Amongst the various evils caused by loose monetary policy, one is speculation which further adds and contribute to inflation. Let us see how it happens.

Quantitative easing always causes prices to rise. Price rise encourages speculation and hoarding. Because you tend to buy it today when you know prices will go up tomorrow. What is happening today is that for a speculator, the risk of loosing is very low. Because he knows more money (demand) will be created by govt and as money (demand) will go up prices will go up always. Now if there is no money printing but sustained production, price rise will stop. As people will have to produce before they demand. A speculator in this situation is guaranteed to loose. When speculators will start loosing, the risk will become high and it will discourage people in the business of speculation.

Speculation contributes to price rise because the speculator knowing very well that prices have to rise as a result of quantitative easing, also starts hoarding. Thereby contributing to the momentum of the bubble.

I would like to quote a classic example recently given by Ron Paul in the republican presidential debate in US. “A dime of silver minted before 1960 can still buy the same gasoline today as it could buy in at that time”. What does it mean? It is not the price of commodity rising but the value of currency going down. We know that govt is printing and dumping the money in the economy. Money printing cost nothing but production of commodities is not that easy and cannot grow at the same rate as money printing. Availability of more money (demand) and less supplies are causing inflation.

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A Clueless Government?


The Indian govt has decided to once again raise the price of petrol. And this followed RBI’s decisions to raise the interest rates. As previously mentioned in this blog, this was well anticipated because Government is doing nothing to improve fundamentals problems but only taking forward its failed policy of debt financed consumption.

Govt deficits are the real reasons for price rise. Deficits are high because govt spending is high and way beyond its means. Now since RBI is tightening and cost of borrowing going up they are trying to fill the gap by directly taxing people. The tax could be in various ways , raising the prices of petrol, LPG, Train fairs, etc. The bottom line is they have to get money for their deficits.

The question then is why and where they are spending so much to create such high deficits. Ideally when you borrow to open a factory that produces something, the borrower can repay to the lender. But what will happen if we start taking personal loan from bank and consume it. Once this money is over, thats it…there is no way the lender can get his money back because the debt money was never used efficiently. Govt has propped up a huge service sector of govt employee whose contribution to the economy is almost zero. Govt debt is used to finance the salaries of this service sector and several of its useless schemes which are like cash distribution to people to get votes. Recently when the petrol prices are hiked, you might also have noticed that govt has also increased the DA and pensions by 7%. It is not that I do not want people’s salary to increase at this time of inflation but from where this money is coming? When govt does not have money, they either print money (QE) or take debt. In both cases the problem of production is not solved but the crisis is only pushed forward. We are not taking debt to open factories but actually consuming on debt and thats the problem. I am wondering why the TV anchors are not calling and questioning the likes of Sudhir Bhalla, Gurcharan Das, Montek Singh Ahluwalia who all these 20 years supporting the current economic policy of Manmohan Singh.

Analysing and deciphering trends of Indian economy as well as the minds of our leadership is not very difficult…just listen to what their western fathers are saying and you will hear the echo in action. Our leadership is so hollow that they simply believe that by copying west all their problems will vanish. First they followed west like a loyal soldier without the slightest of application of mind and then when the west got into trouble, their faith and inferiority complex is so high that they are unwilling to think differently. Everything that Bernanke and Geithner or their masters like Paul Kruggman are thinking and doing, rest assured the same policy will be followed here. So if Bernanke said, “we don’t have enough tools”, Chidambaram repeated the same thing few days after. In the G8 summit in Canada in 2009 (If I remember correctly) when the Europe called for austerity fearing inflation and US was alone demanding stimulus, our much trumpeted economist PM called for more spending supporting Ben Bernanke.

Now when Pranam Mukherji called rising inflation as “sad news” … it means he is clueless and does not have a right to be in his position. If inflation is to be predicted by astrologers what is this ICRIER type instituions are doing?


