Sunday, May 31, 2015

Income Inequality-I sleep with five men a day just to eat.


Well today’s research area might not be acceptable neither consumable for any researcher or economist. In continuation to my previous articles on income-inequality I find that high levels of income in-equality are driving stupendous socials crimes, burden and cost.  In relation to this I find that prostitution and porn industry has significantly grown due to the income inequality. We are currently all focusing on Greece bailout and this will spook the global equity markets for the short term and will make the equity markets happy days again. But are we aware that high unemployment, low wages and higher debts either in the form of education loan or any other asset class creates pressure on the household segment.  No we are not bothered to know about the behavioral changes and the affect on the society and on the generations of people living there. Further for a family getting into natural calamities and also sudden health cost increase creates major disorders for the social aspect of a family. We ignore these aspects which creates skeptical and conservative behavioral changes over the generation on consumption pattern and on more focus towards savings.

I know all my friends won’t believe me and would rather imagine that I am getting lunatic. Well the thought of this type of research strike me while I was digging into the social aspects of income in-equality. According to National Center for Social Research, the number of people selling sex has surged 150% in the last two years in Greece alone. With unemployment rate high of 60% women are offering bodies for few bucks. “Five euros only, just 5 euros they earn. Many prostitutes have been selling their services for as little as 10 to 15 euros, a price that has shrunk along with the income of clients afflicted by the crisis. Many more prostitutes are taking greater health risks by having unprotected sex, which sells for a premium. Some of them have also communicated to media sources that I sleep with five men a day just to eat. The whole capital markets ignores and also the media hardly comes into the accentuating these segments as they are detrimental to the politics. Let’s get into another county where with high unemployment and an unstable economy, some Zimbabwean women turn to prostitution to make a living for themselves and their families. The below video is an example of the same.





Global slowdown has spooked household prostitution business to grow. Student’s sex has also  grown as high levels of Debt and no jobs has spooked them to join these streets. University of Birmingham in England, reports on the increasing number of undergraduate students who are turning to prostitution to make money. Further in the research it has been found that medical students stay in school longer to complete their education and rack up more than five times as much debt as undergraduates do. Students allegedly using prostitution in order to fund their studies and reduce the debt burden. In the United Kingdom around 70% of women in prostitution are single mothers who do not receive social benefits.Welfare cuts and the poverty they generate has a particular affect on women, who see their career options narrowing and forcing many of them to resort to sex work to cover basic costs for them and their family.
Lest get heard a story of one of fellow which will give us more clear insights: I had a university education, but no particular skills and no viable career options. My brother and I were raised in a turbulent home with parents who were working poor. We were the first generation to go to university, but a degree in sociology by itself doesn’t get you very far.
I got into prostitution based on the recommendation of a friend. She said the money was fast and easy. I suppose I could have furthered my education instead, but that was a long-term solution and my needs were immediate and considerable. A barista job at Starbucks wasn’t going to get those student loans paid.
So I placed an ad in the back of one of those alternative magazines, soon realizing I was one of hundreds of women with similar ads. They weren’t cheap, either – there is more overhead to being a hooker than you might realize, from sexy clothes and makeup to a good selection of quality condoms.
Income inequality is devastating the society and also the generation with more fear and less trust on political giants and their promises. The world needs serious attention to resolve these issues so that before national devastation break out.   The world is dreaming that these countries are going to be consumer markets where as the real picture that these economies are now the poorest. This is the result of exploitation of resources and excessive capitalism which is killing not only this generation but also the upcoming generation. 
I find that THE SLOW DOWN FOR Euro-zone-is hard to be measured in terms of years. It will take decade or may be more than that to find growth. Shifting jobs, cutting down business are the key reasons for the slow growth .High unemployment and poor education for the next generation due to financial constraints are going to have a vicious affect on the global economy in the long term. Precisely if we look In we find that the world is no longer ready for any other financial crisis. Dow Jones , FTSE might jump 100% YoY basis but that will not bring sustainable growth for the economy. We need to plan strategies where people are relived from the burden. Rather bailing out the Banks and 20% of the rich of the society we need to bailout every individual.  Since they are our consumers and our future for the economy. Do you ever think that WHAT LEGACY we will be keeping for our next generation? I am more worried about the long term which is over the next decade. Just imagine that education is now being exchanged with prostitution.

