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Summary On Bloomberg Business Week Magazine

India Raises Rates, Breaks Ranks With BRICs

By Kartik Goyal

Indias central bank raised interest rates for the 12th time since the start of March 2010,

breaking ranks among the so-called BRIC nations that have either cut or held borrowing costs as

the global recovery falters.

The Reserve Bank of India increased the repurchase rate to 8.25 percent from 8 percent, it

said in a statement today. Fourteen of 17 economists in a Bloomberg News survey predicted the

decision and three expected no change.

Governor Duvvuri Subbaraos move contrasts with Brazil and Russia, which cut

borrowing costs in the past month, while China has paused rate increases since early July. Higher

food and fuel prices and weakness in the rupee may keep inflation above 9 percent, a level

exceeded in each of the last nine months.

The decision clearly points out that the RBIs top priority is curbing inflation despite

concerns about global turmoil, said Indranil Sen Gupta, Mumbai-based emerging Asia

economist at Bank of America Corp. There will be pressure on inflation after last evenings

petrol-price increases and the rupees depreciation.

The yield on the 7.8 percent bond due April 2021 rose 1 basis point, or 0.01 percentage

point, to 8.34 percent at 12:44 p.m. in Mumbai. The Bombay Stock Exchange Sensitive Index

gained 1 percent. The rupee advanced 0.1 percent to 47.50 per dollar.

As monetary policy operates with a lag, the cumulative impact of policy actions should

now be increasingly felt in further moderation in demand and reversal of the inflation trajectory

towards the later part of 2011-12, the central bank statement showed.

Three Tax Perks That Should End With or Without Jobs Plan

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By the Editors

In detailing how to pay for his $447 billion jobs plan, President Barack Obama put on the

table three tax reforms hes previously proposed. If the president gets no points for originality,

give him credit for sound thinking. All three measures are worth adopting.

Most notably, Obamas plan suggests saving $32 billion over 10 years by repealing

federal tax breaks for the oil and gas industry. These were written over the past 98 years to help

what was once a volatile industry. Breaks for oil companies were created, for example, to keep

older fields producing when the price of oil was low or to attract investors to the historically

risky business of drilling exploratory wells.

Today, such benefits cost taxpayers money while no longer serving a public purpose. We

are not opposed to government incentives to business, but they ought to encourage activity in the

nations interest that otherwise wouldnt occur. The U.S. oil industry needs no incubation. Its a

mature business that does not require a helping hand from the government to find oil and deliver

it to consumers.

Oil prices are robust and will probably stay high because of rising demand from China,

India and other emerging economies. Marketplace rewards, not government tax credits,

encourage entrepreneurs to drill. And modern technologies have greatly reduced the risks

associated with finding oil since the intangible drilling costs tax benefit was put in place in

1913.

Industry insiders usually are the last ones to concede that a government subsidy has

become unnecessary to their business. Oil executives threaten that, without the concessions, jobs

would be lost and prices at the pump would rise. Given that the Big Five oil companies last year

made cumulative profits of more than $77 billion, they are essentially threatening that theyll

take a multi-billion-dollar annual bonus from the public one way or another. Congress shouldcall that bluff.

France, U.S. Should Push Europe to Strengthen Military

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By the Editors

French President Nicolas Sarkozys embrace of the North Atlantic Treaty Organization

might be the last best chance to reverse the decline in Europes defense capabilities.

In an Aug. 31 address to French ambassadors, Sarkozy said that in Libya, NATO turned

out to be a crucial tool in the service of our military operations. This is a dramatic change from

the traditional French ambivalence toward the alliance. But this new attitude doesnt change the

disproportionate share of the burden that the U.S., France and the U.K. bear for NATOs

operations. The good news is that by making NATO an important part of his national-security

strategy, Sarkozy now has a powerful reason to push other Europeans to contribute their fair

share.