(This article was written in response to a comment from author Venkatesan Vembu’s comments in http://www.firstpost.com -> “Here’s the real reason why gold prices are soaring”.http://www.firstpost.com/economy/here%E2%80%99s-the-real-reason-why-gold-prices-are-soaring-65530.html

I strongly believe that China has no options but to dump treasuries and the delay they do in realising it, the more money they will loose.

There are only 3 ways to pay debt.
a) produce : export (with interest) to get dollars back into economy.
b) default : declare bankruptcy
c) inflate : print money and devalue currency

Having a glance at the total debt + unfunded liabilities US has, producing its way out of debt is out of question. If it is option b) which is default, it means extreme levels of austerity, much much more severe then we are seeing in Greece. Expecting this level of honesty from US, to bear extreme pain, to repay debt, is simply insane. The whole nation will erupt in violent revolution and no govt has the guts to accept it. Infact that situation has to happen eventually until the crisis is pushed to a point beyond which it can not be pushed any further. How the crisis is pushed further, we will see it in 3rd point.

The 3rd and the most convenient way is inflation, which means devalue your currency and print more money to get out of debt. This suits the borrower if it is the issuer of the currency in which debt is taken. But the creditor is going to suffer because he will get the money back with REDUCED PURCHASING POWER.

Let me quote what our own RBI says about Rupee denominated debt, in “India’s External Debt, A Status Report 2009-10”, (page 11) … “Unlike foreign currency denominated debt, where the currency risk is borne by the borrower, the characteristic feature of domestic currency denominated debt is that the exchange risk is borne by the creditor. The contractual liability, however, is settled in terms of the designated foreign currency (through exports in case of Rupee debt owed to Russia).This implies that the borrower gains (and the creditor loses) when the local currency depreciates since less has to be repaid in foreign currency terms and vice versa.”.

So we clearly see that central banks knows fully well that if they are the issuer of the currency in which debt exists, they can devalue and pay less. And that is what we have been seeing federal reserve doing all these decades, while at the same time accumulating more debt. The reason was that US was having the unique advantage of being the issuer of world’s reserve currency and they were exploiting this position. Therefore I believe that US will continue to inflate to get out of debt. Falling dollar means, China as a creditor in dollar denominated debt looses the value of its money anyway even if it does not do anything.

Understanding this risk of loosing value of its dollar investments, China offlate has been aggressively trying to diversify. But thats where it gets trapped in the web, because to ensure that its dollar investments do not loose value China has to continue to invest in US treasuries so that US doesn’t have to do quantitative easing and devalue its dollar. Since US is the biggest market for China, later has to continue to work and provide more goods to US to get  dollars to be invested in US treasuries. So effectively goods provided by China is filling up the supply gap  caused due to massive dollar printing by US. Now the trap here is that if China does not invest in US treasuries, quantitative easing will be required resulting in more dollar devaluation  thereby loss of Chinese investments. Since the US deficits are growing exponentially, China will have to do greater investment in US treasuries, to save dollar value. To do this greater investment, China will need to supply more goods to US (so that it gets more money to invest). So basically to get back its money from US, China has to lend them more. The pace with which China reduces the investment in treasuries, dollar devaluation will increase (because of quantitative easing). On the other hand, if China increases the investment in US treasuries to save dollar value, inflation in China will increase causing civil unrest, thereby destabilising the government. The situation as it stands today is that, thanks to trillions of dollars worth deficit US has, despite of Chinese investments the debt requirements are growing exponentially, requiring massive quantitative easing and thereby causing dollar devaluation. To help dollar retain its value, China so far has been devaluing its currency almost at the same pace but it can not do so without threatening its internal political stability as the inflation is breaking all records and causing civil unrest. China will have to quit dollar when the cost of saving dollar (inflation) will start to threaten the national stability itself. Infact China will also see that despite of their sufferings of inflation, US deficits are growing exponentially causing greater dollar devaluation and therefore making their efforts futile, to save their dollar investments’ value.

