Wednesday, November 23, 2011

How the Indian Government and RBI is Debasing the Currency

Inflation is killing the common man and the Indian government and RBI is hell bent on debasing the currency. This debasement is a type of inflation which government is taking resort to to finance its boondoggles. The evidences of this inflation which I am presenting here are of Indian currency coins. The pictures clearly reveal the deteriorating quality of these coins because of government debasement. Since years they are doing this, but recently the speed of debasement has increased rapidly. So without any further delay I present the evidences.

The first picture presents 1 rupee coins. First 1 rupee coin (all coins described from the left hand side) is from year 1998. This coin had at least some fine print work. When you compare it with others, you can at least say that it is bit heavy and had better print work on it. Next coin is of year 2000. Next to that is year 2008 coin. Just in 10 years time the 1 rupee coin has lost all its quality of weight and fine print. This coin is very light because government's cost of buying metal for its mint has gone up due to inflation, so they are using inferior quality metal. And it has no fine prints. Just a thumb (actually government is showing a thumb to all of us that look we are fooling you and you can't do anything!!!). Real shock is the latest 2011 coin, the last one. Compared to other past coins this coin is absolutely small; actually half size (compare the size in picture)! It has lost all the weight too. This is government debasement at full speed people.    
1 Rupee Coins (Various Years)

Alright now let's see 5 rupee coins. The first coin is of year 2003, and the next of 2010. You can clearly see the difference is size and weight. I took the picture from a 60 degree angle to show you all the difference in thickness of these coins. 2003 coin is of course more heavier than 2010 coin. And to fool people government also minted the 2010 coin in Gold color, as if it is a gold coin! Hilarious. Just keep that coin untouched for couple of months and it will start to rust. 

5 Rupee Coins (Various Years)

Now couple of 2 rupee coins. First coin is of year 2000 and the next one (showing two fingers) is of year 2010. 2000 coin is surely heavy then 2010. It also had some fine print, while 2010 coin just shows two fingers to us! Government mints now have no time to show the craftsmanship [sic] on their coins. Just quickly print and put it into circulation!

2 Rupee Coins (Various Years)
 Finally some coins which no one uses these days because they have lost all their value due to years of government inflation. These coins are rarities these days. One coin - 25 paisa - is officially withdrawn from the circulation! First coin is of 3 paisa (yes 3 paisa)!!! That coin belongs to year 1965. Long gone those days when 3 paisa had some value. Today when governments are speaking only the language of billions and trillions, there is no place for poor paisa! Next coin is of 10 paisa. It has also lost all its value and hardly anyone uses them now. Next two coins are of, now dead, 25 paisa. Due to government inflation these coins are now worthless.

To describe this grim situation of government inflation, I will end by saying, as brilliant Murray Rothbard said, what has government done to our money?!

Saturday, November 12, 2011

About Government Crony Capitalism, Vijay Mallaya and his Kingfisher Airlines

Recent economic troubles of Kingfisher Airlines has brought in focus many important issues re how the centrally planned Indian economy is faltering, how these so-called business tycoons like Vijay Mallaya are a disgrace, and how government is always helping their cronies in the business world and elsewhere.

As I have noted many times in the past, the whole story of emerging Indian economy is bunkum. Sure some people are doing extra ordinary hard work and producing the economic goods which every other lazy bums like politicians, bureaucrats, government workers, and other such parasite class of society are enjoying shamelessly. But, notwithstanding that, whatever phony growth figures Indian officials are reporting are just figures on the paper; mostly a result of Keynesian money printing programs of Indian central bank RBI. Indian economy is a classic example of an artificially (paper) inflated boom, which is now busting e.g., growth figures are now revised downward, industrial production is at 2 years low, banks are downgraded etc.

While this bubble is busting, business tycoons like Vijay Mallaya are getting exposed. His Kingfisher Airlines is facing huge amount of debt due to which he has to cancel many flight routes recently. Rising borrowing cost in the form of increased interest rates and high fuel prices has broken the back of his company. This was very much expected because when the artificial boom is going on everything looks very rosy and upbeat; businessmen are fooled by the government and central bank low interest rate policies. Vijay Mallaya was also fooled. He is now making senseless statements which is putting a question mark on his abilities to run a business profitably e.g., he is saying whether it is his duty to fly the loss making routes!? Duty of an entrepreneur is to take care of his company's share holders and his consumers. And if he fails in his duty then he should shut down his business. The problem with him is, after going bust, he went to government requesting a bailout or some sort of other help. Basically he is trying to stick his company's bill on the back of poor tax payers! He enjoyed privately the profit of his company, but now he is trying to socialize the losses. This is a disgrace. This is crony capitalism (crony capitalism has nothing to do with true free market Capitalism). I am not sure how Mallaya got so rich in the first place, but I suspect that he earned his wealth surely by being in bed with the government, in stead of truly satisfying the most urgent wants of his consumers. He squandered precious resources of his investors and thus should be allowed to be stripped off of his wealth. He must take the losses; he must foot the bill of his financial blunders. His company should be allowed to go bust or restructure and being taken over by some other healthy firm.

