Global financial repression picks up steam, led by India. After declaring large denomination notes illegal, India now targets gold.
It’s not just gold bars or bullion. The government has raided houses, no questions asked, confiscating jewelry.
For background to this article, please see my November 27 article Cash Chaos in India, 86% of Money in Circulation Withdrawn; Cash Still King in Japan.
Large denomination means 500-rupee ($7.30) and 1,000-rupee notes ($14.60), which account for more than 85 percent of the money supply. They are no longer legal tender, effective immediately.
As one might imagine, chaos ensued. And it continues.
India Confiscates Gold
Picking up where we left off, please consider Message to Modi: Do No More Harm by Mihir Sharma.
The chaos accompanying “demonetization” hasn’t eased up noticeably. It seems likely the disruption to the economy, especially in cash-centric rural India, will hit growth sharply for at least a few quarters. It’s tough to say for how long and by how much; we are in uncharted territory here and guesses have varied widely. But many analysts agree with former Prime Minister Manmohan Singh, who’s predicting the new policy will knock 2 percentage points off that world-beating GDP growth rate.
Demonetization was originally sold as a “surgical strike on black money” — the illicit piles of cash many rich Indians have accumulated out of sight of the taxman. It’s now clear the policy has been anything but surgical. Worse, uncomfortable questions are being asked about whether the complicated rules and exemptions that have accompanied demonetization have allowed black-money holders to launder most of their cash. Of late, Modi’s chosen to focus instead on demonetization as means of advancing a cashless economy.
Yet the idea of a war on unaccounted-for wealth remains central to demonetization’s popular appeal, which means Modi will have to find other ways to keep that narrative going. So the government has now begun to push income-tax officials to conduct raids on those who might be concealing assets in forms other than cash, such as gold.
There’s already enough fear of such raids becoming common again that the government felt the need to step in to quell some of the anxiety. That didn’t help much. The government “clarified,” among other things, the rules governing when tax officials could seize gold: Nothing would happen “if the holding is limited to 500 grams per married woman, 250 grams per unmarried woman and 100 grams per male.” It also said that there would be no limits on jewelry “provided it is acquired… from inheritance.” Also, the “officer conducting [the] search has discretion to not seize [an] even higher quantity of gold jewelry.”
What this means, unfortunately, is that India’s income tax officers have just won the lottery. During a raid, they can, on the spot, decide whether or not to confiscate a family’s gold holdings. And remember, India has an enormous amount of gold — 20,000 metric tons, much of it inherited. (The rules governing simple searches are different, but few know that.) Rather than cleaning up tax administration, the government has handed tax officials more power than they’ve had for decades. The rich will pay what they need to escape harassment; the rest will suffer.
Rich Escape, Poor and Middle Class Suffer
The last line in the preceding article says all you need to know about what’s happening: “The rich will pay what they need to escape harassment; the rest will suffer.”
Evidence suggests the politically connected, and their friends, knew about the ban on cash and acted in advance. Everyone else is stuck.
India’s raid on gold reinforces its ban on cash. Short term aside, these kinds of actions will increase demand for gold.
What’s Next?
I keep wondering: what’s next? People pretend they know, I admit I do not. However, I am quite sure a currency crisis is coming. Where it strikes first is unknown, but the list of likely candidates increases every year.
My spotlight has been on Japan, China, and the EU. India caught me off guard, but it adheres to my general theory this pot will eventually boil over in a cascade from an unexpected place, outside the US.
US actions may cause a currency crisis, but I believe a crisis will hit elsewhere first. If I am correct, gold will be the safe haven, regardless of currency, but especially where the crisis hits.
Mike “Mish” Shedlock
“US actions may cause a currency crisis, but I believe a crisis will hit elsewhere first. If I am correct, gold will be the safe haven, regardless of currency, but especially where the crisis hits.”
Good Luck.
If you think India’s “G-MEN” are ruthless, just wait and see what the gubbermint boys have in mind for YOU here in the good ole USA.
I have this feeling many taxmen will get lead and steel acute poisoning, if they start raiding homes and seizing gold/silver and cash.
Someday, somewhere, someone ought to stand up and say “armed robbery is a crime!” And all of its corollaries.
