have you heard of the term moonlighting it means having a second job as in you have your
nine-to-five job and once you're done with that you take up another assignment that's
moonlighting the term has become an apple of discord there's a lot of debate online is it ethical
or is it like cheating on your first job employees are cheering for moonlighting employers
obviously not so much they worry about productivity loss employees about not making the most
of their time now the concept is not new but the debate is and there's a need to find the middle
ground so we thought why not try and answer some critical questions first for example is
moonlighting legal what does the indian law have to say about this is it indeed ethical and how
many people are currently moonlighting also is this the future of work we'll discuss all of this and
more in the next few minutes starting by deep diving into the concept of moonlighting what is it
all about simply put moonlighting involves taking up an assignment outside your work this
assignment could be anything related or unrelated to your first job so how is it different from
freelancing you see a freelancer is not an employee she is self-employed and provides services
to multiple organizations so your freelance moonlighting is when a full-time employee holds
multiple jobs you could be a salesperson nine to five and you could be moonlighting as a dj you
could be a lawyer nine to five and moonlighting is part-time professor of law you could be a
journalist and also have your own youtube channel now why is moonlighting called what it is
because the second job is usually taken up after normal work hours meaning it's mostly an
evening job and that's the association with the moon why do people do it why do they moon light
to maximize their talent to make the most of their potential also to earn an extra income it could
be for passion for the sake of financial security to give your creativity a chance or just because
you want to it could be anything really today there is a growing opportunity to moonlight there
are multiple portals offering part-time or project-based jobs like fever top towel jubal up work flex
job simply hide it's a long long list and it comes with ample opportunity for every skill set there
are writing jobs translating jobs graphics designing animation consulting social media marketing
influencer marketing a whole lot of things social media has made moonlighting very easy and
work from home has given people the extra time to moonlight they're saving time on travel and
many are using that time to monetize they're monetizing that time to want some extra money in
india alone a survey of 400 it employees found that 65 of them knew someone who was
moonlighting experts say this could be because indian tech workers are generally underpaid but
moonlighting is not limited to any particular sector you may have seen school teachers giving
private tuitions or doctors having private practices also this is not specific to any particular level
of workers very often top level employees moonlight as consultants and this is not a concept
that is specific to india unique to india as of 2015 some seven and a half million americans were
holding multiple jobs which is five percent of the u.s workforce during the pandemic the numbers
went up globally and now there's a big debate online so what is the fuss all about here's why
moonlighting worries employers one they worry that it could lead to conflict of interest two there
could be also a breach of confidentiality three employees could be misusing company resources
like using office laptops for other gigs four moon lighting could lead to absenteeism also fatigue
and burnout and these are all valid concerns but so is the argument in support of moonlighting it
is quite simple if an employee can afford to do more and earn more why shouldn't she as long
as it does not get in the way of a primary job why should moonlighting be anybody's business if
anything an employee may be able to bring more to the table every new assignment comes with
an opportunity to learn and an employee who is constantly learning is always an asset next
question what does the law say it's kind of a gray area for starters the term moon lighting is new
so if you're talking about the indian law we look at dual employment what does it say the
factories act of 1948 prohibits dual employment in india but this act does not regulate the
engagement of employees across all sectors it only regulates labor in factories what about the
rest there is no specific law prohibiting moon lighting in india the most important document in
this context is actually a job contract its terms and conditions decide whether or not you can pick
up a second assignment whether or not you can moonlight there are two clauses that you
should watch out for the first one is a single employment clause your work contract may legally
bind you to a single job the second one is the non-compete clause it prohibits an employer from
or an employee from working with a rival company and this can be after you've resigned or even
during your employment if you don't have either of these clauses in your contract then you can
safely moon light in india you can have more than one job same with the united states and the
united kingdom as long as you're paying your taxes for the money that you're making you
should be good to go so legally there is a green light for moonlighting but what about ethics is it
ethical to have two jobs or is it like cheating on your employer think of it this way you have 24
hours in a day your work contract demands that you spend 9 hours at work so that's 24-9 in
most cases which leaves you with 15 hours of time what you do in those 15 hours should not be
anybody's business you could choose to code students you could deliver lectures work at a
departmental store as long as you're not leaking sensitive information you should not be in
conflict of interest and definitely not in breach of your contract so is moonlighting the future well
who knows these are changing times the work culture is changing people want to have a plan b
with everything that they do it is also normal to want multiple sources of income especially given
how unstable the economy is right now people also want to hone different skill sets so what
should employers do like i mentioned they worry about productivity loss and employees worry
about not making the most of their time yes there is the need to find a middle ground but what
must that be employers can start by putting pen to paper come up with the moon lighting policy
earlier this month swiggy said employees were free to work on their projects after working hours
as long as it did not affect their productivity and was not in the in conflict of interest as in you
can't be working in swiggy's marketing team and then moonlighting as zomatos marketing
manager that demand is quite fair we say other companies could take a cue from this have a
proactive approach to moonlighting set performance expectations draft a policy that protects
confidential information define conflict of interest tell employees where the company draws the
red line after all moonlighting having a moonlighting policy helps employers more than
employees because if there's a breach you can terminate employment otherwise it becomes a
courtroom drama allowing employees to moonlight also helps a company project itself as a
progressive workplace as for employees having a policy in place helps in getting a clear
understanding of his or her terms of appointment this is also a reminder for governments to
formulate a proper moonlighting policy india's labor court has adopted the provision for a four
day work week perhaps it's also time to incorporate the idea of having multiple jobs give it a
legal structure define what's okay
on the 3rd of august 8 year old food tech startup swiggy announced that its full-time employees
could take up side gigs outside of office hours two weeks later chairperson of a seven decade
old wipro richard premji termed moon lighting as cheating moon lighting what exactly does it
mean what's this trend really all about even if you don't work in reproducing you need to watch
this video moonlighting is basically a popular practice in the west and now making a strong and
speedy headway in india who doesn't want to earn some extra bucks on the side while still
getting a full-time salary from your current job but wait is it even ethical is it really cheating is it
even legal in india and importantly is it a long-term sustainable model for you and i let's find out
all of that in this video but before that please remember to like share and subscribe press that
bell icon so you keep getting updates on all our videos all right first off let's elaborate the
concept of moonlighting now the trend in which people take up a second job to increase their
income is technically known as moonlighting this concept is actually not new teachers in india
who taught in schools often took tuitions remember classes in the evening during their free time
that was their side hustle founders of several startups have been moonlighting in their previous
jobs in fact bruce wayne is moon blighting bruce wayne i'm batman according to several claims
the name is derived from working at night or working by the moonlight and not the daylight that
was the term defined during the time when work from office was the conventional practice right
but as the pandemic hit work from home culture exploded really many have jumped onto this
opportunity to take up another job or a sidekick as it's called to earn some extra cash look at this
statistics for starters according to a survey in 2021 nearly 40 percent of the workers admitted to
having two full-time jobs in the united states but that's the united states in india how exactly
does it work we spoke to a techie who is moonlighting obviously doesn't want to come on
camera and speak about it but we tried to understand from him okay how does the entire gig
work how do you manage two full-time jobs in a single day and he says the key is dividing your
time take this up suppose you work for company a which is from nine to five you pick up work
also from company b but there the timings is two to ten the ratio work is then divided between
30 30 which means that you focus 30 minutes on a and more on a and less on b then the next
30 minutes more on b and less on a and that is how you show both places that the task is
actually getting done now this requires a lot of hustle of course but also brings you all that extra
cash but remember cash money is not the sole reason for taking up a secondary job so in our
research we came across a survey by resume builders on the top reasons now while investing
and paying off debts was indeed two of the primary reasons really people wanted much more
from their skill set and that is additional work experience as well sometimes people want to take
up their hobbies or passion to the next level and monetize that and surprisingly people also
moonlight just to combat boredom but there's one other reason and that is shortage of skilled
people in india now don't get us wrong india obviously does have skilled youth and it is growing
we even did a video on that talking about how the skill sets in india compared to what's
happening in the u.s et cetera is so good news for you so check it out over here you can press
that link but these skills are still concentrated amongst a few and it's getting difficult for
companies to recruit on a large scale according to a pwc server 54 of the employees strongly
agreed that india lacked the relevant skill set so there are people who started offering their
services but covertly and juggle between that primary employment and their second job from
home there are several jobs especially in the tech industry which have successfully created a
work from home infrastructure and the pandemic propelled this culture of moon lighting really
but there's a catch and you might have guessed it by now the essence of moonlighting is to
keep it a secret just how bruce wayne kept it a secret remember unless you are working for
swiggy of course but swiggy also has a very clear policy and guideline and it goes on to say that
moonlighting should be outside office hours and on weekends the sidekick should not affect
