I can't refrain myself from posting these.... im awestruck on hearing this.....
| | a small pack of locally produced coffee beans cost just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars
By Angus Shaw
Harare - Weary Zimbabweans are facing a new wave of price increases that will put many basic goods even further out of their reach: A loaf of bread now costs what 12 new cars did a decade ago. Independent finance houses said in an assessment Tuesday that annual inflation rose this month to 1,063,572 percent based on prices of a basket of basic foodstuffs. Economic analysts say unless the rate of inflation is slowed, annual inflation will likely reach about 5 million percent by October. As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars. And fresh price rises were expected after the state Grain Marketing Board announced up to 25-fold increases in its prices to commercial millers for wheat and the corn meal staple.
The economy was on shop clerk Jessica Rukuni's mind as she left the public swimming pool in downtown Harare's central park with three disappointed children. She found the new admission price of 100 million Zimbabwe dollars - 30 US cents - out of reach. "The point is that it's far too much for most people who don't get US dollars," she said. Her income is the equivalent of about one US dollar a day, and her family has one basic meal daily. The collapsing economy was a major concern of voters who dealt longtime President Robert Mugabe a defeat in March 29 elections. His challenger, Morgan Tsvangirai, topped the poll but did not win the simple majority needed to avoid a runoff. The two face each other in a second round June 27. Mugabe was to officially launch his runoff campaign with a rally at his party's headquarters in Harare on Sunday, the state-run Herald newspaper reported Wednesday.
The opposition's campaigning has been hampered by violence blamed on Mugabe's government and party. The opposition claims Tsvangirai is the target of a government assassination plot and he has been out of Zimbabwe since shortly after the March 29 first round. He plans to return to Zimbabwe to campaign for the runoff once security measures are in place, his aides have said. Mugabe, speaking as he reviewed graduating police cadets Wednesday, said the opposition was fanning violence. Independent observers have said that while there have been some retaliatory attacks by the opposition, the vast majority of the attacks have been carried out by Mugabe supporters. Mugabe accuses the United States, the European Union and especially former colonial ruler Britain of using their economic influence to back his opponents and bring about his ouster. He has severed ties with the International Monetary Fund, the World Bank and other financial organizations.
Zimbabwe's official annual inflation was given by the government as 165,000 percent in February, already by far the highest in the world. The government has not updated that - the state statistical service has said there were not enough goods in the shortages-stricken shops to calculate new figures. The economic decline has been blamed on the collapse of the key agriculture sector following the often violent seizures of farmland from whites. Mugabe claimed the seizures begun in 2002 were to benefit poor blacks, but many of the farms went to his loyalists. "The crunch is going to come when local money is eroded to the point it is no longer acceptable" in commercial activities or as earnings, especially by longtime ruler Mugabe's loyalists, said independent Harare economist John Robertson. Already, more transactions are being done in US dollars, both openly and in secret. Manufacturing industries, running at below 30 percent of their capacity, reported growing absenteeism by workers facing soaring commuter bus fares.
