A Political Crisis

Nov 26, 2011

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Another week has gone by in which markets have fallen, risk aversion has increased, and the financial press is full of information about the Eurozone debt crisis. In the last few months, not a week has gone by in which the Eurozone debt crisis has not made headlines or had an impact on the financial markets. Most of the news has been about what Germany will do, what France will do, what the Greek or Italian government will do, and what the ECB will do.

In America, the debt crisis continues. In August, it started with a near default due to the Republicans and Democrats being unable to reach a comprehensive deal on cutting the deficit and raising the debt ceiling. More recently, a super-committee designed to find savings in the budget failed due to lack of agreement. There's no doubt we can expect further political wrangling leading to more debt problems. Have an enriching Saturday! ----------------------------------------

Can Europe find a solution to end the current economic crisis?

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In India, we have corruption, and lots of it. Politicians use unnecessary subsidies to buy votes. The 2G spectrum scandal cost the state 1.76 lakh crore rupees in lost revenue. The Congress led government is unable to put through many economic reforms due to its weakness in government. The list of corruption scandals is pretty long.

In general, when we are confronted with an economic problem, we try and think of an economic solution. For example, with the Eurozone debt crisis, the economic solution is simple. Indebted countries need to reduce their deficits in a sustainable manner such that they don't collapse, and lenders need to take losses on their debt holdings.

With the debt crisis in America, the solution is even simpler. They need to reduce their debts by reducing spending and raising taxes, and agree between themselves to not default or shut the government down. In the case of corruption in India, it is very simple what needs to be done. Elected officials and others need to follow the rules and be accountable for their actions.

Thus, the solutions to many of the problems facing countries and economies today are simple and straightforward. The biggest difficulty is implementation. Economic problems turn into a crisis due to lack of implementation of correct policies. We may know what needs to be done, but getting it done is a huge challenge.

Of course, implementation is not easy, especially given so many players involved and their competing interest. But that's the job of politicians. Their full time job is to sort these problems out, come to a compromise when needed, and act in the best interests of the country they represent. As always, this is easier said than done.

The crisis we face in the global economy today is a political crisis and not an economic one. The solution to the Eurozone debt crisis will be countries agreeing on a suitable path of action. The solution to the American debt crisis will be the two political parties agreeing to cooperate. And finally, the solution to the corruption in India must come from lawmakers themselves.

The fact that the global is political rather than economic is both a blessing and a curse. On the one hand, the solutions are simple and all that is needed is for people to agree. On the other hand, getting people to agree to collectively do the right thing is an extremely difficult task, one with the potential to have dire consequences.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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5 Responses to "A Political Crisis"

A.A.Choudhari

Nov 28, 2011

Dear Sir, Mr.Dossani has correctly stated that our weak Government is not in a position to boldly undertake reforms, crippled as it is, by not holding the majority and has to co-operate with the allies with amixed interests. To tide over this difficulty, we have to think otherwise. Soamany parties coming together to rule does not make any sense, neither quick decisions in all respocts. We should have two party's democratic rule at the centre. And there should be option for governance amongst them. (Of course, this we can do as voter). So also, whatever party might be ruling, there should a strict watch on the Ministers as to how he is handling the portfolio. With strict analysis of his capacity,for a reasonable period he should or should not continue as a Minister. Enough of pointing out fingers to others and put forth frivolous excuses. I dont know perhaps Anna Hazare might have incorporated these things in his strong Lok Pal Bill. To drive away corruption he needs to be supported by one and all. Congress has till now by sticking to power by hook or by crook, brought all such evils in the Indian polity. They are mainly responsible. People have to think seriously.

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C.M.PANICKER

Nov 27, 2011

Our political masters take financial decisions without considering the avaialbility of resources as they are able to have deficit financing.The remedy is to have effective supervising mechanism independent of the political establishment to put leash on spending - with a view to corner votes.All financial proposals likely to result in deficit finance should be cleared by such an authority within a specified time .

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Murthy

Nov 27, 2011

GOOD Analysis! Simple SOLUTION. But who will be willing to own responsibility and come forward to act upon at the cost of their POLITICAL CARRIER?

TRILLION DOLLAR QUESTION!

Pl. keep posting article of this sort should reach all levels.

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SUJIT BANERJEE

Nov 27, 2011

To Equity Master
Went through the article of Mr Dissani and posted my comment.Found it barred to go through. Failed to understan . I have not used any objectionable language. Any how what I and many understand Equity master and manymore financial & many other media house are of the nature " Wish to catch from water but without touching the water".
What Mr Dossani has said ,even a school going kid who reads news paper understand . The problems what he talked about in Indian perspective " Corruption" the kid also knows it . He has not talked about solution . What he talked about solution is : Need for People ( who are those people ?) agree ( what is that to agree ?- to forgo there mindset to LOOT the countries wealth ). And that is what not happening and so Anna Hazare is going on for Hunger Strike not once but Twice , still no solution . Then what ?
Bande Mataram
Sujit Banerjee will look forward for reply from Mr Dossani :

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sunil

Nov 27, 2011

What is stated here is not rocket science.The solutions are simple and known the world over.Yet no Politician will anywhere in the world attemt to solve the problem as everyone has s Constituency to look after and as long as it is possible to kick the can down to eternity it will be done hoping the problem gets sorted out on its, own which this time looks difficult.We will have to wait till interest rates start rising in USA which is no veru far off and then the GAME WILL END with disastrous consequences for the world and India in particular.

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