Monday, May 25, 2015

US INTEREST RATE HIKE ...MORE INCOME IN-EQUALITY TO GROW.

The world is fearing and waiting aggressively for the rate hike from Us Federal. The world is more worried about the reversal of capital inflows from the various markets and asset classes where the inflow has been growing over the last 6 years.  My point of research is that I find US economy to struggle for the next 15 years to 20 years. Yes the reason behind is the catastrophic debt burden which have widened the income –inequality and growing mental pressure on the behavioural culture of consumption and investments. This have been grey area which have been ignored by many as we are all focusing towards magic’s to happen in the US economy.  We will figure out all the parameters behind the 15 to 20 years time frame for the US economy to grow and also the affect on US citizen due to interest rates hike. In my research I have further found that profitability have grown at the social cost and also  the interest affect on the low wage income growth segment.I find that interest rate hike is going to create more income-inequality for the US economy.It also shows that US war has only benefited the cash rich and the middle class still struggles and will continue as it has generation factor effect.

US people have witnessed strong slowdown where jobs were cut down and unemployment grew up. They are unable to pay the bills and also unable to save money as existing debt is taking time to fully repay. Low wage growth and stiff competition in the job market has lead prolonged time for payment of debts.

Education loan has become a burden and further unemployment amplifies the process of income-inequality and low consumptions. High un-employment has resulted young generation to stay with their parents and hence more dependency on social benefits and pension earners.

US have taught its citizens to borrow and spend over the last decade. This is the particular phase when the US was busy in focusing its people towards the war in Afghanistan and other countries. We say and we now that defense spending have been one of the key growth driver of any economy but what about these people who are suffering due to unemployment. Now lest get into number and facts crunching phase over a cup of coffee.
Manufacturing segment contributes 12-13% to the GDP of US according to US manufacturing government data and also according to the World Bank report. The rest belongs to service sector.  The most surprising part is that from 1967 the percentage of manufacturing to GDP has been on a decline trend which clearly indicates that spending on defense added less to the GDP. Massive imports have been the reason behind the decline of US manufacturing jobs. Now lest get into the % of employment it generated from the manufacturing segment. The manufacturing sector employed 12 million workers in 2013, or about 8.8 percent of total U.S. employment. So 91-92% of the rest employment is based on service sector.
US Manufacturing

The service sector comprises of people belonging from the segment where skilled labour percentage in terms of having higher education degree is less. Hence job related skill is the key education which creates job for these 86% of the segment.

Now the wage growth level of skilled and high skilled labors are bound to go up but the pressure of low wage growth is being felt on the lower bottom level of people belonging to the service sector. Nearly 40 percent of American workers earn less than the $15.00 an hour demanded by the low-wage workers movement. It may be a surprise to you that the job with the most workers is that of retail salesperson.  Over 4.4 million Americans are employed in this job category.  This job pays very little but also carries almost no benefits.  Then we wonder why many of the 46 million Americans on food stamps actually have jobs. But let us look at the top fields more carefully:
The top 4 employment sectors are:

  • Retail salesperson with 4,485,180 employed
  • Cashiers with 3,343,470 employed
  • Food prep and service workers with 3,022,880
  • Office clerks with 2,832,010
Low wage jobs and poor growth of these job wages have been the biggest draw back for the US. These are the main US consumers which moves the consumption index of the economy are the one who are struggling. The next top field is nursing which does pay a good wage but requires people to go to college. This requires investments and also quality education categorized under skilled labor force. Following nursing, the next top employment sector is waiters and waitresses.  The above job segments are very dicey in terms of lack of job security and the resultant rate of high turnover, few or no benefits, a lack of paid sick days, and quite often irregular or part-time scheduling. Now if these reason rules the industries then just simply make out what type of growth you can expect and what would be the affect of the US interest rates to climb. Now just imagine if the interest rates hikes do you think these companies who are employing these segments would be able to maintain the same EBIDTA and Profitability margins. Profits are rising at the social cost and not on real macro factors.


Education loan -the Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion, with over 7 million debtors in default. Public universities increased their fees by a total of 27% over the five years ending in 2012. According to New York Fed data he biggest growth in the program came in the past decade, as student debt rose an average of 14 percent a year, to $966 billion in 2012 (Currently $1.1 trillion)  from $364 billion in 2004. The burden of education loan is creating a huge impact on the behavioural culture of the US citizens, as they are no longer interested in borrows and spend formulae. This is the key reason that despite of zero interest rates consumption is not picking up. Low wage is an reason but more than that its being found the they are prune towards savings rather focusing on spending. Later at the end I will prove the number based rationales  behind the significant growth of educational loans. The macro reason is that to bridge the gap of income-inequality with rich and poor another bigger in-equality of today  have been created. Its the steps which have been adopted by the mass US citizens to copy the life style of the rich. 