It’s not armed robbery if the prime minister condones it
It may well become so, and be applied retroactively, once those robbed realize the only ones paying at least lip service to stand up for them are the, generally less willing to bend over, Muslim clerics across the Pakistani border.
Law and legitimacy, there is still a confusion. Traditionally law represents how things are ( root lie) , so you have scientific law, for example, or in this case robbery is robbery ( root snatch)
Legitimacy is a human action ( root gather), as in assemble into category, or even dictate over.
Some attempt to draw their meanings from the same root, but likely not.
So more correctly, the law is that those who are able to legitimise do so, including robbery. The law is also that those who have been robbed from shout ‘crime’, ( root distress).
Armed snatching is armed snatching, and you are wrong by this set of definitions.
Robbery is the “illegal” taking of someone else’s property. And the government decides legality.
rob (v.) (etymonline)
late 12c., from Old French rober “rob, steal, pillage, ransack, rape,” from West Germanic *rauba “booty” (source also of Old High German roubon “to rob,” roub “spoil, plunder;” Old English reafian, source of the reave in bereave), from Proto-Germanic *raubon “to rob,” from PIE *reup-, *reub- “to snatch”
To legitimise any of those, to make them legal, does not change their meaning. That is to say that as soon as people accept any of those to be OK, they no longer fall under the definition of rob. Hence the distress, people don’t like having their savings becoming ‘contributions’, and they will cry foul, as they do not agree with their future earnings also being re-labelled ‘contributions’, because they understand their existence will then be defined as a ‘contribution’.
So you cannot legitimise robbery without it becoming something else, and it follows that at that point it is no longer robbery. While anyone feels they are being stolen from, though, it remains robbery, no matter how it is painted.
And legal does not mean lawful.
You mean “India” in the second sentence of the first paragraph. Not Italy, right?
After declaring large denomination notes illegal, Italy now targets gold > India, not Italy
if they can physically confiscate it, it’s not a save haven.
There are degrees to safe-haven’ness. Gold at least requires someone to put their jackboots on the ground to steal. If affected Indians had even a sliver of a spine (and the longer this nonsense goes on, the greater the chance some of them grow one), they’d be impaling every police officer on sight by now. Or, at a minimum, form and join “terrorist” groups by the millions.
If they can physically confiscate a person, there are no safe havens.
A saying, which is free to be questioned/understood/placed in context:
‘One that lives in hiding lives well’.
“Italy now targets gold” Italy??
you wrote “Italy” rather than “India” in the first paragraph
“However, I am quite sure a currency crisis is coming. Where it strikes first is unknown, but the list of likely candidates increases every year.”
But, of course.
A crisis always on the docket … and why King Dollar going nowhere (anytime soon).
Oh, but Larry Summers who has suddenly become interested in such things says that cash is used for crime, so large bills should be banned (at first; there’s that foot in the door thing). Of course, ignore that negative interest rates and depositor haircuts via bail-ins cannot then be avoided by withdrawing cash and every purchase you make can be automatically and electronically logged and tracked. Corporations and governments are always entirely benevolent, so why worry?
Winston, yes, but in the bizarro world of negative interest rates, debt magically become revenue over time if the inflation rate is large enough and/or the negative rate is low enough. Thus the secret government and economist zeal to go in that direction while creating cash controls.
There is absolutely no doubt that a global currency/debt crisis is coming. And when it hits, I fully expect that “they” will have no alternative but to re-monetize Gold – at an astronomical $ price per oz. Private ownership of Gold will probably have already been made illegal by then. Think 1933, part deux. However, faith in Government – which is already rapidly evaporating – will by then be so low, that many may choose to illegally hang onto their Gold and transact in the black market with it. In this scenario, I think Silver would tend to be a big beneficiary.
The “war on currency” is another example of the conscious parallelism I wrote about a couple of days ago. Basically, when various groups do the same thing but appear disconnected they are usually communicating secretly. They have an agenda they wish to keep secret. It’s a term from economics and is usually used in the context of price fixing. Various ‘experts’ from the US and Eurozone have promoted the idea of outlawing currency and the Eurozone has outlawed some large bills, I believe, recently. Now India.
Some proposed it was a first step towards institutionalizing NIRP. If you have negative rates then the best way to avoid paying the bank to hold your funds is to bury it in the back yard, convert it to near money such as gold, or just keep it all as cash in the mattress. If all or most cash is electronic, then you can’t hide it and NIRP can be the law of the land with little effort. (ZIRP comes in at 2nd place if NIRP is not possible at the moment)
Who benefits from NIRP?
