Empires built on DEBT: All you want to know about world economics, Eurozone crisis and inflation

The subject of the article is very demanding and I am going to touch much conceptual stuff in this article. thus I have tried to keep economic jargon as brief as possible. simultaneously I have tried to answer all possible questions that might arise in your mind while reading this article.

as per the title of this post, There are 4 broad areas that I have tried to elaborate. Depending on your requirement you can simply jump to the relevant part of your interest. However if you are new to economics, then I will recommend you to go through the article sequentially.

NOTE: This article is for understanding purpose only and and although the concepts and data mentioned here are valid and correct, they are expressed in very simple manner.

The covered subtopics are,

  1. What is fiscal deficit?
  2. How world economics functions
  3. China`s role in USA`s economy?
  4. GDP, growth rate
  1. the crisis: the rich countries in deep debt?
  2. what world is doing about it
  1. learning from crisis: deregulation: petroleum price
  2. Why government is doing it

Basics of economics

Economics is not a difficult discipline to understand but to understand an event in economics, you are supposed to know all associated factors and concepts, and that makes this subject challenging. So to understand Euro zone crisis and Policies of deregulation going in India you will need some basic understanding of economics, which starts with fiscal deficit And then little about GDP and growth rate.

What is fiscal deficit?

A government (G1) runs like a home. You earn money from your job and then you spend it on your daily activities and when you need more money than you earn, you simply borrow it. Similarly government earn money from various sources like taxes and duties, public sector company revenue etc. and then it spend this money on government employee salaries, developmental projects etc.

often government spends more than it earns and this difference between spend amount(S) and earned amount(R) is called as fiscal deficit(D) i.e. S-R=D. (u know, fiscal=related with finance & deficit=shortage)

how world economics carry out its activities or Business

government need money equal to its fiscal deficit to carry out its business; but devoid of internal sources of tax n duties, government take help of other means i.e. it resort to borrowing money and  it issues bonds. (bond, in general terms is a fixed deposit account) besides bonds, which are purchased by either financial institutions(big banks) of the country or mostly by other country`s government (G2).

But funny thing is other government G2 is also suffering same problem of fiscal deficit like G1!

Now a simple question arises, if both are suffering then why would G2 will help G1? (if this question has not raised in your mind just skip following para.)

Well, the answer is simple; today the governance has also become a business. Let’s understand this with an example of US and china. and then you will also understand why n how China is said to be a world power.

(Here I am going to use a term GDP (gross domestic product), if you don’t know what it is, don’t bother, just for time being assume it as total money generated in a country in 1 year)

for 2010 China`s GDP is ~$5trillion and fiscal deficit ~223billion while USA has GDP of $15trillion and fiscal deficit of ~$1.5trillion. thus considering the hugeness of amount, obviously USA`s fiscal deficit is more as compared to china.

To fill this deficit government of both countries will issue bonds. as matter of fact, USA being the richest country, it is considered as safe place to investment. also the government of USA has never defaulted! and value of US dollar hardly fluctuates and mostly it appreciates making more returns at maturity for the bond.

so with this lucrative offer, Suppose china buys these bonds and invests their money in USA fixed deposits.  then china has a security that USA will return its money after maturity of bond plus china will get some interest on these bonds!

And from where china will get that much money? Simply via the ‘made in china’ stuff! The international trade is carried out in US dollar only; and china has plenty dollars earned via the export based trade, as the international trade is carried out via US dollar. (for same reason, USA has strongest economy!) so there cannot be a better and safer place than USA to invest the huge chuck of money! Above all its china`s money that will be supporting USA economy(as it is fixing fiscal deficit) so obviously USA will have a soft side towards china. And this hugely matters in international politics. (Obviously you will be grateful to the person who is helping you.) Thus china prefers to invest in USA`s debt.

And to fix its own debt, china also issues bonds which are bought by other countries just as mentioned above. Thus, the universal principle governing global economics is bigger economies gets cheap funds from other big economies to fix its deficits. And such investments are done to gain favour from other countries in international politics. (As matter of fact, by means of bond, today USA owes china about a trillion USD!)

why not print more currency to fix deficit?