Why it will take 15 to 20 years?
The valuation of the current net worth of the US citizen who comprises within the bracket of 86% from the service sector-out of this around 80% is struggling to pay of its debt burden either in the form of credit card, house or education loan.   Low wage growth and less social benefits and half time jobs are creating havoc on the minds of the US citizens who are always counting every coin they are spending. When one two simultaneous generation suffers the pain slowdown in consumption pattern and change in behavior are bound to come. Young generation takes double lesson from both angles of the society.
Coming to the income-inequality its being found that when the net worth of a family wipes out and it takes considerable time to revive the same then growth of the economy is going to be slow.  Zero or low net worth leads to diversity among the people which creates more problems for one part of the society.  In fact we have come to the period where the rich cannot r bring growth for the economy and the US political system will understand that only framing policies and benefits for the rich segment of the US will not be game to be played in the near term. Zero interest rates benefits have gone to the corporate shareholders and 20% of the cash rich segment of the society. It has hardly benefited the struggling middle class which has been dragged to below that level.

 US citizens are increasing their savings so as to improve their net-worth. The average household’s savings rate jumped to 5.5 percent in 2014, up from 4.6% percent in 2013. They are saving more since they are scared due to lack of job security and the resultant rate of high turnover, few or no benefits, a lack of paid sick days, and quite often irregular or part-time scheduling. These factors which are changing the  behavioral pattern of the US citizens over the long term.  Americans saved about 4 percent of after-tax personal income in 2012, down from average saving rates of 5.5 percent in the 1990s, 8.6 percent in the 1980s, and 9.6 percent in the 1970s.  The drop of savings rates further burden of debt is the key reason behind prolonged recovery from US. If we look into other countries we all know that US economy and its citizens are in the worst shape.

Income in-equality followed with gap in wages did not happen overnight.  We all know that when productivity grows for an economy then its wages also grows. But in my research I have found that this growing income-inequality did not happen form 2008 recession. The whole preparation was happening over several years. Between 1979 and 2013, productivity grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation. Picture become clearer when we find that the rich only became more rich as their compensation grew like anything.


Now the point is that due to low or negative net worth, growing income-in-equality and low wage growth quality of education and skilled manpower supply will be very low and will be negatively impacted which creates more slow down in the long term. Those who are in the age of 12-15 will be struggling due to this income in-equality.  Lets go for deep drive and we find that compensation policies were focussed towards higher income class segment which also proves the theory of why education loan grew as it symbolized that getting education at par with rich would be the path to reduce income in-eqaulity.


The Dowjones might climb 30000 over the next decade but that  the grass roots of the economy will be struggling with a change in behavioural  pattern over the long term. The growing income inequality is only going to widen if ground level policies are not being framed. Now just imagine if the interest rates hikes do you think these companies who are employing these segments would be able to maintain the same EBIDTA and Profitability margins. I find US will have deep affects of its interest rate hike for the US citizens who are the middle bracket or just below the rich.Rising income inequity would lead to low consumption and more inclination towards savings. The days of borrow and spend are over and the world economy should not expect a quick sustainable recovery for the US economy.  The burden of debt and the fear of the same have now rolled over to many generations mindsets and one should consider these factors while coming out with any positive projections. US economy will take more than decade to get a free debt household. Savings would increase and income inequality would lead to significant growth of economic threats for the society. I fear that these dark clouds would spoil the young generation between the age bracket of 12-16 as they will hardly find the space to compete with rich skilled manpower. Migration of employees to US economy would be threat in the coming days as pains and tears would break the patience of the struggler. I doubt that US is no more interest for any war  as its shows clearly that War has benefited the rich more compared to the middle class who have been neglected over the years as it shows that productivity increased  where as hourly wage decreased.

