Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • Originally Posted by Venkytalks
    Our current situation was well described 120 years ago and came true in 1906, 1916, 1929 all of which were just repetitions of what happened 200 years ago when the first federal bank was formed in USA.
    ]http://www.oftwominds.com/blog.html
    "The Work of Orestes A. Brownson (1893)
    The Credit System
    The fact is, the mercantile system, introduced by England, or the credit system, that is, the system of making debt pass for capital, is itself failing, in consequence of its own expansion. The principle of the system, as we understand it, is to do business on credit and to rely on the profits of the business done to pay the interest on the borrowed capital and to discharge in time the loan itself. ...

    The multiplication of banks of discount facilitates the borrowing of credit, tempts an undue proportion of the young men of the country into business, and those already engaged to extend their business operations, till ..
    Financial Remedies

    The various remedies suggested, whether by the president or by prominent merchants, traders, and bankers, are puerile, and not even palliatives....

    I can hardly distinguish this 120 year old writing from something current
    Why complicate so much!!

    Todays RE is unaffordable to many, so will correct. Simple:). Basic requirement like housing cannot stay at unaffordable levels for long time. Price will be what most people can afford to pay.
    Why complicate so much!!

    Todays RE is unaffordable to many, so will correct. Simple:). Basic requirement like housing cannot stay at unaffordable levels for long time. Price will be what most people can afford to pay.
    Why complicate so much!!

    Todays RE is unaffordable to many, so will correct. Simple:). Basic requirement like housing cannot stay at unaffordable levels for long time. Price will be what most people can afford to pay.
    Why complicate so much!!

    Todays RE is unaffordable to many, so will correct. Simple:). Basic requirement like housing cannot stay at unaffordable levels for long time. Price will be what most people can afford to pay.
    CommentQuote
  • Originally Posted by RAJESHP
    Why complicate so much!!

    Todays RE is unaffordable to many, so will correct. Simple:). Basic requirement like housing cannot stay at unaffordable levels for long time. Price will be what most people can afford to pay.


    Yes it has to be affordable to buyers. But builders will always be interested in profits and also landowners will not reduce cost. Only way I can see houses will be affordable in future is reduction in size. In Pune clearly trend is for 2 BHK houses from 1700 sf then to 110 sf and now to 850 sf. I t can go further down to 650 sf and may end up with 1 BHK. In mumbai & navi mumbia rates are 5000/- and more and so most projects have small room size to make it affordable.
    People froam small cities and big houses will find this concept unrealastic but after staying most of my life in mumbai 2 BHK of 650 sf will not be unrealistic.
    CommentQuote
  • Originally Posted by ttt43
    I have seen rates of as low as 2800 at Magarpatta before(6-9 months ago). So this is probably not that great. But yes, from the excesses of past, this is a welcome relief. I have seen that the Magarpatta resale market fluctuating a lot. Anyone know why? Why are Magarpatta sellers scared more than say Baner/Balewadi etc?

    The investors are in large scale here. Add to it that the builder himself has reduced the prices putting additional pressure on the investors:D. I have seen an investor who had booked 3 flats in MP City & stays in Bangalore & now he is stuck:p. The other factor is Amanora. Though this turned out to be flop show, some MP city investors also booked in Amanora & now as Amanora is not working for them, they are trying to sell MP city ASAP. This is classic case of greed overtaking profits.

    Even in Baner-Balewadi, there is acute pressure on pricing. Why else would MV quote in excess of 3500 for Biaritz then reduce to 3166, 3133 & so on? Comfort Zone is also stuck. That Kulkarni chap of Aditya told me in 2007 that they plan to hike the rates to 5-5200/sq ft when A gets completed. See where they are now:D. Even celista has resale flats with them.
    CommentQuote
  • Dubai crisis: Dawood dials builder, asks him to pay up

    ]http://economictimes.indiatimes.com/markets/real-estate/news-/Dubai-crisis-Dawood-dials-builder-asks-him-to-pay-up/articleshow/5325202.cms
    CommentQuote
  • Originally Posted by mahesh pune
    Yes it has to be affordable to buyers. But builders will always be interested in profits and also landowners will not reduce cost. Only way I can see houses will be affordable in future is reduction in size. In Pune clearly trend is for 2 BHK houses from 1700 sf then to 110 sf and now to 850 sf. I t can go further down to 650 sf and may end up with 1 BHK. In mumbai & navi mumbia rates are 5000/- and more and so most projects have small room size to make it affordable.
    People froam small cities and big houses will find this concept unrealastic but after staying most of my life in mumbai 2 BHK of 650 sf will not be unrealistic.


