Not Greece, it is Germany we should know better

With Greece in news, the world seems to be making efforts to understand the Greeks better. Why they are in trouble and what can be done and so on.

In a financial mess, it is not just the irresponsible borrower; the irresponsible lender also has equal contribution. In this case, the biggest lender to Greece is Germany. It was Germany’s tax payer’s money at risk. Though Germany is going to be the biggest loser now I suppose no one (apart from Germans) is sympathetic towards it. The reasons lie in the history too.

It was Germany at the heart of the two world wars. If there was no Stalin, Hitler’s ambitions would have become a reality. If we go two thousand years past into the history, Romans called them as Barbarians. It becomes apparent that they did not share any great relationship with their neighbors.

Today’s Germans are very efficient at their work. The machinery produced by them is world class. Their economy produces a surplus. But what do you do with that surplus money which goes on accumulating every year? It is lent to neighbors and foreign countries. 

One of the borrowers was Greece and when they were not able to repay their loans, Germany insisted Greece should cut its Govt. spending and implement tax reforms to run a budget surplus. Greece did to good extent; deploying austerity measures had put a greater pressure on its economy. Its unemployment went up. Its economy began to shrink. Its public felt they are not respected in the European Union and during the recent election they chose a leftist Govt. which opposed austerity. Its new leader has to confront Germany opposing to cut its Govt. spending. Even if Greece runs a budget surplus, it would take more than 30 years to settle debt. With a kind of social unrest, there is no patience left in Greeks to struggle for another three decades for the mistakes done in the past. They are angry with European Union (in which Germany is the biggest player) for asking for further budget cuts. So it reflected in the last week’s vote too. They want to leave the union.

What right Germany has in advocating how Greece should run its Govt.? If its is because Greece owes money to Germany, why Germany was not cautious while lending and let the debt balloon become bigger? That seems to be the question many are asking now. And here history comes alive again. Germany had led to physical destruction and loss of capital during world wars and now some think they are doing it economically with countries like Greece.

But the real problem lied in the formation of Euro currency. It is becoming clear now that without political integration, a common currency won’t work. All the countries in the European Union had their respective Govt.’s. Their policy approaches were different, so were the risk profiles. When they formed a union with a common central bank (ECB) and a common currency (Euro), the inefficient countries in the union would become losers. Since all of the union becomes one market with a common currency, those countries who produce quality goods at a competitive price would gain and those who cannot would see their domestic production reduce. To make up for that, local Govt. will have to step up public spending to keep the economy going. One country's exports are another country's imports. Germany’s surplus had to cause deficit somewhere else. Greece, Spain and Italy had suffered. That is the argument of few noted economists.

If and when Greece comes out of the union, it will pay its price with a weak currency, higher rates and inflation. And it would also set stage for other countries to leave the union too. And if the idea of Euro gets scrapped someday, Germany may not run the same surplus then. But this experiment is already affecting lives of many including those victims in Greece, all of them did not live at Govt.’s expense but everyone will pay the price of inflation and unemployment.

Two world wars ended after millions last their lives. This economic crisis too will end after leaving many homeless and jobless. It was US who became a superpower after the world wars ended. Germany fought hard in those world wars too but was not the victor. Now the fallout of Euro is making Dollar only stronger. Patience is a virtue. It always pays to mind your own business and avoid becoming over ambitious. Now Germany after losing its hard earned capital on Greece still does not get a good name in the pages of history.

Those who do not learn from history tend to repeat it, so goes a saying.

Philanthropy is ‘Earn More First’ and then 'Make a Diffrerece'

Look at these two news articles:

1.       Warren Buffett donates record $2.84 billion to Gates Foundation (Link: http://economictimes.indiatimes.com/articleshow/47964447.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

2.       Azim Premzi allocates additional 18% stake in company to fund philanthropy (Link: http://economictimes.indiatimes.com/articleshow/47965910.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

Warren Buffet is a wisdom house, Bill Gates a competitive businessman and Azim Premzi is an institution builder. They all were successful in their respective businesses.  They faced cut-throat competition. They did not tolerate inefficiency. If things did not work out as expected, they were quick to fire the people or close those products or business groups. All those decisive actions made them richest people on earth. But now it appears like they are at competition to give away the money. Though we are talking of three people here, the list is actually longer.

If they can quickly give away their wealth accumulated hard way, what did drive them? You would notice that they did not inherit this wealth; they had to struggle to get into billionaire’s list but now dropping out of that list do not give them bitter thoughts and they are doing it happily.

If money is a measure of their success and accumulating wealth is an indicator of one’s hard work, why they do not want to keep it? Why most of it is getting redistributed?

I think what drives them is, ‘Making a Difference’ in the world they live in. Earning money was a by-product though their focus was not to lose money in their businesses and they took all care to maximize returns on the investments they were making. They got things right in their professions and the money followed them. When they were running businesses, they focused on that. Now they are retired, they are well focused on philanthropy. Look at how they give away money. It is very data driven, focused on a cause with rigorous checks ensuring that money given away is actually used for the very purpose and it is a making a difference to the world. They made a difference when they were acquiring wealth and they are making a difference now when they are distributing it. Money is just a tool for them.

