RBI's Plastic Rupee

RBI is all set to launch its plastic rupee notes on an experimental basis in Kochi, Mysore, Jaipur, Bhubaneswar and Shimla. Initially they are going to issue one billion pieces of 10 rupee notes. RBI governor Subbarao gave this reason for his choice of plastic notes: the central bank was trying to introduce plastic currency, as they have longer shelf life. It is estimated that every year something like 20% of total paper notes (some 2 lakh crore rupees) get soiled and had to take out of circulation to dispose it off. RBI is saying, that introduction of plastic (or polymer) currency notes will help them tackle this problem of soiled notes! RBI is giving another excuse, that because other central bankers - Australia is the pioneer [sic] - are already experimenting with plastic notes, so they will also imitate them. Another reason, which seems to be the major one, is that, these notes can be produced at a faster rate than paper notes! No wonder RBI and other central planners want to use plastic notes! Central bankers exist to print and produce lots of money (i.e., inflation).

I had a big smile of my face when I read this news few days ago. People who know the theory and history of money (see, Menger, Mises, Davies, and Money Museum) will immediately realize the idiocy of such crazy innovations. I understand there is nothing wrong in introducing plastic currency notes per se, but to call it money is absurd. These currency notes are not money because they are not backed by any real commodity money like Gold or Silver. These notes are in circulation only because of government's legal tender laws. They are forced on people by the politicians.
 

If the goal of RBI is to give people a choice of money which can last long - has a longer shelf life - then the clear choice are precious metals, Gold and Silver. No other money can last as long as these two metallic money. They were formed at the time of formation of Earth itself some 4.5 billion years ago, and since that time they were lying in Earth's crust to be found out by humans some 6000 years ago (see this). The chemical properties (see this) and human yearning for them made these two metals winners in the historical competition between different monies. Free market participants chose them as money because of their unique money like properties. Paper, plastic, leather etc., are no match against these two metals. What India needs is a 'pure gold standard (even a Silver standard will do), and not some plastic currency notes!
 

But, I know, people, mostly academicians and mainstream Ph.D. economists, will say, that the supply of Gold is scarce so it can't function as money. It seems their Keynesian university econ degrees have killed their thinking power. They don't understand, that scarce supply is a necessary prerequisite for any commodity to become money in the market. Scarce supply of commodity money is a good thing. We don't have to worry about Gold's supply because it's purchasing power will adjust according to the transaction needs of market participants. People who argue about scarce supply of money easily forget, that money is also a commodity whose value is determined by its demand and supply.

This policy of RBI will go in history as yet another lunatic scheme of central planners. When some future Charles Mackay will write another edition of Extraordinary Popular Delusion and the Madness of Crowds, he will surely include this scheme in his list.

For present we hapless subjects of the Indian state will have to get ready for yet another experiment on us by the central planning social engineers.  

Narendra Modi: An Extraordinary Popular Delusion

I was recently reading Charles Mackay's famous book, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, which discusses some of the major popular delusions like the Mississippi bubble, the tulip mania, the south sea bubble, the alchemists, the witch mania, crusades etc., of the known human history. These popular delusions exhibit a kind of madness of crowd which we see every now and then in all ages and at all places wherever human beings are present. The evolutionary brain, which has primed human nature for a kind of herd behavior, is the root cause of this phenomena, but I won't discuss this matter at length here in this post. I want to focus on one such extraordinary popular delusion and madness of crowd type of episode which is right now on-going in India. This episode is of the cult of the popular chief minister of Gujarat, Narendra Modi. The crowd is in frenzy re his name. Many deluded people want him to be the next prime minister of India and rescue the country from the evil hands of Congress party, particularly now hated Gandhi family. Many people are seeing him as a kind of messiah, a savior who can increase India's economic growth, remove political corruption and make it a Super Power! Although Modi's popularity is mostly manufactured by his own lackeys via false propaganda campaigns, but as always happens, this has fooled many people. The next national assembly election is approaching, and it is important to expose this Modi cult. That is the task I am attempting in next few paragraphs. This surely will not be an exhaustive treatment of this subject. I will only focus on major theoretical arguments which are not only applicable to Modi, but to every other state official.

Is Modi responsible for Gujarat's growth?

