China’s Growth Factor

India increased its per capita income/GDP by 4.5 times in the last 35 years (since 1984) In the same period, China increased its PCI/GDP by a remarkable 26 times! 

The reasons are manifold and debatable and include in no particular order

  • Leadership – Practical as opposed to intellectual, religious or ideological leadership
  • Common language. Most Chinese speak Mandarin or a dialect close enough to that. In India, we have over 200 languages. English was the official language that helped Indians internationally but also sub-optimized the productivity of a vast percentage of the population that didn’t speak it.
  • Totalitarian or single-party government versus a democracy led to the inability to create infrastructure for e.g. roads. China was able to formulate and implement a long term vision for the future – one that relied on them being the world’s manufacturing factory. 
  • The caste system – in essence, India willy-nilly left a vast percentage of its population out of the labour force. This is changing for the better now.
  • Demographics were in China’s favour with working-age people being at a high percentage of the country’s overall population. India’s demographics between 2020 and 2027 will be superior
  • Brain drain – Chinese who studied at the world’s best universities were aggressively re-hired back and offered higher salaries to come back and work in China versus what they would earn in the West. This was an example of regional governments and the State using its power for good. The Indian diaspora did not have that positive inducement in the past.

In summary, China had a vision and a steady and stable government to implement the vision.

Worth Checking Out: Interview with Anton Kreil

Volatility creates opportunities for traders. If your goal is to join a hedge fund or an investment bank or just to learn some real-life lessons about trading, this interview with the Institute of Trading and Portfolio Managements Managing Partner Anton Kreil is worth a listen.

Fredrick Hayek

Fredrick Hayek

Global populism is approaching levels last seen in the 1930s and there is pressure for governments to change incentives. Fredrick Hayek, a Nobel prize-winning laureate, has inspired the leaders such as Margaret Thatcher and Ronald Reagan in addition to other liberal economic thinkers.  

In this 3 minute video, economic booms and busts are explained in a manner that a 10-year-old can easily understand. The core insight of Hayek is that government interference even if done with the best of intentions changes people’s behavior by changing incentives and changing signals in the market. These changes result in investments that are not sustainable and which ultimately lead to recessions and busts.

Thoughts on the Conduct of Monetary Policy

Thoughts on the Conduct of Monetary Policy

Communication is important. And more so when communicating about Inflation! Trying to decipher Central Bank-speak is never easy. Philip R. Lane, a member of the Executive Board of the ECB, discusses medium-term inflation goals in the article linked below. He suggests using specific guidelines for households, firms and market participants in forming inflation expectations. This requires a consistent communication strategy, especially when inflation has been very low versus the target rate.

Click Here To Read The Article