Imagine! Russia's raising interest rates!

People of talking of possible deflation.

People of talking of falling interest rates in banks and financial institutions.

But what is Russia doing. Precisely the opposite.

Since 2008, it has been raising it interest rates for the 6th time! The question that we next ask what about its economy. Well, we need to understand the Russian economy for this. 

Russia is supported by the enormous natural resources it possesses. It ranks 3rd globally in oil production, has 2nd largest coal reserves and 2nd largest consumer of energy. 

Its economy was supported by the boom in the commodity prices of natural gas, oils, metals and timber that make up 80% of the exports.

The raising of rates helps the economy in stabilizing the fund outflow, thereby averting a steep appreciation in the currency. The bank is also trying to artificially to value its currency to keep its exports competitive.

The solution for Russia lies in lowering their dependency on oil and focusing on investment in agriculture, science and innovation. Russia should also build the entrepreneurial spirit in the students that help them in creating small scale industries that responsible for job creation and growth in any economy.

GM's next!

Guys!

Don't get carried away by the recent stock market bull run seen in the past week. The Sensex has reached the 10500 mark and the Dow at 8000, it may be too early to say that the economic crises is over. 

GM will be the next to go in two months from now.. This is not my supposition. But that is what the market demands. The consistent flow of tax payers funds cannot keep the company going for long. The end has to come in some way or the other. 

The major problems that GM faces are

1)      Major Cost Disadvantage : Pension and health benefits for all its past employees

2)      Government imposed restrictions : Corporate Average Fuel Economy (CAFÉ) standards of 1975, Cap-and-trade regulation imposed by Obama administration

While the restrictions are good for the American economy as a whole, it the first problem that is causing most of the troubles. The assured benefits to all its previous employees is causing the operating margins to go down and even into losses as seen for the past couple of quarters. 

In this situation, a Chapter 11 filing that will help in the restructuring of GM and its operations seems to be the only possible solution. It will not cause the company to cease to exist but help it in recovering the lost ground to Toyota; and who knows, we might see a better GM in the future!