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UK + Eurozone Crisis

Discussion in 'World Economy' started by santosh, Mar 30, 2014.

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  1. Averageamerican

    Averageamerican Colonel ELITE MEMBER

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    In India many house holds support not only the nuclear family but grand parents as well, 8.6 members usually but if you took a figure of just eight. Also in India seldom does the women members of the house hold work. Accounting for 80 people in India are involved while only about 3 or 4 family member house hold are involved in the USA to the purchasing power of to produce the same amount of productivity. Highly inefficient society.
     
  2. abhitej

    abhitej Captain SENIOR MEMBER

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    Productivity in services can also be improved. You make 10 cups of coffee in an hour. If you make 20 cups of coffee in an hour. Your productivity doubles. People in west are twenty time richer but price levels difference explains 5 times of the income difference. Production wise west makes 4 times more per ca-pita. Productivity of west may not be more than 2 times. Actual production is more because west produce more proportion of high value goods. In fact productivity in private sector in India is on par with west. We export half million cars every year. How will be pricing be done for Rafale. 1. Dassault sells at fixed price. Its Profit = Price - production cost of HAL. OR 2. Dassault gets fixed royalties. Price = Royalties + production cost of HAL.
     
  3. Averageamerican

    Averageamerican Colonel ELITE MEMBER

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    Numerous studies show west or at least USA 8 times as productive as India, 10 times in technology. Take the coffee maker you are speaking of, reasons for the difference in productivity is not as much the labor as the fact there may not be electricity all the time, location of the store, equipment, etc, shortages of coffee, refrigeration problems etc.

    Don't feel bad Russia is almost as bad. According to one of the studies, by Strategy Partners, a Moscow management consultancy, Russia's average labor productivity is just 17% (India 15%) of the U.S. level. The amount varies by sector, from a low of 6% in machine building to a high of 22% in the natural resource industries. But the room for improvement is colossal everywhere. "If, in Russia, a mere 10% of workers had the same level of productivity as in the U.S., Russia's GDP would increase by one and a half times," notes Alexander Idrisov, managing partner of Strategy Partners.

    Russia's productivity looks bad even in comparison with other emerging markets. In 2007, the World Bank estimated that revenues per worker in Russia were only around $7,000 per head per year. That's around 20% lower than in India, and 40% lower than in China. The figure is especially troubling when you consider that Russia's labor costs are about double the level in either India or China. This is who India buys there military equipment from.
     
  4. Averageamerican

    Averageamerican Colonel ELITE MEMBER

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    When highly productive multinationals enter previously protected markets, their business practices come with them.
    Consider what happened in India after 1983, when Suzuki was allowed to build auto plants as part of a joint venture called Murati. ''Suzuki with Indian labor and Indian inputs was able to achieve roughly 50 percent of the productivity of the advanced auto industry in their home country,'' Mr. Lewis said in an interview. ''That's compared to maybe 10 percent for the rest of the Indian industry.''
    In the 1990's, the Indian government opened the auto business to other foreign investment, with similar results.
     
  5. Picdelamirand-oil

    Picdelamirand-oil Lt. Colonel MILITARY STRATEGIST

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    Yes productivity of service can be improved: work is a service and productivity of work improve. If not productivity in west and in India would be the same. But to improve productivity of work you generally have to invest, and there is a lot of services where you don't invest a lot, for exemple to teach or to cut hair, even for the coffee you will not produce more coffee than the number of customers you have wanting one. the reason why in PPP there is less difference is the following: In West we buy 70% of services without good productivity and 30% of industrial goods with productivity. If an Indian want to buy the same he will spend 70% for the services and 30 x 20= 600 for the goods so 670and he has to be 6.7 time richer to be able to do that and not 20 time. In fact it will be divided by 20: 3.5% of west for service and 30% for goods, so 33.5% of West but generally he would prefer to buy more service and less industrial goods. In our countries the service is rare and goods are abondant and in your countries the service is abondant and goods are rare.
     