After above business another question might creep in your mind, why so complex? Why borrow money? Just print more currency n fix deficit! When I was studding this stuff I had asked my teacher same question Then he answered, ‘a note is simply a treasure bill that is issued against a fixed asset’. And I was more confused! The economists love to see the expression of frustration on your face and they get extreme pleasure in talking that jargon! (But you see, he used just 13 words to answer correctly! N I will be devoting a para to answer the same.)

So in simple language, the money or a note of Rs.100 or Rs.500 that we use is issued by RBI against some fixed tangible asset owned by the government. traditionally This asset was gold as per gold standard; that is a central bank was supposed to keep gold of same amount aside to print notes. however with maturity of economy today it is carried out on basis of bonds. Here the government issues bonds to central reserve bank, and upon this bonds central bank issues currency.

The bond remains liability of government. but you see, the bond is a type of debt and RBI issues money based on debt! money created out of debt! funny right? but that’s how it works.  🙂

now, If government asks RBI to issues more notes, then it will dilute worth of money already in circulation. it simply works on principles of demand and supply! if a commodity is more its value will be lower. More money in peoples hand more mouths to eat, but with fixed production, scares becomes the resources. And thus with simple rules of demand and supply, higher the demand and less is the supply, scares will be the resources leading to higher prices and hence inflation. (and this is the  reason for current inflation in India. We will come to that again in last section.)

Thus a wise government never opt to printing more currency to fill the deficit.

in economic jargon, the currency floating in economy is also called liquidity. Its just like melted water out of frozen iceberg and the RBI maintains the iceberg, by various ‘fiscal measures'(REPO and reverse REPO rate) central bank (RBI in India) controls this ‘liquidity supply’

Continue reading “Empires built on DEBT: All you want to know about world economics, Eurozone crisis and inflation”

the grat Indian recession

Lets put  this in simple terms, today I was studying the Indian economics and current recession and I came across this term called as downwards spiral that cause recession.

It says,

Recession is when there is plenty of goods and services available in the market but the people don’t have enough money to buy them, so as the customers don’t buy the dealer cant clear his stocks i.e.  neither he cannot pay to the producer nor he is out of stocks so he don’t ask producer for new goods n services. similarly producer cannot buy new raw material and he stops production and simultaneously the employees don’t get salary most of them are fired. And the cycle begins…No money in peoples hand, further decreases their capacity to buying (decrease in purchasing power of consumers) and  results  in downward ladder for economy.

Every entity on the ladder On top floor producer, on 2nd floor the dealer and at bottom its customer, they points figures at each other for cause of recession.

To solve such recession problems,  western economist (like kynes, milton etc.)   put forth a theory where they say ‘government should put stimulus into the system they should increase peoples purchasing power by providing them wages so that they will buy good and the cycle of demand and supply will resume’ prety simple…

Well our education system is also suffering from such recession since years. But unfortunately, as man is a rational animal; runs behind money like anything than knowledge,  but still I am applying this recession logic by just replacing money by will power and goods and services by knowledge so the system will become as,

The students fraternity well no need to say they (most of them unfortunately) tends to look for the shortcut so never use their patience or energy to ask teachers (less /no demand for knowledge),

the manager says we don’t get good teachers and persons, extremely unfortunate to this country teaching is considered as a lower category job (which I think is really a prestigious job as you construct youth the single most important entity in development of any country) and job like software professional considers a higher category job (which is nothing but a slavery to a foreign company mostly). [I would rather be please if any one became entrepreneurs and set his shop in india to provide job for Indians adding to GDP + talent of youth of the country].

