The American

Even before my train had left the platform, I knew it would be a long journey. Sitting next to an oversized American I read- “Sensex reaches a new low.” In long journeys I use books and magazines to avoid the awkward silences with complete strangers. So I continued my pretence of reading India Today- “Sensex reaches a new low”.

Every time I read something like this, I die a little bit inside. When I joined my MBA in a particular year, I was forced to time the market. Some might call it luck (or rather the lack of it) and some might call it destiny but the bears have freaked up my returns (placements). But today I had someone to blame it on. The American smiled at me. To my convenience I speculated he was interested in what I was reading.

I read out aloud- “Sensex reaches a new low”
He responded jokingly- “What should I say, I am sorry”

I felt a sense of guilt for making him apologize and shifted a bit to make more room for him to spread his legs. He did. We got talking. He was a strong supporter of The Republicans (although he never voted). I enquired if he had purchased land recently. He had. Rented it out but pretended my question had nothing to do with sub-prime crisis.

And then it happened. My semi-spiritual experience. An IRTC official tried to sell him coffee. To the ordinary coffee seller, the dollar was surely worth less. But his hundred rupee note was also rejected.

The man demanded- “Change?”
I explained- “You need change”

The American needed change. He couldn’t obviously get rupee of his required denomination out of thin air. It was too late. The coffee vendor would not wait long. I guess it was too much for him to bear. Amidst the confusion, a coin fell from his pocket. His words were like poetry to me-

“Rupee has fallen”

Fed Bank’s theory of eternity

Albert Einstein once said- “I have just got a new theory of eternity”. People at Fed bank could not agree more. At the edge of every such perceived eternity is a bubble burst. Just like we witnessed in the sub prime crisis where everyone expected the real estate boom to go on forever. Now we need to be careful- what else does the Fed Bank think would go on forever? Have we seen it all in the sub prime crisis or is it just the tip of an iceberg?

US never runs out of solutions. Bank of America has acquired Merill Lynch. Just another smart move by Americans- one bankrupt company acquiring another bankrupt company. As if they were not doing badly enough by themselves. Its like both companies have huge number of defaulters and are using each other as a guarantee. I am sure the US Government is smarter than this. But there is more. What did you use in the deal? A worthless peace of paper which they call dollars. The Central Bank of US is trying to save Fannie Mae and Freddie Mac which I think is a greater matter of concern than the fallout of Fannie Mae and Freddie Mac itself. Let me explain how.

Long back, a fed bank spokesman said- “dollar is my currency but your problem”. He just might have a point there. US dollars have this special position in the world as it is most commonly used across the globe as a medium of exchange, even between two currencies. We see central banks of many countries keeping dollar as reserves. Why? Is it because it is considered the safest, even safer than the gold? The US has been long importing goods by printing more and more dollars. If the central bank of a country has enough dollars, it sells it treasury only to pay it back in dollars with interest. All any country is left with is more dollars.

So we have here a country in the middle of its biggest regulatory failure printing dollars with sky as its limit. How else could it save AIG or others? Would you call it a smart move? Doesn’t US have anything to loose if its floods the already flooded market with more dollars?

Now either they can print dollars till eternity or there will come a day when people will stand up and say- “we have had enough of dollars, now what about some real money?”