During their prime, they just did not make money for themselves. Their investors, customers, suppliers, employees benefited. Now they are putting money to work on the causes they believe in. They are building universities, fighting AIDS, finding vaccines for diseases, providing nutritious food, cleaning the water people drink and so on. All these will lead to leveling of the playground. It provides relief to vulnerable people, offer opportunities to disadvantageous communities. Social inequality gets reduced. And that may lead to birth of new age billionaires who would continue the trend.

Copper prices are down and the reason is China. India will gain but to lose somewhere else

Source:MarketWatch.com

China’s stock market came down faster than it went up. Central Bank’s actions and Govt.’s pledge to support are giving it a breathe but there are many indications that it may not come back quickly. Look at their neighbor Hang Seng index and Copper’s price for instance.

You don’t get to see 1,000 point fall on Hang Seng routinely. More than Greece, it is what is happening in China is affecting it. China’s markets lost $3.2 trillion in last three weeks. The volatility has taken out the nerves of investors. No matter what the Govt. or central banks does, they would not come back in a hurry. Look at the worst performers on Hang Seng index today. They are China domestic market related stocks.

Source: Investing.com

Another indicator is copper prices. China is the biggest consumer of copper followed by Europe. With the economic contraction in both the regions, demand for copper has comes down significantly. So it is reflected in the price. Copper is in bear market for the last 4 years with its prices sliding down continuously. And when it is down 40% (from highs of 2011), volumes traded show a long bar. Someone (or many) holding it as inventory anticipating higher prices lost patience and dumped it. But are the buyers know about ‘Greater Fool’ theory in order to avoid selling at lower prices? Probably yes, unlike stock markets or bond markets, gold or oil, copper is held mostly by who those who needs it (for industrial purposes) rather than for speculations. So if my hypothesis is right, prices may not see a steep fall from here as buyers (with large volume) are finding value at this price but it may not go up as dumping is likely to continue. This would surely affect copper mining countries like Chile, Peru, Australia and China itself. Their copper production will not see much growth and the investments in that sector may not have expected pay-off.

India’s share in copper production is very insignificant so it is a positive with its import costs coming down. Cheaper copper does its bit in cooling down inflation. Is it time to smile for Indians? For consumers, it is ‘Yes’ but for industries it is a ‘No’. Slowing down China will lead to dumping of many other commodities, not just copper but steel too, which would mean bad news for steel factories here. They will have to run factories at a lower utilization levels and keep away the expansion plans. That will hurt investments, new jobs creation etc.

Bursting of bubbles and prices coming back to realistic levels is a common thing across markets. And falling commodity prices would provide a much needed relief for Indian consumers from inflation and that would bring down the interest rates. That cycle has already started. And it would surely help long pending infra projects. But will that kick start new investments to drive growth? New industrial investments of big scale do not happen unless their existing production houses run at full utilization. But with the dumping of commodities, there would not be much rationale to for it. So Capital Goods, Mining and related industry will have to wait longer for their ‘Achhe Din’.

Book Review: ‘The Moon and Sixpence’ and ‘The Magician’ by Somerset Maugham

The Moon and Sixpence is about Charles Strickland, a genius and obsessive painter. For him painting is not just a form of expression but a way of life. Nothing else interests him. A boring person in his 40, living in London leaves behind his family to Paris to focus on painting. Very few understand his paintings or the person, but Strickland does not care as he is driven by the devil painter inside him to get out and the worldly matters such as money, praise do not seem to bother him. Going hungry is routine part of his life as he cannot stick to any job and his paintings do not sell and he is not interested in selling them either so does not put much efforts there. Painting is a compulsion for him, Emotionally he is ruthless. He breaks the family of a friend who helps him and walks away with no sign of remorse. He is a pilgrim on the move. He reaches Tahiti islands and there he accepts a younger wife who does not trouble him in his passion and does not ask him to earn, that is what he wanted from a woman. So he settles down but his solitary life continues, he goes on to create numerous paintings but the leprosy attack shortens his life. Yet he paints till he becomes blind and the death arrives. Fame comes after his death and his paintings fetch great money and become sought after when their creator is no more on this earth.

This story is said to be based on the life of the painter Paul Gauguin. This painting – Fruits and Lemons shown here does get a mention in the novel. That painter himself gives this painting to the doctor who attends him when he gets leprosy.

This novel was first published in 1919 and is said to be one of the best of  what Somerset Maugham had produced. It was also made into a movie with the same title.

Another painting by Paul Gauguin (Source: Wikipedia)

‘The Magician’ is about recreating the life of a real life magician through a novel. Arthur Burdon and Margaret Dauncey live in London and are about to get married. They make a trip to Paris to meet their friends. Arthur being a surgeon has another doctor friend and Margaret has her classmate living there. They get introduced to a magician named Oliver Haddo. An incident leads to rivalry between Arthur and Oliver and the magician plays his tricks to separate Margaret from Arthur and he marries her himself. He takes her away from Paris to multiple places. He then uses her for his experiment that finally leads to death of Margaret. Puzzled Arthur gets to the roots of the evil and in the ensuing fight Arthur manages to kill the magician and destroy his lab. Just five characters make this novel and the last quarter run of this novel is no less thrilling than any Hollywood movie with all its explanation of black magic. When you are done, mentioning the name of Oliver Haddo would scare you for your rest of life, such is the impact of the character author has created in this novel.

