Fallacy is the State of Economists mind

Since the mega event of major financial crisis in US followed by UK, economists and analysts around the world did (and continues even now) all kind of noises about the reasons for collapse and the magic of economic recovery. 

There are three groups of economists/analysts at least in my view. One group argues based on the people who warned in the pre crisis which said the central bank was dead sleep, in the sense that they failed to see their actions in terms of trend in interest rate, credit flows, risk involved in 100% loan etc, the second group which is the post crisis accident group which argues by blaming the notion of capitalism, wait, this group neither understand the central banks regulations in the past and what they did and did not do and finally the third group which is part of first group. This group accepts the central bank failure along with government and absurdly proposes to print more money or increase deficit financing like anything to recover the economy.

As for as the Indian economy which I continue to observe and it is natural to ask how Indian economy pushed into slowdown and what is the evident to say Indian economy is severely affected by the US financial crisis? 

There is another group which is mixed of all argues that the world and Indian economy is in economic crisis which is stupid. Further this group does not understand difference between economic and financial crisis and the results is absurdly comparing the current crisis with 1930s. More importantly by ignoring the facts of Milton Friedman and F A Hayek who best explained what cased the 1930s depression. 

Indian economists/analysts are no different from rest of the world. I mean how the hay of noise mounted by economists and analysts with out figuring out the reality. 

Precisely a few people said what Mr Jha said which I think right in an article published in today’s ET. 

What went wrong in the Indian economy and how unnecessarily we are in slowdown is best explained by economist Prem Shankar Jha: 

• “But in 2008 the economy had already slowed down sharply because of the increase in interest rates that the Reserve Bank had engineered in 2007. So a more pertinent comparison is with 2007. In January to March 2007 industry grew at 12% a year. This dropped to 7% in the same quarter of 2008. It has fallen to minus 0.9% this year. The last 12 months’ decline has not therefore been caused by the global economic recession alone.  
  
• The reason is that the slowdown did not begin in October last year but in 2007 when the RBI mounted its battle against the phantom of inflation by savagely reducing the supply of available credit in the market. It had had all the time it needed to spread from the consumer durables into the capital goods industries. 
  
• The most unequivocal sign that the deceleration is continuing to deepen is the sharp drop in the volume of new lending by the commercial banks. Net bank credit has actually fallen by Rs 37,000 crore in the six weeks between April 10, and May 22. While seasonal factors are partly responsible for this, the main cause is a drastic slowdown in the growth of bank lending that has been evident since November. As a result, In the previous full year (May 23, 2008 to May 22, 2009) credit extended by the commercial banks expanded by only 15.7% against 25.3% in the corresponding period of 2006-7”. 
  

Indeed the whole article is worth to read.