Investment Banks & Property Dealers

You know there are always some questions which you have always wondered about but were always afraid to ask as it would make you look like a complete idiot. One of those questions which has always troubled me is - what do investment banks do?

So I tried my own process of self-education by looking up the meaning of investment banking in the dictionary.

Investment - "the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. "

Banking - "an institution for receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business. "

Right, so now I get it - an Investment bank is a place where I deposit my money and the bank then lends it out to others to gain profitable returns on it. But wait a minute - how is this any different from the basic concept of banking? A bank after all is a trust worthy (theoretically) institution where individuals deposit their hard earned money. The bank in turn lends out this money to businesses and individuals to gain interest incomes. A bank also plays a critical role in the economy by ensuring that the deposited money is clean. It further ensures that money is lent out to customers who meet two critical criteria -

1. The ability to pay - adequate income
2. The willingness to pay - no crooks please

By assessing these two parameters, a bank ensures clean depositors, and sound, credit worthy borrowers. At a fundamental level, it efficiently directs a country's savings into productive, credit worthy investments. The bank in turn accepts some risk on its own books (risk of a credit-worthy borrower defaulting) and generates income through interest by taking these risks. A classical, hard earned, entrepreneurial way of making money fair and square. Take a risk and make the money.

So how is an investment bank different. A recent article in the FT by a man called John Gapper finally answered all my questions. An investment bank is defined as a bank which was once run by the hard working guy but has recently appointed a smart working guy as its CEO.

An investment bank does the exact same thing as a bank, but removes the blood, sweat and tears from the process. So here is how an investment bank works (you may know this already but please read on as in my discussion, I come to property dealers as well, which is where it gets interesting), A wants to buy an asset, B wants to sell the asset. An investment bank helps arrange a meeting between A & B, informs B how much to sell the asset for and informs A how much to buy it for. If the sale takes place, it takes a percentage share from A & B and vanishes from the scene. Now suppose, the asset goes bad - In this case, A makes the loss & not the investment bank. This is because the risk of default no longer appears on its books. From actually lending out their own deposits and evaluating the credit-worthiness of borrowers and bearing the risk of default, banks today have become commission agents. Think about it. How different is an investment banking operation from that of a streetside property dealer?

However on further analysis, things arent really that embarrasing. There is a value-add which investment banks bring to the process - they help the interested parties by evaluating the true value of the asset being traded. But is this job really as exciting and enriching as regular banking where you get to see funds directed by you turn into huge factories employing thousands of people and generating income for your country. Leave that question for you. I have answered enough for today...

A divided world

Have recently been directed to an interesting website http://www.londoncitizens.co.uk/ and a global story comes home to roost in the capital of Great Britain.

A large group of people belonging to the organisation 'London Citizens' have pitched tents on the lawns to take action so all Londoners can own their own home. They are even having a Tent Warming Party this evening to raise awareness!!

"Our homes, our London is a campaign by the capital's largest and most diverse community alliance to enable thousands of low-income workers to afford their own houses and flats through community land ownership. Hard-working people on moderate incomes used to hope to own their own homes in the course of time. Not any more. House prices have risen by 127% since 1997. The average deposit on a house is now over £51,000.

London is fast becoming two cities: the property owners and the rest. The average homeowner has over £90,000 in equity; the average non-homeowner has £800 in savings.

Now I say, this has been true throughout history!!! Its just that its being felt in the developed world now. Historically, economics has had two driving variables - capital and labour. In the world of capital - you own assets and dependence on labour is minimal. In the world of labour - you slog and slog and slog and then you slog some more to make ends meet. Want to see the visible effects of capital - visit dubai!! You want to see what a world driven by labour looks like? Visit Dhaka!!

The developed world has for centuries been a world where everyone was reasonably well off and therefore everybody could afford and own basic assets. The recent asset bubble however has pushed prices so high that even the developed world is having to work for its assets now and they are not available as a right any more.

Welcome to the real world Londoners...Its not that simple here on. Assets are not a right. They have to be earned.

Jimi Hendrix & the war on Iraq

I dont know how many have seen a documentary I just did, called Zeitgist. A longish over two hour documentary about world history, secret societies, conspiracy theories & how men in power have seeked to control humanity. You can look it up in the videos section if you want.

