A very deep hole

A very deep hole is a place where the US and China have put themselves and everybody else in the world because of the kind of economic interdependence they have to each other. We know that Chinese government has artificially lowered the value of renminbi by 30-40%. Which means that Chinese exports are cheaper while Chinese imports are expensive. Some people might not take it too seriously, but it is a kind of weapon of mass destruction that can outperform any nuke on any given day. Because of the lower renminbi China has become the world's biggest exporter while US has become the world's biggest importer. Due to cheap imports American people have, for quite some time, been spending well beyond their means. The national savings rate is -2% while debt has crossed USD 13 trillion, 84% of GDP. So what does a country which is spending way beyond its means do to buy all those things. It acquires more debt. And who actually gives this money to US? The Chinese, as they are the only ones who are benefiting from the spending of the American people and they are the only ones who have the money to do so. This has been going on for a while. The American people buy beyond their means, the US government acquires more debt by selling bonds, Chinese buy these bonds, giving American more money to buy more. This cycle repeats itself again and again and again. But there is one factor that does not go in cycle along with it; the national debt. The national debt increases with every cycle. Right now it has reached staggering 84%, and it increasing at USD 4 billion daily. And soon enough it will cross the 100% mark. At that point the national debt of US would be more than the sum total of all the assets of US. How will the US government going to pay back this money? Recently, the Greek crisis highlighted the very same issue. The national debt at the time of the crisis was 113%, and the Greece had to be bailed out else Greece would have defaulted on the its sovereign debt. Greece is a small economy by any standards and hence could be bailed out easily. But US is the biggest economy in the world. If it were to default on its sovereign debt, who is going to bail it out and how. By some estimates US would reach this stage in next ten years.

So what is the way forward. There is a loud and growing voice in US and around the world that says that increasing the value of renminbi should be our next step. There has been a lot of influential and powerful people in and out of US congress making emotive and passionate appeals for the same. And as we all know it way too well that most important financial decision are best made with emotions and passion rather than sound thinking. So what is going to happen if Chinese were to increase the value of renminbi. The first impact would be that Chinese exports would become expensive, resulting in sharp decline in demand for Chinese goods. With decline in demand, large number of factories in China would close down or will layoff workers, resulting in large scale unemployment. With the current situation in China, growing rich-poor divide, high frustration and resentment of the people towards government, etc large scale unemployment would be the perfect catalyst for a major revolt/revolution in China, the type which is every government's worst nightmare. A lot of financial pundits have put their money on renminbi to rise. This has led to huge investments in Chinese real estate market. Why? If renminbi were to increase its value by 40%, everything in China will get 40% expensive. So people were to own land or house in China, then its value will increase by 40% when the value of renminbi were to increase. That has led to investors from all over the world investing in Chinese real estate market; which has led to spiraling of real estate prices in major Chinese cities. This real estate bubble will burst as soon as the renminbi appreciates, then everyone will start dumping their assets in China before the bubble is completely burst and the Chinese economy will go in depression like the one US had after its housing bubble burst. Which will cause trouble for all those people who still have jobs left. Long story short there would be big problems in China and would not go away very easily.

Now back to US. With increase in value of renminbi, US imports from China will reduce significantly, but will not affect its national debt in short period. And hence the government has to continue selling bonds to raise money. But this time Chinese would not have the money to buy US bonds (for the fact that their income has reduced as exports have reduced). So the US government will have to raise money from within the country by raising interest rates. We all know how the whole world got affected when sub-prime housing crisis happened in US. Raising of interest rates will create a much bigger crisis as even the prime customers will start defaulting on their mortgages. There is still a huge inventory of over million homes that are up for sale due to foreclosure, the new crisis would bring another set of homes from subprimes customers who were remaining from the previous crisis and many prime customers who now cannot afford their loans.  This will result in a much bigger housing crash in US followed by the crash in the US stock market. With so many people out of homes, buying fancy clothes, gadgets, etc will not be at the top of their minds. US is the biggest importer of the world, also a major trading partner for most countries in the world. Reduction in US's buying power will result in more or less China like affect depending upon their dependence in US exports. This would result in reduction in the value of Dollar, which will further aggravate the problem. The housing crash, stock market crash and lower imports from US will have a major impact in the rest of the world, much worse that what we have seen in the previous crisis. This is not all, China today has the largest reserve of US dollar in the world. So if dollar were to fall, China would have the biggest impact as value of its assets would fall. This will be the third big impact on China after large unemployment and housing crash.

