Global Financial Crisis 2011

Discussion in 'Economy & Infrastructure' started by Pintu, Aug 8, 2011.

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Downrating of US Economy, India's boon or loss ?

  1. Yes, we can gain from it

    75.0%
  2. No it will hurt Indian Economy also

    25.0%
  3. Can not say

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  1. Pintu

    Pintu New Member

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    Downrating of US Economy: can India's gain or will it affect India in long term ?

    As we all know Economy of United States is facing a crisis for down rating of it by S&P.

    Please see : http://defenceforumindia.com/united...61-us-loses-aaa-credit-rating-first-time.html now there are some talks of subsequent down grading of India's rating by S&P & upgrading by Goldman Sachs, there lies a question can India gain or will the change of rating affect India in long term? Or is it the time for Government to start the much talked second wave of Economic reform.

    an article by Pankaj Razdan, CEO Aditya Birla Group appearing on DNA indicates that India may gain from the present situation:

    In this context valuable opinions are welcome.

    Regards
     
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  3. sanjay

    sanjay Regular Member

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    US decline leaves China tipped as next economic superpower while pressure on US bonds is set to affect eurozone crisis

    All of a sudden, the US govt has to pay more attention to what countries like China and India say:


    When India joined China in criticising the United States' chaotic handling of its hefty debts this weekend, describing the challenges facing the White House as "grave", it was the clearest indication yet that the old order had been swept away.

    Until recently the US was the unassailable economic superpower, and the prospect of the White House being bossed about by the bond markets – let alone by Beijing or New Delhi – was unthinkable.

    But following a week when an estimated $3tn (£1.8tn) was wiped off the value of world shares, Friday's downgrade of America's cherished AAA rating to AA+ by Standard & Poor's is set to cause more turmoil on global markets and potentially jeopardise Europe's attempts to solve its own financial crisis.

    With currency markets, particularly the dollar, expected to come under pressure, and US bond yields almost certain to rise, this could have the knock-on effect of raising borrowing costs in the eurozone at a time when Spanish and Italian bonds in particular have seen yields soar.

    This could prove to be a tipping point for the transfer of global power from the US to its great rival China, even though the fortunes of Asia and the west are inextricably linked.

    The boom of the past two decades in the US, the UK and much of Europe came at the expense of an extraordinary growth in borrowing, much of it from the Chinese and other fast-growing Asian economies, which were happy to keep piling up Treasury bills and buying blue-chip companies, so long as the billions of dollars they spent were recycled into cheap consumer goods.

    At the height of the credit crunch, it seemed both lenders and borrowers were finally getting their comeuppance, but as the Bank of England governor, Mervyn King, has repeatedly pointed out in the past 12 months, the "global imbalances" that led to the crisis – the vast trade deficits and debts – never went away.

    Gerard Lyons, chief economist at Standard Chartered, blames the turmoil of recent days on a combination of "ineffective policymakers, excitable markets and a realisation that the recovery is going to be very slow in the west".

    David Blanchflower, a former member of the Bank of England's monetary policy committee, went further: "What we've seen is a once-in-100-years financial crisis that will take 20 years to adjust to."

    As for the US itself, Alan Greenspan, the former Federal Reserve chairman, said on NBC that the downgrade was having a salutary effect on the public as well as on policymakers. He said: "It gave the sense there is something basically bad going on. And it's hit the self-esteem of the United States, the psyche."

    But there is little glee in China about the west's travails. Beijing has repeatedly expressed concern about the mounting US debt burden and the reliance of the global economy on the mighty dollar. Now, the gloves are finally off. The official news agency has accused the US of "debt addiction" and insisted that, as its largest creditor, China now "has every right to demand the United States address its structural debt problem and ensure the safety of China's dollar assets".

    The Chinese economist Sun Lijian, in a commentary for the People's Daily, said: "The biggest victims [of the downgrade] may not be the United States itself, but other countries that have depended on external demand to amass national wealth – be they Asian nations that depend on exporting goods, or nations in Latin America and the Middle East, as well as Russia, that depend on exporting resources."

    For decades, the interest rate on American debt has been known as the "risk-free rate", because a US default was as close to impossible as anyone in financial markets could imagine, and all other bonds were priced relative to America's.

