A freshwater

In the 1970s the leading freshwater macroeconomist, the Nobel laureate Robert Lucas, argued that recessions were caused by temporary confusion: workers and companies had trouble distinguishing overall changes in the level of prices because of inflation from changes in their own particular business situation. And Lucas warned that any attempt to fight the business cycle would be counterproductive: activist policies, he held, would just add to the confusion.
The economists trying to provide macroeconomics with microfoundations soon got carried away, bringing to their project a sort of messianic zeal that would not take no for an answer. In particular, they triumphantly announced the death of Keynesian economics without having actually managed to provide a workable alternative. Robert Lucas, famously, declared in 1980—approvingly!—that participants in seminars would start to “whisper and giggle” whenever anyone presented Keynesian ideas. Keynes, and anyone who invoked Keynes, was banned from many classrooms and professional journals.
Yet even as the anti-Keynesians were declaring victory, their own project was failing. Their new models could not, it turned out, explain the basic facts of recessions. Yet they had in effect burned their bridges; after all the whispering and giggling, they couldn’t turn around and admit the plain fact that Keynesian economics was actually looking pretty reasonable, after all. So they plunged in deeper, moving further and further away from any realistic approach to recessions and how they happen. Much of the academic side of macroeconomics is now dominated by “real business cycle” theory, which says that recessions are the rational, indeed efficient, response to adverse technological shocks, which are themselves left unexplained—and that the reduction in employment that takes place during a recession is a voluntary decision by workers to take time off until conditions improve. If this sounds absurd, that’s because it is. But it’s a theory that lends itself to fancy mathematical modeling, which made real business cycle papers a good route to promotion and tenure. And the real business cycle theorists eventually had enough clout that to this day it’s very difficult for young economists propounding a different view to get jobs at many major universities. (I told you that we’re suffering from runaway academic sociology.) Now, the freshwater economists didn’t manage to have it all their way. Some economists responded to the evident failure of the Lucas project by giving Keynesian ideas a second look and a makeover. “New Keynesian” theory found a home in schools like MIT, Harvard, and Princeton—yes, near salt water—and also in policy-making institutions like the Fed and the International Monetary Fund. The New Keynesians were willing to deviate from the assumption of perfect markets or perfect rationality, or both, adding enough imperfections to accommodate a more or less Keynesian view of recessions. And in the saltwater view, active policy to fight recessions remained desirable.

update

In 2005 the right-wing magazine Human Events listed Keynes’s General Theory among the ten most harmful books of the nineteenth and twentieth centuries, right up there with Mein Kampf and Das Kapital.

