Posted on May 10, 2017. Filed under: Uncategorized | Tags: , , , , , , , , |

For some people in Britain as well as parts of the European Union, the general feeling towards the EU project can be possibly be summed up, more or less as that, the EU leaders continue to remain disconnected with the reality, and  fail to grasp the reality on the ground.  Some do argue that, by coming across as being acting elitist, the policy makers are destroying competitiveness of European business.  The evidence is that, across industries, the cost of compliance for European companies has increased significantly year-on-year.  And instead of using BREXIT as an opportunity to fix a very inefficient system, the leaders keep talking in terms of rhetoric.

I firmly believe that, no one in London wants EU to fail, and it shouldn’t, because it has delivered peace across Europe. But European Union as an idea is full of flaws, and just ask those, who paid and continue to pay the human price for being a European. My own assessment is that, BREXIT isn’t good for UK or the EU, and that’s the reality, but it’s also an opportunity. European Union badly needs reform, and its not that Europeans have started falling in love with Brussels post BREXIT.

As I see it, Britain is getting out of European Union and not the continent of  Europe. So lets have that perspective. I don’t see European Union working out in its current shape, and the four principles that EU leaders keep talking about, are completely unsustainable together, because they create serious misallocation of resources. There was no socioeconomic impact assessment done on expansion of European Union, we all know what happens to a Company that goes through a expansion drive, without a well thought out strategy. So why not fix the flaws, and then sell the product wisely to the public, and let’s see if the potential customers buy into it?  No point lecturing  people, if they reject your product or fail to understand what you are selling,  and providing a good customer service is key to making a product work.

 European Union as a product will need to evolve , and it will be good for European politicians to understand that, the language of business as well as science still remains English, and that’s not going to change in the foreseeable future. Also London will continue to remain an attractive jurisdiction, and the world of finance will continue to be dominated by English. The opportunities are still out there, and I sincerely hope that, politicians across Europe including the U.K. will come together, to make good of those opportunities, and maximise it for their shareholders, in other words, the common citizens.

Also to some extent, people in Britain fail to understand that, in continental Europe, there is a genuine love affair with the idea of European Union, and that is, for a number of reasons, which I won’t go into. So yes, like any love affair, the journey will be driven by emotion. And it’s not that, the average people don’t understand that, there are serious design flaws with the idea of European Union, but when you are in love, you are in love. And, I think, Britain will do well being mindful of this fact, while negotiating its exit from the EU. Also, on the British side, there are people who are extremely attached to the idea of Great Britain and its glory. So there are emotional attachments on both sides, and yes I fully appreciate that, the will of the people has to be enforced, and it should be, or what’s the point of a democratic system. But when we are talking about a permanent change, the prudent thing to do, will be to keep the emotions aside, and have a boringly dispassionate approach towards figuring out a way forward that works for all sides. No point being nasty, in the end, we will have to learn, to live with each other. Europe needs Britain and Britain needs Europe, it’s just a fact, and we shouldn’t be confused about it.

By over playing their hands, both sides is taking the risk of doing permanent damage. Love affairs can get nasty, and quite frankly Britain’s relationship with the EU was never based on love. But British diplomats and the politicians do need to factor in the reality that, whether it’s Mr Juncker or Mr Tusk, there is a genuine love affair with the idea of European Union. And we need to learn to respect that love, instead of criticising others for being in love. What we are looking at today is, potentially a lose – lose outcome for all sides, and it’s hard to practically see otherwise. And that’s why it is important that leaders in European Union, instead of punishing Britain for not being in Love, try to understand that, sometimes relationships don’t work, and also sometimes people do patch things up.  Also, why not make some changes, to accommodate each other, after all that’s what a good relationship is all about, or am I missing something ? There is an opportunity, so why not make the most of it ?

Government officials across European Union, are all making concerted effort in figuring out, what they can do to attract businesses, to move from london. And their pitch is not bad at all, but as a business, you have to ask yourself, do you buy into a series of promise or do you wait, to see how much of what is being promised will get delivered on the ground. I am afraid, the reality is, it will be a big struggle for a single European city to replace london. Because london built itself over hundreds of years, into what it has become today, and quite frankly, it’s a daunting task for one European city to replace London entirely. So yes, bits and pieces of what london is offering can be moved to other parts of the EU, but that won’t be enough for a business really. Also a major issue is language, contrary to what politicians in the EU might say, the language of business is English, and there is no way, you can force the world to change to French now. And I am beginning to also sense that, there is a genuine fear among some bureaucrats in Brussels that, if Britain makes a success of its exit from the EU then, others will most likely follow.

So with all that, here are some ideas worth looking into, while UK is on the BREXIT Road.

