"Attempt to Rape" world economy

Imagine a young, dynamic, super rich elegant lady in her 20s plush with style, substance, power and lots of oooomph. This imagination may have raised quite a few things besides interest, but let your imagination run a little more wild and imagine her wearing skimpy clothes, coming out of a night club high on tequila and immeidately being followed by a group of goons. Well she gets caught in a secluded corner of the street with no policing and the goons try to overcome her and taste her beauty . She tries desperately to save herself from getting mowed down, but little is she able to do. The question we may ask here is, will she escape the goons or will she loose her cherry ?

Applying the same logic to what is happening to the world economy, the sultry girl of substance may be classified as the world economy in its prime (around the beginning of this year) with buoyant industrial activity, high levels of liquidity resulting in higher consumptions levels and thus higher demand for capital and consumer goods which in turns translated into higher returns in property, capital and money markets. But when the world economy got secluded in a corner triggered by high crude and commodity prices , while the dynamic lady was still leading a highly fashionable lifestyle, she got herself in the trap of goons risking loosing her cherry. The watch dogs of the economy failed to put regulations and proper policing in place and thus came this event of attempt to rape of the world economy (which we better know as recession) which could well translate into a full fledged rape or even brutal killing associated with it (prolonged periods of recession or a scenario of depression) , if watch dogs and the regulators behave in a arbitrary, individualistic and non cooperative manner.

The events have precipitated with lust for greed and aspirations for high returns by developed economies and creation of toxic assets by undermining the risks associated with them. Sharing, insuring or diversifying the risk does not under any circumstances reduces the toxic natures of the assets you create or invest in ( as happened with mortgage bagged securities). There was a clear imbalance in the world with savings of emerging economies being channelized in developed world economies like US to finance the deficit between domestic savings and demand for credit. US in a state of high headedness and over confidence failed to put proper regulations and check on unorganized and inorganic growth of its industry and the way American companies do business. The administration, in fact sometimes aided and applauded the way Americans do business, even if that meant the erstwhile Clinton administration issuing a diktat to banks to increase sub prime lending, without even putting a proper mechanism in place to ensure such lending does not adversely affect the NPA s or sub prime assets of these banks. Worst still the banks, financial institutions, car companies etc were encouraged by liberal M & A rules to grow beyond their size and matter to become flat footed dinosaurs. These dinosaurs are holding these economies to ransom and a demand for bailout almost comes as their fundamental right. The failure of any of these giants risk the very survival, health and fundamental of these economies. A big question here is "Is it safe for governments to allow companies to gain scale and size, which can later put these economies to risk by poor performance or risk of failure of these companies"

Every fall of a century witnesses a shift in world power center and in the 21st century we are witnessing a softening of grip of developed countries like US on world economy and growing influencing of BRIC countries, particularly Chindia. Breton wood institutions like IMF etc have failed to excite any interest or influence in the world affairs. With revision of estimates on recession numbers and more bad news coming daily, we are moving towards a bottom which can push the entire world economy in a long and lasting period of recession or may even push us into depression. Most of the countries are exhausted with the monetary measures of containing the free falling GDPs and the fiscal measures are already strained as fiscal deficit of many developed and emerging countries are putting their currencies at risk. A currency crises is looming large and the threat of deflation is unavoidable.

These are tough times, but tough times give us an opportunity. We need to reform, transform or we will persish. The choice clearly is ours, whether we want the golden egg or the golden goose.