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India’s Currency Ban, Part VII

This article continues right where Part VI left off (for earlier updates on the demonetization saga see Part-I, Part-II, Part-III, Part-IV, and Part-V).

There is still huge support for Modi even among the poor.  A big carrot is dangled before them, which makes many stay numb to their current suffering.  During his election campaign in 2014, Modi promised to deposit more than Rs 1.5 million (~$22,000) in each poor person’s account once the government had seized all black money.

 

Massive problems have been reported with the new bills. Some have been printed on defective paper and are simply falling apart. The inferior quality of the print job is generally often on the appalling side of deplorable. The new notes are counterfeited with great abandon, quite likely to a much greater extent than they ever were in the past. So much for Modi’s plan to stop counterfeiting.

Photo credit: The Hindu

 

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India’s Currency Ban – Part VI

India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, and Part-V, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.

 

There are undoubtedly many differences between the two gentlemen depicted above, but both appear to have mastered the age-old trick of extending one’s grip on political power by inflicting chaos.

 

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Juiced

Stimulus, in a general sense, is something that causes an action or response.  A ringing alarm clock may prompt someone to exit their slumber.  Or a fist to the gut may force someone to gasp for breath.

 

A classic case of gut-punch stimulus application. Now, all you have to do is imagine that the big person being stimulated is the economy. What should be your next question? Right! Will it achieve escape velocity?

 

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Too Smart to Think

These days everything must be smart.  There are smart cities, smart grids, smart policies, smart TVs, smart cars, smart phones, smart watches, smart shoes, and smart glasses.  There’s even something called smart underwear.

 

Modern-day wedgie-proof thinking drawers. How was life even possible before them? An area of the body not usually known for its thinking prowess is suddenly smarting up!

 

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The Nasty Habits of Reality

BALTIMORE – People never intend to bring disasters upon themselves. But they sometimes put themselves in situations in which disaster is the only way out.

The War Between the States was supposed to be quick and decisive. The glorious histories of the war were already written – at least in the minds of the combatants – by the time of the First Battle of Bull Run.

 

General Thomas “Stonewall” Jackson inspects the action at the First Battle of Bull Run. Confederate observers were suitably impressed. We’ve got this in the bag, they said to themselves. Let’s start writing the history books!

 

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A Very Odd Growth Spurt in the True Money Supply

The growth rates of various “Austrian” measures of the US money supply (such as TMS-2 and money AMS) have accelerated significantly in recent months.  That is quite surprising, as the Fed hasn’t been engaged in QE for quite some time and year-on-year growth in commercial bank credit has actually slowed down rather than accelerating of late. The only exception to this is mortgage lending growth – at least until recently. Growth in mortgage loans is still very slow though, especially compared to historical growth rates. It cannot really account for the recent surge in money supply growth either.

 

1-tms-2-and-total-loans-and-leases-y-y-changeYear-on-year growth rates of TMS-2 (11.19%, black line) and total loans and leases at commercial banks (7.7%, red line) as of October. In absolute terms money TMS-2 has soared by a staggering $840 billion since the beginning of the year – click to enlarge.

 

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A Brief Recap

India’s Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes will no longer be legal tender. Linked are Part-I, Part-II, Part-III, and Part-IV, which provide updates on the rapidly encroaching police state

Expect a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the economy and civilization.

There are clear signs that in a very convoluted way, possession of gold for investment purposes will be made illegal. Expect capital controls to follow. Chaos from people’s inability to access the money in their bank accounts is now spreading to the people who have so far been unaffected: the middle class.

This is a completely unnecessary man-made disaster, with the single aim of glorifying  Narendra Modi.

 

modi

Indian prime minister Narendra Modi

Photo credit: Reuters

 

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A Strong First Half of the Year, Followed by Another Retreat

In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.

 

chart-1-gold-annotatedInitially, gold rallied sharply in 2016, but then retreated again in the second half as concerns over Fed rate hikes and the impact of Mr. Trump’s election victory have pushed bond yields and the US dollar up in the short term.

 

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A Major Crisis

Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).

 

banned-notesBanned 500 rupee banknotes

 

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Stumped by the Bust

In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.

 

closedWhat has caused the bust? The modern-day economic orthodoxy continues to be unable to provide a tenable and sound explanation for the business cycle phenomenon. Such an explanation does exist though.

Photo credit: Carl de Souza / AFP / Getty images

 

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$8 Trillion Transfer

RHINEBECK, New York – It is a beautiful autumnal day here in upstate New York. The trees are red, brown, and yellow. Squirrels hop across the lawn, collecting their nuts. Unseasonably warm the last few days, rain showers are moving in from across the Hudson, driven by a chilly wind.

 

1-ff-rateThe effective federal funds rate, or: the Fed sends savers a message… – click to enlarge.

 

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Is Stagflation a Potential Threat?

The Incrementum Fund held its quarterly advisory board meeting on October 3 (the transcript can be downloaded below). Our regular participants – the two fund managers Ronald Stoeferle and Mark Valek, advisory board members Jim Rickards, Frank Shostak and yours truly –  were joined by special guest Grant Williams this time. Many of our readers probably know Grant; he is the author of the bi-monthly newsletter “Things That Make You Go Hmmm…”, as well as one of the founders of Real Vision TV.

 

1-stagflationCharacteristics of stagflation: economic growth goes into reverse, but price inflation rises  anyway. This scenario was completely unexpected by the Keynesian consensus when it hit the economy in the 1970s. Keynesian theory ended up discredited for a while as a result. Not surprisingly though, as a theory that provides a “scientific” fig leaf for statism and interventionism, it has been resurrected since then. Today it once again is an important part of mainstream economic orthodoxy; the monetarist school has retained a certain degree of influence as well, but its policy prescriptions are just as misguided in our opinion.

 

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