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by Rishi Teckchandani
Every Economic system is sustained by its own pulse. As human beings need blood to survive, an economy needs credit. Capitalism thrives when economies have access to credit. Over the last decade global economies have experienced record amounts of credit generation fueled by historically low interest rates (Monetary Policy) and relaxed Fiscal Policy. I will not focus my discussion on the current state of the global economy because every country is experiencing its own growth dynamics, I will briefly discuss the potential failures that can arise from the current trends. My outlook is based on when, how and why PROUT may be the solution adopted to solve a crisis unfolding of greater magnitude. And before we see PROUT, I believe the current system that has been fully exploited will lead to a serious degeneration of human society. After this period economic leaders will ask for anyone to come with a solution and one day P.R. Sarkar's PROUT will lead the leaders seeking a solution for a human crisis that is in the making.
Global economies are currently experiencing a rapid increase in potential inflation. This has been mainly driven by rising energy and agriculture prices. Overall countries that produce and export commodities such as Brazil and Australia are having their best economic periods in decades and the threat of famine and supply shortages are only adding to pricing pressures for all commodities. On the other hand consuming nations like India and China are also hungry for energy and food and thus their governments are net importers. Unfortunetly, we live in a system of free-market pricing and speculators living in core financial cities (New York, London, Tokyo, Hong Kong, Mumbai) consistently trade futures for all products with one goal- Profit making. It has been very common over the last few years to see spikes in any commodity that China is interested in amassing for there growing needs. Whilst I will attribute up to 50 percent of the prices linked to speculation, I will not rule out the basic supply/demand equation. Nevertheless I would like to focus on a the fact that speculators are in more control of pricing hikes then the latter. For those in the USA, the sudden spikes in gasoline and food prices may seem to make government statistics on inflation feel incorrect. And many maybe wondering whether a recession will occur with increasing commodity prices in the coming months. Based on the global economic growth I would continue to be very optimistic on commodity prices and see a bubble growing even bigger. I don't see growth slowing fast enough to depress commodity prices and I think China can very well out-perform its own expectations as it has over the last 20 years. I also see positives in India that will overcome inflationary pressures as business can pass on costs. But where I do see a problem is in the US economy. And what I feel can potentially stunt global growth may have already sent intial waves globally via structured investment products sold. These were packaged as loans invested in US housing, Credit Card Debt, Corporate buy-outs. The structured products have fueled the most recent years of artificial wealth in the US that now is setting back to reality or real wealth. Unfortunetly the costs is being felt by each and every tax paying household.
The key to PROUT today is not any emerging market but the United States of America in my opinion. There is only one country that is facing the most struggle to survive from its own domestic economic crisis and that is the USA. The US system is being rejected by capitalism as it cannot participate in a global economic growth without interfering in other financial markets via the selling of its structured debt. As countries reject these previously demanded debt obligations the US economy isn't able to function on a normal course and thus it has sent signals of a financial collapse via its bond markets. Investors are fleeing towards safe haven investments like Gold and Treasury's (both of which are equally risky in today's times to hold). As other economies create a market of trade and commodity prices continue to spike, the US economy is faced with a declining housing market as liquidity that was created by Securitised debt is now 'dead' and US banking institutions are afraid to lend to consumers that all seem to be possible bankruptcy candidates. From East to West states are beginning to see a rise in foreclosures leading to their own state budget fiscal crisis and further escalating to expenditure cuts for schooling and healthcare. Overall the vicious cycle of tight credit, tight government budgets and tight consumers combined with easing Feds Funds Interest rates is leading to a Global Economic boom and a Domestic Economic gloom. The Cuts are fueling commodity prices vs. the US dollar and aiding dollar based economies and trade globally whilst the real cheaper credit is not being given to the US consumer due to increased banking safety controls. No bank wants to lend money to someone that can foreclose on their home and walk away from debt for 7 years of bad credit! A similar situation is occuring in the corporate arena. I will not broaden my discussion because I don't want to write a 100 page essay.
