There’s something self-contradictory about the government borrowing (very heavily) just to reroute the monies to capital markets – their insolvency would cause a run on much of the banking sector. Such ‘convening’ roles do not require borrowing in excess of a trillion per quarter for the simple reason that stimulative private sector expansion does a much better job of keeping credit markets solvent. So the contrary argument must (and does) have more weight. The government borrows just to function, a non-productive investment if there was one.
And, at the risk of repetition, this is just why the announcement of the government again intending to borrow more than a trillion to fund the outgoing fiscal’s last quarter exposes an inherent inability to grow out of stagflation. If the finance ministry finds inflation numbers rising uncomfortably just around election time, and growth too limp to provide meaningful cushion to employment, it should trace the trajectory to this point again, when the last chance of stimulating growth was deliberately wasted.
The other irritating, unbelievable bottleneck is banking sector credit. The crash of ’08 exposed risk management inefficiency of the sector across the world. Yet as counterparts struggle with appropriate risk control, ours has been a unique response. And that is not indulging in risk at all. Hence the sector’s over eagerness to entertain the government’s bloated presence in the money market. Risk free loans. Not only does this strategy, or rather arrangement, crowd out private sector investment, it also undermines a basic market precept – no risk appetite, no upswing.
Now, since the upcoming budget will entail campaigning compulsions, the government’s need to borrow will only increase. Expect GDP growth to remain low, unemployment high, and inflation rising at least until state bank printing presses run overtime. A symphony of destruction, indeed!