    Now that the markets have been forced to think the unthinkable, it is not at all clear what happens next. Erik Britton, of the City consultancy Fathom, says one possibility is that borrowing costs everywhere will rise.

    "It's the cascade effect – it's the chain reaction that we're concerned about. Do other countries retain the same risk premium relative to the US? If that's the case, then all bond yields will go up. Everybody's borrowing costs will go up, and that includes Italy and Spain, where it won't take much to make their situation unsustainable."

    And while Standard & Poor's verdict on the US is a humiliating blow, it merely raises the distant fear of a future default, while for Italy and Spain that risk is much more immediate. When the crisis reached Rome, it finally became impossible for Europe's leaders to write off the turmoil in bond markets as a problem of the "periphery" – little Greece, Ireland and Portugal.

    As German officials told Der Spiegel this weekend, Italy's economy simply looks too big to rescue, certainly by the current bailout fund, the European Financial Stability Facility (EFSF).

    Jean-Claude Trichet, president of the European Central Bank (ECB), has reluctantly ridden to the rescue many times during the crisis; the ECB will begin large-scale buying of Italian and Spanish bonds on Monday. The eurozone has repeatedly drawn back from the brink over the past three years, but a default by Italy or Spain would pose a threat to the single currency's existence.

    Sony Kapoor, of the Brussels-based consultancy Re-Define, said the ECB decision to buy bonds would not be enough; eurozone politicians also needed to revisit their plans for beefing up the EFSF.

    No one knows what will happen this week, but no one believes it can ever be back to business as usual for the global economy.

    Financial crisis: full force of US downgrade is felt around the world | Business | The Guardian
     
  4. Yusuf

    Yusuf GUARDIAN Administrator

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    The bloody dollar should fall because of what's going on, but the opposite is happening in india. My import cost is going up for no reason and margin getting tight. All for no fault of mine. Damn the dollar.
     
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  5. sanjay

    sanjay Regular Member

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    Sorry to hear that, Yusuf. I think this is the immediate aftermath response, but longer-term, Indian rupee would strengthen relative to the dollar, which would benefit your US imports. Better for you to source out other parallel supply channels whose currency exchange rates are more stable/favorable to you. Maybe better to build some price-hedging into supply contracts, if you can do it.

    India's exim industries will be hit, including IT, as the dollar weakens relative to INR. FDI has already been hit, but it's not clear that it will rebound, due to corruption fears. Now the ruling govt will have to face a reckoning for its stupid antics. This has created a vulnerability for them. Change of govt is what's really required to improve the valuation of the Indian economy and the Indian rupee.
     
  6. Virendra

    Virendra Moderator Moderator

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    Our clients in IT had only just begun showing good confidence again. This doesn't sound good :(
    Thankfully I'm in an India based IT Co. right now, and they (specially my Co.) think twice harder before laying off.
    However, the annual appraisals of many of our associates, which are due in coming months .. God knows what'll happen to them if the demand succumbs. It has a telling impact because you can't keep up with inflation if there isn't a decent annual appraisal :(

    Regards,
    Virendra
     
  7. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    in this drive of new world order emerging, will we regret taking to economic reforms 13years too late than china, i suspect, yes, wish rajiv gandhi had been successful with the first wave of reforms he wanted to usher-in in '84 but then we are better off than had we never taken to those reforms anyway, even though that was the only option left.

    a lot of changes are happening a lot quicker than expected, and no one is better placed than china to make the most of it, but will this transition be peaceful for newer players taking/joining the lead, lets see what awaits china, because west is not expected to let go off it all that easily, and then with exports yet again dipping, the chaos taking shape internally would be that much more.

    various industry bodies saying india is better placed to make a better deal out crisis does show a sense of confidence, but those could well the attempts to soothe tensed nerves in the dalal street, but still it seems we will emerge better and bigger, west especially various counties in the euro-zone will witness contraction of their economies.

    domestically all the talk of reforms will fade away, conservatives will start selling the stories of how we were saved thanks to an economy that was left effectively closed or marginally open in many sectors, without revisiting how opening up various sectors helped those, and the government will be happy on one account and that is inflation taking a dip, but it will also mean the real growth rate taking a dip and no it wont be 7.5-8% this fiscal, guess a lot-lot lesser if this atmosphere of uncertainty was to continue longer.
     