    Right Builder/investors will not reduce price on their will. Demand supply may force them to right.
    Can you please tell me why prices corrected in USA? Neither was there recession nor was there any high unemployment when the correction started. Why did the builder/house owners reduced the prices?

    Man, if 2BHk are made of 650 sf in Pune, I will seriously consider settling some where else other than Pune. Pune with its pathetic infra would only be looked as cheap place to invest by companies. If office cost/rentals are more than USA, why would any one open office in Pune at all? Value for money has to be there to justify the cost.
    CommentQuote
  • If this continues, Pune will be kicked hard.

    If the area is so small despite having large amount of land available, I really wonder how many people will accept it. Man, the parking slot will then become bigger than flat. Then I will purchase 3-4 parking slots, bribe PMC officials are convert it into ground floor garden flat:D. This will give more area + lesser price.

    On serious note, when there is no connectivity in many areas by bus (need to change bus 2-3 times), when rickshaws don't ply by metre in PCMC, when traveling between PMC & PCMC is difficult with rickshaw as medium of transport, when roads are not fit for driving bikes, let alone cars, when there are no footpath & even if they are, these are encroached upon, when I can't see sparrows due to pollution, & yet builders reduce area size & keep price high, man the first thing I will do is collect few people & build on my own if not leave the city.

    In commercial aspect, if Pune becomes so expensive, will factories, offices come to Pune in first place? If not will residential area follow?
    Pune will just become a stripped down version of Dubai:D.
    CommentQuote
  • People have got used to bigger flats. They will never settle for small any more.

    India's problem is roads - or rather complete lack thereof.

    Land is available for 50,000 Rs per acre in the hinterland.

    But you need a helicopter to reach it :-)
    CommentQuote
  • ^^ That's absolutely true. If proper infra is built, not only it will reduce the cost but also reduce the burden on infra in central parts of the city as there will be multiple developed clusters even in the suburbs. This will lead to less travel time, means savings on fuel & hence reduction in imports of oil, thus saving precious forex. The stress levels will also drop due to less fatigue. The pollution levels will drop as it will not be concentrated in one particular area.:)

    If Megapolis can sell flat at INR 2300/sq ft making profit, why should one pay INR 3500/sq ft for Blueridge? This indicates that some builder continue to remain greedy despite low cost of investment. If builders think on the lines of Megapolis in terms of pricing, it will be healthy for buyers as well as RE sector. It's a win win situation for both.:)
    CommentQuote
  • Food prices push inflation to 10-month high. Worse ahead

    Mumbai: Is price rise making your life difficult? It's going to get worse, say economists.......
    What does that mean to you and me?
    Higher EMIs or extended tenures on loans, for one. The positive rub-off could be a better interest rate on fixed deposits as the cost of money goes up. That may happen from January.

    Read complete news here:-

    ]http://www.dnaindia.com/money/report_food-prices-push-inflation-to-10-month-high-worse-ahead_1323849
    CommentQuote
  • I have a mention of inflation in every single post!

    Originally Posted by realacres
    Mumbai: Is price rise making your life difficult? It's going to get worse, say economists.......
    What does that mean to you and me?
    Higher EMIs or extended tenures on loans, for one. The positive rub-off could be a better interest rate on fixed deposits as the cost of money goes up. That may happen from January.

    Read complete news here:-

    ]http://www.dnaindia.com/money/report_food-prices-push-inflation-to-10-month-high-worse-ahead_1323849


    Real,

    People tell me that I am a perma-bear and too gloomy and that everything I say will not come thru given the rosy picture that the Govt has given to everyone today!

    And in response to this I am constantly telling them that one of the major killers lurking in the background is very high inflation and the consequent constriction of credit by banks as well as very high interest rates.

    I don't know how to simplify it any further. And I will lay this out as simply as I can now ...

    The entire "Global Recovery" is a fake recovery which only shows up as Govt spending and Govt hiring, NOT Private hiring (jobs increase which implies salaries increase and spending power increase) or private spending.

