Need to Control that Capital

It is time for the IMF and the United States to fully support capital controls, an easy way to help ease crises in developing economies.

In a new study, staff members of the International Monetary Fund (IMF) endorse an idea to help mitigate the impact of economic crises in developing countries: capital controls. Before the 1997 Asian economic crisis, IMF staff thought controls -- really a macroeconomic policy to smooth the amount of money coming into and leaving an economy -- should be banned. Now, and particularly since the Great Recession, the IMF has changed its tune. Capital controls are a good idea -- and now is the time for the IMF and the United States to back them.

Capital flows -- basically, investment from one country into another -- can help developing countries grow. Many developing economies lack the savings and financial institutions to help finance and kick-start business activity. Money and investment from abroad can help fill that gap.

The more capital coming in, the more the developing country benefits, one would think. But it is a bit more complicated than that. Cross-border capital flows tend to be "pro-cyclical": too much money comes in when times are good, and too much money evaporates during a downturn. In the run-up to the 2007-2008 crisis, for instance, wealthy countries poured too much money, too fast, into developing economies. This led to asset bubbles in real estate and stock prices, as well as currency appreciation. When the crisis hit, investors yanked their funds and retreated to the "safe" haven of the United States.

Capital controls help smooth the inflows and outflows of capital and protect developing economies. Most controls target highly short-term capital flows, usually conducted for speculation rather than longer-term investment. For instance, before the crisis hit, Colombia required that a certain percentage of short-term capital be parked in the central bank for a year. And last November, Brazil put a 2 percent tax on speculative inflows.

The new IMF study finds that such capital controls helped buffer against some of the worst effects of the financial crisis in some developing countries, such as Colombia, Brazil, India, Thailand, and China. It thus endorses capital controls as part of the macroeconomic policy tool kit.

This is a sea change. For decades, the IMF (and the U.S. Treasury) had advocated for the free flow of money and capital to and from countries, regardless of their level of development, without restriction. But now, many economists view the premature lifting of regulations on capital flows in Asia as one of the problems that triggered the Asian financial crisis in 1997, as well as why much of Central and Eastern Europe have been so hurt by the current crisis. These events have led to a slow but diligent rethinking of the role of capital controls within the economics profession in general and the IMF in particular. The IMF study is a result of that rethinking.

This new consensus has come just in time. As higher-income countries have maintained low interest rates, capital is rapidly leaving for developing countries offering better rates of return. Countries like Brazil and China are now concerned about bubbles. Capital controls can play a role in helping them maintain financial stability.

But getting the economics right is only half the battle. Two things must happen to fully take advantage of the new consensus. First, the IMF has to practice what it preaches. It is one thing to have research staff discover that capital controls work. It is another to have IMF country programs advocate for capital controls. The IMF should also play a role in designing effective controls, which investors often figure out how to evade. Bolstering regulators and watchdogs is necessary.

Second, the United States must follow suit. Since 2003, U.S. trade and investment treaties have outlawed capital controls by developing-country trading partners by mandating the free flow of capital to and from a country, regardless of its level of development -- for instance, in trade deals with Chile, Peru, and Singapore. (In Singapore's and Chile's cases, the countries protested the capital-control bans, but ultimately agreed to the treaties.) Pending deals with Colombia and South Korea would also ban capital controls. Other higher-income countries and trade partners -- such as Canada, Japan, and the European Union -- grant countries the right to use the macroeconomic tool, or at least grant exemptions to prevent or mitigate crises.

The good news is that the United States is renegotiating a number of trade agreements in the process of passing them through Congress and as part of a new Trans-Pacific Partnership trade agreement. Washington should correct these agreements and allow for at least the temporary use of capital controls to prevent and mitigate financial crises.

The world has just learned the hard way that a crisis, no matter where it starts, can hurt everyone across the globe. To prevent another crisis, the United States and the IMF should ensure capital controls are part of every developing economy's tool kit.

Control ThatCapital

It is time for the IMF and the United States to fully support capital controls, an easy way to help ease crises in developing economies.

Control ThatCapital

It is time for the IMF and the United States to fully support capital controls, an easy way to help ease crises in developing economies.

Future Prospects of the Indian Economy

The Indian economy is growing at a fast pace. It is officially the world's second fastest growing economy. The Indian economy is likely to change a lot in the developing country.


