Notes for newspaper article, Hindustan times, on 2nd anniversary of financial me

ltdown
Pramit Pal Chaudhuri
It is now clear the meltdown has three distinct components, each part affecting
a certain type of economy. If India avoided a mauling, it was because it wasn’t
a fit for any set.
1. Financial Fetishists.
The US and the UK are part of a cluster who experienced a consumption boom paid
with by the recycled capital surpluses of exporters like China and Japan. In add
ition, these countries, and centres like Hongkong, made money off the financial
services that moved this capital around. Before the bust, 40% of US corporate pr
ofits came from finance.
Combined with lax regulation, the results was this consumption boom began creati
ng asset bubbles, especially in real estate. The subprime loan was the epitome o
f a mix of poor rules and speculation.
India: Indian capital markets are isolated and conservative so there was little
subprime contamination. The biggest fallout: the flight of foreign capital fro
m the stockmarket and trouble for Indian firms who had borrowed overseas. The Se
nsex sank, but steady remittances and FDI kept the capital boat afloat.
Example nation:
United States
GDP down 2.6%
Industrial production down
12.5%
(all figures yoy Q1 change)
2. Export Addicts.
The flip side of Anglo-Saxon overconsumption was East Asian exporting addiction.
China, Japan and countries like Germany converted their economies into giant ca
sh-and-carry outlets. They experienced record growth, racked up foreign exchange
reserves – and then went cold turkey when the rest of the world suddenly stoppe
d buying.
Exports represented as much as a third of the GDP of these countries. Many of th
em also let domestic demand wither on the vine. The withdrawal symptoms: idle fa
ctories, idler factories and ever-larger economic stimulus packages.
India: Between a lack of reforms and strong domestic demand, India still has onl
y one per cent of world trade. Other than textiles, jewelry and some software se
gments, the economy has only been only mildly affected by drooping exports. Big
job losses – but China’s have been 10 times more.
Example nation:
Japan
GDP down 9.7%
Industrial production down
34.2%
3. Commodity cult.
When China exports and the US consumes, they suck up oil, iron, cotton and timbe
r from around the world. Economies that sell the raw materials that run both eco
nomies also boomed. Hence the extravaganza of the Persian Gulf, a false dawn in
Russia and even prosperity in Africa. Oil nearly touched $ 150 a barrel, steel b
ecame a semi-precious metal and cooking oil a speculators’ target.
This commodity spiral was the reason inflation spiked in much of the world. It a
llowed Ahmedinejad of Iran and Chavez of Venezuela to become global players. But
 when “Chimerica” stopped buying, all this surplus hubris evaporated. And commod
ity exporters tend not to have nothing else to turn to.
India: This part of the crisis was a godsend for India, a country that imports o
il and many raw materials. Bellary iron magnates and a few others have suffered.
But if there’s one reason the RBI is letting interest rates fall, its that infl
ation is no longer in double-digits.
Example nation:
Russia
GDP down 9.5%
Industrial production down
16.9%
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