GLOBAL ECONOMY IN REVERSE GEAR

TEAM MEMBERS: VEKU GAUDE (ROLL NO: E2010012) PREMNATH NAIK (ROLL NO: E2010033) SANDESH PAWAR (ROLL NO: E2010039) NAVESH SHIRODKAR (ROLL NO: E2010048) MANDAR SHIRSAT (ROLL NO: E2010049) VIRAJ NETRAVALKAR (ROLL NO: E2010051) PRICE SINGH ( ROLL NO: E2010052 )

The money needed by an individual to run his daily life should be less than the money he earns daily. Similarly the money needed by the businesses, large and small, and by the professionals and traders to run their activities should be less then the money they generate. Likewise the money needed by the government to run the national set-up should be less then the revenues available with them from taxation. When all the 3 above mentioned entities find that their earnings or the income is less then their expenditure or projected expenses it develops in a situation called as deficit. The right thing to do when trapped in such situation is to indulge in cost cutting, and to avoid the temptation of growth by debt. Looking at the picture of our global economy, the total production of all the final goods and services taking place within our global economy, the industrialized nations including USA and Japan with only 15% of the global population are contributing 70% of it. The other 30% of all the goods are and services taking place within our global economy , the emerging and poor backward nations including China and India with 85% of the global population add to the global economy. There are warnings of other bigger financial crises approaching and serious people are laughing. Sincere and earnest people concerned with important matters are making jokes of these warnings. This is because of the large number of the conflicting signals and considerable amount of confusion as to where the global economy is headed. This is a picture of all that is wrong in the world pf business that is built on debts. Government recapitalizing banks, throwing funds into frozen money markets and reviving their economies .It has already cost them a fortune in excess of 500 billion USD. Market fears these are signs of worse coming .75% of the global economies are still contracting and the growth appears to ne imbalanced. A global growth is being built on debts ticking to explode. The Central Bank of the Central Bankers The Bank of International Settlements has warned that the world that the path pursued by fiscal authorities in a number of industrialized countries , is a path build on debts & staggering under massive deficits , their recoveries uncertain yet continuing to borrow trillions , testing the worlds patience with their huge debts and their unsustainable paths. Serious and reputed economist expresses happiness seeing recovery popping all around the global economies failing to get their government spending under control and instead continue adding to their debts. Worlds biggest economy USA: from 2001 onwards the business is slow in US. For last more then 6 years US economy only imported. The number of jobs created by the economy was zero. In these years the economic gain for average American family was very less (less then 1%). Economic gains from the stock were zero. Its recovery now is propped up by money received from the sales of treasury debts, Tax collection and simply through printing of new money. From 3007 to 2009 US economy lost 80000 odd jobs and ten out of every hundred Americans were unemployed. In 2010 US found that the funds available with it are not enough to meet the needs of the countrys administration. It finds it has a deficit of 1.56 trillion USD.In USA 700 out of every 1000 Americans own a car. This important industry is now unable to move or work. Thousands of cars worth millions of dollars re stocked in increasingly crowded port properties. US auto industry is paralyzed. US are a chronic trade deficit nation and the recovery now is going take along time.