So what is the solution. If value of Chinese currencies is left unchanged, then the US will reach a point when it can no longer pay for its sovereign debt and will lose the ability to borrow further, pay for its imports, etc. Which will in turn cause lots of hardships to Americans as bank interest rates will go up, salaries would be reduced, inflation will hit the roof and dollar will fall; resulting all the problems I listed above falling dollar will cause will happen. If renminbi were to appreciate, then again dollar will fall and almost everything will happen in the same way. So no matter what US and China decides, dooms day is coming. The only question is when. The more we wait to do something, the more harder it would be to do something and the faster we do something, faster everything will go into crisis. The only thing left for us to decide is when we would like to get kicked where it hurts the most.

I know that I have only stated the problem and not given any solution. But if I know the solution this problem, then I would be expecting a call from Sweden rather than writing this blog. So my advice is; enjoy the ride while you can, it is going to be a fairly bumpy ride quite soon.

Why IPL are fixed

This is a sequel to my previous post IPL Matches are Fixed.

The basic that I tried to answer in my previous post was whether or not IPL is fixed. I looked at various patterns in which teams are winning and losing various matches. A lot of people who read my previous post of IPL do seem to agree that IPL matches are fixed. But there are few skeptics. That made me think.


Why IPL matches are fixed ?


Many people believe that IPL are meant to show sporting prowess of various sportsmen, and matches are won and lost based on the merit of the game played. But is that true. As pointed out by various members of the media and even owners of various teams, IPL is just a business for them. And in business what matters most to a businessman is profits. The question one must ask here is does good performance in the field equates to good profit for the teams. I do not think so. There is no co-relation between profits and performance in the fields. Money is made from TV ads, ticket sales, and the works. Winning and losing does not have any affect on a teams fortunes. If you look at first season of IPL (http://www.cricket360.com/indian-premier-league-teams.html) you would notice that only two teams made profit, KKR and RR. While one can argue that RR made profits because it won the season, but same cannot be said for KKR. So why did KKR made the profit, it did not won the season, it did not even qualify for the semis. It started with a big bang and then lost its mojo somewhere in between. Well KKR made profit because more money was made from matches that KKR played. And the reason for more money being made is that there was more unpredictability in KKR matches and more excitement too. KKR was losing matches left right and center, yet they were laughing all their way to bank. Why in earth will they win a match if they are making good money losing them. Even in season two KKR is said to be one of the teams that made the most profit even after being the punching bag of the season. I tried to find the exact revenues made by various teams in season two but could not find any site offering this data If you find it, please do let me know. 


One question could be asked that as same players play for both national teams and IPL, how can we expect that they play fair in international matches and not in IPL matches. To answer this let us first ignore the fact that match fixing in international cricket is not an unknown phenomenon, as assume that all international matches are played fair. When a player plays for his country, he mostly plays for national pride and not money. The money cricketers make for playing matches in very minimal and most of their income comes from advertising. And we have seen quite often how ad money is linked to the player performance in the field. But in the case of IPL that is not the case. No one is playing for national pride, also most players (except tendulkar, ganguly) are not even playing for their home city. So national or city pride does not come into picture. The only thing the players play for is money. And this money does not come to them by doing some ads for various companies, they make money by just playing. Winning is not necessary. As for all the ad money that comes from matches, it goes to the team owners and not the players. So players have no incentive to play better or win matches. They make the same money no matter what and there is also no emotional value attached to winning or losing. 


So the question arises that 
Does winning or losing matches have any impact on anyone what so ever?

And the answer is a big YES. Winning and losing impacts the interest of people watching IPL. Everyone likes to cheer the underdog or boast of loyalties towards the hot favorites. So when things do not pan out as expected by fans, their interest in the game tend to increase. They are more likely to watch the match whole match and even the pre and post match analysis by various so called "experts". But more importantly they watch the ads that come in between. And these ads are the real source of income for the teams. Hence it in all the teams' interest that they make sure that all matches are as interesting as possible. To put icing on the cake team owners also employ foreign cheerleaders, Bollywood celebrities and the works. IPL is more talked for its glam factor then for the result of the matches. The celebrities and the after match parties have made IPL a page three event instead of sporting event. And all this increases the interest of people attracting more eyeballs. 


There a pattern emerging from observing the first three seasons of IPL. In season one, MI, KKR, DC, CSK and DD were considered hot favorites, while RR were considered as the underdogs. But what happened in the end, DC were the punching bags of the season while RR eventually won the season. In season two, odd did not changes much, just that RR too was considered a hot favorite. But what happened was quite dramatic, KKR became the punching bag, DC won the series and RR were nowhere close to the title. If one looks at the track record of DC, they will notice that they had only 56% success rate. Which is quite less as compared to other teams in the season yet they won the season. In season one and two combined, they had only 36% success rate, yet they have a season title under their belt. There are quite a few teams with much better stats, yet they have not won even a single title. If we look at season three, now KXIP has become the punching bag, which by the way was performing quite decent in the first two seasons. RR and DC which won the first two seasons too are most likely to miss the semis and MI are the hot favorites. The same MI which performed well below expectations in the first two seasons.



