ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Did This Straw Break the Finance Sector’s Back?

The world’s financial markets are hurtling towards a new phase of crises ranging from currency, to balance of payments, to sovereign debt, to banking crises. The monetary tightening policies of the United States Federal Reserve and the European Central Bank will only precipitate crises in emerging markets as well as peripheral eurozone economies, which will have global repercussions.

Mortgage Loans, Risky Lending, and Crisis

The link between the loan market and the housing market that works through mortgage loans is critically examined. Repayment of such mortgage loans depends on the future earning potential of the borrowers, which in turn depends on the overall state of the macroeconomy. Under buoyant macroeconomic conditions, all borrowers pay back their loans and both the loan market and the housing market function well. However, a temporary income shock in the economy, which undermines the repayment ability of the borrowers, may result in imprudent lending by banks thereby leading to a crisis. This calls for strict monitoring of mortgage loans by regulatory authorities.

Negative Interest Rates

A near-unprecedented turn to negative interest rates to trigger a recovery has characterised the monetary policy in several developed countries and in Europe. This is the result of a shift away from fiscal policy to an almost exclusive reliance on monetary policy, involving quantitative easing and low interest rates, in macroeconomic interventions across the globe. The failure of this macroeconomic stance has led to the phenomenon of negative rates in countries other than the United States, and the first sign of even a partial recovery in that country has been enough to set off a reversal.

Argentina: 18 Months of Popular Struggle

To understand the complex and changing reality of Argentina today - a five-year economic depression, financial collapse, popular uprising and mass movements of 2001-2002 as well as the recent return of traditional political parties to political power - it is important to identify the principal political-economic events which shape the present and future perspectives for the popular social and political movements.

Electoral Identity Politics in Uttar Pradesh

Three developments, namely, the decline of parties, poor governance and a growing financial crisis with negative economic growth are collectively responsible for the political instability Uttar Pradesh has experienced. Due to ethnic mobilisation, parties confined to their narrow sectarian bases have been unable to aggregate public opinion, obtain majority support and form stable governments. This has led to short-lived coalitions, which have not been able to formulate long-term policies that can address the felt needs of the people contributing in turn to the breakdown of governance and instability. Fiscal indiscipline by governments has also pushed the state into a debt trap and serious economic decline, which is responsible for the disillusionment among the electorate witnessed in the recent elections. These negative features have developed since the late 1980s. The paper concludes that reform of parties is an urgent necessity without which the prospects of a functioning party system, effective governance and political stability remain dim.

Coping with Capital Account Crises

Selected east Asian countries have recently agreed to create a network of bilateral currency swaps and repurchase agreements as a 'firewall' against future financial crises. Termed the Chiang Mai Initiative (CMI), it is aimed at providing countries facing the possibility of a liquidity shortage with additional short-term hard currencies and encompasses all ASEAN countries as well as China, Japan and Korea. We will have to wait and see if and how monetary cooperation in east Asia progresses, but to the extent such regional arrangements help to reinvigorate interest in strengthening the international financial architecture, they could act as stepping stones towards multilateral reforms rather than as stumbling blocks.

Dotty about the Markets

After floundering with measures, all more or less well known and much talked about, to step up the growth of the real economy, the government is now exercised with the task of pumping up the stock market. This is misplaced activism. Apart from ensuring transparent operations and preventing malpractice and any artificial liquidity squeeze, the government has little legitimate role to play in the stock market.
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