Tuesday, May 12, 2015

DISASTER ECONOMIC COST...RISING INCOME IN-EQUALITY

Economic cost of the society across the globe is increasing simultaneously with the increase of income in-equality and we are entering into a phase death of the global economy. We are already having prolonged financial crisis, slow down of GDP growth followed with austerity measures and over above the economic cost due to natural calamities. I am not discussing here about the incident of Nepal and its economic cost. I am discussing about the broader picture of the global economy where natural disaster are creating huge economic cost and creating income in-equality among the people across the globe. The point of focus would be income in-equality growing form the natural disasters. The surprising part of this story is that we are creating such natural disasters and capitalist community is ignorant or rather has closed their eyes. Only a handful number of people are raising their voices on the same.

Let’s get into real life stories of few past incidents of natural disaster, their effect on economic cost and widening gap of income in-equality.

·         On September 18, 2003, the family was at home waiting for Hurricane Isabel. It came and blew off the normal life of the people. The family had flood insurance and qualified for assistance from the Federal Emergency Management Agency (FEMA), they still had to take out a loan to cover the cost of rebuilding. The damages to the house alone cost well over $50,000, and that didn't include the additional expenses of rebuilding their lives. They had to repair the walls where the water splashed above three feet, buy new household items, pay for temporary housing, and re-landscape the yard. They had lost nearly everything. The loan surged and they had nearly nothing left to carry on except the tiny job which survived them for paying loans. At that point of time a report from the Munich-Re, the world’s largest re-insurance agency, reports that disaster-related economic losses topped US $145 billion in 2004, up from $65 billion in 2003, for about the same number (650) of natural disasters in each year, making 2004 the most expensive year to date.
·         In another segment I find that between 1994 and 2013, EM-DAT recorded 6,873 natural geophysical disasters (earthquakes, tsunamis, volcanic eruptions and mass movements) worldwide, which claimed 1.35 million lives or almost 68,000 lives on average each year. In addition, 218 million people were affected by natural disasters on average per annum during this 20-year period.

·         The burden of economic cost only takes calculation of the cost borne by Insurance and government pocket whereas the cost of families taking additional loans and not able to pay back those loans and particularly when there is an extensive slowdown in the economy like now.


·         We don’t take account that when disaster strikes despite of support from the insurance companies many things are left uncovered which takes time and huge cost to amend the same. Moreover if there is loss of life then its takes huge toll on the families.

·         Coming to the part of income in-equality in my research I have found and I don’t want to name that many families lost their sole bread earner and due to which they have to take prostitution and other low level jobs. This is not covered under the economic cost of losses when they are being calculated.

·         Income in-equality is driving down the societies in deep problems. Inflation spooks up which also increase the burden of living for the people. Crop insurance and others takes an huge toll which creates problems in the long term. Fertility of the soil etc also creates huge impact on recovery of the same levels.

The Arctic Circle has been very much active on the minds of readers about the slow depletion of the ice. I am surprised that developed economies gives thousands words of speeches under climate conference but they themselves are busy in creating assets for the capitalist at the cost of climate. The recent approval of Obama administration gave conditional approval to allow Shell to start drilling for oil off the Alaskan coast this summer is perfect example. We are already having abundant oil and the demand is also not so high and even if it increases in the nearby time production is adequate to take care of the same. A country like India who is focusing aggressively on alternative energy compared to that I don’t find the logical matrix behind the capitalist mind for drilling oil form the Arctic circle.

·         The effects of drilling oil would be that the acoustic disturbance form noise of setting up the infrastructure would create problem for marine mammals as underwater noise would affect, migration, feeding, mating and other important functions in whales, seals and walrus.

·         The oil spill threat is the biggest and this is bound to happen and will pollute the sea and other living beings there. We have strong memory about what happened previously Gulf of Mexico's Deepwater Horizon just 5 years before.

·         According to a new study by scientists at Scripps Institution of Oceanography finds that the Arctic sea may go ice free in the summer faster than previous models had projected. Somehow climate deniers took this to mean something completely different.

·         According to the National Oceanic and Atmospheric Administration scientists there was less ice in the Arctic this winter than in any other winter during the satellite era. Arctic is returning to a warm period with the overall trend over the decades continuing to show temperatures getting hotter and ice melting faster. Earthquakes and Tsunami warnings are going to create havoc situations due to the after affect of ice melting and sea level increasing faster. Researchers have noted that polar bears may very well be incapable of surviving on land on geese eggs.

·         According to the National Oceanic and Atmospheric Administration scientists Arctic would have entirely ice-free summers by 2040 which is just 25 years from now.