Governments that spend in excess of revenue. It allows borrowing for free. The forfeited interest is a form of taxation that’s 100% collected.
Non governmental borrowers still pay for borrowed funds, but the rate is low. This is suitable for activities such as stock buybacks that enrich corporate executives.
Junk investment that is composed of paper flipping is another winner.
The real economy suffers because there’s no point in being a capital provider any more. Rates are too low to make it worthwhile. Actual investment seems risky because people who would have been spending interest income have hunkered down. Professional economists, such as those in central banks, publicly rationalize this away by stating “the benefits of xxxxx exceed the costs” . This is the cover story and the tool to chase away the masses.
The Eurozone can not continue to exist without this form of fiscal and monetary management. I understand why the scam is being run there. There’s a good chance it will be ended sooner rather than later – at high cost as reality re-enters – but the mystery is how it got started in the first place and why the Federal Reserve appears to be a wannabee in many respects – Only ZIRP here, yet but the trend would have continued until Trump entered the picture.
The existence of conscious parallelism is as obvious as being slapped in the fact with a large fish. What I have yet to understand is how they communicate, who the major players are, and what they intend to gain. What is the goal and what is the agenda? I consider the central bankers to be more employees in the plan rather than the leaders. Who sets the agenda? What is the theory that drives them into thinking they are doing good? This is the new Establishment.
Minor correction: NIRP in the Eurozone got started as part of the evolution of European Kick the Can. Sovereign debt needed to be financed and nobody had the nerve to ask taxpayers to pay the way or live within their means. Bigger and for longer is the only way out for them now … until even that no longer works. Brexit copycats are the enemy of the scam. They need a command economy for continued success. Pesky freedom will ruin it. I expect pesky freedom to ruin it sooner rather than later.
Addendum: NIRP with even 1% inflation means the money is free to borrow and the repayment is 65 cents on the dollar in 30 years. Borrowed money might even be a profit center for government if the NIRP is big enough and the borrowing is for long enough. I’m not geeky enough to do the math for this, even though it would take only algebra to figure it out. I know the math, I just don’t feel like doing it … anyone want a project?
I think the above addendum is the key. Government needs money. It can never pay it all back and will collapse under the weight of accumulated debt eventually if standard historical economics is used to borrow and pay back money.
The right negative interest rate associated with the right term and the right low inflation rate will allow government borrowing to be nearly cost free and possibly a profit center … in theory.
I think this might be the secret scam. Simple. Crisp. Easy to understand. Made to order for the Eurozone and all other countries that live beyond their means.
The claim that ‘we only want inflation’ may be true as it debases the value of long term debt quite well, but NIRP works, too. Maybe better.
And, finally, we know what ‘bigger and for longer’ really means.
opera clap
Did it. About 2.5% combined NIRP – inflation rate makes the borrowing economically free over 30 years. Hence the frequent call for 2% inflation, I assume. In fact 2.5% yields economically free money plus a profit. Cash confiscation would imply large NIRP rates ahead if allowed to continue.
This ‘plan’ will not work without NIRP. Otherwise, inflation must exceed the rate paid on 30 year debt by about 2.5%. Nonsensical in the land of positive rates. At 2.5% the money is never paid back, economically speaking, and there are no borrowing costs.
Actually, there is a mistake directly above, but the final conclusion regarding NIRP is solid.See if anyone can find it.
What is – NIRP is not a usable calculable number?
..I would think people would be happy with ZIRP.
See Ezekiel
Lends at interest, and takes profit; shall he then live? He shall not live. He has done all these abominations; he shall surely die; his blood shall be upon himself.
and Deuteronomy.
You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest.
Sheesh… even, if after 2,010 years, when the zioglobalists give you what you want, you complain!
Many theories are possible.