But, what we see in stead? We see that the wonderful [sic] Indian government and its prime minister Mr. Manmohan Singh - who, I have to finally say,  is increasingly showing signs of economic illiteracy - is promising to draw a Kingfisher airline rescue plan! I don't know from where he learned this 'bailout economics', but Mr. PM needed to be reminded of a wonderful system of  'profit and loss'. India is supposedly implementing 'market reforms', and in a market when a company fails to satisfy its consumers' most urgent wants, it goes belly up. No one rescues such loss making firms. It is for everyone's good that such firms go out of business because only then the owner entrepreneur of that firm can be stopped from wasting precious resources of investors and consumers. Not bailing out (or rescuing) such firms is socially beneficial because when such firms go out of business they are taken over by more efficient firms.

Instead of bailing out such loss making failed entrepreneurs, they should be condemned by everyone. The mass public - under the influence of lefties and commies - always blame profit making businessmen. But that is wrong. Those businessmen who are earning their profits honestly by serving consumers are true heroes of society; they are lifting everyone's standard of living. contrarily, those businessmen who are making losses are not serving their consumers and  wasting investors' resources. People should be condemning such loss making entrepreneurs and not someone who is improving their living standards.           

By rescusing loss making Kingfisher Airlines and a failed businessman Vijay Mallya, the government and Mr. Manmohan Singh are only promoting an inefficient system. They are promoting losses. They are promoting failure. They are helping their cronies who fund their elections. As I always say, governments are never here to serve people; they are here to serve their cronies. This Kingfisher episode is just another stark evidence of this centuries old known fact.

Friday, November 4, 2011

Prime Minister Manmohan Singh is Wrong on Inflation

Inflation in India is edging up steadily and stubbornly. It is not abating a bit, and people are getting frustrated. Such relentless rise in the prices of goods and services is now testing the patience and nerves of the Indian populace. Amidst all these hardships, the politicians - who are in charge of policy making - are evading any serious discussion of inflation and its causes. Not only they are not serious, but their mind numbing and irresponsible statements regarding the causes of inflation are now becoming very frustrating, especially for someone who knows economics. I can understand the ignorant statements of finance minister Pranab Mukherjee and Mr. Advani, but it is hard to fathom what is wrong with prime minister Manmohan Singh who is an academic economist having a PhD degree from Oxford! A former economics teacher of famous Delhi School of Economics seems to have forgotten his economics.

After the recent hike in petrol prices by the government owned petrol companies (PSUs - Public Sector Units) like HPCL the outrage is growing and some of the political parties in UPA government are threatening to pull out from the coalition Singh government. Looking at this uproar PM Manmohan singh issued some amazingly ignorant statements about the possibe causes of Inflation. Here is what he said:

"What prices are going up are prices of vegetables, prices of eggs, prices of fish, that is the secondary and tertiary food items. That is a reflection of the demand for these commodities exceeding supplies....That in turn, to some extent at least, is a sign of growing prosperity of our country. If our national income increases by 8 per cent per annum and our population is increasing at 1.6 per cent per annum, the per capita income is growing at 6-6.5 percent....It is bound to lead to a demand for more diversified type of food basket. I am not saying this is a fool proof way of describing this complex reality, but in analyzing food inflation, I think, this is an aspect that should not be lost sign of."

Apart from being highly insensitive to the plight of poor people, these statements reveal that Mr. Manmohan Singh is just making Keynesian rhetoric. Keynes was wrong on about everything that he wrote in his General Theory and so does Mr. Singh who is using Keynesian paradigm for finding causes of inflation. I don't need to refute Mr. Singh here line by line because Henry Hazlitt - some 50 years ago - demolished the Keynesian system literally line by line in his brilliant work, The Failure of New Economics.

I will only add one thing here is, that Mr. Manmohan Singh should try to understand Jean Baptiste Say's 'Law of Markets' which states that 'there can be no demand without supply' in the market or as famously - although rather misleadingly - known as 'supply creates its own demand'. This implies that, if Indians are becoming prosperous then they are already producing the supply of goods which they are demanding from each other. In such a situation there is no question of demand outstripping the supply of goods and services.

Although Mr. Singh is partially right when he says that the demand for goods and services is rising, but his subsequent analysis is erroneous. He needs to ask himself how and why the demand in the economy is rising? Is this demand real - i.e., created by producing real wealth - or created artificially by printing truck load of phony currency by the RBI? If he will try to find answers of these questions by using sound economic theory then he will find that this increase in demand is artificially created by RBI money printing and government's profligate spending of this money e.g., already government's fiscal position is worsening before the financial year ends.

I understand Mr. Singh is very busy and thus he won't be able to study inflation in detail. Precisely because of this reason I humbly request and urge him to read Henry Hazlitt's Inflation in One Page (pdf link). This one page explanation of inflation by Hazlitt is what is all that Mr. Singh needs to correctly understand the phenomena of Inflation. If he will read this page then he will find the following logical explanation of Inflation:

Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices. Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible.