Lets take a look at Japan. Its the worlds second largest economy. Japanese recession began in the year 1990 and by numerous bailout programmes Japan has invested trillions into its economy. Japanese economy is dependent on overseas demand. Global economy is weak and overseas demand has fallen by 46%. Its exports have stopped and there is no pick up demand. Economic activity in Japan is reduced resulting in lower level of output and low investments. To clear its excessive inventories Japanese companies have reduced production. Its output have contracted by 25% . Growth has begun slowing further and reduction in economic activity and lower levels of output is further throwing its economy in confusion. The market is worried of its high level of debts. Japan has plowed trillions into its banking system and yet the banks are scrambling to raise cash. With debts continuing to rise, Yen might fall. Look at the picture of China. China is no longer an emerging economy. Its has already arrived on the international economic platform. It is the worlds third largest economy. China wants to increase its share of global economy and want to surpass the economies of US, Europe and Japan. There is enough evidence to support the view that China wants its economic dominance to influence and control the entire global economy.it wants to break up the present world market and build a new global market controlled by China. When China wants overseas acquisition in any resource rich country it makes attractive offers with aid packages. Its aid packages include diplomatic support, arms sales and debt forgiveness. It is a trade driven diplomacy. As part of stimulus programs it enforced domestic consumption .It dumped goods on people who could not afford to buy the same and forced consumption. In Hubie province of China it enforced smoking to boost its local economy via cigarette tax. China is aware that it is sitting on massive bubble, which could set in motion a course of action that could bring about Chinas economic collapse. Look at the picture of Eurozone, the worlds second largest economy. July 2010 Italy, France and Germany beat world expectations, showed growth and recovery. Italy showed 1.0% growth rise, France 1.7% and Germany 2.6%. These three economies make up two-thirds of Euro zones output. Almost all the other remaining 13 European economies do not show due care for the consequences of their financial actions or their attitudes. Some are falsifying statistics and making deficits look presentable. The biggest problem in Eurozone is that there is still no formula for governing the dangerous political arena of public sector finances involving management of its money matters, credits and loans. The banks are in serious trouble comparing their risk indicator to that of US investment bank Lehman brothers Euro zones bank trouble are six times more worse. Years 2008 2009 Eurozone banks received state aid to help them with their liquidity problems. These banks now are cutting new loans, calling old loans and restricting and hindering all economic growth. Year 2010 April, Euro zones finance ministers met to find ways to halt Govt debt crises. On 15 May 2010, Jean-Claude Trichet president of European Central Bank warned the world that Europe was facing severe tensions. Interest on sovereign bonds had soared to 20%, was continuing to increase rapidly and the debt crises has begun Worsening. Exports of the 16 Eurozone members have fallen, Exports to U.S. has tumbled by 20%. Euro zones recovery is fragile. All signs of worse coming. As a whole Euro zones continues to suffer a

worse financial trouble than the United States. The years 2010 to 2015 the world will witness a very high unemployment and a grinding deflation in Eurozone. On the global economy the Eurozone crises is many times more severe than the US crises. Look at the picture of Spain. Year 2000 to 2008 there was strong and healthy growth in Spain. Temporary contract labor was widespread. Hiring and firing employees was quick and easy. The rapid housing growth brought about a strong job growth and rapid prosperity. Prosperity brought about an increase in the amount of money in circulation with a progressive increase in all round prices. Prices of goods and services rose to 35% and soon got out of line with the rest of Europe. Spains exports became uncompetitive. Next the housing bubble busted. Unemployment soared Ten out of 100 Spaniards were unemployed. Business became debt strapped and pushed down government income obtained from taxation. Year 2010 the government spending that exceeded its income was very high. Soon the income government was obtaining from taxation was so less that it turned into a crisis. Year 2010 Spain witnessed more than 10000 businesses, unable to pay their debts and their properties had to be sold to pay creditors. Now For Sale signs are seen all over Spain. Spain is up for sale but there is not enough money in Spain to buy everything that is being sold. Owners of small businesses, struggling to pay corporate debts are searching for investors with new insight to save their long business. Spains government is helpless. It can do nothing to make things better. Spains economic recovery is doubtful for years to come. Look at the picture of Dubai. Dubai is an important global financial centre. It is a place growing strongly with great commercial activity. Dubai is praised as a highly successful example of an outstanding method of organizing businesses and developing an economy. It has been chosen as the most desired and suitable destination for large and considerable business operations by 18 out of 50 companies from Global Fortune 500 list and 100 International banks including Citi Group, Deutche Bank, Lloyds, Goldman Sachs, HSBC, Samsung, Honda, Nissans, Siemens and GE. Dubai has the worlds tallest and swankiest building The Bhurj Khalifa with rooms for 30,000 people. It Armani Hotel and Residences has 800 apartments, 160 floors, night clubs, office and commercial spaces on its 144th floor. It stands 818 meters tall, has the worlds 54 fastest elevators. It is an engineering surprise and wonder. Dubai has the best through breeds and the best jockeys. Dubai world with its innumerable high rise buildings can house half of shanghai and all of Mumbai. It is the Las Vegas of the Middle East where everything is bigger and brighter. Dubai is the most desired destination for non-stop heavy duty partying with its tax-free lifestyle. Big international events and major make over plans are in place. It recently held the priciest horse racing event on the earth. It invited 500 celebrities including the British Prince Andrews, Liz Hurleys business and media emperors from all over the world. 60,000 spectators watched the horse race and millions globally watched on TV the horse races and the synchronized fireworks. T he global crowns jewels are all owned by Dubai. They are Dubais prized assets. Year 2006 Dubais Worlds annual revenues were just $ 5,400,000,000. It is ruler controlled government owned company with no worthwhile assets. Nevertheless it generated revenues. Another Organization Dubai Holdings is the personal investments vehicle of the Emirates ruler Sheikh Mohamed Bin Rashid Al Maktaum. It borrowed from International banks. On 14 December 2009 to avoid an

