How Fast is the Slow Down

Issue 2 – October 15,2008

Life comes a full circle. For decades one looked up to America. Now one looks down upon it. Either way its amazing how the country exercises its might. The world pays for sins committed by the American administration—the saving grace being that the developed pay more and the developing less. It is a warped way to bridge the divide. This indirectly means that India, though not insulated, will get a lesser impact.  

Ironically, much of the credit for that should go to the oft-criticized Indian government. The RBI has also shown remarkable maturity in handling the monetary stability. The currency has weakened considerably and India’s vast currency reserve is being put to test.  

On the European front the central bankers have shown much creativity in stepping into inject liquidity without bail-outs. The formula of buying stakes in suffering financial behemoths seems to be the best solution. The Americans have ratified this by following suit. If the crisis started with the US, the solution too must come from there. All efforts by other countries would, at best, amount to fire-fighting.  

Typically slowdowns work in a phased manner. They first hit sentiment and then the pocket. We are now in the latter phase. They also help in separating the men from the boys. They are both, an earning and a learning experience. Earnings are hit but lessons need to be learnt. Keep an eye out on politics. It will come into play in the US elections in November and the elections in India early February.   

Recoveries usually have a give-and-take formula—the values give in and it takes time to restore. Twelve months would be an understandable period. Beyond that, nobody would be willing to understand. Let’s hope we have a more festive Diwali and Christmas in 2009.

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