The only answer

This article on the appreciation pressure on Norwegian krone is interesting. Credit Suisse is about to charge interest rates on clients depositing Swiss francs in their accounts! Of course, we live in a perfectly normal world. That apart, this news-story lays bare the limited policy options that small, open economies have, to counter a rapid currency appreciation in a short span of time.

The only answer to this is a Foreign Exchange Short-term Transaction Tax. It will also solve the G-10 countries’ fiscal debt and deficit problems.

If it smells, talks and walks like…

…. 2007, then it is 2007 all over again.

The disconnect between fundamentals and asset prices is back to where and what it was in 2007.

Reserve Bank of Australia cuts rates. The currency goes down for 10 minutes. Then, it is up all the way. Neither the rate cut nor news such as this matters. Reserve Bank of Australia was all over the place in its press release, after the meeting. We do not know if the non-resource sector would pick up the slack or not. The bank probably hopes for the former and fears the latter. Hence, the rate cut.

In India too, the BSE Sensex Index is around 19000. It is less than 10% away from the all-time peak of 21,000. India’s GDP growth rate is barely 25% of the growth rate seen when Sensex was at 21,000. The country needs a re-start/re-boot in many respects.

I think Bibek Debroy agrees with me. Even though he writes that the country needs early elections (aren’t we all tired of the UPA ?), he is also afraid that the country would remain ungovernable come 2014. Both these posts are important reads. But, the so-called Foreign Institutional Investors nor domestic investors (perhaps, there is only one and that is the Life Insurance Corporation of India) do not care.

Henny Sender’s voice belongs to the sensible minority like ours:

… market prices have lost any real meaning. Prices suggest that the world is a safer place but is it really?… Probably not. The world is much more frightening today than it was in 2008…..Yet prices don’t reflect risk at all………. In 2007, senior staff at the New York Fed compiled a list of all the indicators, suggesting the prices of many financial assets were no longer rational, and presented that list to their colleagues in Washington. Among the indicators they cited was a Middle Eastern telecoms group whose initial public offer was close to 700 times oversubscribed. Their concerns were dismissed.

This time, Mr Bernanke’s Fed is even more complicit.

Only in the worlds of Bernanke and Draghi and complicit financial industry, can EURUSD approach 1.32 as it is doing these days. There are no words to describe our revulsion towards financial markets.