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Debacle of the stock market
Presently we are passing through the horrible experiencing of stock exchange failure in keeping up with the tempo of perpetual prosperity. Many questions come in one’s mind when one sees these things happening in the market. Most important amongst them is why a financial crunch has been felt in the world market when we expect that the science of money movement has been thoroughly understood by our great economist. Simple answer to this question is our great economists do not really know the intrinsic mechanism of science of economics! All economist talking with big mouth must be stopped nay, they have stopped already.
We honestly believed that our present day prime minister of the government of India is thoroughly knowledgeable of all the intricacies of science of economics. Previously they were all very confidently talking of stock market being the barometer of that countries economics and now they all have started saying the other way round. Is it due to ignorance of the subject or what else? I personally believe that the great economists of this world have still not properly understood the intricacies of the science of economics. What is science of economics? Some say, it is an expansion of common sense!
As we all know that every science has along with it an art of the same subject associated with it. Science of economics is also associated with an art of economics. When science and art of the subject are working in unison we see that everything goes on successfully. When people of the art of that subject over do out of over ambitiousness things go wrong. What has gone wrong in this time is the same thing in the working of present day economics of the world. We always believed that we have somebody as proper consultant on economic matters but now the situation is such that we can say we do not have any proper consultant on the economic matters!
What a sorry situation is this? Should we begin studying the science of economics from the basics once again? We shall have to go back for one and a half century in the past to know how the science and art of economics evolved. I do not want to waste precious space on this blog’s posting page to write the history of this science but I shall refer to the happenings in brief. Before the advent of British Empire economics of the world was at its initial stages. As the moment of money gained speed some thinkers evolved some hypothesis of economics. Karl Marks was notable amongst them. Many more joined the pack and thus modern science of economics was evolved. Our Mahatma Gandhi had his view point which was conveniently sidetracked by Nehru who was foolishly over ambitious to grow faster than possible by laws of natural economics.
If we carefully study the progress of the subject we shall observe that there are two distinct patterns of economics. One pattern we shall call “natural economics” and the other one “artificial economics”. Presently we shall limit our discussion to the happenings in India only. Mahatma Gandhi has proposed the pattern we have named “natural economics”. Our first Prime Minister of the government of India, Mr. Jawaharlal Nehru had proposed the second pattern what we have named “artificial economics”.
Why this the discrepancy? To understand this, we shall have to know the difference between the two patterns of thought about economics. In the natural economics growth rate cannot exceed 3 to 4.5 % for overall economic activity while in artificial economics this growth rate can be artificially extended to as high as 10% annually. If you want to hasten the growth rate of the country’s economy we have to work on the lines of artificial economics. When we do that it puts pressure on other sources of income and when they are sacrificed then only this rate of growth is achieved for some and not for all. To maintain it, we have to continuously keep sacrificing those sections of economic activity (mostly poor section).
To explain this I shall take an example of Reliance Industry of Ambanis. Ambanis grew in the market of polyester resin fiber industry at a very high rate. We all know it. To do that, many small polyester resin fiber units were destroyed by central government notifications. Ambanis had influenced (by of course, monetary adjustments) the central government and through that they banned all other importers of that fiber. Only Ambanis were allowed to do that and so they got monopoly in the market. Small entrepreneurs could not survive the competition with Ambanis and we see that Reliance has made great success story. This success story of Reliance is standing on the death of several small hard working entrepreneurs. This is not known to many who have all praise for this group of industry. So, to put it in nut-shell we can say that natural economy of many small industries was strangled for the benefit of one influential big industry which grew by the rate of artificial economy. Artificial economy is always destroying natural economies. Capitalism is the word used to mention this pattern of economics. Some people may say, Reliance created jobs for many people and so the death of small units is justified. Actually we see that many small units with their accessories had always created more employment in the industry. To understand where the problem begins is important. The problem begins when every body wants to become capitalist. The ratio of capitalist to entrepreneurs in the society is by natural law fixed. When that ratio is exceeded the trouble begins.
As Mahatma Gandhi had said, “There is enough for providing the necessities of all but not enough for providing the ambitions of all.” That means every body cannot be Ambanis or Tatas.
