facility will need to sell treasury bonds in open market because the US fed will give it them on a fixed rate.

[Jeroen]

Social Security is a great concept in theory. The problem is in practice, all it really does is encourage laziness

Originally Posted by AZT

This is a grossly incorrect and simplistic understanding of social security..

Absolutely, thanks for pointing that out.

Obviously social security system come in many shapes and forms.

But let’s have look at the countries that have extensive social security system. Yes, there are always going to be some that will try to abuse the system. But the vast majority of people on benefits is trying hard to get out of it. That is what the numbers show as well. The vast majority of people make use of it for a limited period of time. E.g. they apply for unemployment benefits and will find another job, they are on medical benefits and return to their jobs after a while.

Exactly as the system was intended. In fact there is lots of research that shows exactly this. Most people on benefits are very eager to get out of it again. They are extremely motivated to get back on their own feet and become financially self sufficient again.

Many of the social security system in the west provide a limited amount of financial support and it always a downward scale. The longer you are in it, the less you are likely to get. No matter what, going from a job to no job, usually means an immediate drop in disposable income no matter what. Similar with Medical type of system. On prolonged medical leave in most cases your disposable income will start coming down.

Throughout my career I have been made redundant twice and ended up on benefits for several months until I found a new job. I have been on medical leave for over 9 months. The various social benefits ensured I could concentrate on finding a new job, re-skill myself, get my health back etc, rather than to have to worry about paying the mortgage, the groceries or the school fees for the kids.

yes, the downside is high taxes/social security premium. But the system works for everybody in our society. You are lucky if you never have to make use of it. But there is no shame in having to fall back on it. And most will do anything to get back on their own feet asap. And the system supports them.

Our systems are geared to get you back into a job, one way or the other. So once you find yourself on the dole, on medical leave there are all kinds of support, facilities to help you out. Help you train for a different job, help you get interviews, help and support you how to live with perhaps medical impairments/restrictions etc.

Of course, how the system is set up is very important and will also determine on how effective it is. There are huge differences around the world. Even so, very few people are on benefits by choice. They usually end on benefits because they ran out of options. What you do when individuals when they run out of options, is something every society needs to decide for themselves. The social security system in for instance, Sweden, Denmark, the Netherlands, Germany are not ideal. But the do by and large what they were intended for. Support people who, for whatever reason, can not provide their own income and help them get back on their feet.

There are also cases for whom there are no immediate solutions. A mother divorced, with four small children, recently divorced, might find it very difficult to find a suitable job. Good for her, that her immediate financial worries are taken care off and that she can continue to look after the upbringing of her kids. I would not call her lazy.

One of my sons is autistic. He is likely to be on some form of benefits for all of his life. I am extremely grateful to be living in the Netherlands where such individuals, no fault of their own, are look after by society at large. As parents we continue to support obviously, and worry obviously, but at least we know that financially he is taken care of.

So I don’t see much laziness in this social security set up. What I do see is a lot of highly biased, almost bigotry, type of comments, where the examples, literally the few rotten apples in the system, get extrapolated to what is the norm and subsequently spewed out across media and the internet.


As with any topic, you need to explore it in-depth before passing judgement. Bullet like statements without showing knowledge, experience and insight is the absolute worst kind of laziness I see these days.

Jeroen

[Zed]

Originally Posted by pganapathy

I have seen this in our coffee estate. Labour get rice at 1 or 2 rupees a kg, oil, kerosene and certain other essentials. Therefore, most of them choose to work only about 3 days a week because they don't need to work anymore than that with the cheap food they receive.

Perhaps this is their idea of work-life balance. Back-breaking work for 3-4 days a week (I assume a day in the life of a coffee plantation worker isn't a breeze) and leisure, rest, whatever for the rest of the days.
Or would you prefer that essential commodities were made more expensive (minus subsidies) to force them to work longer to be able to afford essentials?