Well i still can't imagine how a life would be under these circumstances... When we at India fight to curb even at 10% and most western countries fighting it out at less than 5%, one million is total anarchy..... Seems Mugabe is unwilling to quit whatsoever happens there.. How do the citizens survive ?? When america voicing for global peace and prosperity why can't they help with their hand out.... Probably they dont have any oil resouces do they ??? This is the latest article i managed to get somewhere....  Harare - Weary Zimbabweans are facing a new wave of massive price increases that put many basic goods out of their reach. Independent finance houses said in an assessment Tuesday that annual inflation rose this month to 1 063 572% based on prices of a basket of basic foodstuffs. As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1bn Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars. A loaf of bread cost 200m Zimbabwe dollars - enough for 12 new cars a decade ago. Fresh price rises were expected after the state Grain Marketing Board announced up to 25-fold increases in its prices to commercial millers for wheat and the corn meal staple. The economy was on shop clerk Jessica Rukuni's mind as she left the public swimming pool in downtown Harare's central park with three disappointed children. She found the new admission price of 100m Zimbabwe dollars - 30 US cents - out of reach. The divorcee's income is the equivalent of about one US dollar a day. Her family has one basic meal a day. One kilogram of chicken more than doubled to 1nb local dollars Tuesday and rental for a two-bedroom apartment rose from this month's end to 22bn Zimbabwe dollars - eight times the May price. Inflation will reach 5m% The state Rent Board, where unfair or inflated rental hikes are reported, has had no working telephones for several months, a telephone operator at the Ministry of Housing said. In the economic meltdown, manufacturing industries, running at below 30% of their capacity, reported growing absenteeism by workers facing soaring commuter bus fares. Economic analysts say unless the rate of inflation is slowed, annual inflation will likely reach about 5m percent by October. Zimbabwe's official annual inflation was given by the government as 165 000% in February, already by far the highest in the world. "The crunch is going to come when local money is eroded to the point it is no longer acceptable" in commercial activities or as earnings, especially by longtime ruler pres. Robert Mugabe's loyalists, said independent Harare economist John Robertson. Already, more transactions are being done in US dollars, both openly and in secret. Robertson said sectors of the economy - phone services, the supply chain, maintenance of equipment or manufacturing - may collapse one at a time, but a country continues to exist even in chaos or anarchy. "In the end, a country must fall into line with international financial standards to balance its books" as experience in once-inflationary Latin American countries has shown, he said. He said that meant re-engaging with international financial institutions, lenders, donors and investors traditionally dominated globally by Western countries, the main source of hard currency. Mugabe has severed ties with the International Monetary Fund, the World Bank and other financial organisations. But Mugabe's "Look East" policy to attract trade and investment from China and Asia has yielded a fraction of what is needed to halt inflation. In the fastest shrinking economy outside a conventional war zone, much of the nation's crucial savings have been used up in government borrowing and spending without corresponding productive income. "It is as though a starving man has eaten his left foot and starts eating his right foot to survive in the short term," Robertson said. - Sapa-AP
ZIMBABWE’s inflation rate has hit one million percent, a number that beggars belief and signals the end of that country’s formal economy. It is simply no longer possible to place a price on anything because it is rising by the minute and all purchases now become acts of negotiation or bartering. The unimaginable number — 1 063 572 percent, to be exact (21 May 2008) — is not a thumbsuck. It is the considered opinion of independent finance houses, reports wire service Sapa. “As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1bn Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars.” Other statistics throw the economic crisis into sharp relief: A loaf of bread cost 200 million Zimbabwe dollars at the time the story was written. It will be much more by the time you read this. A number in the region of 5 million percent is being predicted for October. Government’s official figure for February was already 165 000 percent, the highest in the world, the report said. The fact that refugees from xenophobic violence in South Africa are preparing to return to a country where the economy is in such a parlous state is testimony to the hell they have experienced in this country. But Zimbabwe’s economic ruin, its gerrymandering of electoral processes, its purchase of vast amounts of Chinese armaments and its human rights abuses remain acceptable to South Africa’s political elite. Why else would President Thabo Mbeki regularly visit Mugabe in Harare? Why else would South Africa say that the arms transaction which had the world aghast took place “between two sovereign nations”? The reality is that this country is paying a heavy price for Zimbabwe’s failure. A price that is growing with every day of dithering.
In such difficult times, why is the US economy still rolling with the punches? Why has the US economy not collapsed in a mire of failed firms, finger-pointing by government agencies, morchas in the streets, and JPC inquiries? Understanding how this shock is being absorbed, and the equilibriating forces in play, is important in making a call on whether this is a crisis or a mere recession.
In the idealised world of securitisation, a parcel of home loans is converted into securities, which are then sold into the broad market. The ownership of these securities is dispersed amidst international hedge funds, pension funds, etc. The originator of the home loan is largely immune to the outcome : if a default takes place, the losses are borne by the owners of the securities.
Many critics of securitisation have pointed out that this theory has not quite panned out as expected. However, at the same time, there is no doubting the fact that securitisation has given a substantial dispersion of the $400 billion loss. For this reason, the impact of the massive loss on the US financial system is not as large as it might otherwise have been.
A JPC appears to be a Joint Parliamentary Committee, a morcha is a "public demonstration for conveying a protest or making a demand." I'd say we've already had the equivalent of a few JPC inquiries in the U.S., with many more yet to come. As for morchas, those are probably coming, too--although they'll remain pretty calm affairs unless the economy gets really bad.
