|»5 Minute Wrap Up by Equitymaster|
On This Day - 30 OCTOBER 2010
Biggest fraud in history of mankind
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Will it work this time around? Certainly not, believe most financial gurus. They argue that this would just be another in the long list of wrong actions that the US Central Bank has taken so far to come out of the crisis. And perhaps the most trenchant critic so far has turned out to be Bill Gross, the MD of world's largest bond house PIMCO.
Writing in his most recent monthly investment outlook, Gross observes that the outcome of QEII is by no means certain. He argues that even if the size of QEII runs into trillions of dollars, it may not stimulate borrowing or lending because consumer demand is just not there. Thus, QEII as per Gross, would amount to nothing but a giant Ponzi scheme and of the size that has never seen before.
Even we tend to agree with Mr Gross. We are of the opinion that the problem of excess debt cannot be solved with more debt. Instead, what is needed is long period of deleveraging where the excess debt is paid off and the economy grows at a far lower rate than before. Any attempts at injecting more money, like the US Fed is trying to do, will only prolong the problem and set itself up for an even bigger crisis in the future. In other words, the US Fed is doing nothing but perpetrating perhaps the biggest fraud in the history of mankind.
Indeed, creating more jobs or sustaining current ones is the top most priority for the world's most powerful nation. And it is hoping that India would make some contribution towards the same. Deals close to US$ 10 bn are lined up and if at all they come to fruition, around one lakh US jobs would be created or saved. India too would be hoping that it does not end up being a one way street. And it will certainly bargain hard. We may have to wait to see how much of a two way street this entire affair turns out to be.
Nearly Rs 720 bn, or 40% of the total applications for the qualified institutional buyers' (QIB) quota in the issue, have come through the PN route. What makes PNs attractive to foreign investors is that their identity is protected. Many take the PN route when they are otherwise disqualified by the SEBI for not being compliant with the relevant norms. SEBI in recent times has pretty much been proactive in upping the transparency of the stockmarkets and protecting the rights of minority shareholders. Whether it can introduce some reforms when it comes to PNs remains to be seen though.
This will considerably strain the fiscal condition if the spending is not matched with adequate earnings. The Government has proposed a change in tax structure to increase the revenues from taxation. However, it is not likely to come online this year. We hope that the Government comes up with a plan soon else it may have to defer the food security plan, which will be a loss. On the other hand, if it does go ahead with the plan and strains the fiscal position, that would be bad too.
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