It develops a few key ideas and then goes on to provide evidence for each of them, some believable and some not so believable. Had me completely hooked up for 2 hours without a break. The ideas are as follows -

1. Religion was invented as a tool by men in power to control and manipulate others.
2. Jesus never existed and was created by the church (the men in power) from old pagan religious beliefs (The documentary proclaims that the character of Jesus in the new testament was based on the egyptian sun god - horus) to control and manipulate people.
3. These people in power today control the central banking systems of the world.
4. The great depression of 1929 was an inside job by JP Morgan to strengthen the federal reserve system.
5. War & nationalistic patriotism are the new tools to manipulate people in today's secular societies. Essentially wars involve spending, spending means borrowing, borrowing leads to printing more money & printing more money is what the central banks are all about.
6. Incidents which led to American entry into WWI were pre-planned.
7. The US had advance knowledge of the Japanese attack at pearl harbour.
8. US Standard Oil (a Rockefeller company) supplied Hitler's Nazis with a patented fuel for their airplanes which were bombing London. At that same time, the US was supplying the British with essential supplies by sea.
9. The incidents which forced the US to enter the Vietnam conflict never really happened.
10. The Vietnam war was never meant to be won. It was meant to be sustained.
11. JFK opposed this system (which is why he had to be killed) and when he realised what was going on he tried to warn the American public in a famous speech of his.
12. 911 was an inside job to enforce the war on terror and diminish civil liberties in the US.
13. The war on terror is the ultimate war as it has no real enemy and hence can be sustained indefinitely.
14. This war serves two purposes - One, it provides an indefinite war and thus a never ending stream of revenue for the international banking cartel. Two, it helps them diminish civil liberties and provide measures to control people in the future - with their consent.
15. The media (they kept showing Rupert Murdoch's face in the documentary) is on the inside on this one and is being used to effectively channel public information and opinion.
16. Another aspect which favours future control is a dumbing down of America's people so that they are rendered incapable of rational thinking. This is being achieved through declining quality of education and increasing sources of entertainment and amusement to keep people occupied and "NOT THINK".
17. George Bush has gone ahead and signed a North American Union (NAU) - which seeks to unite the economies of Canada, the US and Mexico - a lot like the EU. Its new currency shall be the Amero. This is all on track to pursue a single world government where the elite will be incharge of the whole globe and public civil liberties will be heavily curtailed.

Makers of this video are imploring the American public to see through this mess and take the right steps now. Hows that? So you are now thinking what does Jimi Hendrix has to do with all this right? Read on.

"When the power of love overcomes the love of power, the world will know peace..."

- Jimi Hendrix

New Addition - Videos

New section on videos. Check them out. Make me feel homesick.

Economic Costs of Denying Equal Opportunity

A great quote I came across recently - pretty much says it all

"I am somehow less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops. "

— Stephen Jay Gould

There is another interesting thought, what are the two things wrong with the world today -

1. Religion without reason.
2. Reason without religion.

How has Britain changed over the last 10 years - 30 ways

1. Coffee is served by the pint and it will cost more than a pint of beer.
   
2. Once you received your gas from British Gas, your electricity from your local electricity board and your phone service from BT. Now, you will get your gas from your bank, your electricity from British Gas, and your phone service from Tesco.
   
3. The DFS sale which started just before Rachel left will be ending soon.
   
4. I remember arranging to meet friends at a given location/time many days in advance. If they were late you had to scratch around for 10p to ring from a phone box (and their mum would always tell you they had set off). They would never stand you up, as the cowardly way of cancelling without warning by text just didn't exist then.
   
5. It's OK to take photos at concerts, so long as you use your phone.
   
6. Marmite now comes in a squeezy jar.
   
7. Elaborate descriptions adorn food packaging: "freshly made", "perfectly ripe", "deliciously creamy" or (a recent favourite) a "hand-stretched" pizza.
   
8. Beach huts used to be for nannas and grandads rather than property speculators.
   
9. A "C" in the middle of a circle meant "copyright".
   
10. The M62 and M25 were still motorways rather than car parks.
    
11. "I was following my Sat Nav" is now the excuse for driving where you shouldn't.
    
12. Helen Mirren was occasionally called "Ma'am" by junior officers in Prime Suspect, but not by anybody else.
    
13. "Decking" now refers to something you do to your garden, rather than what one boxer does to another.
    
14. Swear words are no longer asterisked in a newspaper.
    
15. Headline puns are no longer the sole property of the tabloids.
    
16. A wag was something a dog did with its tail.
    
17. If children carried guns, they squirted water.
    
18. Policeman are still nominally unarmed but wander around in body armour - even in the Lake District - that makes them look like battle scene extras from Starship Troopers.
    
