In a world where the opposite of the real is not just untrue or imaginary – it can be fake, artificial or inflated – how well we can turn on the ability to recognize and account for reality distortion fields whose spread An ironic paradox is the information age. In daily life, we are faced with the ‘money illusion’, a term made famous by Irving Fisher almost a century ago. Being human, we tend to focus on the nominal value of money rather than its real value. This can distort all that we value in terms of the Indian Rupee. Unless we adjust for inflation, which over time can buy our currency, figures look smaller than they really are in the past and larger in the future. By the time we get there, rapidly rising prices may reduce old age savings to a pittance, its adequacy ruined by endless cost increases. It can also deceive us into an illusory sense of progress, as nominal trends look sharper than they are, appropriately disregarding rupee figures to reflect reality. And if the rate of inflation remains volatile for a long period, it can turn an economy into a spiraling spiral of distortions. With everyone forced into a grand hall of mirrors, the signals sent by economic agents can be wildly distorted to achieve the multiple equilibrium that market theory says we need for efficient resource allocation.
Given India’s need to optimally spread scarce resources towards multiple ends, it is imperative for us to be as realistic as we can about money. While price stability is the job of the central bank, the tone must be set by the government. How its annual budget fills the gap between outgo and inflow often has a huge impact on the overall money supply, an excess of which can affect the other supply and stock prices. To be both responsible and realistic, our 2023-24 budget calculations should take as a base condition the compressed numbers for output deceleration amid modest inflation. While economic growth may still need some state support, the fiscal deficit should also tighten with policy easing on cash in Covid relief following the 2020 outbreak of the pandemic. Massive amounts of liquidity were infused into the global economy to ease choked commerce and uplift lives. With the inflow of capital, the market value of various properties also increased. Asset owners grew rich in the process, even as the bubble fizzled; Assets whose returns could not justify their price attracted speculative bets on asset inflation (rather than value creation), given how easily these could be dumped on ‘more fools’.
As a global monetary squeeze led by the US Federal Reserve exposes unmitigated risks and tilts asset markets back in favor of real value over illusory gains, short-sellers hail as a financial set-up of smoke and mirrors Seeking profit from price slide. soft target. Last week, the Adani group was accused of being a “fraud” on the eve of its share issue by Hindenburg Research, which alleged that it had inflated its shares, in some cases by fudging the books. And borrowed beyond the security limit by wearing a mask. Truth about his business empire Adani called it a “malicious” attack. Nevertheless, the allegations not only hurt Adani’s overseas bonds (Hindenburg’s crash target), but also the group’s India-listed shares. Its spread is so complex that it will take a deep forensic investigation to check for broken rules. As in finance, alas, elsewhere: it won’t be easy to figure out what’s real and what’s not as we go along. But we must keep at it.
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