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Emerging Themes For An Undercover Economist In Each Of Us

For some countries, the biggest adversary that caused the financial crisis of 2008, 'the mounting global debt', has continued to surge at an astoundingly rapid pace

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The world is changing fast, and so should be the understanding of our tools that we use to analyse it. I have tried to highlight a few important themes that should be relevant to anyone who claims to have any interaction with economics.

The world has amassed an enormous amount of debt. The irony is that for some countries, the biggest adversary that caused the Financial Crisis of 2008, "the mounting global debt", has continued to surge at an astoundingly rapid pace. Like for China the debt has risen to 286% of the GDP. The global debt has reached levels 3 times the current global output (17% points higher than in Q4,2007 vs Q4, 2014).

In the last 7 years, two of the most renowned economies of Singapore and China have taken over an incremental debt of 130% and 83% respectively. Applying simple economic theory, assuming an annual interest cost of around 3%, China would need to grow at 9 % annually to just service the interest costs. In the short run this may be sustainable, but eventually we are embarking into an astounding world brimming with crisis.

Taming Inflation is symbolically the biggest dharma of a Central Banker.

Traditionally, Central Bankers are known to be the number one enemy of Inflation, and their credibility is measured by the matrix of how effectively they are able to contain it. But in the current context of things, this view seems increasingly obsolete. A close prognosis of the average inflation in the last few years, clearly suggests that we are facing the prospects of sinking inflation fraught with sustained periods of deflation, an immediate implication being people willing to postpone consumption, and the act of postponing consumption, causes prices to fall even further effectively leading to shrinking global output. Just to add, the current spurt in Inflation in certain economies can be attributed to the surge in Crude Oil prices on y-o-y basis.

Fascinatingly, In the current context, the Global Central Bankers have been engaged in an unprecedented expansion of their monetary/ fiscal policy toolkit to bring inflation back to its objective.

Another captivating theme that has been gaining traction has been the ongoing "Technology revolution 4.0". It is believed that this revolution would be much shorter than its peers (The Agriculture Revolution 1.0 (10,000 years ago), The Scientific Revolution 2.0 (500 years ago) and The Industrial revolution 3.0 (250 years ago) and would last somewhere till the year 2070, before the next revolution takes over.

Some interesting consequences of the culmination of the 4.0 revolution (till now) has been the advent of self-driven cars (Tesla Model S), the same way smart machines have taken over the assembly line; the world of trading is being revolutionized by algorithms, Japanese have taken on to vertical farming. These future machines work on intelligible technology and acquire expertise every day as they become experienced.

While we expect an augmented throughput, and an improved quality and consistency of output, but these advantages come fraught with inherent security threats and extreme development costs. A section of people worry that this will lead to a jobs apocalypse as "intellectual machines" replace workers. Others are optimistic that robots will free workers from mundane tasks and allow them to concentrate on higher-level creative and strategic work.

To an economist, technological unemployment is one of the key factors driving the wider phenomena of structural unemployment. It is increasingly felt that the new jobs created by technology employ a small fraction of people, and these jobs tend to disappear soon after they are created.

The three themes namely, the Increasing global debt, the falling inflation, and the ongoing technology revolution 4.0, mark the need for a completely new set of competencies in an ever evolving and challenging economic environment. To put it in perspective, we have to have an innovative approach to the novel realities of our changing times. Our world is a lot different even from what our parents have seen, and our economics has to evolve. We cannot have a one size fits all approach.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
global financial crisis world economy debt crisis

Rajat Agrawal

The author works as AVP,FX & Derivatives, EMEA with GE Corporate Treasury.

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