Tuesday, December 30, 2008

Voter or Taxpayer

The issue is indirect taxation.

In India, we have become so used to indirect taxation that we have lost sight of the fact that each and every Indian is a tax payer. No one is beyond the scope of the tax collector. It is just that we don't know it. Even the poorest of the poor, who buys a bar of soap or any manufactured goods is paying a lot of indirect taxes without realizing it. And since we do not realize that we are paying taxes, we do not expect anything in return. Perhaps that is what the system desires.

On one of the post 26/11 TV debates, actress Simi Garewal heatedly put forward the suggestion that taxpayers should stop paying taxes to a government that can not provide security. By taxpayers she perhaps meant those who pay income-tax. But then she does not know that in reality the bulk of the Government coffers are filled through indirect taxation. Direct tax payers constitute a very small part of the Government's income. It is the various excises and duties and surcharges and service taxes and VAT and this and that which account for the revenue.

Every February end, we see the spectacle of our Finance Minister juggling the various excises and duties on consumables, increasing it on some and providing relief on others, but basically succeeding in increasing the governments revenue by increasing indirect taxes.

Indirect taxation is immoral in the sense that it does away with the idea of accountability of the Government to the taxpayers. As well as creating apathy amongst them who are just reduced to being voters to be approached only at election time. In the mean time they watch uninterestedly while the Government squanders away their hard earned billions on Loan-Melas and other unproductive expenses.

Indirect taxation should be reduced till it approaches zero and direct taxation should be encouraged. The counter argument is that no-one likes to pay direct taxes and this is true to an extent. No one wants to part with his hard earned money right before his own eyes. And if this happens, then one would want to find out exactly how it is going to be spent and whether one is getting value for it. That would usher in an era of a more pro-active and a more responsible and a more awakened citizenry, demanding better governance. Perhaps that would lead India to a better future.

Monday, December 29, 2008

Water as a tool of war

The time has come to use whatever powers and advantages we have at our disposal in order to win the war that has been forced upon India. Because conventional war is out of the question and diplomacy can only go so far with a two-faced adversary like Pakistan who says one thing, means something different and ultimately does what it intends to do.

The Indus Waters Treaty was signed by Nehru and Ayyub Khan in 1960 with the World Bank as the third signatory. It gave Pakistan exclusive use of the Indus waters as well as its tributaries, the Jhelum and the Chenab. While India was allocated the Ravi, the Beas and the Sutlej. But India also has a right to 'run of the river' projects which do not disrupt the flow of water to Pakistan. One such project is the 450 Mw Baglihar hydro-electric dam project across the Chenab in Kashmir. This was inaugurated earlier this year amid strong protests by the Pak Government.

In 2005 Pakistan had sought the World Bank's intervention to stop construction of the Baglihar dam and the hydroelectricity power project, but Bank-appointed experts had cleared the project while asking India to restrict the overall height of the dam.

Earlier India had to stop construction of Tulbul Navigation Project on the River Jhelum on account of objections raised by Pakistan. While India maintained that the project was designed to improve navigation, especially during the winter when the water level recedes, Pakistan said that it is a storage project which will affect the flow of water. Work on the project has remained stalled for 20 years.

The Indus Waters Treaty is in fact the only treaty which has withstood all Indo-Pak wars, Kargils and the various terror attacks that we have witnessed lately. And this has been due to India's taking a moral stance and not using water as a weapon of war.

The Tulbul Navigation Project was one of eight issues under discussion in the stalled Pakistan-India Composite Dialogue process. Now is the time to use this to our advantage and restart its construction unilaterally, to send a strong signal to Pakistan.

Sunday, December 28, 2008

The Lost Decades

Kanhaiyalal Maneklal Munshi is one of the forgotten titans of the era which saw great personalities like Nehru, Gandhi and Sardar Patel leaving their mark on the Indian polity as well as history and geography. He was a prolific writer and thinker as well as an educator and an eminent lawyer.

Post independence, Munshi served in the central cabinet in a ministerial capacity and as governor of Uttar Pradesh, from 1952 to 1957. He was a staunch supporter of personal liberties and freedoms and a proponent of free market economy and capitalism. Disillusioned by the ongoing erosion of personal liberties and individual freedoms by the state under Nehru's misguided socialist policies, he left the Congress Party and joined the liberal Swatantra Party in 1959. He has outlined his reasons for doing so in this document.

Nehru was one of the greatest sons of India, there can be no doubt about that. But what happened under his stewardship was that independent thought was stifled and a coterie of yes- men gathered around the centers of power, intent upon increasing the state's powers at the expense of the individual. And this legacy was furthered by Indira Gandhi. It was not until the nineties that India finally started breaking free of this Nehruvian legacy of socialism which has resulted in two generations of the Indian people being held back from achieving their full potential and migrating away from the stifling atmosphere prevalent in India. India lost its most promising and brilliant minds to the 'Brain Drain' during this era.

'Breaking free of Nehru' is a book by Sanjeev Sabhlok. You can download half of the book from this link and go thru it. If you feel what Sanjeev has to say is relevant, you can also purchase the book, which is available in print now. I highly recommend you do that and find out for yourself what Sanjeev has to say about why India has lagged behind the world in almost all spheres and what should be done to remedy that.

Tuesday, December 23, 2008

Capitalism and the current financial crisis

Does the current financial crisis mean the end of the idea of capitalism, free trade and globalisation? Because it originated from a country that was the strongest proponent of capitalism and those who are spared from its worst effects are sheltered economies which follow mixed or socialist fiscal policies. It has the world in financial turmoil and the worst is yet to come. In its wake, capitalism, free trade and globalisation have suddenly become dirty words.

To me, the attractiveness of a system depends on the amount of freedom which it provides to the individual. The more freedom a system provides to the individual, the more attractive it is. And the more the state wants to control your freedoms and the more it wants to make decisions on your behalf, the less attractive it is to me.

The current financial crisis has led western governments to take steps which reek of socialism and I think that was the wrong thing to do. Because immediate pain might have been avoided but a bad precedent has been set.

Capitalism is the only natural system which allows individuals the freedom to realize their full potential and enjoy the fruits of their hard work. But with freedom comes responsibility. The old adage of 'Buyers Beware' is as applicable today as it always was. And whoever did not do their due diligence before getting into the fray to make some quick money, deserved to feel the pain and the losses and to die a natural death to make way for another more responsible entity to take its place.

Tuesday, December 16, 2008

Two worrying news items

This is a worrying development. Anyone who is accused of a crime committed on Indian soil has a right to legal counsel according to our constitution. Denying Ajmal Amir Qasab the right to representation will only delay the legal process and will not actually achieve any meaningful result. What is even more worrying is that this has been resolved by the Metropolitan Magistrate's Bar Association. In the same vein, if he is diagnosed with a life threatening disease tomorrow, perhaps the doctors should deny him treatment and break their Hippocratic oath?

And then, this one is even more horrifying. If this attitude is taken up by real estate agents all across the country, it will help the creation of ghettos everywhere. And further divide the country along communal lines. What is needed is integration, not division, if we wish to rid ourselves of the malaise of mistrust, alienation and hatemongering amongst ourselves. Because that is the mother lode that throws up terrorism of domestic origin, and aids foreign sponsored terrorists. If India is to emerge as a strong unified nation with its secular credentials intact, we have no option but to encourage integration of our people and condemn anything that seeks to further divide us.

