World economy may be slipping into 1930s Great

Depression problems: RBI's Raghuram Rajan

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I feel that this warning has to be taken seriously, as a country's economic growth
hinges on the growth of other nations. For instance, a country may depend on
export market for its survival. It will spell a doom to the nation, if the importing
nation is not progressing. In this age of economic interdependence, all the
countries have to continuously step up the public spending and investment to
avoid global economic recession and depression. Needless to say, the nations
have to produce quality goods and services and sell them at affordable prices,
domestically or overseas. Loose monetary policies are working as a poison and
ruining not just developed but even developing economies. Better stop it now
than letting the poison completely paralyze the global financial system
It is true the quantitative easing mixed with globalization is dreadful. Not only
that, but it creates an unsystematic and fast growth that will keep pressuring the
future growth patterns. Hence a slowdown is significantly important criteria after
a growth pattern over 3 to 5 years. But, currently, slowdowns have been
eliminated by major nations like US, UK, and others, and instead a global
quantitative easing has taken over to continue growth. This is a big and costly
mistake because it breaks down a sector called middle class that leads in
consumer spending for betterment of their lives; on the other hand, it creates
ample opportunities for the people who have huge incomes at the cost others to
horde asset, leading to asset inflation and a major distortion called wealth effect.
We saw proof of this during the dotcom bubble. Further it lead to housing bubble.
Cyclical growth based on 3 to 4 years of up cycle followed by 2 to 3 years of
down cycle helps middle and lower income people catch causing more
proportionate growth in the economy and better distribution of assets. Direct
reallocation of wealth and opportunities is a cheaper mentality and failing policy
that has miserable produced more troubles in US.
Is it really a matter of growth or have we reached the maximum capacity in all
areas (population, greed, need, etc.) of the different world economies? We need
to work on sustainability rather than growth. Growth is good and leads to better
things, but there comes a time when it will plateau and eventually drop off or
crash. Remember, history always repeats itself, and in my opinion mostly
because of greed.
Raghuram Rajan may be right about the developed world facing a financial
market crisis. However, India is in a unique position to be insulated from financial
shocks to a large extent due to the fiscal policies of our government. Take for e.g.
the development of a large number of smart cities in India. This is bound to lead
to a large demand for goods and services which is bound to raise the GDP.
Secondly with market based demand and supply outlining the location and
composition of the smart cities, we can avoid the problem China is facing in
having too many ghost cities with no inhabitants.

I am not aware how we survived the great depression of 1930, but India did
manage to survive the financial crisis a decade ago, in fact we could have
utilized that opportunity and grown substantially after that but because of some
policies by the politicians out of self-interest wasted the golden chance many
initiatives like doing away with subsidies controlling unnecessary expenditure
would have done the trick. Even now a prudent fiscal policy would definitely
survive us in the so called economic crisis.