Economic: India, Pakistan playing their Great Game

[sigatoka]

i tell you something. if apples in pakistan is sold at 20 rupees/kg (with 1US$=60 Rs) and becoz of inflation,

I think you are confusing cause and effect. Inflation is caused by the exchange rate policy (becoz one can not deplete or increase foreing reserves without affecting domestic rates and hence stimulus to economy).

 

[ST1976]

I think you are confusing cause and effect.

Inflation is caused by the exchange rate policy

(becoz one can not deplete or increase foreing reserves without affecting domestic rates and hence stimulus to economy).

hope next time i will talk to you when you will finish your studies of economics. thanks

 

[sigatoka]

if a country (for example Pakistan) suffer 8%-9% inflation for 5-6 years and keep her currency equal to US$ while US is not having that level of inflation rate the Pakistani currency will get over valued w.r.t US$ during that 5-6 years.

This means that if the terms of trade havent changed, Pak. will still need to export the same quantity to get the same amount of imports. Therefore the Pak. Rupee will automatically depreciate because there is no free lunch and this happens to maintain same level of imports and exports.

However your condition is that the currency of Pak. is fixed to U.S. This means that while there is pressure for Rupee to depreciate, the Pak. authorities are intervening to prevent this from happening. How can they do this??? There is only one way, the Pak. reserve bank will purchase Pak. Rupees with its foreign reserves of dollars and therefore the price of rupee will remain the same wrt to dollar and yes the Rupee will be over valued wrt to U.S.

The point is this, it is not the inflation per se that is causing the overvaluation of the rupee, it is the central banks intervention to keep the value of the rupee vis a vis the dollar the same by selling reserves and buying ruppees that is causing the over valuation.

 

[sigatoka]

hope next time i will talk to you when you will finish your studies of economics. thanks

Whats with the taunting? do you have a Phd in economics?

 

[sigatoka]

1. "depreciation" of currency is the word which is directly linked with "inflation". this is said, if a country is having 8%-7% inflation rate, it's currency would be given atleast 7%-8% depreciation w.r.t. US$, if US$ is also not having same level of inflation.

2. pakistan "has to" depreciate her currency if she want to survive in world market. otherwise pakistan will face same kind of economic crisis as ASIAN faced in late nineties.

1. Countries with full floating exchange rates system can also have inflation spiking and receding. Your argument is true in the sense that buying foreign reserves with ur currency to depress the value of your currency to boost exports can spark inflation. However it is simplistic to say that currencies account for all or even a large proportion of the reason for inflation.

This is the first time i have ever heard of this differential of inflation transferring directly one for one into a figure explaining over or undervaluation of a currency.


2. No, she doesnt. The gains from trade come not from importing not exporting.

The 97 crisis in Asia came about for exactly the opposite reason you suggest, in fact they were depressing their currencies by hoarding forex. This made their GDP's over dependant on foreign demand. (well actually this is a fib as well, the major problem was that the banking sector had accumulated a lot of bad debts and had become insolvent. This is the same problem that Japan faced. The constipation of the financial sector prevented savings from being efficiently allocated to investments)

 

[sigatoka]

1. .india is no Union. india is a country which can not be broken no matter what india will have to do with rest of world.

2. Indonesia, there is no East Timor in india. :smile:

3. Argentina, Foreign Reserve of india is about $165bn which is enough for 12 months of import. India is not goin to face any economic crisis like South America or ASIAN. [/quo3.te]

1. You dont have a crystal ball. All im saying is that just using trends and making a line and saying its going to go forever is misleading.

2. East Timor happened after the economy collapsed.

3. What is your infatuation with foreign reserves? Do you know that the economy of Russia contracted over 30% over 7 years. If you add the fact that potential growth of 3%, Russia's economy would be 50% larger today. Bad things can and do happen.

 

[sigatoka]

1. japan use to make only cheap quality products in 60s. then they improved their production lines and started producing quality products.