productivity the job should not clash with zwiggy's business and internal approvals are required
still if the side gig poses a high risk of conflict with swigi's business gerish menon who is the
head of the human resources at swiggy went on to say that our aim is to encourage employees
to pursue their passion without any constraints due to their full-time employment with us but as
you know suihi is just a one-off case in india employers in india contractually bind you to only
work for them and prohibit them to take any of the sidekicks so read that fine print very carefully
in your document any confirmation of you working on a second job without the consent of your
employer can lead to disability action even termination something that did happen in fact to a
very strange gentleman in february of 2022 there was one person who was caught working for
not two not three but seven companies at the same time yes you heard that right but here's why
employers actually usually discourage their employees from moon lighting there is conflict of
interest for example if you are working for a tech company like upgrade it will be a conflict of
interest if you are also working for by jews there could be an impact on your primary job which is
mainly the case your manager might think you are quiet quitting don't know quite quitting go
watch that video man we've done like a full detail on what exactly it is all about employees also
coming back to reason that employees can start using company resources such as laptops
softwares etc for both their jobs people start taking more and more time off but it also raises two
important questions is moon lighting ethical and is it even legal now shakun khan of oracle
recently coined this term called ethical moonlighting he urged organizations to create more than
one job opportunities for their employees and encourage them to take up multiple projects within
the organization itself also pay them extra for that this he believed can facilitate employees to
work within the organization with their relevant skills for extra money rather than looking for work
outside the vproject person is clearly no fan so if you're a pro employee and watching this don't
even think about moonlighting but that aside what are the global trends we did some research
and found out that global tech companies such as microsoft google all have a set of
moonlighting guidelines they sometimes allow their employees to work a second job but with
approvals as far as the legality of taking up jobs etc is concerned there is no law under which
india can also prohibit it however there will be a confidentiality clause in the contracts that you
may sign with your company which may or may not allow you to take up multiple jobs so read
that document very carefully because that document is legal and binding violating that could
lead to adverse action as well legal experts said that generally in these cases even if you go to
court employers will have their case bottom line here is get absolute clarity on whether or not
your company allows moon lighting because if you don't there will always be a way in which you
get got remember that guy who could outsmart seven companies one go or they usually also
end up having a massive burnout remember even batman was out for almost eight years which
brings us to whether this is a sustainable model or not in the long run moon lighting may require
people to work at least 12 to 16 hours a day sometimes this work may be staggered through the
day sometimes it could be at a stretch as well but for many it could lead to loss of sleep burnout
they can be tired and stressed all the time which can result in negative consequences such as
making costly mistakes and the loss of productivity as well so in the long term it could prove to
be a little taxing to your health and also risky so the question is should you be moonlighting
bruce wayne didn't have a boss but you do so first and foremost please check your employment
contract usually there's a clause mentioned there on whether or not you can take up these
services apart from that do talk to your manager if they are okay with it they can talk to your hr
on your behalf lastly if all really works out keep a track of your health it is extremely important
that you not feel fatigued and stressed which can cost you not one but both jobs all right so that
was moonlighting from us tell us in the comments below what did you think about it start a
conversation about it with your family and friends share this video with them give us your inputs
on where do you think moonlighting is going as a concept in india and we'll take some of those
questions with experts
what's up everybody my name is joe brown this is the heresy financial show and right now
everybody is wondering how long inflation will continue the federal reserve is trying to fight
inflation by letting assets bleed off their balance sheet and by raising interest rates and at the
same time many people are now afraid of the economy plunging into a recession as a result of
that tightening and a deep enough recession and depression would cause demand destruction
which could cause a deflationary event deflationary death spiral potentially so the question is
what is better inflation or deflation if the fed is truly in between a rock and a hard place where
they have to choose between the purchasing power of the dollar or the economy inflation or
deflation the question is which one is better which one is the right path to choose if you have to
tip over one side or the other which one should they choose and if you stick around to the end
you will see that either way whichever one they choose the end result is typically always going
to be the same ready let's dive in all right so we're going to look at a few drawings here you
know if you've been around the channel for a long time that i'm a master artist i'm fantastic at
drawing here and so i'm going to draw some charts and graphs and lines and shapes for you
because i know that's what you come here for so we're going to look at inflation inflation is
basically prices going up just like that now when prices go up that's a result of the supply of
money going up just like that and so when we have the supply of money go up costs of goods
and services go up because you don't have a corresponding increase in the supply of goods
and services so just like a teeter-totter where you have like a balance in the middle and then
you've got something on top if you've got downward pressure over here that will push upwards
over there and so if you have an increase in the supply of money if you have all of the goods on
this side at this level and then you have the money on this side at this level it takes all the
money to get all that stuff so if what you do is if you get rid of or increase the supply of money
on this side so now you have it look like this where your goods are down here and your money
is up here well it still takes all the money to buy all that stuff so you didn't increase the wealth
the amount of goods and services you just increased the amount of money it took to get that
stuff so now we get to a point in the economy let's just draw a chart of the stock market the
stock market's been going up and you get to a point where we had in 2020 where everything
was about to head down now we're going to use this as the starting point in 2020 just because
that's the most recent starting point there were other things that caused this to go up that
shouldn't have technically been happening but we're going to look at just this point here at the
beginning of 2020 and say that's the beginning what should the policy response have been so
the policy response was to come in here inject a bunch of money into the system to put a floor
underneath the economy so that it would instead of going down it would head back up again all
the wealth stays the same they didn't change the amount of wealth but the prices will have to go
up in response to more money entering the system because you have more money chasing the
same amount of goods and services it takes more money to get the same amount of stuff so
instead of prices continuing to fall past there new money enters the system and prices go up
instead so the result of money printing lowering rates buying assets is inflation is prices go up
who benefits as a result of prices going up well obviously it's going to be the people that own
those things so if home prices go up it's going to be the homeowners if stock prices go up it's
going to be the people who own stocks if the prices of private businesses go up because of new
money entering the economy and new business ventures being able to be started because
people are experimenting with different ways to try and make money a lot of private a lot of
venture capital things like that companies going public all the people who own all of the wealth
benefit when prices go up who else benefits when prices go up the other people who benefit
when prices go up are the people who have debt why is that because when prices go up
incomes go up right because when the price of labor when the price of assets when the price of
goods go up income goes up you sell things for more but the thing about debt is that debt stays
the same unless you get more debt but the dollar amount you owe is going to stay the same so
as prices go up it actually makes that debt easier to pay off because if you owe 100 and you
borrowed one hundred dollars in order to buy something down here but then it goes up to two
hundred dollars well you can sell that and pay off one hundred dollars and you still have one
hundred dollars left over and so both people who own assets and people who borrow are going
to benefit from inflation now if we take a look at the us government the us government debt
chart goes basically like that they're at about 30 trillion dollars right now so does the us
government benefit from inflation absolutely if we look at tax revenue right now tax revenue for
the us government is doing the exact same thing so that is an example of income going up from
inflation for the us government it makes it easier to pay that 30 trillion dollars worth of debt so
the government benefits from inflation so we see that inflation printing money stops prices from
going down benefits all the asset holders and benefits all the borrowers if instead you have
deflation where prices come down let's say the federal reserve did not stop that but let
everything just crash well who benefits the people who benefit are the ones who are holding
dollars they're the savers because when the price of something collapses then they're going to
take their money and use it to buy that stuff at the discount pricing because when things get
cheap then suddenly they've got dollars that will go a lot farther than they did before remember
the wealth example you've got the wealth over here you've got the money over here and if the
amount of money goes down compared to the amount of wealth in the system because there's
deflation then suddenly the total amount of money in the system is down here but they're still the
same amount of wealth so it takes less money to buy the same amount of wealth this is a little
bit counter-intuitive but deflation results in prices going down because the amount of money
total in the system shrinks it's the opposite of inflation instead of there being more money
available there's less money available this means there's less money available to allocate to
prices to buying things and so prices of things must come down in order to compensate so stuff
gets cheaper so the people who own the dollars instead of the assets win it's the savers who
else wins it's the lenders because if i have money and i loaned it to you and now you owe me
back money well then i loaned you money at a higher at a lower value than what you are going
to pay me back at because when you come around and pay me back those dollars there's if you
remember prices went down so maybe before i had one dollar worth of purchasing power and i
could buy let's say one share of something at that when deflation happens and the price of stuff
starts to collapse now that same one dollar can be used to purchase two shares of whatever it
was that i was looking at before and so the ones who lend the money are the ones who benefit