  • lower the corporate tax rate to 18%
  • provide 2- years tax exemptions on profit of startups with 5 employees
  • lower the personal tax rate for people earning over £ 350,000  to 36%
  • lower the personal tax rate for people earning between £ 50,000 to £ 150,000 to 30%
  • keep the basic rate for people earning between £ 12,000 to £ 49,000 around 20%
  • people earning £ 45,000 and over will pay £ 25 flat access fee for GP and A&E visits and £ 35 access fee could be charged to non residents.
  • a stamp duty surcharge of 5.5% could be levied on non resident buyers of residential properties in the U.K. This surcharge could be used to partially pay for building more social housing.
  • working with the depart of trade & industry create a business mentorship program, where business schools from across U.K. could partner with SMEs, to provide them free of charge essential advisory support on how to grow and better manage the business. Business schools with the support of department of trade & Industry could mentor existing SMEs, and help find ways to grow sustainably.
  • set up a £ 5 billion business support fund, in partnership with private sector, to help fund start up investments requiring £ 30,000 to £ 750,000 in seed funding. The trust acting on behalf of the government could take 25 % of the exit value, in order to generate profit. This fund could be funded by a combination of surcharge of 1.5% on Tobacco and from the profit generated by exiting the investments in the startups as well as allowing councils across the UK to support and subsidise startups.
  • expand the capacity at both London GatWick and Heathrow, to ease the congestion
  • dial down on the cost of non critical regulatory compliance on businesses and the cost of compliance on businesses
  • work out a deal with the EU to access the single market by paying an annual membership fee. UK runs a trade deficit with the EU, and it is in the interest of European Union, to not lose a market that imports around £ 290 billion in good and services from the EU annually. A short term disruption will result in very sizeable job losses and also closings of businesses across the EU. Many SMEs that are reliant on selling to their customers in the U.K. will have serious losses, so it’s in the interest of EU, to work out a deal on trade.
  • reposition London as the offshore hub  for YUAN, Indian Rupees and other important emerging currencies by supporting their capital market transactions through london, a common regulatory framework could be worked out in partnership with regulators from key emerging countries, to enable companies from these key emerging markets, to access capital as well as other vital resources through London.
  • make it easier for people with high skills and high net worth to come and live in the UK
  • develop key cities across U.K. for sectors that will play a dominant role in the future, for example, make parts of U.K. the hub for AI related technological developments as well as space among others
  • pitch Oxford, Cambridge and Edinburgh as technology centres of the world
  • enable partnership between schools and businesses, to help with skills development
  • to help build the soft power of London, help create legislation that will enable non governmental organisations from across the world to house their outfits in london.
  • help UK based premier Universities and colleges to attract the brightest minds from across the world
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BARC: A possible solution for resolving part of an estimated 6 trillion rupees problem

Posted on March 20, 2017. Filed under: Uncategorized | Tags: , , , , , , , |

A number of possible ideas are being explored, as a way to solve the bad loans situation within the Indian banking system. And obviously, there is no silver bullet. Resolving bad loans within a banking system is, an extremely complicated task, but there are solutions that can at least address part of the bigger problem. And one of those solutions could potentially be a creation of ” Bad Assets Resolution Company” aka BARC.

So you may ask, what will this BARC be, and also what will it do ? And here is a simplified attempt, to try to answer all that.

The Strategy

Acquiring the bad loans: 

After carrying out the initial assessment on the bad loans held by the banks. BARC will take over a selected pool of bad assets from the banks in India, at an acceptable discount. The purchase of these assets will be financed through the issuance of bonds by BARC. Ideally, these bonds will have a 10-year maturity and will not pay interest. The bonds will be rated and will be considered an acceptable collateral for the Reserve Bank of India ( RBI ). These rated bonds could either be sold by the banks to RBI or used as a security collateral to borrow against.

As a part of its recovery and monetisation strategy, BARC will work with a range of selected turnaround specialist firms as well as distressed and special situation funds. It will put together a 5 – 10 year strategy, to maximise the overall recovery and monetisation of the bad loans. A range of strategy will be deployed to maximise the overall recovery. For example, assets that have a good of chance of turning around, could be managed by a turnaround specialist firm that has the best competing idea and turnaround strategy, on making the asset work. And as a part of the turnaround approach BARC will also agree to inject capital in the business, by taking over the ownership of the company. BARC could either fully own the company or co-own the business with the turnaround specialist firm, or other potential investment partners. And the assets that are less likely to be turnaround, could be put through a winding down asset sale process, and sold to qualified buyers offering the best price.

Structure of BARC and funding:

 The founding shareholders of BARC will potentially be the government of India acting through one of its agencies, committing round US$ 1.5 billion in capital, along with all the commercial banks as well as other financial institutions including of private equity, pension funds and hedge fund among others. Together they could provide US$ 7.5 – 8.5 billion of capital.And BARC will also be listed, enabling it to tap into a range of potential investors.

Issue of securing a good rating: 

Because of its shareholding structure and initial funding BARC will be able to enjoy a strong rating.

And for additional funding,BARC could also explore issuing hybrid asset backed securities with embedded option features, to fund specific asset or assets, allowing qualified commercial and strategic investors, to buy into specific assets or businesses held by BARC.  BARC is by no means, a silver bullet that could comprehensively solve the bad loans issues, but with its funding structure and also by its ability to leverage, it could fix a sizeable part of the problem, in a sustainable way.

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The Disruptor and the incoming disruption

Posted on January 30, 2017. Filed under: Uncategorized | Tags: , , , , , , , , , , , , |

People across the world are outraged over the executive order issued by Mr Trump banning specific group of people from entering the United States. But that’s what Mr Trump promised to people, who voted for him. And the people, who voted for him obviously want Mr Trump to deliver on his campaign promises. So why the sudden outcry ? People who don’t like the order can criticise Trump all they want, but how about those millions of people , who agree with Mr Trump ? Calling them bigots or racist, or idiots for that matter won’t solve the existing divide inside the society. It’s not about liberal ideas Versus Conservative ideas, or socialism Versus Capitalism. There are millions of people within our society, who believe that they were ignored, and for them, this is their time to be heard.

