Rising Risks India

By Jeffrey Snider

Banking regulation is never easy. Shifting regimes and tightening things up a bit during a rip-roaring global economy, however, makes it much less stressful. Among global banking systems the one in India has lagged. Much of the rest of the world had moved on to higher capital requirements in addition to (sappy) liquidity constraints long ago so as to keep something like 2008 from happening again.

It has only served to demonstrate just how little regulators figured out about that supposedly long ago crisis in any one place let alone across the world. To catch up with fighting the last problem, the Reserve Bank of India alongside state banking authorities have been pushing banks to hold more capital. Until this year, that is.

Last month, under intense pressure from the government, India’s central bank relented before imposing the last part of higher capital requirements. These were strengthened in 2017 with every expectation counting on continuing the process, but the world in 2018 is very different.

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They Want To Call It India’s Lehman, It’s Just Dollar

By Jeffrey Snider

Eurobonds are not a perfect substitute, but they may be someone’s only alternative. In some ways, Reflation #3’s weakness can be found originating in this context. The “rising dollar”, or eurodollar squeeze, of 2014-16 was a failure and even run on credit-based dollar funding offshore. If banks won’t deliver dollars, what’s left?

Bonds. There has been an offshore Eurobond market since there have been eurodollars to fund it. These two are not equivalent. Banks in the latter can conjure new “dollars” in the form of any bank liability they may dream up another bank will accept. This flexibility means complexity, and in the end fragility.

Eurobonds are savings, a portfolio allocation like stocks. Because it happens among offshore dollar holders doesn’t functionally shift the definitions like it does for eurodollars.

In 2016, in places like Argentina completely shut off from eurodollars the Eurobond market was a lifeline. It doesn’t matter where they get them, they have to have them. The whole world still needs dollars but increasingly there is nowhere to find them (on reasonable terms).

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An India Canary?

By Jeffrey Snider

The sweeping tide of populist election victories has not been limited to just the US and Europe. There have been torrents in Asia, too. Though there is some disagreement whether he counts among them or not, India’s Narendra Modi swept to a historic electoral triumph in May 2014 sure sounding a lot like one, maybe even one of the first.

In it, Modi’s Bharatiya Janata party (BJP) totally unseated the Congress party that had held the government since 2004, and for 49 of the 67 years before then. As UK’s Guardian put it, “Experts say the political landscape of India has been transformed. The vote is the most decisive mandate for any Indian leader since the 1984 assassination of prime minister Indira Gandhi propelled her son Rajiv to office.”

Like European and American populists, this wasn’t supposed to happen. Modi’s campaign prior to the election was widely mocked (by all the “right” people, too). He appealed largely to a growing sense of unease, one that wasn’t shared by people doing well nor much acknowledged in official communications.

One of his more popular slogans, particularly toward the end of the campaign, was Bahut Hui Mehngai Ki Maar, Abki Baar Modi Sarkar. Critics panned the simple mindedness, often posting derogatory memes with Modi as the punchline (in one, the Joker asks Batman, “do you know where I got my scars?” to which the superhero replies, “Ab Ki Baar Modi Sarkar.”)

Roughly translated, the catchphrase was, “enough of inflation, it’s now time for Modi’s government.”

For much of the Great “Moderation” India’s currency was pretty stable. During the 2000’s up until the Great Financial (Dollar) Crisis, there was practically no volatility in it at all. During the panic, the rupee fell like so many others – ending the “devaluation” exactly on March 9, 2009.

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