Archive for December, 2015

A different kind of Call money market in Andhra Pradesh (and a tragic one)..

December 18, 2015

Call money is something usually associated with money markets. The name literally means money is available on a call from a lender and to be delivered back to the lender on a return call. Nowadays it means a market where lenders lend their surpluses on an overnight basis (if weekend then 3 days) on an unsecured basis (no collateral). Accordingly, you have call market interest rates which have become the preferred way for targeting interest rates for central banks.

It seems there is a different call market existing in Andhra Pradesh which is more on traditional lines. Here, money is available on a phone call and is given back on a call. The interest rates are crazily high. In a real tragedy, one such family committed suicide as they could not pay back the interest after getting a call. Thiis how one got to know of this market. 

On Thursday morning, 36-year-old Siva Kumar, a resident of Diguvanagulavaripalle village in Chittoor district, took his family to the Ayyappa temple. After offering prayers, they rode on a mobike to neighbouring Errajivaripalem village. On the banks of the Sitamma lake, they then posed for a family photograph.  

It was a picture of a family on an outing — till all of them jumped into the water. Eyewitnesses said villagers tried to save the family of four — Siva Kumar, his wife Leelavathi (30) and their two children Naveen (8) and Kavya (6) — but failed. Their bodies were retrieved in the evening.

The mass suicide showed that the ‘call money lending’ racket in Andhra Pradesh has taken a deadly turn. The family has left behind a note naming the moneylenders whose harassment forced them to take the extreme step. Their neighbours too told the local media that Siva Kumar was being constantly harassed by moneylenders.

The ‘call money lending’ racket makes loans readily available on the basis of phone calls. The moneylender comes to the borrower’s doorstep with the cash and a promissory note. The interest rates range between 120% and 200%. The lender, similarly, can ask for the money back over the phone at any time. If the borrower can’t repay, life and property comes under threat.

It runs both deep and wide in Andhra Pradesh, evidence gathered by the police during raids in Krishna, Guntur, Kadapa, Prakasam, East Godavari and several other places show. The raids also exposed the deep-rooted association private moneylenders have with leaders of all political parties as well as some bureaucrats. The police also discovered how moneylenders threatened, coerced and dragged women into prostitution when they could not repay loans in time.

This is such a sad story. How distorted financial markets continue to create havoc with public. How people continue to avail loans from informal financial sector and pay via their lives. So many years of efforts of financial inclusion is still far from complete.

One also needs to note how such informal financial markets emerge and thrive with huge political support. This one uses technology to give money in a very prompt manner but on non-payment use the traditional coercive  ways to force repayment or think of other ways to escape.

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Is Rupay undermining competition in card space?

December 18, 2015

How about getting a taste of one’s own medicine? Visa and Mastercard have dominated the card space for ages now. One is sure some players wanting to enter the space would have been threatened by these two players. As this blog has pointed in the past, how Rupay has emerged as a competitor for the two from nowhere.  Being a state backed initiative, Rupay’s charges are much lower.

The Rupay card has become govt’s main way to push financial inclusion. This is irritating the two major players:

US card companies MasterCard and Visa have complained of an invisible mandate to keep them out of Jan Dhan Yojana, the government’s financial inclusion programme, and demanded a level playing field with government-backed card issuer RuPay. Stung by a sharp rise in cards issued by RuPay, thanks to Jan Dhan, MasterCard and Visa say they have asked Reserve Bank and the government to consider their services, which are cheaper than that of the local card issuer.

Not sure what the mechanics are and how true are these allegations. Competition is preferred any day and if govt is not allowing it, it is a mistake. Competition keeps you on toes and one does not wish Rupay to become rusty.

It is really interesting how a state driven project (that too in the field of finance!!) can undermine MNC giants at their own game….

The economic consequences of accused politicians in India..

December 18, 2015

Nishith Prakash, Marc Rockmore and Yogesh Uppal analyse the impact of electing accused politicians on India.

The role of banks and devil in growing an economy..

December 17, 2015

Here is a two month old interview of Adair Turner which is a great read. He discusses his new book, Between Debt and the Devil: Money, Credit, and Fixing Global Finance and the critical questions — and radical solutions — that can help put us on a better economic path.

First some bit on banks:

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Finally, Fednesday is over..what next?

December 17, 2015

I remember writing on Fed exit policy way back in 2009-10. Fed chair Bernanke had listed several ways for the exit way ahead of its time. It has taken nearly five years for atleast some type of exit to happen. And even now one does not know how far the exit will go.