The essence of my discussion is a system failure. The system adopted previously of relaxing interest rates and increasing expediture is not working. And it is only leading to a bigger crisis. Something that combines 1929,1979,1989 and 1999 bubbles/crisis to form a mega eclipse. The current crisis makes the himalyas (largest mountains) look small. And yet, it only exists dominantly in the US economy because its a dollar crisis. What I find humourus amongst my collegues is that many are seeking an opportunity to buy cheap real estate or stock in this crisis. As many previous capitalists have become millionaires from previous cycles there is a sense of confidence amongst believers in capitalism. Nevertheless only time will tell if they are right for a trade or wrong for a century! This is not a quick fix solution and time will eat away every invested cent in today's economic environment. The system needs money to pay its previous debts. I don't trust it. It makes you think if a global banking giant like Citigroup which has shares down over 50 percent this year is really cheap or not? In my opinion the bank is desperately raising money from the foriegn soverign funds simply to survive an immediate failure.
All European, Asian and Middle eastern banks are facing a US dollar crisis. That is why many are discusing divesture from US dollar reserves. Nervertheless that is not the solution. The problem has already been exported and like the flu, this financial virus is not yet fully curable. It has only been experimented with monetary and fiscal economic doses. Until this flu does not get heavy doses of economic stimulus, I don't see a capitalist system as completely failing. Signs of life will propel financial markets momentarily but this will most likely be short lived assuming banks don't giver free credit to consumers/businesses as easily again. When interest rates have hit rock bottom and the government fully exploits its potential spending stimulus the only result will be hyper inflation. And that may create an even bigger crisis. The reaction in Bond markets indicate a coming crisis and there is no real sense of direction from banks or the leading economy planners. Insurance contracts that hedge credit portfolios is also showing signs of failure thus leading to the question that "Can we really believe in the safetyness of our economic system?" In my opinion, I believe that the individual in today's economy is more confused about his or her's economic future then they have ever been. And that is because the capitalist system has always made us believe that we are relatively wealthy or our insurance will protect our family from the event of disaster or our job is relatively safe for the time being. Capitalism doesn't provide human beings with safe jobs or bank balances, it exploits the tendancy of greed and fear amongst individuals and leads to economic crisis that have been continually patched. We become slaves of the system. I think this coming crisis is one that is in-curable without a global coiltion. And if Global leaders do not approve then the United States of America may be facing the greatest depression ever. Because rising energy and a weakening economy will only lead to dissatisfication amongst households and mental insanity for those that have lost their job, wealth, or anything that they previously accumulated in an economic system of artificial wealth. It is hard to bet on a global coilition because many countries are not pleased with the US foriegn policy for decades. Thus politics prevents economic solutions. And by not allowing Foriegn Soverign funds to stake in core US assets or opposing due to nationalistic pride then there will be no agreement amongst global investors for the US economy. This is another defect-capitilistic pride.
I am not a believer in depressions but I feel that the only way PROUT will be accepted is when the current system fails. The current system in my opinion has no solution except for widening the credit bubble that can only lead to another banking crisis whereby regulations will prevent most borrowers in getting loans and the crisis becomes ever lasting. This system has lived its usefulness and any more injections will only bring harm via inflation. If you can think of a solution besides PROUT your advice will be worth billions of dollars. But your solution must be able to solve the crisis and not potentially grow it another 10 fold! My view is a bit more pessimistic then most but I feel that it is right for me to explain what I feel. I am an active trader specialising in stock options, commodity futures and fixed income with an educational background in business/economics and international development studies. For the time being I am a witnessing entity of the crisis and believe that this is the best state of mind to be in as this market befools the most greedy and fearful individuals. We have billionaires trying to protect there Real Estate Assets and Prop. traders trying to win trades without losing hundreds of millions on a daily basis. The market is a full blown casino that has made the government look like a gambling institution (If they continue to react to the stock market woes then I don't see a difference between a regulatory gambling institutions and the government. Just as recently as a few weeks ago the government stepped in the markets on a day that international markets staged panic after a French trader lost billions in unwinding trades. That is a sign of weakness and free market intervention or capitalism failing).
I will continue with PROUT's intervention on my next article next week. Please comment on what you feel about the current crisis that I have briefly tried to discuss. I could have written a lot more but feel there is too much to read then. Its mind-boggling to understand the current crisis. There's a whole different subject about Wall Street Fraud but I rather not discuss that now. I'm a positive individual with a hope in a better world for humanity not slaves of the current economic system.
Rishi Teckchandani passed his M.B.A from the University of California Los Angeles. He is the secretary of Universal Proutist Students Federation (UPSF) in Los Angeles.