World wide Financial experts are discussing - "Has the end of the American Giant started?". To understand issues which can throw light on this issue; let us consider history; and some concepts of economics.
In the decade of 1990s, the world saw two major economic collapses. The decade began with collapse of the soviet empire. The economic collapse was followed by political disintegration followed by a further economic collapse until the Russian Government had to go on its knees to the capitalists for their help. The NATO nations won their cold war without sacrificing a single soldier. U.S. became the single super power. (Incidentally, with 1991 India started liberalisation and slowly achieved a scale of liberalisation that no one had imagined in 1990.
The year 1997 saw the South East Asian (SEA) Economic Crisis. Five countries' - economies were totally destroyed. This was followed by waves of currency crises in several countries form Russia to Mexico, Brazil, Argentina & so on. There were attacks on Indian & Chinese currencies. Both survived. World financial experts agreed that the reason for their survival was - effective exchange controls.
Year 2001 saw the most dramatic break-down in the hypothesis that "U.S.A. is invincible". 11th September, 2001 attack on the World Trade Centre in New York and on Pentagon revealed several weaknesses in the U.S. defense system. Massive destruction in Afghanistan killing of thousands of innocent people and destabilisation of all the Afghans has only proved that U.S.A. is vindictive, & heartless. When a lion kills a fox; it does not prove anything for the lion. This is followed by even more dramatic collapses of Giant corporations like ENRON & Arthur Andersen. A series of companies have been exposed for their fraudulent accounts keeping. The investors' confidence in U.S.A. has been badly shaken-up. U.S. dollar has depreciated against world currencies. People are doubting whether it is still a "safe haven" for one's investments.
In this series of articles, let us see the fundamentals of economics, today's financial world and what can be expected in near future. Interested readers may make their own hypotheses of the scenario in December, 2002; December 2005.
And yet
No one can predict future events.
One will never know what will happen and when & how it will happen. (
.) Even Lord Rama did not know what was going to happen the next day.
Two contradictory theories. (2.1 & 2.2).
Both prove right in life.
That is the paradoxical aspect of nature.
That is why it is a fascinating drama.
This series starts with an article on the Russian collapse.
Let us understand what happened in Russia in 1990 when the exchange parity between rouble and dollar stood at 4 Roubles to 1 US dollar. Rouble was considered strong, whilst USD was considered speculative. When Gorbachev introduced democracy in parts, there was revolt and counter revolt. Then Yeltsin came to power. But he had no clue of market economics. In communist Russia, prices of all commodities were determined by the Government. There was no inflation for decades. In short, there was no market economy in Russia. Yeltsin wanted to introduce capitalism and total democracy.
In Russia laws were changed by dictate of the President. He issued order and removed all regulations. Russia became more capitalist than USA. Market totally collapsed. Government had no money. Therefore Russia was forced to withdraw army from Afghanistan and Eastern Europe. Thousands of soldiers were retrenched as government had no money to pay. They became mafia who knew nothing else than to run guns. Through all these events started massive depreciation of rouble. From four roubles to a dollar - to eight roubles to a dollar, from eight to twenty and from twenty to hundred roubles to a dollar. Nobody knew what was happening. Yet no one outside Russia was concerned because the world did not use Russian rouble for international trade and western countries wanted Russia to fall. The exchange parity deteriorated so much that today it is almost 31,500 roubles to one US dollar. Russia has simply deleted three zeros from its currency. So 1,000 erstwhile roubles are now called one rouble. Current parity is 31.5 roubles to a dollar.
No economic theory can explain this, be it purchasing power parity, chart, fundamentals, technicals - nothing could justify depreciation of four roubles to a dollar to 31,500 roubles to a dollar. Russian economy is totally in shambles. How to explain this !
I have a metaphor, a simile to explain this concept. Where there is jungle fire i.e. fire in the forest, what happens? Fire starts from one corner and if you are successful to dowse it immediately, it is fine. But if you have limited supply of water, what do you do? Fire will go on and on and it will spread in whole forest.
The forest fire starts with dead leaves lying on the ground. It may be grass, fallen leaves, dead wood, dead trunks withered and fallen. Then the fire catches dead wood. If not controlled initially, it catches everything including green wood, green trees, green leaves. When the jungle fire starts there is no logic, while the dead wood burns; green wood will also burn. Birds, animals, children and everything will burn till there is nothing to feed on. You cannot be sentimental about it. This is exactly what happened in Russia. Anybody who tried to save Russia, was at loss and unless and until Russian economy was not finished, the depreciation of the rouble did not stop. I call this implosion. When a structure collapses internally, causing very small damage outside; it is implosion.
Let us extend this simile to other countries. Countries which have dead wood, dead leaves in their economy have potential to catch jungle fire unless they take adequate steps. Russia had massive deadwood accumulated over the past 30/40 years. Russian economy was totally controlled for years, there was no inflation, no market economy. Such an economy was suddenly totally opened up, which resulted in chaos. Compare the amount of deadwood in Thailand, Indonesia and four-five other countries in the region which were victims of currency crisis. Each country had its own peculiar problems.
Chapter II.
South East Asian Explosion. (1997).
I will take up Thailand, the worst hit country, to explain it thoroughly. I will try and explain problems of Thailand which will help us to understand crisis experienced by other countries on more or less similar grounds. In Thailand, there was no political stability. During 1991 to 1997, five governments had changed. No single party had majority. Coalition party, coalition groups formed government, fought with one another and collapsed. Thirty five to forty MPs in Thai Parliament were hard core criminals. Corruption, smuggling, murder, and so on, they were involved in almost all types of crimes. Politics in Thailand continued like this.
At every stage I am giving examples of deadwood. Try to compare with Indian scenario to find out whether we have similar deadwood present in our economy. Then you know what is the potential for India to catch jungle fire.
Thailand accepted "Western advice" in full and lifted all controls. There was no foreign exchange control except that Thai Baht was linked to US dollar. So the value of the baht vis-a-vis dollar was fixed. There was no way of changing it. That encouraged people in Thailand and they felt that there was no exchange risk at all. Thailand, a developing country, had some scarcity of finance. Interest rates were around 20% p.a. If you borrow in Yen, interest rate was 1% p.a. Smart merchant bankers advised Thai businessmen to borrow in yen at interest rate of 1% p.a. There is no way one can convert yen into baht, so they converted yen into dollar and dollar into baht. The whole process would cost three to four per cent p.a. Borrowing at 4% p.a. and lending @ 20% p.a. in Thailand, there was a straight gain of 16% p.a. There was no exchange risk as dollar baht exchange rate was fixed and baht was considered as strong currency. Huge amount of foreign investments, FDI, FII, portfolio investments were freely flowing into Thailand. By the simple demand and supply rate baht used to go up. There being no perception for Baht to depreciate, nobody insured himself against exchange loss. So nobody did any hedging at all. Banks also went ahead, borrowed in Yen and lent in baht in Thailand.
