By J Mulraj

Jan 15-22, 2023

Yak-yak is better than ack-ack!

The illustration above (created using a software called DALL -E) indicates the perils of ignoring inter-dependency; if they let go, both would fall in the abyss.

The world is so inter-twined and countries are so inter-dependent on each other that it’s folly to try and settle disputes in the battlefield instead of across a table. The war in Ukraine has harmed so many countries. Start with Ukraine. Some 7.9 m. of its citizens, out of 43.8 m. have migrated to other countries, and, as per Gen. Mark Milley, head of US Joint Chiefs of Staff, between 15-30 m. people have been displaced. Now, the world depends on Ukraine for sunflower, of which it is the world #1 producer, barley #4, corn #6 and wheat #7. Ukraine and Russia jointly account for about a third of global wheat supplies, of which Ukraine is 10%. These two dominate in the world supply of fertilizer too.

Then see how Europe has been destroyed, picking a fight with its energy supplier, Russia, without having prepared an alternative supply stream. Withdrawal of cheap, environmentally friendly Russian gas, delivered cleanly via pipes, has meant that European, (especially Germany) manufacture has become uncompetitive, and that European households are freezing, and paying through their noses for more expensive energy. The myopia of the collective West would have made a best selling Kafka novel, so incredulous is the situation.

In its quest for energy sources, Europe is turning to, among other things, dirty coal. Never mind it’s pledges towards climate change. Germany is turning towards lignite, a dirtier form of coal, with a 25-35% carbon content, and has even pulled down a windmill farm in order to mine lignite. Europe is relying heavily on import, primarily from USA, of liquefied natural gas (LNG), which consists almost entirely of methane. Methane is far worse for the environment than carbon dioxide, and each time LNG is transported by special, cryogenic, ships, there is a huge risk of an accident releasing a large quantity of methane into the atmosphere.

Policy makers are not as concerned about the pledges they made at the Glasgow COP a year ago, as they are trying to score points in their war scenarios. This is evident in the nonchalant manner in which some country blew up two Nordstream pipelines, releasing, in the process, huge amounts of methane,

So the world’s environment has suffered.

Also poised to suffer badly are the poorer nations of Africa and Middle East, which face the prospect of famine. One that could see 2 million starvation deaths, arising from a shortage of wheat. An early, negotiated, settlement is imperative to try and minimize this impending calamity.

Inter Governmental collaboration is needed in other fields to, making yak-yak a far better alternative to ack-ack. Finance, for one. The entire world is highly over leveraged, and survives by rotating, or re-financing debt. A default by any can, and has, trigger a domino effect on others. America is going to hit its head against a debt ceiling this week, and US Congress needs to legislate to raise it, or risk default. In order to pass such legislative lifting of the ceiling, Republicans may seek concessions in other areas, and it will become a nail biting finish.

It seems US Treasury Secretary, Janet Yellen, is making a dash to Davis to meet the Chinese Vice Premier, attending WEF, in order to ask him to stop selling US Treasury bonds . He will, of course, ask for something in return, to accede to which Republicans and Democrats would need to yak-yak some more.

The financial situation in China is bad, too! Local (State) Governments issue their own debt, which is not reflected in the borrowing levels of the national Government. A large part of local Government revenues came from land sales. These have fallen sharply, after the realty crisis triggered by Evergrande. So local Governments started issuing bonds, to domestic and foreign investors. Remember, these bonds are not included in the Central Government’s books. Now for the nightmare on Elm Street – as per this video the total size of such debt in 2022 may have $ 9.6 trillion (see around 9:40). That’s a 53% rise in debt:GDP ratio! Unsustainable! More so, after a 3% drop in 2022 GDP, combined with a fall in population.

Obviously the world needs to talk about a global financial reset. Talks that would not be possible if a conflict broke over Taiwan.

Last week the BSE Sensex was flat, ending the week at 60621, up 360.

Investors and policy makers are encouraged by the fall in the price of crude oil. Brent crude has fallen from its peak of $ 122/b in June, to $ 89 today. There is hope among some investors that this may induce central banks, especially the US Fed., to reduce interest rates.

However, this does not factor in the return of Chinese demand, once it opens up its economy, as is imminent. Resurgent Chinese demand will make the price of Brent crude shoot up, to its June high, and also global prices of commodities which its economy will suck in. Inflation is not tamed, its crouching in the weeds.

India’s GDP growth is encouraging in the midst of all this gloom. But India has an age old problem, which drags the India story down, viz. corruption. There are revelations of an ongoing investigation into the appointment of a British firm, De La Rue, by the then FM, P Chidambaram, and former Finance Secretary, Arvind Mayaram, who has been charged. Last week also saw allegations of corruption at Food Corporation of India, the Government owned food procurement and management agency. It seems corrupt officials demanded bribes of between ₹1000-4000/ truckload, for accepting substandard grain.

Corruption, and unjustifiable judicial delays, not only damage economic growth, they also tarnish the image of India as an attractive destination for foreign investment, particularly foreign direct investment. This, at a time when India needs FDI, for both technology and jobs, and at a time when companies are seeking alternative locations to China. It is high time that both corruption and judicial are tackled sternly. And thAt culprits are not let off, for political considerations, after a cooling down period behind bars. The ‘chalta hai’ attitude must go, if India seeks to become a developed country.

It is better, in the face of so many negative global factors, to sell, and have dry powder available for future opportunities. It’s better, too, if global leaders start talking more often, and confronting less often.



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