So point is the creamy layer proudly became slaves and other as they don’t have any option came to teaching (product is not worth investing.) and finally our great macurly based british adopted education system which deliberately separates technical people form humanities subjects, infact the HOD is a MTech/ME person with PhD but no management skills. (It’s not I want to say that one get management skills by doing MBA only but it’s a generalised observation.) the management fear to do new experiment / drastic change in production or marketing strategy.

in all The management or higher authority stands on top of the ladder. yell at teacher that they are not doing their job while teachers blame students that they don’t ask us questions! (i.e. they expect that consumer will buy product without advertisement!) and student points at teachers that they make subject boring. finally the teacher fraternity stops their production of knowledge as there is limited exams oriented demand of knowledge. And thus it gives rise to down spiral laddr.

Such students/ teacher in future became manager and repeats exactly same what happen with them and at each step they make depreciation of system since, brilliant human being finds more shortcuts each times making further loss of knowledge and giving rise to a perfect down going ladder towards destruction.

Just like the normal economic recession Here a stimulus package given can really change the situation.

The higher management must invest more money for training of teachers, and increasing their salary so youth will think it as a Currier option (of course teaching is an art so person with passion towards teaching will accept teaching as job). This section has a huge future since India is a young country and with 12% drop out at graduation is tending to change so in future will need more colleges=> more staff.

Simple… make papers tough! Let the students search for knowledge, create an artificial drought of knowledge let them search, read. To begin something good we have to sacrifice some thing. Management must trust students and make the administration of quasi-democratic form rather than director/principle acting as monarch.

I laughed after writing this coz it’s not a 2+2=4 logic! But its fun when u relate your study with any day-to-day life problem! It makes process of study really enjoyable! but still don’t know why i stumble upon this topic  🙂

Becoming One With the World

Before we become one with the world we have to become one with ourselves. If we get our own house in order we don’t have to make an effort to be one with the world. The world will want to be one with us. Everyone wants to be friends with happy, rich, thriving neighbors. Nobody wants a family festered with disputes.A lot is wrong in my country. There are too many differences. The question is not who we blame for this. The question is how do we fix it? Because to do anything great, you have to become one first. Two generations ago, our forefathers came together to win us Independence. It isn’t like we didn’t have disputes then. Religion, caste, community have existed for centuries. But Gandhi brought them all together for a greater cause – to get the country free.
Today, we have another greater cause. To get India its rightful place in the world. To see India the way the younger generation wants to see it. To make India a prosperous, developed country, where not only the spirit of patriotism, but also the standard of living is high. Where anyone with the talent, drive and hard work alone has the ability to make it. Where people don’t ask where you come from, but where you are going. We all know that India, as we have all dreamt of that India.
There is a lot required to be done for this, and it doesn’t just start and end  by blaming politicians. For in a democracy, we elect the politicians. If our thinking changes, our voting will change and the politicians will change. And since I have made a nation that didn’t read, read, do I believe people’s thinking can be changed.

To me there are 3 main areas where I think we need to change our thinking – leaders included. And I’m not just saying we need to do it because it is morally right/ ethically correct/ or because it sounds nice at a conference. We need to do it as it make sense from an incentives point of view. These three areas are changing the politics of differences to the politics of similarity, looking down on elitism and the role of English.

The first mindset change required is to change the politics of differences to the politics of similarity. I’ve been studying young people in India, not just in big cities but across India for the last five years.
They are the bulk of the population – the bulk of our voter bank. Yet, what they are looking for is not what politicians are pitching. It is not too different from the old school Bollywood where they think item numbers, big budgets and tested formulas work while the biggest hits of the year could be Rock On and Jaane Tu. Yes, times have changed.
Here is what the politicians are pitching – old fashioned patriotism, defending traditions, being the torchbearer of communities, caste and religion. Here is what the youth wants – better colleges, better jobs, better role models. Compared to the talent pool, the number of good college seats are very limited. Same for good jobs. These wants are the biggest similarity that we all share. We all want the same things – progress. I see a huge disconnect in the political strategies of existing politicians vs. what could work for the new voters.
I think broad based infrastructure and economic development will satisfy the young generation’s needs. It isn’t an easy goal to attain – but it is the great cause that can unite us. Today a dynamic politician who takes this cause can achieve a far greater success than any regional politician. And the slot is waiting to be taken.
Another aspect required to convert the politics of differences to the politics of similarities is a  strong moderate voice. When someone tries to divide us, people from the same community as the divider have to stand up against him. If person A is saying Non-Marathis should be attacked, then some Marathis need to stand up and say person A is talking nonsense. If a Muslim commits terrorist attack, other Muslims should stand up and condemn it, as Hindus are going to condemn it anyway. This moderate voice is sorely missing but is critical in keeping the country together. And the youth want to keep it together, as we want to be remembered as the generation who took India forward, not the one that cut India into two dozen pieces.
I hate telling people what to do, but the media does have a role in this. I agree that media is a business and TRPs matter above anything else. However, there are ethics in every business. Doctors make money off sick people, but it doesn’t mean they keep people sick and not heal them. If you find a moderate voice, highlight it as soon as a divisive voice appears. And don’t take sides, argue or debate it. Don’t validate the ridiculous. Focus on the greater cause.

