These indifferent times
This refers to the column “China’s yuan manoeuvre” (August 19). Injection of huge liquidity into global economies, post 2008, had built up enormous capacity additions that are now a drag. China’s yuan devaluation is but a measure of its desperation to push exports in the face of reduced domestic demand and stock pileups. This is part of the bigger picture, as the US is unable to generate demand, India unable to step up supply due to poor growth of infra sector, the euro zone wrestling with its unresolved structural issues carried from birth and South American nations grappling with high inflation levels with huge fiscal deficits. The past four decades show that elevated oil prices had been co-terminus with surges in global economy. Global trade, indexed at 50 in 1990, improved to 100 in 2000, shot up to 250 in 2008—just before the global crisis. When global economies suffered post 2008-09, Brent crude fell to $90 (by end-2010).The price is now sub-$50, the story of other commodities is no different, portending a stasis in world growth. For instance, Indian steel companies are unable to leverage the current low cost of raw inputs as they combat lower global demand as also dumping from China. This is no currency war, as every nation struggles to survive the after-effects of many a modern economic tenet gone awry.
R Narayanan, Ghaziabad
Oil’s new master
Apropos of the column “Oil’s new normal” (August 19), there is no doubt that the US’s shale revolution is pinching the petro-exporters hard. In the process of the crude’s free-fall, two economies are virtually going under—Russia and Venezuela. While Venezuela has some fixed-rate purchase agreements, it is going to be difficult for the signatories to buy at those rates. Either they will renegotiate the deal or cut back their purchases from the Latin American country drastically. For Russia, it could be a double whammy as it already faces sanctions from the EU and the US. Its gas too is not finding many buyers other than China, which is slowing down and consequently, would want less of it in the coming months. In which case, the US becoming the price-setter for petroleum is not a great thing because both Russia and Venezuela don’t have cordial relations with the US. Russia may be deservedly a pariah because of its aggression but the US is undermining Venezuela for purely political reasons.
Prahlad Bhasin, Mumbai
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