Repo rate by HDFC chief economist

As the mid-quarter monetary policy review due
on September 17 draws near, the usual speculation
about the Reserve Bank of India’s (RBI’s)
action is building up. There is a minority that hopes
that the combination of sub-six per cent growth in
the last two quarters and somewhat lower-thanexpected
inflation rates will persuade the RBI to drop
the policy rate. The majority in the markets, however,
expects no change — particularly in the absence
of any visible efforts by the government to pare the
fiscal deficit or improve the food-supply situation.
However, in fretting endlessly over whether or
not the central bank is likely to cut the policy rate by
a minuscule quarter of a percentage point, we tend
to forget the fact that the interest rate is ultimately
the price of credit — and, like all prices, is determined
by its demand and the supply. Thus, to figure
out where actual lending and borrowing rates are
headed, a quarter of percentage point change in the
repo notwithstanding, it is important to get a handle
on what the balance between the demand and supply
of credit looks like.
At the risk of stating the obvious, let me point
out a couple of things. The supply of credit is the
available pool of deposits in the banking system,
adjusted, of course, for what the RBI takes away in the
form of the cash reserve ratio (CRR) and the statutory
liquidity ratio (SLR). Of the two, the CRR is really
the binding constraint, and the easiest way to influence
the supply and hence the price of credit is to
push the CRR up or down. Given its potency in managing
interest rates, it might not be such a good idea
to abolish it after all.
Second, banks make their money from the difference
between their cost of deposits and other borrowings
and the rate at which they lend. This is the
interest margin. As profit-maximising entities
accountable to their shareholders, it is rational for
them to try and at least protect these margins to the
extent possible. The implication is that banks are
unlikely to drop lending rates sharply unless they are
able to reduce deposit rates. But can they?
A couple of things are important here. First the
supply of deposits relative to credit is fairly tight,
with the credit-deposit ratio at over 75 per cent. To
put this in perspective, it might be useful to look at
previous episodes of sharp cuts in deposit rates. In
the 2001-2003 period, when banks on average
reduced their deposit rates by three and a half percentage
points, the credit-deposit ratio was a little
less than 55 per cent. A similar reduction took place
in the period between 2008 and 2009 when plummeting
credit demand (in the wake of the financial
crisis of 2008) reduced the credit-deposit ratio by a
good five percentage points over a short span of time
This is unlikely to happen this time. Informal surveys
of bankers suggest that they are somewhat comfortable
with the 17 to 18 per cent rate of credit growth
that they see at current lending rates and do not
expect this to reduce dramatically. In fact, credit offtake
tends to pick up in the second half of the year;
come October, the credit-deposit ratio could start
moving up again. Add to this a fairly hefty government
borrowing calendar (and an overrun in borrowings
on the back of a runaway fiscal deficit), and
any potential comfort on the liquidity front could just
about evaporate. In fact, the RBI might have to step
in with both a cut in the CRR and bond purchases
from banks (to release rupees) to restore a balance.
What about the longer term? If the deceleration in
economic activity continues and GDP growth
remains sub-six per cent, it is likely to take a toll on
credit demand. These things work with a lag and
our estimates suggest that it could take at least six to
eight months for weak GDP growth to seep into the
credit market. If loan demand loses traction, banks
will certainly reduce their effort to mop up deposits
and could start lowering deposit rates.
Their response on the lending front might, however,
be far more nuanced. For one thing, given slower
economic growth and the possibility of delinquency,
it might not make sense to hawk more loans
by reducing interest rates. This is particularly true for
intensely cyclical sectors where creditworthiness is
affected the most. I would, for instance, be surprised
to see a rate war among banks in the market for truck
loans in the middle of a severe economic slowdown.
Ditto for things like unsecured personal loans. The
sole beneficiaries in terms of interest rates would
typically be large, financially stable companies
whose cash flows and ability to service loans are relatively
protected from the vagaries of the business
cycle. As banks make a beeline for these “quality”
assets, their rates could come down sharply.
There is another reason why banks might not want
to reduce margins by lowering credit rates to expand
their loan books. Various estimates including the one
released by the RBI in its recent Financial Stability
report suggest that non-performing loans are likely to
spike in 2013 as repayments of loans to vulnerable sectors
like power become due. Banks will have to provide
for these bad debts and that will entail a straight
hit to their bottom lines. To compensate, they will
have to ensure that the profitability on performing
loans does not fall; in fact, they could actually want
this profitability to increase. Thus, the legroom for
drooping margins, and hoping that volume growth in
credit somehow compensates for this against the
backdrop of falling credit demand, is limited.
Banks also need to raise large amounts of capital
to meet their capital requirements especially as the
more stringent demand of Basel-III kick in. The RBI’s
annual report points out that public sector banks
alone will need ~1.75 lakh crore of just equity capital
to meet Basel-III. This would be impossible to achieve
if profitability declines sharply.
The fundamentals of the banking market suggest
that we might be stuck in a relatively high-interest rate
regime for a while. Small cuts in the repo rate might
work wonders for market sentiment but will have
only a marginal impact on actual borrowing costs.

We the Poorest

My friends do talk about the growth of India , its positon and becoming a world super power competing the large giants China , US, Germany .......
And when you ask them about Africa they see it as very poor nation who needs help from every country to survive Is it true? Is Africa the poorest continent on earth?


