15/4/2011
World on Boil
As economies overheat, prices rise and inflation rates increase, the word ‘uprising’ that we’ve been seeing in the news with reference to Egypt, takes on a whole new meaning!
Best defined by the captivating scenes at Tahirir square, ‘uprising’ has in fact been the distinct economic feature of the new millenium.
Egypt had identified Mubarak as the cause and by removing him, seemed to have found a solution at least for now. The world economy, on the other hand, still grapples to find the exact cause and thereby a solution.
The ‘uprising’ has been prevalent across the globe where prices have been up and rising for various reasons, some obvious and some strange. It all started, as all major economic events do, with the United States of America. The sub-prime crisis, followed by the depression, led to the Fed pumping trillions of oxygen dollars to breathe life into the vegetating economy. It stirred things up and the situation improved, albiet at a less than desirable pace. However, it has also inflated prices, which if not checked, could begin to hurt sooner than later.
Europe on the other hand, thanks to Greece and Iceland, saw an exchange crisis. Here too the bailout by its reluctant neighbours has given temporary relief from bankcruptcy, but certainly not from the rising prices.
China, having bitten off more than it can chew is a victim of over heating and now tries to stem the inflationary rot by regular interest rate hikes . Having been hit by its policy to capture the world market though a controlled currency and now looks inward to create domestic demand. The current drought-like situation developing there will further make life difficult and expensive
Metal prices, which have seen a meteoric rise for the last 8 months should continue to do so, much to the joy of mining African countries and Australia . However, it would hurt those who consume these metals, namely automobiles and infrastructure.
The winter chill had pushed up crude prices. Now the Egypt crisis has put oil on the boil!
For India, there is no respite. Prices continue to go up, thanks to supply side constraints and hoarding by middlemen. The regular unearthing of scams and corruption issues only stokes the sentiments. The RBI has used its interest tool six times in the last year in an attempt to check inflation. It has landed up checking growth. Growth has, in fact, slowed down as the third quarter financial reports reveal. Food Inflation, however, continues to bulge at over 13 percent.
Uprising has different meanings when it comes to Egypt and the world economy and the solution process will be equally different. However the solution will have to come from the common word – pressure.
Mubarak’s tyranny took 30 years of torture before the resistance could gather collectively, revolt, and release both pressure and the perpetrator. Inflation, on the other hand, is about 30 months old and needs some more time to boil into a pressure cooker. Getting a country together to revolt is unforeseen. Getting the world together to revolt is unimaginable.
The Egypt crisis was felt throughout the country and the suffering was omnipresent. Inflation too, like a disease, has spread throughout the world. However, it has its benefactors in countries that have rich natural minerals which become raw material for the global industry. They get a better price than before based on sentiment and demand. Besides those who produce are far better off than those who consume, even though every producer at some stage is also a consumer.
Solution? Egypt found it via the Internet. Time, then, to Google?