Work life balance ought to be a consideration for all levels of society. I guess I am completely off topic now so will conclude by saying this. I really hope airlines can find a way to tide over the present crisis. And if they are in the red primarily on account of the crisis, there should be a basic level of support extended by governments in helping them to get back on their feet. With mechanisms in place to ensure that bail outs go back into operations and efforts to keep jobs at the working levels and not paycheques and bonuses for higher ups.

[Samurai]

I moved some of the OT posts to here, where it belongs.

Originally Posted by Jeroen

One of my sons is autistic. He is likely to be on some form of benefits for all of his life. I am extremely grateful to be living in the Netherlands where such individuals, no fault of their own, are look after by society at large. As parents we continue to support obviously, and worry obviously, but at least we know that financially he is taken care of.

Brilliant post. This one touches me personally. I didn't realise you too have an autistic son. My younger son (13) is autistic and is under therapy since 11 years. Of course, Indian government offers no help. The parents have to deal with burden of therapy and future care after they get too old to take care. We don't even get a tax break on the huge therapy cost. I have seen cases of parents committing suicide, broken marriages, even abandonment of kids.

Yes, Indian society is quite cruel to folks dealing with medical problems, poverty, etc. And I don't expect any changes in my lifetime. I just have to put enough money in a trust and hope he will be taken care by that trust.

[pganapathy]

Originally Posted by Samurai

Brilliant post. This one touches me personally. I didn't realise you too have an autistic son. My younger son (13) is autistic and is under therapy since 11 years. Of course, Indian government offers no help. The parents have to deal with burden of therapy and future care after they get too old to take care.
I just have to put enough money in a trust and hope he will be taken care by that trust.

I understand entirely where you are coming from. I have two nephews (only two brothers at home) who are mentally challenged and know the struggle their parents are going through. It isn't easy because parents will eventually have to rely on somebody else to look after them when they are no longer able to. Money is the easy-ish part of this. Finding somebody who will be willing to look after them like your parents do is very hard. My sympathies

[sunilch]

Originally Posted by Samurai

I moved some of the OT posts to here, where it belongs.

Brilliant post. This one touches me personally. I didn't realise you too have an autistic son. My younger son (13) is autistic and is under therapy since 11 years. Of course, Indian government offers no help. The parents have to deal with burden of therapy and future care after they get too old to take care. We don't even get a tax break on the huge therapy cost. I have seen cases of parents committing suicide, broken marriages, even abandonment of kids.

Yes, Indian society is quite cruel to folks dealing with medical problems, poverty, etc. And I don't expect any changes in my lifetime. I just have to put enough money in a trust and hope he will be taken care by that trust.

I am not sure if ASD is covered under them but sections 80DDB and 80DD do provide tax rebates if you are supporting someone who has one of the few defined conditions.

[SmartCat]

Originally Posted by Samurai

Yes, Indian society is quite cruel to folks dealing with medical problems, poverty, etc. And I don't expect any changes in my lifetime. I just have to put enough money in a trust and hope he will be taken care by that trust.

My 25 year old cousin is autistic. Their parents have decided to come back to India from USA after staying there for over 25 years. Reason for coming back is likelihood of stronger extended family support to my cousin.

In India, how does one go about setting up a trust to support an autistic individual? Who will be the trustees? Is this service offered by "wealth management" type companies who will manage the finances?

[Samurai]

Originally Posted by sunilch

I am not sure if ASD is covered under them but sections 80DDB and 80DD do provide tax rebates if you are supporting someone who has one of the few defined conditions.

It is only covered under 80DD, and tax deduction is limited to 75K only since he won't qualify for 80% disability. That amount is pittance. I maintain two homes because of the therapy, and therapy itself costs 34000/month. So I have not bothered to get certification to qualify.

Originally Posted by SmartCat

In India, how does one go about setting up a trust to support an autistic individual? Who will be the trustees? Is this service offered by "wealth management" type companies who will manage the finances?

