Author: Ritesh Jain

India’s falling household savings rate – a trend accentuated first by demonetisation in November 2016 and then again by shoddy implementation of Goods and Services Tax (GST) last July – could hurt the growth prospects of the economy and also trigger macroeconomic instability if not reversed soon, according to economists.
The country’s falling savings rate confirms the widespread fear that a majority of households are in crisis post-demonetisation, said Arun Kumar, Malcolm S. Adiseshiah Chair Professor, Institute of Social Sciences.
Household saving rates has fallen from 23.6% of GDP in 2011-12 to 16.3% in 2016-17, according to the RBI.Since the household sector is the largest contributor to savings, the overall savings rate declined to about 30% in 2016-17, after staying well above 32% for many years. In 2011-12, the rate was a robust 34.6%.This decline was, in part, due to the shocks from note-ban and GST implementation, according to a recent report by India Ratings and Research.
Household sector was the largest contributor to gross capital formation till 2013-14. Since then private corporations have emerged as the largest contributor.Following demonetisation, household investment shifted from real estate to mutual funds
Is GDP really growing at a robust pace?

Prof Kumar who has an authority on Black Economy in India,also trashed the government’s claim that the economy is growing at a robust pace of over 7%. He expressed fear that the unorganised sector, which contributes as much as 45% of the GDP, has seen a sharp output decline in the wake of demonetisation unlike the organised sector, which continues to grow at a decent pace.“Even if we assume a modest production decline of 10% in the unorganised sector, the GDP growth comes below 1% from 7%,” Kumar said.Production data from the unorganised sector post demonetisation is currently not available.
In absence of data, the government is assuming that the unorganised sector is growing at the same as the organised sector, which may not be true, he said.

The investment rate has also fallen from 38% in 2007-08 to 31% in 2017-18. The economic growth is being driven by the sole engine of consumption which is quite evident from the lending pattern of banks and finance companies.

https://thewire.in/economy/demonetisation-bad-gst-implementation-hurt-indias-household-savings-rate

This is a must watch interview with James Crabtree , the author of “The billionaire Raj”. Crony capitalism, concentration of wealth and emergence of oligopolies in India is all covered in this interview.

I shudder to think about consequences of this much inequality.

https://www.youtube.com/watch?v=2fZ_w_fun_A#action=share

Variant Perception Writes “The meteoric rise in Chinese exports now appears to be losing steam with world export market share falling by 1%-point over the last two years and potentially mirroring Japan’s long-term retrenchment. Doubling of wages (in USD terms) and a near 40% real effective appreciation over the last decade have undermined the low-cost export model.
In addition to higher wages pinching exports at the low end, China has yet to make the transition to high-value, high-tech exports, where price competition is less intense. Despite a reasonably high weighting of high-tech exports (56%), the composition has not substantially changed over the last decade and remains comfortably below the likes of Korea and Taiwan, which have managed to escape the middle-income trap. Moreover, this comes at a time when Poland, Vietnam and India have made great strides.

https://www.variantperception.com/2018/08/16/china-losing-its-edge-on-exports/

Wolfstreet writes ….Southeast Asia stands out again as in 1997/8, with a large amount of USD denominated debt outstanding,” the write. “The only difference is then Asia had fixed exchange rates and now they are floating! NedBank  believe Asia will be the next source of downside systemic risk for financial markets.”
The chart below shows dollar-denominated debt in the EMs, in trillion dollars. This does not include euro-denominated debt which plays a large role in Turkey. The fat gray area represents Asia without China:

https://wolfstreet.com/2018/08/16/emerging-markets-turmoil-price-of-cheap-debt-misallocation-of-capital/

Jeremy Grantham who predicted a melt up in markets inspite of it being overvalued now says that trade wars might deprive the speculators of this last parabolic surge . He comments  “My guess is — you have an extended, very psychologically painful, long, drawn-out series of stumbles and starts, where you go up 10% and down 15%, up 12% and down 14%,” he said. (essentially nobody will make money)
“You have this series of nonspectacular, ordinary mini-bear markets that wear away at the P/E, and eventually the economy weakens, and eventually the profit margins go down,” Grantham continued. “It helps drip, drip, drip the market back down. Not with a bang — more with a whimper.” (nothing worse than market wearing you down).
Ultimately, when it comes to Grantham’s forecast “drip” down in stocks, Trump’s trade war still takes center stage. He says now that the market was deprived of one last bout of speculative fervor, the eventual market meltdown will be less immediately severe. Rather than being spring-loaded to quickly drop, say, 50%, he says it will instead fall 20% to 25% over multiple years.
Still, Grantham isn’t ruling out a continuation of January’s dangerous “melt-up.” He says that if the trade war gets resolved or turns out to be less punishing for investors than initially advertised, speculative behavior could come roaring back.

https://www.businessinsider.com/jeremy-grantham-financial-bubble-predictor-trump-impact-on-market-outlook-2018-8

Kevin Muir Explains brilliantly in this post about how we reached here and concludes by saying….There is only so much pain that the global economy can take from tighter Federal Reserve policy. The American dollar is still the world’s reserve currency and it’s clear that the first participant without a place to sit in this game of musical chairs is emerging markets. The next time the music stops it might be an asset class that hits much closer to home and causes Powell & Co. to re-evaluate policy.
When the Fed does in fact slow down the tightening, buy EM hand-over-fist. It’s cheap. But someone tell them to stop borrowing in another currency. When will they ever learn?

http://www.themacrotourist.com/posts/2018/08/15/contagion/