    And most Govts in the world are BROKE! So, how do they do this? They print more notes and push them into the economy. This has resulted in a MASSIVE excess supply of money in the market. This is INFLATION!!

    Now, people ask me. Why then have these explosions not happened. Why has this crash not happened. Several reasons ...

    First, interest rates. The Central Banks have held interest rates at ridiculously low rates (almost ZERO). But there is a danger here. When interest rates are low, people go out and spend - didn't you see the supposedly big jumps in car sales in the last 2 months? This pushes up GDP and all seems to be okay. But, the silent killer that is growing is deficit and Govt (public) debt. Did you see the Finance Minister go on TV today and say that our current 6.8% deficit is unsustainable and we need to curb spending?:D Thats because Budget time is coming and the FM knows that we are in terrible shape. Btw, this 6.8% deficit is the planned deficit of last April. Current deficit is running around 8% and could go up as only last month the Govt asked Parliament to allow it to borrow another 25000 crores! And the only way for GDP growth to remain high is for Govt to keep borrowing ever more amounts of money and pump it into the economy. But also note one more thing. The marginal impact of an additional Rupee of Spend is declining! In simple English, the impact of every additional rupee borrowed and pumped into the economy is getting lesser and lesser!!!

    Then comes the commodity inflation due to general shortages across the world. Sugar, Rice and a whole lot of commodities (oil) are in short supply and prices of Food is expected to rise on a long term basis. Once again Govt will be expected to bail out the farmers and maybe throw a few traders in jail as hoarders just ot manage the politics.

    Then comes external fund flows. Due to the FED keeping interest at near zero, one can borrow billions of $$$ there an pump it into India in stocks as well as other sectors. So, Happy, Happy everywhere!!!

    But beware the things that are going to now happen to unravel this whole thing ...

    First, the Dollar is unravelling by starting to rise! The massive bets people have placed on the dollar going down as well as the massive borrowings of low interest $$$ to invest in speculative markets (read India, China, etc) will now have to be reversed in a terrible hurry!

    Do people understand the impact of the outflow of $ 10 billion from our stock market in the next 3 months? Or say $20 billion? Do you now think that the market could go down by say 6000-7000 points? :o And what happens when the same kind of money goes out of the RE market!!!

    Then comes the effect of our Govt's stimulus. It seems to be running out of steam and the expected result is not happening. If we could do 7.9% GDP growth with massive Govt money pumping, what do you expect when the pumping stops. And the FM is saying today that it will stop as soon as possible!!!:o Besides we could show this nice GDP growth on 2 factors. Low 2008 base as well as the fact that the poor rainfall's impact is expected to be felt largely in the second half of the year! There is a built-in decline here. Increased base, Agriculture hit and rising inflation!

    Please note that the GDP growth is largely Govt led growth. Still the private sector performance in 2009 may be slight higher than 2008 but is still much lower than 2007. So we are still in recession on the basis of absolute numbers!!!

    The Govt is going to pull money supply significantly. They will also borrow massively and raise deficit to much higher levels. Price inflation of Food and other commodities will shoot up sharply. And to put the last nail in the coffin, a decline in foreign markets will once again start joblessness reversing and rising again! Once again (for the umpteenth time in 2 years) we will re-discover that Global Coupling is a permanent connection and we cannot enjoy the benefits of coupling when times are good and conveniently de-couple when things go bad!:(

    If, on the basis of all this, all we can do is act like a certain large flightless bird when it is faced with danger, then what do you expect?

    Rising Deficits, shooting inflation and interest rates, flat to negative job growth, possible significant decline in exports, a flight of massive amounts of capital back to originating countries (US, EU, etc), resultant decline in demand leading to further illiquidity, builders in distress as the interest on their massive debt position becomes unbearable on the low sales volumes as well as huge inventory supply, sharp decline in sales of builders as they see the futility in building further given the inventory. All of these will result in the market finally blinking and giving way. This will happen in a rush as everyone in distress (and other opportunists) tries to get out of the market all at once. Till around one week before that everyone will be singing "Happy, Happy everyone". Did you not see the Lehman tapes? ;)

    Do your own math about RE prices! Or any other prices for that matter!:D

    cheers of the year! There is a built-in decline here. Increased base, Agriculture hit and rising inflation!