  6. Picdelamirand-oil

    Picdelamirand-oil Lt. Colonel MILITARY STRATEGIST

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    Yes Dassault would automated the whole process with Catia and it will cost less.
     
  7. Picdelamirand-oil

    Picdelamirand-oil Lt. Colonel MILITARY STRATEGIST

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    Where is the problem? if you have an income of $50 000 and a debt of 19 000 you can get a loan at 4% for 20 year and reimburse 1500 by year for your debt it's better than to have 2000 x 10 = 20 000 (taking into accompte the price in India) because you get $ 48 500

    Even for England 38 000 - 19000 = 19 000 but after 20 years they will return to 38 000 and in fact they will never reimburse because the debt will disappear with inflation.
     
  8. abhitej

    abhitej Captain SENIOR MEMBER

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    Productivity in West will not be more than 2 times that in India. The reason production per capita is less in India is because of under utilization of labour due to huge population. This is due to lack of demand due to lower income levels. As income and demand rise so will production per capita as the underutilized labour will be utilized. Per capita income in west is 20 times that in India. Prices levels is are 5 times that in India. So per capita production in west is only 4 times that in India. So how can be productivity in West be 8 times that in India. The four times higher productivity level can be explained as 2 times higher productivity levels in West and 2 time more labour utilization. The best thing about 7% growth rate in India is that it is natural growth not forced one like that in West & China. Since 2008 India has grown at 7% per year without any increase in debt to GDP ratio. Since 2008 growth in West has averaged 2% with 50% increase in debt to GDP ratio. This is unsustainable and will burst soon. This will lead to massive fall in Dollar. Already we have seen EUR/GBP fall a lot. With higher growth rate & readjustment in exchange rate, per capita income in West will only be 4 times higher than in India by 2030. China has already reduced this per capita gap to 4 times now from 20 times few years back. Even if India & China becomes technologically more advanced than west per capita income will not be more than that in West due to huge population. Both countries will never be able to fully utilize all available labour. But still they will have higher economic clout due to higher total GDP. China is already the second most economically influential country in the world. Soon it will be first.
     
  9. abhitej

    abhitej Captain SENIOR MEMBER

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    Today productivity in India in auto sector is almost same as that in West. That is also true for Indian companies like Tata & Mahindra. In fact management quality of Tata Motors is so good that they turned Jaguar/Land Rover to profitable enterprise when it was making losses in hands of Ford. Today Ford & GM survive on government bailouts.
     
  10. santosh

    santosh Major SENIOR MEMBER

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    @Averageamerican

    Comparing an emerging economy with matured economies

    sir, i was mainly responding you about your comment on difference of per capita income of US and India, in 'exchange rates' term. and then i tried to calculate that, $2,000 exchange rates term per capita income of India would stand at around $15,000, considering the on ground prices of product-services we buy. (i have revised post#149, please check it again.)

    and it then means that, if government debt on Indians stand at around $1,000 per person in exchange rates term, it then means for around $7,500 per head when we use the same factor of '7.5', as i used in post#149, please check it again. while the government debt on Americans stands at around $60,000 per person and its around $35,000 in Britain.

    and it then means to say, the "exchange rate" comparison of per capita income of India and US/UK doesn't show the true picture. if we laugh as per capita income of US and UK is around 25 and 19 times higher than that of India. then we also have enough reasons to laugh as average government debt on the Americans is around 60 times to Indians. while the total debt on Americans and British is around 85 times to that of Indians.....

    and as India is a growing economy, similar to other ASEAN+China, we find things keep getting better here. for example, GDP of India would stand at around $2.1 trillion by end 2014, but it would be around $2.4trillion by this year, by the end of 2015. and thats why i considered per capita income of India at $2,000 as its 'nominal' value would keep increasing due to high inflation too. while in case of UK, for example, with reference of BBC's news we discussing here too, we would consider their per capita income unchanged by even 2020, or with only little difference...

