The global economic scenario is at its worst. Although there is a perception in some circles about revival taking place in many parts of the world, it is to a large extent camouflaged under the growing uncertainties of near stagflation situation. Those emerging economies like India and China and Brazil may have their own domestic markets to cater to their projected growth, yet in the larger part of the world, in particular the US and the European countries the economic growth has been a little too still. Even developing countries would continue to grow for some more time, but then they too would slowly shrink with the international economic picture presenting a bleak outlook for the future ahead.
The problem is actually one of financial indiscipline. The profligacy in European countries and the the well known financial fiasco in the US are noteworthy cases leading to the economic debacle. The picture that has emerged out is even more bizarre with many countries rolling out stimulus packages to boost up their respective economies. What is even more frightful is that the stimulus packages have been pumped into a system that is actually seeing no direction as far as the financial scenario is concerned. The developing countries too are bothered with the international trade being affected and there will be lesser opportunities, but for their own domestic demand. Already the growth projection for the emerging economies have come down and may even slide down further.
In most cases it is the governments that are playing like almighty god rather than the market forces where the government ought to be a strong regulator and not playing to the tune of few rich and powerful. Here, the fact is that a lot of stimulating money has been pumped into places where there is already a lot of bad money until a time comes when the currency of a country would become nothing but worthless paper notes. That more and more people are placing their bets on gold, silver and other precious metals is a standing example of how bad things are. No more are the share markets, or the manufacturing sectors or the financial sectors safe enough to keep their money.Thus, in order to slide down further there is need for governments the world over to rectify their fiscal policies as the present policies run contrary to real economics.Forgetful IMF too ought to take note of this seriously.
Although there is still work to be done as far as the real economics is concerned as mostly is still not a fully developed science. There is still need for interpreting the actual economic situation in a country with that of the policies adopted by the governments.
In almost all cases the governments of different countries act like gods rather than do some sane calculations. This is obvious in the case of bonds and some near money instruments. The government of the respective country issues bonds and other legal instruments without the need for making the instrument worth its real value. Most of these are issued based upon a vague interpretation of the actual value of the instruments in relation to the actual position of the economy.
Thus, it is important for all near money instrument be expressed in terms of their relations to the market and that a value be set on each in relation to the value as per the economic or business cycle they happen to be. The respective government should therefore set the value of the near money instruments with the position their respective economy holds in the economic cycles.
EMASCULATION AND ESCALATION OF NEAR MONEY INSTRUMENTS
As stated earlier, all near money instruments including bonds act in accordance with the economic cycle. This eventually means that all near money instruments are directly proportional to the levels of momentum in the business cycle. There are four phases of economic or business cycle and these are (1) Expansion (2) Recession (3) Depression or contraction (4) Recovery or Revival
Therefore, the near money instruments are also directly proportional in their set value accorded to them by the government at a particular point in the business cycle and then continues its momentum either to emasculate as per the economic or business cycle or escalate as per the economic or business cycle. In other words, all near money instruments are subject to continuous escalation or in a state of continuous emasculation until such time when any reverses to the momentum is created in the economic cycle.
If the government sets a face value at almost random as it is doing now in most countries the value of the near money instruments including bonds either lose their value or enhance their value from the point of issue on a point in the economic cycle directly in proportion to the percentage of declining levels of the cycle or the incremental levels of the cycle. It means if the recovery is fast then the percentage escalation of the bond also shoots up accordingly and when the economy slides into recession then the emasculation of bond value takes place as fast.
Therefore, from the above there is need for the government to derive at the actual value of the instruments in relation to the spot in the economic cycle and also taking into consideration the uses of that instrument money in the country. Thus, it is very important that the government should be able to give an almost accurate value of the near money instruments in terms of the economic or business cycle being experienced by the economy.
Dangerous government bonds can have a disastrous effect on the fiscal policies of the government and such a ratio as stated above is necessary for countries to keep a check on profligacy and wasteful government expenses. From the above it is also clear that a bond when issued with almost accurate value during recession has the potential to enhance its value when the economy improves and the reverse is the case when the bond issued during good times tends to emasculate when the economy slides down.
Arcane World Economic Forum would do well to understand the need for such a practice to check the growth of government expenditure running loose the world over without a proper mechanism to hold it down.
It is inevitable to use the economic cycle as the 'criteria' for issuing any bonds or introduction of any other near money instruments. The government which finds its economy in depression or during periods of recession can only issue those bonds that are directly involved in growth and development and not to be utilized in any other government expenditure whatsoever.
Again, the government which finds its economy in the revival period can issue bonds only to the extent that the money is meant for giving further fillip to development activities as well as employment.
Thirdly, the government which finds its economy in expansion phase can issue bonds as it would like to meet any of its requirements yet the emasculation risks as stated above remains.
It must be made certain, that there is no bond that is static or has static value and must be valued in terms of the economic cycle only. This would stop the governments in becoming wastrels by simply resorting to bonds after bonds to raise money from the market. This is because raising money through bonds without the tag of 'specific economic purpose' is bad money.
