Rogoff's Bleak Forecast for the Euro

We have all seen recently what the current Eurozone mess can do to our stockmarkets and to our economy. Therefore, it is in India's interest that Eurozone mess never gets out of control, especially this year when the government's finances are already stretched and it doesn't have the wherewithal for a bailout. Then there is the worrisome current account deficit problem arising from the weakened growth of exports thanks to less-than-satisfactory growth of the global economy and rise in the value of our imports, many of which, we can't do without, chiefly crude oil and edibile oils. To top it RBI has the problem of keeping inflation under check which is still at a fairly high level. In this backdrop, it is further chastening to read eminent economist Kenneth Rogoff's recent article on the euro which has been reproduced in some places http://www.project-syndicate.org/commentary/a-centerless-euro-cannot-hold. Now Rogoff is no ordinary dude. He is famous for having studied recessions and downturns over centuries in his book with his ex-World Banker co-author Carmen Reinhart called  "This Time is Different: Eight Centuries of Financial Folly". He discusses arguments from the theories of two Nobel prize winners James Meade and Robert Mundell to paint a fairly grim future for the euro. Why is an article like this important? Because  you just have to peep into business papers and TV channels to see the plethora of so-called experts who are giving advice and predictions based on the assumption that things will get back to the same old ways of pre-2008. But will they? Has the global economy changed irreversibly by the global economic crisis? Food for thought.

Markets' Weakness Ahead?

Talking about the future direction of stock markets is difficult yet tempting. At a radio show on Thursday, April 5 where I was invited as an expert, I was asked the same question by the host. It is quite clear that when markets open on Monday, April 9, 2012, a few things will be at play. The bad news from Europe will be working on investors' minds, especially foreign ones. Bar Germany, the news from Europe is  not great. It is quite clear that what the continent is going through is not "shallow recession" as some had suspected but something deeper. Spain's debt markets don't really believe that it's government can pull things off and maybe that's why the bond yields increased. It seems Portugal, one of the earliest, in the list of troubled European economies will need another cash transfusion later this year. Incidents like public suicides in Greece and Italy that happened last week will make things very difficult for lawmakers trying to take tough decisons. In short, no end of the Euro misery is in sight. Plus, Fed chairman Bernanke has ruled out another pumping of cash into the US economy that would have found its way into the global economy and thereby raised the prices of many assets be it stocks or commodities such as oil. My answer roughly moved around these two major factors. As I write this post, it seems that the latest US jobs data is not too flattering. This will add some more impact to the negative sentiment. It was suspected that US companies would be adjusting to the reality of tepid growth and not step up hiring. That seems to have come true. Add information of a slowdown in China and there is a lot of negatives at work. In India, the markets and the economy could have benefitted if something had been done to negate these effects by moving positively on some of the areas where supply constraints are making life hell. But the government doesn't seem to be getting any of its moves right be it ensuring coal supply to power plants to clarifying aspects of its recent tax avoidance proposals. Looks like any expectation from the government is too much.