in deflation so lenders and savers benefit from deflation now who are the lenders the banks who
are the savers really nobody there's there are very few people in america who are savers the
lenders are the banks though the lenders are also the savers because when you save money
it's in a bank account and that money is lent out it's used to lend out even more than that
amount of money but you get the point when you're leaving money it's in a an institution that
uses it uses that mechanism to loan it out same thing with cash in a brokerage account same
thing with cash and a pension same thing with a certificate of deposit a cd at a bank savers are
lenders and so when you have prices come down those are the people who benefit because
prices come down you can buy more of something afterwards whether it's house prices that
come down stock prices that come down business prices that come down the prices of goods
and services when your saver and stuff gets cheaper you benefit now the majority of americans
don't actually have assets they have negative net worths when you consider their savings their
debt their assets their liabilities they have a negative net worth that means most americans
would benefit from prices coming down so when we look at what happened in 2020 prices were
going up and then everything was going to come down there were going to be bankruptcies
companies were going to fail you were going to have debt get defaulted on things were going to
get very cheap who would benefit here it would be the poorest americans it would be the people
who had savings it would be the people who didn't have assets because it would give them an
opportunity to buy down here at the level they can afford instead of having prices stay up here at
the level that they cannot afford so that's how that would have happened if it would have just
been allowed to crash we would have had deflation and then assets would have been cheap
and they would have been transferred the ownership of those assets would have been
transferred from the people who took too much risk and failed to the people who were very
conservative and saved and waited for a smart opportunity to buy in but instead we got the
bounce where the fed put the floor in from prices and prices went up instead so we got the
inflation but here's the end here's the tricky part that i wanted to show you right now we had that
bounce up and now everything is starting to collapse again we are now starting to feel the same
effects of deflation that we were going to get back there we're feeling them right now we are
starting to have companies do layoffs we are starting to have defaults on debt we are starting to
have savings people are stopping spending people are getting conservative people are
wondering where their paychecks are going to come from people are not having income keep
up with inflation so what we're seeing here is that when you bail out the system all you do is
delay the inevitable you're still going to get that same downward pressure that you are getting
right here but the worst part about this is that you had all the inflation in the meantime and so as
a policy maker when you try and step in and stop the economic pain from happening you can
only do it temporarily the result is prices go up and a lot of americans suffer because now they
can't afford the cost of living because prices go up and their incomes didn't go up enough to
compensate but then you get the deflation on the other side where things will start to crash
because all that deflation was supposed to happen anyway deflation is the natural force of
history as technology increases as wealth increases as progress happens you get more wealth
on earth and so absent intervention prices would go down over time that's what abundance is
abundance means it costs less to get something if something is so abundant that it costs zero to
get it guess what it's free and as wealth increases on earth that means more and more and
more things that used to cost us a lot of time and labor to get like food and clothing and shelter
end up taking less and less and less labor for us to get so we can devote more and more of that
labor in our time our capital and our resources to getting other things that we want because we
get abundance so deflation is the normal course of history where things get cheaper over time
but through intervention you can cause temporary bursts of inflation these temporary bursts
might not look temporary it might last somebody's whole lifetime but they're still temporary in the
long scheme of history but you still get the deflation on the other side so if you try and make the
inflation happen it's number one it's destined for failure because you still get the crash you still
get the deleveraging you still get the bankruptcies you still get the defaults you still get all the
bad economic pain but the downside is that you have the inflation in between where you hurt
people even more so we're experiencing all the same economic pain right now and going
forward that we would have in 2020 if things would have just been allowed to collapse and the
cards would have landed where they were but because they decided to try and stop that from
happening you get a period of inflation and then they realize no we actually have to let the
deflation happen now because if they don't let the deflation happen now then you risk
hyperinflation and losing the value of the currency 100 a collapse of the currency that's what
happened in weimar germany that's what's happened in venezuela in argentina and zimbabwe
and turkey and lebanon everywhere we've had hyperinflation the central bank has looked at and
they said hey we stopped the deflation from happening now we have inflation so we can either
choose to now let the deflation happen now it's coming back or go all in on inflation and just
destroy the currency in the process now i don't think that's the choice that our policy makers are
going to make and at least that's not the choice they're making right now but either way when
you look at what's worse inflation or deflation inflation is definitely worse especially considering
the fact that when you try and make inflation happen you end up getting the deflation afterwards
anyway so you get both instead of just the one as always i really appreciate you guys thank you
so much for watching have a great day you
PAK
172 per liter and Diesel 280 Pakistani Rupees per liter the government has taken these
unprecedented measures to appease the IMF and secure a seven billion dollar extended fund
facility Pakistan has announced a mini budget aimed at reducing the deficit and broadening the
government's tax collection net a senior Moody's Analytics Economist has said that Pakistan's
inflation could hit 33 percent in the first half of 2023 before trending lower and an IMF package
alone may not be enough to put the country's economy on track prices of essential items like
wheat milk and poultry are at high levels putting pressure on the average Pakistani citizen the
government could now increase tax rates to widen the tax base as well joining me now to take
this forward our razaarumi journalist from Pakistan joining us from Washington DC and Stephen
cocaine Chief Economist at Moody's investor service thank you very much for joining us here
gentlemen uh Stephen if I can begin with you give us a sense of where Pakistan is heading do
you think there are worse days ahead uh the it's going to be a tough year this year I think there's
no question about it I think the first half of this year uh could be a difficult year for pakistanis in
general as you mentioned earlier there's a very very good chance that inflation will rise further
as you mentioned the price of petrol is going up uh and it could very well rise further if there's a
need down the road and inflation is still uh uh very high for food products basic products that
that ordinary households buy day-to-day so there's a good chance that uh the the inflation rate
could rise to something over 30 percent in the first half of the year I think uh the second half of
the year will look better that indeed if there is very stable monetary policy and continued
austerity on the fiscal side of policy making then we might see inflation begin to come in in the
second half of the year so that when the entire year comes in it might actually look better than
last year it might be in the low 20s uh but uh that'll be towards the end of the year rather than uh
in the near term right uh razaarumi coming to you give us a sense of how the life of an ordinary
Pakistani citizen has been impacted the last few days we're seeing petrol and diesel prices at
record levels prices of milk prices of chicken prices of wheat are all at very high levels how is
this making day-to-day life difficult I think for an average Pakistani especially from the
low-income group or the fixed income group uh the life has been tough uh for the past many
many months I mean in recent days and uh weeks uh to meet some of the IMF conditions uh
further uh you know price hikes uh are have actually been announced so for example the prices
of energy you mentioned petrol and Diesel which is vital for the economy and for everyday
transportation of goods and services and of people as well uh but you know uh the the rates of
natural gas have gone up by 113 and that is also to uh Bridge the shortfall uh between the uh
cost of producing and importing LNG or gas Etc and the and the rate at which it is sold in the
open market uh Pakistan's uh biggest uh sort of bleeding uh uh source of Revenue consumption
or or the expenditure is uh the circular debt which is related to energy uh you know keeping the
power sector uh functional in the country so the government uh actually buys electricity at a at a
much expensive rate and passes it on to the consumerator at a lower rate and subsidizes it and
the IMF has been asking the government to bridge that Gap and rationalize these prices uh
going forward so I think that these prices have are going to further escalate inflation I think uh
30 percent or whatever is uh is a conservative estimate because I was just reading today that
uh the uh the new figures are 38 and the food inflation for the past many months has actually
been uh close to 40 percent so as you mentioned bread milk eggs Etc uh all of this has I mean
a a major source of hardship for Pakistani people and I really you know uh it has a political cost
it has a social cost and I think that's what the government is truly worried about yeah right uh
Stephen coming to you it has been predicted that even with this IMF bailout uh which looks
difficult at this stage even with this things may not get better overnight what is your view well the
IMF bailout will certainly help and I think the government needs to do everything it can to try to
secure uh that bailout uh without it the conditions would be even that much uh tougher but even
with the bailout I mean there's still going to be a need to most importantly keep an eye on
inflation and do whatever can be done to uh get an inflation back under control now it's not
going to be easy because in the near term uh as as we mentioned there are going to be uh tax
hikes or Price hikes or subsidy reductions on a number of uh products but all that will lead to uh
better inflation uh going forward second and a half second half of the year and into uh 2024. so
uh I think no matter whether the bailout is is achieved or not it's just going to be a very very
difficult year for a Pakistan I think I one a few things that the government can do to try to uh
ease these conditions one is simply to to work very very hard to get find more uh foreign aid to
pay for uh the flood damage repair that's absolutely necessary from the floods last year uh I
think that'll be uh go a long way towards also helping economic growth to study as infrastructure
construction would uh would help uh and uh that would create jobs and income for pakistanis uh
as well so it's going to be tough in terms of of managing fiscal austerity at the same time
managing some of these uh flood flood relief programs that have to be taken care of as well
right coming to you the Washington Post reported how there have been 13 bailouts that
Pakistan has received since the 1980s but somewhere they have just not gone for those major
