China's money supply

Anyone who's taken a basic economics course would probably know P= M/Y
where P is the price of goods (which reflects inflation), M is the money supply in the economy and Y is the output of goods produced in the economy. If output increases, money supply has to increase proportionally to keep the prices at a constant level -lest there be inflation. Generally in an economy that doesn't trade, increase in output would decrease demand and hence the prices would go down and money supply remains the same. But in a framework with international trade, an increase in output of goods might simply increase exports, keeping the Y variable consumed in the nation constant and driving up the M variable which reflects the monetary proceeds from exports.
M increases, Y is constant, what happens to P? it has to go up in tandem with M. Hence, the prices rise and inflation sets in, as observed in China..
The Chinese authorities in order to control the inflation target the money supply by investing more funds abroad (reduce P by reducing M?).
Or they could simply stir domestic consumption by consuming a higher proportion of their own goods produced (reduce P by increasing Y)

All this by the way is of questionable logic since I haven't confirmed by beliefs with anyone yet..haha

How OPEC contributes to the crisis

Here's an exerpt from a news article I was reading.. "Wall Street ultimately funneled foreign savings into a U.S. housing bubble. But by blocking development of oil reserves, resource holding countries helped ensure many investment dollars didn't find a rational use -- expanding global energy supplies -- and instead fueled irrational subprime mortgage speculation."

Credit markets

Unlikely convergence..




How often do US high grade corporate bonds trade at the same rate as emerging markets sovereign bonds?

Defaults on the rise..

Edward Altman: Currently, U.S. corporate defaults are running at just over 2% YTD whereas the high-yield markets are pricing in a default rate of around 11% one year from now. Loose covenants during credit boom and refinancings are delaying defaults

click for IMF report >

American Socialism? Not quite..

For all those who went hysterical screaming "socialism" at the thought of fed's bailout of banks here's some insight from Greg Ip, in a Washington Post column:

"Starting in 1946, Britain's Labor government nationalized transport, energy and communications companies, and by 1971, a Conservative government had taken over the failing automobile manufacturer Rolls Royce...."
"....France, not surprisingly, went even further. When Francois Mitterrand's Socialists took power in 1981, they embarked upon a massive wave of nationalizations. The new government added 39 banks to those already owned by the state, putting 95 percent of the French banking system in government hands."

Compare that to Paulson's bailout of banks driven by need to keep the financial system afloat, rather than the desire to own productive national assets..
It's obvious that the government would sell its stakes gradually once the economy rebounds.

oh, here's another interesting fact for those concerned about inflation..
Bank of japan stuffed its banking system with cash worth 30% of the GDP. It did not help bring Japan out of the lending slumber..it didn't create inflation.
Fed's $1.8 trillion in assets amounts to 12% of US GDP..

Land reform in China

I felt like discussing this issue in three parts: the original idea, need for alteration, and proposed (and rejected ) solution..
1. Early espousal of the idea - collective ownership: dates back to majority of social reforms in Africa (a prominent example is Nyere's Ujamaa villages in Tanzania..) and China. grounded on the fact that peasants with fragments of land can reap fruits of collective effort in organized farming. Encourages consolidation and increase overall land productivity/output.
2. Changing economic and social scene: shift in the economy from being mainly agrarian to manufacturing complicates the collective ownership threshold. Development requires land..leads to indiscriminate land grabs by govt. officials for starting SEZs, tourist spots, etc.
3. Proposed solution: allow free trade in non-arable land? collectivism ensures stable yield from agriculture because people are forced to cultivate, they can't sell land since they don't own it. permission to sell non-cultivable land is already partially allowed in Guandong (Southern China). Complication from this imposition though arises from farmlands being re-designated as non-arable in order to sell. If that happens, food production goes down?

Paul Krugman on economic growth

let's go back to 1960's. Russia's pace of economic development almost frightened the American government. "No free lunches" seemed to be the motto of soviet economic development model in Stalin era. It isn't necessarily communism, it is purely a willingness to save - forgo consumption for future benefits- asserts Krugman in his paper.
Economic growth is conventionally touted as sum of input growth and efficiency growth. The latter requires a growth in the output per unit input. The soviet growth model in 60's was based on the effective mobilization of resources scattered through the geographical boundary (workforce and capital), but the output per input (or efficiency) did not increase. It's a mere increase in volume of inputs. Same can be ascribed to the Asian model of growth.
For long Asia had been capital starved and labor abundant. In order to sustain the current high growth rate and par up to the US, Asian countries emphasis on 'growth through inputs' ought to expand to that of 'growth through efficiency'. In that regard, Japan is not an Asian story. It had risen through both simultaneous growth in input and efficiency. The slowdown here of course is attributed to the glut of capital and lack of labor volume and efficiency.
Now China. Like Russia and most other Asian countries, its growth is attributed to deferred gratification - save now eat later. There was a small increase in efficiency too, after the Maoist regime. But unlike Japan, this gain in efficiency is not a one-time recovery that showed exceptional short-period growth. Growth is buoyed by capitalism but kind of suppressed by socialism. Hence, it shows a lasting and sustainable recovery. Their policies are always on the conservative side, so they haven't gained radically - which makes me want to conclude that there is a lot of place for growth still.

