Spending orgy, all over again

by Dave

livemint.com

Low interest rates encourage the public to remove funds from banks and
plonk them in the stock market either locally or overseas. At once, it
destabilizes the banking system as banks are forced to rely on the
money market for funding their operations and not the safe and reliable
deposits from the public.
At the same time, it raises the risk of stock
market bubbles as too much money chases too few opportunities for
returns in an ageing economy. If the money leaves the shores, then it
not only exposes the investors to exchange rate risk but it also
distorts asset prices overseas.

Just as ageing societies cannot defy natural process, growing societies too cannot. If the former are too weak to shoulder leverage, the latter are too unprepared to handle it. Yet, both have committed the crime of splurging on debt. The tragedy is that the price is being borne by everyone else and not just those who indulged in it.

If the answer to the problems created by unbridled greed, ambition, crony capitalism, corruption and debt is more of the same, the current turmoil will not have a happy ending. Those at the helm of affairs have a lot to answer for.

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