My question is, do we want to solve our problems, or keep playing the blame game ? As I see it, this is not a liberal versus conservative fight, not at all. The society is going through a grind, and in the past few years, the leaders have tried to dismiss the underlying issues using political correctness. The facts is, some people are genuinely worried about terrorism and immigration and other matters, and by dismissing their real concerns, the political class has basically lost an opportunity, to address the issues and find sustainable solutions by bringing the society together. People on both the side of aisle, and also those on the fringes will have to reach out to each other, and figure out a way to get along. Protests against a president, who is trying to represent a specific group won’t solve the divide. It is imperative that those, who call themselves liberals or conservatives find a way to discuss the issues openly.

The status quo needs to be dismantled. Liberals or conservatives, in a way are both radicals about what they tend to believe in. Calling Mr Trump or people who subscribe to his thought process, a facist or racist isn’t going to solve the problem, people will need to reach out to each other, and get an open discussion started. There is a serious trust deficit within our society, and it won’t get solved on its own. It’s time people came together, to decide the future of their society and the world. And remember Mr Trump didn’t create the problem, this is a feedback of our actions and inactions, so blaming Mr Trump is fine, but it’s missing the big picture.

He ( Mr Trump ) is basically the disruptor that, people who voted for him needed to shake things up a bit, so the society can figure itself out. In the end, it’s our society that, has to decide it’s future. But no discussions will work, if we aren’t willing to discuss the underlying issues openly, without our inherent bias or prejudice against each other. A president, a Pope or a priest isn’t going to fix the ills of our society. The underlying issues and the problems are within our own society and are a by-product of our own making, and those who disagree also have the same the rights. I feel very tempted to tell myself, please let us reach out to each other, and get talking. And while talking about the US let us not conveniently forget about, what’s been done to others in different parts of the world. The facts is, going forward US will lose some influence on setting the global agenda, because the world will have to learn to deal with a different US, and in the end, this will work out quite well for the US and the world. I see this as an opportunity, but let’s see, how many of us are willing to come together, to make good of this opportunity, to help make a better society for our next generation.

As I see it, we probably needed a disruptor to break the status quo and jolt the system, because the world badly needs to go through a rebalancing process. The outcome of this rebalancing act is obviously unknown, and will remain so for a while. But sleep walking into complacency and not being able to fix or address the issues, because of political correctness or because of our inherent bias or prejudice is, going to produce a disastrous outcome. And our world today seems to be heading in that direction. Media has too much control over shaping global opinion, also the US had and continues to have way too much influence, and its footprints are all over the global affairs. And it’s not always the case that, what’s in the interest of the world is, also in the interest of US. So there is nothing inherently wrong with America First strategy of Mr Trump.

A global community will not come about, unless and until people feel the pain or the need to come under one umbrella. Mr Reagan was of the opinion that a global society and cooperation on a global level will only come about if, humans and humanity was to face an existential threat. And at the time, he may have thought that threat might come from an alien race. But he didn’t imagine that, in fact, it will come from humans themselves. No body is born a racist , a hater or a liberal or conservative for that matter, we become that, as a matter of our personal choice. In fact, our lives today is an outcome of the decisions that we have taken or made. We are always tempted to impose our views and perspective of the world on others, without probably realising that, we are doing so. But sometimes, we do that intentionally. The future of humanity and the world isn’t set in stone somewhere, what we are experiencing today is the feedback of our actions and inactions. And this disruption is probably a good wake up call for us, to get things right, before it’s too late.

If liberalism alone was capable of creating a global society then, Beatles would have succeeded in doing that. If dictatorship was the answer then, Hitler could have achieved that. It’s not about liberal or conservative policies. Because the nature is neither a socialist nor a capitalist, it does what it does to stay relevant and survive. And that’s how it is designed. The assumption is, if US withdraws from global institutions and agreements then, it may also give away some its influence, so others including of China, Russia as well as Britain as well as countries like India, may get a better opportunities to influence the global agenda. Being a superpower is a privilege, but it’s not a permanent privilege. The institution and the system that US has, is and should be bigger than any president, so actions or inactions of any president can be undone over time, therefore the risks are manageable. So personally,I will not get overwhelmed by the disruption, but I will get proactive, because it’s time to help shape the world for the next generation. And if you won’t then don’t complain, if someone else ends up deciding on your behalf.

I do know of people, who genuinely feel being eroded, they fear of becoming a visible minority in the society and the country that their ancestors helped create. For them, the change has been faster than they first imagined it, and the society around them has changed quite rapidly. They feel poorer than before, and ignored. In short, they feel overwhelmed by the changes, without having any real control over it. And the society classifies them as working class White. So the question is, are they inherent racist or bigots ? The answer is No, and by calling them racist or bigots, the society is basically dividing itself. A caring society should be able to adapt, factoring the concerns and issues of the members and groups within that society, or else the whole fabric of that society will tear apart. A God didn’t create a white man, a black man, or a brown man. That God also did not create, an American man, Irish man or a British man. The physical attributes or features of a human being is, all a direct result or outcome of the evolutionary process. A process that enabled humans to survive in different geographical conditions across the Earth by adapting. And we need to learn to move on, blaming each other for what was done by our ancestors to each other isn’t the way forward.