Regarding EU for example this sequence:
Private credit expanded to limit; gov. spending follows; credit stagnation leads to recession; govt. revenue drops plus increased spending gives deficits; exchange of CB concessions for political concessions and national restructuring; CB keeps rates hence costs of new capital around 0 meaning it can choose to replace existing finance at its discretion; with sovereign debt there are allocations but the effect is to reduce all to a common denominator close to zero – to 2008 spreads were tight but at ‘normal’ rates hence +- flexibility, now all are cornered towards 0 ; whatever cannot even fit in to new ‘easier’ paradigm gets spun off the plate and you end up with whole region hooked on cheap supply ; eventually via positioned influence and understanding that now common destiny governed by rates nations cede to mutual fiscal and issuance so that previous ‘excesses’ not occur again, probably with a few shocks thrown in where necessary, no escaping 0 till all in accord as boost in activity will not happen till new command in place, looking at ten to twenty years before ready ‘all else being equal ‘; you could call it occupation – making sure the central seat remains occupied at all times at any cost for fear it will cease to exist, to insist on it as reference, out of loyalty to a common cause, an ideology. 0 makes a solid common denominator, what happens when they put into gear is something else, would want to stand back a bit.
wrdtrst,
re Ezekiel and the other guy: meh. I don’t read many books anymore. I never read the bible. Too many characters. I have trouble keeping them all distinct. Got the gist though. I really enjoy the History Channel analysis of the old testament with actual battle strategies given the landscape of the battlefields. That one guy who did that did a lot of good stuff. The WW 1 copycat strategy of the one in that one place was brilliant.
People are people. Moneylenders are moneylenders. Even then. No different. Just computerized now.
Crysangle,
Thanks for reading all that and writing, but you’re over analyzing. Nobody anywhere works that hard at anything. You can’t sell or explain a plan that complicated. Anywhere to anyone. People want something for nothing whenever possible. Central banks permit this. ZIRP, while an abomination, does this for simple minded politicians who look for easy answers to complicated questions. Economists are oriented towards theory over substance with actual consequences. The Eurozone is on a level of its own. Revenue from debt seems like manna from heaven, water into wine.
wrldtrst,
NIRP – Negative interest rate policy. First, thanks for reading all that.
At it’s worst, you get a bill for a balance due rather than repayment of the initial loan you made to the government. The negative rate would be about negative 3.5% on a 30 year for that, working in my head. Pretty high (low?)
More likely, you not only get no income, you get back less than you gave them. Now, if inflation chips away at that, your NPV is negative if you went long enough. I guess a ZIRP/LIRP of, say <1% and real inflation rate of 3.5% over 30 years would get you a similar place, but seems nonsensical.
It's easier to obfuscate with NIRP.
Thus the 'secret' conspiracy. I can see Bernanke at the blackboard presenting how to grow revenue from debt to the Japanese. Easy to present. Easy to sell. Looks foolproof. The benefits outweigh the costs (wink wink)
By ” Easy to present. Easy to sell. Looks foolproof.” I mean exactly what a desperate government official wants to hear and believe. No consequences mentioned or, if so, they were talked about dismissively. The people who count will make lots of money. The rest will manage to get by.
Exactly what a kick the can Eurozone central banker want to believe in order to go to sleep at night. Free money – revenue from debt – investment converted to revenue – socialism paying its way – all government making the great sucking sound into everyone’s wallet and nobody even noticing enough to matter.
..and I thought it was this: Lower rates to stimulate economy – or so says our one trick pony playbook >>>Not working>>> Take rates to negative and make it painful to hold cash equivalents, and to do that must removeability of people to hold cash>> but this will force consumption.
Instead.. smart money said FU.. not going to buy crap, not going to just consume. I want my wealth, and therefore the play was to chase existing assets. Equities, Art, Antique Cars, Collectibles, Homes… Which explains why physical assets performed so well the past several years.
If real interest rates are negative, holding cash/equivalents is simply silly.
They kept saying.. anything they had to do to force consumption. Not confiscate… force consumption.
They don’t get the game… Academic fools…
..and my opinion. I remember as a kid in NYC when they put up the debt counter clock thingy. Everyone was shocked then at the relative magnitude. They’ll borrow at any rate. They always have.. At a higher rate, the currency actually devalues faster.
Lastly,
all you need to say is combined negative rate, time period, and it’s an easy calc from there. But you will never get a bill because you can’t discount to negative. Even 0 is virtually impossible. Discounting is the inverse of compounding, and compounding is exponential, so discounting – being the inverse, begins to flatten over time and never reaches 0.