Tuesday, December 09, 2008


She made me proud to be an Indian in 1971 and again in 1974. I was in my teens then, but in 1975, she lost my respect by declaring emergency and disgusted me so much that I actively worked to help defeat her in the general elections in 1977.

And then, like a phoenix she rose from the ashes and came back to power in 1980. Her third term as prime minister was not like her earlier stints. This was not the same person, perhaps she had lost direction, or perhaps personal tragedies had somehow changed her. Then came Operation Blue Star in 1984, and her subsequent killing by her Sikh bodyguards.

She had been a part of my existence during my formative years and I still remember the sense of loss that I felt when I received that news. The pain and hurt transformed into anger at some point. And for a long time after that, every Sikh, in my eyes was a criminal and somehow responsible for the atrocity. I had heard about the resulting riots and killings of Sikhs in Delhi but never realized either the magnitude or the brutality or the senselessness of it all. Perhaps I just trivialized it as something bound to happen after the murder of Indira Gandhi.

I was trying to educate myself about what happened in 1984 and came across Mai's blog. Reading her account as well as others brought the horror of what transpired in 1984 to life.

I do not know if Mai and Suni were lucky in that they hailed from Canada and left India soon afterwards. The Indian Sikhs had to pick up the pieces of their lives after suffering the losses of their loved ones and facing economic hardship. As well as fighting for justice within a system that was unsympathetic towards their plight.

Justice, however late, is the only solace that we can offer them and I sincerely hope that the Sikhs do receive it.

Sunday, December 07, 2008

Prank call that could have led to war

Sounds like a scene straight out of a Bollywood movie. At the height of the Mumbai incident, when feelings were running high, Pranab Mukherjee calls up Asif Ali Zardari late in the evening and threatens him with dire consequences unless he cooperates fully in acting against the terrorists who masterminded and carried out the Mumbai incident.

But this really happened. Someone posing as the Indian External Affairs Minister, actually called up Zardari. And someone in Pakistan, overwhelmed by the gravity of the situation, bypassed the usual checks and verifications and passed the call directly to the Pakistani president. The caller introduced himself as Pranab Mukherjee and, while ignoring the conciliatory language of the president, directly threatened to take military action if Islamabad failed to immediately act against the supposed perpetrators of the Mumbai killings.

This set into motion a frenzied round of political, military and diplomatic activities in Pakistan, bringing the military to a heightened state of alert, which resulted in the US sending out Condoleeza Rice to the region to avert war.

A breakdown in protocol turned into an embarassment for the Pakistani establishment. But while it may sound hilarious now, India and Pakistan were on the brink of war for the next 24 hours.

Both India and Pakistan are nuclear armed neighbors, and are at odds with each other. Just imagine the consequences of such a serious lapse in protocol.

Friday, December 05, 2008

You have blood on your hands

Holding candlelight vigils and marching in protest against terror......... You are kidding me.

Do you think those candle lighting events and protest marches are going to have any impact on the menace that we are facing? What they do, is give your conscience a momentary satisfaction of having done something to help the fight against terror. And then you revert back to what you have been doing all along.

When was the last time you stopped yourself from bribing an official to get a shortcut out of a situation? You keep on bribing everybody from the lowly traffic cops to high officials to get your work done. YOU are the one who has helped poison the very moral fabric of this nation. When you buy a property, do you not agree to pay a certain amount in black? Where do you think this money goes?

Do you think that the Mumbai carnage would have been possible without the collusion of the local underworld? I feel that some factions of the underworld must have provided logistics support in either planning or the actual carrying out of this incident.

If you have ever paid protection money or if you are a celebrity and have danced to their tunes, you have blood on your hands. If you have used recreational drugs you have blood on your hands. Because guess who benefits from the trade in illegal drugs? The same people who helped carry out the carnage in Mumbai.

Those showcase events are not going to change anything. The short term measures have to be taken of course, but the long term solution lies in beginning at the grassroots level. With you and me. And by doing the right thing. Take a moral stance, even if it is detrimental in the short term. Instill the correct values in your offspring. Start taking an active role in finding solutions to existing problems and be prepared for a long tortuous journey ahead. Because only WE can help bring about change.

Tuesday, December 02, 2008

Shades of grey

I have been numb for the past few days. I have been staying away from the TV and the computer trying to make sense of the world around me. Partly because of what has been happening in Mumbai and partly because I happened to witness a racist incident yesterday. Which is not too uncommon in this part of the world and happens to almost everyone living in this country, sooner or later.

And then today I decided to sit down and watch a movie on the telly and I thank my lucky stars that I happened to stumble on to Crash. By the time it was over, I was overwhelmed. The movie makes you realize that people can not be classified as either good or bad. That there are no completely black or completely white characters in this movie or life in general. That there are many shades of grey and that sooner or later, people get a chance to redeem themselves. That there is latent goodness in everybody and that all it needs is a nudge from your conscience to do the right thing. And that there is latent evil in everybody as well. That the victims are guilty of the same crimes that they accuse others of and that they too participate in perpetuating racism.

A very good movie that makes you identify with what is going through the hearts and minds of the characters and definitely worth a watch.

Thursday, November 27, 2008

Mumbai's Mahabharat isn't over yet

Are you feeling angry and frustrated at what is happening in Mumbai? Yes? So, what are you doing about it? Some of us are writing angry blogposts while others are venting their anger on the government.

Well, here we are. In the midst of a war. On the killing fields of Kurukshetra, and it is incumbent upon us, the Indian people, to pick up our Gandiva and fight for what we believe is right. Fight we must, because embracing defeat is unacceptable. We have to plant our feet firmly on the ground and fight for what we believe in, to leave a better legacy for our progeny than what was left to us by our predecessors.

How does an ordinary Indian like you or me take part in this war? Remember most wars are won not on the battlefields but in the minds of the participants. The first step to be taken is to realize that this is our war and that if we forfeit our responsibility, no one is going to do our job for us. It is time to stop blaming the government or our politicians, because who put them there? You and I, by either participating or not participating in the political process. If you voted them in, you should now understand that it was a mistake. And if you did not take part in the election process because of apathy, it is time for you to make amends.

I strongly urge all of you to read B. Shantanu's earlier posts, here, here and here. And decide for yourself if you are also sick and tired of bad governance and sick policies which have led us to this stage. If you agree, then the next step would be to check out the Freedom Team’s Google Groups. Or perhaps you can seek out some other group of people who are aggrieved with the current state of the country and are trying to find a remedy. The thing is, you have to become active, because this is your war as much as it is anybody else's.

India at war

Mumbai is a city cursed by the "T"s. If it is not the Thakres, it is the terrorists who want to keep it in the news. Even as I type this, the encounters are going on and every news channel is devoting all its airtime to covering this event unfolding at various locations around the city.

And they have succeeded. They have proved that India is a soft state and that they can strike at will, whenever and wherever they want to. They have shaken us out of our stupor and made us realize that we are at war and that they have the prerogative of choosing the battlefield.

How did we arrive at this juncture? Why was the Indian socio-politic entity divided and subdivided on the basis of language, ethnicity, religion and casteism? Where did our forefathers go wrong in their thinking? There is no unity in diversity for us, it seems. Why can't Indians in general, not rise above their perceived petty identities which tell them that they are either Hindu or Muslim, or perhaps Marathi or Bihari, or Upper or lower castes, and just think of themselves as Indians?

