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Old 20th September 2023, 22:00   #1531
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Re: Understanding Economics

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Originally Posted by SmartCat View Post
It is rumoured that China wants permission to use Gwadar port as a naval base, in return for cancelling their debts.
Looks like a good deal from the perspective of the Pakistanis. Unlike Sri Lanka, they don’t have to worry about balancing India, actually in their interest as they can get their debts written off partly counteracting Indian dominance in the Arabian Sea - two birds with one stone.

Offcourse, how Pakistanis (especially Baluchis) feel about the loss of sovereignty is a question but they have hosted many US bases since the 50s.
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Old 20th September 2023, 22:56   #1532
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Re: Understanding Economics

Cross your fingers they donít collapse as a country.
A failed state with nuclear weapons as a neighbor is not a pleasant thought.
Not to mention the flood of refugees we would have to deal with.
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Old 20th September 2023, 23:05   #1533
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Re: Understanding Economics

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Offcourse, how Pakistanis (especially Baluchis) feel about the loss of sovereignty is a question but they have hosted many US bases since the 50s.
Airbases are totally different from naval bases. Geopolitically, naval bases are 100x more significant.

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Looks like a good deal from the perspective of the Pakistanis. Unlike Sri Lanka, they don’t have to worry about balancing India, actually in their interest as they can get their debts written off partly counteracting Indian dominance in the Arabian Sea - two birds with one stone.
USA will do everything in its power to stop this from happening. Imran Khan made an attempt to steer even closer to China during his tenure, and was promptly kicked out from power.

USA has multiple levers to pull:

1) 80% of Pakistani exports go to US/Western Europe
2) China is good only for importing stuff. Pakistan has nothing much to sell to China
3) Saudi/UAE has stopped giving them loans, until they fix their economy with IMF's help.
4) Pakistan is essentially run by the military, even if Govt is civilian. And retired & current Pakistani military officials keep their ill-gotten assets in USA/Western Europe.

That's why Pakistan simply cannot afford to completely alienate the West and go sit on the lap of China . For Pakistani generals & their families, China is an alien culture with alien language. Meanwhile, Sandhurst educated Pakistani generals have no problems settling down in UK/USA after retirement. USA/Western Europe actually facilitates this, so that they can maintain leverage over Pakistan.

Army chief Bajwa, family became billionaires during tenure, claims report; Pak govt says leak illegal
https://www.businesstoday.in/latest/...849-2022-11-23

These numbers are legal assets. Illegal assets will of course be much larger.

Last edited by SmartCat : 21st September 2023 at 00:59.
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Old 20th September 2023, 23:28   #1534
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Re: Understanding Economics

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Cross your fingers they don’t collapse as a country. A failed state with nuclear weapons as a neighbor is not a pleasant thought. Not to mention the flood of refugees we would have to deal with.
USA is expected to keep Pakistan at the brink of collapse, but not tip it over. So from time to time, there will be assistance from IMF.

IMF approves long-awaited $3bn Pakistan bailout
https://www.bbc.com/news/business-66172159

The idea is to significantly reduce Pakistan's war-fighting ability. This will help India build up their military strength against China, and not worry too much about a two-front war.

USA identifies China as a significant threat to its global dominance, especially over the next 10/20 years. Tht's why it makes sense for USA to strengthen India (and weaken Pakistan). China meanwhile is countering this by gifting advanced fighter jets like J-10 and anti-aircraft systems like HQ-9 for free. So basically we have 2 superpowers playing games in our neighborhood.

Once Pakistan military threat to India is significantly reduced, India is then expected to play a military role in discouraging China from invading Taiwan. For eg: if Taiwan invasion is imminent, India could be expected to move significant military/naval assets to China's borders, forcing China to split their military resources.