Some people argues that in the absence of other currency alternative dollar will not crash. They say that Euro, GBP and almost all major currencies are falling. Yuan and Yen both are deliberately devalued to maintain the exchange rate with dollar. So there is no alternative to dollar and therefore it will not crash. The point these people miss in their assessment is that what is the purpose of currency? Why does one holds the currency? Only to buy commodities. If the currency is fast loosing value, people will instead of holding currency will start holding the commodity. So investors will start diversifying its investments from currency to commodity because currency is loosing its function “store of value”.

Here we are talking about China particularly and same principle applies to them. When they will realise that to hold dollars they are actually investing more (providing debt to US) and in turn getting negative returns (loosing money to dollar devaluation), they will definitely aggressively offload dollars which will create a panic in the currency market and global economy. This will  result in inflation which actually means prices of commodity in terms of currency will go very high.

WHEN THE BETTER SENSE PREVAILS UPON CHINA, the unthinkable will happen and IT WILL DUMP THE TREASURIES. Gold will be the real money as nobody will trust currencies. China and US both will blame each other and the likes of Marc Faber are not wrong in saying that there may be War. I see a serious US vs China war / conflict whatever you want to say, as a strong possibility. And I strongly believe that Arab’s will support China because they also have huge investments in dollars. The clock is ticking for the OPEC / China to pull the trigger…


In response to the article published in http://www.Firstpost.com -> “Here’s the real reason why gold prices are soaring”
http://www.firstpost.com/economy/here%E2%80%99s-the-real-reason-why-gold-prices-are-soaring-65530.html

The author does not give any evidence / explanation against the arguments put forth by the likes of Marc Faber, Jim Rogers etc. In this article I will try to explain the other side of why gold prices are soaring and at the same time counter some of the evidences author has given in support of his argument.

The author says, “But in fact, the US today, although in rotten economic shape, is struggling with deflation, not inflation…”. Deflation can be temporarily caused by flooding the market with goods bought on debt at a time when people do not have enough credit. But when debt becomes difficult what remains is scarcity of goods along with massive unemployment or no goods and no money. Why does US TRADE DEFICIT is high if there is surplus production causing deflation? Why does US not exporting its surplus and getting back its dollars to meet its welfare expenditure to create jobs, rather than increasing external debt and printing more money? The answer is simple that US is not producing but simply consuming on debt.

Today Japan, China etc are not only supplying goods to US markets but also investing their earnings into US treasuries. Exponentially growing US debt requirements has lead to inflation in emerging economies like China who are exporting to US. Because… 
a) the good which otherwise would have been available to their own people are being exported to US consumers. 
b) they have to print more money in line with falling dollar to make their exports competitive.

So more money and less goods is causing their inflation.

Now as the better sense is prevailing upon, China is slowly increasing its diversification out of US dollar. At the same time, debt requirements, to generate employment and to stimulate the economy, is increasing in US. This widening gap due to higher debt requirement and reducing Chinese (and other’s) investment requires more money printing or quantitative easing. We have seen 2 rounds already apart from TARP. And now I am sure we will see a 3rd round soon which is being called as QE3. I expect that to happen quite soon, timings may always be debatable.

US had clearly outsourced its production to countries like China and Services to India and have adopted an easy way to finance its expenditure, i.e., to print money. More dollars coming into world economy is making dollar cheap w.r.t gold and commodities. The INFLATION in US CAN BE PREVENTED TILL SUCH TIME WHEN THE LENDERS LIKE CHINA and JAPAN CONTINUES TO DEVALUE THEIR CURRENCY AND SUPPORT DOLLAR indirectly. The investors are already attempting to get rid of dollar. In the absence of any currency alternative, they are moving to commodities specially to Gold which has historically been the money for international trade. THEY ARE DOING IT TO PRESERVE THE PURCHASING POWER WHICH IS STORED IN THE FORM OF CURRENCY. BY CURRENCY DEVALUATION, IT IS THE PURCHASING POWER THAT IS STOLEN e.g., the currency becomes weak and your Rs or $ 100 can buy less goods than what it was previously able to do so. 