The point about securitization is really interesting. As lots of smart folks have been saying lately, we've got an insolvency problem. But it may be dispersed so widely that relatively few financial institutions are in fact insolvent.
Then there's this gem from Shah:
Unlike many countries which have experienced crises, monetary policy in the US is manned by brilliant intellectuals like Ben Bernanke and Fred Mishkin. Few people in the world understand the interplay between monetary policy and financial sector difficulties as well as them.
Fed governor Mishkin goes by Rick, not Fred (his full name is Frederic). But whatever--he is really smart, and Bernanke (whom I don't know nearly as well) seems to be too. I'm generally hesitant to place all too much trust in smarts. But I guess it's better than putting trust in dumbs.
NEW DELHI: There is no let-up in the attack mounted by the Opposition on the Manmohan Singh government for its failure to control prices. With inflation touching 7%, Mr L K Advani, the BJP’s prime ministerial candidate, on Sunday contended that the development was “an official admission of the UPA regime’s utter failure to control prices of essential commodities.’’ Mr Advani sought to use the issue to puncture the Congress’ claims of being champion of the aam aadmi. “As far as the common man is concerned, price-rise means daily loot from his meagre family budget,’’ he said while addressing party workers on the occasion of the BJP’s foundation day. The BJP leader juxtaposed the Manmohan Singh government’s track-record on the economic front with that of the NDA regime, and claimed that the people were now realising that that they were better-off during the six years of the Vajpayee government. ``The common people are today fondly recalling the BJP-led regime’s success in keeping prices under check,’’ he said, adding, ``Indeed, the people are also seeing the contrast between the two governments in every aspect of governance.’’ The BJP veteran made it clear that the sky-rocketing prices would form a crucial weapon in the party’s arsenal during the next round of assembly polls, including Karnataka. `` Today, I wish to forewarn the Congress: There are several reasons why people are angry with you. But as far as prices are concerned, they will make you pay a heavy price whenever elections are held,’’ Mr Advani maintained. He argued that the Congress’ track-record in governance had traditionally been marked by betrayal of the common man, and warned the people not to be taken in by the party’s claims. ``The UPA government’s failure to contain prices reminds them that, historically, whenever the Congress has come to power at the Centre, price-rise, corruption and mal-governance have also come along,’’ Mr Advani said. The BJP leader argued that it was not just prices of essential commodities which were rising. “It’s not just roti (food) and kapda (clothing) that is now beyond the reach of the common man; even makan (housing) has become unaffordable, since the prices of steel and cement have shot up enormously since UPA came to power,’’ he said. The Vajpayee government, Mr Advani pointed out, had also ensured that bank interest-rates were kept low, as a result of which tens of lakhs of people, especially the urban middle classes, saw their dreams of owning a house realised. “Today, that dream has disappeared for them,’’ he contended.
 NEW DELHI (Reuters) - Fiscal steps taken by the government will help moderate inflation, but there is a need to recognise that high inflation is a global phenomenon, a top policymaker said on Wednesday. "We will be able to contol it. The steps taken are bold. They are not bits and pieces. Inflation will be handled," the deputy chairman of the planning commission, Montek Singh Ahluwalia, told reporters.
Much has been written on the subprime crisis and the impact it will have on the world, in general, and on India in particular. However, the worst might be yet to come.
So what is the subprime home loan market? It is aggregation of those individuals in the United States to whom, normal banks do not lend, for the simple reason that their credit histories are not good. Hence, there is a greater chance of the individual taking the loan defaulting. And no bank likes to take on customers who are likely to default.
Here is where institutions which have a good credit rating and are willing to take some amount of risk, come in. They borrow money from banks and lend it to the Americans who have a bad credit rating. They divide this loan, into a lot of small tranches and give it out as home loans to Americans who do not have a good credit rating and to whom the bank will not give a home loan directly.
They give out the loan at a rate of interest, which is obviously higher than the rate at which they had borrowed from the bank. This higher rate is referred to as the subprime rate and this home loan market is referred to as the subprime home loan market.