Islamic Bond default linked to Nakheel the builder of man made Palm Island Dubai again borrowed from Abu Dhabi. On 25 July 2009 Dubai World forced these banks to restructure debts until year 2016 with interest of 20%. These banks were blamed for encouraging Dubai World lending in a debt trap. These banks were also asked to write off 40% of their loans. Dubai World has ring fenced its prized assets by refusing to sell these assets to raise money to pay these banks. When giving loans these banks had not asked for any collateral security and now with Dubais prized assets not up for grabs these banks are shell-shocked. Dubais regional banks Emirates NBD and Mashreq Bank the two pivotal fund givers to UAEs economy have maintained complete silence about their exposure to the trouble. The other 97 International Banks too are not making any public statements to their exposure to crisis. Dubai and the Dhabi are maintaining secrecy about the extent and depth of the crisis. A Greece is a tiny Country, smallest European Union. It accounts for 2% European GDP but has effect on the economics of European, UK, US and Japan. Greece spends more than its affordable that leads to more and more borrowing without due care for consequences of its spending. There was no proper accounting administration .The govt borrowing are rising and unable to get finance under control the citizen of Greece have also shown no interest for the consequences. Greece had huge debt, most of it towards Europe. It has defaulted in its payment towards debt. Greece formally requested EU Partners for a bail out. Also European FM planned to raise a fund. Income obtained by government through tax collection is less then its requirement to run the country. There is decline is production of goods and service each year by 4%-5%.and its more parts goes to payment of interest towards loan. On one hand Greece GDP is declining while other hand debt owes to public are rising. Greece economy is struggling and declining it recovery is difficult task. Greece arise has impacted the banking sector of UK Spain, Portugal, US and Japan..It has also impacted to Germany and France .Greece needs long time to recover from its crises, may have to withdraw from European Union. Review its own Currency, devalue the stimulate growth and ease fiscal burden.

Indian economy is fast growing with its Performance level among BRIC Countries. Year 2005-2008 it grow at 9%, with global slowdown an next year it grow at 6.7%, September 2009 IIp showed industries output had grown by 9.1% In year 2010 economy growing by 7.2% .Full blown recovery was expected by end of 2010. Year 2010-2011 economy is expected to grow at 8.5% and double digit growth in 2011-2012.In this economy saving role is 35% and investment role is 37%

India is considered to be top gold holder is world. India has more no. of billionaires wants large portion from middle class. Rising income easy available loan which made India has largest consumer market in whole world. In spite all this Indian economy is said and distressing, it is slowly moving and developing into an economy diminishing value. It is economy that constructs more temples then schools. It is an economy that manufactures more cell phones then toilets and people cannot afford the basis necessity. Open area defecation that going into fields river and lakes. People suffer from numbers of deadly diarrhea and other intestinal disease and leads to their death from contaminated water and unhealthy sanitation. There are 840,000,000 poor in India of which contribution to 1/3 of world poverty .This 450,000,000 are living on less then Rs. 65 per day. This people are notable to efforts 30 kg of grains each month. Every year large number of people gets added to this group. Year 2001 to 2010 history has been created by Indian economy in distribution of its wealth. In this decade their were300000000 people were hungry, malnourished, underweight, and unable to afford medical care education due to earning of Rs.25to Rs30 per day for their family. Buying food was great struggle poverty level was gradually rising to pathetic nutrition level. Indian government has estimated 180,000,000 household for rations 223,000,000 ration cards have been issued. A corruption ridden country with badly run programmes.There is 40,000,000 ghost cards and still adding. 14,000,000 tones of food is issued to BPL families 8,000,000 tones never reach the poor. Only 15% reach the poor. Pre-school meals provided to children goes to fatten cows and buffaloes by upper caste beaurocrats. Before anything can tickle down to the poorest it is taken away by the rich. The divide between the rich and the poor is widening gradually to frightening numbers. The Indian economy is finding it increasingly difficult to reverse the trend. Indias growth story is MALNUTRISTION. It is a non-inclusive economic growth. 600, 000,000 Indians do not have a bank account.144, 000,000 unfortunate Indians still practice barter system. Year 2015 projections say 782,000,000 Indians will be living on less than Rs.100 a day (W.B. IMF report 2010). Indian economy is also plagued by labors growing careless and irregular attendance. How much will Indian economy help global recover?