Adventurous borrowers bought property, others invested in portfolio. Conservatives - green wood - invested in bank FDs. As investments were flowing in real estate and stock market, prices went up. FIIs too acted irrationally. Because prices were going up they invested in Thailand, and as they invested prices further went up. Everybody was investing, thus cause and effect cycle was built up. This was second reason / situation responsible for jungle fire.
The two main reasons for jungle fire in Thailand are: firstly, Political Instability and secondly International borrowing without hedging.
Let us go to the third situation,. Somebody asked Montek Singh Ahluwalia, why RBI is sitting on 20 billion dollar reserve (as the reserve was at that time) without effective investment. Mr. Singh replied: we need to have liquid cash to support rupee under any unforeseen emergencies. (Today, again people have started asking whether we should hold U.S. $ 55 billion worth of reserves.) The Central Bank of Thailand too had good reserves. But it invested these in Thai banks which had gone abroad. What happened to them? For a short period of time Yen went up vis-à-vis dollar. People used to borrow at debt equity of 5 : 1 or even 10 : 1. Say you have borrowed abroad at debt equity of 10 : 1. On your one dollar capital you borrowed ten dollars and invested eleven dollars in stock market. Highly speculative investment made by borrowing. As if this was not enough, large part of the borrowing was on short term basis. They borrowed on three months' bills of exchange. Central Bank, FII, Thai domestic investor everybody was running into one circle. There could be several other reasons for triggering jungle fire but the main reasons are as follows.
Somewhere around June, 1997 Yen appreciated, say from 120 Y to 115 Y to one US dollar. It meant that those who had lent to the Thai investor, wanted some increase in margin money, say by 10 per cent. How do you increase margin because all your money was invested in either share market to real estate!
The only way to raise money would be to sell shares or property. When they went to sell, they realised that the property could not be sold. So they sold shares. Fine, they realised some money and increased margin. Another development had already started before six - twelve months whereby Thai government was advised that the productivity of Thai industry is going down. Dollar had appreciated vis-à-vis all other world currencies. Since baht was linked to dollar, it had automatically appreciated vis-à-vis say, Indian Rupees, Chinese currency or for that matter any other currency of the world. This appreciation was not justified by the low productivity of Thai industry etc. So the Thai government was advised that you delink your currency from US dollar and depreciate it by about 20 per cent.
Thailand considered depreciation as insult or humiliation, so they did not yield to this advice. General domestic investors were probably unaware about this development. But FIIs knew about it. When they saw Japanese currency affecting Thailand economy and resulting in liquidation of investments, they started acting and this is, what I consider, triggered jungle fire from dead leaves to dead wood to kerosene. Many FIIs act moment to moment, day to day. They run on expectations. Especially hedge funds do totally opposite of what they are supposed to do. Hedge funds talk of providing hedge, but they do speculation, gambling. Nick Leeson of Barings bank, hedging, options, derivatives are all before you to see what they actually do.
Humans by nature ignore writings on the wall. When something happens so dramatically, we look at it as a drama and forget it. That is why, probably in India we are inviting more and more FIIs and going for hedging and derivatives. FIIs act as kerosene in a jungle fire. I will explain you how. In Thailand, there was some nervousness setting in. FIIs gauged it. FIIs said, let us get out first and far. That is why they want electronic system. Electronic bank transfer, electronic share transfer. Buying and selling on computer. You sell shares, money is credited to your account and transferred out of Thailand in 3 minutes flat.
FIIs armed with knowledge that Thai currency needed depreciation, started selling. For any developing nation, sale or purchase by FII would be a massive transaction. It runs the market, it makes the market. When FIIs started selling on large scale, market crashed. Thai investors also started selling. Investment of 11 dollars, instead of becoming 22, became ten, so to repay loan, they sold. In this nervousness, lot of people transferred their money abroad. Baht, initially fought but had to depreciate later on, because the Central Bank of Thailand had no money. Its reserves which were invested, were blocked, they could not be liquidated. Consequently Thai government could not use them to support baht from depreciating. The demand for dollar was increasing from all those who wanted to take their money out of Thailand, and the Central Bank was unable to meet this kind of exodus of money.
FIIs were selling shares, selling properties, converting baht into dollar and taking money outside. Similarly Thai investors started selling and they also took money outside Thailand. FIIs suffered double the loss when market depreciated by 20 per cent, and baht depreciated by 20 per cent. They suffered a loss of around 40 - 50 per cent.
Now let us see how FIIs are managed. Generally a young merchant banker would be managing huge funds of FII. He would be interested in quarterly bonus. He has to show quarterly profits. Sage Bhartenhari has said - "Youth, Power, Immense amount of money - anyone of it is enough to destroy a man. When someone has all three, don't ask what can happen". Here are managers who are young, inexperienced, powerful and controlling large wealth. And this is other peoples' wealth. And if they make losses, they are not accountable to anyone. Ask investors who have lost money in mutual funds. Is anyone answerable?! These managers did not want to show losses. So the game started - "who is getting out of Thailand first". This is called "Panic", just like jungle fire. This increased pressure on baht and it started depreciating. FIIs have regional funds. Say, Asia fund. A young merchant banker would be responsible for overall performance of the Asia fund. Ultimately Asia fund should make profit. Burnt by crash of Thailand stock market, they concentrated on Malaysia. Malaysia seemed to be the nice country with good fundamentals. When FIIs started booking profits in Malaysia, otherwise sound Malaysian stock market also crashed. Panic set in and higher outgoing money due to profit booking resulted in depreciation of Malaysian currency as well. This is how jungle fire - currency depreciation - spread to Indonesia and other countries on Southeast Asia.
Economies which had conservative planning and better financial management were less affected. A country like Indonesia, which had massive dead wood, massive corruption, was affected badly. Just 200 families were controlling entire country's economy. Many of them were highly corrupt. President and his family were considered as "10 per cent family". To start any venture, 10 per cent bribe to somebody in President's family was the order of the day in Indonesia. Destruction of SEA countries' economies is a history.