Well The answer is NO. People have long tongue but they know nothing.
Africa is not the poorest continent on earth. In fact, Asia is far poorer than Africa. The Indian subcontinent alone contains nearly 50 percent of the total population of poor people in the world today. Africa and the rest of Asia contain about 40 percent of the world's poor population. Latin America and the rest of the world contain the remaining 10 percent. So as you can see, Africa contains just about 20% of the world's poor population. Asia contains at least 60-65% of the world's poor population. It depends on how you view poverty. If you are judging continents based on the number of advanced countries then you may put Asia ahead of Africa because of countries like Japan and China but if you are judging continents based on the number of poor people and the intensity of poverty then it is a huge mistake to place Asia ahead (in the good side) of Africa why because Africa is far better than Asia in terms of living conditions and the levels of poverty.
According to the new UNDP Human development multidimensional poverty Index (MPI), there are about 29 different states in India but just 8 Indian states out of the 29 contain more poor people than 26 poorest countries in Sub-Saharan Africa combined. According to the report, it is not just the number but also the intensity/level of poverty. In other words, the poor people in India live in worse conditions than the poor people in Africa. India is not the only poor country in Asia. In fact countries like Bangladesh, Nepal, Cambodia, Pakistan, Afghanistan, Burma, etc. are even poorer than India and they are all in Asia.
There are poor people in Africa and Africa needs help but there are even poorer people in Asia who need much more help than Africa. The western media always portray Africa as the dark continent full of nothing but poverty, hunger, pain and misery which isn't the case. It is true there is poverty in Africa but not all countries in Africa are poor. Some countries are poorer than others. A country like South Africa is far more advanced than most countries in the world today. Even Botswana (a middle income country), Ghana and other lower middle income countries in Africa are far better than most countries in the world today. Take China for example. China is an advanced country but there is extreme poverty in some places especially rural China. Even in America the richest country on earth, some people sleep on streets why because they have no place to call their home while the few extremely rich people continue to pile billions of dollars in their bank accounts. China is in Africa pretending to help develop but the truth is that, China is in Africa to outsource. China is in Africa because they need raw materials to feed their exploding population. China is outsourcing Africa even worse than the way the United States outsources countries like India and the Philippines.
Is Africa poor? yes Africa is poor. Are there hungry people in Africa? yes there are hungry people in some parts of Africa. Why is there still hunger in Africa? there are many reasons why some people still go to bed hungry in Africa. I came across this question online "WHAT HAPPENED TO ALL THE DONATIONS AND FOREIGN AID THEY'VE BEEN SENDING TO AFRICA?". If you want to help the poor in the society then always look for the direct means of contact so you can help the poor and the needy directly. People keep donating huge amounts of money to charity organizations to help feed the hungry people in the world today but what do we see? people still go to bed hungry. If a charity organization makes lets say $50,000 dollars a month and pays the CEO and other executives $25,000 and the remaining workers $15,000 , It remains just $10,000. The poor do not get all the 10,000 why because transportation, feeding, and other expenses cut in too. So at the end of the day, the poor gets nothing out of the $50,000 money the charity organization received in donations. That is exactly how most charity organizations work today.