So, finally it raised policy rates by 25 bps to 0.50% on what is nicely called as a Fednesday. WSJ discusses the day and here are reaction of the priests..

The future of manufacturing lies in services..

December 16, 2015

There is always this blurry line between manufacturing and services. It is very difficult to define and seperate the two especially in today’s times.

Matthieu Crozet and Emmanuel Milet say manufacturing firms are actually service firms:

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Why divine belief in economics and its priests is a central problem..

December 16, 2015

An interesting article by Emil Urhammer, a PhD fellow at Aalborg University, Denmark.

He questions this near blind belief of people in economic religion and its priests. He compares it to a similar belief in Norse mythology which eventually collapsed:

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Why immigrant workers cluster in particular industries?

December 15, 2015

This is a great question. Why do we see certain type of people stick to certain industries? Just that this one is based on immigrants in US.

William Kerr of HBS looks at the questions like why there are Vietnamese manicurists, Korean dry cleaners, Haitian cab drivers, Gujarati motel owners?

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IMF researchers respond to the GDP of planet doubt..

December 15, 2015

Prof. Peter A.G. van Bergeijk of Erasmus University raised the issue earlier. He said the Planet GDP aggregate differed when looked from different sources.

IMF researchers responded to the issue here. They say choice of numeraire matters. As most GDP is accounted in terms of USD. As USD has appreciated this year, these issues have cropped up:

Invention vs Innovation

December 15, 2015

Interesting interview of Andrew Wyckoff, Director of the OECD’s Directorate for Science, Technology and Innovation.

Inventions are important but innovations are what leads to continuous improvement:

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History is full of failed attempts to create the ideal town. How did Chandigarh buck the trend?

December 15, 2015

Nice story by BBC on history of ideal cities most of whom have failed:

Of all the world’s ideal cities, Chandigarh has done remarkably well, offering striking monumental architecture, a grid of self-contained neighbourhoods, more trees than perhaps any Indian city and a way of life that juggles tradition with modernity. While history tells us ideal cities are mostly best left on paper, Chandigarh – perhaps one of the least likely – appears to have succeeded against the grain.

 

How can central banks make best use of Big Data?

December 11, 2015

Riksbank economists have a note on the topic.

Data and statistics are a cornerstone of the Riksbank’s work. In recent years, the supply of data has increased dramatically and this trend is set to continue as an ever-greater amount of activities are stored automatically in different ways. This data revolution, which has given rise to concepts such as Big Data, challenges traditional thinking while placing new demands on processing and analysis. New analytical methods for Big Data are developing rapidly and there are now several applications that are of interest to central banks. To remain at the cutting edge, the Riksbank is working on an information supply strategy to ensure that relevant data and statistics are available for the decisions taken both today and in the future.

The opportunities and challenges regarding Big Data were discussed at a workshop organised by the Riksbank at the beginning of September. The conclusions from the workshop are presented in this Economic Commentary.

They say a modern central bank needs to have an info strategy. Perhaps that is the only thing that matters to central banks now..

How America’s dual economy is driving the great inequality

December 11, 2015

Peter Temin,eminent eco historian has written a piece on American inequality. He explains the findings here:

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India’s Gold monetisation scheme…similar to Roosevelt’s 1933 move?

December 10, 2015

India’s gold monetisation scheme is not working. This article from Menger centre compares the scheme to Roosevelt’s 1933 scheme. Not sure whether one can compare as Roosevelt reads like a more compulsory type  whereas India’s is optional and upto the public.

But the broad idea of govt wanting to amass gold from public still can be compared.

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A gastropub in the honour of Murray Rothbard

December 10, 2015

Interesting piece this:

Westport News today has a feature on Rothbard Ale + Larder, a new “European gastropub” that opened up in downtown Westport, CT. 

The article notes that the pub’s name is “a nod to Murray Rothbard, an American economist and political writer.” 

What can one expect from a Rothbardian gastropub? 

Read the post for more details..The menu though could have been more interesting..

Will Macrinomics rescue Argentina?

December 10, 2015

It is quite a surname for a President to have – Macri and that too of Argentina. It was a matter of time before his policies were to be converted into Macrinomics.

There is a lot of noise That Macrinomics can do for Argentina where so many others have failed. But what if this too remains a promise?

K@W has a discussion on the issue:

As President-elect Mauricio Macri prepares to take office in Argentina, the country is at a crossroads: Will Macri’s administration mark a bright new age? Or will the current revival of optimism in Argentina be short-lived?

