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FINANCIAL CHRONICLE™ » FUN CHRONICLE™ » Emeral Island - Policy Matters

Emeral Island - Policy Matters

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1Emeral Island - Policy Matters Empty Emeral Island - Policy Matters Tue Oct 07, 2014 3:03 pm

puliyanam

puliyanam
Manager - Equity Analytics
Manager - Equity Analytics
Wrote in lighter vein...
See the bigger picture guys….

In a small economy name Emerald Island, economic growth is ever increasing. From6% to 8% and possibly more! Inflation is coming down, month after month. Interest rates are fall like the ding-dong of an old man after ejaculation! Equity markets are going through the roof….And the common (****ing) Charlie on the street says I voted for this government and they have developed this country….

Economist in Emerald Island are not very vocal kind. Some have sold their spine to get a job. Some have spines so thin, that a cough of the King of the Emerald Island could change their stance… Others don’t understand what is going on. I approached the CFAkinds. They don’t understand coco-nonmics much…..Too timid…and somewhat too focused on the markets to understand economy at macro level.

So I sat under an olive tree seeking some divine help on the matter. And here is my divine revelation…. Take it or leave it. Don’t take any offence. And I shall take no offence if you leave it or reject it. But respect it! It is divine Im telling you….

Loans to GDP in this country is around 25-30%. Typically in emerging markets it will go up to 100%. So what could you do? Loose monetary policy by bringing interest rates lower and lower. Which will lead to asset price bubbles (Equities/ Real Estate …) and this in turn will result in financial sector becoming more and more prominent in the contribution to the economy. Have cronies there who will accept all your whims and fancies in those institutions..So far so good..

But asset prices could lead to financial sector melt down? No way. Merge and create institutions which are too big to fail..Oops…
Borrow for your own self (brings in forex) and stability to exchange rate. Borrow for private sector (do more business ) and bring in more growth…. As cost of borrowing is less thus feasibility is better….The problem though is that growth come with better business ..

And here is the insight….“Unless businesses are doing great / the business community is reaping more and more profits, forget about real economic growth….
Inflation targeting” or “output gap” management does not really help managing “productivity gap”. Productivity gap is not necessarily due to gap in capital!
http://www.project-syndicate.org/commentary/the-productivity-gap

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