THEORTY IS MORE PRACTICAL THAN PRACTICAL

As we know that theory is not accepted unless it is proved, as any

theory must have evidence to prove that theory can be implemented
in practice, but what I believe is that this is applicable only in science.
But this is not totally applicable in case of commerce or trade as it is
based on the premise of understanding between human beings,
because we are not dealing with rocket science or its not a James bond
movie to crack down the malicious villain, who is more interested in
power.

As we have come across the great recession which has tumbled

the total economy of the world for which the culprit is U.S. economy
and the sufferers are whole of the world. There is no big problem in
understanding the cause of this huge fall down, as I basically believe
that any thing other than the nature and god every thing is created for
human convenience like the laws, international boundaries and at least
the market. Based on my analysis the following are the main
theoretical reasons for fall in the economy of the world.

BELIEF IN U.S.:
The basic 2 golden rules of olden times are 1) king is always
right,2)if king is wrong follow rule 1, every person in this world is a
blind believer of U.S. As they are highly successful in almost every
section, right from technology to sports and right from pin to
Hollywood. General tendency is that belief starts where science fails
but here reverse is the situation, here we believe science to make
wonders for every problems of the world that U.S., the big brother
knows every thing what is right and what is wrong. Believing is easy
but following is difficult, the following of foot steps of U.S. has
ruined the world because every country is different by itself in its
form, the nature of people and the political scenario, the financial
capacity, the capability of the people to change and accept the new
change with in a short period, but because of this computer we
have accepted that change is always constant. In the next point I
will explain certain simple concepts why world is suffering because
of the acts of U.S.
Convertibility of currency : I first want to explain what is
convertibility, why convertibility is required and how it has effected
the other economies.
For example a person of India has gone to Uganda, the option for
the Indian to have money is either Indian rupee or Uganda currency
as the person in Uganda knows only Uganda currency, as every
person in Uganda accepts only Uganda currency and not Indian , so
Indian rupee is not acceptable in Uganda and Indian can’t get
Uganda currency in India, it means there should be some common
commodity to exchange between two people that is same currency,
this is similar to our olden days barter system, take what you
require and give what he require.
So an Uganda person can understand only one
currency that is Uganda currency , even holding of dollar don’t help
him unless he coverts it into Uganda currency, so to the maximum
he knows are only two currencies that is Uganda currency or
U.S.DOLLAR , as dollar is only fully convertible. so give rupees buy
dollar and give dollar in Uganda and get Uganda currency.

RUPEE –> U.S. DOLLAR UGANDA CURRENCY.

If for example a Uganda person is coming to India what he has to

do, he has to following the same sequence but in reverse manner.

UGANDA CURRENCY –> U.S.DOLLAR-> RUPEE

So at any given point of time almost every currency has to get Itself
converted into dollar, so if some thing happens in the U.S. and for
some purpose the value of dollar is effected almost all the
currencies has to get effected, its some thing like every country is
an indirect slave to the U.S. as the master ( U.S.) can judge the
present and future life of the slave. If dollar increase or decrease it
is born by either of the countries and not the U.S. as it is the centre
of all the currencies and its value is not effected much by the
change in the other currencies.

PLAYING BY HIGHLY EDUCATED GRADUATES :

All the high profiled financial institutions are managed by

people who have graduated from worlds top business schools, but
the fundamentals are not properly understood by these graduates,
it is some how believed that when you are highly educated some
times we miss the fundamentals, which can’t be changed what ever
may be the super structure on it, here I tell you one small incident
happed and written in his auto biography of the father of physics,
once he was visited by a carpenter for making of a door for his
house and Mr. Einstein has two cats one bigger and one smaller,
so he asked his carpenter to make two holes one big one and one
small for the cats to come and go with in those holes and carpenter
said that its enough to have one big hole and both cats can go and
come with in that hole, that’s how some times great thinkers can
forget the basic fundamentals.
In financial sense the similar mistake has been done by
the great educated persons who govern these hefty financial
institutions is what has happened in Lehman Brothers, which was
once upon a time the biggest investment bankers.
For example we assume that a bank by name “ABC” has
100000 $ and it has lent 60000 $ to a person which is repayable in
5 years, so the bank has been left with only 40000 $ to lent. Let us
assume that the person to whom 60000 $ has been lent for a period
of 5 years will be required to pay a total amount of 90000 $ along
with interest over a period of 5 years, so that person is required to
pay only 18000 $ per year. So after first year assuming the bank has
not lent that 40000 $, and that that person who has take 60000 $
has paid his first year installment of 18000 $, so the bank has total
amount of only 58000 $ to lent ( 40000 + 18000) at the end of first
year.