19. You can no longer wear a hat or a hooded top inside a shopping centre.
    
20. A family seaside holiday in Britain is considered chic.
    
21. Northern Ireland is one of the UK's top tourist destinations.
    
22. The customer is no longer wrong all the time.
    
23. The phrase "Big Brother is watching you" should actually be the other way round for many people.
    
24. Naked bottoms in TV ads!
    
25. Noel Edmonds is still on telly, but at least his Crinkly Bottom has been banished to oblivion.
    
26. Daleks were reduced to scraping a living in Kit-Kat adverts 10 years ago. Today they're appearing on a lunchbox, annual, poster, t-shirt, DVD, sticker collection and life-size cardboard cut-out near you.
    
27. Passwords were for international spies and entry to gang huts a decade ago. Now you can barely buy milk without the need for some secretive alpha-numeric code.
    
28. People go to hospital to become ill.
    
29. The UK will be just like Australia except the weather is worse and the coffee isn't as good.
    
30. And everyone wants to move to Australia.
    

Future of cities

A recent issue of The Economist features a special report on cities. It states that the global population living in cities will "pass the 50% mark, if it has not done so already." It goes on to forecast that in the future, 80% of us in the world will be urbanized. What are the implications of this shift?

There is a contrarian view:

No longer do people have to gather round the agora to do their business. Information technology allows them to work wherever they want. Given that they can also get a religious, sporting or cultural fix by turning on the television, and do their shopping as well as their work on the internet, why live in a city?

A counter-argument:

Land is finite, population is still expanding and the motor car's dominance may not last much longer. With global warming and no economic alternative to scarce petrol, it may not be feasible to go on living 20km away from everything - school, work, babysitter, Starbucks.

And finally, a resolution:

Looking to the future, William Mitchell, of the Massachusetts Institute of Technology, argues that the next urban age will be characterised by "the new, network-mediated metropolis of the digital electronic era". He believes that 21st-century cities will be "e-topias" - places where people live and work in the same building, lead busy local lives in pedestrian-scale neighbourhoods and strong communities, but also gather virtually in electronic meeting-places and link themselves up to enable decentralised production.

Celebrity and the make-believe world

Internet Casino Gets Flossed by Paris Hilton - GoldenPalace.com Buys Hilton's Used Dental Floss

A piece of floss once used by Paris Hilton, smudged with pink lipstick and found in the trash outside Paris Hilton's Hollywood home, sold Tuesday for an impressive $1000 US to online Casino, GoldenPalace.com.

The sellers of the floss, HollywoodStarTrash.com, made headlines worldwide and created an online frenzy with a video on YouTube, showing the process of how they acquired Paris Hilton's trash. The trash was put up for auction and the floss was snatched up for $1000 by the same company that purchased interesting items such as William Shatner's kidney stone and Britney Spears' pregnancy test, to name a few.

With the money they raise with Hilton's trash, they plan to expand their inventory of Star Trash, and produce a full length documentary.

They recently trashed John Travolta and plan to sell his collection as well. The collection includes 12 empty packets of very expensive beef and a fork in a collectible box. They hope the buzz will get them their final goal -- a spot on a major talk show.

Richard Rowe, CEO for GoldenPalace.com hinted that there was interest in the Travolta trash. "We're all fans of Travolta, and who knows, if there is some beef in the packets, we could eat it and then use Paris Hilton's thousand dollar floss," he jokingly said.

Why a revolution awaits China

Have heard the whole world go gaga(or yin-yang) about China. But still firmly believe that a revolution to overthrow the current regime is not far away.

Think about this. Currently, there are two sources of information about China. The government story which is alway positive on the economy and shows what a progressive regime it really is. Second, the bits and pieces of dirty information about strikes, pollution etc which we get from non-official sources once in a while.

Now consider this, people usually overplay the good news and underplay the bad news. So just think about how much of the bad news (which is the only source coming from non-official and therefore presumably independent & unbiased channels) we are not getting to hear.

Something is wrong...Its just not coming out yet. Watch this space....

The most evolved retail markets in India

Have had a fascinating time understanding the face of retail in India and how it is developing. In one of my recent projects at work, I was asked to evaluate and rate cities on their retail environments.