Since the beginning of the economic reform in India in early 1990s, the country has gone through a lot of drastic changes. There have been lots of job creation in the country after the economic reforms. Young people are getting job opportunities like never before. New industries like information technology (IT) and business process outsourcing (BPO) have also offered more jobs for the educated youth. In fact now a days anyone with workable knowledge of computer and English speaking can find a job in India. All industries are growing at a fast pace. The auto industry has seen record growth in recent times. Even the manufacturing industry has posted a great rate of growth.


In coming years India is expected to go through some more drastic changes economy wise. The growth of the economy at double digit rate will make the country a developed nation in a couple of decades.


However, the path of economic progress is not easy. There are some problems in the country than can make the whole progress go for vein. Population explosion is one such problem. The fast growing population of the country ensures that majority of the work done for improving the life standard of the common people are going to the naught. The country has limited resources and it can sustain only a limited number of people living in the country. The basic need for supporting the additional population is urgent, which is bound to take more resources. The government of India is yet to come up with some policy to curb the growing population.


Another threat to the Indian economic growth story is terrorism. The threat of terror can derail the whole positive sentiments generated by the economic growth. As economic activities happen mostly in an environment of security, any act of terrorism in any major economic hub can be a major blue to foreign investment in the country, affecting the overall economic growth of the country. For example, bomb blasts in Mumbai had a negative impact on the economic scenario of the city.


Religious intolerance is growing in India. As some politicians can always play politics to garner votes in elections, they may divide people and cause communal riots. As seen in the case of Gujarat, some politicians are likely to exploit religious sentiments when pushed to the brink. Any major incident of religious riot can derail economic activities of a particular region. For example, after the communal violence in Gujarat, many industries of the state, especially of Ahmadabad, were affected.


Any other internal threat can also put a spanner in the economic growth story any time. As social unrest in the country is existing, it can be a bad omen for the overall economy. The rich-poor divide is also bad for the economic growth of the country. Keeping abreast with business news is good for keeping tabs on happenings in the economy.

Fixing the economy Globally

The reality cannot even be anymore as plain as day. The writing is on the wall. The USA really has two choices, which is to continue business as usual with never ending deficit spending leading to high taxation, which in turn of course hinders the economy by burdening all business and leaving the consumer with less or we can seriously have a look at where we are today to make drastic reforms in overall Government size to where we can adapt our current course of complete economic implosion and Government insolvency and just systematically reform a new lean and mean Federal Government to save Trillions of dollars and to pay down the National debt.


First and foremost, I want to make it clear that I do not have a desire to see current Federal employees unemployed, just as I would not want to be unemployed or anybody in the private sector to be unemployed either, which is why when Federal Government downsizing occurs, it needs to be performed in stages to ensure that employment transitions occur seamlessly for Federal employees who loses their jobs through out the down sizing process.


Why is it imperative that we down size the Federal Government? Well for starters we currently have about $108 Trillion dollars in unfunded liabilities, approximately $60 Trillion dollars in National debt and a $13 Trillion dollar (and growing) budget deficit as well as unemployment/underemployed U-6 of 22% (May 2010, Labor Department statistics) of the Nation and a weak private sector that is constantly shedding businesses every month in Bankruptcy while trying to sustain a $3.8 Trillion a year budget and only bringing in around $2-$2.2 Trillion a year at the Department Treasury and as unemployment rises and businesses continue to fold the revenue coming in will obviously like a total no brainer, decrease . In essence, the current course that we are on is leading us right towards a cliff at the Grand Canyon and the results are not going to be pretty if we fail to act and change course soon!


So obviously if we are to be a society with any brains we have to balance the Federal budget 1st and create budget surpluses to pay down debt and at the same time we need to limit Government interference in the Private sector to encourage small business start ups and to encourage existing companies to have the ability to grow. This can be easily achieved if we decided to reduce our Corporate tax rate from 36% to 15%. As a result of doing this, companies will gain an immediate ability to grow inventory, advertise more and as volume of business increases, these businesses will eventually generate new employment again. The Federal budget should be reduced to $2 Trillion dollars a year as well.