Retired Indian military chiefs visit Taiwan amid escalation threat from China
https://www.financialexpress.com/bus...china-3206720/

India’s Military Studying Options for Any China-Taiwan War
https://www.bloomberg.com/news/artic...-war-on-taiwan

Last edited by SmartCat : 20th September 2023 at 23:45.
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Old 21st September 2023, 11:14   #1535
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Re: Understanding Economics

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USA is expected to keep Pakistan at the brink of collapse, but not tip it over. So from time to time, there will be assistance from IMF.
The US does not have a good record in this area. See what they did to Iraq, Syria & Libya. All have seen hundreds of thousands of dead, and the first 2 came perilously close to becoming failed states. Libya is a de facto anarchy.
I am sure no one wants a repeat of that scenario in our part of the world.
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Old 21st September 2023, 13:18   #1536
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Re: Understanding Economics

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USA is expected to keep Pakistan at the brink of collapse, but not tip it over. So from time to time, there will be assistance from IMF.

IMF approves long-awaited $3bn Pakistan bailout
https://www.bbc.com/news/business-66172159

The idea is to significantly reduce Pakistan's war-fighting ability. This will help India build up their military strength against China, and not worry too much about a two-front war.
You do have a keen interest on our neighbourhood. Though, this characterization of Pakistan is a little simplistic. 'Managing' its war fighting capability, even predicting its demise has been a cottage industry in India since 1947, which has now grown into a full blown youtube/social media pestilence.
Case in point: The country was under crippling US sanctions after the Afghan war. Regardless, they managed to produce a nuclear bomb in the same timeframe.

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China is really like the East India Company!
There's a better way to look at this. During the 16th-17th century, nothing prevented the great Mughals (or later, Shivaji the great and Tipu and Wodeyars and Nizams) from building a shipping line and exporting muslin, tobacco, spices, indigo etc to Europe. Or import European knowledge and setup factories, railway lines and yes, universities.

They were busy reflecting on past glory, and fighting each other. The typical Indian comfort zone, that you observe even today.
This story has repeated itself many times over in Indian history, leading to repeated invasions, and slavery. How many of us realize that India was ruled for a full 13th century by the dynasty of a slave of a Turkish general? Let that sink in.

The fact that none of the Indian states was forward looking is the reason that a few boatloads of Europeans could ultimately colonize a vast subcontinent.
Would you really blame EIC for gladly accepting a walk-over, or the Indians instead who were asking for the misery.

The same is true for the Americans and the Chinese today. They are going to maximize their returns - as they should. Given an opportunity, us Indians behave much worse with our own countrymen.

It is for us (Indians and Pakistanis) to build competence, join the cutting edge of commerce and technology and negotiate from a position of strength.
India has done a decent job of this recently. Pakistan seems miles behind in appreciating this challenge.
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Old 21st September 2023, 13:46   #1537
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Re: Understanding Economics

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Originally Posted by dust-n-bones View Post
You do have a keen interest on our neighbourhood. Though, this characterization of Pakistan is a little simplistic. 'Managing' its war fighting capability, even predicting its demise has been a cottage industry in India since 1947, which has now grown into a full blown Youtube/social media pestilence.
Difference between then and now:

- In the 1970s, USA needed Pakistan to build a bridge with China. That's because cold war was at its peak, China had border conflict with USSR and hence USA wanted to get close to China via Pakistan.
- USA needed Pakistan in the 1980s to drive out the Soviets from Afghanistan.
- USA needed Pakistan for its war in Afghanistan from 2001 to 2020.

However, Pakistan has now significantly less geopolitical importance than the past. Now China is the country that is threatening US dominance in the world. Pakistan cannot help USA here.

Quote:
Case in point: The country was under crippling US sanctions after the Afghan war.
You mean after Pakistani nuclear tests? Can you list out what these crippling sanctions were? From what I understand, it was just freezing of aid/loans and freezing of military support. And it did not last long because of 9/11 attacks.