Love war stuff too.. always have… been playing game after game of Civ 6 the past month. Between drafting chapters of the book. Today’s chapter, funny enough, was about simplifying the understanding of fixed income… Tomorrow I start the good stuff.
wrldtrst
all you need to say is combined negative rate, time period, and it’s an easy calc from there. But you will never get a bill because you can’t discount to negative.
Yes you can using simple math, simple interest rates, and powerpoint to idiots who don’t understand exponential math or finance and don’t ask questions. Debt becomes revenue. Like magic!
If it really is as muddled up as it looks, and I agree that from what I have read of fact it often pretty much seems to have a life of its own, well then it is all even closer to the edge. I do know that at political levels there is a lot of communication across EU, that is to say the right and socialists both coordinate amongst their respective parties at national level, and with each other at EU level, giving the impression of only really having one choice. The same goes for the ECB as the board members are inevitably from a main party due to them being picked by the governing party of each nation. Obviously the EU institutions have a mind of their own and not necessarily an independent one , a recent article I read though outlined how Germany was very active in maneuvering into key positions within the bureaucracy there. None of this really signals a master plan, but it does point to the whole framework marching to a certain beat. Master plan, marching to a beat or life of its own… probably a little of each.
Currency crisis is just another name for payment system failure. In a functioning payment system three parties are always involved; a buyer, a seller, and some trusted third party who settles the payment by debiting the buyers account and crediting the sellers account. Cash is a work around which eliminates the need for a third party but now the trust is shifted to the issuer of the currency. Since life cannot go on without a functioning payment system when trust in a currency dies people will invariably create their own. This might be gold again or it could be something more convenient like cryptocurrency. I suspect governments see this coming too and are preparing for preventing the backing of cryptocurrencies by gold and other commodities. If they fail in this I expect crypto currencies to eclipse national sovereign currencies as soon as the obvious trust issues are solved for crypto currencies.
Serious work has been ongoing in London on crypto and block chain.
@The_Fish: is that official or just a plan or Rumor ?
I’m interested to know about it.
Mish – the Indian Govt is stamping out Black Money – they arent interested in Ancestral Gold or Gold which you can prove you bought out of your declared income – they are only targeting people who shouldnt be able to buy Gold (financial situ) and are, or those who have suddenly amassed a lot of it.
Not a bad thing at all as less than 3% of the population pays tax (a bit like Greece!)
As I said, those “connected” got wind of the bill ban and acted in advance.
And imagine everyone having to prove ancestry or they bought gold out of taxed money.
I will tell you what will happen: Bribes and confiscation likely hitting the middle class the hardest
exactly as Mish said.
Mish,
Anyone who is ‘connected’ in India doesn’t keep their undeclared money in Rupee notes. It’s all stashed away safely in overseas ‘vehicles’.
The ones stuck with massive amounts of high denomination currency were mostly tax-dodgers, organised crime (drugs & arms-running mostly) and Jihadi groups (with counterfeit – but very authentic looking – currency).
There is a rampant culture of tax-evasion in India. Many attempts have been made over the decades to bring this ‘black money’ (unaccounted for cash) into the ‘white’ economy, usually in the form of amnesty schemes. The attempts have varied in the degree of sincerity of the government of the time. All these attempts have yielded very modest results, which only feeds into the popular gripe that the rich are being favored and get preferential treatment w.r.t. obedience to laws.
It is such drastic jolts (demonetization) only that can hope to effect any meaningful change in the culture of tax-evasion.
Much of the black money is invested in real estate, such that it has now become the norm that a big part of the price of property has to be paid in unaccounted cash. Sometimes it is even 60% of the value of property. I know people here in North America (of Indian origin, usually 2nd or 3rd generation immigrants) who have tried to buy property in India but couldn’t conclude the transaction, as they only had white money (transferred from USA / Canada) so couldn’t pay the cash portion.
Try to put yourself in this position. If you are selling your home, and getting 60% of the sale price in unaccounted cash, what will be the macro effect of such a practice on the national economy?
The first reaction after demonetization (of those stuck with unaccounted cash) was to rush & buy gold with it. In that sense, going after gold in the next phase is but logical, to plug that loophole. As Harish has noted above, ancestral gold or gold that one has been in possession of prior to demonetization is not affected by this move.
Example of cash Stash; perhaps now you will see why such measures are necessary. This was reportedly a business dealing in marble & granite; the amount of cash found was some 135 BILLION Rupees (approx 2 BILLION $)
Exactly Mish.