How do we shave $1.8 Trillion from the Federal budget? Well for starters, it will be essential to repeal and reform the recently forced health care reform bill that passed with 75% of the Nation opposing the ridiculous bill and was only able to pass with bribes, threats and arm twisting in Congress and of coarse nobody has forgotten at all just how anti American and Authoritarian the entire process truly was, not to mention the fact that the Nation had no money for it at ALL during the worst recession since the Great Depression. The HCR bill is just too expensive! Next it will be essential to eliminate the Department of Education, which wastes approximately $200 Billion dollars a year with virtually no improvement in over all National education for the Nation's children. Saved revenues and 100% authority should be returned to the States and tax payer, who we all know are highly interested in ensuring that Education is properly funded so that America's children receives the best primary Education possible. The only real change that would occur is that the parents would gain greater say in their child's Education at a more local level and through new taxation at the State level, less fraud waste and abuse will occur resulting in more bang for the buck in overall Education. After wards the Department of Defense should consider 2 outcomes in order to save serious money. Option 1 would be to assemble a plan to charge regional Nations to pay for DOD's deployment and contracting expenses should it be determined that US Military actions benefit regional Nations economically or Option 2 which would seek to save $75 Billion a year in down sizing non essential foreign military bases, which total at approximately 700. DOD could control 100% of the action, they could be permitted even to increase the size of certain bases as they deem necessary, but ultimately they will need to save $75 Billion a year. If they can save more in an intelligent manner without jeopardizing National Defense, then a pay raise for all E-1-O-9 service members in all branches should be issued at 10% over their annual salaries, so long as the savings covers the overall pay increases. DOD could also look at ways to increase the life expectancy of non combat equipment and machinery and if they achieve doing an outstanding job in saving more than the targeted $75 Billion a year reduction, then 1/2 the money saved every year will be returned to the Treasury in savings and the other 1/2 kicks into additional pay raises equally divided for all Military Service members. In effect every unit Commander will have the joy to announce to their service members that they have the ability every year as a team to increase their salaries, every year as a team. That is outstanding positive reinforcement to make efficiency become habit, because now it pays to be efficient and it pays to make everything stay in top notch shape and last longer. This concept will not be permissible on body armor, combat systems, weapons or critical technologies as determined by DOD's top command, because such things will have to stay on a schedule of new and the best at all times, but anything and everything else, play ball!

A third area to save tremendous amounts of money will be to review thousands of agencies to determine which agencies should be down sized and or eliminated. A target of savings should be set at $75 Billion a year.

A fourth area to save money should be a target of $10 Billion a year in the Department of Energy.

A fifth area to save money should be in reforming Social Security which has never received proper funding in the 1st place.

Social Security should become a new 21st Century individual controlled investment account with Federally backed Insurance that strictly protects the amount invested in by the individual and employer, but does not protect the amount of targeted gains. This would truly be a Republican/Democrat compromise. This would allow a choice of investments that the individual can make in US markets, but ensure that they don't lose it all if they retire during an economic downturn. In essence the Social Security individual will either at least have a savings for retirement to retire with just enough or if their investments were wise and good then they would have the ability to retire in style. This concept would perfectly balance between the Democrats strong desire of centralized control and the Republicans desire to allow individual liberty. Solving Social Security if it can ever happen will have to be a perfect compromise by both Party's otherwise the problem will never be resolved and as a result of not solving the Social Security problem, then more than likely it will go belly up and then nobody will have anything at all. A market control of age to retire should rise when times are bad and lower when times are good randomly due to uncontrolled market forces and the American people should be told that that is just how it goes to ensure that everybody has their Social Security protected. Markets are some times very good and some times markets are horrible.


A new fair flat tax system should be installed with abolishing the income tax and estate tax.


The new excise tax system will be as follows: (The way it is composed is again, trying to compromise the ideological differences that the left and right has, but no less the Treasury will gain more money than ever and every tax bracket of income earners will save too)


Subsistence items = No taxation what so ever. A huge list could determine what is essential to human life with no luxuries. Example: grocery food, non soda/alcohol drink, 1st home, diapers, clothing items under 2010 value of $100 per article of clothing, shoes, baby products such as cribs, rocking chairs, pacifiers, heating furnaces for homes, tooth brushes, tooth paste, soap, shampoo, toilet paper, coats, jackets, etc.


Common items = 7%. This could include: household goods, electronics, tires, cars, motor oil, tools, machinery, office supplies, lawn care products, lumber, ladders, industrial materials, cement, concrete, steel, copper, guns, ammunition, air conditioners, humidifiers, books, caskets, grave stones, bubble gum, perfume, cologne, cosmetics, news papers, and much, much more.