structural changes that were required to reduce government spending increasing revenues as
well what do you think has been missing from the economic program of successive
governments uh you know this is a very important uh question and I think a fundamental
question here uh and uh you know the uh unwilling uh uh nature of the Pakistani political system
to undertake structural reforms that are an imperative now and now I guess with this crisis uh
they will have no choice going forward uh but to uh address some of those long-standing issues
what are those issues I think uh the first is that Pakistan's a bleeding public sector Enterprises
uh consume a major chunk of the budget you know so there are big white elephants you know
that need to be either improve their their governance they needs to improve or they need to be
privatized or partially privatized you know the railways the steel mills I mean there are dozens
and dozens of public sector corporations which basically are a burden on the exchange and no
political government wants to touch them because of because if they downsize or rationalize
their workings they will have to lay off people so that's one part the other is of course defense
expenditure which which has also uh not really uh seen any decrease I mean it was frozen in
the last budget I mean that's what the government claimed uh but you know it is also important
for Pakistan to to review and some of the economists have argued that some that some of the
wasteful expenditure in the public sector both in the defense sector as well in the civilian
bureaucracy needs to be trimmed down and then of course the power sector that I mentioned
earlier you know all almost 20 to 30 percent of line losses have been reported in power
distribution so until you don't fix some of these issues and for and you're not going to uh you
know stabilize in the longer run I mean IMF bailouts are just temporary uh sort of injections that
Pakistan is now used to and uh and I think uh this one also will give a reprieve for a couple of
months and then in about four to six months it will Pakistan will be back in the same situation
until literally doesn't cut down its expenditures but for all of this what is important to remember is
that you cannot bring about these reforms without a bipartisan consensus without a political
consensus and political stability in Pakistan governments are frequently changed you know
there's still turmoil going on on the street I mean for parts of last year uh but the opposition later
Imran Khan was protesting on the streets now he wants an early election and the government
doesn't want to go into election so there is there's always this political instability that prevents uh
uh you know arriving at a consensus on key policy reforms that are urgently needed and final
Point why all of this is so great has become so critical with foreign exchange reserves dipping to
nearly three billion dollars or so is also the fact that the Western assistance to Pakistan has
declined tremendously for what Pakistan has been uh you know used to being part of the U.S
Global Security project where either it's the cold war or you know the Afghanistan war or the war
on terror and it you it was getting all these handouts you know lots and lots of uh uh you know
foreign exchange for its services in in these projects I mean they're they're no longer coming
until of course U.S starts forming another country in the neighborhood A.D but God forbid uh so
I guess what what Pakistan's Elites need to realize is that they have to wake up to a new real
new reality a new a new geopolitical order and also think of trade trading with India trading with
with Iran trading with China and other parts I mean it is an imperative now without which you
cannot really think of long-term solution thank you right uh Stephen my final questions now to
both our pandas Steven starting with you what is uh the danger of an economy like this uh for
the Southeast Asian region for the world as well according to you well there's a couple of
dangers first of course just uh for Pakistan itself if these uh issues cannot be uh managed uh
and uh one of the first problems is simply not having enough foreign exchange to bring in the
imported uh Goods that are needed to uh survive that's the very near-term uh problem and then
if uh these issues lead to a rise in poverty rates and and and then a rise in Social instability
that's something that can uh not only uh hurt Pakistan itself but bleed to other regions of the uh
uh of the world so stability and the idea as mentioned earlier that these structural reforms take a
really long term uh effort to attain is really critically important in trying to avoid these kinds of
issues I think in the near term one of the advantages in terms of the global economy is that the
Chinese economy uh is going to be accelerating this coming year next year as it comes out of
its zero covet policy that will create opportunities for trade and for somewhat stronger Global
growth it's a very good time to be working on policies that extend uh linkages uh through global
trade and inward investment into Pakistan all right we've run out of time but uh Stephen
Cochrane uh razaarumi thank you very much for joining us for that insightful discussion uh on
the state of the Pakistani economy right now of course uh what's happening in India's
neighborhood is extremely important and India of course is looking at the situation in Pakistan
very very closely and carefully as well razaarumi Stephen Cochrane thank you very much for
joining us we take a break here but when we return we turn our Focus to China from the Spy
balloon route to the U.S Senate's resolution on arunachal Pradesh that and much more with
Brahma chalani when we're back thank you
After Sri Lanka, another neighboring country of ours seems to be on the fast track to economic
decline. Rising debt and inflation have led Pakistan to entrust its economic stability to the
International Monetary Fund, or IMF, in the hope that they will bail it out of its dire economic
situation. Pakistan today is in the midst of a storm where political and sovereign instability is
brewing along with economic instability. A nuclear state in trouble is not a good sign. That's why
India as well as the whole world is following the developments going on in Islamabad very
carefully. On one hand, the Pakistani rupee is hitting a record low and on the other hand, fuel
prices are skyrocketing, due to which Pakistan is struggling to meet the basic needs of its
citizens. The countrywide power crisis is going on in Pakistan The food crisis and inflation have
increased so much that people do not even have money to afford a proper meal. There are long
queues of cars at gas stations and petrol pumps due to the shortage of fuel. And the available
fuel is unaffordable for the common citizens. The price of flour has skyrocketed. The cost of 10
kg wheat flour reached Rs. 1,500. There was also a situation where people were chasing the
wheat truck on their bikes. But how did Pakistan come to this critical junction? What is it doing to
get out of this situation and should India be worried? Let's take a deep dive into the problems in
our neighborhood and the tension surrounding it in this video. By the way, this critical economic
condition of Pakistan has been there for a long time. Since 1958, Pakistan has had to knock on
the doors of the IMF 23 times for bail-out. But the current situation is unprecedented. The
Pakistani economy is on the verge of collapse today! On one side where the country's people
are shaken, the Pakistan Prime Minister, Shehbaz Sharif has recently increased petrol and
diesel prices. Interestingly, even when Pakistan was fighting for survival on the IMF bailout
package under Imran Khan's rule, the IMF regulator gave strict instructions to the Pakistan
Government to cut the fuel subsidy looking at the solution to the economy. But for one reason or
another, the government did not listen to him. When the Pakistani citizens and their economic
condition reached a critical stage, Shahbaz Sharif finally decided to increase fuel prices. Due to
the short fuel supply by oil marketing companies, petrol pumps there are slowly running dry and
vehicles queue up at stations. Now it is obvious that when petrol will be the only commodity,
then the prices of other basic and imported goods will also skyrocket. The World Bank has said
that today around 6 million people in Pakistan are fighting acute food insecurity. But the
alarming news is that between September 2023 and December 2023, this number can reach up
to 85 lakhs. On the other hand, there is also a lack of basic medicine in the hospital. And who
knows, now there will soon be a shortage of necessities such as fertilizers. Pakistan's condition
is getting worse due to prolonged power cuts and non-issuance of letters of credit for imports
i.e. bank payment guarantee for imports. The situation is so bad, especially in Sindh,
Balochistan, and Khyber Pakhtunkhwa, that there is an acute shortage of "flour". To be fair,
there is a fight going on for food. And if this situation persists - then this economic crisis in
Pakistan can turn into a humanitarian crisis as well. Pakistan is facing a 28% inflation 48-year
high PE record every day and seems to be surrounded by some new trouble. Their Central
Bank, the State Bank of Pakistan, now has only $3 billion in reserves. And this is at any rate not
sufficient for Pakistan's vital imports such as crude oil. Nor is it enough to service the Reserve's
external debt of $130 billion. Friends, like India, Pakistan also relies on crude oil and coal
imports for their energy needs. But their falling currency and deepening balance of payments
crisis will make their imports even more expensive. If you understand the balance of payments,
it is a record of the economic transactions of any country with the rest of the country. Pakistan is
trying to solve its energy crisis by closing markets early, banning marriage halls and restaurants,
and reducing production, but the situation is not improving much. The reality of the present
situation is that only external aid can save Pakistan. And for this, the results of their ongoing
talks with the IMF can prove to be very important for them. Also, it would be worth noting that
these talks could be the most difficult for Pakistan so far. Practically speaking, this program IMF
has been put on hold since November 2022 as Pakistan's Finance Minister Mr. Ishaq Dar did
not fulfill IMF's demand to leave the Pakistani currency exchange rate up to market forces, and
the Pakistan Rupee tried to save artificially. Meanwhile, Pakistani politicians and their army
chiefs also sought help from their 'brotherhood' and friendly countries. But this attempt also
failed. Finally, now it seems that the leadership of Pakistan is not seeing any other way forward
perhaps it has also been understood that it is better to stand on one's strength than to live on
another's money. But how did Pakistan end up in this situation? The biggest reason why
Pakistan is on paper for default today is the debt taken by them. Pakistan is caught in a vicious
debt cycle. As we mentioned, today they have an external debt of about $130 billion. According
to the latest numbers, Pakistan's debt-to-GDP ratio is 70%, and believe it or not - 40-50% of the
government's annual revenue is earmarked for interest payments. Nowhere can we blame this
debt crisis on Pakistan's poor and short-sighted economic policies. Funding non-developmental
and economically unviable projects through long-term debt instruments and external borrowings
have proved to be a very harmful decision for them. Also, the continuous depreciation of the
Pakistani rupee against the US dollar has been a major contributor to their ballooning foreign
debt. On 26 January 2023, the Pakistani rupee depreciated by 9.6% against the dollar - the
biggest one-day decline in 20 years. Recently, Pakistan's Finance Minister Ishaq Dar removed
the artificial cap imposed on the Pakistani rupee to control it. What was to happen then, the
market forces did their work and the Pakistani rupee started falling rapidly. Low confidence in
Pakistan in the international community and lack of approvals by international rating agencies
have kept international investors away from Pakistan. Plus 2018 being a grey list in FATF i.e.