To begin with, let me give you a quick snapshot of retail in India. India has 11 million retail stores. Yes 11 million retail stores. They are mostly small with only 4% larger than 500 sq ft. It employs 7% of India's population and generates 14% of national GDP. Yet only 2% of it is organised. And it will stay unorganised for a long long time. Why? Because its most successful format which is food retailing will always suffer from sourcing issues since India's agriculture is hugely fragmented with average holdings of less than a hectare.

So how do you go about judging the most evolved retail market in the country. Is it on the proportion of organised retail in total retail? Or on area of organised retail to total retail? Total number of malls? In my personal view, it would have to be the nature of anchor stores at the various organised retail setups mushrooming all over the place.

Let me start by explaining the word "mall" in an Indian perspective. In India, mall is euphemism for organised retail. So all that is hip and happening takes place in and around the mall. Now each mall has an anchor store. A store which on its sheer weight pulls in the footfalls. Its the nature of this store that tells you a lot about the evolution of retail in that market.

If the retail anchor serves functional needs and is largely in the domain of meeting basic utilities such as food and basic entertainment, it could be considered less evolved(e.g. Big Bazar or PVR as an anchor store). On the other hand, if the anchor is a store which serves lifestyle needs (Paintings, Serious book shops, accessories, high-end clothing) then it is obviously a much more evolved retail market. The point here is that every other store in the mall looks up to the anchor to draw in the crowds. An evolved category anchor indicates an evolved retail market.

So who wins this race? Well, this work explored Delhi, Calcutta, Bangalore, Hyderabad and Ahmedabad and Pune (No Mumbai sorry). My personal choice for the most evolved retail market was Hyderabad. In Hyderabad across malls, the anchor stores are high-end clothing and accessory stores. Bangalore is a very close second where anchors are pretty sophisticated but there is the odd mall dependent largely on a PVR to draw crowds. However I do feel that the nature of organised food retail is most sophisticated in Bangalore.

Pune, at the end of the day is a small town really. But quickly getting there. Its a bit like what Bangalore used to be 10 years ago. Another interesting thing about Bangalore. I believe its the most culturally stimulating city to live in. Just do a quick recce across shopping areas in Bangalore and count the number of serious book shops you find. I am only slightly exaggerating when I say that in Bangalore, every 5th shop is a serious book store. Check it out yourself.

So where does that leave Delhi-NCR. Miles behind I am afraid. Across organised retail, you find that the anchor is a PVR or a food store e.g Mcdonalds, Sagar Ratna etc etc.

Another, interesting city, I have missed mentioning is Ahmedabad. There are malls developing all over the place here. But occupancy of these grand and ostentatiously created structures would be around 20% to the naked eye. A huge number of gold retail stores though. Found it quite interesting but then the gujarati community has always invested well. Another interesting story about Gujarat follows....

Two Indias

If you have a map of India with you, I suggest you draw a line across it, starting at the point which forms the intersection of Rajasthan, Gujarat and Pakistan, and stretch it across the deccan to end at Vizag.

You have just successfully divided India into its two economic futures. The north of this line representing the poor India of tomorrow and to the south of this line is the new age modern resurgent India. Pick up any economic indicator like per capita income, direct taxes or any business infrastructure indicators such as presence of banking, it is these southern states which are poised to become India's western Europe.

The North with a behemoth like Uttar Pradesh (UP has a population of close to 160 Million) in a state of regress, is India's eastern europe. As a matter of fact, Bihar and UP together account for almost 25% of India's population.

These will effectively be two independent economic entities, which are already culturally different and distinct. For all residents of Delhi, buy that house in Bangalore now....

Why education is not as great as its made out to be...

I remember an old saying - "We have burnt our bridges and have no alternative but to fight and win".

This made me think about a old, rich farmer I came across deep inside western UP (its the Colaba of Uttar Pradesh) who had two sons. One was a BA pass while the other did not study beyond 4th grade. The 4th grader helped his dad in the fields. The BA pass just sat at home, slept late and waited for the employment office to call him up. The 4th grader was always willing to help out and was in the fields early in the morning and worked till late. The BA pass was just interested in a 9 to 5. So who is more productive for the economy? To the farmer, its the 4th grader.

The other point of view here is that if given the opportunity, the BA pass is more productive. But thats the point. A dysfunctional govt means that all opportunities will have to be created by the people themselves. In the absence of this opportunity creating structure, the 4th grader is more likely to act out of desperation and take up any and every job he is offered when compared to the 9-5 seeker. He has nothing else to fall back upon. He has burnt all his bridges......

