Do we want to live in interesting times?

When a Nobel Prize winner in economics says that former Federal Reserve Chairman, Alan Greenspan knew nothing about markets then we should believe him. We can reasonably extrapolate to the present and say that present Fed officials also do not understand markets, as the debate about whether to continue the Fed bond buying program, which is due to end this month, shows. Stock markets all over the world are fluctuating wildly from day to day but experts say that a correction was due anyway because markets have more than doubled since 2009. A fall in the price of shares results in a fall in the market capitalization of companies and reduces their ability to borrow and may result in financial loss to investors if they are forced to sell but what is really spooking experts is the fall in inflation, fall in the price of oil and the fall in long term bond yields, predicting a prolonged slowdown in global economic growth. Europe could go into recession as its largest economy, Germany predicts falling growth. The fall in growth combined with an increase in investment, such as in shale, has resulted in a precipitous fall in the price of oil. Apparently Saudi Arabia and Kuwait have refused to cut supplies, to support crude prices, because they want to hurt the US shale oil industry but the price will have to drop to around $50 per barrel to make shale oil production a losing proposition. Of course, such a severe drop in the price of crude will hurt other oil producers, such as Iran and Russia, who are enemies of the US. The earnings of the Islamic State, from captured oil fields in Syria and Iraq, will fall. It is difficult to know who is trying to stab whom. Marked fall in commodity prices should be a bonanza to a manufacturing economy like China, increasing earnings and consumer spending but here too inflation is down to 5 year low, forcing the government to cut borrowing costs. This may again encourage excessive borrowing to invest in real estate, leading to a property price bubble and a jump in bad loans at the banks. So, what about India where the Reserve Bank has been battling to control inflation, without much success so far? Here too both the Wholesale Price Index and the Consumer Price Index have fallen in September but a large part of that is due to a high base effect and to the RBI keeping the rupee stable against the dollar, which means that it has become stronger against other currencies. That will hurt our exports and increase imports. Now is the time for the government to stop all subsidies, cut expenditure and link handouts to not having children so as to reduce the population. Interesting times are coming. Are we ready for them?