Compare this with the dead wood in Indian economy. Security scam of 1992 is the direct indication that what was there in Indonesia was already there in India. Market issues were bogus. Corrupt bureaucrats, professional accountants who are turning a blind eye, adding and abetting fraudulent results in corporate prospectus and balance sheet etc. are also dead wood. All this dead wood can ignite fire any time. In India there is no system of punishing guilty, inefficient and fraudulent person. There is no exit system in India. Where is the exit system for management in India? When IBM first time reported a loss of US $ 10 bn, the first person to go out was the chairman and thereafter 10,000 workers were retrenched. In India when brothers split, even companies are split as if companies are their hereditary property. This is happening day in and day, out and we are just mute spectators. Large amount of dead wood, dead leaves and kerosene in the form of FIIs and hedge funds are being pumped in the economy. We have a potentially volatile deadly combination lying before India. This is probably the lesson of what has happened in Southeast Asia. If we can learn from Southeast Asian crisis, it is fine. Probably we can be saved. If we don't learn from it, God only can save us. But why should he? Do we deserve God's Grace?
Chapter III.
Sentiment Dominated Economy
We have seen real life illustrations of economic disasters.
In this article, let us consider -
How the current world Economy is dominated by Sentiments;
How fundamentals get low priority in our perceptions;
and
What are the consequences.
This is a conceptual article and may interest only serious readers.
The illustration of - South East Asian Crisis explains this phenomenon. We have seen the reasons for the crisis. In this article, let us go into the reasons - for the reasons.
As modern economy develops, reality is taking a back seat and is being represented by symbols.
The first stage symbols are then, further represented by a second stage of symbols.
At each stage of symbols, there are assumptions which go behind the symbols.
Common men do not understand the assumptions.
"Smart men" violate the assumptions and make merry.
By the time, 3rd stage of symbols arrives, the economy is so far removed from realities that it is largely like a castle made out of playing cards.
For a castle of playing cards, it is most essential that each card is strong enough, there is no wind and no one pulls out a single card.
In practice, these assumptions do not work.
Hence the castles collapse - As happened in U.S.S.R. and South East Asia.
The falling cards take down with themselves, even the steady cards till everything meets dust.
Let us see a few examples at a few different levels to understand why South East Asia (SEA) collapsed.
Money has replaced barter trade - which was the real thing.
Money would be of no value but for the expectations that - it will have stability of value; it is good for storage of value and is convenient in use.
The "stability" and the "store" functions depend upon the assumptions that :
The authority issuing currency notes (Central Bank of the Country) is a wise and honest authority. It has tremendous knowledge of complex workings of monetary economics and fiscal equations ; and is totally honest in its dealings.
The next assumption is that the Government will listen to the Central Bank ; that the Government will not resort to deficit financing ; and will allow the Central Bank to be truly independent.
Why should Central Banks be independent?
Because Governments are ruled by politicians. More often than not, the politicians are neither honest, nor wise.
Practical men do not make impractical assumptions. You cannot assume the Government to be wise and honest for a long time.
So segregate the monetary functions ; give these to a separate authority and ensure that the authority fulfills all assumptions.
A country which ensures that these assumptions are a reality, grows without inflation. Rest go down under.
Money is the ground floor of the castle of cards.
Common man does not understand economics. He simply uses the money and hopes for the best.
When you hold land, buildings, gold etc. ; you are holding real assets. When you hold shares, you are holding a certificate which is the symbol of :
(i) Assets owned by the company; and/or
(ii) Earning power of the company; etc.
Shares mean different things to different people. Suffice it to say that shares are symbols.
Some of the assumptions that go behind shares are :
(a) The company is collecting money from the shareholders for doing business (Not for foreign cars and foreign tours.)
(b) The directors and other managers are honest and good business men. They will do business, earn money and share the same with the shareholders.
(c) The auditors are honest and capable experts. They will not be influenced by the directors ; they will search out the truth and convey the truth to the shareholders.
(d) Government and its regulatory authorities are capable to deal with the enormous number of companies; experts to understand the games that are played in the Board rooms; strong enough to punish the guilty and compensate the victim.
(e) Courts will give effective justice.
A country in which these assumptions are realities of life, can see a healthy and vibrant investment market. Where some or all of the assumptions prove wrong; the country stagnates as is happening today in India.
Shares are valued in terms of money.
One symbol (share) is represented by another symbol (money).
Share market is the second floor of the castle of cards.
Common man does not understand share market. But he does want to make millions in the market. The greed makes him - forget the realities of life, and run after the dreams being sold.
Bombay Sensitive Index - or any other market index is a 3rd level of symbol.
To be truly representative, a share market index has to fulfill the following assumptions:
The index is truly representative;
It is not manipulated by anyone;
It is constantly updated to remain representative in a changing world.
People having a study of the markets know how easy it is for some people to manipulate the index ; and since 1991, how many times the index has been manipulated and to what extent.
A wise man who understands that none of the assumptions hold good, would stop looking at market indices - whether they are built and published by BSE or CRISIL or some news paper.
At this stage, let me clarify that -
These assumptions are not exhaustive. There are many more requisites for the successful operation of any scheme. A sample of a few important assumptions helps in understanding the theme.
The pre-requisites or assumptions have varying degrees of importance for different people. Common man does not bother about these pre-requisites.
Derivatives and options in indices are the 4th floor of the castle of cards.
At this stage, the castle collapses by its own weight.
Why do intelligent people refuse to recognise the weaknesses in the system ?
There are several human weaknesses that all of us know about. What we may not realise is :
These weaknesses apply with equal force to - a common man, a SEBI director, a company promoter, Government of a country, the Central Banks of many countries, and auditors. All are human beings; or are managed by human beings.
A company director is supposed to be honest. We all know that the assumption is more often wrong than true.
An auditor is supposed to be capable. We know how easy it is to keep the truth away from him.
The next issue is, when it is so evidently clear that these assumptions (requisites) are not fulfilled, how do people still run after the market? After the dreams, rather than realities of life.
Answer is simple. A set of human weaknesses.
Most people are greedy. They expect unreasonable profits. So they keep aside reason. A greedy man indulges in wishful thinking and does not want to see logic.
A common man is impressed by the glamour that company promoters and merchant bankers display.
