|»5 Minute Wrap Up by Equitymaster|
On This Day - 15 JULY 2010
World's safest asset could be worthless in few years
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However, is the famed US Government bond going to be equally safe in the future? Clearly not if the noted economist and investor Marc Faber is to be believed. In fact, as per Faber, the value of the US bond would be nothing more than worthless pieces of paper going forward. This is thanks to the enormous amount of debt the US has piled on. Faber believes that the US Government will have to run a giant Ponzi scheme just to be even on its interest payments. In other words, it will have to keep issuing new bonds so that the money raised could be used to pay its ever rising interest expenses.
The repayment of debt is just impossible as per Faber. And this scheme would come to end the day new bond issuances will not be able to match interest payments. Then, the US Government will be left with no other option but to print money thus significantly raising the risk of a hyperinflation like situation. While the reality may not turn out as grim as Faber has predicted, the US is indeed staring at a problem the magnitude of which is unheard of. The safest asset in the world may not be that safe after all.
The finalization of the symbol will now put India in a select group of countries that have unique currency symbols. But how important will it be for the status of the currency carries in the global financial market remains doubtful. For that to happen, the Indian economy and government finances need to grow a lot stronger!
The NHAI in response has said that the study does not take into account various projects that give NHAI a return. Apart from this, it has been quick to point out to the fact that funding for the body is a Union government responsibility. Thus, if any such scenario were to develop, the government would have to take care of its funding needs. For now, the war of words continues between the PC and NHAI. Our only apprehension is that if this confusion is not sorted out soon, it will be the citizens of India that will lose out in the process, not anyone else.
Indeed, Chennai can set an exemplary example for other cities in India. This can then go a long way in attracting that much needed long term foreign capital that will take India to the next level of growth.
The SEBI's dictate to stop commissions paid to distributors has also been a spoilsport. At the same time investors wary of expensive valuations are redeeming their units at regular intervals. This has created liquidity crunch in an industry that had got used to amassing billions in every new offering. The fund sponsored foreign trips for distributors and agents will also, alas, not have any takers!
Note: You can now learn more about derivatives on Equitymaster! That's right! We now offer you both views and tutorials on derivatives. This is yet another effort to empower you with credible information and views, dear reader. We hope you will make the most of it!
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