Finally, the point I'm trying to make is that growth in Asia has predominantly been input-driven (input rise = output rise / higher GDP). Growth in future is likely to be efficiency-driven (better ways of doing things, know-how, human capital, technology and R&D, etc). The way I understand it, it's a two-stage process. Japan ofcourse did both at once and tired out!

http://web.mit.edu/krugman/www/myth.html

Whose number is it?

The biggest misconception of mathematical history: Numbers we use today are Arabic.

In reality, Arabic numbers came from the Indian system (Devnagiri was it?)!

Bhaskara discovered 1/0 is infinity. He declared that “god was found in infinity”. Nothing can change the value of 1/0 – no matter what you add, subtract, multiply or divide, its value remains intact.

Some trivia: Al-jabr - he’s a Muslim saint who wrote extensively about math. ‘Algebra’ owes its name to him. Muslims reached India during the crusades and were fascinated by their advance in math, so much so that it inspired writings such as those of Al-jabr's ...

Sunya: Sankrit for zero

"The concept Sunya (zero) is a tantric machine. It sits at the root of arithmetic, a number that denotes paradox itself. Zero is the signature and symbol of something that does not exist and yet it could have or would have. Having zero mangoes means having no mangoes at all. And yet, despite the lack of mangoes, you do have something – a signifier of your lack." (..some random blog that I was perusing. It had had this scary image though..)

Deciphering 'Decipher'

Sunya ----> Sifr----> Zephirus----> Zero

Zephirus ------> Cipher

Zero = no sense (it's a void)

De-cipher = opposite of cipher/ zero = make-sense

..sorry if I make no sense?

Zero was born out of non-sense

Yes! Appalling statement indeed. My previous note berates the Indian system enough about how nonsensical algebraic operations are performed. I call them nonsensical because no one understood the implication of their procedures. To explain further, ancient Indians rarely visualized spaces or curves when they played with numbers. Perhaps my criticism may have been unjust because such mechanical operations benefited the civilization; they stumbled upon zero. zero and negative numbers would have never existed without separation of ‘real’ or geometric shapes from the imaginary or pure algorithms. Indians made calculations that couldn’t make sense in real world. They discovered 2-2 = a void called 0, and expanded the number scale to negative numbers by placing 2-2 between 2-3 and 2-1. So for them, pure and cold logic made place for negative numbers. They could represent numbers which Greeks could not give shapes. For the Greeks, 2-2 or 2-3 couldn’t have existed – you can’t take out 3 acres of land from 2 acres, what could possibly be the shape of it? Such a thought is punishable by Pythagoreans (yeah, apparently pythagoras shoved hipposus offboard into a sea when he brought up the question of zero).

To conclude, Zero was a result of nonsense and nothingness – procedures performed by Indians that never made visual sense.

Biography of Zero

Last week I read an amazing book on the biography of Zero. There were a mishmash of thoughts that occured to me throughout the reading, which I would like to share on this blog.

Indians are famed for quantitative skills but fall short of numerical creativity

Ever wondered why a large proportion of Indians are engineers, programmers, quant people? Very few plan to become artists or philosophers. To be an engineer, one has to be comfortable with numbers, more precisely algorithms. That takes hard work and number crunching. To be an artist, one must have (apart from aesthetic sense) a geometric sensibility. A true mathematician, I feel, would also have the intuition of a philosopher, artist or architect (Brunelleschi, Da Vinci, etc..). Why? Well, mathematics involves not only adding subtracting multiplying and manipulating numbers, but also visualizing shapes and spaces that are represented by these numbers.

Perhaps this Indian (relative) weakness in geometry is historic. Ancient Indians stripped numbers from their geometric significance. Unlike the Greeks they did not visualize multiplication of two numbers as the area of a rectangle. Their operations were purely a manipulation of numbers – like a number game. This mentality is pervasive in current day India as well; as a high school student in India I saw fellow students and teachers alike who devoted several hours to mastering the various maneuvers of mathematical operations. Inspite of all that, it is apparent that people don’t see beyond the numbers. There is no geometrical significance to algorithms – it was just an application of various formulas that one memorizes. Pure algebra. Differentiation of x² is 2x. Few people care how this result came to be. Even fewer concern themselves with its history (Newton, in deriving the rate of change of functions, approximates (x-h)² –x² and assumes h to be so small that h squared is almost zero).

Personally, I am experiencing an entirely different system of learning calculus after coming to the US. Math here makes more sense because it explains how calculus is applicable in real life. I enjoy it.