Look at the picture of banks. Banks are extremely effective, highly competent, very complex, frighteningly powerful and potentially strong sector of the economy. Banks lend money to companies, individuals, and to one another through well designed, complicated and difficult to understand investment products, involving high risk exchange trade, bets and losses. Through the services provided by the banks billions of pounds flow around the world each day. More than 10,000,000,000,000 worth of transaction takes

place each year in Europe and America alone. Trillions upon trillions of pounds flow around the world every year. The transactions are complex and cannot be understood even by financial experts. Banks are designed to mange risk, to make economies efficient and stable, to offer services for the safe keeping and lending of money, to create financial products to make home ownership easy and simple to mange for millions of home less people longing for home of their own, to set up internal rates that govern procedures of financial behavior, to be client centered and work for the enrichment of mankind. The picture of todays banks is different. They are more preoccupied with their own concerns and less client centered. Today banks deliberately act in a way different act in a way different from what is regarded as normal or proper. They put their banks own interest and profits ahead of their clients. Their new ideas and methods of business is followed by relentless advertising and propaganda which gives an impression that they are observing the highest standards of correct business behavior in a cultivated and refined society and take advantage of those less informed.These banks home loan schemes with teaser interest rates encouraged millions of jobless, homeless people to borrow money and buy their dream homes giving the bank an undertaking in the agreement of handing over possession of the home to the bank in the event of the borrowers inability to repay the loan. The interest rates of the home loan schemes was too difficult and the scheme too complex for average borrower to understand. This complex scheme is designed with hidden knowledge of a list of items for certain failure and collapse of the home mortgage market.Giving money to a homeless poor person to buy a home, a loan which last only a short period, with knowledge that the borrower will not be able to repay, knowing also that the borrower has no idea of the what is happening, or what is about to happen with list of hidden items in the agreement. Next on borrowers default at some later date dragging him to court and forcefully and suddenly seizing his home is a well planed crime difficult to prove. Its an intelligent and indirect financial behavior improper and unsuitable of any financial institute, as the behavior goes around the outermost edge of crime but avoiding involving directly in a criminal act. Next banks issue credit cards to people, without having asked for the same. Issuing unsolicited credit cards banks adopt the NINJA POLICY. No income verification, no investigation to check the truth of the job and no through inquiry in order to discover the truth of the assets of the people given the credit card. The people are carelessly issued credit cards and on default banks take advantage of the card holder. Lawless violent persons who resort to intimidation trouble and annoyance are employed for debt collection. A unsuitable and improper behavior having no space in civilized society and criminal in nature.The ultimate logical end of such investments was the steadily rising NPAs of banks, as those who borrowed are not able to pay. Every bank saw a sharp rise in NPAs and it distributed many economies. With levels of bad debts rising banks have begun focusing on debit cards and are slowly winding up their exposure to credit cards.To solve the problems of rising NPs chiefs of Indian banks have approached R.B.I. for policy level intervention. It was because

of NPAs that in May 2008 the world saw the worst financial crisis in living memory. U.S. consumers are showing continued weakness and inability to pay debts. Year 2010 Bank Of America Corporation posted a loss of $ 1,000,000,000 on account of NPAs. Nevertheless the banks thinking, actions and ways of business has not changed. They show no respect for risk control. With rising NPAs they want access to cash without end. To get this continuous access to cash they resort to unpleasant and annoying financial methods. They indulge in excessive risk taking and operate undercapitalized. From the basket of assets held by banks they take some quantity of one type of assets and change it to a new asset. This new asset created by the banks does not have a original source. They are poisonous assets created by pooling risky, secondary in value NPAs. Using dishonest accounting behavior banks give an impression of greater importance to these toxic realestate assets than is justified and manipulate balance sheets. They provide rating agencies with false information and get better ratings for these toxic assets than the original NPAs and mislead investors. Standards & Poor, Moodys Services & Fitch ratings gave excellent and superb ratings to such securities that had turned bad. The banks have found a lop-hole and are still taking advantage of legal technicalities and coming out with more complex products. The rate of change today is six times than the gross world product. Another method adopted by the banks to have access to cash is use of complex financial engineering, legal technicalities and unhealthy accounting methods to make balance sheets appear better. Their assets port folios are mostly junk value assets. No one is willing to accept these harmful NPAs. The banks also hold some high quality assets in the form of government bonds and other high graded securities. These valuable securities bank sell to their rivals only for a few days giving an undertaking of buying back the same after just a few days. And thus they access to cash. It is a loan from a rival bank with good securities as collateral which is treated as a sale without admitting the liability clause. A short-term reducing of assets and risk. These misleading financial statements were certified by senior bank staff. This method helped banks avoid regulatory bodies. They changed healthy established accounting standards to such degrees that banks themselves could not make sense of their own balance sheets. Total risk taking and operating fully undercapitalized.

