Heart has its reasons, which reason knows nothing of.

I was having a casual discussion with friends today during our lunch as they gulped in beer and I drank Pepsi (strictly sticking to my “I don’t drink” policy :) ). Soon, the discussion took a U-turn and we started discussing religion, beliefs, how we perceive things and whether (why/ why not) we should/ can (shouldn’t/ couldn’t) compare situations which make us what we are. This somehow reminded me of a quote “Heart has its reasons which reason knows nothing of” by Blaise Pascal. Mathematician, physicist, religious philosopher, and inventor of the first digital calculator, Blaise Pascal lived in the time when Copernicus' discovery - that the earth moves round the sun - had made fallen human beings insignificant factors in the new order of the world. Facing the immensity of the universe, Pascal felt horror - "The eternal silence of these infinite spaces terrifies me." Pascal, often tormented by religious doubt, took the question “Why are we here?” with the utmost seriousness and quoted:

Heart has its reasons, which reason knows nothing of.

As far as my understanding of the quote goes, the word "reason" serves two different purposes: in its first occurrence, the word "reason" implies an intention; while the second usage of "reason", implies rational thinking.
The idea that we can be ignorant of our own reasons is deeply puzzling. However, we may attribute certain reasons to the heart versus the mind conflict, but the central conviction remains the same: we may be moved by reasons without consciously thinking of them as reasons. For example: I might dislike someone whom I've met recently. However, I don't know why I dislike this person as I don't know him well enough; also, the person has not said or done anything wrong; and yet I suspect that there is a reason for my behaviour. Firstly, it is possible that this person actually has done something wrong — like giving a menacing look in my direction, and I have noted this behavior unconsciously. If I become aware of this behavior, I would recognize it as a reason for my dislike. Second, it is possible that this person merely looks like someone else whom I disliked and I have extended my feelings from one instance to the other. If I become conscious of the latter possibility, I would recognize it as unreasonable. It can be thus inferred, that in the first case, I am simply unaware of my reasons; while in the second case, I am affected by considerations that I do not regard as reasons at all.

Emotions are influenced by one's existence and his scope of knowledge. A change in either of those things changes the emotional response to the situations of life. In any situation, while taking a decision, we use our mind (reason) and our heart (Emotions or consciousness). It is our reasoning which directly determines the context of which emotions come into play, and why. This makes people determined and strongly motivated to achieve their goal and passionately follow their feelings without being bothered about how others perceive them, something which helps them deal with negative criticism: Remember, “A is A” – Aristotle’s law of identity :).

The "why" and "why not" of the USD...

It's been long since I've blogged. However, after attending a series of lectures on Macroeconomics by Prof. Rakesh Singh, I decided to take up world economics as an active part of my blogs. In the last few days, we've seen a lot of policy initiatives from the U.S.; some of theses initiatives were targeted at Indian based firms benefited by outsourcing. Let me start off by evaluating the current state of affairs (especially in terms of currency in this blog-post), and where are we headed.

Reasons Why Dollar Could Collapse in the near future

1. Switching Reserves away from the Dollar.

The US is currently the world’s reserve currency. Central banks currently hold upto 70% of their foreign reserves in the dollar. However, as the US economy and finance sector looks very weak, it makes sense for countries to diversify out of the dollar. If countries were to switch from holding reserves in dollars to holding reserves in Yen, Euros or others, it could spark a free fall in the dollar.

Chinese banks have been told not to lend to American Banks. China in the past has threatened to bring down its dollar reserves. If China did sell its $1 trillion dollar assets, it would cause a devaluation in the dollar and also higher bond yield rates. Higher interest rates are the last thing the US economy need at the moment.

There is also the danger of OPEC oil exporting countries shifting out of the dollar or at least not using their oil surpluses to buy US securities.

2. US Debt increasing.

US debt currently stands at over $10 trillion which is more than 65% of their GDP. However, it is forecast to increase substantially. Some argue National debt could soon pass 100%.

The legacy of toxic debt could leave the US treasury facing unprecedented losses as it tries to bale out the system.

Long term spending commitments on health care and pension will increase spending. Although, this has gained less publicity, in the long term, it could be more expensive than the current financial bailout. The Ageing population will increase the debt burden.

The problem with the increasing levels of debt is that the growing concern that the US government may start to default on its debt. If this ever happened it would cause shockwaves throughout the global financial situation and people would sell dollars. At the moment, countries like Japan and China have shown a willingness to lend the US money (buy US Bonds) at relatively low interest rates. But, if this confidence falls, nobody would want to buy any more US debt. This would cause a fall in demand for dollars and the value would fall.

To finance the growing national debt, the government may also just increase the money supply because they can’t sell any more bonds. This would increase the money supply and inflation and also cause a depreciation in the value of the dollar.

3. Credit Crisis - Worst still To Come

The credit crisis and banking losses put downward pressure on the dollar because:

They are forcing the US government to borrow more.
Lack of Confidence in US financial markets which affects confidence in the dollar.

4. Current Account Deficit.

For several years, the US has been running a large current account deficit. This peaked at around 6.5% of GDP in 2006 (It has since fallen to 5% on the back of a weaker dollar.) Upto now the current account deficit has been financed by capital flows from abroad (mainly Asia and OPEC countries). If these capital flows were to dry up, as Asian countries no longer wanted to hold dollar securities, the dollar would fall.

5. Economic Recession and Low Interest Rates.

US interest rates are already low - less than 1%. However, if the economy was further pushed into a very deep recession (considering that the demand in the US had fallen considerably in the last quarter) then there may be pressure for further cuts in interest rates. This would make the US even less attractive as a place to save money. Therefore demand for dollar would fall.