·         Capitalism should have a limitation and everywhere the same theory cannot be implemented. We need to understand the just doing summits of environment would not resolve the issues.

The point research is that what legacy we will keep for the next generation. We have already given them one of the worst lives of unemployment, poor education as parents are unemployed and hence can pay for better education and burden of debt which will never end. Moreover we are giving them life of earthquake, pollution full air, high sea level and no ice to skate on.

Now another part of story of economic cost is that we have taken only natural calamities as a part of the economic cost. What about those cost which insurance companies and families takes due to increase of diseases. The increases of diseases due to high level of insecticides and pollution have increased the cost of the government and cost of the insurance companies. I will not be surprised that down the lane if there is a catastrophic natural disaster insurance companies would file for bankruptcy.


The conclusion is that we need to be educated about the nature and its preservation. If we violate the nature’s rules be prepared to pay for the same. Economic cost is simply becoming out of control in the near time. Income in-equality is driving people wide enough where crimes will grow in the next generation level. We need to understand the about what we will keep for our next generation. Well the problem for the people become more catastrophic when the government of these countries are not well prepared for the same.

WHERE IS THE SLOWDOWN OF CHINA..THEY ARE PREPARING

According to the latest report across the globe and even within china its being found that Chinese economic consumption has dropped significantly. This have been seen through the economic numbers which are coming following with the GDP growth rate which has being reduced over the last 6 months. But In my research I find that China is just focusing for long term asset creation and getting prepared for long term financial crisis burden which might come in a decade. Its demographic culture is changing and hence growth will be slowed but will be stable or sustainable which is the key demand of the global investors at this point of time.

China’s population is more focused towards retirement planning, health care cost planning, planning for higher education of their children’s and more planning for uncertain economic times. They don’t rely much on the government support for social cost segment. There is a prominent change in pattern. They are creating long term assets which should be the ideal strategy for an economy –planning for another financial crisis. The consumption driven economy should not be the ideal policy of any country. US is one of the biggest example of crisis where consumption driven economic policy was so strong that they developed a theory where ‘Borrow and Spend’ was adopted. Well I am jealous about the wealth managers and financial advisor of China about this type of supportive sense of investing mentality. The world might be busy in criticizing the Chinese about the slowdown of their economy but in practical terms when wealthy nation is created over the long term no other economic is taken into consideration for growth comparison. China is focusing towards rural India and they are focusing aggressively on the same as previously in 2013 I indicated that they are focusing towards bridging the gap of income inequality. The drop of urbanization of China has treated by few analysts as sign of slow down; well that’s just a part of the half story. China is focusing on bridging the income inequality gap and extending the urbanization facilities to the rural parts of china which leads to growth of rural getting converted into urbanized places.

Some couple of rationales will make the depth of focus:
·         Rural online transactions reached over 100 billion yuan (US$16 billion) in 2014 and they are expected to hit 460 billion yuan by 2016
·         E-commerce giant Alibaba Group signed an "Internet plus rural area" agreement with the Commerce Department of the central province of Henan to implement a plan to develop rural e-commerce.
·         China is promoting large-scale farming via transfer of management rights of rural land and development of new agricultural businesses. The reform has made the agricultural sector more attractive to industrial and commercial capital.
·         E-commerce platform, www.chinagaili.com, signed cooperation contracts with more than 500 farmers and sold agricultural produce worth 20 million yuan (3.2 million U.S. dollars) 
·         Jingdong, another leading online retailer, said it has set up more than 100 county-level service centers covering more than 10,000 villages.
 Ecommerce is going to change the landscape of rural consumption and agricultural output capacities. Further e-commerce and government focus is going to modernize the agri-market of chain which will reduce the gap of income inequality.
China’s sovereign reserves of which are estimated to be $4 trillion (£2.7tn) of foreign reserves stashed away in various sovereign wealth funds are focusing towards agri-sector. China Investment Corp (CIC)  will pay particular attention to agricultural sectors that have been neglected by large institutional investors in the past, such as irrigation, land transformation and animal feed production. They building roads, buildings, bridges, transport infrastructure, national rail route which will connect the mainland china with rural china. China is focusing to increase water and waste treatment ratios of rural china and expanding the broadband network coverage, cleaner burning gas which replaces the dirty coal burning. They are just focusing on developing the quality of life style of urban china. If we look at the current scenario and its expected plans for growth for building rural into urban facilities we find:


Further there are sectors which are going to find stupendous growth in the coming years from China which includes e-commerce, internet and telecom followed with healthcare facilities. The most astonishing part is that when the world think china is slowing down and there is some trouble in the economy the US business of healthcare industry says that they are bullish on the inter-state development of the economy.