Who is the enemy here and what can we do to defeat its ominous intentions? Is it a foreign power? But then how can a foreign power succeed in wreaking so much havoc without the active help of some of our own Amichands and Mir Jaffars? Should we start distrusting segments of our society because of what has been happening?

Does the answer lie in accepting a reduction in our own liberties and freedoms? Should anyone under investigation, be presumed guilty till proven innocent? I am afraid that might be the temporary answer if we as patriotic citizens, are concerned with the safety and security of our fellow citizens and wish to prevent further such attacks from happening. There is no alternative but to strengthen the hands of our investigative agencies with wide-ranging detaining powers and allowing them to work independently of the political establishment.

But that is just a temporary solution. The permanent solution will lie in reversing the damage done by the follies of our forefathers and removing all discriminating laws, and the social, political or religious entities which accentuate our differences. Because our Indian-ness has to dominate over our religious or regional identity, if we wish that our children and their children,do not have to deal with the same issues.

Tuesday, November 25, 2008

Being a lone wolf or a team player

What would you rather be, a team player or a do-everything-on-your-own individualist, that is the question. If you had a multi-faceted job at hand, what would you rather prefer to do? Some people would want to do everything by themselves and would give up control only under duress or extreme fatigue or when they finally realize that they need more resources than they themselves can muster.

Delegating responsibility is a management technique for not just businesses but also mundane day to day affairs as well as in organizing elaborate social functions. Including people in the decision making process and providing them with information as it becomes available, gives them a stake in the affair and makes them a part of your team. Some people adopt the policy of disseminating information on a need to know basis. Unless there is a good reason to do so, withholding information and being secretive just leads to rumor-mongering and creates unnecessary animosity.

At times, this is just a result of the clash of strong egos. Perhaps you may be angry or hurt at somebody and you want to show them that you can manage without their help. But think about what this will mean in the long term. Side stepping anyone will make them feel left out and dejected. What you end up with is creating unnecessary grudges and further complicating your already mangled relationships.

Sunday, November 23, 2008


Zardari is at it again.

I have written about this earlier here. And I still believe that he is just playing to the international media and trying to mollify his western benefactors by uttering platitudes. The fact remains that he has no control over either the Pakistani Army or the ISI which are the defacto policy makers regarding Pakistan's policy towards India.

Remember the Pakistani Army waging a war in Kargil without authorization from the then Prime Minister Nawaz Sharif?

For the record, India has already declared its nuclear 'no first use' policy, under Vajpayee. What Zardari has said is that he favors it, but has not declared it as state policy yet. Perhaps because he does not have the power to do so, or perhaps because he is just testing out the feelings this might invoke in his own country. Because how can one end the hatred for India, which is the raison d'etre for Pakistan? This hatred is the unifying factor that Pakistan relies on to exist as a viable state.

Tuesday, November 18, 2008

Maritime Piracy, then and now.

A couple of centuries back, the shores of the Southern Arabian gulf were known as the piracy coast. Merchant ships passing through the narrow Straits of Hormuz, plying between Mesopotamia and India, were prey to those pirates who would dart out of hidden coves and raid merchant shipping.

Till one day in early January 1820, when a strong sea and land expedition by the exasperated British succeeded in defeating the pirate stronghold at Ras Al-Khaimah. And led to the signing of a truce between the British and the Arab chiefs, which virtually eradicated piracy in the Gulf. The piracy coast came to be known as the Trucial coast after this truce.

With the passage of time, the Trucial Coast transformed into the Trucial States and in 1971, the seven tiny sheikhdoms which comprised it, federated into the United Arab Emirates. Today this part of the world is enjoying an economic boom and prosperity fueled by oil, trade and construction.

Vela International Marine Limited is a fully owned subsidiary of Saudi Aramco, which is based in Dubai in the U.A.E. It is engaged in the business of transporting crude oil and refined products manufactured by Saudi Aramco, to the rest of the world. It owns several Very Large Crude Carriers or super tankers as they are called. The Sirius Star is a VLCC with a capacity of carrying 2 million barrels of oil and it was yesterday hijacked off the Somali coast by pirates and has been taken to the Somali port of Eyl which is the pirates stronghold. Negotiations are reportedly underway for the safe release of the 25 crew members as well as the ship.

The Somali pirates are doing this just for the money. They have latched on to a cash cow and will not give it up easily. The failed Somali state makes the task of prevention next to impossible. India has already started playing a role in protecting our shipping, but it needs to be enhanced and co-ordinated with other friendly naval powers. Because after all, what is the purpose of a navy if it can't afford protection to merchant shipping? That is one of the primary functions of an armed force, protecting civilians. And piracy is just another form of terrorism.

Thursday, November 13, 2008

How the financial markets actually work

It was autumn, and the Red Indians on the remote reservation asked their new chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he couldn't tell what the weather was going to be like.

Nevertheless, to be on the safe side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.

But being a practical leader, after several days of contemplation, he got an idea.

He went to the phone booth, called the National Weather Service and asked 'Is the coming winter going to be cold?'

'It looks like this winter is going to be quite cold indeed,' the meteorologist at the weather service responded.

So the chief went back to his people and told them to collect even more firewood.

A week later, he called the National Weather Service again. 'Is it going to be a very cold winter?' 

'Yes,' the man at National Weather Service again replied, 'It's definitely going to be a very cold winter. '

The chief again went back to his people and told them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again. 'Are you absolutely sure that the winter is going to be very cold?'

'Absolutely' , the man replied. 'It's going to be one of the coldest winters ever. '

'How can you be so sure?' the chief asked. 

The weatherman replied, 'One of the key components of our forecast model, The Red Indians, are collecting firewood like crazy. That is how we deduced that this winter will be the coldest ever.'

And that my friends, is how the financial markets actually work!!!

h/t RamSarit

Tuesday, November 11, 2008

You get what you deserve

The USA has to be lauded for having a political system which can land a relatively unknown quantity like Obama to the ultimate job. Who had even heard of him a couple of years back? The US electorate got a chance to scrutinize him on the election trail and liked him and brought him to power. While In India, we are stuck with a stupid system where you have to spend decades greasing political palms and earning brownie points with those who matter, before you can even be considered for a minor position.  And if you are not from a political dynasty, you can forget about making a difference. The most you can achieve is land a secondary or tertiary position and enrich your own coterie with favours. Thus perpetuating the system.

The Indian blogosphere is abuzz with quite a few searching for India's Obama. I have a question for them, when was the last time they went out and voted in a general election? Did they ever take part in the political process? Do they feel that there is something wrong with a process which constantly rewards corruption and divisive politics? Do they consider themselves good citizens and fulfill their civic obligations?

It is good to seek change when one is sick and tired of the rot that one sees all around. The answer is not in seeking out a single leader who might or might not fulfill our aspirations, but changing ourselves and the system so that this becomes a constant process which rewards virtue and weeds out undesirable elements. Remember that the cost of maintaining a good political environment is constant vigilance on the part of the electorate. The problem is that most of us have become indifferent and disillusioned with politics as it is practised in India today.

So we want to be spoon-fed Obamas, right? Like chicks in our cosy nests, we look upwards with beaks open, waiting for some imaginary mama-bird to provide us with an Obama. Well, I have news for you. You are not baby-chicks any more. Our democracy is 60 years old. And it is YOU who has to work towards making it better. If you don't do that, you get what you deserve.