The second mindset we need to change is that of elitism. From my early childhood days, to college, to professional and business life, and now in the publishing and entertainment circles, I have noticed a peculiar Indian habit of elitism. Maybe it is hard to achieve anything in India. But the moment any person becomes even moderately successful, educated, rich, famous, talented or even develops a fine taste, they consider themselves different from the rest. They begin to move in circles where the common people and their tastes are looked down upon. This means a large chunk of our most qualified,  experienced, connected and influential people prefer to live air-conditioned lives in their bubble of like minded people. Naive people  who elect stupid politicians – that is the bottomline for all Indian problems, and they want nothing to do with it. But tell me, if the thinking of the common people has to be changed, who is going to change it? What is the point of discussing solutions to Indian problems if there is no buy-in from the common man? Just because it feels good to be around like-minded, intelligent people? What is the use of this intelligence?
If you switch on the TV, seventy percent of the time you will see Delhi, Mumbai and Bangalore. The reason is the media is centered in these cities. However, ninety percent of India is not this. Unless we represent these people properly, how will these people ever come with us?
Again, I am not making these points as a moral appeal. I think understanding India and being inclusive makes massive business sense. And trust me, it doesn’t take any coolness or trendiness away from you if you do it right. Look at me, I am the mass-iest English author ever invented in India. My books sell on railway stations and next to atta in Big Bazaar. I have an Indian publisher who operates from the bylanes of Darya Ganj. And yet, on orkut the most common words associated with my name are coolness and awesomeness – tags given by my wonderful readers. I think it is cooler to know how people think in the streets of Indore and Raipur than who’s walking the ramp in South Mumbai. You may have planned your next vacation abroad, but have you visited a small town lately? Have you shown your kids what the real India is like? Don’t you think they will need to know that as they grow up and enter the workforce. Yes, I want people to look down on elitism and develop a culture of inclusiveness. If you are educated, educate others. If you have good taste, improve others taste rather than calling theirs bad.

The last aspect where we need to change our thinking is our attitude to  English. We have to embrace English like never before. Not England, but English. This point may sound contradictory to my previous one, but I am not talking about confining English to the classes, but really taking it to the grassroot level. English and Hindi can co-exist. Hindi is the mother and English is the wife. It is possible to love them both. In small towns, districts and even villages – we need to spread English. India already has a headstart as so many Indians speak English and we don’t have to get expat teachers like China does. But we must not confuse patriotism with the skills one needs to compete in the real world. If you are making an effort to start a school where none existed, why not give the people what will help them most. I can teach a villager geometry and physics in Hindi, but frankly when he goes to look for a job he is going to find that education useless. English will get him a job. Yes, I know some may say what will happen to Hindi and our traditional cultures. I want to ask these people to pull their kids out of English medium  schools and then talk. If you go to small towns, English teaching classes are the biggest draw. There is massive demand for something that will improve people’s lives. I have no special soft spot for this language, but the fact is it works in the world of today. And if more English helps spread prosperity evenly across the country, trust me we will preserve our culture a lot better than a nation that can barely feed its people.