Corruption & the Delhi Metro

All this talk of corruption in the previous article set me thinking about the Delhi Metro. The trains are swanky and on time. The service is professional, neat and clean. Passing through the gates into the stations is a bit like leaving India for Europe.

How come something funded through the govt. is so damn good. The answer is corruption or the lack of it. With no money lost to corruption, all of it got spent on the service.

This makes me think that if corruption could be wiped out of all public services, all of them should ideally look and be like the Delhi Metro...

Smart people are incharge & how the small businessman will find a way...

Much talk these days about the rising rupee and how it is detrimental to Indian exports and the economy. On the contrary, this policy of letting the rupee rise shows that a smart and intelligent bunch of people are incharge.

The only thing I remember of my economics lectures in B school is that in a global environment its impossible to pursue an independent monetary policy. Well, the politicians incharge have found a way to do just that - let the rupee rise and raise a barrier for hot money flowing into the economy...within these barriers you can now quietly do your own thing and raise interest rates - in other words - pursue an independent monetary policy and curb inflation at your own pace.

Dont get me wrong, I dont like rising interest rates either - I have a huge mortgage to pay off. Besides a rising rupee is bad news for me too since I just relocated to London. I have effectively taken a 10% pay cut since moving here!! And that hurts.

So what about falling exports and their impact on falling employment. A couple of small suggestions to India's small business from a man who will always be scared to setup something on his own - Invest in cheaper capital goods while the going is good and improve quality of products while you can. Another suggestion is to look closely at the rapidly developing domestic market. A billion people should be enough for us. Besides, Europe is raising interest rates too and therefore could be looked at as an alternative to the US.

I have great respect for the small businessman in India - sure everything isnt always above the board but this man did manage to generate profits in an era when interest rates were still high and corruption costs have always been around 5-10% of total business costs. Imagine what he can do when given a free hand...

Ooh Aah India

How has India managed the growth it has despite the constraints it has faced? Fascinating in all this talk about India and India Vs China is how different really have been the models of growth followed by these two nations. India has followed a bottom up approach to growth as opposed to a top-down approach pursued by China.

Let me explain - China has seen the govt lead through initiatives and the people following. A top-down approach. India on the other hand has seen people lead and the govt follow. A bottom-up view. And bottom-up growth is chaotic and ugly. Because infrastructure usually, is a govt concern and not a private one. Wish things were simpler...

Also a lot of talk about infrastructure gets focussed around roads, ports & power. Infrastructure, to my mind, is of two types -

1. Hard infrastructure - roads, water, sanitation, housing, commercial development, ports, airports, bridges, rail networks, telecom
2. Soft infrastructure - health, schools, colleges and institutes of higher learning

We simply cannot afford to ignore aspects of soft infrastructure. Come to think of it, the one sector which India is really known for globally is IT right? Now, growth in IT made another "IT" famous - The IIT. What this means is that economic growth in one area (IT) which led to some development in hard infrastructure (Telecom) was largely based in soft infrastructure (IIT).

To enable the next step in creating high employment (India needs to create 12 million jobs a year) we will have to look towards manufacturing - and another piece of soft infrastructure should enable that. The ITI...

Why India & China can never go the high-skilled route to development

Simple. Two very large populations with lots of poor, uneducated average people.

India must provide employment or atleast the opportunity of employment to all - even to its most illiterate and uneducated citizens. Its a democracy after all and no government can risk losing votes. The only way this will be done is by focussing on the ITIs rather than the IITs.

China too faces a similar dilemma - or it risks a revolution which is slow in coming compared to India's five-yearly elections but more devastating when it does.

The other point of view on this is that the populations of these two countries is so large that they should be able to absorb all forms of skilled or unskilled labour within them. Even a 10% highly educated population for these two countries is a combined population of 200 million!!!

Religion & Nations

Its indeed a fascinating concept that the whole of human history, in terms of beliefs and concepts is actually playing out today in different parts of the world.

Largely, there have been three ways of giving people a common identity -

1. Religion
2. Nation
3. World

Religion was the first off the blocks at giving people identity. This concept has already died two deaths. One with the birth of the secular nation state in Europe and the coinciding decline in the role of the church. And then again with the end of the Ottoman empire in WW1. But guess what? Its back. Finally, today we also see in some developed markets, the concepts of a global nation taking shape - The European Union.