The Financial Action Task Force proved to be financially disastrous for them. If simple language,
a country is added to the FATF black or grey list when it is believed to be involved in activities
like terrorist financing and money laundering. In a way, this is a wake-up call for that country,
because due to this many economic sanctions and restrictive measures can be taken on the
country through international organizations and other countries. There is no China-Pakistan
Economic Corridor project worth billions of dollars, on top of that the debt burden is increasing
even more. The irony is that Chinese debt has grown from $47 billion in 2014 to $64 billion
today. When no one help Pakistan, it was obvious that they had no choice but to accept the
complicated loan terms of Saudi Arabia and China. The Central Bank of Pakistan has
suggested that FDI inflows into Pakistan have never crossed 1% of its GDP in the last 10 years.
These halos have forced Pakistan to run after new loans to repay the old loans. And those old
loans were taken to repay even older loans. As the saying goes "Taking a loan to pay off an old
loan is a perfect recipe for disaster!". Pakistan is also trapped in the same debt trap today. Due
to falling exports and increasing imports, our neighboring country is suffering from an economic
disease called an increasing trade deficit. If we mix falling investment factor in this, then due to
them, there has been a sharp decline in Pakistan's foreign exchange reserves. The
Russia-Ukraine war has disrupted the supply chain of crude oil and food around the world, due
to which their prices have also increased. And when your economy runs on the import of both
fuel and food, then inflation in this situation is bound to go out of control. Moreover, last year
between June and October 2022 Pakistan was hit by the most devastating floods in its history.
And this unfortunate natural disaster worsened the already weak economic condition of
Pakistan. Affecting 33 million people, the flood caused a loss of $30 billion in Pakistan. The
flood itself increased Pakistan's dependence on food grain imports. But now how will Pakistan
come out of this mess? What are the options before them? What should Pakistan do now? The
short and 2-word answer is "IMF bailout." the shorter the answer is, the more short-term this
solution is. Let me explain. Cash-strapped Pakistan finally accepted the reality and started its
bailout talks with the IMF on 31 January 2023. Pakistan secured a $6 billion package from the
IMF in 2019, which was topped up from $1 billion last year. But as we mentioned, Pakistan did
not accept some of the key IMF conditions such as the removal of subsidy on petrol, due to
which this $7 billion package got stalled. Prime Minister Shehbaz Sharif is optimistic that the
talks, which are due to conclude on February 9, will be successful in securing at least $1.1
billion of these funds. However, the view of the domestic analyst is somewhat opposite. He says
that this round of talks is going to be very difficult for the government. This time the IMF will
impose harsh and adverse conditions on Pakistan, which will be uncomfortable for the
government and the citizens of pole-bound Pakistan, especially when the whole country is
facing record inflation and unemployment. The State Bank of Pakistan admitted that it has to
repay $8 billion worth of debt in the next 5 months, in which about $5 billion is likely to roll over.
But they will have to wait for the remaining $3 billion in debt and an additional $5 billion to fund
their current account deficit. A current account deficit occurs when a country's spending on
imports exceeds its export income. In totality, Pakistan needs around $9-10 billion just to control
its external situation and depressing currency position and that is too quickly. According to the
IMF, for the next 3 years, Pakistan will have to arrange $25 billion annually just to repay the loan
and interest, which, frankly, seems an impossible task considering the current situation.
Pakistan can focus on rescheduling or restructuring these loans, but even this move will
eventually lead them further into the same debt trap. According to the former Finance Minister of
Pakistan, Miftah Ismail, the only way left for Pakistan is that the countries and institutions from
which Pakistan has taken loans earlier and will ask for more long-term loans from them. He was
left with no other option but to make bitter decisions. China and Saudi Arabia may even help
them today, but that too with strings. Yes. Both friendly countries can take undue advantage of
this desperate situation of Pakistan for their strategic and geopolitical gains. And on the other
side will come the strict conditions of IMF which will create a problem for the government for
elections. If Pakistan is a serious country, it should preserve its sovereignty and protect itself
momentarily from the threat of default with the IMF's help. Otherwise, if Pakistan defaults, we
will see unprecedented social upheaval and political unrest there. And this situation will be
worrying situation for India as a neighboring country, and for the world at large. Now Pakistan's
economic condition is bad, but they are also facing problems from the country in their
neighborhood. The return of the Taliban to the political leadership of Afghanistan was
considered a positive development for Pakistan. But today the Taliban has become a headache
for Pakistan. Tehreek-e Taliban Pakistan, TTP is an organization within which different Islamic
armed militant groups work on the Afghan-Pakistan border. This group has started actively
attacking the Pakistan Army and Police since 2020, and they want to eventually topple the
government. And as you can see, terrorism is on the rise in Pakistan since the Taliban takeover
of Afghanistan. now, this whole situation is not only economic but has also taken a political
dimension. After a no-confidence motion in April 2022 and losing his PM's chair,
cricketer-turned-politician and former PM Imran Khan did something that no one in Pakistan had
done to date. Imran Khan is probably the most popular person in Pakistan today. And taking
advantage of this popularity, they have messed with their army and establishment there. He is in
such a hurry to get back to power that he wants elections quickly in Pakistan even though the
country has no money to survive for the next 3 months. While Pakistan's ordinary people are
struggling to meet basic economic needs, other political parties in Pakistan are engaged in a
power game. Talking about the political instability of Pakistan, since 1947 till now, there have
been a total of 29 prime ministers in Pakistan, but they have yet to complete their full 5-year
term. The ongoing situation in Pakistan must be monitored very closely at the top level in India
as well. Protests have started in Pakistan Occupied Kashmir. Activists say that the people there
want to go to India. But is India prepared for a possible refugee crisis? Well, only time will tell.
But there is one more thing that is being speculated upon. And that is that due to the deep
economic crisis in Pakistan, China's influence will probably increase there. And this will directly
or indirectly affect India because today India is in a tense situation with China on its eastern
border. In addition, India-Pakistan bilateral trade was set at $514 million in 2021-22, with Indian
exports accounting for the majority. And now India's exports may also be affected due to the bad
condition of Pakistan. So, geopolitically things are very dynamic. Today Pakistan's foreign
exchange reserves are at a 9-year low of $2.9 billion and can only support about 2 weeks of
imports. That is why the ongoing talks between the IMF and Pakistan on the 7 billion bailout
package become very important. While I am recording this video on 10th February, there are
some reports that perhaps Pakistan and IMF officials still need to strike a common ground on a
bailout package deal despite 10 days of talks. Friends, by the beginning of 2022, there is an
investment of about $ 3.1 billion in Sri Lanka's foreign exchange reserves. Change the year to
2023 and replace Sri Lanka with Pakistan. It remains to be seen whether the end of Pakistan
will also be like Sri Lanka. What do you think?