Oh no, not that kind of people. It has to be NGOs who are involved in autism care and treatment. Some parents are getting together to start a gated community. It is a long term project. Haven't checked on it recently.

[AZT]

Originally Posted by Samurai

The parents have to deal with burden of therapy and future care after they get too old to take care. We don't even get a tax break on the huge therapy cost. I have seen cases of parents committing suicide, broken marriages, even abandonment of kids.

Yes, Indian society is quite cruel to folks dealing with medical problems, poverty, etc. And I don't expect any changes in my lifetime. I just have to put enough money in a trust and hope he will be taken care by that trust.

Off topic but this curfew has put renewed focus on mental health in general. I think going forward this will be taken a lot more seriously.

[Samurai]

Those who think life will return to normalcy after a few months, check out this article. Frankly, I don't know how economy will look after a few months, I simply don't have the data points to draw a line.

Originally Posted by Romins

A thought provoking article on the economy and its future:

Will coronavirus signal the end of capitalism?

"The peasants' revolt after the 14th-century plague saw off feudalism. After COVID-19, will it be the turn of capitalism?

[ashokrajagopal]

China

Its that season when China is in the news and people are speculating a lot about a lot of whys and hows.

There is a lot to write about, if one has to write about China, but I will just point to some quick perspectives about how people do not understand the size of China in the world economics now. No, economic theories, you only need to see some of the events in perspective to understand what China is, to global capital.

The general perception is that the West is developed and civilized in a more democratic and liberal way in almost all parameters of government and culture; and that human rights are valued more -- and I agree 100%. But the way money flows is not really in that direction and in some ways exactly the opposite direction.

Just think of two incidents
-- Foxconn labor suicides: I guess everybody knows this news, if not, please google. Labor conditions were prompting suicides and many leading companies of the world were caught in the loop of being contractors.
What did the companies in question do? They cleaned up their supply chain by moving across boundaries and companies in the next two years.
-- US China trade war from 2018 -- Everybody knows this and the timelines too. And we know it was prompted by something on the lines of Intellectual property theft and technology hegemony. Unusual President alright, but the moment IP and future loss of revenue hit the US, they even moved this to a mild supply shock and involved high end diplomatic pressures. This whole event kept the world commerce rocky for about a year with really no end game.

So, this is the way global capital behaves. It changes course only for loss of business for future, not really about humane effects.
When it comes to United states and China especially, presidents from Reagan to Obama all have their moments of weaknesses with China. Remember Clinton even attended a guard of honor from Tiannemen Square just a few years after calling China butchers during his campaign.

China provides the following
a) Dirt cheap manufacturing -- everybody knows this
b) Massive market -- people do not think about this usually. I am not aware of the latest, but in 2018, China was the largest market for iPhones based on new sales. Check out how much "Avengers - End game" made from China.

When people talk about countries moving manufacturing out of China, and to other places in India, they are forgetting the one most important thing -- let's say you manage to do that and India become a massively efficient manufacturer. Who is going to buy all that stuff ?

In other words, even if you manage to avoid 1/5th of the worlds labor supply (and the most efficient), you cannot afford to avoid 1/5th of the worlds consumer supply.

China interacts with the world as an exporter and a large scale development creditor( if I am not wrong, the largest infrastructure lender). For the last 3 decades, it has been running massive surpluses on all kinds of MFG sectors.

On the point of new tech, we know even with stolen (?) tech, they are at the forefront. On the point of Green tech, we know how much China is ahead of the rest of the world in terms of installed Solar capacity, manufacturing share and market size.

These are realities of today and tomorrow one cannot wish away.

[ashokrajagopal]

In a totally inexplicable move, (IMO), India opposes special drawing rights from IMF.
https://www.nytimes.com/reuters/2020...ank-india.html
India doesn't have a swap line yet.
A no conditions FX loan would have not hurt at all.

Any explanation ?