We are all passionate about making India better, so we can discuss this forever. But today I wanted to leave you with just three thoughts – politics of similarities, less elitism and more English that we need to build consensus on. If you agree with me, please do whatever you can in your capacity to make the consensus happen. It could be just a discussion with all your friends, or spreading these thoughts in a broader manner, if you have the means and power to do so. For the fact that we are sitting in this wonderful venue means our country has been kind to us. Let’s see what we can give back to our nation.

Where’s My Nobel Prize?

this is an editorial published in times of India, contributed by  famous novelist chetan bhagat,

The recent news of a person of Indian origin winning the Nobel prize while based abroad sparked off a series of discussions at home. “Why don’t we win Nobel prizes here?” became the question of the week. The standard points were raised: we don’t have the facilities, too much government interference, the selection process is rigged, the prize committee is racist and, finally, who cares about the Nobel anyway (of course we do, that’s why we discuss it).
Like all media stories, this one too will die soon. However, maybe it is time to look at the core issue: why India doesn’t excel on the world stage on a fairly consistent basis. We don’t win a significant number of Olympic medals, we don’t create global brands, our IT industry is essentially a job transfer model but we haven’t created even one Google, Facebook or Twitter. (Of course, there is plenty for Indians to be proud of otherwise, so please don’t jump on me because of my observations.)
The real issue comes down to the treatment of talent in our country. So, what is talent? Talent refers to a special ability and aptitude that give people an edge in a particular field. In sport, science, films, business or the arts, people who dominate the world stage all have a gift that makes it easier for them to excel. Of course, along with talent there
is preparation, hard work and a certain amount of luck required to achieve success. However, talent is usually a necessary ingredient. Talent is rare, and randomly distributed across the human population, irrespective of pedigree, connections or wealth. Some may call talent an unfair gift. However, it is talent that allows ordinary people to come up in life. Otherwise, rich people would stay rich and poor people poor. Thus, this unfair talent actually makes the world fairer.
However, we don’t put talent on the highest pedestal in our country. Talent’s stature is below that of someone with connections, with hereditary entitlement, pedigree or even experience.

Even in an IIT, a truly gifted young faculty cannot jump ranks and scales set by the system. And the people designing the system never took talent into account. Even when talent is identified, we are unable to train it, and find it difficult to reward it.
It is difficult to say why we have this attitude, but there are many possible reasons. One,
talent conflicts with the traditional Indian caste system. Two, Indian cultural values revere the older generation and its experience, and talent zooms past it.

Ask yourself, have you seen some of this in India? Maybe because so many dreams have been crushed in India, someone else’s success reminds us of our own pain. The US (only as a contrasting example, not recommending we become like them) has an opposite value system. Talent is respected, seen as something to be emulated. That is why they have teenage boy bands and college dropouts who open outcomes as national icons. We don’t.

There are grave negative repercussions for a community that doesn’t respect talent. It leads to a society where connected people do better than people with ability. It leads to a lot of talent being unused, a tremendous waste of a national resource. It causes frustration in the entire new generation as they see people with less capability doing better than them. It also reinforces the old Indian values of fatalism and the helpless-common-man theory. And it means India’s excellent people may not excel
worldwide to the extent possible.
So what can be done? Well, we definitely can do something – both at the macro organisational level and a micro individual level.
At the organisational level, we have to let go of corporate hierarchies and the lifelong promotion ladders of government, particularly in talent-dependent organisations like R&D, companies requiring high innovation or sport.

at individual level we have to encourage and appreciate talent emerging around us. We have to make incentives in line with what attracts talent, as there is a global battle for it. Exceptional talent demands exceptional reward. We have to take away the moral judgement associated with rewarding talent. Just as it is morally okay for a rich man’s son to be rich, a person with talent also deserves to do really well.