I am practicing tax in India and I know how the system works. The tax terrorism which was rampant in the last part of UPA regime has come back. Everything has a price. Nothing has changed and i do not expect anything to change as plethora of rules and discretion has come up or already exists. i have little faith in the system. I have clients who are screwed by system despite being honest and clear. And I have seen crooks sail through. And I don’t see any change in the system in the coming months. Infact it is getting worser. The tax department will be enjoying the new rules regulations and discretionary powers.
Even if all the persons pay their taxes honestly, the system is notorious and is going to eat that away. The government as all know is very inefficient and the money spent by it has lowest impact on GDP.
So if you didn’t save your receipts, you’re screwed?
If people from India don’t pay taxes, try a VAT or a sales tax for services. Same thing, different collection mechanism. Collection assured.
Sorry to state, but collection of ANY tax in India cannot be assured.
This might as well be a subject from another universe for the average western mind. You see, they have been under various forms of foreign rule for close to one thousand years. So the need to hide income / taxable transactions from the authorities has become deeply ingrained in the Indian psyche (and I include Pakistanis and Bangladeshis also – i,.e. this applies to the entire sub-continent). Post independence, the track record of the indigenous governments has only strengthened this tendency. Or perhaps 70 years is too short a period after a millenium of loot & plunder by foreigners to change people’s behavior. I don’t know.
One thing that CAN be assured is that there will be large scale evasion of taxes, no matter what method of collection you use.
The situation can only be remedied if / when the people identify with the government (or more accurately, the state) as THEIR OWN.
Thank you very much for your insights. I believe you.
You are welcome, my friend.
These guys are great:
– Having banknotes of 500 & 1000 Rupees suggests something else. It seems India has (regulaly) chosen to finance its deficits by (literally) printing banknotes.
– 500 Rupees = ~ USD 7.50
Don’t put it under your mattress where they can find it. Bury it in the backyard like your great grandparents did so no one can come in and take it.
“All you asset are belong to us.”
Dear Mish,
As a honest Tax Payer in India, I would like to bring to the notice of your readers the extent of corruption in dealing with Income Tax Officials.
1. The whole Direct Tax Administration is corrupt , incompetent and arbitrary from top (Commissioner) to the bottom (Peon). There is a price for each rank ranging from Minimum USD 15,000(Commisioner) to 200 (Peon) to attend to routine matters like refunds etc.
2. In my own case they demanded 10% of refund amount to be paid in cash on two occasion.
3, Even today my past refunds have not been given dating back to 5 years.
4, My tax adviser says it is just impossible to take them to court for ordinary Tax payer and most just pay the bribe to get their tax refunds.
As mentioned in your above post, these criminals have been now armed to raid and assess and fine gold holdings. This is a real lottery.
Truly sorry about your problems but government and corruption go together like wet and water. It’s always been that way and will always be that way. Some corruption is obvious and some is big and hidden from public view.
Reminds me of Gideon in the Bible when the fruits of the peoples’ labor was being stolen by oppressors who had disinherited them. Gideon thought God had abandoned them… until God told Gideon… I am sending you to the rescue.
So, who in India is now waiting in the wings to come to the rescue ??
Gold is a safe haven. Especially if backed with lead.
This ship arrived in the US long ago. Ever heard of civil forfeiture?
_aleph_
Revolution looming ??
Who in India is waiting in the wings ??
No one.
If anything, this demonetization move has STOPPED a revolution (of sorts) – in Kashmir, which had been on a boil since mid-July, when the Indian army killed a Jihadi leader (Burhanuddin Wani). The Kashmiri ‘protesters’ were reportedly being funded in high-denomination notes (counterfeit, and printed in Pakistan – again, reportedly). There was non-stop trouble and unrest, until demonetization happened. Then everything went quiet all of a sudden.
Too much of a coincidence, IMO.
That’s interesting.
Yes, I am familiar with the conflict in Kashmir.
It appears Islam is focused on conquering the planet.
Never ignore the fifth-column.
What percentage of India is now Muslim ??
About 16% of Indian population is Muslim, so (in round numbers) there are about 200 million Muslims in India, i.e. roughly the same as in Pakistan. Add in Bangladesh (about 150 million), and you have well over half a billion Muslims in the sub-continent.
