We all know how markets in India celebrated the return of Manmohan Singh headed UPA in power. FIIs bought like there is no tomorrow and retailers jumped the bandwagon as well. Although there are talks about this fierce up move in stock markets owing to the "announcement" of Sensex 100,000 by some Elliottist on CNBC, the fundamental reason for market up move was linked to the so called "ability" of team Manmohan Singh to restart growth of economy. The investors argued that this new govt has the required power to start reforms as Left Parties were out and silent. What reforms? The reforms in subsidy, FDI and disinvestment in public sector undertakings (PSUs) mostly. The talk on street was UPA will sell PSU stakes and use that money for fiscal stimulus (infrastructure spending). Then came the surprise in Budget 09-10, last week. Pranab Mukherjee, the "experinced" Finance Minister presented the budget with bang surprise! It did have massive fiscal stimulus plans but not funded by disinvestment of PSUs and instead through borrowing. Markets refused to digest the record deficit planned in the budget and crashed.
UPA had the best chance to do the required (although I do not approve of ANY govt intervention in economy). Left parties can't be happier! I have this feeling that if we had Left rule in Center, they would have opted for disinvestment route themselves!!! But, the govt decided to borrow instead of selling stakes in PSUs.
So, now we have a clearer picture of world. US of Socialist A borrowing massively, Europe countries borrowing massively, Japan borrowing massively and so other countries of Aisa and now India borrowing massively! In other words all of world plans to borrow massively!!! Very well and nice! But, if all governments are looking to borrow that heavily then who is going to lend? According to some estimates this amount required by world may be around USD FIVE TRILLIONS!!! Please look at the following pie-chart which I found on internet (source: http://www.investorsinsight.com/)-
As you can see the US wants the biggest and more than half its share :)
where will the money come from? And, that too at a time when the world is in a deflationary Depression!!! When the entire system is deleveraging!!! If we had friends on Mars or some other planet then I'd not be that worried but there ain't any Aliens who'd fund the Earth.
Intersting Times!!! Indeed.