The first major delusion re Modi is that he has single handendly put the economy of Gujarat on the path of growth and development. Modi's fans don't get tired of telling everyone, that he is solely responsible for Gujarat's high economic growth rate. Is it true? Is this possible? For those who understand the true nature of the state and who are having a knowledge of sound economic laws, the answer is easy, a clear cut no. And for those who don't understand the true nature of state and economic laws, I have to draw their attention to Bastiat's famous 'Broken Window Fallacy'. Broken window fallacy (see video below) is a logical method of analyzing any governmental action.

People need to understand, that whatever work government is doing on the one hand is done by taking money forcefully from the productive sector of the society on the other hand e.g., when Narendra Modi government builds a road, this road is financed by Gujarat tax payers. Without tax payers' productive work this road will never come into existence. That means, Narendra Modi is not building this road; tax payers of Gujarat are building it. People very easily forget, that society comes first and then only comes the government. Government exists because of society and its productive people and not otherwise. Without the work of productive tax payers, governments won't be able to do anything. But without the government, productive people will not only survive, but, in fact, thrive. And we also need to remember, that whatever works government is doing is all political in nature. There is no market test of profit and loss to evaluate the efficiency and desirability of such works. Politicians love power, and all their works are directed only in the direction of gaining more power. They use these phony works to purchase voters for their elections. All the special interest groups - big corporations and other government cronies - determine what kind of work government officials are going to carry out. Anyone familiar with the 'Public Choice Theory' knows this fact. The most important fact that these works were not carried out by the private market itself suggests that they were not demanded by the market participants. 

Not only Narendra Modi didn't carry out any of these works on his own, he, in fact, diverted precious scarce resources from the productive sector of the economy towards the unproductive parasitic consumption sector. The unseen effect of Modi's so-called growth drive is those projects which private entrepreneurs could not accomplish because their profits were forcefully taken away from them via taxation by the Modi government. In the absence of this taxation, entrepreneurs would've surely used these resources to fulfil the most urgent needs of their consumers in the best possible way of producing highest quality products at the lowest possible prices. But they couldn't fulfill these consumer wants just because Modi robbed them of their profits. When I talk about entrepreneurs here, I am  talking about honest entrepreneurs only, and not those fascist corporatists like Adani, Reliance, Tata etc., who are enriching themselves by working in cahoots with Modi government. They are not real capitalists. They are fascist robbers who are looting Gujarati public, especially small farmers. What Modi is doing in Gujarat is nothing but stealing farmers' land and giving it to his crony corporatist friends at absolutely discounted prices. This is not growth. This is not development. Some urban dwellers are benefiting because of this robbery, and they are the major cheerleaders of Narendra Modi. Modi is a shameless liar e.g., his claim that his government is providing 24 hr electricity supply is totally bogus. I live in the financial capital of Gujarat, Surat, and here itself there are frequent power cuts every week!  

What is more important to understand is, that Gujarat's growth is possible because Gujarati people themselves are very hard working since ages. Gujarat is a prosperous state since ages. The entrepreneurial populace of Gujarat is world famous. The business acumen of Gujarati people is known everywhere. Gujarat is prosperous because of its hardworking entrepreneurial populace. To think that some fanatic guy like Modi is responsible for Gujarat's growth is showing a disrespect to the hardworking productive populace of this state. It is undermining the importance of productive members of this society. It is a supreme folly. A madness of crowd who believes in such fairy tales.

In fact, what is true is that Modi has put Gujarat under a heavy burden of debt in the name of his growth policies and extravagant expenditures (see this, and this). He recently said, that I have repaid mother Gujarat's debt and now I am ready to repay mother India's debt. It will be more appropriate to say, that he has put mother Gujarat under heavy debt, and now he is aspiring to put mother India also under a burden of heavy debt. Watch out, mother India!!!

What kind of development is taking place in Gujarat under Modi government?

I already alluded to this issue above. Narendra Modi is a fascist dictatorial chief minister and whatever growth and development people are talking about is nothing but enriching his corporate buddies at the cost of common man, especially poor farmers (see this, this, this, this, this, and this).  I am sure people know about the recent CAG report which implicates Modi's favors for his criminal fascist pals like Adani, Reliance, Essar, L&T etc. (see the CAG report here, here, here, and here. Also see, this, this and this).