The con-man (who comes in several different forms) knows the human weaknesses of the investors, the regulatory authorities and the judiciary. He exploits these weaknesses and makes money at their cost.
Too many con-men in India -
Have cheated too many common-men in India -
Too many times.
Today, the share markets are dead.
What is the reason ? Is it one of the following:
(i) The common man has realised all the weaknesses of the system and hence has stayed away from the market,
or
(ii) He has realised that the 50% or more returns per year - that he expected earlier; simply can not be earned. Since his expectations/ greed cannot be satisfied, he is not interested in investing.
Till 1997, Indonesia (and other SEA tigers) was doing well. It was a show-piece of how modern economies can progress fast. What happened suddenly that the Indonesian economy was in total shambles in 1997.
The three systems and their weaknesses over which we had a bird's eye-view (money, share market and index) are in India. The 4th system (derivatives) is still entering the Indian scene. So far, RBI and SEBI have controlled it. But the FIIs have a tremendous "brain washing" power. They can convince most intelligent people that these instruments of gambling are actually very noble instruments, good for India. We have to be smart & alert. We must save ourselves from the FIIs' word-to-month campaigns & save our economy. We must clearly remember that many of the FIIs are acting as kerosene in jungle fire. Beware of them.
Indonesia had all these and more weaknesses.
(i) Government was corrupt.
(ii) Central Bank was not independent.
(iii) Share markets were incompetent.
(iv) FIIs were allowed a free play.
(v) Foreign exchange speculation was also allowed.
The FIIs came in countries of the SEA in the 1990's decade. By FII standards, these were small economies and small investment markets. When the FIIs entered, their share markets went up. So FIIs invested more. So the share markets, the property markets and foreign exchange markets - everything perked up. They invested more and markets went up - a sort of cycle was going on.
Then some silly things happened. (Wind blew over the castle of cards.) Details have been explained earlier. When the FIIs realised that they could not make profits, in fact, they might make losses ; there was a race to get out faster than others. In the scramble that followed, the castles of cards collapsed - bringing down everything with them.
Another analogy that we have seen earlier - the forest fire got quiet only when everything that could be burnt was burnt down.
In our present discussion, we are not discussing the reasons of the collapse. We are looking at the reasons of the reasons.
The FIIs behaved the way they behaved because :
In short - FIIs are also human. They are greedy. They want to make a fast buck without contributing anything. They are gamblers. They go by "sentiments" and ignore fundamentals.
When everyone expected that markets will go up, when the sentiment was bullish, FIIs were also bullish. They fomented the bullish sentiment. Optimism fed on optimism and all prices went up. Everybody "felt" happy.
When somebody pulled out a card or two from the castle, the things started falling. The FIIs created a scramble to run away. They quickly forgot all the "accolades" that they had given to the SEA countries. Pessimism fed on pessimism and burnt down everything.
Why did suddenly the Merchant banking jobs became the most paying, the most sought after jobs? Young brilliant boys did not want to become engineers or industrialists who would produce goods. They did not want to become auditors or traditional bankers - who provide services.
Every one wanted to be in merchant banking and share markets. Why?
Because these markets are the farthest from reality. An engineer has to produce goods and deliver. A broker can simply sell dreams. For a dream - merchant who deals in symbols based upon symbols based upon symbols based upon symbols - fooling the greedy is the easiest thing in the world.
Honest workers, farmers, traders, industrialists, auditors and bankers - are the hard working people who build real castles.
Unfortunately, they have to deal with money and shares. Instruments which can easily be converted from real building blocks into playing cards.
Gamblers (whether in property, shares, foreign exchange or derivatives) are the people who build nothing but want to usurp things that are built by others. They are experts in exploiting public sentiments. These are the people who keep pulling out cards & running away. They destroy far more than they gain.
It is for us to judge how to save ourselves from the catastrophes that happened in SEA. Having considered history and fundamentals, let us now turn to U.S.A. & the future.
Chapter IV.
THE FUTURE OF U.S. DOLLAR
The Economist magazine (issue dated 27th April to 3rd May, 2002) has raised a doubt on the continuing $ stability in the light of twenty years' trade deficit by U.S.A. Let us consider the strength & weaknesses of U.S. $. Let us also see whether we can mix economy & philosophy!
Is the $ strong or weak? What is the intrinsic worth of the $? There are several ways of approaching this question. No single way may be the only right or the wrong way. In economics, there are so many probabilities. Let us look at the U.S.$ from different points of view. We may consider several concepts - several building blocks of the main hypothesis. At the end, all the building blocks shall be put together to state the hypothesis.
In the twentieth century, United States has consistently grown in stature. Before the first world war, it was not a super power. Some of the European countries were more prosperous than the U.S. However, Europe and Japan were great sufferers in the World Wars. U.S. remained unhurt in both the wars. Hence, its prosperity continued. In war times rich people from all countries transfer their wealth away from war torn countries. A country fighting a war suffers badly, its economy goes down, its currency goes down. Anyone who holds its currency whether resident of that country or not, suffers. This simple truth is known to every wealthy person. At the earliest sign of a war, there can be a flight of capital away from that country. Apart from the two world wars, the twentieth century has seen many smaller wars - the Gulf Wars, the Korean War, etc. Every time the wealthy people have converted their currencies into the U.S. $.
The confidence in U.S.$ has been all pervading. Everyone wants to hold his wealth, do his international business transaction in U.S. $, Central Banks of most countries hold their foreign exchange reserves in U.S. $. Of the total FX reserves held world wide, in the year 1992, 64.4% reserves were held in terms of U.S. $. (IMF annual report, 1993 - Page 107.). The Central banks' reliance on the U.S.$ is so high that many developing countries have linked their currencies with the U.S. $. As on 31st March, 1993; there were 24 countries (mainly small economies) who had pegged their currencies to the U.S.$.
It is but evident that collectively, the wealthy people of most countries have foreign exchange (FX) reserves exceeding the FX reserves of their Central banks. These people hold their wealth and assets in a basket of currencies where the maximum weightage is given to the U.S.$. This kind of investment also results into billions of $ investment.
For a long time U.S. $ was convertible into gold at a fixed parity of $ 35 to an ounce of gold. This inspired a great deal of confidence in the $. On 15th August, 1971; the U.S. Government broke off the convertibility. $ devalued sharply against gold. World markets discussed about it and forgot it.