    and here we discuss this issue. even if 'on ground' per capita income of India would be around $15,000 as compare to $38,000 of UK. we see India rising to $25,000 by 2025 in today's prices, while the UK would hardly achieve $40,000 by 2025 in today's prices. 'if' we dont see any more recession like 2008-09 during this period :coffee:
     
  11. abhitej

    abhitej Captain SENIOR MEMBER

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    Output in service is defined by quality of work. A teacher who teaches better is more productive and can command more wages. The PPP difference can be explained by difference in price levels. Price levels in west is 5 times average that in India. Price levels is 10 times for services and 3 times for agricultural goods and 1-2 times for manufactured goods. This is because of excess labour due to high population. For manufacturing you need capital. For agriculture you need land. Both are constrained so excess labour is deployed in services and this leads to very low wages. Difference in price levels will reduce when excess labour is absorbed. Opposite is happening in Europe. Increasing unemployment is leading to decrease in wages and price levels leading to deflation.
     
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  12. abhitej

    abhitej Captain SENIOR MEMBER

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    Problem is that West needs to increase debt to GDP ratio just to maintain current levels of income. West grows at 2% every year with 10% increase in debt to GDP ratio. India grows at 7% without increasing debt to GDP ratio. Consider your example of US with income of 50,000 and debt of 190,000. This year you pay 15000 as installment on loan but to generate growth next year of 1000 you borrow 35000 more with net debt increase of 20000. After 20 years income will be 70000 and debt 590,000. Now to repay this 590,000 your need to pay 45,000 as installment on loan so your income after debt has reduced from 35000 to 25000. In case of India income is 2000 and debt 2500. This year you pay 250 as installment on loan but to generate growth next year of 150 you borrow 500 more with net debt increase of 250. After 20 years income is 5000 and debt 7500. Now to repay this 7500 you need to pay 750 as installment on loan but your income after debt has increased from 1750 to 4250.
     
    Last edited: Apr 3, 2015
  13. ersakthivel

    ersakthivel Lieutenant FULL MEMBER

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    Use Of Composites In India's Aircraft Programs - SARAS & LCA Tejas - AA Me, IN


    Automated software system for the design and development of 3-D laminated composite elements AUTOLAY developed by DRDO for tejas was licensed to Airbus and Infosys.

    Hal Tejas News | Strength Of Indian Air Force on Newsaajtak | Newsaajtak | News Aajtak | Newsaajtak.in

    "Of the five critical technologies the ADA identified at the beginning of the LCA programme as needing to be mastered for India to be able to completely design and build a new fighter; two have been entirely successful: the development and manufacture of carbon-fibre composite (CFC) structures and skins and a modern "glass cockpit." In fact, ADA has had a profitable commercial spin-off in its Autolay integrated automated software system for the design and development of 3-D laminated composite elements (which has been licensed to both Airbus and Infosys).[20] These successes have gone mostly unnoticed in the shadow of the problems encountered with the other three key technology initiatives. Nonetheless, as a result of the accomplishments of India's domestic industries, about 70% of the components in LCA are manufactured in India and the dependence on imported components used would be progressively reduced in the coming years.[21]"
     
    Last edited: Apr 3, 2015
  14. santosh

    santosh Major SENIOR MEMBER

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    The beginning of the unwinding of a European tragedy?
    January 26, 2015

    While the results of the general election in Greece are not known at the time of writing this Blog, it is clear that the tectonic plates of political affiliation and sentiment are shifting dramatically almost everywhere. The unthinkable suddenly becomes thinkable and the thinkable becomes irrelevant. Where market sentiment rules popular sentiment offers a counter weight. Echoes of this are evident even in Ireland where, following 7 years of unrelenting austerity and pressure on living standards, employment and public services, popular sentiment is in the ascendancy.