The trigger of the real currency crisis could be anything such as OPEC stops accepting the dollar because of its constantly falling value. The Sheikhs of Arab eventually sees the loss of purchasing power of their dollar investments due to falling dollar. China realizes the reason of its rising inflation and start asking for something in return for the goods it is lending to US, that is not being devalued or loosing its purchasing power. When it happens heck of the crisis will come. GOLD MAY SKY ROCKET as not only investors but sovereigns will attempt to get hold of it to enable international trade. And Marc Faber is not wrong when he says we can even see war in future. Because Sovereigns nations interests will clash, specially arab’s, china (creditor nations) on one side and US, west (debtor nations) on other side. I am still leaving some dots to connect, hope you will be able to see that.

If we have the right understanding of economics it is not difficult to see the trends. Timings of events can be debatable but trends can be forecasted based on changing situations. GOLD IS GOING UP BECAUSE MONEY IS LOOSING ONE OF ITS KEY FUNCTION “STORE OF VALUE” which is much required in these days of growing uncertainties.



Recently there is a news that India has allowed the export of 0.5 million tonnes of sugar. In a country where hundreds of thousands of people are dying out of hunger, kids are malnourished…do we have any right to export food? Why despite of rising inflation we are exporting food? The answer is Govt deficit. Govt deficits (both fiscal and trade deficits) are exponentially growing and they are aggressively seeking ways to fulfill it. Why the deficits are growing? the answer is govt has created a huge unproductive service sector who needs to be paid salaries, even if their utility to the economy and producers is nil. The revenues which primarily comes from tax + other sources are not sufficient to meet these expenses, which are only growing as if there is no tomorrow. Any attempt to fulfill the deficit is basically an attempt to promote & sustain an unproductive service class. This can only happen by putting more burden on the shoulders of producers. And this can be done by raising tax and making people poor, devaluing the currency, exporting food thereby inflating the prices, etc. Thus the current system is a reverse pyramid where the the producers are in the bottom and being burdened more and more everyday. The day the bubble of “growth” will bust, the farmers will become rich because they will no longer have to bear the burden of unproductive class who were giving them no value. Today a farmer after his hard work is getting very little money. And whatever he gets, is being devalued by massive curreny printing. This is a daylight theft of the invisible purchasing power which the farmers have earned as a result of their hard earned labour. 



The reason deficit financing is done and debt financed consumption is encouraged because Govt follows keynesian philosophy which believes principals of public finances are different than principles of private finance. They believe that consumption drives demand and which in turn drives production. But who has a right to consume? only that who produces OR who provides a real value to the producer(e.g., service sector that is a value to the producers). This reminds us of Jean Baptist Says law “Supply creates demand”, which is basically a derivative of universal vedic principle तेन त्यक्तेन भुंजीथा, which means first sacrifice then enjoy, first give then take, first produce then consume. Sacrifice gives us savings. Savings gives us capital. Capital is invested and as a result we get production. that is the real way to earn and produce wealth…not by printing of money.

(This was also written as comments to R Jagannathan’s article in http://www.Firstpost.com on 9th May 2011. The link is given below.)
http://www.firstpost.com/business/why-the-rbi-or-the-government-cannot-fix-inflation-6731.html

RBI or government can not fix inflation because growth of economy is actually growth of paper money which in itself is inflation.