Modi cult will be exposed if he becomes PM of India

Notwithstanding the fact that no Narendra Modi is responsible for Gujarat's growth, I wish he becomes PM of India just so as to break the delusion of people re his charismatic powers. Once on the national stage, this fascist dictator's real colors will be in front of everyone, and that will spell a doom for his cultist figure. Modi is a mad leader and I won't get surprised if on the first day of his inauguration itself he declares a war on Pakistan or China! It will be very comic to see him deal with national political morons like Lalu Yadav, Mamta Banerjee, Mulayam Singh, Nitish Kumar, Jay Lalita, Benni Prasad etc., etc. To handle 20-30 different parties won't be easy for him because he is ruling like a king in Gujarat, and so is not habituated to any kind of opposition. I wonder he will turn out to be even a good politician on the national stage!

As Charles Mackay said in his book, such delusions are seen in every age and at every place. What we are witnessing on the Indian political scene right now is just another example of that popular delusion and madness of crowd. I am quite sure, that when Modi bubble will burst in future, people will find another Modi for themselves instead of learning the supreme fact, that no one person can rule over their life and make it better. Government is a parasite and it can only suck productive society's blood. It can never do any productive work. To expect that some guy will come and save peoples' lives is a height of (false) human expectations. 

As long as individuals don't assume responsibility of their own lives, their situation won't improve for better.  

Indian Government Wants to Takeover the RBI

The struggling Indian government wants to take over the the Indian central bank, RBI. Since last year and half or so, the Indian economy is struggling and the phony growth rate numbers have fallen down from over 9% per annum to 5%. The government desperately wants RBI to print more money and reduce the market interest rates to allegedly start the economic recovery, but the RBI governor, Subbarao, is reluctant because he is fearing inflation. This has infuriated the politicians and bureaucrats, and now they are planning a full-fledged takeover of RBI's main function of determining the monetary policy. They have presented a bill in the parliament to put bureaucrats on the panel of monetary policy committee while simultaneously reducing the powers of RBI governor to single-handedly determine the monetary policy. If they are successful in this coup d'état, then, the danger of a massive inflation in the Indian economy increases by manyfold factors. I analyze this vital new development in the Indian economy in my new video blog below.

Do Not Trust The Banks

As I have said time and again, you trust the banks if you want to commit a financial suicide. This is what the lesson everyone has to learn from the recent events, which are still unfolding, in the tiny island of Cyprus (read more about it here). The Cyprus government, in cahoots with and by the orders of the European Union and IMF officials, stole bank depositors' money to rescue the bankrupt banking sector of its economy. This heist of depositors' money began with an announcement of confiscation of 6.7% of deposit money of those with total deposits less than €100,000 and 9.9% from those depositors with deposits more than €100,000. This deal did not go through the Crpriot parliament, but they have now agreed on closing down two major banks - which means depositors in these banks loose all their money - and stealing deposit money of those depositors with more than €100,000 deposits. Cyprus government has also closed all banks since last one week and still there are no signs of banks opening soon. They have also announced capital controls which means even if the banks open, depositors can't take out all their money. ATMs also have daily €100 withdrawal limits in place.

Because of all these naked stealing of peoples' money by the government and banking officials, mini bank runs have already started in Cyprus, and there are fears that in future big bank runs can take place across EU and the whole world. If that happens, then, at least, I won't get surprised because bank runs are the logical end results of the illegal way in which today's banks function. In fact, some bank runs have already started in India e.g., during last month alone, in my home town Surat, there were two episodes of bank runs. First two pictures in below figure (from right to left), which I took from local Gujarati news paper, show the long queues outside two troubled local banks. Similar scenes were visible in Cyprus (see third and fourth picture in below figure, and here). We all should get ready to see such long queues outside banks globally in future. This is because today's fraud banks function on an unethical, immoral and illegal standard of 'fractional reserve' where they only keep a fraction of depositors' money in their reserve vaults; rest they loan it out to third parties. In legal term this phenomenon is called, embezzlement or misappropriation of depositors' private property. Banks are fiduciary institutions, especially deposit banks, and their main function is to safeguard depositors' money. But, instead of safeguarding, today's banks are stealing that money as the case of Cyprus now makes it totally clear. They were stealing money surreptitiously before via fractional reserve banking, but now they are so desperate that, with Cyprus case, they have openly started to rob their customers. This trend will accelerate in future as more and more banks go bankrupt openly.