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  8. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    plan your pricing and quotation with exchange rate at around rs50 to a dollar if not more,

    i suspect the immediate aftermath will lead to 10-15% erosion in valuation of rupee for now, but as you said, in mid-long term rupee is bound to strengthen, but still feel rbi would then like to keep it in the range of 35-45. for now at least the bottom lines are bound to be hit, there is no saving that, even exporters will be hit.
     
  9. Yusuf

    Yusuf GUARDIAN Administrator

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    OMG!! Look at the volatility in the market. The rupee is swinging like crazy. What the hell is the RBI doing? Damn, we need to peg like the chinese.
     
  10. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    mate with exports expected to take a hit, expect GoI to off set the losses by making the exports cheaper, and rbi to enter the scene a little later. rbi should enter around 46, lets see, 47-48 is a definite on the cards.
     
  11. Yusuf

    Yusuf GUARDIAN Administrator

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    we import more than we export..oil is expensive anyways..we cannot let the rupee slip so far down.the rupee has fallen 3% in the last week.
     
  12. nitesh

    nitesh Mob Control Manager Stars and Ambassadors

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    ritesh pricing like you are suggesting will lead to clashes with customers, rather I suggest to keep a clause which says conversion rate will be at actuals on the day of ordering.
     
  13. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    oil will get cheaper mate, demand is bound to dip globally. with so much money being taken out of the market and rupee in high demand, higher value quotation is bound to happen. again govt would like to off set the losses to the exporter by making it cheaper for him so that he can quote a cheaper rate.
     
  14. Yusuf

    Yusuf GUARDIAN Administrator

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    If the rupee is in high demand, it should appreciate not go south. I am very confused about whats going on. I have payments to make and wondering what to do. I have already taken a 3% hit just waiting and thinking about what to do. I am not getting any right ideas seeing all the volatility.
    What i dont understand is why are FII leaving Indian markets when its the US which has crashed? Indian fundamentals are strong and they should stay put here rather than leave. I think the knee jerk reaction of the FII pulling out is what is causing the rupee to swing wildly. Just the other day rupee closed at 44.08.. I was salivating at the possibility of it going sub 44. All hopes dashed now.
     
  15. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    yup, sorry, my bad. should have said, money leaving the markets/country.
     
  16. Yusuf

    Yusuf GUARDIAN Administrator

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    Thats it? my bad? Mate phati padi hai. Kuch to bolo. What the hell is happening.
    Just checking the news, some good news SnP has said its not going to downgrade Indias rating as a result of the US rating going down. Stock Market has recovered and the rupee has gained 15ps in the last half hour. But we can never say what will happen next. Kuttiya hai yeh dollar mere liye. It has always been so whenever i have an import payment to make.
     
  17. Yusuf

    Yusuf GUARDIAN Administrator

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    I am continuously tracking major currencies in the last one hour. What i notice is the wild swings in rupee compared to pretty sober ones in other. Why is that the rupee is affected so badly and swings so wildly than other currencies? I mean i am seeing a jump or fall of 3-5 paise every refresh that happens while others are changing in the 4th decimal. some one please explain.
     
  18. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    call me foolish or whatever, i am still holding on to my certain investments in the market, my sense is after the initial panic, dust will settle down in india. there is no big reason why it shouldnt happen, various industry bodies are confident as well, are they just putting up a brave face, i dont think so but mate as i am saying, to off-set the losses in the exports they will let the rupee dip, to what extent will have to be seen.

    mate when the US markets sneeze, rest of the world catches cold, but i still feel post 2008-09 crisis we are much better placed to recover better.

    phil haal sab ki phati pari hai.
     
  19. thakur_ritesh

    thakur_ritesh Administrator Administrator

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    profit booking in the stock market, guess the 08-09 memories havent faded. if others are not panicking expects things to be calm in a day or two, but would it too late for the importing community, dehk te hai.
     
  20. Daredevil

    Daredevil On Vacation! Administrator

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    They are just making sure that there is no drop in value in their investments anymore. Once the Sensex shows a stable upward swing, they will come back. There will be lot of fluctuation in currency rates for next two weeks and most likely rupee will appreciate.
     
  21. johnee

    johnee Elite Member Elite Member

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    I think, once the dust settles, India will be better(if not best) placed than most.
     

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