Sarkozy understands the problem. In the speech, he forcefully decried Europes declining

defense capacity and lack of political will. Europeans, he said, must assume more of their

responsibilities, or experience a rude awakening. France and the U.K., he noted, account for

half of combined defense spending by all members of the European Union.

This is unsustainable. France is struggling with budgetary problems, and the French

people are unlikely to support robust military spending if other European nations receive a free

pass.

Sarkozys words are music to the ears of U.S. and NATO officials who have been making

this point for years. In the early 1980s, European countries contributed about 33 percent of total

NATO defense spending; this year, its about 20 percent. Anders Fogh Rasmussen, the alliances

secretary-general and a former prime minister of Denmark, has said Europes unwillingness to

pay for defense means it will have less influence internationally and less capability to resolve

cross- border disputes.

Dithering European Leaders Are Defaulting to European Central Bank

By the Editors

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If this summer has shown us anything, it is this: Europes leaders are unwilling,

unprepared or unable to take the necessary measures to solve the continents financial crisis.

More and more, it seems, the well- being of world markets rests with the European Central Bank.

The latest developments in Greece, where a bailout package adopted in July is threatening

to fall apart, make clear the danger of the piecemeal solutions that have been deployed so far.

Austerity measures are deepening the Greek recession, lessening the governments chances of

paying its debts. European stocks are gyrating, and Italian bond yields have been rising again as

investors worry that the trouble could spread to banks and larger governments. Meanwhile,

European voters are wearying of failed bailouts, eroding the already limited ability of elected

leaders to solve the euro areas problems.

As Bloomberg News reported, German officials are talking about contingency plans to

protect their banks in the event of a Greek default, suggesting that they think -- as U.S. officials

did ahead of the Lehman Brothers Holdings Inc. bankruptcy in 2008 -- that a bit of foam on the

runway might suffice. They are woefully mistaken.

The market reaction to a disorderly Greek default would put pressure on other countries --

including Spain, Italy and possibly even France, with a combined total of more than 5 trillion

euros in sovereign debt -- to do the same. The resulting losses for Europes thinly capitalized

banks, and for the U.S. institutions that have lent them hundreds of billions of dollars, could

trigger a credit freeze bad enough to send the world economy into a deep recession.

9/11, American Values and the Challenges That Lie Ahead

By the Editors

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It is tempting to hope that the 10th anniversary of the Sept. 11 attacks will serve as a

cathartic moment, allowing Americans to turn a page on the worries and errors of the last 10

years without diminishing the successes. But history has no pages.

Instead, as we head into the decade after the decade after, our goal should be to look at

global terrorism with a sharp eye and a clear head

The coarseness that marked aspects of U.S. conduct in the world after Sept. 11 --

including a sometimes tragic disregard for the rights of innocents ensnared in a global war

against terrorists -- may be understandable. However, much of the world, including many

Americans, concluded that it was not excusable. And as the trepidation over another attack

receded, the rough edge of American fear was too easily turned inward, with domestic politics

assuming a sometimes vicious tone.

Over more than two centuries, American democracy has shown a talent for self-

correction. Time and again, moral shortcomings have been confronted and our society elevated;

political excesses of right or left have been supplanted by reason and moderation; an instinct

toward adventure or overreach has been overcome. The memory of those who died is eternal, but

the shadows of 9/11 are not. In the midst of a global economic crisis rises an Arab Spring and

new hopes.

The threat of Islamic extremism did not die with Osama bin Laden. Vigilance, judiciously

practiced, is still required. Those who would do the U.S. harm will continue, to the best of their

dwindling abilities, to find the chinks in our armor. There will be more attacks against the U.S.

and its interests, at home and abroad, and some will succeed.

This nation has faced a decade-long test of its values, governance and role in the world,

with mixed results. Americans have shown great resilience, and with renewed moral force, our

full faith in ourselves and our institutions will be redeemed. That, our enemies know, is theultimate victory.

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