    Last week, at a conference held by the Irish Central Bank and the IMF I could not help think that the very fine surroundings of Dublin Castle complete with regal splendour and historic significance would be a suitable venue for the 2015 Dublin Debt Resolution Conference at which Europe would begin to face up to the delicate balance of democracy, markets and debt. Fiscal policy in European member states has been driven by a narrow focus on the size of Government debt (some of which is socialised private debt and recession driven surpluses in the corporate and household sectors as they stop spending and investing).

    There are historical precedents for such an event. In 1953 the London Agreement on German External Debts brought together a number of countries including West Germany – as it was – the UK, France, the USA and others including the Republic of Ireland. Yes, Greece was party to these negotiations in which Greece offered debt forgiveness to Germany notwithstanding some unhappy memories only a few years prior to 1953. A total of €32 billion deutsche marks debt pile was the subject of negotiations. Half of this resulted from the infamous Treaty of Versailles and which Nazi Germany defaulted on in the 1930’s while the other half was made up of loans from the US Government in the aftermath of World War

    The parties eventually settled on a debt write down of 50% with a sum of 15 billion deutsche marks in loans stretched out over 30 years. Let’s say that, in the 1953 talks, minds were concentrated by (i) a Europe devastated by war and in which the US economy had an interest in seeing recovering, (ii) the emerging political realities to the east of the new ‘iron curtain’ and (iii) the rise or renewal of mass communist party movements in France and Italy. Britain had seen the election of a Labour Government which, among others things, introduced a National Health Service in 1948 and undertook widespread nationalisations and other social reforms in 1945-1950.

    The debt deal in conjunction with other factors such as Marshall Aid provided a crucial breathing space for Germany to recover and rebuild. It is also significant that a number of agreements between 1946 and 1956 allowed for postponement of principal and interest payments by Britain subject to certain conditions (known as the ‘Bisque provision’). The context was set by a very large public debt level of over 250% of GDP in the immediate aftermath of World War 2.

    Thankfully, Europe has not been passing through a major war in recent times (apart from the wars associated with the breakup of Yugoslavia in the early 1990s and the recent conflict in the Ukraine). But, the fall-out from the 2008-2012 financial and fiscal crisis has been profound. The clumsy, ham fisted, incompetent and doctrinaire response, at the European level and often at the national level too, to the crisis which has characterised much of the recent period has exacted a huge burden on the ‘debtor’ nations. Lazy stereotypes and fundamental misdiagnosis of the causes of the current economic malaise and growing political crisis in Europe have not been helpful. A full-scale humanitarian crisis in Greece has provoked an upheaval in political loyalties. Something similar may be in store for Spain and, here in Ireland, shifts are taking place in the political landscape that would have been unthinkable only a few years ago. Last week’s data released by the Irish Central Statistics Office are truly shocking (rising poverty, children in poverty, poverty among those in work).

    ‘Buying time’ is the title of a rather gloomy book on the state of Europe written by German political scientist, Wolfgang Streeck, in 2013. In his book, The Shifts and the Shocks, Martin Wolf does not mince his words (page 291):

    Europe is under the sway of the ideas of Heinrick Bruning, German chancellor between 1930 and 1932, whose disastrous policy of austerity prepared the way for Adolf Hitler’ (page 291)

    Is there a way forward? Can a candle be lit somewhere? Time will tell. But, time is not unlimited because the growing disconnect between citizens, national governments and technocratic elites in Frankfurt and Brussels presages trouble ahead. Hideous political forces are at work even in traditionally stable and moderate political cultures of Northern Europe.

    Time is running out
    Public debt is not the first problem facing Europe. Lack of legitimation is the pressing problem and this, in turn, is linked to catastrophic levels of unemployment (especially among young people), precarious work, rising poverty including poverty in work. :coffee:

    However, public debt and its financing is a big problem just as it was in the 1940s and early 1950s and, because of the drive to implement fiscal rules that make no sense and miss the causes of the crisis, such debt is triggering damaging fiscal policies in many member states.