Wednesday, November 05, 2008

For Obama the election is over, the task has just begun

Let the euphoria die down. Now this is a fact. the USA has its first black president-elect, who will be taking on the presidency come january 20th, 2009.

Obama will be inheriting a few wars and the stupendous financial mess that is still unfolding. The world and the US public in particular have to tone down their expectations a little bit. Obama simply can not perform miracles. He will need time and his own space to tackle each of these problems one at a time, in the manner he sees fit. The world at large has been mesmerized by his personality, watching him daily on the election trail. But that is what he is good at, motivating people. Transforming it into action is a completely different ball-game. And he will need time and perseverance to prove himself good at that as well.

What Obama's election has done is that it has broken all glass ceilings and shown the world that the US electorate can rise above all prejudices to let the better candidate win. Translating that into our own situation and asking questions like 'When will India get its Obama moment?' is foolishness. The answer is when a candidate of that caliber presents himself/herself. I have faith in our democratic system that when the time comes, it will rise to the occasion and catapult the correct candidate to the post, irrespective of his religion or caste or gender.

But, for the time being, let us start treating Obama as the human he is, instead of the symbol that he has become. He will have a tough time anyway, without trying to live up to people's raised expectations of his presidency.

Monday, November 03, 2008

Redistribution of Wealth

Cartoon from the Augusta Chronicle. Not much fun when it is YOUR wealth getting spread around.

Thursday, October 30, 2008

Obama's Change, Good or Bad?

Barack Obama, in 2001:

You know, if you look at the victories and failures of the civil-rights movement, and its litigation strategy in the court, I think where it succeeded was to vest formal rights in previously dispossessed peoples. So that I would now have the right to vote, I would now be able to sit at a lunch counter and order and as long as I could pay for it, I’d be okay, but the Supreme Court never entered into the issues of redistribution of wealth, and sort of more basic issues of political and economic justice in this society.

And uh, to that extent, as radical as I think people tried to characterize the Warren Court, it wasn’t that radical. It didn’t break free from the essential constraints that were placed by the Founding Fathers in the Constitution — at least as it’s been interpreted, and Warren Court interpreted it in the same way, that generally the Constitution is a charter of negative liberties: [It] says what the states can’t do to you, says what the federal government can’t do to you, but it doesn’t say what the federal government or the state government must do on your behalf.

And that hasn’t shifted, and one of the, I think, the tragedies of the civil-rights movement was because the civil-rights movement became so court-focused, uh, I think that there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalitions of power through which you bring about redistributive change. And in some ways we still suffer from that.

A caller then helpfully asks: “The gentleman made the point that the Warren Court wasn’t terribly radical. My question is (with economic changes)… my question is, is it too late for that kind of reparative work, economically, and is that the appropriate place for reparative economic work to change place?”

Obama replies:

You know, I’m not optimistic about bringing about major redistributive change through the courts. The institution just isn’t structured that way. [snip] You start getting into all sorts of separation of powers issues, you know, in terms of the court monitoring or engaging in a process that essentially is administrative and takes a lot of time. You know, the court is just not very good at it, and politically, it’s just very hard to legitimize opinions from the court in that regard.

So I think that, although you can craft theoretical justifications for it, legally, you know, I think any three of us sitting here could come up with a rationale for bringing about economic change through the courts.”

Just read the above quotes, hear to them again, and let them sink in. What is actually being proposed here is not the creation of wealth and certainly not the creation of opportunity, but simply taking money from the successful and hard-working and distributing it to those whom the government decides “deserve” it. Now that’s just garden-variety socialism, which apparently is not a big deal to many American voters. But then think about what he is saying about the US constitution.

The United States of America leads the world economically, militarily, scientifically, and culturally and by a spectacular margin. Any one of these achievements, taken alone, would be cause for enormous pride. To dominate as it does in all four arenas has no historical precedent. That it has achieved so much in so many areas is due in a large part to the structure of its civil society as outlined in the Constitution of the United States.

The entire purpose of the US Constitution was to limit government. That limitation of powers is what has unlocked in America the vast human potential available in any population. It has empowered the common citizen to achieve his full potential in any endeavor.

The first quote tells us that Obama believes in the redistribution of wealth and the second quote tells us that he thinks it should be brought about by the executive branch. Barack Obama sees the limiting of government as a fatal flaw, which should be corrected.

And this is not just a flashback, even on the campaign trail, Obama has talked about his preference for wealth distribution.

I do not think that in recent history, as far as I can remember, the US has ever had such a presidential candidate who so completely and openly opposes the idea of limited government, which is the absolute cornerstone of what makes the United States of America unique and exceptional.

Had I been a US citizen, this is perhaps the most challenging election I would have voted in. Why didn't the Republicans come up with a better choice? The US voters deserve better than Mc-Palin.

Tuesday, October 28, 2008

The 'Uttam' face of Indian Health care

The existing public health care system is not viewed favorably by its potential users in India. There are a number of reasons for that, quality and availability being the foremost. In both urban and rural areas, people prefer to pay and seek personalized services provided by private physicians, with a human touch, rather than use free treatment at public health centers. Simply because they lack faith in the system and the way it deals with them and if capable, would rather pay for availing health care.

This is where the R.M.P.'s step in. Registered Medical Practitioners outnumber certified medical doctors, especially in small towns and villages, where qualified doctors are loathe to set up practice. And it is easy to get registered. So easy in fact, that Uttam, who could barely read or write, got his registration and started his practice, with all of us, his friends, chipping in to get him started.

Uttam's house was on the same street as ours. His father had died while he was still a toddler and his mother had single-handedly raised him. But even she departed while he was entering his teens. Uttam had dropped out of primary school and had been through several odd jobs until he finally landed a job at a doctor's clinic and learned a few tricks of that trade.

To make a long story short, in a few years, Uttam managed to register himself as an R.M.P. and started his practice in a neighboring village. He would commute daily on his lucky bike, the same one which he rode for his baraat, but that is a tale for another day. He was very good at interpersonal skills and his practice grew quickly. He used to steer clear of trouble by dispensing innocuous medicines and referring complicated cases to qualified doctors, mostly using the placebo effect to cure his patients and build up his reputation.

But all good things come to an end. A couple of years later, he had an aged lady die in his clinic while waiting for her turn to be seen. And although it was not his fault, his dispensary was ransacked and his bike was mangled up and he himself was badly beaten up by the relatives.

This incident shook up Uttam so badly that his next couple of years were again spent doing odd jobs till he finally mustered up enough courage to set up shop once again, but in town this time and only specializing in skin related ailments. Because, he reasoned, no one dies of skin diseases.

He has done nicely ever since. He built a large house for his growing family and a few years back, his daughter graduated from dental college and is now a practicing dentist.

By the way Happy Diwali to one and all!

Saturday, October 25, 2008

Does the Euro have a future?

The current financial crisis rocking the world economies has cast a rather unfavorable shadow on the perception of the euro as a viable, strong currency. 

European financial stocks, and hence stock markets, were hit hard in recent months by the growing problems with mortgage-backed debt. There is a perception that European banks’ exposure to bad mortgage debt (both US and European) is much worse systemically than US banks’ exposure, which is rather ironic since the sub-prime mess originated in the US. So European investors aggressively liquidated European bonds and stocks and sought a temporary refuge to weather this storm. And that safe haven was sought in US treasury bonds.

