The Gold Standard  

I have a lot of sympathy for what Chinese regulators have done with respect to the sale of derivatives by Western financial institutions to Chinese investors (companies, individuals, funds, etc.).  The article makes a veiled reference to the implications that it would have for the internationalisation of the Chinese currency. But, that is best ignored.

The S&P report (have not seen the full one) on the world’s top 45 globalised banks shows most of them to be under-capitalised. It is not easy to understand the methodology they used from the news report. But, the conclusions are unsurprising. Their capital adequacy, even under less stringent definitions such as Basel II – was boosted by accounting liberties that banks were allowed to take.

Even as one respects Paul Krugman’s erudition and exposition, he does not make it difficult for us to disagree from time to time given the polemical nature of his comments and extreme views he takes, borne out of his confidence in his own analysis.  In fact, in his debate with Niall Ferguson, NF did not fare as badly as PK tried to paint. We have commented on it here and here.

We have also commented on his revisionism on ‘Chimerica’ here without acknowledging his own cheerleading of ‘Chimerica’. He does it again here in this NYT article. Just to point out that he did not paint this relationship a chimera, here are the concluding lines from his original 2007 paper with Moritz Schularick:

Nevertheless, so long as both sides discern the benefits of their remarkable economic marriage of  convenience, Chimerica – and the global asset boom it has created – will remain a reality and no mere chimera.

Well, what does this say about Niall Ferguson?

The Indian PM is now in Washington. Coverage of the visit in International press has been good. I am referring mostly to FT. See here, here and here. His interview to ‘Washington Post’ on the eve of his departure was an exercise in firm and precise communication. Chidanand Rajghatta in ToI dramatizes the PM’s remarks on America’s ability to bounce back.

While it may be going too far to suggest the Prime Minister has walked India into the American camp, he has clearly taken a bold stand on the future world economic scenario by betting on continued US salience, if not primacy, at a time it is not  considered trendy or prudent to do so.

In some sense, Singh’s gamble in endorsing the primacy of the dollar is as crucial a call as India has ever made in its history, given the fluid geo-strategic situation  that many experts say presages a shift in the balance of power. [More here]

Unfortunately, Mr. Chidanan Rajghatta continues to hyper-ventilate. Is geo-political power about scoring small debating points? Worse, are we misrepresenting what the PM intended to convey and causing unnecessary damage to a fragile relationship?

If one wishes to be informed about the PM’s visit to America without spin, better check out these links.

I like this piece by Arvind Subramanian in Business Standard very much. It is realistic and recognises global economic realities. He writes:

One possibility that remains is for a number of emerging market and developing countries – including South Korea, Indonesia, Thailand, India, Turkey and Mexico among others – to come together and highlight the impact of China’s exchange rate  on their trade and competitiveness and hence on their ability to manage inflows. [More here]

His ‘prayer’/wish was answered partially. Some one has studied the terms-of-trade impact on Africa from increased trade with China. See this blog post and the paper link. The paper can be downloaded for freely from SSRN. But, you need to be registered.