What about the foreign aid? Foreign aid may appear free to some people but the truth is that, none of the foreign aid poor countries receive is free. For every dollar ($1) in aid a developing country (such as the poor countries in Africa) receives, the developing country spends around 25 dollars ($25) in repayment. Foreign aid is worse than regular loans because of the huge "hidden-interest". Some countries in Africa especially the war-torn countries like Liberia, Congo, Sudan, etc. have no where else to go for loans and that is why they still depend on foreign aid. It is like a financial trap. If you read about debt cancellations for poor countries, you may think they forgive those poor countries without getting anything in return but that is not how it works in reality. They may forgive you of the $100,000 loan but they take about $1 million worth of timber and other natural resources in return. China is in Africa building bridges and constructing roads and some people think they are doing it for free which is not true. For every road China constructs, China will take huge "tons" of natural resources in return.
Africa is blessed with abundance of natural resources yet people go hungry in Africa everyday. Why people go hungry despite the abundance of natural resources? As I mentioned earlier on, some countries (such as China) come to Africa pretending to help but end up exploiting Africa's natural resources sometimes free of charge. There are so many foreign companies in Africa today yet even some workers who work in these foreign companies go to bed hungry why because those foreign companies are in Africa just to outsource and the outsourcing in Africa is so bad to the point where even the local workers working for these companies go hungry. Those foreign companies get workforce, natural resources, etc. free of charge. People work in these foreign companies but gain very little not even enough to feed themselves and their families which is very sad.
Africa has the natural resources and what it takes to be the greatest yet people still go hungry in Africa. Why do we still go hungry? It is because we depend on western countries more than ourselves. Instead of putting our brains together and utilizing the available natural resources to better the living conditions in Africa, we give these natural resources away almost free of charge.
Take a country like Ivory coast for example. Ivory Coast is the world's leading producer of cocoa beans. Children work like slaves in cocoa farms in Ivory Coast yet most of these children working like slaves in cocoa farms have not even tasted chocolate before why because Ivory Coast sells the cocoa beans at very cheap prices to foreign countries who convert the cocoa beans into chocolate and then sell these chocolates at very expensive prices to poor countries such as Ivory Coast. Those who work like slaves in the cocoa farms to produce the cocoa beans cannot even afford to buy chocolate which is very sad. Meanwhile, if Ivory Coast imports those chocolate-making machines and start producing the chocolate in Ivory Coast, they could sell these chocolates at reasonable prices to foreign countries and make more profit.
Agriculture and education are the backbone of every country on earth yet most African governments ignore these sectors as if they are unimportant. Africa has so many fertile lands yet we still go hungry. Instead of developing Agriculture and improving education, our politicians waste money on luxurious vacations abroad with their sex partners. Instead of developing Agriculture and education, African leaders waste precious money and time developing their goat-bellies. It is time we do away with all these greedy leaders in Africa and start thinking.
So what is the New Africa? The new Africa is the Africa of hope. The new Africa is the Africa of bigger dreams. The new Africa is the Africa whereby people depend on themselves instead of depending on foreign countries. Africa has all it takes to be the greatest continent on earth in terms of fighting poverty and hunger. Africa has the brains and the power to do it. All we need to do is come together as one people. Sometimes they manipulate us to fight and kill ourselves. The new Africa is the Africa whereby people cherish peace and prosperity more than anything else. War brings nothing but destruction. War brings nothing but pain. War brings nothing but misery. There is nothing good in war and tribal conflicts yet we allow ourselves to be manipulated and we have given in to manipulation to the point where we fight and kill our own brothers and sisters for no good reason at all. It is time we start thinking. The new Africa I see is the Africa whereby people think for themselves. The new Africa I see is the Africa whereby people see reason. There is hunger in Africa today why because we spend precious time and energy fighting and destroying precious lives instead of putting that energy into good use. Africa has done it before so we can do it again. Lets come together as one people with a common destiny and fight poverty and hunger.

