Rewind. Best of Times, Worst of Times

Charles Dickens described today’s global situation perfectly in his classic, A Tale of Two Cities, saying ‘it was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us’.

Negative end of the Paradox

The global situation presents a winter of despair. Global economic growth is not picking up and jobs are not being created. Besides this, there is a serious conflict situation in Iraq, which can fast deteriorate if Saudi Arabia and Turkey send ground forces, to which Russia’s Putin has threatened to use nuclear weapons! The road to insanity is paved with vanity.

In the financial world, the lunacy of ZIRP (zero interest rate policy) and NIRP (negative interest rate policy) are reaching a denouement. Pension funds make assumptions of returns on their funds to judge whether they are under funded. The assumption made are ‘optimistic’ (in other words, they are lying) and almost all 50 States in USA are under funded. An article in Zerohedge states that Moody’s estimates the under funding of all pension funds in USA to $ 2 trillion . They will not be able to meet pension obligations. This will result in social unrest. NIRP has destroyed the returns on their investments. So a global debt bomb is ticking away because the bonds issued by various Government and municipalities are likely to fall sharply.

Another risk is that, if crude oil prices remain in the $ 30-40 range (some even opine it could drop to $ 20) oil producing countries facing huge financial strains, would sell equities from their Sovereign Wealth Funds (SWFs). Global SWFs have some $ 7 trillion in assets, and, as per SWF Institute, they could end up selling $ 404 billion of global equity in 2016, up from $ 213 billion in 2015.

Hence global economies, and global stock markets are looking at a winter of despair with factors such as a hard landing in China, tepid economic and job growth, a debt crisis, and huge sale of equities by SWF, not to forget the risk of a mid East war theatre.

Fructifying future fantasies

The spring of hope comes from technology. The current crude oil supply glut is the birth child of the technology of horizontal fracking. New advances in genomics and nano technology are providing hope for discoveries and cures in medicine. Inventions like driverless cars, combined with fantastic ideas such as shared vehicle services like Uber, would make life easier for the individual and a nightmare for automakers.

Advances in telecommunication and computing have led Marc Zuckerberger to tout the possibilities of virtual reality . This would be an enhanced form of video conferences. Advancements in virtual reality would one day make it possible to drastically cut air travel, and hence our carbon footprint. Travel for both business and pleasure would be virtual.

Virtual reality combined with superfast 5G telecom networks, when made commercially viable, would permit robotic surgery from remote locations!

Advances in technologies of clean energy from renewable sources are making it competitive with thermal energy. Coal mines are shutting down in developed countries, helping meet carbon emission norms.

Lessons for India

So, depending on how we govern ourselves, we have everything before us, or we have nothing before us!

And this is where the Indian polity, media and the judiciary needs to pull up its socks. Policies which are good for the nation should be cleared, irrespective of bipartisan politics. The media should not play up on issues merely in order to create controversy and gain TRPs. The judiciary should stop giving endless adjournments and make crooks and defaulters answerable for the serious erosion in the banking system.

The Union Budget should hopefully give us some policy directions this week.

The writer is India Head, EuroMoney Conferences

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