Lehman Brothers 158 years old bank, Goldman Sach, Wall street giants and clients centered for 140 years, Morgan Stanley, UBS, Citi Group, Credit Suisse, Deutsche Bank, Credit Agricole and Merril Lynch all indulged in these practices. Using this method in months of Oct/ Nov/ Dec 2007, Lehman Brothers in a careless manner sold assets worth $ 38,600,000,000. In year 2008 without proper care it sold assets worth $ 49,100,000,000. And year end 2008 it disposed assets worth $ 50,380,000,000. This misleading and cheating came to an end when J.P.Morgan and H.S.B.C. pushed Lehman Brothers into a confined corner only to protect their own banks endangered interests.

Another unpleasant and disgusting method of getting access to cash was leveraging. In a takeover the target company clubs its assets with a bigger company, gains advantage, influences investors and raises money needed for the takeover bid. There are too any banks resorting to this method and getting access to cash. Globally the banks leveraged are very many and their debts significantly more than their equity base. These banks have got the economies of many countries into lot of trouble. It was these financial engineering methods that in May 2008 lead the world to witness the worst financial crisis in the living memory. It pitched global economy into a black hole from which it is not able to come out even after 2 years. Millions lost their lively hood. Millions lost homes. Economics got crippled. It brought about the collapse and national bankruptcy of Iceland. On Oct.2008 Dutch government bailed out ING Group Financial Services with 10,000,000,000 in emergency funds and asked it to purchase the shares the shares issued as bailout by Jan 2009, and to pay than balance by year and 2011. After the crises created by these banks the World Economic- Forum at Davos discussed new financial regulations to check the activities of these banks. Barrack Obama announced intentions to impose a fee on more than 20 of the countries largest banks for crisis brought to U.S. economy and to recoup tax payers bailout money. In August 2010 a civil suit was filed by Securities and Exchange Commission calming Goldman Sach had created and sold mortgage investment that was devised to fail. On April 26, 2010 U.S. senate investigation committee lead by Carl Levin, democrat of Michigan, claimed Goldman Sachs had bet against its clients putting its own interest and profits ahead of the interest of its clients. Andrew Coumo the New York attorney general has led an investigation into eight banks to determine the truth. The model of the Big Bank has failed. They have to be repeatedly bailed out by tax payers. The bank methods have transformed the entire financial reforms. It has changed the entire art and science of governing finance. However these bankers are least affected by the crisis. They had a year to figure out how to participate in the global recovery. But they do not seem to have got the message. They continue with their methods already found offensive to every accepted standards of decency or modesty. These big bankers and financers are the least loved in any economy. Public anger will support anything even up to burning these banks. These banks ignore these most overt signs of public anger. They are not afraid of any possible civil unrest. They are fighting vigorously against all reforms designed to restrain their taking and compensation. They are resisting every attempt to impose self regulation. They have eliminated only 50% of their poisonous assets. They continue fighting the deregulation of the financial sector so much that they want full freedom to operate under capitalized and free of controls and complete non intervention by government in commerce. They are warning the world that too many rules and too many controls would hurt global economic growth.

They continue to gamble and bet against their clients knowing that Success they will walk away with profits and loss taxpayers will bail them out. Their lending is drying up. Their economies are still struggling but they are not willing to forgo their bonuses and profits. Year 2010 Wall Street bonus season may be one of its largest even though banks holding European debts are facing heavy loses. They continue asking for bailout and are seeking debt forgiveness. None of these bankers responsible for creating the disaster have gone to prison for their financial wrongful behaviour. Some of them were forced to retire in shame with huge payments to ease their pains.$ 55,000,000 was given to Ken Lewis of Bank America. 25,000,000 was given to Fred Godwin of Godwin of Royal Bank Of Scotland. The bank employees are being huge bonuses. It is the people who are suffering the most by the economic slowdown. The 20th century regulatory structure has become ineffective. Every intelligent person understands these things but does not think it necessary to unite to force the world to reinvent finance to protect global growth.