I also know a group of religious people, who are genuinely concerned about Islam, and they believe that Islam is becoming too dominant, the ideas promoted by Islam is somehow causing them real concerns. They worry about the society and the next generation. The fear that ISLAM will one day change their society is real to them, and they fear what Islam is. They feel that, generally, people who follow Islam do harbour sympathy for radical Islamists, and eventually, the followers of the faith want Islam to be established as the only dominant religion on Earth. Now, the question is, are these people Islamophobic ? The clear answer is NO, but yes , they are genuinely concerned about Islam as a religion. And without addressing their concern, or by labelling them Islamophobic, the society isn’t going to far. Putting all these concerns under the carpet of political correctness is also not going to solve the problem.

And there are also a group of people within our own society, who genuinely feel that, they are being made a target by the west and also the foreign policies pursued by the western countries is, somehow always trying to demean their culture and religion. They do not feel part of the western society, even though, they were born in it. And these people are classified as belonging to the muslim faith by the society. So how we do as a society address their concerns ? By asking them to go back to their country ? The answer is NO. They have genuine concerns, and these issues need to be heard and addressed. It is only by trying to weave them in the overall fabric of the society that, we are going to make them a part of the society.

So let’s get talking, and let’s reach out, because what we do today and right now is going to decide the future our society. No religion or political leader can fix the ills of our society, it is the society that needs to come up with a sustainable fix, and to get started, we will need to learn to get rid of our own bias, prejudice and hate when reaching out to each other. Let’s start a journey with an aim to arrive at a place where we can all agree to co exist as the same race that we have learnt to know as HUMANS.

A God is not going to help, and prayers are for those who feel helpless, but helpless humans are not, or else we won’t have survived. The Humans and Humanity of thousands of years from now will look and think different, but their future is in our own hands. Future is a range of possibilities, and the Input will decide the output, and therefore what we put in today will be the output later. Today, we are dealing with the feedback of our actions and inactions, and thus feedback is important, because it is telling us that, we need to get it right.

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Talking about globalisation, productivity and Universal Pay

Posted on January 20, 2017. Filed under: Uncategorized | Tags: , , , , , , , , , |

For starters, what is globalisation ? And is there a metrics that can help us measure the level of globalisation ?

The standard acceptable definition of Globalisation is that, it is a process that has enabled interconnectivity, thereby increasing trade and exchange of ideas as well as cultural experience among other things. Globalisation, as a process spread over 100 plus years has made the world richer, in terms of GDP. The process has also enabled the local champions, to become international bigwigs. And these international bigwigs have then, gone on to influence the change, or in other words, the process that, we have learnt to call ” Globalisation “.

To understand the affect of globalisation, we could look at how our main cities and societies living within those cities, have today become truly global, and therefore globalised in their views. So starting with New York City, which has an estimated GDP of around US$ 1.5 trillion, followed by Tokyo with an overall GDP of approximately US$ 1.4 trillion, and then London with an estimated GDP of approximately US$ 700 billion, followed by Paris with an overall GDP of around US$ 625 billion. And the other emerging global cities including of Delhi, which has an estimated GDP of around US $ 368 billion, are all bigger than some countries, in terms of their economic size. These city economies have reaped the benefits of the relatively freer flow of people as well as ideas supported by flow of capital from around the world. And it is quite safe to assume that, majority of the people living in this global cities, will have a favourable view of globalisation and the interconnected world.

Capital and ideas do not have geographical boundaries. Any attempt to limit or restrict the flow of capital along with ideas will only stifle progress, and it also goes against the natural evolutionary process. Over a 100 year period, human productivity, which is generally measured as a ratio of total output versus total Input, has benefited tremendously from innovation. And we are slowly reaching a point, where in certain sectors of the economy especially manufacturing, humans productivity as well as efficiency is no longer able to compete with the automation process driven by robotisation. Also, there will be increasing pressure on human as a labour force, to continuously reskill themselves. We may work longer, but on a lesser pay ( in terms of overall living standard ) than the previous generation. Technology may have made our lives easier, but it hasn’t increased the overall disposable income of people in general. So, a sizeable percentage of the population within our society will continue to feel under constant pressure. And this pressure and feeling of being slowly eroded isn’t all due to globalisation. The answer and the underlying reasons are more complex than some of us would like to suggest or believe.

The society that, we live in and along with it, our economies changes over time. And that’s part of the natural evolutionary process. Our body changes as we age, that’s how the biological process is designed. We aren’t physically capable of doing things that, we could do as a 16 year old, at the age of 60. So, we learn to adapt accordingly. Humans and humanity’s ability to adapt to change has been at the forefront of our evolutionary advancement. And the next generation of humans will have to be much better equipped than us, to stay relevant. Genetically speaking, humans are 99.99% the same, but we are still different in many ways including in our overall level of individual productivity. Not all the work force doing the same job, will have the exact level of productivity.

A human life is, more of a marathon than a quick sprint, and in the end, how we run the race decides where we end up. And the idea that, governments and political leaders can somehow help us stay in the race by changing the rules of the race in our favour, isn’t a permanent solution. We may get tempted to vote for those who identify with our problems, but the solution to the problems won’t come from pushing back against the natural evolutionary process. To facilitate a change, we must be prepared to change. And to change, one has to be ready to adapt to the changes.