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Regardless, they managed to produce a nuclear bomb in the same timeframe.
Pakistan is a country that mostly exports textiles/labour and imports pretty much everything. Their goods exports last year was $35 billion while Bangladesh clocked $65 billion. Their automobile industry is all about importing components from Japan and assembling bikes/cars. And after free trade agreement with China, whatever small/medium scale manufacturing they had is mostly gone, thanks to flood of Chinese imports.

But they have the capability to make -

- Nuclear bombs
- Long range ballistic missiles with MIRV tech
- Sub-sonic cruise missiles (which India has not been able to master)

Wonder how? Hint:

Understanding Economics-screenshot_2.jpg

Yes, China is still supporting Pakistan militarily - but military power is a mirage without a strong economy. Almost since inception, Pakistan economy was supported by the West, in the form of aid/loans.

But right now, it is not in US interests to see a strong Pakistani economy (and hence military).

Last edited by SmartCat : 21st September 2023 at 18:33.
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Old 8th October 2023, 10:00   #1538
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Re: Understanding Economics

Can someone explain how India escape relatively unscathed from 2008's GFC? (or did it really?)
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Old 8th October 2023, 11:49   #1539
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Re: Understanding Economics

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Can someone explain how India escape relatively unscathed from 2008's GFC? (or did it really?)
2008 financial crisis, as the name suggests, was just a financial crisis. The virus did not spread to the economy in India.

If you recall, there were rumors that ICICI Bank would collapse. There were queues forming at ICICI Bank to withdraw money. But timely action by GoI/RBI saved the day

How RBI/Govt staved off 2008 ICICI Bank meltdown
https://qz.com/india/1593477/how-ind...-bank-meltdown

If ICICI Bank had collapsed because of rumors/withdrawals, the contagion would have spread to other private banks - and India would have been severely affected too.

But in USA/Europe, financial crisis got converted into an economic crisis

- Banks & financial institutions collapsed
- Housing / real estate market was signficantly affected because of sub-prime lending
- People have majority of their savings in the stock markets
- Economy is more 'financialized' than India (Eg: low savings, everything is bought on credit etc)

Also, USA/Europe GDP growth was in 2% to 3% range. 2008 crisis resulted economies falling into recession (negative GDP growth). But Indian/Chinese economy growth was in 8% range. And during the crisis, economic growth fell to 3%

So the amplitude of "fall in GDP growth" is actually similar.

Last edited by SmartCat : 8th October 2023 at 11:55.
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Old 9th October 2023, 08:25   #1540
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Re: Understanding Economics

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But in USA/Europe, financial crisis got converted into an economic crisis

- Banks & financial institutions collapsed
- Housing / real estate market was signficantly affected because of sub-prime lending
- People have majority of their savings in the stock markets
- Economy is more 'financialized' than India (Eg: low savings, everything is bought on credit etc)

So the amplitude of "fall in GDP growth" is actually similar.
I was not very financially adept during that time so I genuinely do not understand how Ex-PM Manmohan and the RBI governor at the time are credited for maneuvering India away from the ripples of GFC.

I watched a 4 year old video on this and it sounds to me like India basically did quantitative easing through infra financing and avoided a collapse of rupee coz of your reasons plus US QE as well.

And we did see a collapse of ILFS much later.



So now that the probability of recession/depression/stagflation in OECD countries minus USA is really high, do you think India is more exposed than it was during 2008?
Also now that borrowing has increased significantly in the population and savings are somewhat exhausted due to Covid, I feel like India is entering troubled waters as domestic demand is slowing at the same time international demand slowing as well.

