RBI’s Rajan Warned Modi About “Short-Term Costs” Of Demonitization

In what’s likely to be remembered as one of the most spectacular policy failures in recent Indian history, Prime Minister Narendra Modi’s decision to abruptly cancel high-denomination banknotes – a move meant to punish corrupt officials and criminals – instead destroyed the savings of middle- and low-income Indians and caused widespread chaos in the country’s financial system.
And now, less than a year since the ‘war on cash’ was announced, prominent former government officials are speaking out and placing the blame for the policy squarely on Modi’s shoulders, including former Reserve Bank of India governor Raghuram Rajan, who told the Times of India that he had cautioned the government that the short-term costs of demonetization would outweigh the long-term benefits, and suggested “alternatives” to achieve the goal of stamping out black money.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large sums of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a windfall for India’s government. Meanwhile, ordinary Indians would opt to keep more of their money in electronic deposits at their bank, helping to shore up the country’s financial system.

This post was published at Zero Hedge on Sep 4, 2017.

Modi’s Demonetization Called “Colossal Failure That Ruined Economy” As India GDP Growth Slumps To 2-Year Lows

India’s embattled Prime Minister Narendra Modi faced a double whammy of abuse this week as his nation’s economic growth collapsed to its weakest since Q1 2014 and India’s Central Bank released a report on Modi’s extraordinary “demonitization” plan last year showing that 99 per cent of the high denomination banknotes cancelled last year were deposited or exchanged for new currency, crushing Modi’s lie that his contentious ‘war on cash’ would wipe out huge amounts of so-called ‘black money’.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large amounts of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a government windfall.

This post was published at Zero Hedge on Sep 2, 2017.

Indian Economy Collapses As ‘Demonetization’ Crushes Small Business

The Sales Managers Index (SMI) is one of the earliest monthly indicators of Indian economic activity. February’s data shows the catastrophic after-effects of the December demonetization policy which was intended to crack down on corruption and ‘black money’.
The February Headline SMI has fallen to an index level of 60.2 in unadjusted terms, the lowest level in over 3 years.
***
Managers are reporting a big drop in monthly sales for both the consumer and industrial sectors, with small to medium size businesses that predominantly deal with cash transactions, being hardest hit.

This post was published at Zero Hedge on Mar 3, 2017.

Entire Police Department Quits After “Illegal, Unethical, And Immoral” Requests By Town Council

The Town Council of the small town of Bunker Hill, Indiana, home to 888 residents, is likely wishing they had “do-over” this morning after constant budget cuts and alleged “illegal, unethical, and immoral” requests from council members resulted in the entire police force quitting. Per the Fox 59 affiliate in Indianapolis, the Bunker Hill town Marshall and his 4 deputies all walked off the job earlier this week and have no intention of returning.
An entire Indiana town has no police officers after every single one walked off the job. The officers blame the Bunker Hill Town Council for the situation.
Thomison served as town marshal for four years until Monday night when he and four other officers handed over resignation letters to the council, telling them they have had enough.
‘They would not communicate with us or the officers and they kept scaling back,’ said Thomison.
In their resignation letters, the officers accuse council members of asking them to ‘do illegal, unethical, and immoral things.’ They cited examples like asking police to run background checks on other town councilors to find their criminal history. The officers also claim they were threatened when they said no.

This post was published at Zero Hedge on Dec 15, 2016.

Sarah Palin Slams Trump Carrier Deal As “Crony Capitalism”, “Corporate Welfare”

