India and Brazil are going to lead the way in the decades ahead: Rakesh Jhunjhunwala

Jhunjhunwala says that George Soros has written in his book (When he made the billion bucks in 1991 )…the moment the European Monetary Union was formed he realised that the body cannot last. Soros said Germans and the Britons cannot sit on a table and have a synchronised monetary and fiscal policy which is required for having a common currency. He said “you had to time it,” so I as a trader and investor totally agree with Mr. Roubini. Now the million dollar question or billion dollar question is, when is this slowdown going to occur, what will be the signs and how the trader and investor should benefit?

So I think what he is saying is absolutely right. I cannot predict the time period. we could have this continue over 24 months I wouldn’t be surprised and it will surely, occur according to me, when the public realises or the voter in the Western world realises that all this fiscal deficit and all is not going to help us- we have to have sub par growth. You see England won when people put Thatcher into power. She said I will correct, I will sell the public sector enterprise, I will take the steps.

I see the crisis of the future in two parts- one is a loss and I don’t rule it out, I give it a good chance 10%-15%-20%, a loss of confidence in large banking institutions and a crunch in the world financial system and the other is a real economic downturn and one can happen without the other. One is more likely if the second happens. It’s my personal opinion that political opinion in America and in Europe is not for saving any of these banking institutions so what chance you think that has? and I think if that happens, god help us.

I personally feel, we have to look upon this from a larger historical perspective that it is a change or transition of power, wealth and prosperity from the West to the East. Now these transitions in history have always taken place but never without problems and without fiction. So I have no doubt that it is a emerging markets which are going to be the leaders for the next three-four decades right and the westerners have also consumed beyond themselves…America just cannot stop consuming .

At the same time I feel India and Brazil are the countries of any size who have built a model which is sustainable. So I think it is these two countries which will finally (and they are both democracies) which will finally take the lead in leading the world. I don’t think its going to be China. Because I think China, in my opinion & I reserve the right to be wrong as I am a small fish, that China has built a model which is inherently unstable and also I see a period of a great clash in commodity prices and it will happen in the next three to five years because China is continuing to create capacity in commodities and we should not forget that 70% of the world oil is still consume by the OEC. Someone has said that Americans still consume 12 million new cars every year. So I see good future, some uncertainty though, and the rise of India and Brazil.

See, history tells us that any economic excess whether from the Roman Empire or what happen to Britain or to Germany in 1929 or even to Britain in 1980 has to be corrected by a period of low consumption and low growth. So this, in the economic history of the world, is not something which can be turn topsy-turvy.

There is no question about what Prof. Roubini is saying that there has to be sub par growth- I think that sub par growth has to be for a period of at least three to four years. In the western world, and at this moment in history we have never seen the added challenges that societies are facing.

Above all is that of demographics and challenges which cannot be reversed and you never had so much of an interdependent world and such a synchronised fall. So what he is saying is absolutely correct and it has to take place and I don’t think that these deficits are actually a result of the recession.

I think those deficits in America and England are structural because those societies are spending on defence and other matters far more than what the revenues can justify even in normal circumstances. Hence, there is no doubt in my mind that America and the Western World is going to see lot of sub par growth and the emerging markets are also going to be affected.