This novel was first published in 1908 when the author had developed interest on the subject of black magic. The character of Oliver Haddo was based on the life of Aleister Crowley who wrote an article (published in Vanity Fair) criticizing author of this novel of plagiarism after this novel came out (https://www.100thmonkeypress.com/biblio/acrowley/periodicals/write_a_novel/write_a_novel.htm). Somerset Mougham, author of this novel expresses his regret for not reading what was written by Aleister in the beginning of his novel.

William Somerset Maugham (1874-1965) was trained to be a doctor but the commercial success of his first novel published when he was a medical student helped him become a full time writer. He devoted lot of time to write plays which made him popular and earned him big money. But then he came back to short stories and novels too. He has more the 30 books to his credit. He was born and died in France but his time was spent considerably in London too so he is mostly known as British author. It gets reflected in his novels as well where in central characters shuttle in between in London and Paris.

Gandhi was no economist but yet was better than them

MK Gandhi was trained to be a lawyer and he practiced the same. But the circumstances and his reactions towards them turned him into a political leader. Going by numbers (thirty crore followers during his time), his leaderships was undisputed. Going by purity of soul, he was and is an inspiration to many. But when it comes to economic thoughts, all does not seem to agree. Few (economists of the current times) say, his socialistic approach, preference of labor intensive small scale industries over the big production factories slowed the economic growth of India. I think they grossly miss a point.

Economics says if a good (or a service) can be produced cheap somewhere else (by employing less labor but producing more), that good should be imported and the local market should focus on producing what it is best at. Exchanging the goods helps the economy than trying to be self-reliant. Goods are available at cheaper prices for both parties and it improves efficiency. Theory is sound. Trade is fair but dumping is bad. Predatory pricing by a company can drive all other players out of the market making it a monopoly. Than the prices begin to go up. No further improvement in productivity will help reduce prices as it is not a free market. Laws of economics do not apply there. Check with an insider of steel industry today how much they are suffering from dumping of steel at lower prices from neighboring countries. Before the domestic industry becomes competitive they may get killed. To protect them, Govt. imposes import bans or higher duties etc. It is fair and necessary to protect the interests of the domestic economy. If we did not have our own Govt. and were ruled by someone else, what we would have done?

Before independence, when Gandhi was still not identified as a big leader, England was at the cusp of industrial revolution, its factories were producing surplus, and they had to find newer markets to dump their surplus. What better place than India which was one their biggest colonies for such a dump-trade? Clothing produced there was of better quality, but that killed much of the labor intensive textile industry in India. When Indians were fighting for human rights at that time, how they could have imported a steam engine to drive up productivity? And where was the capital for that? Gandhi fasted for the first time along with textile mill workers for arbitration of their rights in 1918. His struggle for independence began from there and he wanted it to be non-violent. He introduced the spinning wheel not just to produce our own clothing. Spending time at the spinning wheel would teach any one patience and tolerance. And becoming self-reliant would give necessary courage to question and protest dominance of someone else, peacefully. Independence was the first step to economic prosperity. Whatever taxes we pay now get redistributed within India but not so during the times of Gandhi. When poor were going hungry here without jobs, tax was sent (as profit) somewhere else. Gandhi's priorities and the messages were clear. We needed jobs for ourselves and we refuse to pay taxes which do not come back to the same system. Was not this more of a economical fight than political?

Almost two thousand years ago, King Ashoka had ruled the entire India. After that no other King could accomplish the same profile. Even the great Mughals did not rule half of today’s India. It had many languages, cultures. Uniting them was a dream and a gigantic task. But yet there were many common things, much of Indians were poor and most of them were rain dependent farmers living in villages. Gandhi had identified this common social fabric across the lands ruled by the British. His socialistic approach was necessary to unite the people from diverse cultures and mobilize them else India would not have come together. Had a fraction of India fought at a time, it would have become a weak fight and the British had successfully diffused many such attempts in the past. Gandhi traveled extensively to reach all corners with a uniform message of Independent India. Without social integrity, there was no platform for economic prosperity.

When India got its independence nobody had to ask us what the idea of India was as it was already sold to us decades ago by Gandhi. But we did not let him die a natural death. Incredible India! So for what happened in India after 1948, Gandhi cannot be held responsible. He was not alive to tell us to vote for Congress Party or Nehru family. We elected our leaders. Be it Nehru, Indira, Rajiv and now Modi, they all were/are representation of the mindsets of the society which elected them to power. These leaders had all the power to choose what was best for India. If India prospered or not, it is because of the decisions taken by these leaders and the society too is responsible for that.

What Gandhi did was his best given the circumstances in his times. If there was no Gandhi, India would not have been any better than many African countries are now. We owe much to the old man for stopping the economic and moral plight and helping us to fight back.

If we are not at peace with the history, how can we focus on the future?