The next question that comes to my mind is
So what is next and why?

What I have noticed in these three seasons that the team that has performed badly in the previous season tends to win/become favorites in the next. And each team that wins a season tends to perform very badly in subsequent seasons. It looks like a pattern that keeps repeating itself. Before going forward we must look into the role of BCCI in all this. BCCI is the organizing body for the IPL. It has sold the teams for a period of 10 years to various team owners. We also know that people in BCCI has strong business sense and would like to make as much money as possible from the IPL. So how to BCCI make money. It made money by selling the teams of 10 years, it makes money from the ad revenue of the matches, 30% to be exact. And it will make money again by selling the teams seven years from now. To maximize the ad money, it is also in BCCI's interest to keep the matching exciting and make people glued to their TVs. But the bulk of the money would be made seven years from now when they sell the teams again. If after seven years some teams have performed very well while others very badly, BCCI will lose money as losing teams will fetch very little money. So it is in BCCI's interest that it keeps all the teams competitive and equally appealing to the new set of owners who buy the teams. This can only be done if all the teams have performed well in some of the seasons. So I predict that by the time next IPL teams are sold, all the teams would have won atleast one season and been the punching bag in one.

There are three parties who make money in IPL, BCCI, team owners and the players. And the amount of money they make does not depend on how players play in the field or whether or not the games were played fairly. All that matters is how many people watched the matches and how much money is made through advertising, etc. When neither of the three parties have any incentive to play fairly or win matches, I do not think anyone is playing fairly to win matches. IPL is not a game of cricket, it is a game of money where the BCCI, team owners and players are winning and the viewers are losing.

Life is not a shade of gray... Its 24 bit true color

It is often said

"Life is not black or white, it is a shade of gray."

But is it true?

To answer this question we need to find out why it was said in the first place. In the earlier times it was believed that life is black and white, that is I'm right, you are wrong. The white here means right or correct, while the black means wrong or incorrect. Then some great philosopher, riding on his high horse of morality, came up with a new theory that life is a shade of gray. His motive was to reduce the guilt that is caused by the "I'm right" syndrome. So he said that life is a shade of gray, meaning that everyone of us has some good qualities and some bad qualities, nobody is perfect. This theory seems good. No one is claiming to be all good neither blaming others to be all bad. Is it. If we look closely, we will notice that indeed we are not labeling people as good or bad, but still we are labeling qualities as good or bad. Can qualities be labeled as good or bad, or qualities too come in shade of gray. But again qualities do not alone define a person, there are always his choices, actions, circumstances. Can all be quantified in good or bad. Or all of them are a shade of gray. If we color all the qualities, choices, actions, circumstances in black, white or gray and then try to define a person then all we will have is a complicated shade of gray.

Let us assume that someone actually sat down and labeled all the qualities, actions, et. al. as black, white or gray, and we get to see the what degree of gray are each and everyone of us. But again life is not made up of people, it has elements of everything there is from the cars we drive, to the food we eat, to each and every material that was ever made or everything that ever existed, all the animals, plants, every natural event that happened like storms, hurricanes, earthquakes and what not. Our life experience is a combination of all of this taken together. Can we label all of these too in some type of black, white or gray such that we can get the final color of our life in gray.

Even if someone actually labeled everything with the black, white and gray what is the guaranty that everyone else will actually agree to it. It is highly possible that something is good for one but bad for another or something like that. Secondly it is also very much possible that some things are neither good nor bad for someone, either they are not bothered about it or they are not affected by it, or even if they are affected by it they cannot classify it as good or bad or part good-part bad.

So is life a shade of gray? Is could be, but if it is then it wouldn't be fair or just. Then what is the solution. I do not think that having a separate color classification for each and every one of us is a good solution. I believe that instead of using just two colors (ie black and white) and its combinations to define anything or everything is incorrect as the definition of colors cannot be the same for two people. Instead if we use the full spectrum of colors to define something, things could make more sense. Every things can be labeled as different colors like red, magenta, blue, cyan, green, yellow, etc. And people can associate these colors what is good for them and what is bad. For example, for one person, red could be good while cyan could be bad, while for someone else blue could be good and yellow could be bad. Here no one is making judgment on whether someone else is good or bad. Everyone has their own perspective and no one is being imposed by someone's views. I believe that making judgments on others tends to curtail others freedom to be themselves. Because judgment leads to prejudice and prejudice leads to discrimination.

I agree that prejudice and discrimination cannot be removed all together as it is part of human nature, but we can still try to go towards an utopian society even if we can never reach it. Hence instead of seeing things as black, white and gray, we should start start seeing things as red, green and blue where no color is any better or worse than the other.

And hence, Life is not a shade of gray, it is (as geeks call it) 24 bit true color.