2. but if we have a look on china, they got too much investment in manufacturing sector for last 15 years and too much technology transfer during that time but still chinese products are known for their cheap quality. the reason, first china has to level western technology then there is a question of new technology.

3. countries like Pakistan cant invest that much on technology improvement as china is doing but still not that enough. big economies like china,

4. if pakistan just copy chinese technology, they may do some good. but to introduce new and better technology than what US, EU and Japan have......... even to level the technology west have right now.

1. Pak. can do the same.

2. Why did they get too much investment? Because they opened their doors to investment and created a good climate for it. Why did the technology transfer happen? The west hates China more than it does India and Pak, the reason is that in trade tech. transfers happen automatically. Chinese managers pick up things on how to better manage plants, people and equipment.

3. It is a lie that China's technological improvment came about because they invested in research and develeopment, they just copied it from West because trade allows the contacts to occur so biz. and workers can learn new and better techniques.

4. Pak. doesnt have to copy technology, throw open the doors to trade and Foreign Direct Invesment and Technology will come.

 

[MastanKhan]

Hi Sigatoka,

All people are created equal as human beings, but their abilities are not the same, never have been and never will be. If financial welbeing could bring equality and high tech, then Nigeria, one of the biggest oil producer of the world would not have been living deep in poverty. The whole of middle east would have had a stronger backbone than a handful of spaghetti in hot water.

You put a spin on how people get paid----that was not a clear answer. America is a land of oppurtunity----even in this day and age, if you have it in you, you can still make it to the top and nice thing about being americans is a lot of people get along for the ride and a make place for them on the rung of success. In south asia we still have not learnt to take others alongwith us.

People are mistaken about the cheap quality products of japan till the 60's. Japan used to be technically an advanced nation, till the samurai warlords found out that there was not glory in dying with a bullet shot through the barrel of a gun being held by a farmer or a low caste person, so they banned guns in he early 1600's I believe. By the time the black ship arrived in japan, the art of manufacturing black powder weaponery had totally disappeared.

A japanese can never make a cheap product. It is a part of being a japanese that the product would be of best quality under the circumstance and what is available. There is too much honour at stake. On the other hand, a nation whose people have no sense of honour and dignity, would fill up cotton bales that are sent abroad with bricks and stones and then laugh about it.

A nation and its people have to change their mindset and set up a goal------the problem is that pakistan and other countries in the neighbourhood, there is too much diversity and animosity amongst its people and no single focal point like the japanese had after the war.

 

[sigatoka]

1. All people are created equal as human beings, but their abilities are not the same, never have been and never will be.

2. If financial welbeing could bring equality and high tech, then Nigeria, one of the biggest oil producer of the world would not have been living deep in poverty.

3. The whole of middle east would have had a stronger backbone than a handful of spaghetti in hot water.

4. You put a spin on how people get paid----that was not a clear answer. America is a land of oppurtunity----even in this day and age, if you have it in you, you can still make it to the top and nice thing about being americans is a lot of people get along for the ride and a make place for them on the rung of success.

5. the problem is that pakistan and other countries in the neighbourhood, there is too much diversity.

1. I didnt say that, what i did say was the average person in Pak. U.S. and Africa are no different and that liberated from the constraints that governments and conflicts place on them they would all enjoy growing prosperity.

2. Nigeria has specific problems, it has come out of a bloody military dictatorship that was extremely corrupt. Since democracy the nation is making progress (albeits slowly). The major problem of Nigeria is corruption and lack of transparency which discourages FDI and trade.

3. A sweeping statment about the middle East which is incorrect. Saudi Arabia is a middle income nation with strong growth, Egypt has higher per capita income than Pak. and India and is growing around 3.5%, Oman, Iran, U.A.E., Bahrain, Kuwait, Iran, Sudan, Turkey are all doing well. Yemen, Syria, Libya are at least stable with slow growth.