Fig. 1 Bank Runs in India and Cyprus

As I said above, this was bound to happen. The lesson that people will have to learn from this on-going crisis is, that they should, in no event, keep more than necessary money in banks. Keep only that much money which is absolutely necessary for doing your business or other work for which you can not avoid banks. Apart from that, pull out all your money from the banks and keep it in other more safe alternatives like precious metals, Gold and Silver. Precious metals don't have any counterparty risks, and moreover, they both are real money. They both are now slowly moving into the world monetary system. Fiat paper currencies are dying their slow death and will become history soon.

In the end, I repeat again, DO NOT TRUST THE BANKs. Take lessons from what is happening around the world, and don't think that this is an isolated incident which can not take place in your country. All banks are globally connected and trouble in one country will surely spill over to other country banks. Take action now and safeguard your wealth and lives from the unscrupulous politicians and bankers.




My Brief Encounter with a Member of Prime Minister Manmohan Singh's Team of Economic Advisers

Today I attended the 23rd  I P. Desai Memorial lecture in Center for Social Studies, which is an ICSSR sponsored research institute based in Surat. They invited Padma Bhusan Prof. V S. Vyas (more about him here) to deliver the lecture this time, and I decided to attend this event because Prof. Vyas is a member of prime minister Manmohan Singh's team of economic advisers. Because he is a well known economist of old generation, and especially a high ranking official in the present government, he was obviously on my list of people with whom I want to logically discuss Indian government's policies. As a tax payer of this country and an economist myself, it is my right and duty to confront these high ranking government economists and officials.

Prof. Vyas was delivering a talk on 'Reaching The Unreached -To Make Poverty Eradication Programs More Effective'. His main thesis was, that so far all government poverty removal programs have failed, so how to make them more efficient! As can be discerned from the title of his talk above, his solution was to  make these programs more efficient, and introduce more such programs for that purpose!  This is typical thinking of a government adviser and a mainstream economist. This is the same old boring story of absurdity of doing the same thing over and over again and expecting different results every time! It was quite important to notice, that he, at least, accepted that the present system of government interventionism is a failure, but despite that he was not ready to abandon those failed socialist statist policies.

Because the event protocols did not permit me to ask many questions and do follow up inquiries, I restricted myself to only one fundamental question. I asked him, whether he sees any role of the instrument of 'Private Property Rights' in removing poverty? While asking my question, I cited the work of famous Peruvian economist, Hernando de Soto. Now, Soto is no bastion of 'Private Property Rights', but because I didn't want to create any kind of big stir in the seminar hall (it was full of sociology professors and other academicians with statist leanings), I didn't mention Murray Rothbard and his Anarcho-Capitalist system as the answer of the problem of poverty. I just wanted to hint towards the instrument of 'Private Property Rights' and its importance in poverty removal, so I cited Soto. Prof. Vyas gave very confused and evasive answer. He ended his reply with this statement: Let's not underestimate the role of government! And I told myself, because discussion was not allowed, I am not underestimating the role of government, but you are overestimating the role of government - which is nothing but a legitimate gang of thugs - beyond anyone's imagination. I only mentioned Hernando de Soto's work on private property rights, and he gave this answer. Imagine if I had talked about Rothbard's Anarcho-Capitalism, they would've thrown me out of their seminar hall!

The pomp with which he came to deliver an academic lecture on poverty removal - police security vans with sirens ringing and tax payer funded luxury government car - and other such  hypocrisies of all these government economists and other academicians is so nauseating.  They all have made their lives better in the name of removing poverty. Poor are still poor, but these people are now tremendously wealthy and powerful. My overall take from this and other such events is this, that as long as these people continue the discussion of removing poverty, poor people will remain poor. As long as they don't leave poor people alone to manage their lives according to their own wishes, poor will remain poor. As long as there is an absence of 'Liberty', poor will remain poor.

These government officials are totally oblivious to the plight of common man. They live in their own castles, and don't realize the speed at which the economy and society is descending in hell. It is obvious from their actions, that no matter what happens to us commoners, they are not going to give up their political power voluntarily. They are not at all interested in changing the status quo. These people live in their own ivory towers and think that they can easily subvert the laws of economics without facing any dire consequences! But they are surely mistaken. Laws of economics do work in the social world, and the present system of exploitation of productive class of the society by an unproductive class will crash and burn in the end, and the free market will overwhelm these state officials one day. I only wish that things will change for better after the coming collapse. People should forget about getting any help from these officials. Even if they honestly want to, they can't help you via the system of state. People should start to take responsibility of their lives in their own hands and protect themselves from the looting hands of criminal government.