Last edited by Imran.Syed : 9th October 2023 at 08:39.
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Old 9th November 2023, 13:25   #1541
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Re: Understanding Economics

Well, finally found a Pakistani columnist who understands that it was suicidal for them to sign a Free Trade Agreement with China.
https://www.dawn.com/news/1787727

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WHAT China wants from Pakistan is the same as what China wants from every other country, which is to endlessly run a trade surplus in their favour. Just add up the numbers. Since 2010, Pakistan has run a cumulative trade deficit with China equal almost to $90 billion. This means capital worth $90bn has flowed from Pakistan to China
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China would not factor as the top country with which Pakistan ran a trade deficit. It attained that position post-2010, and cemented it further with the second China Pakistan Free Trade Agreement agreed to in 2019. But India has worked to safeguard its trade interests with China, for example, by eschewing a bilateral free trade deal with them, while pursuing these with others in Southeast Asia instead.
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Pakistan, on the other hand, has not only gone deeper into this loss-making relationship with China, but increased reliance on Chinese credit as well along the way. China begins extending more and more credit for budget support to Pakistan as the trade deficit grew. What is the purpose of these credits? To keep us in the game. So we can keep losing more and more to them with every passing year.

Last edited by SmartCat : 9th November 2023 at 13:28.
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Old 11th November 2023, 07:49   #1542
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Re: Understanding Economics

Here is a new theory on how GDP is calculated...

Today, the countryís GDP is being calculated by adding Adaniís wealth to the earnings of a poor autorickshaw driver

No need to worry, this absurd statement was not done by any economist, but by a Malayalam author. But I am surprised that many newspapers reported that statement without pointing out the obvious.

https://www.newindianexpress.com/cit...a-2631651.html

On the other side of the spectrum, I love listening to Marxist economists. They are very good at analyzing the economic problems. However, their solutions are highly impractical. Prime example... Karl Marx himself. His book Das Kapital remains the greatest critique of capitalism ever. But his solution was communism, we all know how that worked.

Coming to current times, one of the best Marxist economist is Dr.Richard Wolff. He was the classmate of US Treasury Secretary Janet Yellen, but differs greatly from her.

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Old 20th November 2023, 17:30   #1543
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Re: Understanding Economics

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Well, finally found a Pakistani columnist who understands that it was suicidal for them to sign a Free Trade Agreement with China.
https://www.dawn.com/news/1787727
It is absurd to claim that it was free trade that has led Pakistan to where it is now. This is like saying a terminally ill cancer patient who dies on his death bed after drinking his last bowl of soup was actually killed by the soup itself.

Pakistan is broke now because it has weak, corrupt and incompetent governance and institutions. You talk about 90 billion dollars flowing out of Pakistan to China, but the fact is if Pakistan was a normal liberal country it would have had even more capital flowing into it in the form of investments both domestic and foreign and there never would have been a crisis in the first place.
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Old 20th November 2023, 17:57   #1544
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Re: Understanding Economics

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Pakistan is broke now because it has weak, corrupt and incompetent governance and institutions. You talk about 90 billion dollars flowing out of Pakistan to China, but the fact is if Pakistan was a normal liberal country it would have had even more capital flowing into it in the form of investments both domestic and foreign and there never would have been a crisis in the first place.
If Pakistan had weak, corrupt & incompetent governance & institutions BUT had liberal economic policies, would capital in the form of domestic/foreign investments still have flowed into the country? For liberal economic policies to work as intended, it also needs a big list of other minimum requirements. Along with the things you mentioned -> good higher education, strong judiciary/corporate laws, startup culture etc.

Signing a FTA (which is infact a liberal economy policy) without fixing other issues acts as a catalyst for the economic demise of a developing country.

FTA with a manufacturing powerhouse like China has zero positives and only negatives for most countries. All it achieves is decimation of local industries, with no increase in exports. After all, China mostly imports raw materials and sells finished goods (like the East India Company/British Raj). And it is very likely that China has low import duty on such raw materials anyway. So how does a country's exports get a boost by signing FTA with China?

FTA should only be signed between countries with little or no conflict of business/economic interest.

Last edited by SmartCat : 20th November 2023 at 18:21.
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Old 20th November 2023, 18:36   #1545
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Re: Understanding Economics

Generals in Pakistan get helped a lot with aid/loans from US. Not sure the same holds true for help from China. Could be for the Politicians too. So US will always have a lever on Pakistan.
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