Iran China

Iran has also become a lucrative market for Chinese products and services. China is investing $1 billion to improve Tehran’s infrastructure. A Chinese conglomerate has already expanded the sprawling capital’s underground railway, under a contract worth $328m. Most of the Chinese in the Qazvin language class are young women. Roughly half are married to Iranians; the rest are eager economic migrants. Chun, the most gregarious, is a go-between for Chinese T-shirt manufacturers and their Iranian customers. She is an avid reader of “financial novels” with titles such as “The Get-Rich Diary of China’s Poorest Guy”, a rags-to-riches tale of an electric-cable salesman. She speaks English in slogans, having learnt the language from watching American television. “You know Chinese people only care about money,” she declares half-jokingly, sucking her teeth. “You think I come to Iran for funny? No! I come here for money. If I want somewhere fun I would have gone somewhere nice!” Adjusting her pink hijab, she explains that “China goes everywhere. Many countries want Chinese products but not every country speaks Chinese…Iran is very, very good for business because it’s not expensive like other countries.(par iran ka pani sasta nhn hai - oil) Many Chinese people are afraid to go to Muslim countries because they think they are dangerous. But that’s not true. Iran is only crazy, it’s not dangerous.” She says she makes $150 a day, seven days a week. “I go for one day, they make deal. I go. Easy.” Chun represents a new generation of Chinese entrepreneurs in the world of emerging markets. Although America inveighs against countries and firms that still do business with Iran, China has been reluctant to cut its imports of Iranian crude, which make up over 10% of its oil consumption. “China opposes any country imposing unilateral sanctions on another country pursuant to its domestic law,” the Chinese foreign ministry declared in a statement issued in June. In any event, China sees its trade with Iran as part of a wider geostrategic policy of countering American hegemony in the Middle East, while at the same time making it harder for America to “pivot towards the Pacific”. Navid, an Iranian trader, owns a midsized company that imports chemicals from China to supply Iran’s plastics industry. Five years ago his suppliers were all in Europe but, after successive rounds of anti-Iranian sanctions, he now gets most of his chemicals from China. Most Iranians, however, bear no special love for either China or the Chinese. Many think China is just another country seeking to exploit their country’s weakness. “We can’t rely on the Chinese,” says Navid. “They care only about themselves.” The quality of their goods is often poor. After several cargoes arrived with “fraudulent” chemicals inside, he has to pay for quality tests in China, adding weeks to the delivery time. “The Mongols are invading again,” he concludes.

I don't understand why business schools don't teach the Warren Buffett model of investing

. Or the Ben Graham model. Or the Peter Lynch model. Or the Martin Whitman model. (I could go on.) In English, you study great writers; in physics and biology, you study great scientists; in philosophy and math, you study great thinkers; but in most business school investment classes, you study modern finance theory, which is grounded in one basic premise--that markets are efficient because investors are always rational. It's just one point of view. A good English professor couldn't get away with teaching Melville as the backbone of English literature. How is it that business schools get away with teaching modern finance theory as the backbone of investing? Especially given that it's only a theory that, as far as I know, hasn't made many investors particularly rich.
Meanwhile, Berkshire Hathaway, under the stewardship of Buffett and vice chairman Charlie Munger, has made thousands of people rich over the past 30-odd years. And it has done so with integrity and a system of principles that is every bit as rigorous, if not more so, as anything modern finance theory can dish up.
On Monday, 11,000 Berkshire shareholders showed up at Aksarben Stadium in Omaha to hear Buffett and Munger talk about this set of principles. Together these principles form a model for investing to which any well-informed business-school student should be exposed--if not for the sake of the principles themselves, then at least to generate the kind of healthy debate that's common in other academic fields.
Whereas modern finance theory is built around the price behavior of stocks, the Buffett model is centered around buying businesses as if one were going to operate them. It's like the process of buying a house. You wouldn't buy a house on a tip from a friend or sight unseen from a description in a newspaper. And you surely wouldn't consider the volatility of the house's price in your consideration of risk. Indeed, regularly updated price quotes aren't available in the real estate market, because property doesn't trade the way common stocks do. Instead, you'd study the fundamentals--the neighborhood, comparable home sales, the condition of the house, and how much you think you could rent it for--to get an idea of its intrinsic value.
The same basic idea applies to buying a business that you'd operate yourself or to being a passive investor in the common stock of a company. Who cares about the price history of the stock? What bearing does it have on how the company conducts business? What's important is whether you can purchase at a reasonable price a business that generates good returns on capital (Buffett likes returns on equity in the neighborhood of 15% or better) without a lot of debt (which makes returns on capital less dependable). In the best of all worlds, the company will have a competitive advantage that allows it to sustain its above-average ROE for years, so you can hang on to it for a long time--just as you would live in your house--and reap the power of compounding.
Buffett further advocates investing in businesses that are easy to understand--Munger calls it "clearing one-foot hurdles"--so you can come up with more reliable estimates of their long-term economics. Coca-Cola's basic business is pretty staid, for example. Unit case sales and ROE determine the company's future earnings. Companies like Microsoft and Intel--good as they are--require clearing much higher hurdles of understanding because their business models are so dependent on the rapidly evolving world of high tech. Today it's a matter of selling the most word-processing programs; tomorrow it's the Internet presence; after that, who knows. For Coke, the challenge is always to sell more cases of beverage.
Buying a business or a stock just because it's cheap is a surefire way to lose money, according to the Buffett model. You get what you pay for. But if you're evaluating investments as businesses to begin with, you probably wouldn't make this mistake, because you'd recognize that a good business is worth buying at a fair price.
Finally, if you follow the Buffett model, you don't trade your investments just because our liquid stock markets invite you to do so. Activity for the sake of activity begets high transaction costs, high tax bills, and poor investment decisions ("if I make a mistake I can sell it in a minute"). Less is more.
I'm not trying to pick a fight with modern finance theory enthusiasts. I just find it unsettling that basic business-school curricula don't even consider models other than modern finance theory, even though those models are in the marketplace proving themselves every day.