The loans given out in the subprime market are largely adjustable rate mortgages(ARMs). These mortgages are somewhat similar to the floating rate home loans given in India, where as the interest rates vary, the equated monthly installment (EMI) of the floating rate home loan also varies. But there is more to the ARMs than that.
The two most popular adjustable rate mortgages are the interest-only ARMs and payment-option ARMs.
Interest-only ARMs, as the name suggests, involves paying only the interest on the loan for the first few years. This can typically vary anywhere from 3 years to 10 years. After that the principal repayment kicks in. What this does is that during the initial few years of repaying the loan, it keeps the EMI low. Once the principal repayment kicks in, the EMI starts increasing substantially.
Under the payment-option ARM, the interest rate for the first year is very low. After that, the interest rate is the same as other mortgage loans. But the low interest rate comes with a cost attached. The unpaid interest, essentially the difference between the offered interest rate and the real interest rate that is being charged on other mortgages, gets added to the overall loan and the overall loan keeps increasing.
There are certain dates on which these loans are reset. When these loans are reset, the EMI on these loans changes. The largest resets are expected to happen in the first six months of next year.
In 2007, around $197 billion of subprime loans have been reset. Estimates suggest that in the first six months of 2008, around $521 billion of resets are expected. Of this resets nearly 30% will be on interest-only ARMs and payment-option ARMs.
What this means is that the EMI of the subprime borrowers, who have either an interest-option ARM or a payment-option ARM, is expected to go up, as and when these resets happen. Once this happens, whether the subprime borrowers will continue to pay their EMIs is not very certain.
As we have seen in the earlier articles, the institution giving out the home loans in the subprime market does not keep the loans on its books. It does not wait for the principal and the interest on the subprime home loans to be repaid. It goes ahead and securitises these loans. Securitisation essentially involves, converting these home loans into financial securities, which promise to pay a certain rate of interest. These financial securities are then sold to big institutional investors.
The interest and the principal that is repaid by the subprime borrowers through EMI is passed onto these institutional investors who buy these financial securities.
Now once the EMIs go up, there is a great chance that subprime borrowers may not be able to pay them. If these EMIs are not paid, then investors who had bought the securitised paper will not get paid and hence suffer losses.
To cover their losses they may have to sell their investments in emerging markets like India, where there investments have been generating return.
And when they sell their investments in emerging markets, the markets are likely to fall, if there is less buying at that point of time.
There has been talk about 'banning' Participatory Notes after the unexplicable rise in the Indian stock markets in the last few days. What exactly are 'Participatory Notes' or PNs?
The article below in The Hindu Business Line attempts to throw some light on PNs
What are ‘Participatory notes’? D. Sampathkumar Mumbai, Oct. 17
‘Participatory notes’ are instruments that derive their value from an underlying financial instrument such as an equity share and, hence, the word, ‘derivative instruments’.
When the Indian capital market regulator permitted, back in 1992, foreign institutional investors (FIIs) to register and trade in Indian securities, every one assumed that they would make proprietary investments out of their own capital.3rd-party investments. There was no question of their trading on anyone else’s behalf. But as it turned out, FIIs were merely acting as a conduit for third-party investments.
But some of these third-party investors had their own preferences in the matter of what Indian stocks that they would like to own with its own risk and reward characteristics. In order to ring fence, each such pool of investments they created accounts or ‘sub-accounts’ in FII parlance.Sub-account holders. But even sub-account holders, it turned out, were not investing their own money but were in fact raising money from a multitude of high net worth individuals.
They were issued pieces of paper that derived its value from underlying equity instruments of Indian corporates. The participatory notes were now well truly launched. International investments got a little more complicated with sub-account investment institutions raising loan funds as securitised paper, with a pool of underlying equity shares of Indian companies.
All this leveraged money got further leveraged with the investments going into not just equity shares but derivative instruments (futures and options) of shares of Indian corporates.
Thus one could have a sub account holder of a registered FII investing a combination of subscriptions by a group of investors topped up with funds borrowed by floating yet another piece of tradable instrument using a pool of participatory notes as collateral.
But the tale of leveraged investments became a little more complex with a $100 of such funds getting invested, for example, not in Reliance shares but into futures contract on Reliance shares.
Futures contract
Now, in a futures contract, one did not have to invest the full value of the contract. It is enough if put up a small margin and topped it up each depending on how the share price moved.
