Santayana's famous quote " Those who do not remember the past are condemned to repeat the same ".Yes in 2005 when Raghuram Rajan warned US that financial crisis is round the corner because of credit boom that started in US since 2000s nobody believed him.But what happened next in 2008 needs no explanation.Another warning came from the same person.He is now worried about the easy money that the central banks are printing.In his speech in 2013 when he was a professor of Chicago Booth and about to become Governor of RBI he warned that free money will be the cause of the next financial crisis.
Even Ruchir Sharma in his book " Breakout Nations " stated that free money printed by central banks has no specific path meaning thereby that central bank cannot decide where the money will go.
This justification has a base because it is evident that US has still not been able to achieve its inflation target of 2% even after undergoing QE. Not only in US even EU, Japan not able to achieve its target of inflation.Japan is in deflation since two decades.
Raghuram Rajan questions this QE or Abenomics (in Japan) stating that this won't change the psyche of people and turn them into spenders and eventually bring back the economy on track.Rather GFC 2008 made people more conservative.People who were about to retire in 2008 or 2009 actually lost their capital which they would have spent in post retirement.Another set of people he talks about is that people who did not invest before 2008 when they possessed capital why would they invest after losing their capital.
Rather he states that capital from developed country which finds its way into the developing countries is actually threat for the developing nations because when the interest rates in these developed nations rises it results into flight of capital from emerging to developed nations again.Therefore there is a terrible effect of it on the financial markets , currency of developing nations.But atleast he is rest assured that India is well prepared for the same because India has foreign reserves of around 320 billion dollars.
I hope the financial fraternity around the world hears this cassandra from Raghuram Rajan and now this time there is no need for Nouriel Rubini , Christine Lagarde to make the world believe that yes the financial crisis is round the corner which happened before GFC 2008.
Even Ruchir Sharma in his book " Breakout Nations " stated that free money printed by central banks has no specific path meaning thereby that central bank cannot decide where the money will go.
This justification has a base because it is evident that US has still not been able to achieve its inflation target of 2% even after undergoing QE. Not only in US even EU, Japan not able to achieve its target of inflation.Japan is in deflation since two decades.
Raghuram Rajan questions this QE or Abenomics (in Japan) stating that this won't change the psyche of people and turn them into spenders and eventually bring back the economy on track.Rather GFC 2008 made people more conservative.People who were about to retire in 2008 or 2009 actually lost their capital which they would have spent in post retirement.Another set of people he talks about is that people who did not invest before 2008 when they possessed capital why would they invest after losing their capital.
Rather he states that capital from developed country which finds its way into the developing countries is actually threat for the developing nations because when the interest rates in these developed nations rises it results into flight of capital from emerging to developed nations again.Therefore there is a terrible effect of it on the financial markets , currency of developing nations.But atleast he is rest assured that India is well prepared for the same because India has foreign reserves of around 320 billion dollars.
I hope the financial fraternity around the world hears this cassandra from Raghuram Rajan and now this time there is no need for Nouriel Rubini , Christine Lagarde to make the world believe that yes the financial crisis is round the corner which happened before GFC 2008.
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