Former Gov. Sarah Palin has criticized President-elect Donald Trump’s deal with the Carrier, in which as reported previously the air conditioner company would not outsource 1,100 workers to Mexico in exchange for $7 million in tax incentives over 10 years, saying that it yet another example of “corporate welfare.” The harsh criticism of Trump’s economic policy comes as she is reportedly under consideration to serve as Trump’s secretary of Veterans Affairs.
Writing an op-ed in the Young Conservatives blog, Palin said that while he is excited for the Carrier employees whose jobs are staying in Indiana, saying the deal is “a relief for hundreds of workers… Merry Christmas Indiana!’, she then joins Bernie Sanders and other critics in vlasting the deal as ‘crony capitalism” and an example of the “hallmark of corruption” and “socialism“, adding the arrangement could set “inconsistent, unfair and illogical precedent.”
Suggesting that the Trump deal is a carryover from the Obama administration’s “crony” ways of doing business, Palin wrote that ‘when government steps in arbitrarily with individual subsidies, favoring one business over others, it sets inconsistent, unfair, illogical precedent. Then, special interests creep in and manipulate markets. Republicans oppose this, remember?’
‘Instead, we support competition on a level playing field, remember? Because we know special interest crony capitalism is on big fail.’
Palin then made a statement many conservatives and virtually all libertarians would agree with, saying that “however well meaning, burdensome federal government imposition is never the solution. Never. Not in our homes, not in our schools, not in churches, not in businesses.’

This post was published at Zero Hedge on Dec 3, 2016.

In Defense of Trump’s Deal with Carrier

Donald Trump hasn’t yet made the move from Trump Tower to America’s most expensive public housing, but he was able to come through with one campaign promise this week by announcing a deal with Indiana-based Carrier Air Conditioning that will keep almost 1,000 jobs in the state. As reported, the deal seems largely focused on the State of Indiana offering millions in tax breaks and an understanding that the Trump administration will push for regulatory and corporate tax relief at the Federal level.
While the jobs Carrier will be keeping in the US only makes up about a third of the jobs the company had planned to move to Mexico, the underlying deal seems to reflect a larger commitment to addressing the corporate tax and regulatory burdens that have long held back the American economy. While some have described Trump’s approach as crony capitalism, if the terms of the deal really are limited to tax relief, such claims are baseless. While it is true that tax breaks for specific companies are less ideal than across-the-board cuts (or outright abolishment) of business taxes, they should not be confused with taxpayer subsidies.
As Matthew McCaffrey wrote last year defending tax credits for video game companies:
Decades ago, economists like Mises and Rothbard were already arguing that tax breaks are not economically or ethically equivalent to receiving subsidies. Simply put, being permitted to keep your income is not the same as taking it from competitors. Exemptions and loopholes do not forcibly redistribute wealth; taxes and subsidies do, thereby benefiting some producers at the expense of others.

This post was published at Ludwig von Mises Institute on Dec 2, 2016.

Modi’s Demonetization Is a Cure Worse Than the Disease

Next Tuesday will mark four weeks since Indian Prime Minister Narendra Modi made his surprise demonetization announcement that has sent shockwaves throughout the South Asian country’s economy. In an effort to combat corruption, tax evasion and counterfeiting, all 500 and 1,000 rupee banknotes are no longer recognized as legal tender.
I’ve previously written about the possible ramifications of the ‘war on cash,’ which is strengthening all over the globe, even here in the U. S. Many policymakers, including former Treasury Secretary Larry Summers, are in favor of axing the $100 bill. In May, the European Central Bank (ECB) said it would stop printing the 500 euro note, though it will still be recognized as legal currency. The decision to scrap the ‘Bin Laden’ banknote, as it’s sometimes called, hinged on its association with money laundering and terror financing.
Electronic payment systems are convenient, fast and easy, but when a government imposes this decision on you, your economic liberty is debased. In a purely electronic system, every financial transaction is not only charged a fee but can also be tracked and monitored. Taxes can’t be levied on emergency cash that’s buried in the backyard. Central banks could drop rates below zero, essentially forcing you to spend your money or else watch it rapidly lose value.
Inevitably, low-income and rural households have been hardest hit by Modi’s currency reform. Barter economies have reportedly sprung up in many towns and villages. Banks have limited the amount that can be withdrawn. Scores of weddings have been called off. Indian stocks plunged below their 200-day moving average.
Demonetization has also weighed heavily on the country’s manufacturing sector. The Nikkei India Manufacturing PMI fell to 52.3 in November from October’s 54.4. Although still in expansion mode, manufacturing production growth slowed, possibly signaling further erosion in the coming months.

This post was published at GoldSeek on 2 December 2016.