Growth is measured in currency. When we say growth, it actually means growth of paper money. Quantitative Easing (15-19% per annum) + fractional reserve system is creating a flood of money in the economy which is bound to create inflation. Money is not based on gold anymore after 1971 when United States defaulted on its debt and brought down the Brettonwoods system, thereby breaking the last thread of gold standard. Reckless printing of money without any discipline of gold standard devalues currency and it is not the price of commodities going up but the value of currency going down. While the currency can be printed easily commodity can not, and instead, is a result of hard work and time. The resultant inflation as a result of currency devaluation can be temporarily controlled by increasing debt and thereby increasing supply. Since debt is not considered in GDP and discounting a low inflation which is temporarily pulled down by raising debt, shows a mirage of rising GDP. This gives an incorrect impression that economy is growing. 

When debt can not be increased at the same pace as growth of paper money, then, suppressed inflation is bound to re-surge. Today, that is what is happening as due to soveriegn debt crisis there is enormous pressure on countries to contain debt. The total money supply is almost doubling in every 4-5 years and so as our national debt and GDP.

RBI is raising interest rates but at the same time pumping money into the economy, thus neutralizing any measure taken to suck liquidity from the system and therefore we are not getting much relief from inflation despite of series of interest rate hikes in last 1 year.

Growth and inflation are synonym as growth of paper money (which is not based on gold after 1971 when Richard Nixon brought the Brettonwood system down unilaterally) devalues currency and there is no resultant automatic rise in commodity production as is assumed by keynesian philosophers. Instead, growth of paper money with negative real interest rates encourages speculative investment by way of financial markets thereby turning the whole economy into a casino economy where wealth is not created but only redistributed. This is the cause of rich becoming richer and poor becoming poorer.

Currency devaluation by way of Quantitative easing and fractional reserve system is a day light robbery of buying power of real wealth generator such as a farmer who, after great deal of pain and hard work, earns this buying power stored in a paper currency. However more cheaply printed money takes away store of value function of money and reduces its buying power. Why do you think counterfeit is bad? because counterfeit works like adding water to milk thereby reducing milk’s potency. In the same way when new cheaply printed money is added to already existing money than it reduces the buying power of existing money because more money is now available to chase same supply.


