7/23/2019 Raghuram Rajan on world economy

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Article: World economy may be slipping into 1930s Great

Depression problems: RBI's Raghuram Raan

I feel that this warning has to be taken seriously, as a country's economic growth

hinges on the growth of other nations. For instance, a country may depend on

export market for its survival. It will spell a doom to the nation, if the importing

nation is not progressing. In this age of economic interdependence, all the

countries have to continuously step up the public spending and investment to

avoid global economic recession and depression. eedless to say, the nations

have to produce !uality goods and services and sell them at a"ordable prices,

domestically or overseas. #oose monetary policies are working as a poison and

ruining not $ust developed but even developing economies. %etter stop it nowthan letting the poison completely paraly&e the global nancial system

It is true the !uantitative easing mixed with globali&ation is dreadful. ot only

that, but it creates an unsystematic and fast growth that will keep pressuring the

future growth patterns. (ence a slowdown is signicantly important criteria after

a growth pattern over ) to * years. %ut, currently, slowdowns have been

eliminated by ma$or nations like +, +-, and others, and instead a global

!uantitative easing has taken over to continue growth. his is a big and costly

mistake because it breaks down a sector called middle class that leads in

consumer spending for betterment of their lives/ on the other hand, it creates

ample opportunities for the people who have huge incomes at the cost others to

horde asset, leading to asset in0ation and a ma$or distortion called wealth e"ect.1e saw proof of this during the dotcom bubble. Further it lead to housing bubble.

2yclical growth based on ) to 3 years of up cycle followed by 4 to ) years of

down cycle helps middle and lower income people catch causing more

proportionate growth in the economy and better distribution of assets. 5irect

reallocation of wealth and opportunities is a cheaper mentality and failing policy

that has miserable produced more troubles in +.

Is it really a matter of growth or have we reached the maximum capacity in all

areas 6population, greed, need, etc.7 of the di"erent world economies8 1e need

to work on sustainability rather than growth. 9rowth is good and leads to better

things, but there comes a time when it will plateau and eventually drop o" orcrash. emember, history always repeats itself, and in my opinion mostly

because of greed.

aghuram a$an may be right about the developed world facing a nancial

market crisis. (owever, India is in a uni!ue position to be insulated from nancial

shocks to a large extent due to the scal policies of our government. ake for e.g.

the development of a large number of smart cities in India. his is bound to lead

to a large demand for goods and services which is bound to raise the 95;.

econdly with market based demand and supply outlining the location and

composition of the smart cities, we can avoid the problem 2hina is facing in

having too many ghost cities with no inhabitants.

7/23/2019 Raghuram Rajan on world economy

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I am not aware how we survived the great depression of , but India did

manage to survive the nancial crisis a decade ago, in fact we could have

utili&ed that opportunity and grown substantially after that but because of some

policies by the politicians out of self?interest wasted the golden chance many

initiatives like doing away with subsidies controlling unnecessary expenditure

would have done the trick. @ven now a prudent scal policy would denitelysurvive us in the so called economic crisis.