    Please note that the GDP growth is largely Govt led growth. Still the private sector performance in 2009 may be slight higher than 2008 but is still much lower than 2007. So we are still in recession on the basis of absolute numbers!!!

    The Govt is going to pull money supply significantly. They will also borrow massively and raise deficit to much higher levels. Price inflation of Food and other commodities will shoot up sharply. And to put the last nail in the coffin, a decline in foreign markets will once again start joblessness reversing and rising again! Once again (for the umpteenth time in 2 years) we will re-discover that Global Coupling is a permanent connection and we cannot enjoy the benefits of coupling when times are good and conveniently de-couple when things go bad!:(

    If, on the basis of all this, all we can do is act like a certain large flightless bird when it is faced with danger, then what do you expect?

    Rising Deficits, shooting inflation and interest rates, flat to negative job growth, possible significant decline in exports, a flight of massive amounts of capital back to originating countries (US, EU, etc), resultant decline in demand leading to further illiquidity, builders in distress as the interest on their massive debt position becomes unbearable on the low sales volumes as well as huge inventory supply, sharp decline in sales of builders as they see the futility in building further given the inventory. All of these will result in the market finally blinking and giving way. This will happen in a rush as everyone in distress (and other opportunists) tries to get out of the market all at once. Till around one week before that everyone will be singing "Happy, Happy everyone". Did you not see the Lehman tapes? ;)

    Do your own math about RE prices! Or any other prices for that matter!:D

    cheers of the year! There is a built-in decline here. Increased base, Agriculture hit and rising inflation!

    Please note that the GDP growth is largely Govt led growth. Still the private sector performance in 2009 may be slight higher than 2008 but is still much lower than 2007. So we are still in recession on the basis of absolute numbers!!!

    The Govt is going to pull money supply significantly. They will also borrow massively and raise deficit to much higher levels. Price inflation of Food and other commodities will shoot up sharply. And to put the last nail in the coffin, a decline in foreign markets will once again start joblessness reversing and rising again! Once again (for the umpteenth time in 2 years) we will re-discover that Global Coupling is a permanent connection and we cannot enjoy the benefits of coupling when times are good and conveniently de-couple when things go bad!:(

    If, on the basis of all this, all we can do is act like a certain large flightless bird when it is faced with danger, then what do you expect?

    Rising Deficits, shooting inflation and interest rates, flat to negative job growth, possible significant decline in exports, a flight of massive amounts of capital back to originating countries (US, EU, etc), resultant decline in demand leading to further illiquidity, builders in distress as the interest on their massive debt position becomes unbearable on the low sales volumes as well as huge inventory supply, sharp decline in sales of builders as they see the futility in building further given the inventory. All of these will result in the market finally blinking and giving way. This will happen in a rush as everyone in distress (and other opportunists) tries to get out of the market all at once. Till around one week before that everyone will be singing "Happy, Happy everyone". Did you not see the Lehman tapes? ;)

    Do your own math about RE prices! Or any other prices for that matter!:D

    cheers of the year! There is a built-in decline here. Increased base, Agriculture hit and rising inflation!

    Please note that the GDP growth is largely Govt led growth. Still the private sector performance in 2009 may be slight higher than 2008 but is still much lower than 2007. So we are still in recession on the basis of absolute numbers!!!

    The Govt is going to pull money supply significantly. They will also borrow massively and raise deficit to much higher levels. Price inflation of Food and other commodities will shoot up sharply. And to put the last nail in the coffin, a decline in foreign markets will once again start joblessness reversing and rising again! Once again (for the umpteenth time in 2 years) we will re-discover that Global Coupling is a permanent connection and we cannot enjoy the benefits of coupling when times are good and conveniently de-couple when things go bad!:(

    If, on the basis of all this, all we can do is act like a certain large flightless bird when it is faced with danger, then what do you expect?

