Economy as far as we know

Well this question was asked to me in two company interviews - LaserWords, Nomura.

Let me present my answer here.

The past two years were dramatic with more lows. Lehman Brothers started the story, with many companies following.. Then we saw governments of all nations flooding the streets with paper money that really doesnt exist. Huge bailout plans were layed out. Many monetary and fiscal stimulus packages were thrown into the market.

Off course they had their own effect by cushioning the market movement. We reached the bottom of our fall, and we are making a 'U' or 'L' shaped curve. now its time to remove the cushion - the stimulus packages.

Y we need to remove the stimulus - stimulus is just a cushion provided for smooth run. Its like someone is giving you money when your in dire need. Govts across the world gave money to people to get the economy running. To put in simple words, in tough times people wont buy anything. There wont be any trade happening in country. Even if all the people have more money and if they dnt trade soon that nation will become poor. On the other hand though there is oly little money in people hand and if they trade enough there is possibility that all may soon become rich. But at tough times people will have the fear to spend. So the govt will step in giving more money to people so that they start spending and the economy starts to rotate normally. The same was done by all govts. The bank interest rates will be reduced. Easy funding will be made available, incentives will be given if you buy somethin all kindling you to spend more..

interest rates in US Europe were brought to near zero. incentives were given for people buying cars. All taxes were reduced.



In the course, govt lost their source of income. Their expenditure went way beyond their income - what is called as Fiscal Deficit. Indian fiscal defecit was about 6.5% of GDP. next year our fiscal deficit target is 5.5% of GDP. US fiscal deficit is at 12% of GDP.

now we have to arrest the fiscal deficites so that the govt may stop makin losses. So they have slowly started removing the stimulus packages. They have slowly started to remove the money that they gave to you. Now small recap, u were in diff condition someone gave you money now he wants money back. So with that money you should have come to a stage from where you can move independently. Yes, Govts are removing money from market, now we have to look at whether companies can stand on their own legs without the cushion of govt.

Are the companies capable of standing on their own legs now?

Let us discuss this in the next blog....