There is a growing acceptance of the idea now (among Muslims) that the division of British India to create a separate homeland for South Asia’s Muslims was a blunder, as it ended up dividing the Muslim population – in an undivided India, they would have been about 1/3 rd of the population, i.e. a much stronger minority.
Hi Kautilya
Don’t repeat what the government machinery intends to spread. The second attack on the army base by terrorist was done 10/15 days ago – after demonetization. The government is using the cover of terrorism and fake notes to hide it’s real intentions – target political adversaries. I know Narendra Modi since i am from Gujarat. He has a history of not letting a single opposition stand up in his 15 years of rule in Gujarat. He intends to repeat that.
Terror has raised it’s ugly head in 20 days of demonetization. Please provide the the actual number of fake currency in the system – even the government estimates puts it at just 4000 million (400 crores) – minuscule compared to currency in circulation. Even in our day to day life you only occasionally get a fake note – may be 1 in thousands. The cost of just printing and replacing the currency is 16000 crores 160000 million rs. It is like – “Iraq has weapons of mass destruction” – noone can argue – they bring the fear and patriotism – no argument with them.
From Zerohedge
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/12/02/20161206_IndiaPMI.jpg
http://www.zerohedge.com/news/2016-12-07/indian-economy-crashes-modis-black-money-theory-collapses
Sounds like when this comes to the US, we are going to need to triple prison capacity. But come it will. There can be no money other than that which the state (Central Bank) creates.
Gold might be a future “safe haven” in some folks minds, but at that point it will likely be a one way ticket to the gulag.
Got stock in Prison operators?
“There’s no way to rule innocent men.
The only power government has is the power to crack down on criminals.
Well, when there aren’t enough criminals, one makes them.
One declares so many things to be a crime
that it becomes impossible for men to live without breaking laws.” Ayn Rand
Well, that’s very clever of Ms. Rand, but when businessmen accumulate millions (calculated in US $ terms, not the local – worthless – currency) so that they don’t have to pay taxes, her theory is hardly applicable. Or when 60% of the sale price of a piece of real estate has to be paid by the buyer in unaccounted cash.
When you violate the (not so bad) tax laws of the country, it is YOU who made you into a criminal, and not the government.
I tried posting a picture of a cash stash found in India recently, but the image didn’t get embedded. It shows pallet-fulls of cash worth 135 BILLION Rupees (approx. 2 billion US$). Don’t tell me the government made that guy into a criminal. He did that of his own accord.
“What next?” I predict there’s going to be a lot of dead tax collectors.
“They are no longer legal tender, effective immediately.
As one might imagine, chaos ensued. And it continues.”
Meanwhile, Summers wants to eliminate the $100 dollar bill.
Apples and oranges, my friend.
In India, there has been rampant tax-evasion for decades. The present government declared an amnesty, giving a chance to all with undeclared income to come clean. The amounts that were declared, while big, were nowhere near close to making a dent in the ‘unofficial’ economy. Such amnesty schemes have been tried earlier also, so there was a bit of a ‘business-as-usual’ reaction from holders of undeclared cash. A strong jolt was needed to make a difference, and Prime Minister Modi has the cojones (and popular support) to deliver that jolt.
In addition, there was the element of counterfeit currency being printed in Pakistan and smuggled into India to fund Jihadi activity. This was all in high-denomination notes. All that (fake) currency became useless overnight. See my reply to Atossa above for more details.
Despite the hardships, the public at large STILL supports the move (after one month of standing in interminable queues). Opposition politicians who tried to incite the public into agitating (by visiting ATM’s with long queues) were humilated (verbally abused and/or physically assaulted). Clearly the Indian population knows something that we, from a distance, can’t know.
Also keep in mind that while the OLD notes of 500 & 1,000 Rupees have been demonetized, there are now NEW notes of 500 & 2,000 Rupees. So this is definitely NOT a war on cash (I think even Mish has missed this point, and also Pater over at his Acting Man blog). As long as one can demonstrate that their old notes are legit, they can exchange them for the new ones (albeit there are hassles to changing them).
None of these factors applies in the US, so Summers’s proposal is on a different plane altogether – one where there is no justification for eliminating $100 notes.