But what these highly educated persons has done is

that they will create a new company which is stylishly called Special
Purpose Vehicle (SPV) and transfer this 60000 $ loan for an amount
of 85000 $ today, so what happened is the bank “ABC” has received
85000 $ today rather the 90000 $ after 5 years. The bank has now
125000 $ ( 40000 + 85000) to lent.

So on a macro level basis a fictitious asset of 67000 $

(125000-58000 (40000 left with the bank + 18000 installment
received from the customer who has taken 60000 loan ) is created
which will be lent to another person and the same process of
transferring through Special Purpose Vehicle is done and more
fictitious money is created, which is similar to black money(which
may be called in lower levels) or legalized illegal money is created
and whole economy is crashed on this basis, so what I say is theory
is more practical than practical, which states that if that 60000 $
are not moved through this SPV there would have not been any
fictitious money or black money and economy would have been
strong. This is one major blunder committed by these high profiled
and highly educated people.

SEQUENCE OF BLUNDERS :
In the previous Para we have talked about a blunder, now
what this so called SPV’s will do, as they should get some thing out
of this transaction, what they do is they will breakup this total
amount into small units and sell them to general public as an
investment option. So 85000 ( purchase cost to SPV) /100 $ each
unit means 850 units, so these 850 units will get that difference of
5000 $ ( 90000 $ loan repayable by “ABC” Bank customer – 85000
$ cost to SPV ) or around 6 $(5000 /850 units) is the income for
every unit purchased. So this is another greedy blunder created by
this SPV.
 If every thing goes on well its happy times always, but
what happens it that bank “ABC” customer does not pay any
amount, so on macro level a total amount of 145000 $ ( 60000 $
loan taken by “ABC” bank customer + 85000 $ invested by general
public ) is lost because of wrong understanding of theory of
capitalism and over greediness of certain individuals.

WHY IS WORLD EFFECTED OF THE WRONGS DONE BY U.S. :

There is another concept call food chain as per darvin theory
which states that every organism on this earth is dependend on
other organism for food for example the small fish eats insects and
the plants inside the sea and this small fish is eaten by the big fish
and the big fish is eaten by the bird or eagle, put this total concept
by taking U.S. in the place of eagle, all most 60% of the Indian
software industry is depended on U.S. almost 60% of china’s
manufacture is depended on U.S. and Japan has all its investment
and its major consumer is U.S. right from paper technology to cars it
sell are used by U.S. all the major pension funds and bank funds are
invested in this SPV. as this SPV has fallen all the funds are gone in
this fictitious loan which are invested in a dead asset call houses,
and the theory of convertibility which we have talked in earlier
Paras will effect the other countries economies.
As these loans are given for the construction of houses all the
money has gone into dead assets, if the loan were given to an
industry which holds stock which is sold and the cycle of economy
would has sustained.

THE GREAT CRASH CALLED THE SOUTH EAST ASIA CRISIS OF 1997.

We have come across the great South East Asian crisis where
the majority of the south east Asian countries has collapsed, the
basic reason for such a collapse was the FII’s (Foreign Institutional
Investors ) game.
What this FII’s do is that they borrow from one country and
invest that amount in other country were there is huge potential,
what happened is that these FII’s will borrow loan from bank where
there is low interest rate and invest in the other country banks were
there is high interest rate, s o what they have done is that they
have borrowed from Japan were the interest rate is around 3 to 4%
and invest in bank’s were there is huge interest rate on deposit of
15 to 20%, like south Korea, what these banks in south Korea do is
that they generally lent it to outsiders based on the deposit and
loan ratio and these loans will have repayment time period of 5 to
20 years and they accept deposit for a period of 1 to 5 years and
when these FIIS withdraw these deposit either to repay the Japan
loan or to invest in a better opportunity, it drains the money out of
south Korean banks and their business gets to stand still, as they
have lost deposits and their loans will not be received in the near
future this has let to this crisis which have made certain countries to
go bankrupt.
So if that had happened to those countries why is India
saved from this crisis? The answer is our polices thanks to finance
minister Mr.Manmohan singh and the left parties. Mr. Manmohan
singh for his fiscal policies and left to oppose this globalization
which has give created the present law, which is partial
globalization which helped us to take the advantage of the
globalization and to protect us from the disadvantages of
globalization.
The reason about the above Para is that we have built the
laws in such a way that the foreign investor cant escape when ever
he wanted, as per FEMA(Foreign Exchange Management Act) when
a foreign company wants to invest in India it cant go for repatriation
at any time it wants it can repatriate only over a period of 5 years,
so we have a calculative risk, for example if a foreign company has
brought in 100 million dollars into India it cant take away those 100
million dollars when ever they want, for the 1 st year the can
repatriate only 20 million dollars (100/5)or (1/5th), so our risk on this
specific investment is only 20 million rather than 100 million, this
has saved us from that financial crunch, so the theory of sustained
growth will always work than a growth which doesn’t have
fundamentals.