Musings on Demonetization

As written for goldseek.com
On November 8 2016 at 8.00 pm Prime Minister Mr. Modi announced his decision to demonetize or scrap the Rs. 500 and Rs. 1000 notes. I am seeing some unjustified criticism and fear about this decision as well as unjustified praise and bonhomie (people praising this decision without understanding the full ramifications). So I decided to write this article to educate:
Facts:
I believe, that this is a huge huge move with far reaching consequences. Only time will tell if it is good or bad. But With this one master stroke, PM Modi has levelled the playing field for corrupt persons and honest people.
Due to scrapping of 500 and 1000 rs. notes, now there will be an increase in the circulation of Rs. 100 notes. I sincerely believe (and hope), that the decision to introduce the Rs. 2000 note is just a stop gap arrangement. Circulation of this note should be and will be stopped as soon as possible.
Rs. 1,00,000/- in 100 rs. notes fits in a small briefcase (10 bundles of 100 X 100), whereas in 1000 rs. denomination, it used to be a single bundle, which could easily fit into the pocket. Even huge economies such as the USA and EU have a highest denomination of 100 dollars or euros. All higher transactions in such economies are carried out using either direct bank transfers or cheques or debit / credit cards. So, all transactions of a certain higher quantum tend to leave a paper trail. The direct result of all this is the reduction in the volume of the shadow economy (untraceable money or black money in the economy).
Pros:
1) Corruption: This decision is a very direct assault on the endemic corruption in the Indian system. Firstly, you can only exchange a limited amount of cash under the table. You can’t carry 5 or 10 briefcases of 100 rs. notes to home every single evening without attracting attention. Also, the person paying the bribe cannot withdraw 5 or 10 lac rupees from the bank without attracting attention, if he keeps on doing so regularly. This will directly affect the ability to pay a bribe and to receive a bribe.

This post was published at GoldSeek on 20 November 2016.

What India Did – Other Countries Will Do – BEWARE

This is the boldest move by any government in recent times. Both the old 500 Rs and 1000 Rs notes have been ‘probabilistically devalued’ meaning that anyone holding large number of notes, the value just has been significantly lowered by approximately 10 to 20% overnight. If you now try to deposit the cash, the money is devalued so in other words you were just taxed up to 90%. This is all claimed to attack the underground economy or black money and corruption.
To understand this bold attempt, let us assume that the ECM 100 and 500 notes are demonetized overnight. The government can ensure that this money is deposited or converted in banks and thus it then becomes your obligation to prove you paid your taxes. They will compare the sum with an individual’s income tax obligations.

This post was published at Armstrong Economics on Nov 18, 2016.

India Launches War on Corruption, Hits Cash, Chaos Ensues

‘Economic Shock & Awe’ turns into ‘Nightmare Without End’
On Tuesday November 8, Narenda Modi, the prime minister of India, the world’s second most populous nation and Asia’s third largest economy, announced in a public address to the nation that India’s two biggest denomination notes, the 1,000 rupee and 500 rupee bills, were now worthless and would have to be replaced with newly designed bills.
That was six days ago. Since then all hell has broken loose.
Official Motives
There are plenty of reasons for the government’s action. Partly it was intended to flush out the cash hoardings of black market operators and stop the rampant corruption permeating all levels of business and government in India. It is also part of the government’s plan to thwart counterfeiters and bring more stashed currency into the banking system.
One of the biggest beneficiaries will be the nation’s nascent digital economy. Paytm, India’s largest digital wallet startup, hailed the move. ‘This is the golden age to be a tech entrepreneur in India. Especially a fintech one,’ tweeted Vijay Shekhar Sharma, the company’s founder, whose investors include Alibaba Group Holding Ltd. ‘Keep the money digital.’
The coffers of both the nation’s government and banks are also expected to benefit handsomely. According to some reports, banks’ non-performing loan ratios have already shrunk in recent days as small and mid-sized businesses that had been defaulting on repayments suddenly started rushing to banks to repay the money they owed. As for the government, it hopes to boost its tax revenues from the current anemic level of 17% of GDP to somewhere closer to the OECD average of 34%.

This post was published at Wolf Street on November 15, 2016.