For the past 12 years, successive populist governments headed by the late Nestor Kirchner and his widow, outgoing President Cristina Fernandez de Kirchner, have staked the nation’s prosperity on high commodity prices and free-spending social programs, leaving Argentina mired in high inflation and a huge public-sector deficit, and isolated from access to international financial markets.

Under Macri, “important aftershocks are going to be felt across the region,” says Peter Schechter, director of the Latin America Center of the Atlantic Council, a Washington-based think-tank. The results of the Argentine presidential election will eventually have a profound effect on much more than domestic economic policy in Argentina, he adds. “It is a dramatic moment of inflection for the country.”

And yet, opinion is widely divided about Argentina’s prospects. Is the stage finally being set for Argentina to deliver on the enormous promise of its vast natural resources? Or will the nation of 43 million — the third most populous in South America after Brazil and Colombia — remain stymied by its deep-seated tradition of political divisiveness? The optimists stress that Argentina has a sizable middle class, huge energy reserves already popular with Chevron, Total and ExxonMobil, and an educated population. Those assets could offer significant additional opportunities for foreign investors and open new markets in Argentina for foreign providers of sophisticated consumer goods and value-added technologies and services — provided the Macri administration manages to make the critical economic reforms that he advocated during his campaign. Although everyone agrees that Argentina has vast potential for growth, the pessimists argue that Argentina’s long history of political instability and corruption does not bode well for Macri’s prospects to make those reforms over the next few years.

Argentina is a great case of misplace priorities and injustice to history. It was one of the richest countries in the beginning of the 20th century only to go down the drain with series of disasters. Like someone said, there are four kinds of countries – developed, underdeveloped, Japan and Argentina!

It will be really interesting to see what Macri ends up doing…

Liberal arts macroeconomists are becoming an endangered species

December 9, 2015

Liberal arts macroeconomists? What the hell is that?

David Colander one of the few economists who is really worried about the decline of quality in economics teaching, has a piece here.

He says there are not enough people who can teach macro at undergrad level. At undergrad level, one needs people who can connect the various dots and generate interest in aggregate econ issues. The macro at grad level is the specialist DSGE type which remains the focus for most macro people:

Liberal arts macro professors have not always been endangered. Thirty or forty years ago, standard macro theory blended pedagogical, methodological, and historical issues into macro theory, making macroeconomics more undergraduate professor research friendly. Then standard macroeconomic theoretical research was based on IS/LM analysis, as was pedagogy. Standard macro econometric research still included activities such as estimating consumption functions and money demand functions — activities that one could have an honors students do. Undergraduate macro professors could be active participants in the standard macroeconomic theoretical and policy debates.

That has changed. Standard macro is now dynamic stochastic general equilibrium (DSGE) analysis. Theoretical and applied macro econometric research has become so technical and specialized that it is beyond what can reasonably teach in an undergraduate liberal arts school. For macroeconomic theory, this is a gain; macro theory is beginning to come to grips with the complexity of the macro economy. But it is not a gain for undergraduate teaching of macro.

The problem is exacerbated by the fact that graduate training in macro is not designed to prepare graduate students to become undergraduate professors of economics who combine both research and undergraduate teaching. Graduate economics training in macro is designed to prepare students for full-time research positions at a graduate university or a Central Bank. The result is a very small pool of highly qualified macro-research-focused candidates from standard programs whose goal is to teach macro at a liberal arts school. While the pool is small, it is not zero. There are always a few graduate students who want to teach at a liberal arts program where they can integrate undergraduate liberal arts teaching with their research. So they accept jobs at liberal arts schools. Unfortunately few of them survive to tenure.

Given how much messed up so called modern macro is, one should atleast appreciate and encourage liberal arts macro. Even that is not happening.

Rise of peer to peer funding networks in China..

December 9, 2015

I pointed to this interesting article on rise of P2P funding networks in India.

There is an article on the same happening in China too and of course on a bigger scale:

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Differing IMF forecasts of Gross Planet Product..

December 8, 2015

Well, I didn’t know there is an economic term like Gross Planet Product.

Prof. Peter A.G. van Bergeijk of Erasmus University brings this term in this article. Basically, it is GDP of the entire world. Prof. says that there is a difference in GPP at current prices and GPP at constant prices + inflation. The first one shows a decline and latter shows a rise!:

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Teaching Corporate finance basics via a verse..

December 8, 2015

The Pfizer reverse merger for tax gains is one of those classic corporate finance cases. Jessica Einhorn, (former dean at Johns Hopkins University) has a verse on corp fin. She has prepared similar verses on central banks, unemployment and bicoins as well..


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