Entrepreneurship is taking radical change in China where commercial registration system reform, reform of the administrative approval system, replacing business tax with value-added tax and reducing the burden ratio of companies and individuals for their social security contribution and IPO registration system reform. These measures make it easier for entrepreneur registration, government permission, support of Venture Capital (VC) and Private Equity (PE) and reduction of the tax burden which will promote entrepreneurship. Entrepreneurship is thus the trend for 2015. The reshaping of traditional industry by the Internet will also provide another broad stage of growth opportunity for the economy.

The conclusion which can be drawn from the above developments is that China and its people are focused towards realistic measures and process which will bring stable growth for the people in the long term. The world might be treating china as a slowdown and devastated economy but just think that US economy simply devasted by running the consumption driven economy based on Borrow and Spend. If they have chosen the path of internal focused based economy and not riding on consumption driven then the recession of 2008 should not have happened and trillions of tax payer’s funds should not have been spent.  China is following the path of Better safe than sorry. Their citizens understand and focusing on long term planning of wealth preservation and development of the next generation life styles. Entrepreneurship and corporate governance levels are being improvised and hence better business opportunities would be growing. They have not restricted themselves from mere bookish knowledge of corporate transparency they are applying the same.

Monday, May 11, 2015

NEXT 20 YEARS DIFFICULT TO BEAR HEALTH COST BURDEN

We are all aware about the health cost factor and its economic cost. But are we vigilant enough about the upcoming Tsunami of Aging population across the globe over the next 20 years from now. Precisely the answerer would be No.   In my research its well clear that economic cost will increase only and governments across the globe would be in bad shapes and would be in deep fiscal deficits. We are already in fix about the health cost burden on the economies but we have not included that there will be many more financial crises and recessionary phase since dealing in toxic products leads to heft bonuses for the global capital market. Rising adding population and the burden of social cost will be unbearable in the next decade. Wealth managers and financial advisor across the globe should play stupendous role to save them from drying out of the government support over the next decade from here.This research is not to criticize any government policy but its an warning signal to the  global economy in today financial crisis situations over the next 20 years from here.

Aging Population growth and its burden…
The biggest question is that how long the government of the developed economies will carry the health cost keeping the next 20 to 30 years in mind. The UN also projects that, for the first time in history, the 0-4 age group will decline between 2015 and 2020, having peaked at around 650 million. The 65+ population is projected to exceed the 0-4 population during that same five-year period, rising from 601 million in 2015 to 714 million in 2020, although precisely when that happens will depend on how fast birth rates in developing countries decline.  We are pointing figures to the more people living longer my area of research is concerned about the significant drop of the infant birth rate. China and India China’s older population – those over age 65 –will likely swell to 330 million by 2050 from 110 million today. India’s current older population of 60 million is projected to exceed 227 million in 2050, an increase of nearly 280 percent from today. By the middle of this century, there could be 100 million Chinese over the age of 80. This is an amazing achievement considering that there were fewer than 14 million people this age on the entire planet just a century ago. Since slow growth of infant would create significant soci-economic problems for the economies across the globe.

The Deadly Disease and its Impact…
We are not discussing anything political interference behind the policy frame work. We must understand that when this policy of health care system was adopted the world aging population was not so high. According to the World Population Prospects of the United Nations, proportion of population aged 60 and over in industrial countries is expected to increase by more than 50% over the next 2 decades. Now currently its being seen that one of the most common diseases coming up from the type of lifestyle being adopted across the globe is cardio- and cerebrovascular diseases, which are the leading causes of death and disability in adults of industrialized countries.  66% of deaths today are due to cardio-vascular disease. Hypertension and diabetes leads to cronic renal failures and other health related problems. The impact is not restricted to the medical cost but also to the long term cost associated with cardio-vascular disease.  The economies are slowing getting into the grip of slow growth since a patient cannot work full time and this drags the social architecture of the family and creates multiple problems in the long term which often leads to significant growth of crimes. The WHO analysis focused on a subset of leading chronic diseases: heart disease, stroke, and diabetes. In 2006, this subset of diseases incurred estimated economic losses ranging from US$20 million to US$30 million in Vietnam and Ethiopia, and up to nearly US$1 billion in China and India. This number is just going to triple in next 10 years only.


