Gold Price Skyrockets In India After Currency Ban (Part III)

November 25, 2016

When Money Dies

In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.

Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this photograph. Beware finger-wagging politicians, as we always point out. Modi now plans to impose income tax penalties on large bank deposits; the State’s rapaciousness knows no bounds and evidently the mere possession of some arbitrary amount of money considered “too large” now means one is deemed a criminal a priori in India. It goes without saying that the concept of property rights is alien to Modi. [PT]

Photo via indianexpress.com

Now, two weeks later, the situation is getting much worse, and more desperate. It is obvious that Modi single-handedly took the decision to ban the banknotes, with most people in his cabinet and virtually all in the central bank oblivious to his plan.

There is virtually no visible opposition to the enforced ban, for any politician who opposes the ban risks having his own misdeeds — and they are all corrupt — brought to the public space by Modi. A true demagogue, Modi, has already convinced the gullible, salaried middle class that anyone who opposes the ban is hiding corrupt money and is anti-national.

With every passing day, it has not only  become clearer that the ban was of no use to eradicate hidden cash, but has also inflicted deep, wide and irreparable damage to the society.  The economy is rapidly moving toward stagnation.  The lives of literally hundreds of millions are in deep chaos.

This event may well go down in the history books as one of the worst man-made crises ever.

Cash conversion has been reduced to Rs 2000 ($30) per person. As a result people are  facing humiliation and stand in queues for as much as 12 hours or more. Often repeated visits to the bank are necessary, with no guarantee that the bank will have cash available for the conversion. Old and disabled people, the 25% of India’s society without  ID-cards, and women (unless they are prepared to be molested) don’t even have this chance. For those who are able join the queues, the scene has turned into a battlefield, with people fighting among themselves and getting brutalized by the police. But so far most people seem to still carry a favorable opinion of Modi, backed by cult-like “intellectual” climate created by the salaried middle class (who lack critical thinking and reasoning capability), and supported by the international media and institutions like the IMF, i.e., people who are sitting in Western cities have no clue about the realities on the ground. But all this will change as the stories of personal suffering should eventually start to dominate over the propaganda—reality does have a way of catching up. But India’s descent toward a police state is now written in concrete. Even if Modi eventually goes, a new demagogue will take his place.

Should a single person have so much power to be able to destroy the lives of almost one out of every five human beings on the planet? On this occasion it may be worth reminding ourselves that Modi also has the authority to launch nuclear bombs.

Modi suffers from worst possible type of corruption: an insatiable desire for personal glory at any cost, an extremely deep moral and spiritual corruption. He also represents the worst aspect of democracy: a demagogue who caters to an irrational populace’s cravings for self-identity and release from self-responsibility.

The government monopoly on cash economically connects 1.3 billion Indians. The perceived value of this paper currency does not comes not from any value inherent in it (it is just as irredeemable as other fiat monies), but from government edicts.

Cash is the thread that weaves relationships, transactions and commitments. For the proper functioning of society, it is absolutely crucial that people have a liquid medium of exchange, the essential lubricant to effect trade in today’s complex economy. Today, win-win transactions — except for barter, which has emerged in many parts of India — can no longer take place, for the monopolistic money instrument, India’s fiat currency, has been paralyzed by Modi.

Two millennia of progress in money have been destroyed. Rural places are increasingly falling back on barter. In a barter economy, economic calculation is no longer possible; only the most basic economic exchanges can take place. The market will have to adopt alternative media of exchange if the coincidence of wants problem is to be overcome.

Should a single person have the authority to flip a switch and bring all trade, transactions, indeed the entire economy to a halt?

As it stands, money is now dead in India – and a police state is rapidly encroaching. Both at home and abroad the only topic of conversation for Indians is the currency ban. If they are not busy planning how to escape the depredations of the tax authorities (whose minions are rapacious and will insist that people be obsequious and pay them large bribes), people exchange slogans, sound-bites and mere hopes  – which seems to be the best India’s irrational society can do. Should this be all people are communicating about? Human beings were destined for higher things in life, not merely for the task of protecting themselves against the State.

What tyranny, socialism and an authoritarian order enforced from the top down mean for those who have been reduced to mere cogs

Crumbling Institutions

Most people — particularly the salaried middle class — still seem to have a favorable opinion of Mr. Modi. They have been indoctrinated – in India’s extremely irrational and superstitious society – to believe that this demonetization will somehow alleviate corruption and that anything but support of Modi’s actions is anti-national and unpatriotic.

This gives me pause to reflect.

What a crazy idea it is to have a State monopoly on money, particularly a money that carries no inherent value and depends on regulatory edicts.  On a deeper level, it makes me reflect on why for the culture of India — which is tribalistic, nativistic, superstitious and irrational — “India” is actually an unnatural entity.

Such a society should consist of hundreds of tribes and countries, which is what “India” was before the British consolidated it.  In a tribalistic and irrational society, decentralization makes life much safer and makes the market more free, as complex decisions will be taken on the local level, where they belong.

India’s institutions — not just organizations, but larger socio-political beliefs — have begun to decay and crumble after the British left, losing their underlying essence, the reason for which they had been institutionalized in the first place. This degradation is now picking up pace. They must eventually fall apart — including the nation-state of India –  to adjust to the underlying culture .

Let us consider some of these institutions. Western education implanted in India has mutated. It is making individuals cogs in a big machine, all for the service of one great leader. Public education and the mass-media have become instruments of propaganda.

Complexity and the diversity of options that technology brings make an irrational thinker extremely confused, forcing him to seek sanity in ritualistic religion —hence the increase in religiosity in India and elsewhere in the region. This has happened despite the explosion in information technology.

The concept of the nation-state, when it took hold in Europe, was about the values the emergent rational and enlightened societies of Europe shared and had collectively come to believe in, at least among their elites. In India, the idea of the nation-state has morphed into a valueless thread, which binds people together through noting but a flag and an anthem, symbols completely devoid of any values.

It has collectivized tribalistic and irrational people (an irrationality that is amply epitomized by the negative force Islam has become in the last two decades). In India and many similarly constituted countries, institutions that are not natural to their culture— the nation state, education, monetary system, etc. — must eventually face entropy, slowly at first, and then rapidly.  India has now entered the rapid phase.

The death of money – amid a lack of respect for property rights (which again are a purely European concept that emerged from the intellectual revolutions of the last 800 years) – has been sudden and will very likely be catastrophic. It is a man-made disaster of gargantuan proportions.  It will fundamentally change India in a very negative way, particularly if the demonetization effort succeeds, as it will have created the foundations enabling the rapid emergence of a police state.

(Full report:  http://www.acting-man.com/?p=47966 )

Jayant Bhandari is constantly traveling the world to look for investment opportunities, particularly in the natural resource sector. He advises institutional investors about his finds. Earlier, he worked for six years with US Global Investors (San Antonio, Texas), a boutique natural resource investment firm, and for one year with Casey Research. Before emigrating from India, he started and ran the Indian subsidiary operations of two European companies. He still travels multiple times a year to India.

Bhandari has written on political, economic and cultural issues for the Liberty magazine, the Mises Institute (USA), Mises Institute (Canada), Casey Research, International Man, Mining Journal, Zero Hedge, Lew Rockwell, the Dollar Vigilante, Fraser Institute, Le Québécois Libre, Mauldin Economics, Northern Miner, Mining Markets etc. He is a contributing editor of the Liberty magazine.

He is an MBA from Manchester Business School (UK) and B. Engineering from SGSITS (India).

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.