Ten years after the second world war, when the European countries reorganised their economies and started becoming prosperous, they started dealing in U.S.$. Pounds Sterling (P.Stg.) lost its eminence as the world currency and the U.S. $ gained the status of The Currency for all international transactions. The amount of $ available in Europe for financial transactions became a large amount and acquired the name of Euro Dollar.
In the year 1974, the oil exporting countries suddenly realised the potential of collective bargaining power and the value of their crude oil reserves. They increased the price of oil tremendously. Entire world was shocked. The Oil Shock battered several economies. Developing countries like India suffered. Japan, a large importer of crude oil suffered. However, it efficiently reorganised its economy and reduced the suffering. Its other strong points overtook the damages caused by Oil Shock. Developing countries continued to suffer.
What happened to the western countries?
The Arab countries did not know what to do with the flood of money flowing into their countries. They had no industrial base which could absorb this huge inflow of funds. They widened their roads. Installed huge plants to convert the sea water into drinking water. Modernised entire infrastructure. Built palaces worth millions of dollars. Still, they were left with billions. What could they do with these billions? Gold investment was good to an extent. But gold prices remained steady for a long period. And gold does not earn interest. And one may not like to keep billions in non-earning investment. Billions of dollars flowed from the Middle East to the European and the American banks. And a large part of this investment was held in U.S. $. This came to be known as "Petro Dollars". The Western Countries paid billions for the oil. The middle-east countries used a small portion & the balance was again paid back to the western countries in the form of different investments.
What is deficit financing? And what is its impact ?
When a Government spends more than all its revenues and borrowings, simply by printing notes, it is called deficit financing. Every Government loves it. Because, it can spend money without earning it. It is a loan taken from the public which the Government never pays back. However, there is a price for deficit financing. Printing more money causes inflation. And no Government can go on battering its citizens with mindless inflation and continue to remain in power. If Indian Government resorts to too much deficit financing, there is tremendous inflation, economists start criticising the Government, women come out on the streets, there is protest everywhere and to an extent, Government has to control itself.
This process is accentuated because the Indian wealthy people take their wealth out of India. Something which should support the Indian economy goes out to support the western economies. Taxes which should go to the Indian Government go out to support the Swiss Banks.
What happens when the U.S. Government prints notes?
Does its deficit financing hurt the U.S. economy by causing inflation? Far from it. Billions of dollars are gobbled up by world Central banks, the Swiss banks representing the world black money, the Euro dollar and the Petro dollar. This was not enough. To top all foreign investments, came in the Japanese. Today, Japan is world's largest investor. And a large part of Japanese investment is held in U.S. $.
U.S. Government's deficit financing amounted to borrowing from the world and not from its own citizens. And the world was continuously investing with no signs of taking the money back.
Come to think of it. It is a dream for any Government. A Government goes on printing billions of dollars which are simply taken away by the world financial system. There is no inflation within the country. There is no harm to the economy. In fact, the country creates wealth of billions of dollars out of thin air!
No wonder, U.S. is as rich as it is.
Well, this is not the only reason for the wealth of the United States. There are many strong reasons. But, this is one of the important reasons.
Continuous foreign investment in dollars means continuous faith by the world into the U.S. economy. It also means continuous encashing of its goodwill/strength by the U.S. Government.
How long can an entity go on discounting its goodwill?
Today, with trillions of dollars of foreign debt, U.S. is the largest debtor in the world.
Situation has taken some turn during last few years.
In the 1990's, U.S.A. was terrorising Japan by using Super 301 - an American law to be enforced on foreign countries to open up their markets for American goods. When USA became too aggressive, Japan quietly told that they will start withdrawing their investments in U.S. Treasury bills. Suddenly U.S. became quiet. Now Super 301 is as good as dead. U.S. Government had to listen to Japan. U.S. Government's annual budgetary deficit has generally been over U.S. $ 100 billions per year. The trade deficit is over $ 400 billions per year. Both these are financed by foreign investment into U.S. If the foreign investment comes to a halt; U.S. economy would come to a halt.
During 1995 to 1997, some of the South East Asian Countries' Central Banks believed that U.S. $ was not a good currency to invest. They started selling off $ reserves and investing in other currencies. It is rumoured that to teach than a lesson, the 1997 crisis was created.
Chinese Government has declared - China has invested more in U.S.A. (currency reserves) than U.S. has invested in China (FDI). China does not want to remain dependent on U.S. $ for its international trade. China has also reduced the weightage for U.S. $ in its foreign exchange reserves. It has increased Euro as a reserve currency. In future, China would want more use of its own currency in the international trade.
So far, we have seen a few concepts (building blocks) affecting the U.S. $. We will see more such issues in the coming articles.
Chapter V
Exploitation by Devaluation.
We are continuing our series of articles on the subject of world economy and U.S. $. In this article, let us discuss the concept of devaluation.
Exploitation of another is shortest route to super wealth. All people do it. Our businessmen, the black marketeers, the hoarders, are all exploiting their country. Indians have exploited the innocent Africans and earned a bad name. But, like many other things, we are crude in exploitation.
The western countries, especially, the Europeans have exploited the world for two and a half centuries. And they do it with high tech sophistication.
For a long time the Europeans controlled the rest of the world politically and militarily. Destroying the well established local trade and manufacturing systems was done ruthlessly by the military. World was made a supplier of raw materials for the European industries and a client for their finished products. Europeans made goods. Whether the developing world needed them or not. The European advertisers sold their goods. And the developing world bought these goods at prices several times higher than the prices of the raw materials.
Now, for the last few decades, the western countries have realised that to exploit a country, you need not dominate it politically. There are better and more sophisticated ways of doing it. These economic ways of exploitation look more fashionable, do not hurt anyone's sentiments, you don't get your soldiers killed in any warfare and yet, silently, billions of dollars flow to you which do not belong to you.
There are several sophisticated ways of exploitation. One is, forcing devaluation of the currencies of the developing countries and keeping the value of western currencies very high. Western experts have consistently "advised" the developing countries to devalue their currencies. A devaluation of supplier currency means that the raw materials are available cheaper to that extent. When some countries don't listen to the "friendly advice", the Governments start exercising pressures. The World Bank and the IMF are only too ready to help the western Governments in forcing devaluation on the developing countries. This has been done with several countries many times.