Universal pay guarantee for those living below a specified and tested poverty line, could serve as the spring board, to help support those who may start to fall behind in the race. The fact is, not all of us will win the race, but we could try to finish it, without worrying about our individual ranking. We join the race, the day we are born, so we don’t really get to choose. But we can learn, how to run the race better. This is where, the society and governments could help, and they should.

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BREXIT: Life after, and Ideas worth throwing in the pot

Posted on June 27, 2016. Filed under: Uncategorized | Tags: , , , , , , , , , |

Greetings of the day everyone !

So based on the popular calendar that we currently use, this day is, the 27 th of June 2016. I was away last week, partially it was an intentional decision and also I had to do some running around. A lot has happened while I was away, and now we are living in and with the aftermath of the post referendum day in the UK. I went to the classroom earlier today, and my teacher said, the topic of the entire day is going to be BREXIT. I went around the classroom, to see if any of my friends have done some work, which I could use, to write up something that might please my teacher, or at least get her off my back. But to my surprise, most of friends aren’t in the mood, and after talking with some of them, I am getting a sense that, they are probably not willing to accept a BREXIT or what has transpired. I sincerely hope the teachers and the principals, have a sense of what might be coming. And, if you are wondering, why principals and not principal? Well, we go to a special school where we have a number of principals, and that’s why it’s difficult to run the school sometime. Also, most of the times, the teachers and the principles haven’t a clue of what’s happening inside the school.

Anyways, it seems to me that, while some of my friends are visibly quite confused and in shock, but others are getting quite determined to teach the teachers and the principals, a lesson, and they may be gearing up to bring down the school, not in the literal sense of the word obviously. I didn’t know what to do, so after consulting with my grandMa, I decided that the prudent thing to do, will be to take my leave, and also take my books and belongings with me, just in case. And I can’t blame my friends, because 99% of what they thought was known is, now Unknown to them.

But, I don’t want the teacher to complain to my parents, for not doing the assignment, so therefore, I called upon my Birdie friend ( the tweeting bird ), to help me out with the assignment. The translation equipment that I generally use to communicate with her, isn’t working well today, so I hope, I am doing justice to whatever she shared with me.

And here is what I believe, she wanted to share with me.

  • U.K. could replace its current arrangement with EU, with a free trade agreement. Obviously, the details will need to be worked out.
  • U.K. could also create similar free trade agreement with selective partners in Asia, Africa as well as Latin America.
  • To agree the free trade agreement with the EU and also to keep access to the single market. UK could possibly agree with the EU, to keep the status quo of all the EU citizens currently living in the UK. And also a quota based immigration with the EU could be agreed, to support its services and construction sector. Also an arrangement could be reached, where EU migrants could still enjoy quasi home status in the UK, and to remove the stress on the healthcare system, new migrants could be asked to pay a nominal consultancy fees to GP ( general doctors ), and any social benefit claims could be restricted for at least 2-3 years. So they may not immediate access to public funds. Their kids under 16 could access the healthcare system for free, but a nominal fee could be charged by the state school for education. And the same arrangements could apply for British citizens, who may want to live and work in the EU.
  • UK could possibly become an offshore hub for euro denominated trades as well as RMB and who knows going forward may be Indian Rupees, and other growing markets.
  • In a post BREXIT world, UK should be able to free up some of the cumbersome EU legislations, to make its financial system as well as the overall economy more attractive. Also any dial up on the existing efficiency level of various parts of the economy, will and should positively reflect on the investments coming into the country.
  • U.K.’s financial sector could still play a larger role in creating revenues for the country, and it can surely help China and India as well as other Emerging markets upgrade their financial infrastructure, and help them become developed markets over the years. This could be done through bilateral agreements.
  • A cheaper pound isn’t always a bad thing, it could help UK in getting some high end manufacturing back, also it may help improve the overall demand for real estate especially in London from overseas buyers. Councils could be given powers to work with overseas as well as local developers to allow them to build more housing across the country especially in high demand areas. UK companies may be able to gain market share while exporting good and services to other countries with a chapter pound. All this will help the economy.
  • And some inflation, because of cheap pound, might in fact end up becoming, a blessing in disguise. And it will put UK in a better position than EU. Also, a rate hike isn’t necessarily going to be, a net negative for the overall economy. A positive interest rate differential with continental European might in fact encourage investors to put capital in the city of London, which also give a floor to pound.
  • Scotland and Northern Ireland won’t do well in the EU, for a number of obvious reason, the biggest one is, delinking themselves from the overall UK economy, can and will have a damaging impact on their respective economies, and they have much more in common with their cousins in the UK than EU. Ireland could get a special status, so the existing relationship can be preserved without the need for setting up borders.
  • UK could delink NHS from Westminster and party politics, and it could be independently managed, but continued to be funded by the treasury. Also, to keep the funding sustainable, NHS could create provisions, whereby GP access will come with a nominal consultancy fee paid directly to the GPs, with exception for children under 16 and pensioners. Foreign residents could be asked to buy into a partially subsidised healthcare insurance program enabling them to access NHS.
  • To help with the mounting retirement costs, UK government while working the private sector could encourage some of the retirees, to consider retiring in places with lower living costs. A board could be set up, to monitor and supervise the standards. And UK companies with their local partners could participate in tenders to build and develop the infrastructure and townships, with funding support from pensions schemes etc.
  • UK could dial down on some of the heavier regulations as well as the cost of doing business, to become more competitive.

