Thursday, May 14, 2015

Prof. Vaidyanathan's Ideas - 1. Not a Global Financial Crisis

1. It is wrong to say that it is a "Global Financial Crisis". It is a European crisis or an Anglo-Saxon crisis.

2. In 1990s, so called G-7 contributed to 52 % of Global GDP, whereas emerging economies (China, India, Brazil, Indonesia etc.) contributed only 34 %.

3. By 2012, situation reversed. Now so called "Emerging Economies" contribute to 62 % of Global GDP and G-7 only contributes 52 %.

4. In next 8-10 years this share of G-7 will come down further to 25 %.

5. This reduced share is what is the "CRISIS" is all about.

6. So this is not at all a crisis for us. It is a crisis for so called first world countries.

Some points on why this has happened and the answer lies in sociological issues rather than financial or economic issues:

1. In West savings are very less. Household savings are less than 1 % . Culture of credit is increasing.

[In India 94 % of investment is due to domestic savings. So much for the disproportionate attention given to FIIs and FDIs that only contribute less than 7 %. By the way in India less than 1 % of this savings goes to share market, So much for the obsession with share market. Also note that out of 94 % domestic savings more than 85 % is household savings.]

2. Disintegration of Family Structure. Nuclear Family becoming proton families (single parent families):

52 % of kids are born out of wedlock.

In Blacks and Latinos this percentage is as high as 80 % .

This single parent culture was initially favored by Open Market supporters.

Joint family --> 8 members watch may be two TVs.

Nuclear Family each having 2 members (say) --> 4 TVs will be purchased.

So Market would prefer smaller families.

However this break down of family had an effect on society. The discipline of Father was not there. Kids were roaming. No focus on studies. School dropout rate increasing.

Unemployment rates became very high. Total lack of skills. youth was unemployable.

State had to support unemployed persons --> an increasing burden.

3. Decline in Population: Europe during First World war had a share of 25 % of world's population. This share has already come down to 10 %. This is going to go down further to a low as 1 %.
This means that earning population that will pay taxes is going down.

In short the so called Global Financial Crisis is going to continue.

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