Recession
hi everyone so if you Google the word recession 2023 you will find a lot of contradictory
information for example Goldman Sachs is saying that there are 10 reasons there won't be a
recession on the flip side Banks like Bank of America are saying that recession is going to eat
up the markets in early 2023 then people like Elon Musk are giving their own commentary
bunch of other economists are given their own commentary so what exactly is happening
because the confusion is happening even at the government level for example Joe Biden who is
the president of the US he says that we are nowhere close to the recession but on the flip side
his Central Bank chairman is saying that we will enter into a recession because of our fight
against inflation so there is a lot of confusion that is happening at all levels so I thought that I will
help you understand this complicated Topic in very easy to understand language there are four
specific points that I'm going to discuss that who exactly is right about recession because in
India also commentary is that there is no recession that is happening is it really true or not not
second key Point how a recession is going to impact the stock market in 2023 so in case you
are investing right now or if you plan to invest in 2023 it becomes an important point for you to
understand third and a point which rarely very few people are discussing how exactly are we
going to come out of recession so I'm going to share my viewpoint fourth and finally I am going
to discuss how I am preparing my portfolio to deal with this recession so let us kick start our
discussion and just a very quick investment oriented point I feel that the U.S stock market or the
total U.S market which is S P 500 or NASDAQ if you buy indices they are at a very good level
this is not a buying selling recommendation but I feel that the U.S market is at a very good level
I am investing heavily in the US right now because you might have already seen that Nifty has
already given a breakout it is trading at its all time high almost but the U.S market has not done
the same it is very likely that U.S markets too will trade at their all-time high so it is a great time
to build positions in the U.S stock markets many of you keep on asking me how do I invest in
the U.S stocks and how do I buy the total index in the US so you can check the links in the
description box and purchase U.S Stocks by using vested I have also put some of the west west
means that which stocks am I buying in the US so you will get access to that West also this is
completely free so let us kick start our conversation and first and foremost let us quickly
understand what recession exactly is and who is right about recession so Point number one is
that are we in a recession the short answer is yes we are already in a recession there was a
recession that already happened in 2020 and there is another recession that is happening as
we speak but first and foremost let us quickly understand what is the meaning of recession so
here is the definition that a recession means a significant widespread prolonged downturn in the
economic activity now how do we measure economic activity we generally tend to do it in terms
of GDP what type of GDP we usually do it inflation adjusted GDP which is also called as real
GDP now there was a very interesting word here which means prolonged downturn period now
there is no set definition that okay prolonged period means two months three months two year
five year nothing of that sort basically Economist typically agree on the fact that if two quarter of
GDP has shrunk what type of GDP real GDP if it has gone down for two quarters then
theoretically we are in a recession so then comes the natural question that are we in a
recession really okay you can go and check the data and this data can be easily Googled and if
you Google the data India's real GDP growth from 2017 to 2027 forecasted what will you find
you will first and foremost find that GDP shrunk here and it shrunk here so two quarters of poor
growth so definitely a sustained period of poor growth and again now it is forecasted that GDP
is going to fall in the year 2023 so this again becomes recession two this was a recession one I
hope this point is clear now many of you would be wondering that okay why did the GDP real
growth rate increase here well it increased because there was more money that was printed in
case you don't know how money printing impacts the GDP I had done a separate video on that
topic I will link it down in the description and print comment you can go and check it out it will
help you understand macroeconomics more heuristically on a side note if you enjoy this type of
content where I am talking about macroeconomics helping you understand things fundamentally
do consider liking these type of videos it would allow more people to understand the concept
behind things that is the real intent with which I make videos and if you are enjoying the channel
do consider subscribing to it as well now India is a big part of the world a very important part of
the world but we also need to take a look at other areas of the world so let's start with the most
important economic area of the world which is the US and what is the commentary there and
what does the real GDP growth tells us about recession in the US so again the situation looks
somewhat similar that there was a period when the economy declined from 2018 to 2019 and
then there was another decline so this is definitely a period of recession one could argue and
again the same thing happened that there has been two periods of decline in fact it is forecasted
that even in 2024 the USS GDP is going to suffer so this is a sustained period of recession now
in case you are interested in figuring out the growth rate across different parts of the world
here's a quick chart you can pause the video but understanding of this data is not critical now
IMF has also presented a lot of studies detailed debriefs region wise all this stuff so you can
consider taking a look here but but to cut the long story short the world has already suffered one
round of recession and now it is undergoing the second round of recession so then comes the
natural question that okay you are talking about that we have already been through a recession
another recession is going but I have not heard about it I have not read in the newspaper that
we are in a recession it is because of the fact that recession is a lagging indicator now what is
the meaning of lagging indicator let me explain so let's say that this period and this period had
bad economic output and the GDP shrunk here and here now ncbr so this is a government
organization in the US it will sit somewhere here and it then it will then say looking at the
economic output in 2019 and 2020 it will then declare a recession they usually evaluate the data
on two quarters not on two years but I hope you got the point in India the Declaration of
recession happens by Harvey so all these agencies take time to compute data here and here
and then they finally finally declare that you know what this previous period was a recession
period now another way of predicting recession is because the previous data that I had shown
you it was forecast based data but there is another way of predicting recession and it is called
as analyzing the inverted yield curve so whenever yield curve inversion happens usually it is
seen that recession follows for example on this chart you will see this blue bar you will also see
this line This is zero percent and this entire thing indicates a Spread spread means difference
between two things so this indicates a difference between 10-year bond yield minus two year
bonding ten year is long-term bond yield two years short-term Bond yield bond yield means
what it means the interest rate on bonds now usually what happens is that if you are holding a
bond for a longer duration 10 years 12 years if you do an FD you're supposed to get higher rate
of returns right not lower rate of returns but yield curve inversion tells us that the short-term
Bond rates have gone up compared to long-term moderates and therefore whenever this blue
chart goes below this red line it means a yield curve inversion has happened here here here all
these places yield curve inversion has happened it has almost happened in 2020 and again it is
happening somewhere here so you can back test this so let's consider 2000 this was the.com
bubble crush the recession happened when the recession happened somewhere in 2001
onwards what happened after 2008 the crash happened somewhere here this was yield curve
inversion and then this gray chart this indicates the length of recession so the recession
technically happened somewhere from 2009 onwards what happened in 2020 there was a very
brief period of recession what is happening in the end of 2022 so recently in November the yield
curve again inverted and now people are forecasting the 2023 recession is going to happen yes
recession is going to happen do you need to panic so let us understand that in the next section
now in this section let us quickly analyze the impact of recession on the stock market now
recession has a very different impact on economy and it has a very different impact on the stock
market why is that because economy is a lagging indicator stock market is a forecasting
indicator or a leading indicator stock markets today whatever prices you are seeing for example
hypothetically speaking If Today nifty 50 is at 18 700 then what does this 18700 signify in simple
words it signifies the strength of the economy six months or 12 months down the line right now
people are slightly optimistic that economy will be fine 6 months 12 months down the line
therefore the valuation in nifty 50 has gone up so stock market is a leading indicator while
economy is a lagging indicator there is a lot of pessimism in the economy right now but when
you are a stock market investor you need to think about the future but is this pessimism going to
become worse with time or is it going to improve in the next six to 12 months and that is how
you will have to make your buying and selling decisions today so let me break this down and
hopefully it will make more sense so this study has been done by a Wealth Management
Service called as Darrow wealth management so they have analyzed all the past recessions
and they have talked about how the stock market get impacted during a recession six months
before 12 months before six months after 12 months after two years after so this is a very
interesting case study and the biggest finding for me was that if you check 1953 stock markets
actually went up during a recession so once the recession announcement has made stock
market continue to climb up this has mostly happened right you will see mostly positive things
only hardly very few times negative has happened a classic anomaly to this rule has come in
2008 crisis that during a recession the markets acted very badly now why was that the case if
you know the answer then you have already mastered the stock market so to say okay so here
is the real reason why that happened because in 2008 crisis it was the first time when
quantitative easing was experimented at a massive scale when manake has been given the
Nobel Prize of Economics this year and it has caused a lot of stuff in the economy because of
the moves that he made in 2008 he followed a loose monetary policy now why was he given the
Nobel Prize it is very easy because in 2008 probably was the worst man-made type of financial
crisis ever the repercussions of which is still evident today and that is when the government
realized that you know what we have infinite money printing power behold the printer we will just
print whatever we like you do whatever you like right and how did they realize it that they have
infinite money printing power well it was very simple because from 2009 to almost 2012 2013
recovery had not happened why because it was a w shaped recovery it was a very very slow
recovery and painful recovery now during that phase the government realized that if we keep on
injecting the market and keep on printing more money throwing more money then eventually the
economy will recover and guess what that is what happened now the roadmap was ready by
2020 this roadmap was very clear that covert crisis happened Nifty was at 12 500. print a lot of
money dump a lot of money use the Ben banaki principle and there you go the stock market
skyrocketed like anything and that is called as a v-shaped recovery so this was one of the rare
periods when the W shaped recovery had happened in the market in 2007-2008 and therefore
you are seeing stock markets doing poorly during our recession otherwise it reasonably does
well now the second interesting data point from this chart is this that what happens before a
recession for example right now recession has not been declared but if you study the last one
year so this is the bucket that you are almost trying to study stock markets have generally done
poorly right you will generally see this so this would have done fairly poor now what happens
after six months months the recession is declared now this is very interesting because this is
