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S. Balakrishnan

Central banks the world over are pulling out all stops to enable financial institutions and markets to come out of the current crisis.

Their support comprises credit lines against non-gilt collateral (which normally don’t qualify), relaxed reserve requirements (the RBI and People’s Bank of China have been active here), capital infusions, and, lately, directly financing businesses through investments in their commercial paper.

The last could hardly have been imagined, that too by the US Federal Reserve.

Slashing interest rates and providing liquidity secured by the Treasuries was about the farthest it earlier went.

Meanwhile, the bailout bill continues to balloon. AIG, the failed insurer, looks as though it will need almost double the original amount of $85 bill. Fannie Mae is asking for $100 bill, to salvage its balance sheet and keep buying mortgages. It is a liquidity and solvency crisis on a gigantic scale rolled into one.

With Obama’s election as the next US President, we are likely to see a slew of measures to help homeowners with their mortgages.

Add the fiscal stimulus being planned by the President-elect and his advisers (and the $586 billion already announced by China) and one gets an idea of the scale of the monetary and fiscal packages to lift economies and markets out of the crash.

In the process, the bugbear and fear of inflation has been thrown to the winds.

True, oil and commodity prices have plunged in recent weeks (the CRB index is around 250 compared to 400+ at its peak just a while ago), clearly signalling much lower inflation down the road.

India, though, still has a problem with price rises in double digits. But it says much of the changing times that, barring the lone voice of Mr S.S. Tarapore, practically every economist and the former RBI Governor favour easy money.

The biggest surprise is Dr C. Rangarajan, so far believed to be a strong votary of inflation control, now coming down on the side of the RBI in its liberal liquidity-injecting measures.

It is, undoubtedly, monetarism’s worst hour - as it is for untrammelled free markets and unbridled capitalism. Hopefully, for some time in the coming years, we will be spared the familiar homilies and arguments about risk and reward in market economies.

Arch capitalists - the captains of banks and industry - are hat in hand at the doors of governments and central banks.

It is the denouement of the system as we know it.

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