Thursday, November 06, 2008

GLOBAL FINANCIAL CRISIS: ITS CAUSE AND CURE

American dollar is the principal cause of the present global financial crisis.

Since dollar also happens to be the preferred currency for world trade, it is the most sought-after commodity in the world – thus enabling America to earn huge profits by way of trade, commerce and investment.

Oil rich countries like Saudi Arabia have legal arrangements to invest their surplus profits in American bonds. Developing and even developed countries preferred to park their savings in American dollars as it was considered to be the safest currency in the world.

Thus a huge chunk of money found its way into American coffers like water flowing into the sea.

Americans did not have the need to live within their income. On the other hand, they invested their surplus money in building up a formidable armament industry, space and pharmaceutical research, real estate, automobile and civil aviation enterprises.

With their newly found wealth and invincible military power they dominated the United Nations and its organs, and created institutions like the World Bank and IMF which acted as the banker of the banks of the world.

All this happened because America believed in free market economy and allowed its entrepreneurs to do whatever they liked so long as they brought profits, dividends and capital gains into the American coffers. America became a superpower. They did not have to compete with anybody except themselves. This led them to become reckless, irresponsible and over-ambitious.

American banks lent money to people to buy over-inflated properties at ruinous rates of interest when they had no tangible source of income. When such insolvent homeowners could not pay their monthly instalments, the banks failed. And when banks would not lend money to each other, the whole financial system collapsed like a house of cards.

In the meantime, another event took place. Being saturated with their own markets in the West, America wanted to have access to the resources and markets of the developing countries of the world. This gave rise to concepts like globalization, intellectual property rights, and WTO and pollution control. They attempted to get control of the oil rich countries in the Middle East by promoting democracy, human rights and freedom of speech. Thus the whole world got enmeshed with American interests in one way or the other – leading to a ripple effect. Thus, when American economy collapsed, it had its repercussions in other parts of the world.

What is the cure?

Pumping more money into the financial system and lowering interest rates will only aggravate the situation and maintain the status quo.

The solution may be very simple. We need to have a neutral universal currency. All other currencies should be pegged to this currency so that no single country gets an undue advantage. There should be a universal bank with a board of governors representing some strong currencies of the world such as dollar, pound, euro, yen, Yuan, etc.

The universal bank should fix the rates of exchange of these currencies and these rates should hold good for at least six months or one year at a time. Money should be used only as a medium of exchange and not as a commodity to be sold or speculated upon.

I believe such a step will go a long way in stabilizing world economy.

Monday, October 06, 2008

INDO-US NUCLEAR DEAL – KYA KHOYA, KYA PAYA?

Now that the Indo-US Nuclear Deal has been concluded, it is high time that we examine what we have gained and what we have lost.

So far as the plus side is concerned, we shall be able to access nuclear reactors, fuel and technology from NSG countries. It had been denied to us for the last 34 years. We shall now be able to enhance our supply of nuclear energy in the years to come.

We can also have the good feeling of being considered a nuclear power next only to USA, Russia, France, UK and China.

So far as the minus side is concerned, we have given up our age-old policy of non-alignment and allied ourselves with USA. This means that we are now part of the Cold War between US and EU on one side and China and Russia on the other.

Since we have not signed the NPT but have agreed not to conduct nuclear tests for fear of losing our right to engage in nuclear commerce with NSG countries, we shall not be able to influence rest of the world with our nuclear power. In other words, we have reduced ourselves to the status of an Impotent Nuclear Power.

The United Nations is an imperfect organization. It is governed by the United Nations Security Council, which consists of the Five Nuclear Powers who have the right to veto any resolution passed by the United Nations General Assembly. The United Nations needs to be reformed or better still to be replaced by a more democratic and effective World Order. By subjecting ourselves to be inspected by the International Atomic Energy Agency, which is part of the United Nations, we have lost our moral right and capacity to reform the world organization or to replace it with a New World Order.

The cost of producing a unit of electricity through nuclear technology is more than the cost of producing electricity through traditional sources. If the rich countries of the world are sincere about alleviating poverty in developing countries of the world, it is logical that they should bear the burden of purchasing electricity at a higher cost rather than passing it on to the poorer countries. It will also help in reducing pollution in the most industrialized countries of the world.

Till now India and China were regarded as contenders for regional supremacy in the Asia-Pacific Region. With the signing of the Indo-US Nuclear Deal India has entered into strategic alliance with USA. Now the countries of Asia-Pacific Region will have to choose between China and USA for leadership. Most of the Muslim dominated countries of this region will find it difficult to side with USA on account of its war against terrorism. They would have loved to accept the leadership of India but would now go under Chinese influence. By aligning with USA India has lost the moral right to lead the countries of this region and denied them the chance of a third alternative.

The outcome of the Indo-US Deal can be compared with a glass being half-full or half-empty. Those countries or people who stand to gain through trade in nuclear reactors, raw material and technology will say that the glass is half-full and those who are unable to profit from this deal will say the glass is half-empty.

Only the future will tell whether the glass is half-full or almost empty.