Globally, short-term US Treasury bonds are considered the safest debt investment. The US has long had the largest, strongest economy in the world. And because Washington can use the Fed to create endless US dollars out of thin air, the US Treasury can never default (unless the US government is overthrown in a civil rebellion or conquered in an invasion, neither likely scenarios). 

Since the US is a single sovereign nation, as opposed to the often-fragile federation of competing sovereignties that is the European Union, foreign investors still have more confidence in US Treasuries than other government bonds.

Now, the US dollar, like most currencies, exists as a result of nation-building, while the Euro exists as a step towards nation-building.  The European Union is not yet a state in the full sense of the word.  The member states control their own fiscal policies.  More importantly, they see themselves as distinct nations.  And different member states are growing at varying paces which creates uneasiness and discontentment. Especially the southern four member states, namely Greece, Italy, Portugal and Spain are feeling the strain of the high-priced German-centric Euro on their national economies. 

The governors of the European Central Bank have been following the traditions of the German Central Bank. Fighting inflation is their primary goal.  That works for a strong, stable economy like Germany.  But such economic policies during a downturn might prove too much for the Southern states to bear, presenting them with a Cornellian Dilemma.  Leaving or staying in the European Monetary Union, both with ugly consequences.

The Euro was floated in 1999. In its short history so far, it has remained a viable currency but that was during good times. How it fares during the current recession will decide its future. With widening divergences between the EMU’s member states, the pressure on it could become intolerable during a recession. And ultimately this could lead to its breakup. Two possibilities, every nation charting its individual course, or perhaps a Nordic Euro, with the Southern four breaking away.

I wonder if China has already begun formulating a strategy on how to deal with and perhaps take advantage of this possibility. 

Friday, October 24, 2008

Marriages are made in heaven

Different societies have different perceptions regarding the institution of marriage. In Islam, marriage is a solemn and sacred social contract between two willing parties which is not irrevocable. While in Christianity, Catholics believe marriage is a sacrament, but protestants do not.

In Hindu cuture, a marriage is traditionally viewed as a sacrament and not a contract. The bond between the partners is supposed to extend across many lives. It is supposed that these souls are enjoined in marriage because of their intertwined Karmas, Which need to be resolved in order for both of them to attain mutual salvation, i.e. Moksha.

Nita's post made me think about my marriage. Ours was an arranged marriage. And we will be completing 29 years of blissful married life in a few days. Sure, we have had our ups and downs and our disagreements, but they were on minor issues which resolved themselves in due course. And whoever was at fault, accepted that gracefully and both moved on with life. No lingering bitterness as far as I can look back.

It was a combination of factors. We were both mentally prepared for marriage and were ready to work towards making it click. Being from the same community and sharing similar backgrounds, outlooks, expectations and goals helped, of course.

Now, when 29 years later, I look at my wife, I feel in my heart that she has become a part of my existence. I can not imagine a life without her. And I know that the feeling is mutual.

Thursday, October 23, 2008

Crashing Commodities

This is a chart of the CRB commodities index which shows that all price gain by the index, for the past two years, has been wiped out.

Isn't this a little weird? I mean, it wasn't that long ago that the world was on the brink of a fiscal disaster, and is perhaps still trying to find its feet. Shouldn't commodities be booming? And considering that both crude oil and the CRB index are dollar denominated, where and how did the USD find such strength?

It all started with carry trade unwinding. Carry trade is the name given to the practice of borrowing a currency (yen) with low interest rate, converting it to a higher interest paying currency (USD) and depositing it in banks with high credit ratings. So basically you make money, using your line of credit, by taking advantage of the difference in interest rates.

These funds then make their way into the interbank lending market in euro or risky dollar assets. But the plunging securities and equities markets have triggered a reversal. Credit limits have been tightened to compensate for the losses in other markets. Which has brought about the unwinding of the carry trade. This, in turn, means less liquidity all around and therefore lots of players running after the dwindling supply of the USD, pushing it higher.

Trillions have been lost across the world's crashing stock markets. Which has meant a reduction in the money supply available to the world at large, either in terms of credit, or cash valuation of share certificates held. Even the massive cash injections by the world's central banks are not sufficient to offset this loss to the world's financial system. And so, the liquidity crunch continues.

Shrinking credit markets leading to shrinking liquidity results in a reduction of financing available to the real economy. This leads to an onset of recession, first in the US and then followed by a chain reaction leading to recessions all across the world.

The US is the world’s largest consumer. And the first country to suffer the full negative effects of a US recession is likely to be China, being its largest trading partner. The Chinese economy is heavily dependent on exports to the US and a recession in China will mean a slump in its huge demand for natural resources and commodities. Now, this Chinese demand has been one of the major forces behind the previous boom in those markets. The current decline in commodity prices is perhaps a reflection of the realization of this fact.

As the saying goes, when the US catches a cold, the world gets the flu. The reason is that the entire global financial system is set up in such a way that the US effectively controls global money supply and all other countries are, like it or not, hostages to the US currency.

But that may change in the future. This could perhaps be the the first step on the path to a new world order.

Tuesday, October 21, 2008

Moving towards Bretton Woods II?

In Germany, Koehler, a former head of the International Monetary Fund (IMF), has called for the staging of an international conference along the lines of the one held in Bretton Woods in 1944 that helped draw up the post-war financial order. "I'd like to see a Bretton Woods II," he said when discussing what should be done to tackle the financial crisis. "I think the crisis is manageable. It's in our hands."

Germany's Foreign Minister Steinmeier says he wants to see a body comprising an expanded Group of Eight industrial nations to discuss a new financial order.

Sarkozy, the French president, met with President Bush over the weekend. They agreed to a series of summit meetings in the next few months to discuss common strategy for the global economy. Mr. Sarkozy is clearly pushing for a change in the way capitalism is practiced.

And what kind of capitalism does he believe in? The answer is a highly regulated state capitalism,most probably involving a global regulator for all international banks, including U.S.-based.

Bush has agreed to a series of summits, which will apparently start in November. No word on what the exact dates are, but they are likely to involve most developed and many developing countries.

A consensus is slowly building up among world leaders that some sort of regulatory watchdog has to be set up to ensure that one nation's financial woes do not plunge the whole world into economic chaos ever again.

The foundation of the original Bretton Woods agreement was a shared belief in capitalism. But the system collapsed in 1971 because of the US's unilateral refusal to honor convertibility of the USD to gold. The world is going to be weary this time around. And the US will have to open up its economic and fiscal policies to international scrutiny, that is for sure.

Monday, October 20, 2008

The RISC model for rural development

I am no rural development specialist or economist. But I can appreciate a good plan when I see one. The RISC concept is one such good plan and when I compare it with PURA, I can see the advantages it has over the latter.

I respect Dr. Kalam and his idealistic approach to bring development to the doorsteps of millions of rural Indians. But, when you think about it, he is not a specialist in this field. And although you may have full faith in the abilities and intentions of a lay-person, would you allow him to perform open-heart surgery on you? The answer is obviously no. You would seek out a specialist surgeon for the job. You would want a plan which is not only feasible, but which achieves its goals with economy and provides spin-off advantages as well.