extremely positive so if people are believing that in 2023 recession is going to be declared so
okay so hold your stock style December of 2023 you are sitting in one of the most profitable
zones here and here so this is where real money is made so you can draw a lot of inferences
from this data set so I will leave it up to your creativity so study this data well and let me know
what you plan to do in the stock market right now I am investing and building more positions in
the U.S stock market simply because their index is deeply discounted and if you have a holding
period of this then this is the amount of return you could theoretically make now you will say that
okay actually you are trying to push your viewpoint on us this that okay so no you don't need to
take my viewpoint on it you need to study the contrary commentary also so I am explaining you
the con side of it also so this is what Bank of America says that next year the stock market could
come down by 24 so who says this so there is a person called as Savita subramanyam who is
the bank's head of U.S Equity strategy so according to her this is likely to happen so this is
contrary commentary to what I had said what about Goldman Sachs so Goldman Sachs says
that okay softness Landing so what is the meaning of softish Landing it simply means that there
will be a brief recession and then it will be fine there is no major problem per se all the banks
are giving you different different commentary I have explained my commentary by giving you
data facts now it is up to you how you process this information in case you want to learn
Advanced economics I keep on writing more detailed exclusive posts on YouTube member
Community I keep on discussing about individual stocks also so if you feel that that is useful you
could consider joining that Community it is for slightly Advanced users so now comes the
natural next question that okay fine recession is there I understand it but how will we come out
of recession what exactly will happen that would enable us to come out of recession so it's very
simple and it is called as credit lending read now here if you see from the chart you will see that
there has been a steep incline in these interest rates the interest rate have generally climbed up
very very fast over the last one odd year we were almost sitting at zero percent and now the U.S
fed has increased the rate at four percent this is the mother of all interest rate this interest rate
indicates what your home loan rates are they have become more expensive what car loan rates
are they will become expensive what education loan rates are they will also become expensive
so in order for recession to go away you will start seeing easing of interest rate what is the
meaning of easing of interest rate so I'm drawing the green line here you will see these interest
rate falling like this and settling to a new normal it might or might not be zero percent I don't
know I am not qualified enough to speak about that topic but unless you see following of the
interest rate we will get stuck in that recession period so then comes the natural question that
okay fine what do I do with all this information can I use it to make money yes you can use it to
make money and for this you should listen to Bill Ackman he's a hedge fund manager he has
managed billion dollars of portfolio he's a billionaire himself makes very good investment and
here is him giving a very balanced advice it's it's much easier to make money in the stock
market in a rising stock market environment and if you know rates a declining interest rate
environment isn't is generally a market in which asset prices increase and so a rising tide lifts all
boats so if you just own equities I think you know we're right so right now we're in a rising
interest rate environment so that's obviously more challenging and really I think that what
matters is are the central banks around the world going to stop this out of control inflation I
would say I think they will uh and where you know what's the new level of long-term inflation is it
going to be are we in a world where it's difficult to create you know with a federal as recently as I
don't know 24 months ago uh central banks around the world were worried about deflation and
uh that's been a very very dramatic change I think you can do very well as a stock market
investor if you find really high quality companies and you buy them at attractive prices and I
think today you know is a pretty good time it's a pretty good point of entry right you know March
of 20 was obviously a very very good entry point and that anyone who bought stocks in March
of 2020 something I went on TV and advocated um on March 18th of 2020 and I said this is a
this is a moment I think this is sort of another moment where I don't know how well you're going
to do over the next three or six months 12 months it's a highly uncertain world but over the next
three four five ten years it's a pretty good place to to be an investor or time to commit more
Capital to equity markets although I would you gotta you gotta pick carefully you wanna own the
super high quality well capitalized dominant businesses that you know will be here you know 30
years from now and that's what we own companies like Hilton and Universal Music and
restaurant Brands and so so there are three four key things or terms that he has used if you
understand this again you will increase your probability of making the money so the first thing
that he said was that the governments were worried about deflation at one point now they are
worried about inflation and therefore they have increased the interest rate what is the meaning
of deflation deflation simply means when consumers and asset prices decrease over time it is
the general decrease in prices inflation mean increase in prices so deflation is opposite of
inflation the interest rate hovers around zero percent therefore the purchasing power go up
because people do not want to save any money they want to spend everything so now there is
a shift that has happened that few years back people were worried about deflation happening
now they are worried about inflation happening few ways down the line again deflation will
happen so all the high inflation that you are seeing in the world it will come down so therefore it
means that if you are holding your stocks for a slightly longer perspective good companies then
you are going to make crazy amount of money second key point he said was that it is easy to
make money when interest rates are getting cut right now what is happening interest rates are
rising again take a look at this previous graph that I discussed that the U.S interest rates are
inching to towards four percent which is fairly high and it is a rising interest rate environment yes
right now the feds are becoming dovish not hawkish on the interest rate they are saying that you
know what we'll mellow down the interest rate subsequently our rate of interest hike is not going
to be very steep from now on but we will still continue to increase the interest rate so we are in
an environment where interest rates are going higher higher and higher and they might continue
to go higher a little bit and it is really difficult to make money in this type of Market but once the
interest rate starts to get cut that is when you are going to make crazy amount of returns so now
you'll say that okay actually you have given a really complicated macro commentary okay
recession in itself is a very difficult subject to understand therefore there have been so much
confusion between U.S president their feds what not all the economists are confused
the United States what happens there also could have an impact on the entire world the U.S
federal reserve has announced another interest hike investors concerns that the global
economy could fall into recession as the fed and other central banks raise interest rates in an
effort to stop inflation Russia's gas Cuts we hurt businesses European economies could plunge
into recession it will naturally have an impact on our macroeconomic fundamentals as well as it
is having on other countries foreign economy is speeding towards a cliff Edge stocks are down
inflation is up and investors are Moody everyone is wondering the same thing are we heading
into a recession hi everybody the year of 2022 has been a roller coaster ride for economies all
across the world the Russia you can War put both Russia and Europe in a recession China is
already facing an economic crisis due to both covered and real estate issues and here in India
we have already seen the value for currency go up and down like never before and same is the
case with major currencies all across the world on top of that now the United States seems to
be heading towards a recession and this has sent shock waves all across the world why
because of the biggest economy the world Witnesses a recession it's going to have a ripple
effect on economies all across the world including India especially considering the fact that
America is the largest export partner of India so in this case study let's try to understand why
does everyone think America is heading towards a recession how will this affect the economy of
India what can you do as investors to benefit from this recession and most importantly what are
the study materials to help you understand this upcoming economic downturn this video is
brought to you by Western but more on this at the end of the video to understand the impact of
USB 's recession we first have to understand discussion and the fun fact is that there is no
absolute definition for recession at all a recession is simply a subjective concept and is actually
determined by different parameters by different bodies but two of the most popular definitions
are number one is the technical recession which is when there are two consecutive quarters of
GDP contraction so now that the U.S economy shrank by 0.6 and 1.6 percent in the last two
quarters technically the US is already in a recession and if you remember the same was the
case during covet the second definition is actually defined by the National Bureau of economic
research which determines recession on the basis of multiple parameters and this includes the
household employment personal income consumption expenditure industrial production Etc and
similarly there are multiple definitions for recession as per different bodies but the fun fact is that
there is literally no fix where to determine when and how bad a recession is going to be because
it depends on countless factors that even the smartest people on the planet cannot predict so
the question is how the hell do we anticipate a recession and what can we do to safeguard our
wealth well out of the many methods there is one method by which economists have come the
closest to predict a recession in fact research says that had we looked at this one graph
properly we could have predicted all major recessions in the past 50 years this graph that I'm
talking about is called as the yield curve which is nothing but the graph of the bond yield rates I
think Euro curve has been kind of an overhang inverted yield curve yikes inverted yields curves
can often but not always predict a recession yield coming version which has taken place in the
past and how that has been a precursor to a recession it's not a precondition for a recession but
it's a sign now look at those red bars those are recessions the yield curve is the the chart look at
the fact that it dips before every recessions now if you know the concept of bond please skip to
this time step and for those who don't know here's a very very simple explanation of the same a
bond is nothing but a loan given to the government so if the Indian government wants to build
bridge for 100 crores instead of going to the World Bank it will simply borrow this 100 rupees
from the people of India now obviously one person cannot give the government 100 crore
rupees right so the government will divide this 100 crore Bond into 10 000 units with each unit
being worth 1 lakh rupees now since the gov government cannot reach out to all of its citizens at
once it will sell 5000 units each to two Banks HDFC and icsn who will buy these units at 50
crore rupees each and then they will sell it to their customers at 1 lakh rupees per unit so when
10 000 people buy one unit of this Bond they've essentially loaned the government 1 lakh
rupees each and 100 crore rupees collectively through HDFC and ICS here and in return the
government would guarantee that after one year it will return this money with a three percent
interest so after one year the government will pay their investors the 1 lakh rupees plus three
percent interest which amounts to 3000 rupees this is what the ideal bond market looks like now
the catch over here is that the longer you keep this money in the government the more interest
they will give you for example a two-year Bond could pay you three percent interest and a
10-year bond could pay you 7 interest and this is where the demand Supply forces come in
whereby the short-term interest rates and long-term interest rates start fluctuating for example
let's say there is a three-year Bond being sold at 100 rupees per unit at three percent interest
