Indy Telecom & Industrial Media

I particularly liked ~7:36 and ~18:18.

“We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession, but the economy is resetting to a lower level of business and consumer spending based largely on reduced leverage in the economy. Our model is things go down and they reset. The economy shrinks and then it doesn’t rebound. It builds from a lower base effectively.”

–Steve Ballmer

Poor performance of the economy, militancy, provincial wars and corruption — eventually stuff has to hit the fan some day.

Turns out that Pakistan is facing bankruptcy, with its central bank effectively having only about $3 billion in its coffers from the $8 billion in foreign currency and about $5 billion in forward liabilities.

Of course, now would be the perfect time for them to offer up their nukes in exchange for international aid. However, the rest of the world does not seem to be in any shape to help anyone, so that may not necessarily work. That said, that might just be wishful thinking on my part, of course.

What’s more likely to happen is that they would get international assistance from certain middle eastern countries and possibly China.

And to be completely fair, an economically strong Pakistan is more likely to be well educated, less militant and hopefully, more able to relate to their secular and democratic neighbor.

That said, I am reminded of the CIA Global Trends 2015 report that effectively states that Pakistan would probably be a failed nation state by 2015:

Pakistan will be more fractious, isolated, and ependent on international financial assistance. (pg. 64)

…

Pakistan, our conferees concluded, will not recover easily from decades of political and economic mismanagement, divisive politics, lawlessness, corruption and ethnic friction. Nascent democratic reforms will produce little change in the face of opposition from an entrenched political elite and radical Islamic parties. Further domestic decline would benefit Islamic political activists, who may significantly increase their role in national politics and alter the makeup and cohesion of the military — once Pakistan’s most capable institution. In a climate of continuing domestic turmoil, the central government’s control probably will be reduced to the Punjabi heartland and the economic hub of Karachi. (pg. 66)

The New York Times has an excellent article on the state of the current US economy.

One of the key points that they bring up is that traditionally, boom and bust cycles result in higher purchasing power and better lifestyle to the people during the boom cycles. Unfortunately, this is not necessarily the case in the US.

For instance, at the end of the 2000 economic expansion, the median American family’s income was $61,000. In 2007, it was $60,500. If anything, the American middle class is not just stagnating — it is recessing, made worse by inflation and high gas prices.

Contrast this between the real median family income that quite literally doubled from the 1940s through the late 1970s. In the three decades since, it has barely risen by 25%.

One of the most critical problems facing our country today is education. The US is lagging far behind compared to the rest of the world, and despite faulty programs like “No Child Left Behind” has one of the lowest graduation rates among developed countries.. Another one is public infrastructure — a lot of money that’s currently spent is on useless pet projects, while the larger infrastructure needs aren’t being met. And of course, there is the issue of health care and the fact that a significant portion of Americans cannot afford to take care of themselves.

Finally, there is the age old issue of tax cuts which are supposedly favorable to the higher-income bracket groups versus the lower-income bracket groups (this is the one point that I disagree on).

But either way, it is a good point, and a very insightful one in a very sad way.

Here are a few assorted interesting links from the past month; ideally, I’d have liked to blog about a few (if not all) of them, but there’s only so much you can do in a week.

• Derivatives: The stupidity of the Indian media on derivatives (Rediff)
• Pop goes the economy: The correlation between economic performance and champagne purchases (The Economist blog)
• Information overload: Why we’re powerless to resist grazing on endless web data (WSJ)
• Old-School Economics: Why the recession was bound to happen anyway (NYT)

With a sluggish economy, it was only a matter of time before stores adopted the any-which-way-they-can to make money attitude.

The NYT has a post on how a lot of the megastores are willing to negotiate with the customer on what the prices may be.  This includes such big names as Best Buy, Home Depot and Circuit City. Here’s an excerpt:

“We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.

…

“The recession is helping to push these seedlings to the surface,” she added. “It’s a real turnabout on the part of the buyer and the seller.”

Wow. Un-freakin’-believable.

For the first time since 2003, the Federal Reserve lowered its interest rate from 5.25% to 4.75%. Most people expected a cut of maybe 0.25%, but a cut of 0.5% was significantly higher and perhaps underscores the serious concerns about the economy.

While this may not directly affect consumers, this will have an impact on the prime lending rates of most financial institutions in the country. And interestingly enough, the stock market seems to have soared with the news with significant gains.

So, is this merely going to postpone the inevitable or will the extra financial liquidity be used “wisely”?

Personally, I think that this could be a boon for FIIs to invest in other more stable markets (e.g. Asia). This would not necessarily peg the investors to a market that might go into recession in the near future.

Either way, it would be interesting to see how the market reacts to this in the long term.