Truck Drivers Walk Off the Job, ATMs Run Dry After India Pulls Bills From Circulation

The crisis sparked by the shortage of cash in India following Prime Minister Narendra Modi’s anti-graft measure to ban high-value currency bills has hit the movement of goods in Asia’s third-largest economy.
More than half of an estimated 9.3 million trucks under the All-India Motor Transport Congress have been affected as drivers abandon vehicles midway into their trip after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight.
That adds to the worries of a government battling to keep cash-dispensing machines running after efforts to ease withdrawals failed to keep pace for the fifth straight day.
After a teary-eyed emotional appeal to citizens to bear some pain and back the fight against corruption, Modi today defended his move to withdraw 500-rupee and 1,000-rupee notes, which accounted for 86 percent of money in circulation.

This post was published at bloomberg

India’s War on Cash and the Poor

Last week, India’s Prime Minister Narendra Modi banned from circulation the country’s two largest denomination banknotes, of 500 rupees ($7.50) and 1000 rupees ($15). The shocking move – kept secret and set to take place overnight – was intended to flush out the cash hoardings of black market participants and stop the corruption currently permeating all levels of business and government in India. The two banknotes, rumoured to account for almost 80% of the cash in circulation, were used primarily to avoid paying taxes and to pay bribes.
However, the rupee ban has managed only to create chaos and desperation for millions of Indian citizens. They were left with no money to buy basic amenities, and saw their dearly earned savings being wiped out overnight. They queued in front of the banks and rushed to their ATMs, scrambling to exchange the worthless banknotes in the brief window of opportunity provided. Both banks and ATMs ran out of money, as India’s printing presses rushed to keep up by printing new lower-denomination currency.
But many Indians are so sick of corruption that they are willing, albeit grudgingly, to bear these hardships if the move should end it. They don’t know that it won’t: the move did little more than temporarily inconvenience the large money launderers and tax evaders, who have already found loopholes allowing them to profit from and minimize the effects of the government’s move – and that is a good thing.

This post was published at Ludwig von Mises Institute on November 13, 2016.

“There’s Chaos Everywhere” – Indians Angry As ATMs Run Dry After Cash Ban

The blowback from the world’s latest strike in the war on cash is unraveling fast in India. This week’s decision by PM Modi to ban some high-denomination banknotes (on the premise of fighting corruption) has left “chaos everywhere” according to one official who accused the prmeier of wreaking havoc on the poorest Indians. As Reuters reports, nearly half of India’s 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.

This post was published at Zero Hedge on Nov 12, 2016.

War On Cash Strikes India: PM Scraps Large Bills, Limits ATM Withdrawals To “Fight Corruption”

In Pics: New Rs 2000 Note that will be issued pic.twitter.com/4NXhNOpxxA
— ANI (@ANI_news) November 8, 2016

In a fiery address to the Indian nation, PM Narendra Modi just took a major step in the war on cash that is being waged worldwide. Talking tough on fighting corruption and the black market economy, Modi decreed that the INR500 ($7.50), and INR1000 ($15) bills will no longer be legal tender and that ATM withdrawals will be limited to INR2000 ($30) for some.
“Fake money and terrorism are ruining the nation’s fabric,” Modi exclaimed, adding that “it was very important to keep this news under wrap. Due to this, RBI and post office have a major task ahead and RBI has also decided that all banks will be shut for the public on November 9.”
“Honest man cannot buy a house, cannot get proper education due to black money.”
“Cash economy aides black money, corruption and makes life difficult for the poor.”

This post was published at Zero Hedge on Nov 8, 2016.

Auroville’s “Utopia”: A Town without Money or Politics?

A video by David Wolfe about the town of Auroville, India is being shared around social media again and the town is presented as a self-sustaining, utopian paradise void of such unseemly hindrances as money, religion, and politics.
Unfortunately, like nearly everything circulating in the meme-feed these days, if it seems too good to be true it is. In this case, the information presented by the video maker should be rated by PolitiFact as a ‘pants on fire lie.’ Digging beneath the surface, however, reveals that the City of the Dawn established in 1968 by a person called ‘The Mother’ is rife with predictable economic realities that border on hilarities when compared to the presentation in David Wolfe’s 60-second Facebook video.
I’ll only address Wolfe’s claims here and won’t even go into the matters of corruption and crime which have become serious problems in Auroville.
Auroville as a ‘Moneyless Society’ Theoretically, the only ways a society could exist without money would be a barter economy, void of any medium of exchange, or a complete command economy. A thorough perusal of Auroville’s official website, however, reveals that neither of these hypothetical organizations fits Auroville’s situation, though redistribution of production is influenced by a central authority.

