Monday, April 26, 2010

Why to Learn Economics

Amaresh Ashok Gangal 
Posted on : Jan 17 2010

Perfect economic system is a system where common man need not learn economics unless he has keen interest in it. He should be able to learn anything of his interest, work for a field he like, innovate, maintain his hobbies and fulfill his family and social responsibilities. However we just can’t compare today’s economic system with word “perfect”.

We will explain the reason why we believe so. Though we broadly believe that we are in recovery phase, we should be deeply concerned about next economic crisis. Of course that does not mean we should stop working now and worry about it, but in fact it mean we should work even hard and invest wisely for next economic crisis.

Reason for worrying for next economic crisis is very important. We anticipate next crisis as “currency crisis led hyperinflation” or “high inflation” followed by “Interest rate shock” We don’t know what will happen exactly but either of these is absolutely inevitable. I.e. we will end up in hyperinflation and currency reforms across the world or we will end up in very painful time where most of the “Zombie” businesses will be allowed to fail.

Either of these situations will not be good for common man. Though later i.e. “High Interest rate” will restore economy in long term, it will be very painful for few years. Timeline wise I believe if we go for Scenario 1 i.e. hyperinflation we can experience very high stock market returns i.e. Dow may run as high as 40000 – 50000 Range (but grocery expenditure will also be 3-5 times) by year 2015-16 and then collapse dramatically or if we settle for Scenario 2, which may happen anytime depending upon call from the central banks and governments we will have situation where asset prices “Real estate” in context of common man will be ¼th of the prices they were bought and Mortgage will be twice than what it is today.

Of course there is possibility of double dip recession in which case both of these scenarios will be postponed to some later date with even bigger numbers. However we believe that understanding the system will help us plan for upcoming decade better and can even give us opportunity to profit from same.

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