So folks I
am finally back on my blog, sorry for my apparent absence..here’s continuation to my previous post titled ‘How the money
works... part 1’.......
I think the
inequality in the world monetary system is quiet apparent. The system clearly
reflected the beginning of Capitalism at the world stage after the Second World
War. This further led to the cold war because the Russians did not want the
American dollar to rule the world. As we all know, they lost.
I am not against Capitalism or Communism. In this
case I take the middle view. Capitalism is
a good idea, excellent in fact, when put in an envelope called Democracy.
Democracy - that granted everyone equal rights and freedoms. There is no
democracy at the world stage. Countries are democracies but the world is not,
as the assigning of quotas shows.
Countries had to grant their citizens equal rights
....but with whatever quota they were given.
So equal
rights in US and Europe meant - Free Health care, Unemployment pay ( very
capitalistic !!), Free Education, Pension Plans , Big Mortgages, Social
Security. They had, they borrowed, and they had more.
And
equality in Africa meant- Maybe someday everyone will have water and
electricity and polio drops!! They couldn’t fulfil it, so they borrowed!!
But
things are not as hopeless as they may seem. Many Asian countries including
India and China were able to attain rapid growth, thanks to Education and
Infrastructure development.
The US consumer’s
total consumption per year is $ 9 trillion. China's consumers spend $ 1
trillion and Indians about $ 600 billion a year. This is mainly because
Chindians have a higher savings rate. ( Chindians is an accepted word in
Economics nomenclature for Chinese and Indians it’s just amalgamation of the
words ....)
The US
can print cash and they have to pay about 1 -1.5 % interest on their bonds and
countries like India have to pay 4 -5 %. So the US had access to a lot of
liquidity. Which in fact led to the whole credit-crunch and sub prime mess.
People
were given loans, who should not have been given loans. The lending rates were
so low ...that it was always assumed that the percentage rise in price of the
property would be much higher; hence the loan was always safe. The real estate
brokers sold homes to people with absolutely no documents. These loans were
called NINJA loans (No Income, No Job, Asset). The brokers made these loans
because they dint care if the loan would be paid back or not, they only had to
hold the risk of the loan for a few days, till it was "securitized".
Then these securities would rest with banks in their balance sheets. These
derivatives were so complex...I'm sure they were some highly complex y= f(x)
equation that mindle came up with when he was
interning at Lehman. Then they were "sliced" and "diced",
assigned arbitrary ratings by rating agencies and sold left and right. When the
prices fell and hit the fan, the ones who had created this crap were left
holding most of it themselves . A dozen or so HUGE corporations collapsed or
became "financial Institutions" that were deemed too big to fall, for
the sake of Mankind. This is a whole different topic of debate and there have
been many good articles on the subject.
I don't
know if the current credit crisis signals an opportunity for India and China
and other Emerging countries to play a larger economic or political role in the
world. But there certainly are signals from many countries that they want to
negotiate a new world monetary system. The world monetary system is always
changing...the introduction of Euro for example has given the governments of
the world an alternative to dollar reserves. I think the current crisis
certainly means that the role of the US will be diminished in the long term but
I don't know how effectively and quickly India can increase its importance in
the world stage.
I hope
Manmohan Singh is PM when/if the monetary system is
"renegotiated".
Anyway in
conclusion, I think the Entire concept of money is flawed. There is no point on
putting a cap on the wealth of the world and then dividing it
disproportionately. Yes, there is a cap on the total money because even though
the money supply is always increasing, inflation ensures that the value of
money is always eroding at a certain rate which keeps wealth constant and
people senselessly going about the Rat race. In fact a big part of
the slowdown in the US can be attributed to the higher number of educated
adults in Asia who are a cheap source of labour, both in the Services and the
Manufacturing Sector, as a consequence, the virtual collapse of the US Auto
Industry (both due to credit crunch and losing to low cost Asian rivals).
Almost
all manufacturing jobs (Factory Jobs) could be lost to technology and
automation (Robots) in 30-40 years, the technology will exist. Thanks to
excessive automation, Mankind has lost many jobs to computer programs. A
company's point of contact today is the Internet website and everything can be
done online. The only thing that motivates corporations is profit. The term
"Corporate Responsibility" is clearly a paradox. Excess food is
destroyed by producers to drive up food prices and hence profit. How can this
be allowed in a world where people die of hunger.
So my
point is ... The current monetary system will lead to a situation where many
human beings will lose their sources of Income and their lives, as
there will be less and less jobs because of Man vs. Technology. Right now we
are in the phase of Man vs Man, because it is one country over another trying
to divide wealth.
In this
scenario, it is the duty of the world leaders to define a minimum level of
equality for the whole world, for every person. In my opinion at least food,
clean water, electricity, primary education and basic health care must be
provided to everyone in the world. It is possible. But does Mankind have the
will and the Integrity to provide basic equality to everyone in the world?? Judging
from 2000 years of human history, I highly doubt it.
Folks at
least have some basic courtesy I have put in lot of effort to write this... I know
many people are reading my blog, I can see that from number of views...at least
write 1 line commenting how the post was.....it will hardly take 30 seconds...