Luxury items = 9%. This could include: expensive paintings, jewelry, boats & yachts, high end automobiles, ATVS, snow mobiles, fast food, candy, sweets, soda, sugar, private jets, hot tubs, pool tables, 2nd home& beyond on a private basis, sex toys, trains, Rec vehicles, fur coats, etc.


Vices of life items= 12%. This could include: Alcohol, tobacco products, marijuana, coffee, tea, slot machines, craps tables, black jack tables, roulette tables etc.


Surplus revenues should be utilized as follows: 65% pays down debt and 35% is utilized for small business grants and Nano technology research and development Grants for primarily medicinal purposes to create a new major US Industry to produce a new technology that will render Global demand. 60% of the 35% should be utilized in Nano Technology research and development Grants to companies that employ US citizens in the USA to work in that sector. 40% of the 35% should be utilized for small businesses who can expand and new start ups with excellent business plans. The SBA should employ Fortune 500 companies to produce a rotating staff of review teams from the Private sector to make the reviews. The Fortune 500 company should be compensated direct tax free $35,000 a year per person produced with an MBA to the SBA review board and then that individual who will only serve 1 year on the SBA review board will review and determine which small businesses are approved or denied Grants. The MBA will be compensated $65,000 for the year and will receive a 10% commission on the new start ups or expanding small business 1st profitable year net profit total. So with that being said, if the MBA approves a Grant to losers who can't ever profit, then the MBA earns no commission, but if the MBA picks winners who end up making huge profits then the MBA could make a killing. This will ensure that a positive impact occurs in the overall economy and will protect the tax payer against fraud, waste and abuse. The Fortune 500 companies will all produce people for SBA reviews and then the company that produces the biggest winners will win bragging rights where the President of the United States will spoil them at the White House for 5 days and nights where the CEO, COO, Chairman of the board, the largest share holder and the crowd of MBA's that served on the SBA's review board who produced the highest small business profit totals will stay and be wined and dined as a team award. Everybody will receive plaques, X3 photos individually with the President and X2 free advertising media blitzes, one at the beginning of their stay and one at the end of their stay will ensure that the entire world knows who has the top dogs in the business world, which will be great for the Fortune 500 company in free advertising! Under this scenario the Government provides the business promotion shell with the SBA and Americas finest Fortune 500 Companies fine tunes Americas new business all stars so that the economy can truly succeed. It's kind of like marrying the best of two different worlds!

Now that a fair flat tax system is installed the entire IRS at a huge tax payer savings can be shut down. The average small business which spends approximately $183,000 a year to properly maintain their books can now save most of that money in accounting, which of coarse will have an immediate and positive impact on the overall economy. The Department of Treasury will be all that is needed to handle the 15% Corporate tax arena.

We have now saved a minimum of $1.48 Trillion a year with real potential to save even more.


Once all of this has been done then multiple factors will occur. The Treasury will gain more money than ever before in American history so that we can really pay down the National debt, the Federal Government will remain strong and effective while being slightly smaller with a balanced budget producing budget surpluses, businesses will thrive, the unemployment rate will drop fast and individual earners will keep more of their money in their pockets where that money belongs. I have seen nobody in politics today from any Party produce such a winning plan!

US recession : Its effect on Indian economy

In economics, a recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. Production as measured by Gross Domestic Product(GDP), employment, investment spending, capacity utilisation, household incomes and business profits all fall during recessions. Now this is recession only by definition.

US recession and its effect on Indian economy

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. It’s been a lot of time we hear of “Recession” going on in US market. Everyone is talking about recession. We cling to newspapers, television news channels, and financial reports only to discover “what next” in recession. It would be naïve to imagine that a recession in the United States would have no impact on India. The United States accounts for one-fourth of the world GDP. The fears of a US recession led to panic in the Indian stock market.

The effects of the recession 2008 on India were quite distinct from those of the past. Here are some areas worth following:

1) In terms of specific sectors, the IT Enabled Services sector was the hit since a majority of Indian IT firms derive 75% or more of their revenues from the United States

2) The tourism sector was affected. Now is the time to aggressively promote health tourism. Given the availability of talented professionals, and with a distinct cost advantage, India can be the destination of choice for health tourism.