The problem is not only country specific but its global. Demographic slowdown in one economy becomes burden for the other economies as global trade is interconnected. In one of the research it has been found that the annual socio-economic burden of stroke is considerable and has been estimated at € 21.9 billion (US$ 32.4 billion) in Europe and at US$ 68.9 billion (€ 46.6 billion) in the USA. Unemployment, minimum wage hikes and strong depression are going to create more havoc problems for the global health care systems. The most astonishing part of the research is that we did not cover about the low or negligible penetration of health care facilities. If we take that part into account then world GDP would be facing significant slow down as consumption will dry out from angles of the economy and socio-economic cost would be impossible to calculate. Paying medical bills and doing treatments would reduce the quality of  living standards and also would create long term unemployment as skill and education cost would be cut down to pay the bills. That’s why I said it would be difficult to calculate the losses in the long term. The problem would begin when under the current circumstances the government are cutting down social cost and implementing austerity measures hence negligible growth under the current circumstances. Now high health care cost financing would be question as no growth leads to negligible revenue then how one can expect the government to continue these programes.

Low Infant Policy Problems
Government based medical facilities would be difficult to provide over the long term since infant rate is low which leads to less income for the government (consumption taxes-revenue) and also low manpower which leads to significant drop for (income tax for the government). We need private segment to come up followed with governments cutting down the health care cost factor. This will create short term hiccups but over the long-term the economies would survive. People will plan their savings and lifestyle accordingly. Now the biggest problem over here is that political system across the globe uses health care treatment cost as tool to win the elections. This creates the economic burden despite of having ways to reduce it. Its high time that the society should figure out the level to which the health care facility needs to be extended. Don’t think that what has been followed over the last 50 years would run for another century.

Role of Wealth Mangers

The government will not be able in the long term to pay the bills as recession and slowdown phase would eradicate the revenues of the government and would run them into fiscal deficits. It high time that thinking over the next 20 years in mind governments look into efficient utilization of resources rather than going for political drove ball game. Now on the other hand I find that Wealth managers and financial advisor across the globe aha s high responsibility to protect the people of the globe from these socio-economic disaster. They need to include health insurance in their investments portfolio before they go head for any investments. The ones who are in their 30+ or 40+ should get into health insurance and should protect themselves as government will not in a position in the long term to carry on the healthcare cost. Countries like emerging economies are going to be the worst effected since the government support for healthcare is negligible and also penetration level is low. In my research I have found the the cost of low penetration of health care cost is also high since low awareness levels creates long term damage to the society and economic growth. We need to plan for the health cost burden and that is possible through high infant birth which leads to consumption and also to balance the workforce over the next 20 years. Further stop using this as a political tool. Sustainable economic growth does not come from political driven cost burden.

HIGH SAVINGS RATE TO GDP IS THE KEY FOR FINANCIAL CRISIS RECOVERY...



Good times of the Financial Markets teach us hardly any lesson but when it comes to the worst times many lesson are learnt and they are forgotten too. In my research I have found out that Indian economy needs to plan its economic policies and construct  its demographic pillars is such a fashion that when the next bubble of financial crisis will hit India remains as sweet pot of investments. In my recent study I have found that when the Asian financial crisis struck and also the 2008 recession, in both events the most common thing was to learn is how the economies are well prepared in getting back into shape. We don’t know precisely when the next recession or the financial crisis will erupt like a dormant volcano but certain things could be sensed from the every time before the eruption happens. The Indian economy needs to strengthen its macro economic factors so that after the crisis the inflow of funds happens quickly. I will be discussing few areas of such strengthen ways on which India needs to think over and react accordingly.In my research I have found that if a country have a High Savings rate to GDP ,it becomes quite easy for the economy to revive after financial crisis. After crisis every developed economy looks for those economies where ROI is secured and can be generatedhealthy compared the crisis economies.

Where the Inflow Happens?
The current economic status of India is good but far from off from best. Sentiments have revived and actions have started happening from the government end and also from the corporate segment in terms of rescheduling manufacturing and capex planning. Also the CAD has started coming down which gives immense favorable position to India to attract investments from overseas. My area of research is focused towards preparing India for those times when another round of financial bubbles would come out over the next 5 years. If we go through the history of financial crises we find that whenever a crisis struck 3 segments of the economy starts finding redemption  portfolio investment (equity and debt securities) and other investment (i.e. bank loans) are distinct from foreign direct investment (FDI).