Many people tend to blame commodities markets for the rising food prices but they fail to recognise that high leverage based commodity market is just a resultant contributing factor and not the root cause. Infact, by selectively putting a bar or “max retail price” on food prices alone or artificially manipulating the rules of the game by selective intervention in the commodity markets, while ignoring the inflation in other sectors e.g., services sector (in form of salaries), will only discourage food production. This is because farmers will always get less money forcing them to quit their current occupation and move to better paying avenues. Why not, for example, ever increasing pay packets of the service class is considered to put under check? If we play by fair rules then while every one has a right to choose the price for the product of his labour, then why a farmer has to work under controled price regime? Why not a bar on the fat-salaries of CEOs, politicians, Film Stars, crickters, Journalists, bureaucrates etc? If the prices of commodities goes up, it is the producer of commodity who gets benefitted (though a major share is still looted by the middlemen).  How can a farmer from the rural area pay for rising education or medical expenses or rising prices of industrial commodities without getting a raise in their earnings too?
This ever increasing pay packets for unproductive people which is a result of massive money printing or stimulus economics, is causing prices to rise. There are two types of workers in an economy. Producers and service sector. Producers produce for themselves and for the service sector. In return service sector exist to service the producers. If producers are not satisfied and do not see a value in the service, in an ideal world such jobs should cease to exist and people from service sector should return to production. But that is not happening. Instead it is the service sector that is playing the shots and getting benefitted from the currency devaluation while the producer’s are loosing. Phony and unproductive service sector jobs are being created with huge salaries that a hard working honest farmer can not even dream off.
Further to that a farmer, as all savers in the economy, suffers from the theft of purchasing power. Infact it is this theft of purchasing power that enables sustainence of this huge unproductive service sector. This day light theft by inflation is invisible and therefore simple common man can’t see it. Let us try to understand it with an example. After a full day of toiling in the field, a farmer gets Rs 100 note which he tries to save in the bank. At the same time govt creates many more such notes without enough production in the economy. This devalues or dilutes the purchasing power stored in Rs 100 note owned by the farmer and the same purchasing power is now shared by new money that has come into the economy. Due to this currency devaluation, money is loosing one of its key function “store of value” (Functions of money: Unit of account, Measure of value, Medium of exchange, Store of value). PRODUCTIVE CLASS HAS TO COMPETE WITH UNPRODUCTIVE CLASS FOR THE SAME AMOUNT OF SUPPLIES. THIS CREATES INFLATION.
It is the Fiat money system that is the root cause of price rise where in, it is believed that causing inflation by raising the salary of people results in high production because the pain of price rise will force people to produce more. This however completely ignores that production is a function of hard work and natural resources are constrained. So while it is always easy and cheap to print money exponentially, it is not the same for production.
Price rise is often blamed on hoarders, speculators, weather etc. But Hoarding happens when you know prices are going to rise. Why would somebody do hoarding when prices are falling? And why prices will fall when there is “too much money (which is also increasing) available to chase too few goods”? Prices will fall WHEN THERE IS MORE PRODUCTION. But why would somebody choose the hard work of production when money can be gained through easy routes i.e., by phony service sector jobs sustained by loose monetary policy. In Oct 2008, when TARP stimulus (which is massive money printing to prevent bank default) was first rejected by US congress, all prices including that of Gold fell down and markets crashed. Why no one was interested in hoarding then? Because the bubble was busted and all the money percieved to exist in the economy was gone. Money creates demand; and in the absence of demand, prices fell down. Commodity traders makes money by betting on inflation. They know that more money is coming to the economy which will increase demand and prices will go up. So by hoarding they will win and make money. An example is the recent spike in Gold and Silver prices when Federal Reserve Chairman Ben Bernanke announced that a QE3 (3rd round of massive and unprecedented money printing since 2008 crisis to avoid a financial collapse) is being contemplated. The moment this news came, prices shot up across the countries. We can’t say that hoarders are acting suddenly in an organised fashion across the world in all economies. Prices are rising as a result of central banks’ money printing.
Inflation is the increase of money supply and price rise is its impact. As people become aware of the fraud that inflation is the creation of none other than govts, more and more people will buy commodities as a hedge against inflation. I love this line from Peter Schiff, “It is not prices of commodity going up but the value of currency going down”. Root cause of price rise and resultant social evils, including the casino economy, is Fiat money system.
In 1971 when Richard Nixon brought down the brettonwoods system and decoupled dollar with gold, he used the same excuse “threat of speculators”. An excuse was made to hide the fact that US had defaulted since it has printed massive money and was not having Gold to back it. In the bretten woods conference 1946, US has pursuaded the world that it will only print money according to the gold it has and other countries will peg their currency to dollar. US dollar was accepted as a reserve currency or internationally accepted medium of exchange. So a fixed exchange rate was decided and it was the order until 1971. Now since US was spending recklessley to meet the expenditures from its space mission, korean, vietnemese wars, cold war etc. It started printing massively than the gold it had. This started creating inflation in countries that were exporting to US because they had to print currencies in line with falling dollar to maintain the exchange rate as promised in the Brettonwoods system. This resulted in countries like France getting suspicious and they in 1970 started reducing dollar reserves for gold thereby threatning US economy because it was not having enough gold to pay back. Result was “Nixon shock” when on 15th Aug 1971 Richard Nixon unilaterally announced cessation of direct convertability of dollar to gold thereby breaking the promise it had done to world. The reason cited was “threat from speculators”. Since 1971 we are living in a world with Fiat money system. Fiat money is that money which is not backed by anything and it just need the consent of government to print money as much as they like.
Result of this reckless money printing was runaway inflation in the decade of 70. Later what came to the rescue of US economy were lenders of America, primarily Japan and later China. Goods worth trillions of dollars were loaned to America in the last few decades which temporarily solved the supply side problem while money printing continues to grow at exponential rate thereby creating an impression of growth. GDP growth is measured in terms of growing money while discounting inflation but does not take into consideration the debt which helps to control the inflation. Growth was basically the exponential growth of paper money while inflation was temporarily checked in by raising debt levels.
It was important to discuss United States, because it was US that created this system of Fiat money and the world leadership including that of India emulated it because it saw United States flourishing, prospering, though little did they realise that debt financed prosperity is always at the cost of future pains.
The situation today, however is different. The payback time started in 2008. Exponentially growing Debt requirement has gone up so high that its lenders can not afford it. Lenders like China are supplying goods to America in return for cheaply printed paper that is not backed by anything, most of which they are investing again in buying US treasuries (govt debt). As a result, while the trade surplus of China is growing, inflation is sky rocketing due to shortage of goods as goods that could have otherwise been available for local consumption are being exported.


