Funasia Radio host Moody interviewed SMU Professor Ravi Batra on financial collapse, November 9

Funasia Radio host, Moody, interviewed SMU Professor Ravi Batra on financial collapse, November 9

Host: We are here with economist Ravi Batra to answer all your questions about the financial collapse. He has written numerous books including a new one available at barnesandnoble. com. How are you?
Ravi Batra: I’m ok.
Host: Tell me everything about the economy, people are curious to know about the future and how you thought Obama was going to be the President elect.
RB: This book that you mentioned, the title is ‘The New Golden Age: The coming revolution against political corruption and economic chaos’. This title I selected for a purpose. I wrote the book at the end of 2006. And so two years later there is a revolution already happening in America and in fact I mention that the revolution would start from the year 2009, and senator Obama would be President at that time. What is the revolution? The revolution is the end of rule of money in politics. There is too much money corrupting the politicians and other government officials. This corruption is the root cause of our economic crisis today.
This comes as a very big surprise to people as they think it is the housing meltdown or the bank mortgage; they are the cause of this crisis. No the real cause of this crisis is official corruption. Let me explain that in a very simple way. If you want to see the health of any economy you must look at supply and demand. Supply and demand are the real fundamentals of any economy. A healthy economy requires that supply should be equal to demand. If they are not equal then you have troubles.
What kind of troubles?? Well if supply exceeds demand there is over-production… businesses are not able to sell all that they produce…that means there is over-production and over-production leads to lay-offs, unemployment and that’s what’s happening.
Host: Actually, I heard …….CNN announced yesterday the new numbers of jobs lost…
RB: Almost a quarter of a million people were laid off in just one month, in October. Unfortunately that’s just the beginning of this problem. Now the quiet point is: what is the root cause? Washington does not understand the root cause of the problem. Now, let me explain in a very simple way. Healthy economy requires supply to be equal to demand. The main source of supply is productivity, because with productivity comes production, output, and so on. And the main source of demand is wages, people’s salaries, out of people’s salaries. So the main source of supply is productivity, the main source of demand are wages. Now over time, productivity rises because of all this new technology, like computers, internet, and fax machines. So over time productivity keeps rising, but wages have not been rising in America . Wages have been stagnant. So what is the result? The result is that supply is way ahead of demand. As a result goods are not being sold. So by cutting interest rates or bailing out banks you are not going to solve the problems because the banks are in trouble because supply is ahead of demand, wages are not rising.
So there is only one solution. They have to pay attention to the wage and labor market and not cut interest rates, etc., that’s not going to solve the problem. And unfortunately these lay-offs are occurring and this recession is going to be very long and deep because they don’t understand the root cause of the problem.
Host: Professor from SMU, author of several New York Time best selling books, Ravi Batra is here to talk about the economic crash. Tell about Obama coming in, would that help? I think people out there want to know, should they be worrying, how should they be investing, what should they be doing in this day and age with the economy the way it is?
RB: Well, let me put it this way. President Obama is going to help somewhat. If McCain had been elected it would quickly turn into a depression. With Obama’s election, he is going to do some right things and so we may have only a recession. Now, if he does not pay attention to this supply-demand problem and they keep doing what they have been doing so far like cut interest rates or cut taxes, etc., then it would take a long time before we come out of it. My feeling is that they will keep doing for a while what they have been doing so far under the guidance of Mr. Bernake, and under the guidance of people who were economic gurus under Clinton . But soon they will find out that those things are not working and then they’ll try something new. So I think for the next six-seven months the stock market is going to remain very low, the DOW could fall even more, it could fall to 6000, maybe even 5000 before things start to recover.
Host: Do you think this is a good time for people to buy maybe, if they have some money, so that later on the money may grow?
RB: They should wait until the Dow industrial index falls to 5-6000. Right now it’s still above 8000. It has fallen sharply; it was at 14,000 last year. Now it’s around 8100, 8200 but I think it has some more way to go down. Then that will be a good time to buy shares if unemployment stops rising.
Host: That is correct and there’s so much going on with the economy that I think people feel chaotic, they don’t know what to do and they are worried…and the off-shoring and lay-offs it’s driving everyone…The good news is that gas prices have gone down.
RB: That’s right. But if you’re laid off you don’t have to go to work. *laughs*
Host: Do you want to see if people have questions?
RB: Yes.
Host: if anyone has questions for him, please call the studio at…..While you can continue to talk about the economy as we were…
RB: Yeah that’s the main problem. Wages are low all over the world and that’s why this is a global crisis. People don’t pay attention and they only think of productivity as the source of prosperity. But, no….every airplane has two wings. One wing is like supply and the other is demand. And the airplane cannot fly on just one wing alone, and if that keeps happening that plane is sure going to crash and that’s what’s happening now. The economy all over the world is crashing. And to bring it up you have to raise the other wing also, the wing of consumer demand. Unfortunately because of politics or corruption or whatever other reason economists in Washington don’t understand this supply-demand or productivity- wages relationship.
Host: I have a caller, Funasia radio…how are you?
Caller: Hello sir, I wanted to know as an economist what professor Batra had to say about the Dallas housing market…or all over America housing market…how is that going to react. People are still buying…?
RB: Well in the Dallas area, home prices did not rise as fast as in other states like in California and in Florida . So there will not be that much of a fall in North Texas or in the Dallas , Fort Worth area. But we’ll still be affected adversely as the rest of the nation suffers. So if you are in the market for buying a home, I would wait a little. Wait at least six to nine months and see if the prices come down even more. If you are on the selling side and trying to sell, then I would sell as quickly as possible.
Host: okay I hope that answers your question. We are talking to economist Ravi Batra to answer any questions you may have about the market crash, as there’s so much going on in the market right now.
RB: And another thing is there is so much volatility in the New York Stock Exchange. The market goes up and then goes down 1500 points in a week and then suddenly it rises 500 points the next week. Nobody knows what’s going on. As a result of all this, many hedge funds are suffering a lot. The hedge funds have trillions of dollars invested in them. Yesterday I was talking to a friend and he told me that so far this year that 6 trillion dollars of wealth had been wiped out…six trillion! Wow. So it looks very bad. So your 401(k)s are wiped out, your pension funds are wiped out, then you don’t feel like spending much. Christmas is coming, and I feel that people will not buy that much and it will further hurt the economy.
Host: I think 401(k)s are a very touchy thing. The moment you mention 401(k), people just….
RB: I would say that you should buy gold. Gold is something that will still hold its value. And the new addition of the book that is coming in about 3-4 weeks in paperback addition, I have added a section on how to buy gold even though its price has gone up. I don’t want people to be losing money because gold is already high and I think it will rise some more…But there is a way to buy into gold shares in such a way that you can hedge your losses, your losses will be smaller if you hedge that way, and then if gold prices will go up you, of course, will make money. The new addition of this book should be coming out in about 3-4 weeks and there I have suggested how people can get into gold shares. Everything else I think is going to fall and is very uncertain.
Host: Very good. Any departing comments, anything you want to share with listeners of funasia radio today?
RB: Well hold on to your jobs, don’t move to another job because you have job seniority where you already are. Jobs are uncertain, there are going to be more lay-offs. We have already lost more than one million jobs in a matter of 10 months. We could be losing another two or three million more jobs next year. The job market, the job situation is going to be very bad.
I would like to thank Funasia radio for allowing me to come here and share my thoughts with your audiences.
Host: Thanks for coming. I’m so happy to have you here and it’s a privilege to hear so many things, there’s so much going on, it’s so chaotic outside…..