: Room to run, fiscally #IndiaNEWS #News By B Yerram Raju “Money begets money,�? says Geoffrey Crowther. Absolutely true — whether it is with individuals, institutions, or nations. Why should

Room to run, fiscally #IndiaNEWS #News
By B Yerram Raju
“Money begets money,�? says Geoffrey Crowther. Absolutely true — whether it is with individuals, institutions, or nations. Why should nations borrow? One should go back to the post-world war economy. People lost all their wealth and assets in the war. To provide money in people’s hands, Keynes propounded ‘dig holes and fill them up. ’
Historical Perspective
On the pangs of yet another recession, it makes sense to look at the recent history of the Great Recession of 2008 and the way global stability matters, particularly because the reaction of the Reserve Bank of India and the Government of India was along the same lines compared to the fight against inflation amidst growth resilience post-pandemic.
Even the Global Financial Stability Reports 2018 warned of a tough road ahead for all the governments and the need to avoid the risks that led the world into recession in 2008: “Higher inflation may lead central banks to respond more aggressively than currently expected, which could lead to a sharp tightening of financial conditions. Valuations of risky assets are still stretched, and liquidity mismatches, leverage, and other factors could amplify asset price moves and their impact on the financial system. �?
In 2008, Lehman Brothers, the biggest home-mortgage lender, fully backed by the US government, became bankrupt and there were no lenders to lift it. The US Congress would not permit its nationalisation. This largest bankruptcy triggered global financial instability.
Fannie Mae and Freddie Mac — federally backed home mortgage companies — also collapsed with the US Congress unwilling to lend any support. Financial engineering led to the creation of subprime mortgages.
The blame for the 2008 recession rested at the doors of irresponsible lenders, rating agencies, mortgage brokers triggering unaffordable loans, loan appraisers inflating housing values, Wall Street investors, borrowers overstating the income levels on loan applications, lack of regulatory and government oversight and a surge of foreclosure activity.
2008 Redux?
Does this remind us of the recent Noida real estate firm filing bankruptcy before the Insolvency and Bankruptcy Board of India? Several such NPAs are hiding in the kid gloves of lenders and investors.
India’s political and macroeconomic climate now is just similar to the one in 2009. For two years, the Monetary Policy Committee and the RBI assured the nation of macroeconomic and financial stability against the backdrop of resilient growth and were treating inflation as a concomitant of growth.
The government in 2009 too asserted that the impact of the sub-prime crisis was moderate.

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