And devaluation is an exercise which nobody notices to be directly harmful. In fact, people believe (they are made to believe) that devaluation is good for them. A strong country like China does not take kindly to the arm twisting by U.S. It did not get worried about Super 301. It did not change its policies after the Tiananmen Square incident. The other countries silently withdrew their threats and boycotts. The U.S. threatened China with non-renewal of the Most Favoured Nation Clause (MFN). In June 1994, Clinton chew his own words and announced delinking of human rights from trade. China did not budge a single inch. So, like it or not, China is an independent country. However, when it came to devaluation, even China was fooled initially. It has devalued its currency many times. It appears, now China has realised the game behind devaluation. In 1997, the Chinese currency was attacked. China protected its value. Now it is reducing the weightage of U.S. $ in its currency reserve. It is also preparing for the use of Chinese currency - instead of U.S. $ in its international trade.
In June 1991, India devalued its currency. To maintain their competitive strength, Bangla Desh, Sri Lanka, China and so on devalued their currencies. Who got a competitive edge? None of the raw materials supplying countries. But the developed countries all gained. They all got their raw materials at prices cheaper than earlier. The developing countries got lower prices for their raw materials and paid higher prices for the western finished products, technology, patent rights and so on.
When the Middle East currencies are valued lower than the Purchasing Power Parity (PPP) rate, they get less for their crude petroleum and pay more for the imported products. However, in the Middle East which Government is independent of USA? Who can think in terms of economics in a manner deviating from USA? This subject itself can be a separate story. In short, why are the Arab terrorists so strongly against USA? They know that U.S. is exploiting them; and they could not do anything with their non-democratic governments. They have found their own way of retaliating.
Consider some brief information about the losses that India has suffered due to devaluation.
India's foreign debt in the year 2002.
Approximately U.S. $ 100 billions.
This amount converted into Indian rupees:
| At the rate prevalent in May 2002 | – | Rs. 4,800 billions |
| At the rate prevalent in May 1991 | – | Rs. 1,800
billions. ----------------------- |
| An increase in debt simply because of devaluation | Rs. 3,000
billions ========== |
At 5% interest payment (assumed figure); the increase in interest cost per year is Rs. 150 billions.
Add to this, increased loan repayments. Assuming a twenty year repayment, the increased repayment will be Rs. 150 billions. This total of Rs. 30,000 crores adds to our budgetary deficit.
There are similar losses on imports & exports.
All these substantial losses start a strong vicious cycle of inflation, budgetary deficit, trade deficit … & so on.
Chapter VI
World Bank Statistics & Purchasing Power Parity
Let us look at World Bank's World Development Report 2000/2001 published in September, 2000. The report gives tables for Comparision of incomes of different countries. (amongst many other items.)
Table 1, Pages 274-275 - "Size of the Economy - World View" estimates of GNP on page 220.
Table 1, eighth column gives the GNP per capita of the countries in terms of U.S.$. The local currencies of the countries are converted into the U.S.$ at the average market prices.
World Bank has recognised that inter country comparisons get distorted when expressed in terms of a currency converted at the market prices. Hence, the bank has also given GNP per capita of the countries expressed in U.S.$ converted at purchasing power parity. For this purpose, the bank has taken a basket of goods and assessed the amount of local currency needed for purchasing that basket. When this amount is compared with the U.S.$ required to buy the same basket in United States, it gives you a conversion rate based on the purchasing power of the currency. There are several assumptions, approximations and estimates going into these tables. One cannot arrive at a clear-cut, specific figure based on these tables. However, these tables can definitely indicate trends. The twelth column gives GNP per capita at PPP rates. Let us compare the two columns.
GNP Comparision.
| Particulars | GNP per capita at market rates U.S.$ (Average for all Countries) | GNP per capita at PPP rates U.S.$ | PPP/ Market rates. |
| 1 | 2 | 3 | 4 |
| Low Income Economies | 410 | 1,790 | 4.36 |
| India | 450 | 2,149 | 4.77 |
| Middle Income economies | 2,000 | 4,880 | 2.44 |
| High Income Economies | 25,730 | 24,430 | 0.94 |
The above table is quite revealing.
The table compares GNP per capita.
Out of 206 countries, 194 countries' GNP expressed in the PPP value are higher than expressed in the market rate of the U.S.$. All the poor countries, middle and upper middle income countries have their PPP values higher than the market rates. Only twelve countries have their PPP values lower than the market rate. These are the rich countries of the world.
Expressed in another way, this means that the market value of 194 currencies is lower than the intrinsic value of their currency expressed in terms of U.S $.
If you are poor, the market value of your currency is lower than the intrinsic value of the currency.
Probably, it may be the other way round also. When the market value of your currency is lower than the intrinsic value of your currency, you are poor.
Let us consider this concept by a very simple example. A middle class family anywhere outside Bombay but in India can live a comfortable life at Rs. 5000 per month. If the value of $ is Rs. 50, it means, a middle class family in U.S. outside New York should be comfortable at $ 100 per month. This would be a ridiculous statement. In fact, even $ 2,000 may be inadequate. In fact, $ 15,000 per annum per person (not per family) may be the poverty line in U.S.A. In other words, what Rs. 5,000 can buy in India can be purchased by more than $ 2,000 in U.S.A. Hence, based on the purchasing power parity (PPP), $ 1 is equal to less than Rs. 2.
However, in the international trade, one has to consider several factors other than household expenses. Goods which get traded and investments across the border; affect the exchange rate.
Hence instead of Rs. 2, a rate of even Rs. 4 may be considered. As per world bank tables, the PPP rate is 21% of market value or, say Rs. 10 per dollar. Even if we accept Rs. 10 instead of Rs. 2; the devaluation of rupee is still massive.
More than 100 countries (including some in the Middle East) allow the exploitation of their own economies by keeping the market rate of their currencies lower than their intrinsic worth.
Let me make an observation here.
Most Indians do not understand foreign exchange markets. Everyone simply joins a chorus that rupee will go down further. Newspapers keep reporting that dollar is at its "historic low" every week - without understanding the market.
But some of the exporters understand it very well. It was
Mr. Irfan Allana of M/s. Allanasons who said - "the Americans will take the yen up when it suits them; and then bring the yen down when it suits them. In both swings, they will wipe out huge wealth from Japan." When you have this incisive understanding of world affairs, you can be as successful as the Allanas.
The pity of the world is -
Russia - the 2nd most powerful nation did not understand economics & got destroyed.
Japan - the 2nd most rich nation does not understand economics. She lends to USA & yet gets brow beaten & exploited.