I was hoping the tweeting bird will keep talking, but while we were talking, the birdie got another distress call, and left saying, we can talk about other things later, but for now, at least your teacher won’t be disappointed in you. And some of your friends, don’t seem to be in a mood to accept a BREXIT, so who knows, they may force the teachers along with the principals, to come to the negotiation table. You don’t fight nature, you work with it, or nature can destroy you.

So, there we are. I thought, I will take the liberty and share the ideas from the tweeting bird, and throw it in the pot along with others.

Good day to you all!

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Economic Data – The need for a system overhaul

Posted on December 26, 2015. Filed under: Uncategorized | Tags: , , , , , , , , , , , |

How to best capture, assess or measure the overall economic activities of a modern nation state is an extremely challenging and complex task. The way, we assess and estimate economic data needs an update, as the existing tools aren’t able to capture the full picture,creating gaps. Also, what specific set of economic data is more relevant and serves as a better assessment tool to help assess the health of the overall economy needs to be looked at.

The policymakers as well as the governments need better quality and more relevant economic data that can be used as a reliable input to create specific policies, or evaluate a policy decision or reform. The existing leading economic data that are commonly used to make short term projections about the health of the economy, are quite volatile and also fails to accurately paint a high resolution picture of the overall economy,and is therefore subject to a wide range of different interpretations. And unlike a scientific data, economic data are created mostly as an estimation so it can not be relied upon as a fact.

We live in a rapidly changing society and the economy is changing with the world ,and in the process becoming increasingly complex. So relying on the old tools to fully measure the overall economic activities, in order to assess the well-being of the economy, without having the capacity to rigorously interrogate the numbers, can only be described as an incomplete exercise with an incomplete process.

Getting a real time assessment of a nation’s economy is an extremely difficult challenge today, and the overhaul process could help us learn, how to get better at it. A road safety indicator could be derived from the numbers of accidents, both fatal and non fatals. So it’s not really a complicated exercise, but collecting a different set and range of data from various parts of the economy, and then processing it using a defined set of economic indicators as a tool to measure all the economic activities and the general well-being of an economy is quite a complicated process, and prone to errors. Input decides the output, and whatever be the input, we will have some output return loss.

So no system or engine created by human beings is 100% efficient, and therefore, even the best set of economic data will most likely fail to fully and comprehensively capture the true picture of an economy. And unlike a practising clinical physician, who is able to accurately assess the health of a patient real time by measuring the key life indicators created using highly advanced medical diagnostic tools, an economist has to rely on a set of estimated data that are extremely volatile and prone to errors as guidance, to navigate their way through, in order to get a pulse of the economy.

The technological advancement which has transformed the modern society is still somewhat absent in the field of economics, and this may be down to the fact that economy is not an exact hard science. Relevant government agencies responsible for collecting, creating and publishing statistical data will have to up their game by looking at overhauling their existing process and systems, in order to produce high quality and relevant data that reflects the changing modern economy. Also part of the field of economics and economic studies focused on creating standard models and methodologies to assess and measure the overall economic activities of an underlying economy needs an overhaul.

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The World Economy : So Where Are We Today ?

Posted on October 10, 2015. Filed under: Uncategorized | Tags: , , , , , , , , , , , |

The QE along with the ultra low rates, as a loose monetary policy did what it had to do, during the crisis and also in the immediate aftermath, but the temporary measure also made the market somewhat irrational, and then came a time when markets got addicted to it, and kept on going higher regardless of the underlying fundamentals. And what we thought was a large Airbus 380 flying at 40,000 feet turned out to be an Airbus 318, so now, when our perception is changing, we find ourselves stuck, because, we know that an Airbus 318 is, simply not big enough to carry, and then keep the world economy flying at 40,000 feet, and also there is a realisation in some parts of the market that the Airbus 318 was never really flying at 40,000 feet. But the problem is, the central bankers, who kept the plane flying are now running out pages in the instruction manual.

So the central bankers in the developed world will need to find a way to get themselves unstuck. Low rates coupled with low inflation is not what most central banks in the developed world were expecting, and now they find themselves STUCK. In the QE era world, low interest rate environment isn’t necessarily all good and positive for the real economy, because the incentive to chase better returns leads to misallocation of capital. The asset price inflation that came about mainly from the misallocation of capital has more or less peaked, the fundamentals of the real economy were never that strong to drive the record level asset pricing. Easy money supply from QE was the main factor that created asset inflation.

Today, globally , the overall inflationary pressure in the real economy is somewhat subdued, and the central banks in the emerging economies are also lowering the rates. And this creates a very interesting problem for the central banks going forward especially in the UK and the US. The way, I see it is, the world economy is now starting to sail blind ( more or less ), and I must say, I’ve got my fingers crossed.

By waiting for an opportune time to raise rates, the central banks in the developed world have started the work of undoing all the previous good work that was done during the crisis, and in it’s immediate aftermath. Water in the ocean has to travel in a wave, and a still ocean is always a sign of something disruptive that’s probably on the way. So, we are getting stuck, by design, QE and the low rates as a part of the ultra loose monetary policy were supposed to be temporary measures, but for whatever reasons, it became the norm, and now, the markets have simply got addicted to the ” new temporary “.