But the desire to grow rich is in every mind and that was made easy in artificial economy by introducing gambling factor in the stock market. We previously had stock market mainly on investment base. There was portion in the market called forward trading (badla) but that was a small portion and mainly people were investors when they purchased shares of companies. Gambling was not the mainstream in the market. Some very over smart economists wrote big theories to justify this trend in the market and since every body wanted to become multimillionaire they all justified it neglecting any opposition from the true defenders of natural economics. They all forgot that there is a fixed ratio of rich to poor and middle class population. Any attempt to exceed that shall be opposed by the laws of nature. And that happened. In USA a large number of credits to many middle class and poor people were lost (sub prime) causing falling of big financial companies. One must remember that ordinary people of the society are the base of all economic activity. When they are drenched of their economy it affects upper floors of the society. If you weaken foundation stones of a building upper floors come down. This is something similar to that.
Natural economics suggest the idea that on the whole people of a society cannot be better than middle class standard. One researcher has said that in a successful society very rich people are only 5 percent. Middle class (both type) are about 30 percent and rest of the people is poor class. Artificial economics does not accept this concept. They insist that everybody can become rich and there will be a society where there will be no poor class. This concept is quiet alluring and that is where the whole thing went wrong. Propaganda for an “economy of all rich” successfully launched by some of the American economist (mostly from Las Vegas!) has destroyed many an economies of the world.
Desire to grow rich overnight is not new. People are trying for that since ancient times causing desire to gamble. We shall study some of the gimmicks usually tried by stock market to achieve it. Gambling is the most famous out come of artificial economics. People who believe in proportional income and hard work never indulge in gambling of any sort. When desire to get money for no work develops; ideas of gambling are evolved and they are used to try to grow rich fast. We see that when one million people buy lottery ticket only one fellow wins. This is the proportion of gambling. It is observed in all types of gambling activities. Interesting enough this is seen in many other fields also. For example so many people try their luck as actor in cinema and in cricket but there is only one Amitab and there is only one Sachin. All others are ordinary players. This is also related to that same law of nature that controls proportion of success in the society. Artificial efforts to grow more Amitabs or Sachins have always failed. Some may call me a pessimistic but I am not writing this as a pessimistic but as a true student of science of economics. To try to understand limits of an activity is not to become a pessimistic.
So long as our economy was based on natural economics everything was moving slowly towards progress at the natural speed but that was not found good enough and our immature economists, Manmohansingh fell for the alluring promises of the so called expert American economists (I call them Las Vegas boys) and now we are all in deep trouble. They destroyed the natural fabric of economics by indulging beyond limit (sub prime) in gambling on stock exchange. We earnestly believed that Manmohansingh is a knowledgeable person but now we know that his knowledge is not even at the primary level. He could be sold for the American propaganda so easily that we should be ashamed for that. All so called experts of economics are not experts at all. What a terrible revelation indeed! Now what has happened has happened and we cannot waste our time blaming those who have blundered. Some people are of the opinion that Manmohansingh should resign from the post and show some decency but he is not a truly decent person, he is a professional politician and perfectly shameless and so neither he nor his minister a Chidambaram will ever resign. They are all shameless people being Indian politicians. Penalizing ordinary people for the benefit of favored ones is the policy of these anti-national dual.
One other example we see in the stock market is that, all new issues are coming with premium rate. What is this premium rate? A share valued at face value of ten rupees is actually sold in the market at premium rate of say, 200 rupees. This extra 190 rupees is premium rate. Why a new company is coming with such an extra value? How it is justified? Nobody ask for that. Where this money goes? How it is accounted for? Some old companies also come with new or right issues with the same type of extra price; this is all gambling and corruption. I was told that this money is used to buy shares in the name of politicians and government officers who specially favor the issuing company to get various licenses and such other permissions and favors. Many a time this extra free money is used to purchase shares in the name of directors themselves. Ambanis have become so rich in so little time with this extra money that the shareholders have paid out of their hard earned income. This is another method of getting rich overnight. Many smart people have successfully tried it and have become rich overnight. This is the reason, why smart lazy people are interested in sharebazar today. I feel that this collecting extra money must be banned or if the issue really deserves the premium rate it should not exceed the face value. If this restriction is enforced many companies will not come into the market at all. A fraud of new issues with premium is a subject by itself to study.