U.S. think tank has massive knowledge of economics of entire world; and the skill and capability to use that knowledge. She uses this deadly combination to her great advantage, at the cost of rest of the world.
The exploitation strategy changes as times change. Before the second world war, 4 Yens were equal to 1 U.S.$. In the second world war, Japan was destroyed and humiliated. U.S. took over complete control of Japanese economy. Even the Japanese constitution was drafted by the U.S. officers. Yen was devalued from 4 Yens to 350 Yens per $. Japan was an underdog and had to be exploited.
Soon however, Japan gained tremendous strength. Its exports grew. It competed with the western economies in all spheres. So much so, that, it hurt U.S. in its home market in the automobile industry which was the show piece of the U.S. economy. That was the limit. A cheap Yen hurt U.S. exports and U.S. economy. Japan was forced to revalue its currency. From 350 Yens it came up to even 250 Yens, 200 Yens, 150 Yens and then 120 Yens.
There is one more striking example. In the year 1991, 4 Russian Roubles were equal to 1 $. And, Rouble was considered a stronger currency than the $. There were all reasons for the Rouble to be considered stronger. Russia had gold, petrol, technology and all the resources it needed. However, they made a mistake in rushing into too quick a turn from communist economy to a market economy. The political factors so arose that the Government became weak. The suddenness of the change threw the economy out of gear. Western economies ganged up against Russia. It was their dream coming true. A constant cold war adversary was being incapacitated by its own follies. Russia still had all its gold, diamonds, petrol, arms and what have you. Yet, suddenly the world did not need whatever Russia had to offer. And Russia needed everything - food, clothing, shoes, medicines, chocolates and all the daily consumables. The Rouble crashed. It crashed down to 31500 Roubles to a $. An absolute nightmare! It was and is totally unrealistic. Rouble definitely is far more valuable than its current market price. And yet, the country's systematic exploitation continues.
Chapter VII.
World Economy & Foreign Exchange
Indian economists - especially, the officers of the Finance Ministry realised the danger and the exploitation of a world financial system based on a single currency. They mooted an international trade in terms of Indian Rupees. U.S.S.R., and eastern Europe agreed to settle their trade transactions with India in rupees. India, Pakistan, Iran, Bangladesh, Nepal and Sri Lanka worked out an Asian Clearing Union (ACU). All these countries settled their cross country trading transactions in Indian Rupee or Asian Currency Unit (ACU).
Unfortunately, however, the experiment failed. It was not the failure of an economic concept. It is simply that the international market has its own massive momentum. You join the band and everything looks simpler, cheaper and economic. You try to carve out your own path and everything looks conspired against you. Nature also played its own role. The U.S.S.R. collapsed politically and economically. It abandoned its experiments, went back to $ transactions and the bilateral trade died an unnatural death.
The European economists had realised the dangers of dollarisation of the world economy. Total European GDP is more than the U.S. G.D.P. And yet, when a French man sold goods to a German; the invoicing was done in U.S. $ instead of in Francs or Deutsche Marks. They quietly started uniting all the West European nations. It took several decades. But ultimately they succeeded.
Prime Minister Margaret Thatcher was always against the European Union. Britain has been the staunchest ally of U.S.A. for several decades. She has always considered herself to be superior to the whole of Europe; but absolute subordinate of U.S.A. British policiticians and people considered it humiliating to dissolve the "Sterling Pound" and adopt a European Currency. Since German GDP has been higher than the British GDP; in a common currency; Britain would get a subordinate role. This was too much for the British ego. They refused to join the European Currency.
Then suddenly in the year 1999, the British Government changed its heart. They, in principle, decided to join Euro - though at a future date. Government started special campaigns to educate the British public that it was beneficial for Great Britain to join Euro.
Why?
What caused the change of heart?!
Euro was launched on 1st January, 1999.
Six months before the launch of Euro, a systematic campaign was started by the U.S. Government undermining the Euro. American Government advised the American financial institutions to avoid Euro. A concerted strategy saw to it that within a few days of its launch, the Euro started depreciating and in fact lost 25% of its value. It crashed from
$ 1.17 1 E to $ 0.90 1 E. It meant that in international terms, all the European individuals, companies and nations became 25% poorer.
While the common men in U.K. & Europe did not understand what hit them; the British Government suddenly realised that - Though U.S.A. claimed to be friendly with Europe; when a competition was seen to the dollarisation of world economy; U.S.A. was too eager to cause damage to Euro. In appropriate circumstances, U.S.A. can cause damage to Britain also.
And within a few weeks the British Government softened its stand towards Euro. Very soon it decided that one day, it has to join Euro.
The FX market is the largest financial market in the world. It is most developed in the sense that there are latest instruments like options and derivatives available in the FX market. It is also the most unregulated market. A man with a margin of $ 1 million and sufficient reputation in the FX market can speculate for stakes of even $ 15 millions.
George Soros, the legendary expert in FX markets saw that the P.Stg. was a weak currency. Its artificial pegging at 1 P.Stg. = $ 1.76 was unsustainable. He short sold huge volumes of P.Stg. and bought U.S. dollars. What the leader did, other FX speculators also did. Bank of England tried desperately to maintain the P.Stg. value within the band permitted by the E.C. agreement. However, a central bank cannot have the option of buying 15 million pounds with a margin of 1 million pounds. Hence, straight away a central bank is 15 times less capable to support its own currency as compared to an FX speculator. Despite best efforts of all friendly countries, and despite several rises in the bank interest rate, ultimately, the pound had to be devalued. Soros entered the market, sold his dollars and bought back pounds. He is reported to have made a neat 1 billion dollars.
The achievement was not possible in one month. The speculators made repeated attacks on the pound. Every time they tested the ground, retreated only to mount a bigger attack. It was ultimately in September 1992 that the pound had to be devalued.
August, 1993 saw a sustained attack on several European currencies - but mainly the French Franc. Hikes in interest rates by Bundes bank helped the speculators. Some European currencies crashed but with the help of Bundes Bank, the Franc survived.
In June 1994, there was a heavy attack on the U.S.$. It went down below the sentimental barrier of 100 Yens. The federal reserve of U.S.A. and the Bank of Japan made massive buying of the U.S.$. It survived.
It is also interesting that in January 94, $ was equal to 112 yens. It was the U.S. Government which was pressuring Japan to revalue yen to 100 yens to a $. In June, when yen actually crossed the 100 yen barrier, Fed. and Bank of Japan made a concerted attempt to prevent further fall of $.