The FED as well as the BOE will rightly say that there is no change in circumstances that demands a rate hike, in fact, the slowing world demands that the rates remains low for an extended period. And the markets are now starting to position themselves accordingly. But there is no guarantee that a low interest rate environment globally, will do the world any good, even when the developing world is also seeing a subdued inflationary environment. In my own view, the central banks can and should try to influence the flow of capital. It is what is required, and there is almost no real harm to the global economy if the FED was to raise rates by 25 bps, and by not doing that we run the risk of making what was supposed to be a temporary status quo, the ” new permanent “. If we continue with the existing ” status quo ” then there is a serious risk that markets will remain irrational and therefore volatile, and both will have damaging implications on the real economy. Take for example, the recent upswing in commodity prices , the price movement is not based on the assumptions that the fundamentals of the global economy is improving, or going to improve dramatically. In fact, it isn’t, and if we look at the recent growth projection of IMF, and also the overall inflation environment around the world, then it will be quite difficult to find a sound economic argument for the price movement upwards, but in my own view, I believe, the commodity market is moving up because of the realisation that rates will remain low. So the misallocation of capital as well as the distortion of market reality will therefore continue.

The benefits of QE as well as low rates was somewhat limited to the real economy, as a large part of the capital didn’t really flow into the real economy. And most data suggests that financial investors were in fact the main beneficiaries. The financial investors saw no real benefit, in terms of overall return of investing in the real economy , so a large part of the capital went into inflating the pricing of the financial assets for obvious reasons. Real economy isn’t designed to create high double digit returns in a very short period of time. So financial investors chasing quick and substantial return saw no incentive of committing capital to the large part of the real economy. But the hope was, especially from the central banks that at some point, the money will flow into the real economy. Having said that, QE and the low rates more or less served a their good purpose, but the central banks to a large extent failed in their attempt to channel the flow of capital where it could have been utilised to create growth in the real economy.

And if we are to rely on historical evidence, most available data suggests that when the financial markets starts growing bigger and faster, it is generally at the expense of hurting the real economy, and more often than not, it leads to a crisis.

The FED as well as BOE will need to change the ” status quo ” or in other words tweak the current market dynamics, a bit. You need a positive and a negative polarity to create the flow of current. The wind flows, when you have a high and a low pressure environment. And to keep a plane flying, you need to have a strong flow of air across both the wings. An economy like most planes requires two pilots, and so far, the central bankers have taken the lead in flying the plane, and they have done a good job especially in the absence of a strong leadership from various governments, but now, it’s time for the governments to play their role. So far the governments have failed to deliver on the important reforms that was badly needed. We have had sound bites coming out from various pockets of the governments as well as the political class in general, but the real lasting reforms aren’t quite visible yet. Blaming the financial markets and making the banks, a villain, is now an old story. The fact is, without the central banks taking the lead, the governments won’t really have an economy to talk about today. But there is a limit to what can be achieved through monetary policy alone, and I have always suspected that at some point, the central bankers will run out of tricks, and the limits of monetary policy tools will be tested and exposed. And it looks like that’s where we are today.

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PRISONOMICS- Making the criminal justice system productive

Posted on May 12, 2015. Filed under: Uncategorized | Tags: , , , , , , , , , |

The average daily cost of a prisoner to the US tax payer is roughly around US$ 65 per day, and then there are additional costs related to reoffenders costing the tax payers billions annually. For example, the cost of reoffending to the UK tax payer is estimated to roughly around £ 13 billion  annually. And this is not common just to the UK.  Most governments around the world run an inefficient criminal justice system that drains the public finances and also ends up wasting tax payers hard earned money without any real social benefits.

So in short, the criminal justice system in its current shape and form isn’t really a good value for money for the society, and apart from locking away the individuals at a huge financial cost to the society, there are no measurable return on investments to the society at large. Punishing someone for their crime is delivering justice for the society as per the prevailing law of the land, but the infrastructure through which justice is delivered needs to be revisited. So it’s probably time for  the policy makers to re-approach the whole criminal justice strategy.

A strategy that is focused and tailored, where prisons become a contributor to the society. And here are some of the ideas that could be worth exploring.

– every prison should have 3/4 hours of daily educational and vocational courses made compulsory. The education program could be delivered by a mix of various state universities, NGOs and other institutions.

– people serving their sentence should be trained and prepared to re-enter the society, get a job and have a new start. The employment could be supervised and monitored for a year or two to make sure the transition period is well managed. And the supervision costs could be deducted from the salaries of the individuals.

– the individuals could be asked to contractually payback some of the cost of their rehabilitation by getting them to contribute up to 20% of their annually income for a period of  5/7 years. This could also be tailored to make sure the process is fair. The payment structure could be in the form of additional tax levied on the individuals to recover at least part of the cost incurred by society on the rehabilitation the individuals.

– individuals with entrepreneurial mindset could be encouraged to start their business with the support of a commercial wing of the prisons. For example, a singer/ song writer with the help of the prison commercial wing could launch themselves as a writer/ author, and publish a book. People with entrepreneurial aptitudes could be encouraged to start a venture among other things. The commercial wing could do a contract that will allow it to take a percentage of the annual revenue for a period of 5/7 years as a part of its pay back strategy.

– the criminal records of the offenders could be expunged after the completion of their contractual terms as part of their full rehabilitation program.

– prisoners on death row convicted for killing others in countries like the US could be encouraged to volunteer for various clinical trials conducted by pharmaceuticals and similar companies with right safeguards in place. This might be a controversial step but rather then having a society pay a government to end a human life, it makes all the sense to put that human life to good use, and in directly allow that individual to make some contribution towards the progress of society by assisting in creation of a product/remedy that would one day save human lives and not take it. Obviously there will need to be checks and balance put in place to stop abuse of the system.