The potential of $100 got further magnified.
It is easy to see the super structure of heavily leveraged investments flowing into the Indian stock market. That is without even thinking of whatever private financial arrangements that each one of investors in the original pool of investments that gave rise to the participatory notes.Global liquidity.
All of this became possible when there was a global liquidity thanks to the economic policies of the West and more particularly the US. A financial distress for one lender who participated in leveraged transaction of investments of a sub-account holder of an FII who had invested in the Indian stock market can cause him to call back his loan.
This could lead to the sub-account holder closing out his futures position in the underlying share which caused the latter’s future price to fall.
Share prices
Since future prices are in turn linked to the spot prices of the same share, there is a price correction in the spot price as well. The fall in share price erodes not just the overseas investor’s wealth but that of domestic investors as well.
The depreciation of the rupee’s value against other currencies or wiping out huge chunk of the RBI’s currency reserves when the liquidated investments goes out of the country, are the other unintended consequences of the FII play on the Indian stock market.
Indian economy grows surprise 9.3 percent in Q1
NEW DELHI — India's economy accelerated by a surprise 9.3 percent in the first quarter as industry and services grew strongly but a slowdown loomed, analysts warned Friday.
The quicker pace of growth in the April to June period in South Asia's largest economy exceeded analysts' expectations of around 8.9 percent and outpaced the 9.1 percent expansion in the previous quarter, data showed.
"The GDP figures have come in strong," said Manika Premsingh at Edelweiss Capital, but she warned of slower expansion in coming quarters as a result of a steady tightening of monetary policy to curb inflation.
India's economy grew by 9.4 percent in the financial year to March 2007, buoyed by an increasingly affluent middle class, and is the second-fastest growing after China.
Finance minister P. Chidambaram said he was "confident GDP growth will remain close to nine per cent this year" even though first-quarter growth was "a shade below" the 9.6 percent expansion logged in the year-ago period.
Other data Friday showed inflation slipped just below four percent for the first time in over 15 months for the week ended August 18, down from 4.10 percent the previous week and well under central bank targets.
But economists said the fall in the wholesale price index, India's closest watched inflation measure, was mainly due to a high year-ago base effect when inflation was 5.12 percent.
"For now, it does not seem likely the central bank will loosen rates in a hurry... (as) the economy continues to grow at an above trend pace," said Premsingh.
The latest growth figures reflected a robust performance by manufacturing, which grew by 11.9 percent year-on-year. Services accelerated by 10.6 percent.
Agriculture, which the government is hoping to stimulate to boost overall growth, expanded by 3.8 percent.
"Construction has surprised on the upside and agriculture has turned out a bit stronger than expected," said Soumitra Choudhury, economic advisor at credit rating agency ICRA.
The growth data helped to lift India's benchmark Sensex index by 1.30 percent or 196.86 points to 15,318.60, for its sixth straight day of gains.
"The GDP numbers were strong in absolute terms, it was a good indicator for the market," said Naresh Garg, chief investment officer at Sahara Mutual fund.
The better growth data prompted some economists to boost full-year forecasts.
But the economy would still expand more slowly this year than last, when growth was the fastest in nearly two decades, according to their predictions.
Monetary tightening may already be cooling the economy. Sales of cars, motorbikes and trucks have dropped as interest rates have surged to five-year highs. Consumer durables spending has also fallen.
JP Morgan said it would likely hike its full-year growth forecast to around 8.6 percent from 8.0 percent earlier. India's central bank has forecast 8.5 percent growth.
"Growth in the remainder of the year will moderate slightly owing to the combined impact of monetary tightening and recent rupee appreciation," said JP Morgan economist Rajeev Malik, who forecast a "pronounced" slowdown in consumer spending.
The rupee is trading at around eight-year highs against the dollar after hitting close to decade peaks earlier this year.
Many analysts said India was relatively protected from the US subprime crisis, noting the direct exposure of domestic banks to the credit woes is limited.
But some analysts warned the subprime turmoil could cause a "significant" slowdown if it persists for more than a few months, for instance if it staunches foreign investment flows into India.
India's Prime Minister Manmohan Singh has said the economy needs to grow by at least 10 percent annually to address widespread, crushing poverty.
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