After reading this, I hope and am sure that Mr. Singh will stop making highly irresponsible statements like above. It will also help him in combating the inflation monster decisively, if he is at all serious in combating it in the first place.

Thursday, November 3, 2011

Is the Present Economic and Social Mess Capitalism's Fault?

The American economy and society both are crumbling. European Union [sic] is in tatters. Majority of western world countries are on the brink of a disaster or as Doug Casey says, have entered in an eye of the hurricane. Just like the Middle Eastern countries waves of angry protests are filling the streets of Greece, Italy, Spain, UK, USA and many other occidental countries. The recent Wall Street Protest movement in America is symbolized by many as peoples' anger against Capitalism or the 1%, who are painted as wicked capitalist pigs! Many writers and so-called intellectuals are claiming that this episode in Western world is an evidence of the failure of Capitalism e.g., see here and here. Tragically, many OWS protestors are demanding Socialism!

So, is this finacial crisis and now sovereign debt default threats a wrongdoing of Capitalism? Is Capitalism responsible for peoples' misery? What is actually Capitalism? Do these writers  - who attack Capitalism - even understand what Capitalism is? I very briefly investigate these and other such questions in the following paragraphs.

Causes of Financial Crisis
The financial crisis, which began in 2007, precipitated in the present world events was actually a making of greedy government officials and its few banker buddies. Corporate greed has nothing to do with this crisis. Not only corporates are greedy, but every individual on this planet is greedy in one way or another. Businessmen work for monetary profit, an ascetic person - e.g., a monk - works for a psychological profit i.e., Nirvana. Both are greedy for achieving more and more of their subjectively chosen ends. Self interest and greed is a driving force of life. Without greed life will stagnate and stink. Bankers would have never taken this much risk if their businesses were not insured by the federal government e.g., FDIC (Federal Deposit Insurance Corporation). The so-called GSEs (Government Sponsored Enterprises) Fannie Mae and Freddie Mac were responsible for fueling the real estate bubble. Federal government's 'Community Reinvestment Act' resulted in the 'sub-prime mortgage crisis'. US Government created the moral hazards in the first place by creating these regulatory institutions and now they are scapegoating the corporate world for their greed and moral corruption! Federal Reserve - the American central bank, which btw is a cartel secretly created by the US government in cahoots with few big banking houses in 1913 - is the institution which provided the endless cheap money to bankers, which they then betted on risky financial instruments like MBS and other such derivative products. Federal reserve bank, under the leadership of Alan Greenspan - kept the market interest rates artificially low for too long creating an artificial real estate bubble. This bubble popped in 2007. And when this bubble popped, instead of allowing the toxic assets to liquidate in the ensuing recession, Bush and Obama governments created another big bubble on top of that bubble in the form of various stimulus packages and federal reserve 'quantitative easing (QE) programs'. Even right now the US fed has kept the interest rates to almost zero (ZIRP - Zero Interest Rate Policy) percent for up to mid 2013! These artificial stimulus are the real cause of this crisis, and by printing truck load of money under these programs the American government has surely baked in future (possible) hyperinflation and following greater depression.

Those who are interested in looking into an in-depth analysis of these events with empirical evidences should read Thomas Woods, Meltdown.

The EU Crisis
In Europe the situation is slightly different. The forceful creation of Euro and the EU by few greedy European politicians created moral hazards for the individual country government officials e.g., Ireland, Greece, Portugal, Italy, Spain etc. As Philipp Bagus analyzed in The Tragedy of the Euro, formation of these institutions created the problem of the tragedy of commons in Europe where by finding that free money is available from ECB (European Central Bank) these government piled on excessive debts. Now these governments are finding it hard to repay their debts - which are running in 100s of percentages of their GDP - and are about to default on their debt obligations. They have only two options left now: one, either default on their debt and repudiate the debt or, two, try and inflate to pay their debts in debased currency. In either case European countries are toast.

Capitalism or Government Intervention/Socialism?
The fact of the matter is, that in the whole world presently there are no free market capitalsim economy. All economies are controlled by the governments and planned centrally. US Fed, ECB, FDIC, Community Reinvestment Act, Fannie Mae and Freedie Mac etc., are not the product of free market capitalism. They are product of government interventionism and socialism. In absence of all these institutions there would have never been any real estate bubble, there would have never been any sub-prime mortgage crisis, and there would have been no EU and no Euro. In a free market economy, if some bank lent recklessly then they will surely go bankrupt. No government will come and bail them out like what is presently happening. If some business made error then it will go belly up; no one will bail them out too.

How in a world someone can blame a system for all these troubles when that system doesn't even exist?! People - especially those writers who are blaming Capitalism - need to wake up from their slumber and carefully see and analyze all the evidences by using sound economic theory. They can begin by reading the books which I have cited above. If they will do that then it won't be too late before they will figure out what I just said above i.e., if you have to blame someone for these troubles then blame your governments and their interventions in the economy.

As Lew Rockwell very aptly said, The State is the real 1%.