Be vigilant, Bharat: A financial storm is brewing fast

Preface

As the dumping of US treasury bonds has started in full swing, now by China and by Japan later this year, the global financial system is heading for a fatal car crash. A huge sell-off of these bonds will lead to the US losing its “reliable investment destination tag” and getting lesser investments from the rest of the world.

This leads to the federal government finding it difficult to feed its USD 31+ trillion debt-ridden economy. Ironically, every country other than the US is in deep trouble, especially the ones that have large investments in the US (especially the real-estate and tech sectors) or the ones that have substantial amounts of USD as forex reserves.

History

Recall the 2008 global financial crisis. If you look deeper into the background, the actual crisis, and the follow-up together, the actual damage was done to the Euro. The Eurozone debt crisis of 2008-12 has “almost” permanently damaged the Euro system.

Similarly, relooking the Mexican Peso crisis and the Asian financial crisis, the US financial policies (run by third parties other than the Federal Reserve) have always damaged everyone other than the US. Unfortunately, the recent example (COVID-19) is the People’s Republic of China. A closer look at the current Chinese financial situation would confirm that it is at a near-collapse.

Current Scenario

If the proposed dedollarization comes to reality (there is a high probability though), I have a strong feeling that the US is going to pass this problem too to the rest of the world. To be realistic, this is not because the US wants to do to all of us, but as global reserve currency, the USD has many stakeholders (not just the Federal Reserve) that dictate its fate. This time, the shock will be felt by the whole world (including the US but excluding Russia).

Message to PMO India 

As a neutral non-right and certainly non-left person, I admit to admire Prime Minister Modi and his Cabinet for the way they have been running the country (especially after COVID-19). Looking at the robust financial policies we have been witnessing in the past few years, I am most impressed with the finance minister.  I am sure the Government of India is well-prepared for this storm.

I have some suggestions for the union government that may come in handy in maintaining order in the country while waiting for this storm to pass.

1. Work closely with various departments of the US government, the World Bank and the IMF
2. Extend the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for at least one more year till the end of 2024
3. Buy the excess Russian wheat grain as soon as possible
4. Attend to the middle-class population. Detailedly, a similar program to PMGKAY needs to be started for these people in the middle-class
   • Employed persons having annual income less than INR 700,000
     • Some kind of special system (voluntary) for incomes more than INR 700,000
   • Senior citizen that come under the middle-class category
5. Ensure energy security by increasing oil storage capacity (including storage in host countries like Russia, Saudi Arabia)
6. Some sort of arrangement for NRIs of the US

Credits

I would thank Dr. Ankit Shah and Mr. Abhijit Chavda for the ideation of this opinion piece.