U.S. was considered a safe haven because -
For the whole of twentieth century, no war was fought on the U.S. soil;
U.S. won almost every war in which it fought (U.S. lost its war against Vietnam and Cuba.)
And she has a continuously growing & strong economy. Hence people always believe that their savings are safe in U.S. currency.
11th September attack by Bin Laden on U.S.A. has proved that U.S. is not invincible.
Continuous exposures of one after another massive frauds in U.S.A. have proved that the Americans are not necessarily honest. There are several large corporations which have cheated the investors to a great extent for a long time. And the American economy is, after all, not that strong.
In a Sentiment Dominated Economy, the sentiment has been shaken up.
All countries have realised that the U.S. is not a real friend. Hence U.S. does not have any real friend. Countries are with U.S.A. for the opportunities they are seeking. If & when U.S.A. collapses, all the fair weather friends will run away.
One more attack by Bin Laden & world confidence in U.S.A. will be shaken up at root level.
Then there will be a jungle fire. In fact, the fire has already started.
Is the U.S. think tank capable of containing the fire?! Will the fire burn down U.S. system?
Now bring in the philosophy. For how many decades, U.S.A. has perpetrated exploitative frauds on the rest of the world! Wouldn't nature strike back?
If & when nature strikes, no amount of intelligence or smartness helps.
What happens if suddenly the world financial system looses its faith in the $? What happens if the central banks of the world consider it wiser and safer to hold FX reserves in other more stable currencies and instruments? Sometimes, central banks are the last financial institutions to learn the market trend. What happens, if the world investors invest in currencies other than $? In other words, what happens if all the creditors demand their loan back from the U.S.A.? Japan had, at one point in the year 2002; started withdrawing their $ investments and converting in gold.
Share markets can be funny. Japanese companies hold billions of dollars of investment in terms of U.S.$. In the year 1994, the fall of $ from 112 to 100 yens meant a 10% loss on these investments when expressed in yens. Hence, in the Japanese companies' balance sheets, the foreign investment showed losses. Hence the prices of Japanese companies' shares fell. They fell even in American stock exchanges. Fearing further losses, the Japanese companies started withdrawing their dollar denominated shares and taking home cash. That triggered more purchases of yen and sales of $ further hastening the fall of $. However, that crisis was controlled by the U.S. think tank.
Let us consider what can happen. In the American markets, shares can go down as more and more foreigners get rid of their American shares and take the investment out.
This is only the tip of the proverbial iceberg. If there is a run on any bank, it can go down even if it is a solvent bank simply because the bank may not have sufficient liquidity. However, where the bank is essentially solvent, it may find more than adequate friends in supporting itself at the time of a run.
What happens when there is a run on a currency? Especially when the currency is intrinsically a weak currency? For a small, friendless currency, the future is inevitable. It has to be devalued. However, for a giant currency which has become a landmark, a fundamental base for all international financial transactions, the future can be different. It is the vested interest of all the central banks and all the investors to see to it that the $ remains relatively stable. A strong devaluation of the $ can jeopardise the very solvency of several central banks. Several large private international banks can be affected. Many investors stand to lose. Hence, all these people may support $ as they have always done in the past.
This means that the speculators attacking U.S.$ have to be far more resourceful, far more persevering, and far more bold. This also means that the attack on the pound was a small game. The next attack on $ can be far larger and far more sustained. The result will be far more disastrous. If the speculators lose, they will be insolvent. But, if they win, (remember their power is 15 times more than their net worth) the entire financial system will be rocked.
Just as exploitation can be through the military or through the economic instruments, wars also can be played by the military or by the economic instruments. U.S. had been beating the war drum by threatening Super 301 for quite some time in the nineties. Imagine what happens, if there is a real economic war between the U.S. on the one side and Russia, China, Japan and India the countries threatened with Super 301 on the other side. In any war, initially, most central banks and especially the western Governments would show initial inclinations to help the U.S. However, conversion of inclinations into action will be more difficult. By chance, if Japan, China, Russia and India or even any three of them join together against U.S.A., what will be the end of the war ? What happens if Asia and Latin America are at an economic war against the U.S.?
On 31st August, 1994 at a seminar arranged by Indian Merchant's Chambers, the world renowned consultant to several Governments and Professor of International Trade at Harvard University, Mr. Jeffery Sachs addressed a gathering. The author had an opportunity to ask him the following question:
"When the speculators attacked Pound Sterling, we know what happened. It is rumoured that an attack on the U.S. $ is gathering. What will happen if the speculators really attack the $? "
Jefferey: "Speculators do not change fundamentals, nor do they change exchange parities. In 1992, the European economies were at a difficult stage. Germany had done a sloppy merger of East and West Germany. This had triggered inflation. Bundes-Bank raised the rate of interest to control inflation.
"British rates of interest were lower. George Soros knew that pound had to crash. And if it is going to crash after two weeks, why not make a billion dollars.
"Speculators try to smell fundamental weaknesses and then gamble. And of course victories are announced world wide. Losses are not announced.
"U.S. $ is a different thing. With the (daily) market of trillion dollars, if some mutual funds put a few billion dollars here or there, it doesn't matter.
"During last six months what has happened is appreciation of yen and not devaluation of dollar. This happened because the revival of Japanese and German economies started six months earlier than the revival in U.S.".
While in 1994, Jeffery's observations proved right; now it seems more & more clear that after all, U.S. economy is not as strong as it is made out to be.
Let us watch the historic drama that is unfolding before our eyes.
Power Corrupts. Absolute power corrupts absolutely. The Super Power No. I status of U.S.A. has given Supreme ego to the U.S. Government. Any person who has supreme ego, is bound to get destroyed.
Sage Bhartruhari has said -
Youth Wealth, Power and rudeness - anyone of these is enough to demolish a person. If a person has all four, you don't have to ask whether he will be destroyed.
The sloka probably is directed towards young princes.
"The theme is: youth, authority, wealth and conceit/ego/discourtesy- any one of these four is good enough to destroy a person. When some one has all four, what can we say!
Now apply this philosophy to U.S.A.
In the group of nations, it is a young nation.
It is exercising authority over all global institutions like U.N., IMF, World Bank & WTO. It is influencing the policies of several nations. It is Super Power No. 1 with the largest weapon power.
It is controlling the largest wealth in the world.
According to Sage Bhartruhari, these factors are enough to destroy U.S.A.