Reasons Why Dollar Will not Collapse...

1. Fall against Whom?

The US economy is facing difficulties. But, so is the Eurozone economy, and Japan. It is not clear that any other country could cope with having a strong currency. US debt is high, but so is European debt (considering the performance of the PIGS countries). Japanese National debt stands at more than 100% of their GDP, it makes the US look positively, frugal. The point is that although the dollar looks weak, so do most other major currencies.

2. Dollar is already weak.

Using purchasing power parity, the dollar is already undervalued against the Euro and Yen. Europe is already struggling with a high value of the Euro. If the Euro was to keep rising, it would cause further problems as the Euro economy slips into recession. This is why Gold looks such a good investment at the moment (certainly better than the Dollar, Euro and the SDR) and India, China and other countries have been diversifying their reserves.

3. The Chinese don’t want to lose All their Dollar Investments.

Because the Chinese have so many dollar assets, they have a vested interest in preventing a depreciation in the dollar becoming a rout. Also, China is aware that their economy relies heavily on exports to America. They wouldn’t want that source of demand to completely dry up. Therefore China would like to avoid a collapse in the dollar - not out of altruism but self interest.

Handling Competitors: The 'Rin' way...

A few days back, it seemed that the entire Indian advertising was getting increasingly more simple and brands were getting back to the time tested basics.

Colgate discarded everything else and started talking the language of white teeth once again, by showcasing the tabletop model of the teeth as well and concentrating on the subject of germs hidden in-between teeth, which only Colgate can remove.

Nirma tried to reinvent its USP (and it's age old jingle) with the aid of the TV commercial which shows the mud to be seemingly afraid of Nirma and thereby freezing in its tracks.

Just then, finally, not disappointing us and giving us a glimpse of the cut throat competition, Rin created an advertisement which re-discovers the joy of comparative advertising.

It seems that the competitor’s brand to many is a four-letter word. As far as Rin (which was bought out by Surf a couple of years back) is concerned, it literally is a four letter word: ‘Tide’. The Rin advertisement, which badmouthed and showed the brand name of Tide over and over, was very straight and certainly refreshing as it broke the stereotype after a long-long wait.

It was an extremely confident piece of advertising which used capability comparisons as the USP. One should realize that what works with the customers is ‘Confidence’ provided that the data being used in the advertisement is reliable and independent. Had Rin pixilated the brand name and done this, like many other products (including Clinic All Clear’s attempts against Head & Shoulders previously) did, it would have seemed under-confident. The other blow that Rin had struck was that it shook its competitors brand confidence and regained confidence for itself by naming ‘Tide’ outright. This stirred people, made them sit up, take notice and enjoy the brand-war.

Although, with the amount of creativity that our ad-makers have displayed in the recent years (with agencies like the O&M coming up with zoozoo’s for vodafone) is commendable, and people might argue by saying that the customers have matured now-a-days and they’ll probably yawn and hate this U-turn into old-age advertising of attacking the competitor. Many will also criticize this genre of advertising as being nasty and below the belt.

To them, I would say: Guys, wake up and feel the heat.

Remember, Rin already got its mileage in terms of brand awareness before pulling out. Now, the customer will take their favorite brand home for more reasons than merely sincerety and quality.

Food Inflation: The challenges ahead.

To the price-hit common man, food inflation easing from nearly 20 per cent to a little above 16 per cent is a statistical mirage. And the president’s call for a “second Green Revolution” will seem talk in the air. Politicians, nonetheless, are battling each other instead of high prices. Agriculture minister Sharad Pawar has faced opposition snipers and the Congress’s friendly fire. Tackling prices, he retorts, is the government’s collective responsibility. He’s more right than he guesses. In a country with the largest proportion of cultivable land to total land area, recurring food crises can’t but be the shared doing of successive governments. UPA, NDA or ‘third front’, nobody’s exempt.

In the current crisis, the recent go-ahead to release foodgrain in the open market should have come sooner, given projections of the drought’s impact. In charge of food distribution and consumer affairs, Pawar can’t dodge flak for letting things slide. But other UPA representatives too have waffled. Some suggested the rabi crop alone would work magic while others admitted supply side issues without elaborating quick remedies. States, meanwhile, have reportedly not been lifting their quota of PDS food stocks.

Pratibha Patil’s right about India needing to up farm productivity to prevent food crises. But no government till date has genuinely tackled the problem at source. First, efficient food distribution goes a long way towards aiding poor consumers. Yet we’re still to see reform in the Food Corporation of India or a leak-proof PDS. Second, massive upgrade is overdue of irrigation infrastructure to reduce rain-dependence and counteract groundwater depletion; joining of rivers was a suggested step forward by the NDA govt., something, which could have worked wonders if it were implemented. Third, reform of agriculture is imperative to remove structural anomalies bedevilling the sector.

Patil lists the right medicines: better farming inputs and techniques, market access for farmers and industry-agriculture synergies. Administering them is another matter, given political opposition to big retail giving farmers direct approach to better-paying buyers and eliminating predatory middlemen. Big-ticket investment is essential for the farm sector to gain from modern technology, build better storage and cold chain infrastructure and create more jobs, especially in food processing. Unless the political class acts on these issues, its championship of the aam aadmi and kisan will remain an eyewash.

Random Clicks From My Camera - 1: "A 'Quafila' of Camels..."

The camels pull down the tree to have some snack :).









The Ring Master :)...








The Quafila moves on after enjoying the snack :).





The side pose of the hungriest one :)...