In certain other parts of the world, religion as the nation is playing out once again with calls of one arab nation. Now this is hardly an unknown, strange or regressive concept as it is claimed to be. Historically, in Europe, religion was the nation for centuries before the birth of the secular nation. How different is this call of religion to the call for the crusades in Europe centuries ago? Not much, I would think. Its just that X's past is Y's present and that makes X uncomfortable about the whole thing.

Right through the ages, people have always needed something to believe in. The first believable entity was religion. Today it is a geographically defined nation - tomorrow it could be the global nation, again a concept not many are comfortable with today.

Why democracy is bad for the US

Have recently moved to London from India and have been reading a lot about the global asset bubble. The story about how the world moved away from gold in its currency structure and how the US dollar is the "new gold" of today. The way it works is that the dollar (and now increasingly the euro and to a small extent the yen) is the recognized currency of the world. Under this system, all countries in the great global bazaar need to produce and sell their wares to earn the dollars so that they can buy what they need. The classic protestant work ethic.

But what about a country which actually owns the global currency - the world's super investor - The US. To be able to buy stuff off the global bazaar, the US does not need to produce anything to attain its dollars. All that it has to do to buy anything it needs from the rest of the world is just print off more dollars.

Right - so the first conclusion is that the US has to produce nothing in return for goods it needs from the rest of the world.

But how does it go around ensuring that the rest of the world just sits back and watches this show. Two ways of doing that

1. By ensuring that the rest of the world needs its dollars
2. By ensuring that it continues to consume enough to be an attractive market for the rest of the world

Now if the US is to ensure that the rest of the world needs its dollars - what should it do - (it is the global currency of exchange, remember) - it must ensure that it is mandatory to price a very very essential product in dollars. Something which everybody needs must be priced in dollars to ensure that people continue to accept its currency. That something is oil.

By providing millitary and political assistance to the world's largest oil producers, the US ensures point 1.

On point 2 - by keeping its own consumption high, the US remains an attractive market for the world's producers (read China). To retain their market shares, the world's producers must continue to accept the dollars and keep printing more of their own currencies to keep them attractive.

So globally, as the US prints off more of its money, ensures pricing of oil in dollars and retains its share as a large, attractive global market it ensures that everybody else needs and accepts its dollars and the world too is forced to print more of its currencies to keep them attractive.

The result - a global growth in money supply. And the US system depends on this for its very survival. But this global growth is divisive - only those already in possession of assets will prosper. The average man on the street is not likely to participate in this.

A derivative of this - the global asset bubble. Now the big question - How long will this last ----

Theoretically, asset prices depend on two aspects -

1. Real inflation in assets governed by laws of supply and demand
2. Money supply
3. People's risk appetite

The latest asset bubble has seen such high numbers for so long because all three of these factors have grown.

On point 1 - more people have joined the world economy making the supply situation tighter. So its logical that asset prices have risen

On point 2 - as demonstrated money supply has grown

On point 3 - Global risk appetites have also grown. Which means people are willing to wager on stuff which they wouldnt have done in the past.

Now given these factors, the global asset bubble could continue indefinitely!! Technically an asset could have any value which consumers want to give to it as long as its acceptable to all. (People have bigger risk appetites now remember). Also this continued asset bubble could continue to absorb all the liquidity the world can throw at it ad infinitum.

Except there is one small hitch - somewhere down the line - perceived asset prices relate back to the real world - If properties and land is more and more expensive on account of the asset bubble - retail infrastructure is more costly - which means that retail prices should also be higher and rising. Which means that the average man on the street needs to pay a higher price for items of daily needs.

Now this average man on the street may not have the money to fund these rising prices. So he protests. In a democratic setup he boots out the government and elects people who oppose this system.

In a democratic system, therefore, people without the assets have a say as strong (or perhaps stronger) than those with assets. They have the power to destroy this system (on which the US depends for its survival today).

Thus a true democracy - has the potential to destroy this system - by corollary - is bad for the US.

What else is bad for this system then - go back to the first two points discussed -

1. Mandatory to price oil in dollars
2. Retain america's status as the world's largest and most attractive consumer market.

If any of these parameters change, the system collapses. (Iraq was attacked after it started pricing its oil in euros). The rise of China as the world's largest consumer market makes the US less important and so again threatens the system. Again a new fuel to power the world could threaten it as well.

So what can be expected from the US going forward

Political Actions

Ensure "NO PEACE" in the middle east and keep propping up non-democratic governments in the middle east - (Cannot afford to lose control over oil and the way it is priced)

Economic Actions

Lower interest rates going forward - (Cannot afford to lose most attractive market status)