Tuesday: 09 August 2011:

European and US crisis has shaken shared markets across the world. In that context, former Federal Reserve Chairman, Alan Greenspan, said that US would not default because they can always print money. It’s not only important for share market traders but it is very important for common man too to understand what the above statement means & the consequences of such manipulations for all of us.

Greenspan said despite the S&P downgrade, US Treasury bonds, unlike Italian bonds, were still a safe investment. "This is not an issue of credit rating. The United States can pay any debt it has because it can always print money to do that. There's zero probability of default" he said.

Recession 2011: No US double-dip recession, Europe a worry: Alan Greenspan

Some of us are already aware that US has been printing its currency as and when needed, may it be for bail outs or for funding war expenses. No wonder it is most indebted country in the world today and its debts are consistently increasing. However what is important for us to know is the consequences of such manipulative effort.
Following are few consequences and you can add more

• It increases inflation because money is printed without back of any resource producing activity, causing more money to chase few goods
  • Worst part is that it not only increases inflation in US but also worldwide because US dollar is currency for international transactions and exporters of different countries are keen to maintain US dollar rate high.
  • Already inflations are high worldwide and even in India. The Indian government is unable to promote production side on one hand and on the other hand demand is fuelled up by such foreign factors too, apart from india’s own currency printing. So we can expect that inflation is going to keep up for additionally more time due to these factors.
• Because currency printing by US is NOT going to concretely address the problems of undergrowth, it will continue to hamper our IT and service sectors a lot. And considering that these are of the few employment offering sectors today, it surely would impact India’s employment opportunities for all direct as well as indirect dependents of these sectors.
• For protecting our exports as we tend to keep up dollar rates by buying more and more federal reserve bonds, India’s more and more money is invested in low return & risky tools. And we get more entangled into US economy and more vulnerable to impacts of down sliding of the same.

Above all, US’s debts are consistently increasing and we are getting deeper into that quicksand, may it be at Indian Government level or personal while engaging in stock markets. With the hope that US’s & Europe’s economy will soon revive (for which there is no assuring step in that direction today), we are engaging ourselves more & more into the vicious cycle. How long are we going to fool ourselves with that hope? I think, unless some radical measures are taken, this another bubble is going to crash and economies are going to down slide sharply soon, which may be in few months or few years at best. Let’s gather the courage, get ready and amass support to take up radical yet positive step, to revive the economies completely!

Author:
Bhushan Patil, Pune