Junoon

Junoon, an urdu word, the language of poets, poorly translates to mania. Mania - that of a child who believes that self immolation will solve the problems of his generation, that of a lover who waits for his beloved to come, never to accept that she is forever gone, that of an entire populus towards a single man and his perceived ability to solve all of our woes.

Barack Hussein Obama goes from president-elect to president in 2 days. The junoon of the world must weigh heavy on his shoulders. He walks in with the economy in a complete mess, the current US debt edging towards USD11T (this from a projected surplus of USD10T in 2010 after the Clinton presidency), the Israel-Palestine conflict renewed afresh, the Afghanistan/Pakistan/India mess, Iraq, Iran, instability in Africa, North Korea etc. etc. etc.

The expectations on him are high, the whole world is watching. I actually got a call from my father in India congratulating me on Nov 4, when Obama became the president-elect. The world blames us for the mess we all are in, they all want us to fix it.

Any economist will tell you, fear feeds on itself. In the simplest case, a run-on-the-bank proves the point - if depositors fear that a bank will fail, they will cause an otherwise healthy bank to fail. The same holds true for any economy - if a workforce believes that prices will rise due to perceived inflationary pressures, they will demand higher wages, which will result in the firms raising their prices, which will result in real inflation. If the consumer believes that the economy is bad, they will likely slow down or stop spending, which will result in firms cutting down their output by laying off workers, which now starts a downward spiral.

Governments intervene to stop these spirals - short term interest rates are a tool that they use to discourage (to control inflation) or encourage (to control deflation) borrowing, which results in spending. Hence the near zero interest rates now-a-days, to encourage firms and individuals to borrow and spend, urging an upward spiral to begin.

Another tool, which also we are seeing in use now for a while, is deficit spending. The governments are spending more than they can afford, expecting their spend to result in increased demand and spend by businesses and individuals. Keynes wrote about the income multiplier, whereby deficit spending by the government would increase the GDP by more than the deficit spend. If consumers get more income, they spend more, which results in more goods and services, which results in more income, which results in more spend.... all about expectations.

So President Obama - the expectations on you are high, there is a junoon associated with your ascendency, but not without reason. You usher in a new era for this world, you are the silver light in this otherwise dark cloud - you have the ability to create that upward spiral.

Best wishes and God speed to you.

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