    Clever and courageous responses are called for

    Chart 1, below shows the total level of general government debt as a % of GDP in 2013 (see NERIQuarterly Economic Facts, indicator 6.4). Greece, Portugal, Italy and Ireland (Republic) have the highest debt levels as % of GDP in 2013 (2014 would suggest no major change in the broad picture).

    General government debt as a % of GDP, 2013

    @Picdelamirand-oil

    [​IMG]

    A recent proposal was raised by economists, Dimitris P. Sotiropoulos, Yiannis Milios and Spyros Lapatsiora, suggesting that a significant part of that national government debt was bought up the European Central Bank and ‘parked’ until debt fell to below 20% of GDP. Their paper ( An Outline of a Progressive Resolution to the Euro-area Sovereign Debt Overhang: How a Five-year Suspension of the Debt Burden Could Overthrow Austerity which is available in full here [​IMG] ) sketches out a plan for the ECB to acquire a significant part of the outstanding sovereign debt crisis in the euro area converting it to ‘zero-coupon bonds’ (in other words not charging interest). No transfers between countries would take place Now, here is the rub - debt would not be forgiven: rather it would be parked on the basis that individual States will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. Countries would be given some breathing space to ramp up investment, restore living standards and help reboot economies. Of course, there would be an element of forgiveness to the extent that repayment are postponed (with a dramatic impact on the ‘present economic value’ of future payments conditional on debt being reduced to 20%).

    Supposing the ECB bought up €4.5 tillion in sovereign debt in the Eurozone area (roughly equivalent to 50% of total sovereign debt) we could envisage a cap on the ‘active’ debt of member states.

    General Government Debt as a % of GDP with debt in excess of 50% of GDP bought up by ECB

    [​IMG]


    The beginning of the unwinding of a European tragedy? » NERI Blog » Nevin Economic Research Institute




     
  15. santosh

    santosh Major SENIOR MEMBER

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    Whatever the outcome of the Greek elections and subsequent coalition forming if such is required it seems unlikely that Greece will exit the Euro any time soon or that the creditor nations will allow Greece to implode. Writing in the Irish Examiner last week (“ Greece is counting the cost of a possible EU exit: Heading for a stalemate or a bright new dawn? [​IMG] ”) Ann Cahill quotes Marco Giuli, a researcher at the Madariaga foundation in Brussels:

    Talk of a Grexit by Germany and others is a bluff .… such a move would have serious implications both economically and politically for the entire EU, he argues. It would see Greece defaulting on its debts which would cost German and other taxpayers dearly since 62% is owned by eurozone states and the ESM bailout fund, 8% by the ECB and 10% by the IMF. It would also call into question the legality of the bailout fund as the system was deemed legal by Germany only on condition it would not burden taxpayers. And failure to pay the debt would be a violation also of the ‘no bailout’ clause. Restructuring and providing Greece with longer maturities would be the better option, he says.

    The reality is that there are no easy options for Europe or its member states. A solution will have to be found that allows enough space for recovery. More flogging to improve morale through the euphemistic phrases of ‘structural reform’ and ‘wage flexibility’ will not work in today’s Europe where inequality, precariousness, instability and rising poverty is shattering the threads of European solidarity and support for Governments. Governments, elites and markets cannot continue to rule indefinitely without the consent of the governed. At some points citizens must take back the power they own as democracy. May be this is where the demos will break out again and the krinein or ancient Greek word for crisis will involve a separation – literally – of those debts that can be borne from those that cannot.

    Over to you Dublin? A conference in the castle would be good for image, business and, ultimately, the fourth highest debt pile in Europe thanks to the bail-out of US, UK, German and French banks by the Irish taxpayer.

    The beginning of the unwinding of a European tragedy? » NERI Blog » Nevin Economic Research Institute
     
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