India is different case since it has been following same path as the US did. While the money supply has been growing exponentially, it is the trade deficit which is increasing unlike the trade surplus of China. This clearly shows that we are importing to meet our growing demands (money). And this import is consumption which is financned by debt. India’s external debt is almost similar to foreign exchange reserve.
In context to India, while the money printing is growing at exponential rate of 15% to 22%, debt levels are rising almost at the same rate. Please see the chart showing GDP, M3 (Broad money supply) and National debt and notice how they all are growing together. More availability of goods helps in controlling prices but if goods are financed by debt then this period of prosperity is only temporary as debt has to be repaid with interest. So more debt is taken to pay for the previous debt and this creates a debt trap. When debt becomes difficult and cost of borrowing (interest rates) increases, govt is forced to control imports. Imports can be controlled by raising the prices of imported commodities (such as crude oil), which is what currently happening in the economy. (Note: Please notice in the chart that how in 2008, M3 crossed over national debt, thus marking a period where debt is becoming difficult and M3 has to be increased to meet fiscal deficit targets.)
Another problem that India has is that a major share of our exports comes from service sector such as IT. We are exporting to countries like US and Euro zone where the trade deficits are enormously high and who are struggling to prevent a default by a series of Quantitative easing or stimulus or in other words money printing. When our customers will go bankrupt, our service sector will be in deep trouble, thereby widening the gap between our income (exports) and expenditutre (imports). Even today our trade deficit is a matter of concern but with financial crisis deepening in west, the situation will be even worse.
The times ahead are extraordinary. From east to west (Japan to US), a threat of debt crisis is looming large. Growth of debt is becoming impossible as the lenders are suffering from their own problems e.g., earthquake in already debt ridden Japan and massive runaway inflation in China. In the absence of debt, supplies are becoming difficult. But money printing (QE1 -Oct & Mar2008, QE2-Nov2010, QE3-an inevitable reality) has to be continued to sustain the unproductive service sector jobs. If the QE (quantiative easing or money printing) is not done then to prevent the default and to run the govt massive austerity is required. This means massive cut in service sector jobs, resulting in a series of defaults, causing a domino effect and bringing the liquidity crisis of 2008 back to life. But if the QE is done, it will further create inflation or price rise, eventually, some day, leading to hyperinflation as happened in Zimbabwe, Yugoslavia, Weimar republic etc. It was the debt that was supressing inflation and creating a mirage of growth but as debt becomes difficult, inflation will explode with an accelerating frequency.
RBI is continuing to raise interest rates but at the same time pumping money into the system to prevent default by government (to bridge the fiscal deficits). While raising the interest rates sucks the money from the system thereby reducing demand, increasing money supply does just the opposite i.e., helps in creating demand. Therefore there is high probability that there will be no respite from inflation because no government will have the guts to embrace a bust and prices will continue to rise until money dies or currency collapses. But even if a bust is embraced it will mean total revolution and as Gerald Celente says “when people loose everything and they have nothing left to loose, they loose it”. The double dip recession or a depression, however is inevitable either by way of hyperinflation (currency collapse) or a liquidity crisis
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