Dr. Susmit Kumar, Ph.D.

1.     Introduction

Due to Coronavirus, all the countries are experiencing economic hardship which eventually will surpass the hardship witnessed by the world, mainly Western countries, during 1930s Great Depression. To mitigate the economic crisis, India is being able to come up with $30-$40 billion only, whereas the four economic superpowers, namely the US, China, Japan and Germany, have been spending trillions of dollars in stimulus. Experts are predicting that Coronavirus would ravage the global economy until its vaccine is developed. While therapeutic treatments for those sick with COVID-19 could begin to roll out within four to six months, it would likely take at least 18 months to develop a safe and effective vaccine.” (Bill Gates on a coronavirus vaccine: The major issue is time, Aarthi Swaminathan and Michael B. Kelley, Yahoo News, April 13, 2020).


Till an effective Coronavirus is developed, most of the countries, including India, would have to be under lockdown most of the times because even one person, who has Coronavirus, can spread it to his entire neighborhood or in his office. (The UK coronavirus lockdown could remain for months as Boris Johnson fears a deadly 2nd peak of infections, Thomas Colson and Adam Payne, businessinsider.com, April, 20, 2020; Periods of social distancing might be necessary into 2022 to avoid overwhelming hospitals, Harvard researchers say, Morgan McFall-Johnsen, businessinsider.com, April 14, 2020). Apart from this, weather would also play a part in spreading this virus. As per the director of the U.S. Centers for Disease Control and Prevention, a potential second wave of the novel coronavirus could be far more fatal than the current phase of the pandemic because it may overlap with the beginning of flu season this winter (CDC Director Warns Americans Of Potential Second Wave Of Coronavirus This Winter, Sanjana Karanth, Huffington Post, April 21, 2020).


2.     Massive Unemployment leading to Massive NPA of Financial Sector:


Unemployment in the U.S. is swelling to levels last seen during the Great Depression of the 1930s, with 1 in 6 American workers thrown out of a job by the coronavirus (Virus pushes US unemployment toward highest since Depression, David Crary, Regina Garcia Cano and Angela Charlton, Yahoo News, AP, April 22, 2020). Till date, 22 million have filed for unemployment benefits in US.


As per Former US Federal Reserve Chair Janet Yellen, “If US had a timely unemployment statistic, the unemployment rate probably would be up to 12 or 13% at this point [till April 6, 2020] and moving higher and gross domestic product is down at least 30%” (Janet Yellen says second-quarter GDP could decline by 30% and unemployment is already at 12%-13%, CNBC, Jeff Cox, April 6, 2020).



(Source: Stock market news live updates: Stocks fall, oil crashes into negative territory as energy demand concerns flare, Emily McCormick and Javier E. David, Yahoo News, March 20, 2020)


Majority of firms and majority of Americans live pay check to check and they do not save for the rainy day. Due to massive unemployment, one-third of Americans did not pay April rent before the due date. Forty-five percent of renters do not have enough savings to cover rent payment for a single month (Coronavirus fallout: One-third of Americans missed rent payments in April, Sarah Paynter, Yahoo Finance, April 8, 2020).


Barring few sectors like health and medical, nearly all industries, like housing/real estate, auto industry, airlines, travel food and hospitality, are going to collapse, resulting in a tsunami of bankruptcies, cuasing massive NPA for the financial sector. US has started to spend massive amount of stimulus to help its economy. Till now it has already spent $4 trillion in this endeavor. Members of both the political parties in US, Democrat and Republican, are asking the government to pay as high as 80% of wages — up to the "national median wage" —  of the laid-off workers from government exchequer (A bipartisan alternative to the US unemployment crisis is emerging: The government paying everyone's salary, Juliana Kaplan, businessinsider.com, April 10, 2020). Some are even for paying $2,000 a month to everyone, even if he has a job, during the economic crisis (House Democrats are pushing to pay Americans $2,000 a month during the economic crisis. Trump has signaled support for a 2nd round of payments. Eliza Relman, businessinsider.com, April 15, 2020)


Japan and China, two other economic superpowers, have been spending trillions of dollars in stimulus to mitigate the effect of Coronavirus on the economy (Japan declares coronavirus emergency and approves a near $1 trillion stimulus package, Reuters, April 7, 2020; China weighs $7T coronavirus stimulus plan, includes coal-fired power plant projects: Report, Fox Business, March 23, 2020).


Germany, another economic superpower, is spending much more than countries like the United States, on a relative basis, to mitigate the economic impact from the coronavirus, a data study has shown. The largest European economy has pledged a package which is worth more than half of its gross domestic product last year, and includes immediate fiscal stimulus, deferrals and other liquidity measures. In comparison, the fiscal plan in the United States is, so far, less than 15% of its GDP from 2019 (Germany is vastly outspending other countries with its coronavirus stimulus, Silvia Amaro, CNBC, April 20, 2020)


3.     Spending since 2008 Great Recession


A custom Bloomberg index measuring M2 figures for 12 major economies including the U.S., China, the eurozone and Japan shows their aggregate money supply had already more than doubled to $80 trillion from before the 2008-2009 financial crisis (Money Is Losing Its Meaning, Jared Dillian, Bloomberg, April 15, 2020).