When you think about it, the RISC model by Dr. Atanu Dey presents a chance to realize the development dreams of a large chunk of the Indian rural population, within one generation. The spin-offs would be even more impressive. Well-planned urban areas with infrastructure in place and room to develop. It would reduce the pressures on the already shaky infrastructure of the present urban areas.

And just imagine the magnitude of the boost to the economy this challenging concept will provide. The construction of hundreds of new and viable, well-planned, cities-in-the-making. This could be the chance for India, to properly plan out the urbanization of our rural population and to bring to them the fruits of development, within the foreseeable future.

Because no matter what, people are going to migrate from rural to urban areas. You can provide them with a planned urbanization, like what the RISC concept envisages, or take the path China has taken. But you can't keep them in the villages by trying to provide them with all amenities at their doorstep.

Sunday, October 19, 2008

Those days

I remember the good old days of my childhood.

We lived in a house on the edge of the town on a road which was shaded by regularly spaced, huge banyan trees. There was no other house on the road, beyond ours. Just the high school placed about 50 meters inside from the road and then open empty spaces, till the fields and the orchards began. We used to play in the open grounds and come back home to the smells of a great meal and listened to the radio for half an hour or so before going to bed. Those were the days of Apollos to the moon. And watching 'Purab Aur Paschim' at the only cinema hall in town. When families ate together and lived together. The days of peace, love and happiness. Those were my good old days.

But for our offspring, the present is the good old days. These are the days they will remember when they grow up. The days when they were young and free. The days when they were happy and didn’t know about any problems in their little world. The days when they come home and play with their toys or watch their favorite program on the TV. Or spend hours chatting with their friends on the phone or the internet. The days when small sorrows can bring about a flood of tears, but a moment later, a small joy can bring a wide smile to their faces. The days when they can fall asleep in their warm cosy beds and dream of another beautiful tomorrow. These are their good old days.

I visited my childhood home earlier this year after a gap of about 20 years. All the banyan trees had been cut down and the road was lined with shanty dwellings. Even our childhood home was in a dilapidated state. There were no open spaces left. A slum had sprung up and taken over every available piece of land. But to me it made no difference, because my memories are more associated with the people I grew up with, than the places where I grew up.

One day my children will grow up and revisit the good old days of their childhood. I hope and pray they remember the people and not just the place they grew up around.

Saturday, October 18, 2008

Getting it right

Here is a snippet from a letter by Casey Research:

Imagine you’re in America, back in 1970.
Richard Nixon is president. The Beatles have announced their breakup. And the average weekly wage is around $170.
Out of your $170, you’ve managed to save $35, and you want to invest it… but you’re not sure of the best place to put your hard-earned money.
And then, in 1971, Richard Nixon takes the country off the gold standard…
… which means the dollar is no longer tied to the price of gold.
It also means the price of gold is no longer fixed, and can go up according to demand.
You recognize what this change means. So you take your $35 and you buy one ounce of gold.
That’s in 1971.
Thanks to worries over the stability of the economy, and inflation galloping along at around 15% annually… by 1974, your single ounce of gold has risen from $35 an ounce to $195.
That’s a 557% return in just 3 years.
Then, in 1979, the price of gold more than doubles in 12 months – to $400 an ounce.
By 1980, it more than doubles again, to $850… before settling back to $627.
Your $35 has gained 1,719.42%, in one decade.

At the end of 1980, you sell your gold…
… and you’re looking for a new place to invest your money.
One of the things you’ve noticed over the years is that something odd is happening to the balance of the world economy.
You noticed that in the ‘70s, the people who did the best during the oil crises of ‘73 and ’79… were the Japanese car manufacturers. Their smaller, more fuel-efficient vehicles were quickly becoming more popular than the heavy, gas-guzzling American cars.
You also notice that everywhere you look, people are listening in on a new kind of personal stereo… the Walkman… made by Sony.
Confident that Japan is the place to put your investment capital, you invest your $627 into the Nikkei Index in Japan… in 1981.
In the early ‘80s, the Nikkei more than doubles – bolting from a 1975 high of 4000… up to 8000.
From 1983 to 1985 - the Index jumps again, from 8000 to 18,000.
You get the feeling that you should strap yourself in well for this ride, because it’s only going to get more exciting.
And indeed it does.
From 1986 until early 1989, the Nikkei catapults from 18,000 to 28,000…
… and reaches its peak on December 29th, 1989 – at a whopping 38,194.
The $627 you originally invested into the Nikkei is now worth $3,548… that’s an increase of 565.86%.
You jump out of the Nikkei market at the end of 1989 (just before the market collapses, losing 63.5%)… and look around for a safe place to land.

It’s now 1990… and there’s another market starting to make a lot of noise.
In the early ‘90s, there’s a lot of talk about bio-tech companies, and scientific and medical-device firms that are promising to do everything from cloning humans to curing cancer in our lifetime.
Most of the companies at the center of this talk trade on the smaller, electronic stock market called NASDAQ… and you like what you hear.
So you take your $3,548 and move it all into the NASDAQ Index.
The NASDAQ exchange is doing okay – but in 1994, the computer age takes firm hold… and soon after that, the Internet revolution takes the market by storm.
In 1996, the NASDAQ is sitting at 600.
On March 10th, 2000, the NASDAQ peaks at 5132.52.
Your’ $3,548 is now worth $35,105.

But you’re hearing a lot of talk about the Internet and the “New Economy,” and how the old business models are no longer applicable to the new Internet age… recessions and market corrections are a thing of the past…
This “irrational exuberance” makes you nervous… so you take your money out of the market – just before the meltdown.

Now what?
You look for another vehicle, and realize there is only one place to put your money for the new millennium… and you set your sights on energy.
Specifically, crude oil.
This final investment of your four-decade adventure proves to be one of your finest.
The crude markets are fairly tame in the early part of this century…
… but we all know what happens next.
Your $35,105 invested in crude oil gives you one of the great moon-shots of all time…
That humble $35 you began with originally in 1970 – has ballooned to $159,591.

Here’s how it would look all laid out on a chart:

That’s a return on investment of 455,971%.

Provided you get it right four times in a row and entered and exited the market at the perfect times. Which is just not possible for average Joes like you or me.

Show me just one example of someone who has succeeded in doing so and I will show you a million failures.

Though, I have to say, it looks good on paper!

Friday, October 17, 2008

Transport in ancient India

My last post was about the Nilgiri Mountain Train, which was built essentially to transport tea produced on the hills, down to the railhead at Mettupalayam. From where it was transported by rail and then shipped to destinations around the world. But have you ever wondered how and in what manner, cargo was transported in ancient India, before the railways were built by the English?

According to Ashraf Khan’s ‘Dakshin Bharat’: “In the regime of KrishnaDev Rai in South India, every thing was brought in Vijaynagar laden on oxen. Daily 2 thousand oxen used to enter the gates of Vijayanagar with goods laden on them”.

This was the mode of transport in ancient India. The Banjaras had almost a monopoly on this trade and were trusted and sought after to supply armies during wars as well as carrying out normal cargo transport during peacetime.

All kings and warlords in ancient times needed the logistics support provided by the Banjara tribes and understood the need to maintain good relations with them. Chhatrapati Shivaji reportedly came to meet Aurangzeb at Agra in 1666 with 500 oxen and 100 Banjaras. He also employed Banjaras with a huge herd of oxen for transporting the loot from Surat in 1664 and 1670.