4. I didnt put a spin, i said it as it is. U.S. is a high income nation but it also has a lot of income inequality and a small number of population who live in absolute poverty. How many black billionaries are there in the U.S. again?

5. The problem is not with diversity, it is with backward economic policies that prevent the people from achieving prosperity.

 

[ST1976]

Whats with the taunting? do you have a Phd in economics?

sigatoka there was nothing like i was tryin to show you anything. just think you say you are studying economics and saying, "Inflation is caused by the exchange rate policy."????????? this is how you are suppose to say after a long talk on economics????

think currency value of china is made lower but still inflation rate of china is very low. how???? inflation mainly depends on Demand and Supply of products in market place. this doesn't means that availability can be made by just importing products. thanks

 

[ST1976]

This means that if the terms of trade havent changed, Pak. will still need to export the same quantity to get the same amount of imports. Therefore the Pak. Rupee will automatically depreciate because there is no free lunch and this happens to maintain same level of imports and exports.

However your condition is that the currency of Pak. is fixed to U.S. This means that while there is pressure for Rupee to depreciate, the Pak. authorities are intervening to prevent this from happening. How can they do this??? There is only one way, the Pak. reserve bank will purchase Pak. Rupees with its foreign reserves of dollars and therefore the price of rupee will remain the same wrt to dollar and yes the Rupee will be over valued wrt to U.S.

The point is this, it is not the inflation per se that is causing the overvaluation of the rupee, it is the central banks intervention to keep the value of the rupee vis a vis the dollar the same by selling reserves and buying ruppees that is causing the over valuation.

there is no meaning of talking same thing again and again. if you may understand then ok otherwise............... talk what ever you want to which have no meanings.

 

[ST1976]

Hi Sigatoka,

People are mistaken about the cheap quality products of japan till the 60's. A japanese can never make a cheap product. It is a part of being a japanese that the product would be of best quality under the circumstance and what is available.

man i dont talk in air. go and search google about quality improvement in Japan. till 60s, japanese manufactured products were known for their cheap quality only. they used to make only cheap quality products.

go and search QUALITY on google. have a look on the history. how japanese changed their production line from cheapest quality products to the best quality products from 60s to 70s.

and if you dont find, no worries i will give yo so many references and name of books related to quality improvement, i will make your concept on quality. from where this word came and how japanese used this words. how quality was defined and how they changed their production line on new definition of quality from 60s to 70s.

first do some work by yourself then ask, i will give you all the materials related to quality.

 

[ST1976]

.

this is a website for quality studies. learn something. here, by the second paragraph, this is written that, "At first, Japan had a widely held reputation for shoddy exports, and their goods were shunned by international markets. This led Japanese organizations to explore new ways of thinking about quality."

first know about quality. how this word came in light. go thru the history which is given on this web page then talk with some base.

http://www.asq.org/learn-about-quality/history-of-quality/overview/total-quality.html

 

[Tiki Tam Tam]

This much I know is that in the olden days, Japanese goods were lousy and they broke down practically immediately.

 

[sigatoka]

sigatoka there was nothing like i was tryin to show you anything. just think you say you are studying economics and saying, "Inflation is caused by the exchange rate policy."????????? this is how you are suppose to say after a long talk on economics????

http://en.wikipedia.org/wiki/Trilemma

Trilemmas in economics

In economics, the trilemma (or "impossible trinity") is a term used in discussing the problems associated with creating a stable international financial system. It refers to the trade-offs between the following three goals: a fixed exchange rate, national independence in monetary policy, and capital mobility. According to the Mundell-Fleming model, a small, open economy cannot achieve all three of these policy goals at the same time: in pursuing any two of these goals, a nation must forego the third.


If the currency is pegged and the nation engages in trade (and capital mobility) it loses control of monetary policy. Hence if there is downward pressure on the Rupee and it is fixed to the dollar then in order to maintain the peg the nation loses control of monetary policy. That is inflation targetting is no longer possible.