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.
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