For a while there, it looked like we would all, lemming-like, race each other to the edge of the cliff and into collective suicide. But then if you lowered your gaze a bit you saw a few gangly llamas stepping adroitly around the rock-falls and down the rough paths hewn into the cliff face. We had a choice - mass hysteria or nimble sensibility. And most of us chose the footwork.
Here are some facts: 73 per cent of Americans think their country is on the wrong track; only 47 per cent of Indians are optimistic about their economy and the majority are sceptical that the scandal-racked UPA government can rein in inflation; Fed Chairman Ben Bernanke, who had said he would never repeat the 1937 mistake by the US central bank of raising interest rates when the economy was delicately poised, fought off the hawks to promise low rates into 2013; most economists in India expect the Reserve Bank to raise rates for the 12th time in September. Our inflation-beating hopes still rest with the RBI, and fortunately straight-shooting Governor Duvvuri Subbarao has been granted an extension until 2013 - which may coincide, by the way, with the UPA likely being turfed out of power and the end of Bernanke's rate moratorium. It's good to go back to mythology in troubled times. Hindu scriptures say that great sacrifice and devotion to a cause earned a warrior the right to use the Brahmastra, a weapon that annihilated its target.
We are all making immense personal sacrifices and are devoted to the cause of a low-cost life, but that magical anti-inflation weapon eludes our leaders, and India's food price index rose 9.9 per cent in the year to July 30. Global market mayhem has caused oil and commodity prices to fall; that is good news for India, but will inflation start to nose down? The Federation of Indian Chambers of Commerce and Industry cites slowing industrial output as well as consumer demand to argue that the RBI ought to reverse course and start trimming rates.
But is business really hurting that much? Exports soared by 82 per cent in July. You decide if the glass is half full or half empty. Matters are not helped by the fact that the world economy is in a mess. In simple terms, the governments that bailed out the banks in 2008/09 are now themselves weakened, and no longer have the appetite or the political backbone for permanently fixing the problem. Europe is very sick, and fears of its debt crisis crushing French banks triggered reverse infection on Wall Street. It doesn't really matter that Standard & Poor's has downgraded US debt. The world depends on the United States for trade and capital, and US debt is the biggest asset class. If everybody sells their holdings of US treasuries, there is no market left.
But then we are clutching at straws like the US unemployment rate, which fell to 9.1 per cent in July, and the last-minute debt ceiling pact hammered out by the US Congress. The reality is the US is on life support, and Asian creditors led by China, which holds $1.16 trillion of US treasuries, control the intravenous drip. Asian central banks will not be dumping their dollar assets, but there is no doubt that US power is waning. Does this mean the weakening dollar will give way to the rising yuan as the world's reserve currency? Will the Middle Kingdom eclipse the New World as a safe haven? Not likely in a hurry. China's inflation, too, rose in July, led by food prices, while growth in industrial production, retail sales and investment all weakened. Sound familiar?
China is certainly not perceived as a "soft" superpower and is bound to raise hackles in its neighbourhood. No wonder Washington and Beijing are locked in a "you can't live with 'em, you can't live without 'em" situation. Strap yourself in and hold on to your armrests. It's going to be a rough ride.