And the immediate real benefits to the TAX payers will be quite significant. For example, If through the new strategy, reoffending declines by 30/40 percent then over time the society will be savings the billions that it is currently spending. Also if the strategy succeeds in rehabilitating 50% of the individuals ( as an example ) then the tax payers will be in a position to recoup part of the cost incurred by the system, and in the process bring down the overall cost of the criminal justice system by a sizeable amount. And most importantly there will be a huge overall social benefit for the society as well as the individuals, which can’t be measured in terms of money.

No doubt privately operated correction facilities or PRISONS are an extremely profitable business, and all of their earnings comes from the TAX PAYERS. But any BUSINESS has to make money so there is nothing wrong in that, but having said that while a high prison population is good for business, it isn’t for the society in general. So a strategy that works for the society as well as for the operators should be explored and encouraged by all the parties with vested interest, and its time, a real and fair debate aimed at creating a better and efficient criminal justice system was encouraged. Prisons could be made productive by revisiting and revamping the existing criminal justice system.

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Posted on April 12, 2015. Filed under: Uncategorized | Tags: , , , , , , , , , , |

In the immediate aftermath, by agreeing to buy Euro 60 billion worth of public and private securities on a monthly basis until September 2016, under its recently launched quantitative easing ( QE ) program, the European central bank (ECB)  has quite clearly distorted the market. Also the initiative has given once in a life time type opportunity to Euro area countries to get their fiscal house in order by borrowing for longer duration and at a record low cost without being able to provide  or required to provide any fundamental justification to the market. And also by showing a willingness to buy European governments debt as low as minus 20 basis points, the ECB is probably attempting to harmonise the cost of borrowing of the EU states. So as a consequence, we are now living in a reality, where Portuguese and Spanish 10 years sovereign bond has a lower yield  than a U.S. Treasury of the same duration.

While the benefits of the QE to the European governments can’t be understated, European financial institutions from the likes of an insurance companies or a pension fund etc, who rely on investment returns to keep their business model sustainable will most likely have to reassess, or redesign their investment model factoring the new reality of low and negative yielding sovereign debt.

The ECB is clearly aiming to push investors out of what is considered safe haven assets, but investors could also opt to very well sell the Euro denominated European sovereign bonds, and instead buy US treasuries as ECB has very limited control over how investors will allocate capital, and the overall directional flow of the capital. Non European companies with stronger balance sheet could also benefit immensely by borrowing at very low rates in Euros, and there are ample evidence of that happening already as more and more companies flock to Euro to raise capital. So there remains an inherent risk with the approach, and capital will likely flow into various asset class outside of the Euro area.

Also in the last couple of years, a sizeable portion of the profits made by euro area based banks came from their sovereign debt holdings, and in the current environment, it will be interesting to see what sort of impact the change in dynamics will have on banks profitability. Although the banks are comparatively in a much better shape than few years ago, they are still struggling to make good money from their traditional day-to-day business.

Going forward, the QE initiative of European Central Bank (ECB) should improve the overall economic dynamics of the Euro Zone, and the signs are that it is in some way or the other heading in that direction. But a QE coupled with ultra low interest rate environment over a longer than desired period  isn’t all NET positive for the general well-being  of the economy. A sustained ultra low interest rate environment over a long period of time can cause misallocation of capital, mis-pricing of risks, and can also easily become addictive without really creating a big jump in the overall economic activity of the real economy. And here is an interesting data that I believe provides an interesting perspective. Based on various reliable estimates, Japanese savers have over US$ 7.1 trillion stashed in cash, and roughly around US $ 300 billion of cash is believed to be literally stashed under the carpet  across Japanese households creating a situation where excessive savings is not being utilised by the real economy as average household aren’t able to get the return they would expect from traditional channels of investments.

There are still a large number of savers who believe in the good old savings model, where a bank provides an attractive return to its clients on deposits. Also more than half of the population of the developed as well as developing world does not actively invests on a regular basis in stocks or bonds so therefore they are unable to reap the benefits of a record high stock market. And their savings get eroded over time through low to almost negligible return on their deposits while a small percentage of sophisticated institutional investors make good money from record high stock markets mostly driven by the easy QE money, which distorts the connection between the financial markets and the real economy.

And even in an economy where a large percentage of the savings comes from the higher valuation of the house prices, if through traditional channels, a saver is not getting decent enough return from the banks, the overall confidence in the economy suffers, and it is one of the reason why the economic data remains somewhat confusion creating volatility in the financial markets.

There are limitations to what a central bank and monetary policy can deliver or achieve on their own without a sound business and investment friendly economic environment. And this is where Europe continues to struggle. Euro zone economy is showing some signs of improvement  but it still has a long away to go.

A Europe where an entrepreneur as a value creator with credible ideas or project  is able to access right capital and start the journey without getting stuck in bureaucratic red tape is still a bit far from becoming a reality. In general, the market is turning optimistic on Europe’s prospect, but the EU leaders as well as the bureaucrats will need to be focused on delivering the essential reforms in order to make sure Euro Zone as an economic growth engine starts to fire, to ensure it stays relevant and competes better. So the European policy makers will need to keep their mind on the market while charting a better way forward for Europe.

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