Tuesday, June 17, 2008

Weapons of Mass Destruction

“Imagine Leonid Brezhnev on the reviewing stand at Lenin’s Tomb, surrounded by underlings, watching the May Day parade. The Soviet Union’s full military might is there on display. First come battalions of elite troops, impressive soldiers, all six foot two, marching in absolute lockstep. Right behind them are phalanxes of state-of-the-art artillery and tanks. Then come the nuclear missiles – it’s an awesome show of strength. But after the missiles comes a straggle of six or seven civilians, unkempt, shabbily dressed, utterly out of place. An aide rushes up to Brezhnev and begs forgiveness. “Comrade Secretary, my apologies, I do not know who these people are or how they’ve come into our parade.

“Do not be concerned, Comrade,” replies Brezhnev. “I am responsible for them. They are our economists, and you have no idea how much damage they can do.””

American President Ronald Reagan told this story to Alan Greenspan, former head of Federal Reserve Board.

American Army did not defeat the Soviet Union. It collapsed under the weight of its own unsustainable economy. Russian economists should have known that a closed-door centralized economy could be stretched to a certain point and not beyond that.

The same is true about free-market economy. Free-market economy can function within certain parameters. If it is stretched beyond those parameters, it is bound to collapse.

For example, free-market economy is incompatible with democracy. It is the fastest way of creating wealth but it cannot ensure equitable distribution of that wealth by itself. If it is regulated, it won’t be a free-market economy. If unregulated, it is bound to result in a wide gap between the haves and have-nots. In a democracy if the number of have-nots is more than that of haves, they will vote against the government and the result will be either instability or continuous law-and-order problem.

Another drawback of free-market economy is that it cannot function in a global environment at once. One of the basic ingredients of free-market economy is the relationship between supply and demand. In a globalized world you can move capital from one place to another within a short time with the help of internet and tele-communication devices but you cannot move labour easily. Skilled labour needs training and that takes time and money. Then there is the question of integration of people belonging to different social, cultural, lingual, religious and ethnic societies. It is an almost impossible job.

Then there is the question of resources. You do not have oil in all parts of the world. The same applies to agricultural and mineral resources. If those countries, which have these resources, do not have the necessary technology to exploit them or if they demand an unacceptable price for them, nothing happens. Either there should be a world government to ensure equitable distribution of these resources at reasonable prices or it will result in armed conflicts between nations.

The truth is that there is no single economic ideology suitable for all the people of the world at all times; nor is there any possibility of a world government in the near future. Therefore, what we require is a secular economic approach, depending upon the needs of a particular section of society, taking into consideration the social, economic and geographical condition of that part of society at any period of time.

Let us hope that our economists will not prove to be modern Weapons of Mass Destruction but Desirable Tools of Construction

Monday, March 31, 2008

Indo-US Nuclear Deal - Myth & Reality

A great deal has been said and written about the Indo-US Civil Nuclear Deal – most of it simply myth. What is the reality?

Myth No.1 is that America will be doing a great favour to India by selling nuclear reactors and raw material.

The truth is that America has entered into an agreement with France, Britain, Russia and China not to transfer nuclear technology to any other country except among them. India, Pakistan, Israel, North Korea and Iran are the only countries who can use nuclear technology. Obviously, India is the only country to which America would like to sell nuclear technology. America wants to get rid of its surplus supply of nuclear reactors and raw material and make money out of it.

Myth No.2 is that by signing this deal India would be joining the club of five Nuclear Nation States of the World.

The truth is that by doing so India would be signing indirectly the Nuclear Non-proliferation Treaty without enjoying the power and privileges of the five Nuclear Nation States.

Myth No. 3 is that even after entering into this deal India would be free to manufacture nuclear bomb, if need be.

The truth is that after entering into an agreement with the International Atomic Energy Authority, India would be subject to the same sort of inspection and scrutiny to which Iran is being subjected at present.

Myth No. 4 is that electricity produced through nuclear technology will solve our future energy requirements.

The truth is that electricity produced through nuclear technology is costlier than electricity produced through any other means. Even the most developed countries of the world find it uneconomical, what to talk of a poor country like India.

Moreover producing electricity through nuclear technology involves total dependence upon other countries and storage and disposal of hazardous nuclear waste material.

Can we afford it? Can this be our first priority?

Rising food prices in Singapore - and some potential remedies

Prices of food products have risen in Singapore. The Prime Minister has appealed to people to use frozen food products which are cheaper.

Since Singapore is totally dependent upon imported food articles, this state of affairs is likely to continue in future.

One way to cope with the increased cost of living is to earn more money by increased productivity and use of cutting-edge technology.

Another way is to enter into joint ventures with a friendly country in the production of food products and supply part of that production to Singaporeans at cheaper rates.

India has a huge agricultural sector which has not been exploited to its full potential so far on account of lack of finance and technological expertise.

Singapore can provide finance and technological know-how in the field of food processing, horticulture and floriculture in the States of Punjab, Haryana, Himachal Pradesh and Kashmir, and at the same time meet the food requirements of its people at an affordable price.

Participation in development and trade is preferable to simple trade.

This will also add to the development of the Asian region.

In course of time this will result in the formation of an Asian Union on the line of European Union, with its own long-term advantages in the not-too-distant future.