Saturday, February 28, 2009

And The Contradiction Continues- II

February 24' 2009, various news channels and websites began flashing news of Standard & Poor's downgrade of India's sovereign rating from "stable" to "negative"......Moody's might be the next to follow suit.
Reasons cited by S&P for the move-‘India’s fiscal position has deteriorated to a level that is not sustainable in the medium term’. One of their credit analyst went on to say- "We expect the deficit to remain high at 11.1 per cent of GDP in fiscal 2009-2010. The fiscal deficit could widen if the next government implements another stimulus package."
Elite analysts from the much maligned investment banking fraternity were quick to offer their take on the downgrade- all of them justifies it......... I have no problem in their justification of this downgrade................After all who cares about their analysis.......... "Lehman", "Bear Stearns", "Sub-Prime", "Madoff" or "Standford" are telling examples of their capabilities and analysis.......At times, I wonder who will score more in terms of the understanding of "basic common economic sense"- a common labourer or a rickshaw-puller on Indian roads or highly paid but intellectually bankrupt analyst doubt as to who will be the eventual winner.......our common man understands economics better, does that roadside vegetable vendor rings some bells!!!!
Coming back to the downgrade, I am still waiting to hear S&P's views about Doctor Obama's budget.......released 2 days after India's downgrade.......I was trying to add up the total number of Zeroes in $1.75 trillion federal deficit.......I sincerely hope S&P knows that this $1.75 trillion estimate is just $250 billion more than what was estimated few days back!........If this not enough, then read this -"The $1.75 trillion deficit projected for this year would represent 12.3 percent of the gross domestic product, double the previous post-war record of 6 percent in 1983, when Ronald Reagan was president, and the highest level since the deficit totaled 21.5 percent of GDP in 1945, at the end of World War II."
Wonder, if above calls for any downgrade for US!!!!!!! Or if 11.1% of GDP (India's projected fiscal deficit) is worse than 12.3% of GDP(US's projected fiscal deficit) .........perhaps lower the GDP, bigger the problem!!!! OK fine....then what about the fiscal condition of Europe-shouldn't they be downgraded?? ...........It is growth stupid...........economic growth contraction is a sure shot pill for no downgrade......US and Europe is contracting while India is not, don't you know their economy is still growing ......can't you understand this? is not the economic fundamentals that decide the is the names of the agencies.... Consider this-Standard and Poor use its rating lever to lift the "Standard" and hit the so called "Poor".......It depends on the "mood" of the Moody's as to who to downgrade and who not.......Fitch has a hitch when it comes to informed judgement.....
Last but not the least, here are two reports filed by "BusinessWeek" while reporting on the fiscal condition in India and US, albeit the context is different....Decide for yourself
And the contradictions continues.......
PS- I have deliberately used "Dr" as a prefix to Obama because most of the people look up to him as someone who has a cure for every problem.....I have my own doubts.........In my views he has done what he could have done-to create history by becoming the first Black President.....and his moment is gone.......Don't agree with me? Go back in history and we have numerous examples......Rajiv Gandhi of 84????


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