(Source: (Money Is Losing Its Meaning, Jared Dillian, Bloomberg, April 15, 2020)



Following two charts show the debt increase, from 2007 to 2018, in selected countries. These two charts clearly show that the four economic superpowers, namely the US, China, Japan and Germany, have been able to accumulate massive debts without any adverse effect on their economies and also on their currencies. Germany is the backbone of Euro and it is mainly due to the solid German economy, Euro has not lost much ground. But on the other hand other Euro countries have not been able to uplift their economies to the level of the four economic superpowers. In any global economic forum, only the US, Germany, Japan and China have a major say. Except the US, the other three economic superpowers have trade surplus for last more than three decades.



Debt in Selected Countries in year 2018 (Source: As China’s Debt Balloons, Other Emerging Markets Fail to Take Off, John Authers and Lauren Leatherby, Bloomberg, June 3, 2019)


Debt in Selected Countries in year 2007 (Source: As China’s Debt Balloons, Other Emerging Markets Fail to Take Off, John Authers and Lauren Leatherby, Bloomberg, June 3, 2019)


China’s total corporate, household and government debt rose to 303% of GDP in the first quarter of 2019, from 297% in the same period a year earlier, the IIF said in a report which highlighted rising debt levels worldwide. The IIF is a private global financial industry association, based in Washington (China's debt tops 300% of GDP, now 15% of global total: IIF, Reuters, July 17, 2019). Despite massive spending, China’s currency Yuan is not losing any ground (China’s Yuan Is Unshakable in the Face of Global Recession, Tian Chen, Bloomberg, March 19, 2020) but on the other hand India’s rupee is depreciating due to the economic crisis and if the Coronavirus is going to ravage the economy for another 16 to 18 months, Indian economy is going to face its nadir by erasing last couple of decades worth of gains. It is worth noting that after the 2001 economic crisis in Argentina, it took nearly 15 years to come out of the economic hole which was again undone in just two years by the market friendly Macri government.


Even after a decade of the 2008 US Mortgage Crisis, the big banks like Citibank hide trillions and trillions of dollars of “toxic” assets with the help of the US Federal Reserve and corrupt politicians. At the onset of the 2008 mortgage crisis, several large banks, including Citibank, were insolvent. The US Federal Reserve had to provide $29 trillion (twice of then US GDP) to large banks, to save the US economy from the collapse ($29,000,000,000,000: A Detailed Look at the Fed’s Bailout by Funding Facility and Recipient, Working Paper No. 698, James Andrew Felkerson, University of Missouri–Kansas City, December 2011). Although $6 trillion and $9 trillion are quoted below, the actual amount turned out to be $29 trillion.


In 2011 (three years after the onset of the 2008 Great Recession), it was reported that major US banks, like Bank of America, had dumped nearly $75 trillion of toxic derivatives to the Federal Deposit Insurance Corporation (FDIC) insured banking institutions (BofA Said to Split Regulators Over Moving Merrill Contracts, Bob Ivry, Hugh Son and Christine Harper, www.bloomberg.com, Oct 18, 2011; Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval, Avery Goodman, SeekingAlpha, Oct 21, 2011). The FDIC is a United States government corporation providing deposit insurance to depositors in US commercial banks and savings institutions. The corporation was created by the 1933 Banking Act, enacted during the Great Depression to restore trust in the American banking system.


In the aftermath of the 2008-9 financial crisis, the US Congress/Government bailed out the big banks with hundreds of billions of dollars in taxpayer money; and that’s a lot of money. But the biggest money for the biggest banks was never voted on by the US Congress. Instead, between 2007 and 2009, the Fed provided over $13 trillion in emergency lending to just a handful of large financial institutions. That’s nearly 20 times the amount authorized in the TARP bailout (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens, Wall Street on Parade, March 4, 2015).


Those Fed loans were a bailout too. Nearly all the money went to too-big-to-fail institutions. For example, in one emergency lending program, the Fed put out $9 trillion and over two-thirds of the money went to just three institutions: Citigroup, Morgan Stanley and Merrill Lynch. … Those loans were made available at rock bottom interest rates – in many cases under 1 percent. And the loans could be continuously rolled over so they were effectively available for an average of about two years. Citigroup was insolvent during the period it was receiving loans from the Fed (Warren: Citigroup, Morgan Stanley, Merrill Lynch Received $6 Trillion Backdoor Bailout from Fed, Pam Martens and Russ Martens, Wall Street on Parade, March 4, 2015).


As per Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, “there is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.” (Fed’s ‘Infinite Cash’ Put to the Test in a World of Leverage, By Brian Chappatta, Bloomberg, March 23, 2020). By virtue of its currency being the global currency, the US is in a position to spend unlimited amount of money.


