International finance — layman’s guide

Pick up a financial newspaper or the financial pages of any newspaper and spend a couple of hours going through the highly informative material penned down therein by the denizens of high finance and what have you got? A boggled mind and, as like as not, a splitting headache!

All that one ever discerns out of such an exercise is that some anonymous blobs sitting in secure and comfortable offices in various financial districts around the developed world are empowered to take the vital decision of the intrinsic value of the cash that you have tucked away under your mattress as safeguard against a ‘rainy day’.

Consider the following gem out of the financial pages of an international newspaper: “The Fed raised the US short-term interest rates as a pre-emptive move to reduce the pace of economic growth. At the same time it adopted a neutral bias toward future hikes rates”. The Fed, no doubt, felt it had performed a great deed and, justifiably, felt a surge of pride at having done so! But how would this affect the Common Man and his precious nest egg, you might well wonder?

It just goes to prove that you are ‘out’ of the ‘system’ and there is simply no way for you to be ‘in’. Do not be alarmed though. This is the way the ‘system’ is supposed to work. You are not expected to know. The whole rigmarole is based on one fundamental premise that the ‘layman’ is an ignoramus and is destined to remain so! International Finance is the exclusive domain of the chosen few and it is for them, and them alone, to indulge in and benefit from this exciting game. The mere fact that it is your hard-earned savings that are at stake is of no relevance whatsoever!

Be that as it may, let us not stray away from our serious field of inquiry i.e. unraveling the intricacies of International Finance. It is of vital importance for the layman to know certain basics of this complex field. He needs to have a grasp of this elusive domain in order to what he actually owns (or thinks he owns). What follow are a few fundamental axioms that the layman must hold on to. It is not necessary for him or her to understand them, but merely to accept them as the truth.

Axiom one: Your money does not belong to you. The nest egg that you have hitherto been considering as your personal security against a rainy day is not yours at all. It is actually under the control of some obscure powers-that-be. You have been merely allowed to hold on to it to afford you a certain (false) sense of security. This is a purely temporary arrangement till such time as the said powers-that-be decide to pull the rug from under your feet. Do not allow this bombshell to make you any more nervous than you already are. But you must brace yourself to face facts!

Axiom two: If you are trying to make sense of weighty phrases like ‘Stock Market Crash’, ‘Credit Crunch’, ‘Volatile Market’ and the like, you had better give up the effort. The matters are way above your head. All that is expected of you is to hope for the best and, if and when necessary, to duck.

Axiom three: If you come from a poor developing country, you are completely at the mercy of the financial and monetary experts. They will decide, freeze or unfreeze your assets at the drop of a hat.

Axiom four: The so-called development assistance from the developed to the developing world should not be confused with ‘aid’ as it is touted to be. It is more akin to a modified and updated version of the medieval money-lending racket. The developed world lends money on its own terms; it also dictates how the money will be spent. The borrower is expected not only to pay back with interest but also to be grateful for the privilege.

Axiom five: Never expect the money thus loaned to filter through to the ‘needy’. As it is, only a fraction of the amount signed for, actually changes hands, the rest having been sponged off to satisfy the ‘small print’ in the contract. The ‘optimum stage’ in the whole exercise is reached when the debt servicing equals the next tranche of the loan!

The most abiding axiom remains that, whichever way one looks at it, the layman is ever on the receiving end.

Published in The Express Tribune, January 20^th, 2020.

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