Better World Bank policies should be initiated to respond to the continuous issuance of bonds by the governments all over the world. Brilliant Global Financial Integrity too could see to it that the countries do not err in their economic policies.
The problem is actually one of financial indiscipline. The profligacy in European countries and the the well known financial fiasco in the US are noteworthy cases leading to the economic debacle. The picture that has emerged out is even more bizarre with many countries rolling out stimulus packages to boost up their respective economies. What is even more frightful is that the stimulus packages have been pumped into a system that is actually seeing no direction as far as the financial scenario is concerned. The developing countries too are bothered with the international trade being affected and there will be lesser opportunities, but for their own domestic demand. Already the growth projection for the emerging economies have come down and may even slide down further.
In most cases it is the governments that are playing like almighty god rather than the market forces where the government ought to be a strong regulator and not playing to the tune of few rich and powerful. Here, the fact is that a lot of stimulating money has been pumped into places where there is already a lot of bad money until a time comes when the currency of a country would become nothing but worthless paper notes. That more and more people are placing their bets on gold, silver and other precious metals is a standing example of how bad things are. No more are the share markets, or the manufacturing sectors or the financial sectors safe enough to keep their money.Thus, in order to slide down further there is need for governments the world over to rectify their fiscal policies as the present policies run contrary to real economics.Forgetful IMF too ought to take note of this seriously.
Although there is still work to be done as far as the real economics is concerned as mostly is still not a fully developed science. There is still need for interpreting the actual economic situation in a country with that of the policies adopted by the governments.
In almost all cases the governments of different countries act like gods rather than do some sane calculations. This is obvious in the case of bonds and some near money instruments. The government of the respective country issues bonds and other legal instruments without the need for making the instrument worth its real value. Most of these are issued based upon a vague interpretation of the actual value of the instruments in relation to the actual position of the economy.
Thus, it is important for all near money instrument be expressed in terms of their relations to the market and that a value be set on each in relation to the value as per the economic or business cycle they happen to be. The respective government should therefore set the value of the near money instruments with the position their respective economy holds in the economic cycles.
EMASCULATION AND ESCALATION OF NEAR MONEY INSTRUMENTS
As stated earlier, all near money instruments including bonds act in accordance with the economic cycle. This eventually means that all near money instruments are directly proportional to the levels of momentum in the business cycle. There are four phases of economic or business cycle and these are (1) Expansion (2) Recession (3) Depression or contraction (4) Recovery or Revival
Therefore, the near money instruments are also directly proportional in their set value accorded to them by the government at a particular point in the business cycle and then continues its momentum either to emasculate as per the economic or business cycle or escalate as per the economic or business cycle. In other words, all near money instruments are subject to continuous escalation or in a state of continuous emasculation until such time when any reverses to the momentum is created in the economic cycle.
If the government sets a face value at almost random as it is doing now in most countries the value of the near money instruments including bonds either lose their value or enhance their value from the point of issue on a point in the economic cycle directly in proportion to the percentage of declining levels of the cycle or the incremental levels of the cycle. It means if the recovery is fast then the percentage escalation of the bond also shoots up accordingly and when the economy slides into recession then the emasculation of bond value takes place as fast.
Therefore, from the above there is need for the government to derive at the actual value of the instruments in relation to the spot in the economic cycle and also taking into consideration the uses of that instrument money in the country. Thus, it is very important that the government should be able to give an almost accurate value of the near money instruments in terms of the economic or business cycle being experienced by the economy.
Dangerous government bonds can have a disastrous effect on the fiscal policies of the government and such a ratio as stated above is necessary for countries to keep a check on profligacy and wasteful government expenses. From the above it is also clear that a bond when issued with almost accurate value during recession has the potential to enhance its value when the economy improves and the reverse is the case when the bond issued during good times tends to emasculate when the economy slides down.
Arcane World Economic Forum would do well to understand the need for such a practice to check the growth of government expenditure running loose the world over without a proper mechanism to hold it down.
It is inevitable to use the economic cycle as the 'criteria' for issuing any bonds or introduction of any other near money instruments. The government which finds its economy in depression or during periods of recession can only issue those bonds that are directly involved in growth and development and not to be utilized in any other government expenditure whatsoever.
Again, the government which finds its economy in the revival period can issue bonds only to the extent that the money is meant for giving further fillip to development activities as well as employment.
Thirdly, the government which finds its economy in expansion phase can issue bonds as it would like to meet any of its requirements yet the emasculation risks as stated above remains.
It must be made certain, that there is no bond that is static or has static value and must be valued in terms of the economic cycle only. This would stop the governments in becoming wastrels by simply resorting to bonds after bonds to raise money from the market. This is because raising money through bonds without the tag of 'specific economic purpose' is bad money.
Better World Bank policies should be initiated to respond to the continuous issuance of bonds by the governments all over the world. Brilliant Global Financial Integrity too could see to it that the countries do not err in their economic policies.
