Tracking US dollars in country reserves

Jeffrey Frankel is James W. Harpel Professor of Capital Formation and Growth at Harvard. He was appointed to the Council of Economic Advisers by President Clinton in 1996, and subsequently confirmed by the Senate.

His recent blog post on Dollar share in FX reserves of Central Banks is worth a read.

I am including the graph he puts in his article in this note. The US dollar (and the country) achieved international hegemony post World war II. A strong economy made a strong country and dollar became the "reserve currency". The world has come a full cycle. Arguments about - TINA - there is no alternative, will eventually have to face up to reality. When an alternative becomes a desperate enough need, it emerges.

US Consumers

An article in the New York Times today has this amazing chart. (If only we could track Indian data with this level of detail.) An interesting point that seems to emerge is that the American consumer has not REALLY stopped spending - just seemed to move from retail to wholesale! and despite record levels of unemployment, continues to eat and drink outside the home.

Clearly, old habits die hard. A bankrupt America, with high-spending consumers - and a government that continues to fight battles around the world. Prepare for a decade of political upheavals as America seeks to cling to its earlier pole position in the world, while the world starts to reject that role - the move from G8 to G20 is more than just a re-ordering of economic order.

Confused Economists

Krugman continues to blog on the inadequacy of the US fiscal stimulus. Alan Greenspan appears to see unemployment going to 10%, but does not "support another stimulus package". So what are we to make of this debate.

Greenspan's policies now stand discredited and the popular view is that his refusal to take the punch bowl away at an appropriate time was largely responsible for the mess the US and the world finds itself in. But what are we to make of Krugman's insistence that a higher fiscal deficit is the answer to the US problem. All that we learned of economics - especially in the context of India, seems now to have been turned on its head. It was always argued that small government is important - so are the rules different for the US and for other economies? Intuitively, if the answer to a problem caused by excess liquidity is to infuse more liquidity, I'm afraid I find this completely unsatisfying. But Krugman is a nobel prize winner, so must know his stuff.

In my defense, I offer three arguments
(1) If the economists really had the world modeled correctly, why are we in the mess we are in?
(2) I quote Fischer Black (1986)

In the end, a theory is accepted not because it is confirmed by conventional empirical tests, but because researchers persuade one another that the theory is correct and relevant.

(3)Emanuel Derman, in a presentation on quant finance in 2002 - had this to say on financial modeling

There is no fundamental theory in finance. There are no laws.
That s why many of the textbooks are so mathematically rigorous.

I recommend that we stick to the tried and tested - if the model does not seem to be sensible, stick to the sense and chuck the model.

Strike by professors of IIT and IIM

The Professors of IIT and IIM are planning a hunger strike in a few days to protest the fresh pay structure awarded to them in the pay commission. One grouse is that the teachers at these "premier institutes" are now to be paid at par with those of the other UGC supported institutes (actually the differential is being reduced). The consulting income that these professors make (in part because they are professors at these institutes instead of any run-of-the-mill university) is ofcourse not part of the debate.

The irony is that the IIM chaps think that they deserve more than even the IIT profs. Given that the debate is based on the grounds that these institutes are "premier" I thought it would be worthwhile to check the kind of academic work they do. IIMA's website is quite informative when it comes to the kind of programs they offer. However, click here - on the research and publications weblink - and you will be greeted by a blank page. The research page ofcourse claims that IIM A produces a third of all the management research done in India. I wonder if they mean that they are responsible for a third of nothing !

As Ram Tzu says (refer previous post)

You stand at the edge
Ready to throw yourself in.

What a shock to discover

There is nowhere to go
And no one to throw

Go figure

"No Way" by Ram Tzu

Landmark's book sale always throws up a few surprises. This time it was on a subject I would not normally go near - but I happened to pick up the book (mentioned in the title) and then could not put it down.

A quick internet search revealed that Ram Tzu was the pen-name of Wayne Liquorman - a teacher of Advaita. His writing is, however, deliciously irreligious and iconoclastic. At the risk of infringing some copyright, I quote

Ram Tzu hears it all the time...

You had a profound, revealing,
Deeply moving spiritual experience.
Now you're hooked.
Now you want more.
Now you're a seeker.

No junkie has ever
Been more dedicated
Or more continually disappointed
Or more miserable.

Once you might
Have been satisfied
With a new car
Or a loving mate

Now you will settle
For nothing less
Than union with God

Ram Tzu knows this...

You're fucked.

For those whose interest is piqued some more poems are available at here or here . Have fun

Rising oil price - differing reasons - but no peak

Oil prices are rising again - up 65% in the current year. Reasons differ - Opec oil production cuts, data indicating economic recovery, political tension in Nigeria - take your pick. However, two recent newspaper articles written in different continents have rubbished the existence of Hubbert's Peak. This one in New York Times exhorts readers to rally against government attempt to conserve oil:

we can’t let the false threat of disappearing oil lead the government to throw money away on harebrained renewable energy schemes or impose unnecessary and expensive conservation measures on a public already struggling through tough economic times.

The other just blames OPEC. Don't forget to read the comments on this one - highly entertaining and informative.

So should one worry about oil and oil prices or not? Go figure

Forgettable few weeks

The past few weeks have been rather sad for the country. Increasingly, it is being realised that we cannot safely let our Prime Minister speak on foreign policy. Apologists will continue to cover up for India's inability to influence our neighbours and protect ourselves. Any serious defense analyst would realise how we are perilously weakening our position in the world and viewing ourselves from the US worldview. As Chellaney mentions in his column for Singh:

to say India cannot emerge as a great power without making peace with Pakistan. “It is in our vital interest, therefore, to try again to make peace with Pakistan.” By linking India’s global rise to the placation of Pakistan, Singh has hyphenated India with that country even more strikingly than any international actor

Chellaney's columm on China is another case in point.

The BJP too has lost its ability to appeal to the "liberal" right-of-centre. The removal of Jaswant Singh from the membership of the party and the banning of his book in Gujarat has to rank among the most intolerant and graceless acts that the party has committed in recent years. As an admirer of Atal Bihari Vajpayee and his vision of India, I had assumed that his ideals were also those of the party. Clearly that is far from the truth. I look, with just a tinge of anxiety, for a new alternative to the Congress that more closely seeks to build a strong, self-reliant and liberal India. That such an alternative offers itself quickly, has to be my prayer for this year as we celebrate the 62nd year of independent India.