The historic Inflows:

The Asian financial crisis interrupted capital inflows into developing Asian countries and net capital outflows registered during 1998-2000 (Figure 1). The responses of capital inflows to the crises, however, are different across components. FDI flows had proven to be more resilient in the wake of Asian financial crisis than other forms of capital inflows, i.e., portfolio (both equity and debt securities) and bank loans. While portfolio inflows and bank loans declined substantially and the latter registered a negative level during 1998-2002, FDI inflows continued to increase during this period (Figure 2).
Figure 1


Figures 2


Now it’s well clear that whenever FII money comes into the system, when a global crisis strikes in the whole investments flows back and gets the economic products under high risk like bonds and debt markets.   Investors lose billions and there is prolonged crisis of fear among the investors. This has been the common trend of every financial asset class’s bubbles getting burst. This is the birth place of economic strength which compels strategy formulation during the good times of the economy. This strategy save the economy from these crisis situations and helps the economy for a quick revive.   In the last Asian Financial crisis it has been found that despite of slowdown it has been found that FDI investments have grown. Debt Market attracted inflow of capital and also they created good growth opportunity for the growth. FDI investments grow due to low cost of production in the emerging economies followed with increase in mergers and acquisitions (M&A) activities instead of Greenfield investment. This is one of the key are which I will discuss broadly later on.One needs to be cautious about such movements of acquisitions. There are plethoras of companies who are still facing the burden of those acquisitions on their books of accounts.

Where we need to prepare?
We need to prepare the Indian economy for all those uncertain times and this should be part of the policy frame work which needs to be executed in the good times. Rising per capita income is one of the tool which reflects the strength of the economy in good times which acts a shield during the time of financial crisis. Since during financial crisis liquidity dries up but if an economy has sufficient per capita income then obviously consumption will not be so bad compared to a low per capita income economy. Further FII’s investments always follow in that country where growth can be achieved compared to the most affected country.

Savings rate of GDP is the Key for Recovery of an economy and inflow of FII's money

Moreover if you savings ratio to GDP is higher leads consumption option open during crisis times. Developed economies look for those countries where per-capita income to GDP I higher and based on this credit rating companies gives positive ratings to the country based on which fresh investments are being executed by the developed countries after the financial crisis. Hence its clear that our policies should be friendly enough to promote consumption during recession and also the per capita savings ratio compared to GDP will lead to a favorable market condition for investments.If we make a quick look at the below chart we find that countries who are having higher percentage of Savings rates are better placed after the recession of 2008.


 Now a healthy per capita income drives consumption which keeps the sale of the companies going on compared to other economies where sales just simply goes blank.  This is why we need a high per capita income. Another segment which helps FII’s to get back is the FDI route. If your policies are friendly enough then you can easily attract FDI investments. This has been found historically at the time of Asian financial crisis. Capital outflows, both in terms of FDI and other forms of capital, have become increasingly important for the region. Gross capital outflows reached US$770 billion in 2007 (10.5% of GDP), from US$47 billion in 2002 (1.3% of GDP). The amount of outward FDI also rose substantially to US$155 billion in 2007 (2.1% of GDP), up from US$33 billion in 2002 (0.9% of GDP). The geography of outward FDI in the region was still concentrated in developing countries, i.e., in 2004 around 80% of total outward FDI went to developing countries, increasing from 69% in 1993.

WHY FDI Increased?

FDI increases since doing business through green field process creates synergies and easy penetration into markets and efficient diversification of resources which generates healthy ROI compared to other economies that are messed up with financial bubbles aftershocks.  We Indian also do the same application of the theory that during the boom times we enter into developed economies for M&A. Indian companies expand their business through Greenfield operation and acquires projects at high cost which becomes burden during down turn phase of the Indian economy.
  
Internal factors are crucial in affecting movements of portfolio investment and bank loans, namely growth prospects, friendly policy, returns and risks, as well as investment saving situation in a host country. These factors are the key for the revival of an economy after the financial crisis. India needs to make most of the best achievements in strengthening its internal policies. 


  © Blogger template 'Minimalist H' by Ourblogtemplates.com 2008

Back to TOP