The Gold Standard | Too early and too late

Dr. Roubini might be correct eventually but he is too early with his bullishness for the long-term on Indonesia and too late to be correct cyclically. See here.

Have enjoyed reading James Kynge’ China Shakes the World. One of the best books that give an insight into what a very perceptive observer recently told a gathering in Singapore that the civilisational goal of China was power. I have also had the good fortune of speaking together with James on a couple of Julius Baer forums when  I was employed by JB. I can justifiably claim that I introduced James to JB. Now, I do not have the privilege of reading his FT China Confidential Reports.

His comment in a column in FT on China’s fragile finances has not come a day too soon. In the last two years, James had mostly struck a tone of restrained optimism on China although he acknowledged concerns of Fitch about medium-term financial and economic health of China. In this piece, he signals his concerns more loudly than I had heard him do so in the last year+:

… the pertinent question today is not whether China can once again guide the global economy away from the rocks but whether Beijing retains decisive control over its own economic levers [See here]

When an optimist turns cautious or pessimistic and vice-versa, he/she deserves to be taken more seriously than before.

I have not read this report but I can say that I love it already for its contrarian posture. GEMs companies are not the saviours for stock investors just as China is not for the global economy. It would be nice to get hold of this report.

FT’s ‘Beyond Brics’ links to this ‘Economic Times’ (India) editorial on food price inflation. The edit observes that it is a political problem. Nothing wrong with the diagnosis at a superficial level. But, I think R. Jagannathan  (via BeyondBrics) hits the nail on the head. He calls India’s inflation, ‘Rahul-flation’. See here. The original is here. It is well written. I am yet to read the Urjit Patel co-authored piece (referred to in RJ’ piece) on India’s inflation although he was kind enough to send it to me.

In this piece, RJ draws attention to Prof. Kaushik Basu’s cute suggestion that RBI should be cutting rates to reduce the cost of capital. Turkey tried doing that. Late last year or early in 2011, the Central Bank in Turkey cut rates and raised reserve requirements. They wanted to preserve currency competitiveness by making it less attractive to hold the Lira. So, they cut rates. In the summer as global risk aversion rose, they got more than what they wanted. The currency crashed. Now, the central bank has pushed up interbank rates in Turkey to more than 12%.

Western policymakers’ experiments are making life devilishly complicated for emerging economies. They do not have the room to manoevure.  They have to choose make choices and trade-offs. High growth and low inflation combination is no longer available to them.

This is not to be critical of what they tried. Experiments are needed and must be tried. But, they had to abandon it. Now is not the time for India to try these experiments. As RJ writes in his more recent piece, if the price of dealing with bad politics is sharply lower growth, so be it.

My only question for the Congress Party in India is why would you reduce India to an economic graveyard and then want to preside over it?