The Banjaras became rich and powerful plying their trade and they are mentioned in almost all folklore of that era. The Sagar Lake around which the city of Sagar in Madhya Pradesh is constucted is reputed to have been built by one Lakha Banjara.

The Banjaras were on the move with their pack herds of oxen, nine months a year and only returned to their villages or 'tanda's to spend the monsoon. The advent of the railways spelled an end to this community's nomadic way of life and it took up various trades and professions including agriculture for its livelihood.

You can find more information about this nomadic tribe here, if you are so inclined.

Wednesday, October 15, 2008

'Chhaiyya Chhaiyya', the Nilgiri Mountain Railway

The Nilgiri Mountain Railway yesterday completed 100 years of its rich history. We were lucky enough to travel on it in August this year and I would recommend this trip to everybody. It leaves early in the morning from Mettupalayam and takes slightly over four hours to complete its 46 km journey thru the verdant hills and tunnels to finally reach Ooty at around mid-day. A steam engine pushed us upto Coonoor, from where it was the turn of a diesel engine to make the final stretch upto Ooty. What was interesting was the fact that the steam engine which initially huffed and puffed to take us up to Coonoor was built in Winterthur, Switzerland according to the inscription on it!

Here is a picture taken at one of the stops along the route:

What irritates is that this train has come to be known as the 'Chhaiyya Chhaiyya' train as if that were its only raison d'etre. In spite of the fact that three years back, UNESCO has awarded it world heritage status.

Unlike the Darjeeling Mountain Railway, which is run by an autonomous body, the NMR has no administrative set-up — it is just another maintenance assignment of the Salem division. "Unless a separate administrative team, delinked from the Southern Railway, is set up and a special officer appointed to exclusively look after the NMR, it will continue to be neglected," says a senior railway official.

A really sad state of affairs. We as Indians have to learn how to look after our own heritage and the NMR is a part of it.

Tuesday, October 14, 2008

Mrs. Born vindicated

Long Term Capital Management was a hedge fund established in 1994 with over a bilion dollars in capital and controlled assets of over 100 billion dollars in its heyday. It had two Nobel-prize winning economists on its board. And yet it suffered huge losses and had to fold up, with its capital wiped out by losses, in early 2000.

Did anyone have a clue, at that time, that this was possible? The answer is no, but a qualified no. Because LTCM was heavily into derivatives and as far back as in 1997, Mrs. Brooksley Born, then head of the CFTC , warned in congressional testimony that unregulated trading in derivatives was a serious threat to the regulated economy and could bring about its downfall and asked for greater transparency.

George Soros is on record saying that he avoids derivatives as he does not really understand them. Warren Buffet, five years back, called them weapons of mass financial destruction.

But, Mr. Greenspan still has unshakable faith in those. His argument is that it is not the derivatives themselves but a lack of integrity in the financial community which has brought about the current crisis. According to him, those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

But then Alan Greenspan was the one who has fought against regulating this sector for as long as one can remember. He was instrumental in getting Mrs. Born silenced in 1997 and eventually getting rid of her. He has been telling every congressional committee trying to put reins on a wild west type derivatives market that it would be a mistake to regulate those 'highly specialized' markets and to let the specialists do their work without any government supervision or stifling regulation. And look where that has brought the world's financial system to, on the verge of collapse.

In hindsight, had Mrs. Brooksley Born's warnings been listened to, back in 1997, and proper regulatory mechanisms put in place then, we wouldn't be facing this financial turbulence now.

Monday, October 13, 2008

Final Solution

If you haven't been able to watch this documentary yet, go ahead and find a copy, download it via bittorrent or just watch it on google video. Especially if you are a Gujarati, like I am, this is incumbent upon you, to watch it with the advantage of hindsight.

I recommend this documentary, not because I agree with the film maker's objectivity or interpretation of what transpired in Gujarat in 2002. But because I feel that no matter how you interpret it, what happened was very wrong. And that watching some of it through your very own eyes will perhaps make you realize the horror of what happened.Perhaps it will make you pause and reflect on how this ghastliness came to pass. And think about what WE can do to ensure that this does not ever happen again.

Because we can not change what has happened but we can work towards eradicating the causes that led us to this shameful chapter of our history. And because, just maybe, it will make some of us shy away from the politics of hate and work towards finding other solutions to our age old problems.

And mostly because 'those who forget history are condemned to relive it'.

Sunday, October 12, 2008

Education is the key, or is it?

James Michener has been one of my favorite authors thru the years. I have read most of his novels. I love the way he builds a story around that which has permanence, the place, not the people. Although the characters he develops are vivid and grip all your attention in their journey thru their lives. The only gripe I have against him is that he perhaps developed a dislike for Indians during his days in the South Pacific, specifically Fiji. And this prevented him from learning or writing about India in particular.

It was while reading his novel 'The Covenant' that I actually realized that education was the key for uplifting the disadvantaged classes of a society. The University of South Africa is a distance learning institution. And because of its nature, remained open to all throughout the dark days of apartheid. Nelson Mandela, Desmond Tutu, and Robert Mugabe are just some of its notable alumni who made their mark on history.

Reading 1conoclast's post here made me realize something else. That the powers that be would stoop to anything to perpetuate the status quo benefiting them. It doesn't matter to them if they are trampling on the human rights of children. It doesn't matter to them if what they are doing is against basic human decency. In fact, they have become so used to this caste based profiling that a principal of a municipal school says: “We have been writing sub-castes on progress cards for over 30 years now. We have chamars, bhangis, vankars and wagri children, among others. What difference does it make whether we write their castes or not? We anyway know each other’s castes.”

If you start sowing the seeds of discrimination at such an early age, can you expect your next generation to remain free of caste based prejudices? In fact, I have to question your very motives for doing this.

1conoclast is correct in saying that this is not what our founding fathers envisaged for India.

I too feel nauseated.

Saturday, October 11, 2008

The Sum of All (economic) Fears

The FIIs are withdrawing money from India because they need it to meet margin requirements back home. This demand for the USD has meant a weakening in the INR-USD exchange rate, which is actually good for the Indian economy. Because they are getting less and therefore are repatriating less bucks for their rupees.

The Indian economy is not as export oriented as China's or South Korea's, and that is why perhaps we will not experience the full impact of the US recession that those economies will. The US system has so far been able to stave off the worst, yet there is still a chance that the worst case scenario could be realized. Here is a snippet of a crisis scenario from the September 19 Martensen Report:

Day 1:  Four major banks are suddenly revealed to be insolvent, and money begins to be withdrawn from these banks at increasing rates. That night, foreign investors quietly begin to retreat from a stricken US banking system, and the withdrawals spread beyond the four stricken banks. As bank servers begin to log more and more withdrawals, alarm bells go off, and late-night emergency meetings are convened. 

Day 2:  The next morning, US government and banking officials assure the world that everything is fine and that a new program has been put in place guaranteeing the solvency of the US banking system. Behind the scenes foreign money continues to flee as wealthier individuals and institutions with a better view of the real state of affairs retreat to the safety of their home countries. 

Days 3-7:  The expatriated money is converted into anything other than dollars, resulting in a dollar slump that confuses all but the most astute of observers. Simultaneously, US interest rates begin to climb, as US bonds are sold off in preference for non-US assets. 