INVESTMENT

If we cannot own our own auto plant (a real asset), we can still buy shares in General Motors or Toyota (financial assets) and, thereby, share in the income derived from the production of automobiles.
 While real assets generate net income to the economy, financial assets simply define the allocation of income or wealth among investors. Individuals can choose between consuming their wealth today or investing for the future. If they choose to invest, they may place their wealth in financial assets by purchasing various securities. When investors buy these securities from companies, the firms use the money so raised to pay for real assets, such as plant, equipment, technology, or inventory. So investors’ returns on securities ultimately come from the income produced by the real assets that were financed by the issuance of those securities.   It is common to distinguish among three broad types of financial assets: debt, equity, and derivatives.    Fixed-income    or    debt securities    promise either a fixed stream of income or a stream of income that is determined according to a specified formula. For example, a corporate bond typically would promise that the bondholder will receive a fixed amount of interest each year. Other so-called floating-rate bonds promise payments that depend on current interest rates. For example, a bond may pay an interest rate that is fixed at two percentage points above the rate paid on U.S. Treasury bills. Unless the borrower is declared bankrupt, the payments on these securities are either fixed or determined by formula. For this reason, the investment performance of debt securities typically is least closely tied to the financial condition of the issuer.

  Allocation of Risk
 Virtually all real assets involve some risk. When GM builds its auto plants, for example, it cannot know for sure what cash flows those plants will generate. Financial markets and the diverse financial instruments traded in those markets allow investors with the greatest taste for risk to bear that risk, while other, less risk-tolerant individuals can, to a greater extent, stay on the sidelines. For example, if GM raises the funds to build its auto plant by selling both stocks and bonds to the public, the more optimistic or risk-tolerant investors can buy shares of stock in GM, while the more conservative ones can buy GM bonds. Because the bonds promise to provide a fixed payment, the stockholders bear most of the business risk but reap potentially higher rewards. Thus, capital markets allow the risk that is inherent to all investments to be borne by the investors most willing to bear that risk.
 This allocation of risk also benefits the firms that need to raise capital to finance their investments. When investors are able to select security types with the risk-return characteristics that best suit their preferences, each security can be sold for the best possible price. This facilitates the process of building the economy’s stock of real assets. 
     Investment     is the   current   commitment of money or other resources  in the expectation of reaping  future  benefi ts. For example, an individual might purchase shares of stock anticipating that the future proceeds from the shares will justify both the time that her money is tied up as well as the risk of the investment. The time you will spend studying this text (not to mention its cost) also is an investment. You are forgoing either current leisure or the income you could be earning at a job in the expectation that your future career will be suffi ciently enhanced to justify this commitment of time and effort. While these two investments differ in many ways, they share one key attribute that is central to all investments: Yo u sacrifi ce something of value now, expecting to benefi t from that sacrifi ce later.