China : The alternative to Democracy

Hey all,

Do watch this video, which we watched and later discussed on. Its about China and how its political system has been working well for the last thirty years.

Think of how this relates to the Indian experience!

Pranjal Rawat,
Presidency University

A peep into the Black Money of India

It is important for us to note that inflation, while a function of growth, is actually caused by money supply growing faster than the rate of economic growth. In essence, Inflation is directly correlated to more cash flowing in the system than required to maintain market equilibrium.

 1.4 Trillion USD estimated to be sitting in Swiss Banks….While the numbers are wild estimates at best and may vary greatly in reality, the fact remains that there is an obscenely large amount of undocumented cash in circulation. 

A lot of black money was being funneled out of India and it actually kept money supply in control but nowadays, this money is re-entering the Indian market via the assistance of financial managers who aim to provide annual returns of between 10 percent - 20 percent. We need to note that it is only common sense to reinvest this money in a market like India, via assets like stocks, bonds, and even real estate rather than let it accrue interest at a paltry one to two percent a year in Switzerland.

(Here are the slides for the Presentation) 

-Sohoum and Shreyans,

Presidency University

Why is price of Gold falling?

First, gold price tends to spike when the global economy faces severe economic, financial and geopolitical threats. It explains why gold price rose so high during 2009-11. Global economy is now recovering, and hence a decline in gold price. 

Secondly, gold does best when there is risk of high inflation, as gold is a traditional store of value against inflation. At present global inflation is low and falling. So, holding gold is less compelling today. 

DECREASING DEMAND

Thirdly, other assets such as equities and real estate are now giving more returns than gold. A lower return in gold is reducing the demand for gold.

(INCOME EFFECT AND SUBSTITUTION EFFECT)

Fourthly, real interest rate and gold price are highly inversely correlated. Since financial crisis in 2007-08, many countries saw slow growth in GDP (gross domestic product). Many central banks took zero-interest rate policy or ZIRP to stimulate growth. This resulted in a high price of gold until 2011. But at present central banks are exiting from ZIRP, and gold price is decreasing. 

(CONCEPT OF LIQUIDITY TRAP)

INCREASING SUPPLY

Fifthly, highly-indebted countries are selling their gold to reduce debt. Governments of these countries are encouraging investors to invest in gold as gold are less risky than government bonds. 

Sixthly, value of US dollar and gold price are inversely correlated. Currently, appreciation of dollar is reducing the price of gold.

Seventh, gold is hyped for irrational political reasons. This reason actually explains the mentality of some imprudent politicians, which led to high price of gold during 2009-11. Some extreme politically conservative gold bugs think that all government is evil, that there is a government conspiracy to expropriate most private wealth and that gold is the only hedge against this risk. This group also believes that we will return to the gold standard as central banks "debase" paper money and as hyperinflation ensues. However, inflation is falling globally and gold is not in any way a currency.

According to Roubini Global economics, the price of gold may temporarily go higher in the next few years, but it will be very volatile and trend will be lower over time as the global economy slowly mends itself. His research and consultancy firm expects gold price to go up to $1,300 by end-2013 but come down to $1,000 by 2015.

Shreyans Banthia, Presidency University