Day 14:  Fearing a massive run on the dollar and a collapse of the capital markets, the US imposes an emergency order, requiring a 2-week delay in money flows out of the country. This is, of course, nothing more than a capital control, a favored but ultimately inflammatory tactic of countries suffering a currency run. Around this time, a growing proportion of domestic bank account holders realize that, 
because of the interlocked nature of the banking system, simply moving money from one bank to ‘a better one’ is not a fool-proof strategy. 

Days 15-21:
  Over the next week, cash is demanded with increasing frequency, exacerbating the troubles of an already beleaguered banking system. A cash shortage rapidly develops, leading the Treasury Department to make a high profile show (on television, of course) of armored trucks pulling up to banks with large bags of cash. Assurances are made that everything is fine and that there is enough cash for everyone. Commentators on television make snide comments about the people lining up for cash, suggesting that they are over-reacting. But the Treasury is caught off guard, and even a 24/7 printing regimen cannot keep pace with cash withdrawals.

Day 25:  
Currency controls are announced over the weekend, limiting cash withdrawals to no more than $250 over every 48 hour period. A few days later, the government announces that the US banking system, and, by extension, the US stock markets, will be closed for a period of two weeks while the situation is “evaluated” and solutions are identified. 

Day 50+:  A month later, the markets finally open up again, with the Dow down several thousand points, the dollar worth 50% of its pre-close price, and people everywhere suddenly trying to convert their cash holdings into things. Rampant inflation ensues. The dollar continues to fall.

Remember that this is a worst case scenario. The chances of this actually coming to pass are remote. But if it does happen, the shock waves will be felt around the world and people everywhere will be affected.

P.S. Gold had a trading range in excess of a hundred dollars yesterday, 10-10-2008, breaking all previous records.

Friday, October 10, 2008

Drenched in Bangalore

It is exactly six weeks today to this incident and now I can look back at it in a more rational way. So this is how it happened:

We are outside the Forum mall in Bangalore and trying to hire an auto to take us back to our hotel. I enquire in broken english and hindi if the auto driver can take us to *** hotel in ShantiNagar.

'ShantiNagar? OK, OK.'
'*** Hotel, ShantiNagar.'
'OK, OK. 60Rupees, OK?'

And so we get into the auto and after about 20 minutes of maneuvering, the auto stops at a cross roads and the driver inquires the shopkeepers around there where the *** hotel is located. He finds out that it is about a kilometer and half away from where we are standing. So he informs me:

'Forty rupees more, Sir, very far.'
'Why? I told you I wanted to go to the *** hotel right from the beginning.'
'This ShantiNagar. Sixty rupees here only.'

So we started arguing and I got out of the auto just as a heavy downpour started. Both of us kept on arguing heatedly through the downpour and got fully drenched. In the end, the auto driver requested me to get back into the auto as it was raining heavily. But would I budge? Of course not, I wanted to make a point. So I located a traffic policeman on duty and brought him in to solve the problem. After listening to both sides, he dispensed justice and told the auto driver to drop me back exactly from where he picked me up and told me not to pay him anything. He was getting drenched as well and immediately ran away to find shelter. Leaving me fuming.

Did I want to go back to the Forum Mall? After pondering on this for a few minutes, I got back into the auto and told him to locate the hotel and drop me there, which he did. I paid him the full 100 rupees that he had been asking for. He was actually surprised as he was not expecting this and thanked me profusely before driving away.

This incident raises two questions. Why can't Bangalore autos ply according to the meter? Every auto seems to have one. Perhaps people have grown accustomed to bargaining for the fare in advance, instead of relying on the meter. More importantly, why did I make such a fuss if I, in the end, paid him what he had been asking for?

The Vijaynagara Empire

The love of reading has to be instilled in children at a very early age. And the best way to do this is by providing easy access to books. My father was an avid reader and he had a good personal collection of fiction as well as non-fiction, all in Gujarati. That was how I was introduced to the world of books.

Sandeep's post about the Vijaynagar empire and Madhava Vidyaranya instantly took me back to my childhood. Because I remember reading the Vijaynagar series of historical novels by GunvantRai Acharya. Harihar, Bukka, Madhav and Sayana are larger than life characters for me. And I have always been fascinated by the lone Hindu Empire that sprung up in the south and defied the Muslim conquerors constantly trying to expand their foothold in the south, for two and a half centuries.

What is even more remarkable about this empire is that although it sprang out of a need to protect the Hindu way of life, it was not intolerant of its Muslim subjects. And in fact, quite a few were employed at the courts and in the armies, especially of the later rulers.

Wednesday, October 08, 2008

Is this it?

Jimmy boy has shouted 'this is it' so many times that the warning has lost the impact and the urgency. Still it is time we took stock of the current market situation especially regarding gold, the king of commodities.

"There is only a relatively small group of investors who very seriously believe that there is a high level of risk that the (financial) system could break down. You only need a relatively small group to believe this to move the price of gold. In other words, the metal's price behavior reflects the trivial obsessions of a discredited fraction of investment opinion."  -Alan Greenspan

And just what is happening out there? Rumours are flying around that Comex might default on Gold contracts and settle in cash instead of physical delievery.  Further weakness being signalled around the world financial markets and rumours of a bank holiday to give the markets some breathing space. Bernanke signalling rate cuts in an effort to calm down US markets and yet they tumble. The UK pumping 50 billion pounds into its fiscal system to shore it up and Hong Kong and Australia slashing rates to increase liquidity.

'Extaordinary' and 'Historic' are the words being used by Gordon Brown and Ben Bernanke in describing the current state of the financial system.

In the gold market if the buyer is paying the effective interest rate for committing the trade, the market is said to be in 'contango'. The 'basis' is the effective interest rate being paid. The shrinking contango and the persistent fall in the gold basis is a measure of the vanishing of gold into private hoardings according to Fekete. Well, the bad news is that the basis has taken a beating in the last few days. His arguement is that when the basis approaches zero, it is goodbye time for the world's fiat currency system.

Gold could see an exponential rise in price in case of an actual meltdown in the financial markets, due to a flight to safety by panicky participants in the world's exchanges. Because, after all, gold is the world's ultimate reserve currency.

Monday, October 06, 2008

Zardari loves India

Don't be fooled into believing that we will be seeing a sea change in Pakistan's attitude towards India, just because Zardari says so. Do not even think for a moment that the Kashmir problem can be solved just because Pakistan changes its public persona. That is exactly what he is, Zardari is the face that Pakistan presents to the world community at the moment. He does not have any control over the army, or the ISI, which are the actual policy-makers with regard to India.

And look at the context in which he is saying all those sweet nothings. Pakistan is in dire economic straits and Zardari is asking for a $100 billion aid package. Do not forget that he is the original Mr. 10 per cent. Of course he will be excited at the prospect of billions and of his personal cut from it. I am sure that is why he has that glint in his eyes. He must be wringing his hands in glee, mentally calculating his personal windfall from the aid package which Pakistan's friends are bound to come up with. He sure can say even sweeter things so that they can part with that money with a clear conscience.

After all, doesn't Pakistan have all those nukes, and can the world and especially The Friends of Pakistan let it slide into anarchy? Who said that nuclear weapons are, at best, deterrents? In the case of Pakistan, they have become a tool for blackmailing the entire world into coughing up aid and supporting a failed state.