Designated?
the last hold out of intelligence, ie savers for a rainy day, hold massive claims on the wealth pie(gold and legal tender)
. all this is to get the massive gold and cash out of the hands of savers, so they can be controlled by digital surveillance. this is removing obligation of the gov’t to pay off claims on it.
this is a run on the people.
gov’t want the gold and cash and no liability to pay any of the pie down.
I would say hang on to your gold, cash if you can, and ride out the next big war/storm. you will be wealthy beyond means if you can.
the us is already on paper/plastic so no threat here . we already made c notes the top denomination long tme ago and with pretty blue lines through them. I charge everything and get 5% back. what an enticement to be on digital bandwagon.. and it makes me in arrears one month to boot
how many of you have your wealth on a sheet of typing paper? most of you?. what isn’t in your possession, isn’t yours any more.
lets look at the obvious here
possession 9/10’s of the law.
the ww2 jews loaded their valuables into the one suitcase they could take and hand delivered to hitler.
what blades are we walking into?
This is interesting, does it also have the same motive as https://en.wikipedia.org/wiki/Executive_Order_6102 in US ?
There are always people who are “connected” and know these things in advance.
They do the rational thing and convert their assets into forms their government cannot grab.
The U.S. has never cancelled any U.S. note, thus converting assets into U.S. Dollars, U.S. Treasuries, and shares of U.S. Companies and parking them in a U.S. LLC is chosen by many.
Now you know why the DJIA and S&P 500 are rising.
Capital flows reveal everything.
Hi Mish:
I’m a tax-paying citizen living in India. I’m also a libertarian (small-government, low taxes, etc.). Even so, I support the current government’s de-monetization plan. To understand the rationale behind this program, it is important to understand local context.
1. During the 70s, India was decidedly Socialist, with high tax rates. Over the past 4 decades, our tax-rates have rationalized and we’ve moved, ever so slowly, toward free-markets and free-enterprise (India was too poor to be Socialist in the first place). One consequence of high tax rates, is tax evasion.
2. Tax evaders (a.k.a. tax cheats), over the years, began to accumulate a huge quantity of undisclosed income (a.k.a. “black” money). The nature of capital is to seek enterprise for a return.
What kind of enterprise did “black” money seek?
1. Funding politicians for “protection” and favors (but, of course!).
2. Real money: Gold (up until the 90s, Gold import restrictions were in place),
3. Driving up real-estate prices, and more.
More importantly, it did not seek infrastructure (we need it!), or the tax-paying industry (stocks and bonds). Instead, over the years, it has fueled a vast shadow economy that is not in line with society’s long-term prosperity. For example, Gold import ban, resulted in Gold smuggling (from Dubai). Politicians are in cahoots with smugglers. Over the years, along with Gold, “terror” also came to be imported. Moreover, because politicians have links with smugglers, they don’t crack down on terror like they should.
Over the last 10 years, Pakistan has started to print India Rupees (similar to North Korea printing dollar bills), especially 500 and 1,000 Rupee notes, to fund terror in India. Most of India’s “black” money, too, is in 500 and 1,000 Rupee notes (just as most 100 Dollar bills are held outside the United States, as a store of value).
So, what did the government accomplish by de-monetizing 500 and 1000 Rupee notes?
1. Pakistan has been stopped in it’s tracks (at least, for now).
2. Political parties will have to learn to work with funding from tax-paying citizens like myself, instead of tax-cheats.
2. The tax base in the country has increased (will tax rates will come down?).
4. Bank deposits have increased substantially. Now banks are looking a lot healthier (will lending rates will come down?).
I, a libertarian, am thinking to myself, “So, what’s not to like about demonetization?”.
Please note:
1. Cash has not been banned in India.
2. All talk about Gold, cash or asset seizer, is in relation to undisclosed income. The women in my family own a lot of Gold (no kidding!) bought with disclosed income. There is no fear of seizer for us. Even today, I can buy Gold, with disclosed income.
3. The government is replacing the old 500 Rupee note with a new one; and the old 1000 Rupee note with a new 2000 Rupee note.
Sidharth
This will hit other countries as well. Banks and governments will inevitably become desparate as their system can’t be held together any longer. The theft will do no good, but they’ll do it anyway. Bitcoin and other cryptocurrencies may be the only answer to not being stolen from by “one’s own” government.
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Typo alert – Italy instead of India
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