    Rising Deficits, shooting inflation and interest rates, flat to negative job growth, possible significant decline in exports, a flight of massive amounts of capital back to originating countries (US, EU, etc), resultant decline in demand leading to further illiquidity, builders in distress as the interest on their massive debt position becomes unbearable on the low sales volumes as well as huge inventory supply, sharp decline in sales of builders as they see the futility in building further given the inventory. All of these will result in the market finally blinking and giving way. This will happen in a rush as everyone in distress (and other opportunists) tries to get out of the market all at once. Till around one week before that everyone will be singing "Happy, Happy everyone". Did you not see the Lehman tapes? ;)

    Do your own math about RE prices! Or any other prices for that matter!:D

    cheers
    CommentQuote
  • Well said wiseman,

    Today I discussed with a banker & came to know that in coming months US$ will become more stronger which will be bad for India. Inflation as discussed umpteen times before will push up ROI meaning higher EMIs &/or longer duration. The govt fiscal deficit is high & hence the govt is trying to sell off several PSUs, which may prove good for private sector though.

    The biggest issue:- When will we (globe) be able to have sustainable growth without steroids (Read stimuli).
    CommentQuote
  • Same timetable, real ...

    Originally Posted by realacres
    Well said wiseman,

    Today I discussed with a banker & came to know that in coming months US$ will become more stronger which will be bad for India. Inflation as discussed umpteen times before will push up ROI meaning higher EMIs &/or longer duration. The govt fiscal deficit is high & hence the govt is trying to sell off several PSUs, which may prove good for private sector though.

    The biggest issue:- When will we (globe) be able to have sustainable growth without steroids (Read stimuli).


    Real,

    The Globe is likely to see the worst starting 2010, and probably bottom out in 2012. But then, as Nemo says, much of this is just conjecture (maybe based on how things happened over 70 years ago!

    The Obama administration is doing exactly the same things done by the US administration in the 1930s. Therefore the US is following the 1930s script in textbook fashion.

    Of course, the Japanese have given us another model where the economy essentially lives in recession for decades (1990 - current and still running). One of the guesses is that, Japan's debt is so high (270% of GDP) that Japan is probably already a failed state!!! Imagine, a $6 Trillion economy which is the second largest in the world being written off!!! Mind boggling.

    And to think that, with the US and Japan in terminal mode (combined $20 Trillion) we are being so gung-ho about little India which is but a $1 Trillion economy and having serious debt problems of our own.

    Many of us seem to be in a permanent state of "Shining India" fever and do not seem to be mindful of ground realities. Time will educate us perhaps!

    cheers
    CommentQuote
  • Originally Posted by realacres

    The biggest issue:- When will we (globe) be able to have sustainable growth without steroids (Read stimuli).


    Not that it would happen now, but everytime in the past when such a situation arised when the way the economies work had to be reset, It has ended in a war.Survival of the fittest.

    Looking at the reports of huge military spending being done by countries around the world, raises doubts that maybe they are all preparing to address their economic problems in a way which the public are not aware of.Its really scary to think if not properly addressed now, it could develop into a nuclear holocaust within this decade.

    Ideally, World economies have to stop infusing excess supply of money and genuinely attempt to reverse the effects by actually liquidating their assets to bridge the fiscal deficit and curb inflation.

    Countries like India should be focussing more on catering to domestic consumption and strengthening its currency than looking up to developed countries to revive and to later adopt and feed us by giving new business and investing in our markets like foster parents.My humble wish to see this happen in my lifetime.
    CommentQuote
  • Here is the pointer to one more source of money to bail out the economy.

    http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims

    If we think on the same line, this must have worked at individual levels too and common man must have borrowed from local black money lenders at much lower rate and got it converted into white money to meet his needs.
    CommentQuote
  • Okay, here are a few to chew on.

    Inflation high, interest rates high, rupee stronger. This leads to more foreign inflows, which leads to faster capital appreciation. Which leads to more growth, which leads to boom!

    Inflation medium to high, interest rates artificially low, rupee relatively weaker. Inflows medium, everything tentative. Neither here, nor there. This is our current situation. No boom, but no bust either. :D

    Now assume dollar stronger, rupee weaker, this equals faster capital outflow. Stock market falls, FDI weakens, exports strengthen. Overall growth stunted, inflation lower, interest rates start to go lower, slower capital appreciation. Bust! Sentiment poor, no one buys anything. :p

    Million Dollar Questions:

    1. Market falls, interest rates lower, growth lower. Banks don't lend freely. Money supply tightens. Real estate lower, but banks demand higher margins. Cash is king. ;)

    2. Market up, interest rates higher, growth higher. Banks lend freely, money supply liquid. Real estate higher, banks ready to lend at low margin money. Cash is not king.

    Next is What? :)
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