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• Business Standard: Wrong move by RBI

Fundamental principles of open economy macroeconomics suggest that it is not possible to have a pegged exchange rate, coupled with substantial openness on the capital account, and then sustain a large interest rate differential. The immediate opportunity for every CEO is to feast on the free lunch that has been gifted by the RBI. Looking beyond, either the rupee-dollar peg will have to yield, or the RBI will cut the short-term rate by 2 to 3 percentage points.

The private sector is being told: “Borrow at near 1.9% in the US, somehow get the capital into India and get paid near 7.2% in return for bearing no risk at all. There is no risk of currency fluctuations because the rupee is tightly managed. At worst, you’ll only benefit because of a rupee appreciation.”

• NY Mag: The Stench of ‘89

A glut of new office space, mostly in midtown, was coming onto the market, forming a bubble in commercial real estate. Thanks to a tweak in regulations allowing savings-and-loan companies to finance commercial construction, banks nationwide got into the business of underwriting skyscrapers. Earlier, City Hall had fanned the developers’ enthusiasm by temporarily throwing certain high-rise zoning restrictions out the window. New York’s skyline was changing like it hadn’t since the twenties.

Things started to turn around in December 1991, when the Fed let loose with an emergency discount-rate cut of one full point (bringing it to 3.5 percent) and didn’t raise rates again until 1994. “When you can borrow cheaply, you can leverage the hell out of everything,” says Parrott. In Japan, interest rates were even lower—about one percent—and American businesses began borrowing in Tokyo to finance deals in New York. Within a year, a yen-fed Wall Street was back up and staging a kind of jobless recovery: From 1992 to 1993, while the region lost another 67,000 jobs, financial-sector salaries jumped by a gaudy 45%, to $164,000 on average. With big bonuses coursing through the city’s financial veins, New Yorkers started spending again.

• Bloomberg: Sugar Supply Signals Bear Market as UBS Sees 18% Drop

Sugar inventories that rose 19% last year will reach a record within months as farmers from Brazil to India contribute to a growing glut. Sugar probably will fall 18% to 10 cents a pound by yearend in New York . . .

India, the second-largest producer, became a net exporter in the 2006 marketing year and will have surplus inventories available for shipment through 2010 . . .

“In India, the price of wheat has exploded, more than sugar. The government is trying to tell the farmers, `Why don’t you maximize wheat instead of sugar cane?”’

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