THEORY: DEPRESSION WAITS AFTER INFLATION

THEORY: DEPRESSION  WAITS  AFTER  INFLATION

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In high inflation, there is excess money supply by the governments, governments go on money printing spree or resort to huge debts, either from domestic market by various means & instruments or from abroad, this leads to price rise galloping over 10% per annum and there is a high devaluation of money, that is “inflation” is almost 10% or more, but queerly (please mind it very carefully) there is no jobloss, rather money is in the pockets of all, some making huge, some making daily wages only, so apparently a very happy situation, I termed it “Thin Ice Platform Syndrome”.

But what actually happens in this situation is, one’s money & savings are depleted by two effects, one “price rise” gobbles up one’s pocket money & the other, inflation eats into one’s savings, the rich get richer & the poor get poorer.

There is a phenomenon of high production by companies & businesses, in this situation to cash in price rise & raw money in the pockets of the people, so there is a BOOM at every corner: jobs, shares, profits.

A charged atmosphere.

It goes so long as one sector (any one) of the economy tilts a bit, that is, products or services of a sector have no takers or a little lesser takers, may be due to price hike, over production, depletion of money of people of a certain section or a replacement of the product has come. As soon as the sector tilts, job crash happens, price falls(due to above mentioned reasons) so also the profit falls of that sector, production slows, businesses of that sector go out of business taking along with jobs of that sector too. This creates a whole effect on the economy “then & there” & to one after another sector, this creates more joblosses, more fall in wages, so also fall in demands of  goods & services.

And The Depression begins.

“Thin Ice Platform Caves in”.

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In India tendency is highly this way, food prices are going berserk & if Govt goes to a little austerity, as now in huge spending spree, market will crash, a recession will begin,

That is the classic example of the phenomenon “a recession waits after a boom”, resulting into following things: jobloss, low production, low offtake of loans, money held with the ultra rich & people depleted.

Subhro Das

(Conceptualized 25/08/10 Written/Blogged 05/08/11)

In this regard I wrote following analysis two months back (in June’11), also posted it in the net :-

DANGER:RUNNING ECONOMY BY “MONEY PRINTING”

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India Govt is running its economy by printing money, it’s a very dangerous trend, as HT Reported that RBI to print (already started the job) 18 THOUSANDS TONs of notes, also cautioned it is a very very large amount by any standard, be that US Dollar, EU Euro or Chinese Yuan.

Infusion of such huge amounts in the economy will be very disastrous, the inflation, the price rise, especially the FOOD PRICE RISE will break every body’s back & send the economy in swirl, the Govt is forcing the RBI to be on this money printing spree just to squander away the money in HIGHLY POPULIST but UNPRODUCTIVE programmes, if this POLICY brings this country to its knees, then this “Sonia Congress UPA Govt” will be fully responsible. Only stopgap measures of raising INTEREST RATES by RBI too frequently are no SOLUTION at all.

EU Nations are facing similar uncontrollable disasters, Greece, Portugal, Ireland, Spain, one nation after another in black hole, EU is pressing hard on them to reign dangerous budget deficits & implement VERY TOUGH Austerity Measures, even there are no takers of their Govt Debt Funds i.e. bonds of these countries (as Govt debt is so high), EU, IMF are arranging for their bail outs, sitting frequently. In USA a last minute Compromise with Opposition for a Debt form US Central bank saved USA, as “earlier debt ceiling” failed to pay the US maturing debts in next two days.

In India RBI (RBI Governor Dr. Subba Rao himself) also is also now saying “Legal Autonomy is Imperative for RBI, backed by a legally monitoring committee”.

Is India will get such back up as EU nations or go Mexico & Zimbabwe way, if India remains this reckless, who will provide us back up, as Govt now can now print any amount of money, even in normal circumstances as now, as there is no “Debt Ceiling” like in US ?

Now, about China, IB Apr’10, China’s Overheating: consumer prices rising, giving the massive money supply, danger is, that inflation may go out of hand.

Chinese Govt admitted, inflation posed a threat to social stability (Please mind the sentence). Govt has taken measures like raise reserve, check on money supply, control on lending, increase down payment for loans(margin money), lending to endpoint(no direct money to borrowers, but input suppliers & builders).  

Subhro Das

(Some additions & alterations done on 05/08/11, while reposting)