and a 10-year bond that is being sold at the same 100 rupees per unit but since it's a long term
bond it has an interest rate of 5 so if you invest 100 rupees in a three year bond you would get
three rupees as interest and 5 rupees as it is for the 10-year bond now when you plot this on a
graph this is what a yield curve looks like when these units are being sold at 100 rupees per unit
now listen to this very very carefully if there is nobody buying these three year units from HDFC
what will HDFC do they would decrease the price of the unit to 60 rupees but since the return is
the same if Raul bought this unit he would still get three rupees return for the 60 rupees unit so
while three rupees interest on 100 rupees is three percent three rupees interest on 60 Rupees is
5 similarly if there's a loan or demand for the 10 linear Bond units then HDFC would increase
the price of this unit to 120 rupees but again since the return is the same five rupees a 5 rupees
interest on 120 rupees amounts to an interest rate of 4.16 percent so do you see what
happened due to the market forces the interest of a short-term bond has become more than the
long-term Bond as a result the yield curve becomes inverted and when this happens throughout
the market between a three-month bond yield to a 10-year bond yield it is said that the yield
curve has inverted and every time this has happened in the past 50 years we have seen a
recession and right now this is what the yield curve looks like now you see in this graph this is
what it looked like in 2007 wherein in January while the yield for a three month Bond was 5.11
during the same time for the 10-year bond it was just 4.76 percent and here's where the curve
got inverted and we saw the 2008 recession similarly it happened in 2000 also and we saw
the.com burst and now we are again coming very very close while the yield for a three-month
bond is 3.19 for a 10-year bond it's at 3.45 percent so it's very very close to inverting now if this
three month yield goes above the 10-year yield the possibility of a recession is almost certain
this is what the yield curve tells us about the upcoming recession and apart from this correlation
there are multiple factors that are signs of an upcoming recession inflation is at a record 9.1
percent in the U.S oil prices have spiked GDP is slowing down and copper prices have been
dropping down so apart from the technical recession we could actually be looking at a
nightmare like recession by the end of 2022 or in the beginning of 2023. this is the reason why
there is tension everywhere in the market so now the question we heard is how will this
recession affect the Indian economy and as investors what should we do to safeguard our
wealth well every time recession happens ladies and gentlemen the inflation goes up and the
federal government hikes the interest rate of lending today the fomc raised its policy interest
rate by three quarters of a percentage point and we anticipate that ongoing increases will be
appropriate the Federal Reserve announced Wednesday it is Raising interest rates by three
quarters of a percentage point that is the sharpest increase since 1994. the Federal Reserve
today making an unprecedented move to try and Tamp down Rising prices by raising interest
rates Federal Reserve announcing its decision on interest rate hikes and you know every time I
hear this news saying will the feds have hide the interest rate I always wondered why would the
American Bank hiking some random interest rate be such a big deal for the Indian economy and
I mean you must have wondered the same isn't it well as it turns out this has a direct impact on
something called the currency carry trade which then goes on to affect the value of our currency
which then takes a toll on our Imports eventually has a ripple effect on our economy so the
question is what the hell is this currency carry trade and how does it cause this domino effect
well as usual let's try to understand this using a story let's say park is a billionaire who wants to
make money using currency Cali trade so this is what he would do firstly he would check the
lending rates in the U.S banks and check the bond market in India so if the U.S banks are
lending at two percent interest and the Indian bonds are yielding four percent interest it is a
suitable market for the currency carry trade so past will deploy his strategy so in his first step
pass will borrow one million dollars from the US Bank secondly he would convert this one million
dollars into rupees which would amount do eight crore Indian rupees or 80 million Indian rupees
and then he would invest these eight crore rupees in the Indian bond and leave it over there for
one year then after one year he would get his eight rupees with a four percent interest which
amounts to 8.32 crores now he would convert this amount to Dollars which would amount to
1.04 million dollars but if you see he only has to pay two percent interest to the American Bank
as in 1.02 million dollars so guess what he would pay pay the American Bank 1.02 million out of
1.04 million that he has made from the Indian bond market and the rest 0.02 million dollars will
be his profit in the Indian currency that's what 16 lakh rupees so you see by simply rotating the
money Pash was able to make 16 lakh rupees this is how foreign investors rotate their money in
the international markets and make money through currency carry trade and if you see this
currency carry trade has been made possible because of the difference in the interest rate
levied by the American Bank versus the interest which is being given by the Indian bond market
and now let's see what happens if the feds hike the interest rate so now if the American Banks
start living three percent interest what will happen pass will have to pay 1.03 million dollars
which shrinks his profit to only ten thousand dollars which is just eight lakh rupees on top of that
if the value of rupee depreciates from 80 to 82 rupees when he converges 8.32 crores into
dollars he would only have 1.01 million dollars but since the fed's interest rate is three percent
he has to pay 1.03 million to the bank which means this currency carry trade has become a loss
Venture for parsh so moral of the story is that when the fans hike the interest rate the currency
carry trade becomes risky so the investors start pulling out money from the Indian bond market
and either go to the U.S market or some other country and when thousands of such investors
start quitting the Indian bond market the demand for the Indian currency goes down as a result it
becomes a major factor because of which the value of rupee Goes Down And if the value rupee
goes down what happens Imports become costlier profit margins become thinner in every
import dependent industry as a result the cost of the products go up eventually causing a ripple
effect in the economy this is how the currency carry trade affects the value of our currency and
affects our economic this is the reason why the news headlines often keep saying even RBI
needs to hide the interest rates so that we can control the value of our currency this is the first
Major Way by which a U.S recession will affect the Indian economy secondly we have the super
important IT industry did you guys know that the IT industry is one of the most important
industries for India that contributes around eight percent to the entire GDP of India and it
employs around 5 million people on top of that the Indian ID industry is so dependent on U.S
and Europe that they contributed around 86 percent to Indian I.T firms revenues in FY 22. so
now that Europe is already facing a crunch if U.S also faces a recession the ripple effect will be
felt in the Indian ID industry now most people over here might tell you that layoffs will happen
and the Indian ID industry will lose money right well if they tell you that you got to understand
that they do not understand the power of software at all in simple words software and business
is like water for life even if you are poor you will save all the money in the world just to buy water
and in worst case you will consume less water but you can never ever cut it off from your life
similarly software is so important for business that you just cannot stop using software all you
can do is just reduce the expansion or pause the purchase of new softwares that's it so in our
context the it companies might stop expanding rapidly might experience a growth slowdown but
will definitely not witness a loss because software to business is like water for life so if you look
at Infosys although their revenues grew during covet their operating margins actually drop from
25 in 2015 to 21 in 2020 and again after a bump it is dropping this is because of the high
attrition rate that the industry is facing right now so when the recession comes the salaries of ID
professionals may not jump as much as it is jumping today lastly we will see a drastic impact on
our merchandise sales for which we have big clients bought in the Europe and the US in fact
United States is the largest export destination for India amount into 16 to 18 percent of our total
exports so a recession in the U.S will directly lead to less exports from India in fact in Economic
Times rafik Emma who's the chairman of one of the largest leather manufacturing companies in
India says that new orders from Summer 2023 has seen a 50 depend volumes and clients are
cutting the orders for winter 2023 by 20 to 25 on top of that the government industry is also
facing a similar situation and lastly another major problem that the Indian markets will face
because of U.S secession are startup funding Crunch and layoffs and you might have seen this
already that the investors are now pushing these startups towards profitability and if there's any
startup that is far far away from profitability it is either laying of employees or those companies
are going bankrupt and because we've already covered this in one of our previous episodes I'll
give you a link in the description to help you understand the Indian startup funding crunch by the
way it's not like everything is bad when recession happens oil prices tend to fall during a
recession so if the oil prices fall during this recession if the government is kind enough we might
see the fuel costs go down so that could act as a counter for the inflation in the country because
of the cost of transportation and the cost of goods both will go down similarly commodity prices
are expected to fall further so if the depreciation of the rupee is in control if there is no more
effective the prices then India might again benefit with low cost of imports this is how a
recession in the U.S will affect the Indian economy now in spite of covering so much I've barely
scratched the surface and since it's already information overload for this episode I'll give you the
links to the study materials in the description to help you understand this and other impacts of
the U.S recession on the Indian economy meanwhile While most of us become extremely
anxious about where to invest during a recession or how to protect your wealth I gotta tell you
even though I'm not a finance expert my strategy has been very simple and it's been super
effective I simply invest in good index funds managed by reputed Banks that's it so instead of
waiting for a perfect time I would say keep investing in small installments and automatically your
risks will get balanced as the recession comes and goes and all thanks to wested this Index
Fund investment could also be done in the U.S stock market like you saw all the major stocks
are already at record lose and vested gives you access to 1500 Plus stocks ETFs and a curated
basket of stocks called Wes it allows you to do fractional investing whereby you can buy shares
of Apple Google or Tesla for as little as one dollar the best part is that they follow rbi's lrs
scheme and you get the lowest FX fees with vested they use a 256-bit encryption and SSL to
protect all the user data so if this sounds useful to you download the vested app using the
exclusive Link in the description and get 10 in your account to start your investment Journey
with vested moving on to the study materials the first thing I'm attaching is a research paper on
the yield curve and the recession and this paper will give you an in-depth understanding
between the correlation of these Concepts secondly I am attaching a things called video itself
that I spoke about earlier in the episode which talks about the startup bubble in India and apart
from that I'm attaching the email coming from Sequoia Capital itself which warned the founders
about the tough times ahead and thirdly I am attaching a research paper from the Kellogg's
University that will help you understand the currency carry trade Concept in detail so do have a
look at them and let me know what you think in the comments that's all from myself today guys if
you learned something valuable please make sure to hit the like button in automate YouTube
happy and for more such insightful business and political case studies please subscribe to our
Channel thank you so much for watching I will see you in the next one bye bye