Finalyst November 2013 Issue November 2013 | Page 7

FINALYST

NOVEMBER 2013

of Mass Destruction) held globally, Bubble that is supposedly keeping comes to India, the economy seems
however this was just the tip of the bond prices unrealistically high and to be in denial. The GDP is at a 10
iceberg. The solvency of some EU
banks was strained by significant exposures to domestic sovereign debt.
The market value drop of government bonds led to liquidity strains, as
these bonds were widely used as collateral in interbank markets and in
some instances, EU governments had
to provide funding to vulnerable domestic banks, at the expense of their
countries’ debt.
It seems like everyone is on a suicide
mission with an option to blame their
kill on someone else but the beauty
of deal is that no one is responsible,
because everyone is drinking the
same cool-aid. The Federal Reserve
Quantitative Easing (QE) measures (a
fancy term for easy money policy!)
are responsible for blowing these
bubbles. However, the reality is that
a pin lies in wait for every bubble and
when the two eventually meet, a
new wave of investors learn some
very old lessons: First, many in Wall
Street (a community in which quality
control is not prized) will sell investors anything they will buy. Second,
Speculation- “The Mother of all Evil”
is most dangerous when it looks easiest.

interest rates – which move in the year low (Around 5%) but the govopposite direction from bond prices ernment still is optimistic to achieve
– unrealistically low. Ever since the breakthrough results by the next
market mayhem after US Federal quarter. The Rupee is at an all-time
Reserve chairman Ben Bernanke in- low - 1$=Rs. 62 which clearly states
troduced QE measures, global inves- how vulnerable the economy is to
tors have been pulling money out of any sort of policy measure. We need
the emerging markets. What these to focus on Commerce, and not only
measures do is that it overheats the on Finance. People get all hunky dory
emerging markets (BRICS) causing when it comes to investing in China,
protectionism and competitive deval- however the best way to approach
uation as the currency of these econ- the growth figures of China is by igomies are pegged by dollar. Brazil’s noring their GDP rate. Even if we
GDP grew by only 1% and may not take into account the 7.5% growth
grow by more than 2% this year, with rate at face value, its components
its potential growth barely above 3%. suggest a more ominous scenario.
Same is the case with Russia, despite What’s really the issue in the country
oil prices being around $100 a barrel. is this unhealthy obsession with GDP
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