One factor common among the three economic superpowers, Germany, Japan and China, is that they have had trade surpluses for last three decades whereas India never has had trade surplus in any year. The US is a special case as its economy is based on the “Dollar Ponzi Scheme”. During World War II, the US enticed other countries to keep their FOREX in dollars and do transactions in dollars. Under the 1944 Bretton Woods Accord, which made the US dollar the global currency, the US was obliged to give one ounce of gold for $35. The US had trade surplus from the end of World War II till 1971, but since it has had trade deficit year after year. The reason for it is that Nixon de-linked the dollar from gold in 1971, after which the US has just continued to print dollars to fund its trade and budget deficits. This has been going on since the Reagan administration. The US just “prints” its currency to pay for its import from China and other countries and then in return such exporting countries, including India, deposit those printed papers (i.e. dollars) in US in government bonds and in the US share market. Had the dollar not been the global currency, there would not have been “Reaganomics”, the much-revered economic theory of the [US] Republican Party. The following statement by the economist Allan H. Meltzer at Carnegie Mellon University sums up how the US has been surviving since 1980s (“U.S. Trade Deficit Hangs In a Delicate Imbalance,” Paul Blustein, Washington Post, November 19, 2005),


“We [United States] get cheap goods in exchange for pieces of paper, which we can print at a great rate.”


The above shows that if a country can defend itself from external onslaught, it can spend as much money as it likes for its prosperity.


4.     Who is Responsible for Holding Back India’s Economy:


It is certain that India is also going to witness massive unemployment and massive NPA in its financial sector due to the same reason, i.e. collapse of auto-related industries, retail, travel, hospitality, hotel, restaurant, railways, nearly everything. But India is not in a position to spend massive stimulus to save its economy.


Now the question is – even after three decades of “liberalization” Indian economy is not in a position to survive in the Coronavirus. Both China and India started the economic liberalization nearly at the same time in the early 1990s. Initially India was far ahead of China in terms of scientific and technical resources required for economic development because China was only at its early stages of creating scientific and technical manpower as all the colleges and universities were closed from 1966 till 1972 due to the brutal Cultural Revolution. It was only in 1977 that the university entrance examination system was restored. But China is now the global economic leader whereas India is nowhere in the global economy.


Dr. Manmohan Singh, an economist, was at the helm of affairs (1991-96 as Finance Minister and 2004-14 as the Prime Minister). Hence he should be blamed for not coming up with a long-term strategy to make the country an economic superpower for which it has all the ingredients. We have to also blame the economists, especially US-based “imported” economists and the political leaders who depended on the former, for letdown.


Due to the insistence and influence of Anglo-US economists, India’s economy has been heading in the wrong direction since the 1991 liberalization. They all belong to the same breed of economists who created the Frankenstein, China, and then sold the US to it, in the name of lower taxes and unrestricted free market. There is no doubt that these economists are intelligent people and they know what they are doing, i.e. they have deliberately misled and mismanaged the Indian economy. The ultimate allegiance of the US-based “imported” economists is to the US and not to India as they come to India for 3 to 5 years only and then they have to go back to the US. Please write the name of any US-based economist with the words “Trade Surplus” or “Trade Deficit” in Google search and you will not get any search result in which the economist has said that India should give top priority to having trade surplus at the earliest. They are the Bhisma Pitamah of Mahabharat. Bhisma Pitamah was a very honest person, but had allegiance to the throne of Hastinapura. Hence in the Mahabharat war, he fought on behalf of Kauravas, who were ruling Hastinapura, against the righteous Pandavas despite knowing that the Kauravas were evil and doing injustice to Pandavas. These economists have stifled the natural economic growth of India, to finally become an economic superpower despite India having all the required ingredients for a superpower.


After the end of Cold War in 1991, all the major defense industries had idle machines, based on latest technologies which were producing state-of-the-art arms and ammunitions for the US and its allies as the US had drastically reduced funding in defense sector after the collapse of the USSR. At that time China was able to buy these state-of-the-art manufacturing machines at throw away prices. Later on the private defense firms transferred latest technologies to China as for them money prevails over the country. A House select committee headed by Rep. Christopher Cox (R-Calif.) released an unclassified version of its 1999 report on how the Chinese military obtained ultra-secret data on U.S. military technology (The Cox Report on Chinese Espionage, Washington Post, Tuesday, May 25, 1999). During that time, Dr Manmohan Singh was getting the praise in Western countries for the “liberalization” of Indian economy, but he did not take any step towards making India an economic superpower. Dr. Singh should take sanyas from politics because not only he failed on the economic front, he, as a puppet of Gandhi family, presided over the biggest loot (like 2G Scam, Coal Scam and Air India scam) of the exchequer (although he himself is an honest person).


The US is going to spend even $100 trillion to save its financial sector and also its economy. India’s financial sector is going to have massive NPA, but India will not be in a position to save its financial sector and also its economy.


India is fortunate to have a political leader like Modi who did not hesitate to take drastic measures to stop the spread of coronavirus, by locking down the entire country rather than just focusing on the country’s economy which leaders like Trump (US), Boris Johnson (UK) and Jair Bolsonaro (Brazil) have not done. But if the Coronavirus would be there for couple of years, Indian economy would face its nadir and not only its currency Rupee would collapse, the government would not have enough essentials mass consumption items, like food grains and medical supplies. At the end of the crisis, India might become an under-developed country like one in Africa.

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