We shall now consider some of the suggestions those I received from people while preparing this paper.
Suggestion number one, ordinary people should keep away from the share market. This reminds me that finance minister Chidambaram (he should be called share market minister) forced people to invest in shares and for that he dismantled many good investment schemes such as Monthly Income Scheme of the Post, reduced FD interest rates. His deliberate efforts to force people to invest in the share market has caused thousands of ordinary people to suffer financial loses. This man must be punished for this. Nothing is being done as if ordinary people have no value in this country at all. It appears from the way this country is moving that everybody at the center is hand in gloves which includes politicians, government officers and also judicial officers and together they are all out to make the people suffer financial losses. No enquiry of both Manmohansingh and Chidambaram is even on the agenda. This is very unfortunate that such a criminal is now appointed as Home Minister for the Government of India. Manmohansingh is such an unscrupulous person that he even did not say sorry for what he has forcibly caused to simple Indians who have invested their hard earned savings in this gambling den called stock market under his assurance. I was told while I was preparing this paper that this vile man Chidambaram had started 50 companies of his own to forcibly make poor people from the south to invest in stock market. Now they are all suffering heavy loses and this fellow is enjoying Home Minister ship. Can we think of a more shameless person than Chidambaram?
Suggestion number two, India must revert to natural economics which our father of the nation, Mahatma Gandhi had always advocated for. Slow but sure growth is the plus point of natural economics and we should stop becoming greedy and be happy with what we get by respectable means. Success story of many Tata concerns and Larsen & Toubro show that even in natural economy truly hard working companies have shown great achievements. Let some gamblers continue in the stock market with their gambling. Open up old good schemes like MIS and let simple people live with that peacefully. People should remove their funds from mutual funds and put them in fixed deposit, term deposit, postal schemes or buy gold coins.
Suggestion number three, Manmohansingh and his stupid ideas are kept away. Demand enquiry of the two in the court; accusing them of cheating people on economic grounds. Demand drastic reduction in income and other taxes which ordinary people have paid on the shares dealings. Cancellation of demat system in the share market and revert to old system of paper copy. Demat system is required to gamble on the stocks continuously. When that is removed automatically gambling shall stop. Or those who want to keep gambling can keep their stocks in demat. This will allow a company to have its share holding divided in two types. One for gamblers and other for investors. It will work like saving account and FD account in The Banks. Investor stock is treated as FD and gamblers as SB. In any Company Investor share should be 50% of the total paid up Capital. If Investor share is sold on the market it will get the rate on the market for that company’s share price. Which is obviously controlled by the gamblers. Greed for foreign investment in the country should be discouraged.
Suggestion number four, today all concerned so called economists all over the world are worried about how to set things in order? Answer to it is simple. When economy stops indulging in artificial economic activities natural economics shall automatically take over by the law of nature. As this happens slowly things will normalize. Over ambitious people will have to be controlled from indulging in gambling and for that gambling in stock exchange will have to be strictly banned or the percentage of gambling be controlled. Only activities of investment will be permitted. As natural economics starts functioning normally, prices of commodities will become normal. What activities in the market are helping gambling should be understood properly. They are forward trading and stocking merchandise excessively to create artificial shortage are the two main methods used frequently.
We shall consider effect of the debacle of stock market on SEZ. How and why prices of commodities sprawled like crazy. Effect of suction in the stock market of money, on the prices of everyday things will be discussed in future. As the swelling in the market contracts, over enthusiasm in SEZ shall shrivel simultaneously.
Center of economic activity should be at the Banking according to natural economics while for artificial economics that center is kept at the stock market. We shall discuss the prospects of this difference in future postings.
Friends, as usual I expect your comments on the issue. If you have any other point to raise you are always welcome. Send your comments from the comment box (or click on “no comment tab”) provided here or on my emails as given here below.
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