Deleverating is a money-term which means the reduction of financial instruments or borrowed capital previously used to increase the potential return of an investment. It is the opposite of leverage. The paradox discussed here refers to the fact that the US Treasury will be left holding worthless investments or investments which will potentially yield only poor returns in the future. The band-aid measures being discussed such as $700 billion bail-out to buy 'loan' instruments from troubled financial institutions because of ill-thought-out house mortgages are likely to result in the reduction in the value of the 'assets' themselves [that is, the mortgage loans (which are assets in the money-jargon) are of lesser worth than what appears as net present value of the asset].
The problem with capitalism is well articulated by the following quote from a professor: "If you reduce their debt payments, they will start spending again," said Mr. Roubini, a professor at New York University. "It's not going to help us avoid a recession, but it could make it shorter."
American citizens are encouraged to spend and spend again through a credit card payment system which promotes financial irresponsibility. How can anyone be asked to cash the family jewels and keep spending, by borrowing in perpetuity? Isn't there something called 'savings' to cope with the rainy-day for the family and to provide for future obligations of the family, for e.g., college tuition fees for the growing children? The financial system has made a mockery of the concept of 'savings' and the concept of time in economics. Time is treated only as a discounting mechanism and not as a framework for responsible financial management of one's EARNINGS, earnings made the hard, old-fashioned way, through work. We have seen how fetishism of money works. Money has become a commodity and the citizens are made to believe that the commodity is only to be spent and will be produced by the Treasury or the Central Bank by printing currencies.
This is problem number one with American capitalism, the cancer which has engulfed the world financial system: fetishism of money.
The second problem is the discounting of savings as a measure of financial responsibility of the wage-earner(s) of the family.
The dangers for India in this ongoing melt-down in USA is that Indian financial system -- together with other financial systems of other nations -- will be asked to bail out the beleaguered American financial system. In simple terms, America is looking for suckers. Business process outsourcing now takes a new fork: Money process outsourcing. Who cares if the Rupee is Rs. 60 to a dollar? If it can help 10 Janpath chamcha-s to merrily accumulate their monies, who cares for remedying the impoverishment of the poor Indian who has to bear the burden of inflation run amuck?
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