An informal discussion
Question by Ashwin Date: Sometimes I really wonder, whether instead of running around like rats, fearing the looming recession and looking for solace, we should hope and welcome it. Sounds crazy, but realize that the recession this time will be not be like what the global economy has been lately experiencing, after every 4-5 years. The recession this time will completely reset the system. If it does not happen, then we will always be in trouble in future, every 3-4 years we would face situations. Remember, the new green shoots grow only after there is a devastating forest fire. There will be tremendous trouble for we people (finance students), but eventually things will improve.
Prakarsh Jain: Reset of the system, looks scary on the look of it. However, certainly would do well in the end. In the current situation, the ONLY major component, which is supporting the markets, on close observation, is Quantitative Easing(QE). The talk of tapering, and we see the devastation it creates in the markets all over the world. Going back to history, current financial markets as such have been developed, post the Great depression of 1930. Basic goes back to centuries, but the major development have been since then. In some way or the other each and every event has been supported by printing of currency in the said economy. To the extent, sending the first man on moon, the Vietnam War, etc. Everything was and is supported by short-term goal meeting and therefore printing of money, which in current parlance termed as QE. Just a new name, but not a new concept. What we see in the future too, this is the only way of supporting the system, but historically the recession, or problems that exist in financial markets, seem to increase in an increasing fashion. Coming back to the point, for us what Ashwin has mentioned about revamp completely would make sense, because a new development from the scratch would start. And at any point, finance as a field cannot get out of the picture. Nevertheless, practically, we are still seeing Lobbying, Too Big to Fail and such other terms in use. This makes me cynical about thinking in that direction. Also, in this we need to see China and Japan the major economies, but facing demographic problem, they have on their head. In addition, think of, as we see a shift in GLOBAL currency over the period, which one would make it this time.
Ashwin Date: I think the world would be a better place, holistically, if the western style financial system collapses. They are just not doing any good to the world.
Anshul Khariwal (Contributor): It takes 2 decades or one complete generation to come out of a recession. Try to read the book Outliers and how most of the millionaires today are from a specific period, almost 20 years from the recession. If we are the generation that will have to feel the pain of it then god saves us. A complete revamp maybe good in History books but not for us. I would rather have it come in bits and pieces.
Prakarsh Jain: Anshul, certainly it takes time frame of what you mentioned, but what everyone including some experts have forgotten to consider, is considering 1930 to 2013 as one event. When we look at it in that angle, the whole period is as such recessionary. I read this somewhere, but forgot the sources, study says, around 65 to 70% of the time in between this frame of 1930 to 2013 has been recessionary or something of that sort. The things as you mentioned are not coming in bits in pieces, but as volcanic eruptions, which are turning bigger and bigger as day passes. Look at Indian markets, in 2008 when the world faced crisis, Sensex tanked 800 points, but today without any such major event, it goes down to that extent. Just for one more example, we see US claiming that unemployment is going down, but same is not the case, Unemployment data is now been calculated by including the part time workers too and this part time workers are paid, LOW, to the extent that they would not able to survive themselves, forget supporting families. Also, look at the inflation data, since 1980, US has changed the method 20 times if not more of calculating the same. As of today, as such US inflation hovers around 8%. So bits and pieces are not doing any good. They are just pushing the same ahead. Balloon is been blown bigger and bigger. Just imagine the noise it will create, if not today.
Varun Misar (Contributor): Agreed. The cycle of recession is shortening as the years pass. Countries are yet to come out of the previous recession and we fear that things are about to worsen in the future. Another factor to be considered is the introduction of new methodologies to compute inflation / unemployment rates, etc. We all know what the state of world economy is currently. However, various governments fudge the figures just to give a momentary benefit to the markets. And when it comes out in the public that the numbers have been played with, the markets fall again. So on an overall basis, this does not benefit the market. There are certain important changes to be made on priority basis in the form of resetting the system. But as discussed earlier, it will take a long time to implement those changes and reap the benefits out of them. Today we have no idea how things are gonna be in the years to come. Say for example, a couple of years back the RBI mentioned that rupee is in a better position as compared to the other currencies in the world, mainly owing to the fact that Global Financial Crisis did not hit India as hard as it hit the developed western nations. And as the rupee began to fall against dollar a while later, RBI comments that rupee is a free-floating currency and it will set itself at appropriate levels depending on the market. So these statements provide do not provide a true picture of whats happening and whats about to happen. We have seen that after this statement the rupee fell further and now it’s beyond the 62-mark.
Akash Lahoti (Contributor): There are various authors suggesting the viewpoint has shared with us. If you just type on Google "allow the recession to run its course", you can find articles by various economists suggesting the exact same thing with logical reasons to support that claim.
Siddarth Kannan (Contributor): Well, to be fair, it should never return to its glorious days. Wall Street's golden era has left the world of money gasping for breath.
It was only about natural resources before, but now it seems we will consume and destroy just about anything which promises an excessively luxurious today even if it means building it right on top of the increasingly weak and debt-ridden shoulders of tomorrow. It's not merely a systemic issue, it's about our very ideology as the human race. And that is far too entrenched to change now. The only way is to get wiped out by the repercussions and then start over with better sense prevailing.
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