3) The manufacturing sector ramped up scale economies.

Since the first quarter of 2008, the United States of America started experiencing an economic recession. But apart from US the global economy faces the possibility of recession in 2009. The IMF predicts slower growth and a likely 2009 world recession. Countries include the UK, Australia, India, Japan, Germany and Spain will experience slower growth in the next year and a possible recession.

According to Governor of RBI, as India’s growth is mainly driven by domestic demand and consumption, the country would be less affected by the global financial turmoil, but it would not go completely unscathed. India’s growth will continue and even if there is some moderation, it will only be a modest moderation. But it will not be a recession and there will only be a slight deceleration. But India has to balance the concerns of maintaining price stability and sustaining growth. The word 'recession' is being frequently used in India in recent months despite the fact that the economy continues to grow and that even at 7 per cent in the current fiscal and perhaps 6 per cent in the next one, these will be amongst the better growth years for the Indian economy since independence.

Jobs in recession and Indian youth

However, there is certainly a deep recession as far as jobs for the highly educated are concerned. Ironically, this may be the first time in India's history when it is more difficult for the professional graduates to find employment or appropriate employment, compared to the less educated millions. The present job recession has also hit the aspiration level of the Indian youth. The myth of IT and the glamour if private jobs are all history now. Now in an age of pink slips and mounting recession, the Indian Youth is once again looking in public sectors for jobs. Once shunned for its non glam image and boredom, the youngsters today are choosing security of the government jobs over money in corporate sectors. The global financial meltdown and the serious job cut in the private sectors are making youth nervous, jittery about the present private office scenario.

And finally, a trickle has already begun of professionals of Indian origin returning to India as job opportunities dry up in the US and other developed economies. What should the newly graduating (and their parents) do? They have to start with the acceptance of this new ground reality that merely a professional degree even if it is from a top-10 or a top-25 institute is not enough to guarantee them a job of their choice. It is important for those who are in the job market today to understand that India's economy is spread across India and not confined to the top eight or nine cities only. Hence, jobs are also spread across the entire urban and even rural India and, therefore, the employees must be willing to work from there.

Fiscal, monetary policies help India dodge recession, 'sprint'

Fiscal and monetary policies have helped India in dodging the recession and sustaining the economy. India named as a 'sprinter', the downward trend in the country's industrial output seemed to have ended, with a pick-up likely due to new infrastructure development.

Investor confidence in India had certainly improved, as reflected in the rapid increase in net capital inflows in the stock market during recent months. Sherman Chan, an economist, said in a note on the recovery of the Asia-Pacific region that amid increased sightings of green shoots, the bottom of the global downturn is now in sight China, India and Indonesia & have dodged recession and maintained strong growth despite the global turmoil.

Impact of global recession on India

America is the most effected country due to global recession, which comes as a bad news for India. India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January declined by 22 per cent.

RECESSIONS ARE the result of reduction in the demand of products in the global market. Recession can also be associated with falling prices known as deflation due to lack of demand of products. Again, it could be the result of inflation or a combination of increasing prices and stagnant economic growth in the west.

Recession in the West, specially the United States, is a very bad news for our country. Our companies in India have most outsourcing deals from the US. Even our exports to US have increased over the years. Exports for January have declined by 22 per cent. There is a decline in the employment market due to the recession in the West. There has been a significant drop in the new hiring which is a cause of great concern for us. Some companies have laid off their employees and there have been cut in promotions, compensation and perks of the employees. Companies in the private sector and government sector are hesitant to take up new projects. And they are working on existing projects only. Projections indicate that up to one crore persons could lose their jobs in the correct fiscal ending March. The one crore figure has been compiled by Federation of Indian Export Organisations (FIEO), which says that it has carried out an intensive survey. The textile, garment and handicraft industry are worse effected. Together, they are going to lose four million jobs by April 2009, according to the FIEO survey. There has also been a decline in the tourist inflow lately. The real estate has also a problem of tight liquidity situations, where the developers are finding it hard to raise finances.

IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy loss due to the fall down of global economy. Federation of Indian chambers of Commerce and Industry (FICCI) found that faced with the global recession, inventories industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.

How to tackle the global slump?

“Our economy is shrinking, unemployment rolls are growing, businesses and families can’t get credit and small businesses can’t secure the loans they need to create jobs and get their products to market,” Obama said.