THE WORLD’S ECONOMIES ARE

GROWING IN RARE HARMONY

• According to IMF, world’s seven biggest economies grew more than 1.5% in 2017 – indicating strong
growth for the economy in 2018.
• Economic data for 2018 - The JPMorgan Chase and IHS Markit global purchasing managers index
has been the strongest in nearly seven years.
• A globally synchronized economic growth became apparent in 2017 when a number of large
commodity-producing nations emerged from recessions caused largely by the collapse of oil prices.
• No major economies stumbled into recession in 2017 & all 45 major economies were growing at
the same time, for the first time since the global financial crisis.
• U.S. Equity indexes suggest a bright future to investors but the Eurozone grew 2.4% in 2017,
compared with 2.2% growth for the U.S. in the same period.
• Among 176 countries monitored by IMF, 150 managed to increase their exports last year (more
than 85% of the world’s nations) - the highest share of nations on record.
• But aging populations and slowing productivity growth have raised questions about whether the
world’s nations have the potential to grow all that much faster.
 CENTRAL BANK INDEPENDENCE

• The govt. urges the central bank to hand over a part of its surplus reserves to help meet budget
goals and ease restrictions on corporate lending by state banks.
• But, the RBI Governor Urjit Patel focuses on eradicating all non-performing loans, keeping the
rupee stable in emerging-market fluctuations, and maintaining control over inflation.
• Moreover, recent examples show the drastic effects govt intrusions can have: Argentine
government’s intrusion into its central bank’s affairs in 2010 triggered a surge in bond yields with
damaging consequences for the economy. Similar happenings in Turkey can as well be cited.
• The rupee lost more than 10 percent of its value against the dollar this year. The RBI has raised
interest rates twice this year to tamp down inflation, which hit a 13-month low of 3.3 percent in
October.
• The squabble ended with the central bank agreeing to study the government’s demands, including
a plan for sharing a part of its surplus capital.

• While that is a near-term relief for investors, there is also a fear that the RBI’s reserves may be
used to finance the fiscal deficit.
 DO ECONOMIC BOOMS DIE OF
OLD AGE?
• Why do economic expansions die? – there are several theories by various economists.
• The U.S. economic expansion that began in June 2009 becoming the longest U.S. period of
uninterrupted growth since at least 1854. But the risk of a recession over the next 12 months
increased from 20% to 25%.
• We know that economic growth is fuelled by the confidence of consumers, businesses, and
investors which has been sagging lately. A spike in fear that the expansion will die could become a
self-fulfilling prophecy.
• Even though the job market is booming and GDP growth has been on the increase, people think
expansions do die of old age, because they lead to overproduction and over spending.
• Another concern is that the chances of China’s manufacturing sector contracting will trigger US
recession. But this argument is considered a little far-fetched.
• According to Robert Hall, today’s situation is reminiscent of the stock market crash of October
1987, when stocks fell sharply even though the underlying economy was healthy, and recession
occurred when portfolio insurance caused investors to sell into a falling market.
• Some people believe that we are already in a recession, which is defined as a decline in the
economy, not a low level of economic activity.
 FORTNITE’S DIGITAL GOODS ARE KEY
TO THE FUTURE OF GLOBAL TRADE

• Huge multiplayer games are true economic exchanges, but persuading

governments to let data flow freely may be the ultimate battle.
• Digital trade is not being captured in official statistics
• While Fortnite is notionally free to play, its maker booked billions of dollars
in revenue last year from purchases of limited-edition “skins” and “battle
packs” that allow players to customize their avatars.
• If a player in China or Germany buys an outfit or weapon designed in
North Carolina, he is effectively importing a digital good from the U.S.—
and helping to support a high-paying job in America.
• The online game Fortnite is actually a kind of global economic exchange,
but governments are unprepared to account for digital goods as imports or
exports.
INDIA AND THE ECONOMICS OF
IDEAS
• The technologies are exponentially growing in performance and their
cost is falling non-linearly. The convergence of such exponential
technologies can disrupt entire industries.
• Disruptive technologies and innovative ideas will be the key enablers
for this economic growth.
• Innovative ideas at the intersection of the domains like Mobile
Internet, Internet of Things (IoT), Data Analytics, Artificial Intelligence
(AI), Machine Learning will further accelerate economic growth
• The three key growth enablers for India: Mobility, Urbanization, and
Agriculture.
THE GREAT INFLATION MYSTERY

• The people who set interest rates don’t know what causes inflation, how
to measure it, or how to move it up and down.

• The Fed calls “inflation” is just a weighted average of the ups and downs of
the prices of all goods and services that reflects the spending of all
American consumers. And those prices change for a variety of reasons,
including technology, consumer preferences, and the cost of imports.

• How people experience inflation varies. It was higher for the old, for the
poor, and for large families than for the rest of the population.

• We normally break the index into its two main components, services
inflation has averaged 2.2 percent annually while goods inflation has come
in at just 0.3 percent. The problem for the Fed is they can’t treat the
services side and the goods side of the economy differently.
• The problem with inflation theories is that they tend to rest on “unobservables,”
such as the concept of the natural rate of unemployment. “Attempts to estimate
them have strongly suggested that they aren’t constants,” according to Edward
Yardeni, the Wall Street economist.
• Milton Friedman theorized that prices couldn’t possibly rise unless the Fed pumped
more money into the economy. But he was wrong. Even if the Fed does nothing, the
opportunity for inflation can increase if banks make more loans and if money
circulates through the economy faster.
• Economist Irving Fisher in the 1930s explained based on the simple equation that
the nominal rate of interest equals the real rate plus inflation.
• According to Patrick Harker, Operations researchers tend to value data collection
over theory-spinning. Thinking out of the box, Harker’s bank is even toying with
using the emerging science of machine learning to make macroeconomic
predictions and policy.
• BOTTOM LINE - The Fed has a preferred way of measuring inflation, but it’s an
open question whether the institution has the right tools to act on prices
HOW DOES A TIGHT LABOR MARKET DRIVE
UP PRICES YOU PAY? JUST VISIT YOUR LOCAL
HAIR SALON
• This reading is about a key economic theory : the Phillips curve.
• It states that inflation and unemployment have a stable and inverse relationship.
• Labor demand increases, the pool of unemployed workers subsequently
decreases and companies increase wages to compete and attract a smaller talent
pool and are increasing haircut prices to compensate for it.
• In theory, it should be happening to the overall U.S. economy, but it hasn’t.
• Economists say powerful factors such as an aging population, technology, sluggish
productivity growth and overseas competition could be restraining the
relationship between the unemployment rate and inflation.
• Minneapolis, where the unemployment rate has been among the lowest for large
metro areas in the country, at 3.3% in February—below the national rate of
4.1%—saw wage growth of 3.3% in the year ended that month. But inflation in
the overall U.S. economy has for years run below the Federal Reserve's 2%
target.