Change needs to happen amongst us, at the individual level as well. We have to acknowledge that talent exists, and we need to respect it. Frankly, isn’t it better a talented person gets rewarded than a minister’s son? Talent shouldn’t cause resentment, it should become an inspiration. I think the young generation is already on board with that. It needs the older generation’s support to make this change in values. It may be difficult, but it is worth it.
Because if we do become a talent-driven country, we will become a more progressive nation, utilise the new generation’s skills properly, become a fairer society and, along the way, win a few Nobel prizes too.

top universities in the world

None of the Indian universities figures among the world’s top 100 universities, with the U.S. and the U.K. dominating the scene, says a report published today.

Harvard University, U.S., has retained its top position in 2009, while Cambridge University, U.K., has moved up from third to second position. Yale University of the U.S. has slipped one position to third.

According to the QS/Times Higher Education rankings, the University College London (UCL) leapfrogged Oxford University as the latter slipped from fourth to joint fifth position along with Imperial College, London.

Overall, the U.K. still punches above its weight, second only to the US, the report said. It has four out of the top 10 slots and 18 in the top 100.

Tokyo is highest ranked Asian university

The rankings are based on an international survey of 9,000 academics who assessed the institutions’ research facility, teaching quality and ability to recruit staff and students abroad.

The top 10 Universities are:

  1. Harvard (U.S.),
  2. Cambridge (U.K.),
  3. Yale(U.S.), UCL, London (U.K.),
  4. Imperial College,
  5. London and Oxford (both U.K., joint 5),
  6. Chicago (U.S.),
  7. Princeton (U.S.),
  8. MIT, Massachusetts (U.S.)
  9. California Institute of Technology (U.S.).

when a Indian university will flash it`s name in such list???

Pioneers of IT revolution awarded Nobel for physics

Three physicists won the 2009 Nobel Prize on Tuesday for work on fibre optics and light sensing that helped unleash the Information Technology revolution.

Charles Kao, Willard Boyle and George Smith were hailed by the Nobel jury as “the masters of light” for transforming communications from copper-wire telephony and postal mail to the era of the Internet, email and instant messaging. “This year’s Nobel Prize in Physics is awarded for two scientific achievements that have helped to shape the foundations of today’s networked societies. They have created many practical innovations for everyday life and provided new tools for scientific exploration”

Kao, who has British and US nationality but has been based in Hong Kong, was awarded half of the prize for groundbreaking achievements in the use of glass fibres for optical communication. The 1966 discovery by Kao, now 75 and retired, means that “text, music, images and video can be transferred around the globe in a split second,”

Boyle, a Canadian-US citizen, and Smith, a 79-year-old American, shared the other half of the prize for inventing an imaging semiconductor circuit — the charge-coupled device (CCD) sensor, which is the “electronic eye” of the digital camera. The CCD, which converts light into electrical signals was invented in 1969.

Big Breakthrough In Astronomy By Indian Scientist

TIFR can now measure neutron stars

An international group lead by Sudip Bhattacharyya, a 36-year-old space scientist from the Tata Institute of Fundamental research (TIFR), has discovered a way to measure the size of neutron stars.

On an average, a neutron star is very small—approximately 10 km in diameter—and 10,000 light years away from earth, thus making it extremely difficult to study it and measure its size. The research of Bhattacharyya and his team revealed the unsuspected property of X-ray bursts given off by the stars, which led to the discovery that the pattern of X-rays generated might reveal their true size.


  • A neutron star is the collapsed stage of a very massive star
  • It is small, far away from earth, and the densest object in the universe—a teaspoon of neutron star matter would weigh as much as a mountain
  • Neutron stars are so bright that they can radiate as much X-ray energy in one minute as the amount of light radiated by the Sun in approximately one week
  • there are between 100 million and 1,000 million neutron stars in the galaxy.


  • It is extremely difficult to gauge the exact size of neutron stars because of their distance from the earth
  • Sudip Bhattacharyya and his team did this by studying the pattern of X-ray bursts given off by the stars
  • The team studied more than 900 bursts from 43 neutron stars through a Nasa satellite


The study could have far-reaching implications in areas like physics, astrophysics and in the field of nuclear reaction

some really fantastic news after many days!