This post was published at Ludwig von Mises Institute on October 7, 2016.

Oil Extends Losses as EIA Reports Filling Inventories

As the latest weekly inventory report from the EIA shows builds to both crude and gasoline, prices have reversed course and are charging lower. Hark, here are six things to consider in energy markets today.
1) Brazil is considering scrapping nationalistic oil legislation – which was implemented by President Dilma Rousseff – in favor of a concession model which would attract more international investment. While the legislation was put in place to primarily benefit Petrobras, widespread corruption in the state-run oil company and low oil prices have led to the change of heart. While the changing of legislation may take up to a couple of years, its implementation would remove the obligation for Petrobras to operate all oil fields – encouraging outside investment.
According to our ClipperData, Brazilian crude exports averaged just shy of 600,000 bpd last year and are currently closer to 560,000 bpd this year. The leading recipient of Brazilian crude is China, accounting for about a third of exports. Brazil currently has a $10 billion credit line with China, which it is repaying in cash or oil, depending upon China’s request.
This is in addition to a deal where Petrobras sends up to 200,000 bpd per month to China, in along-term deal struck in 2009 (hark, their last financial crisis). Uruguay is a close second in terms of export volumes, while the U. S is a distant third, accounting for ~10 percent. India is fourth.

This post was published at FinancialSense on 07/27/2016.

Mike Pence – -A True Anti-Bailout Champion Of Free Markets

The possible selection of Indiana Gov. Mike Pence as Donald Trump’s running mate could clarify the presumptive Republican nominee’s banking policy views, adding a policymaker to the ticket who has been outspoken about the Dodd-Frank Act and other financial topics.
To date, Trump has said very little about banking matters beyond a general pledge to repeal the 2010 financial reform law. But Pence – who served in the House between 2001 and 2012, is well-known to bankers, having served as a fierce opponent to both Dodd-Frank and the Bush administration’s 2008 bank bailout. He is also closely aligned with House Financial Services Committee Chairman Jeb Hensarling and other conservative GOP lawmakers, giving them a key ally in any future Trump administration.
‘Mike inspires people, and his boundless optimism in America is infectious at a time when so many have lost hope,’ Hensarling said in a statement Thursday. ‘If selected, he will be a great addition to the ticket and he will make a great Vice President. Personally, I am proud to call him my friend.’
Former banker Rep. French Hill R-Ark., who also serves on the House Financial Services Committee, said in a emailed statement that ‘I would be pleased to see Mr. Trump select Governor Pence as his running mate for the fall presidential campaign.’
‘Pence is a principled conservative with executive and legislative experience,’ he added.
To be sure, Pence’s selection has not yet been announced by the Trump campaign. But several media outlets, including the Indianapolis Star, said Trump will soon formally pick the Indiana governor as his running mate. Trump was initially supposed to do so during an appearance on Friday, but he announced on Twitter that he would delay the announcement, citing a terrorist attack in France.

This post was published at David Stockmans Contra Corner on July 15, 2016.

Abolish the FBI

Like all employees of the FBI, James Comey lives off the sweat of the American taxpayer. His large salary, upon retirement, will be converted into a very generous pension. Like most federal employees in a high ranking position like his, Comey continues to look forward to decades of living at a standard of living far above what is experienced by ordinary people in the private sector.
To maintain this life of comfort, all he had to do was agree to look the other way as a powerful politician clearly – by Comey’s own admission – broke federal law.
Naturally, this same treatment would never be afforded to an ordinary taxpayer, who would likely be looking at years in federal prison for offenses similar to that which Hillary Clinton has apparently committed. Moreover, Comey even went out of his way to do his best to ensure no federal prosecutor would proceed with charges when he claimed that “no reasonable prosecutor” would proceed with charges. It wasn’t enough for Comey to simply not recommend charges. He had to pre-emptively condemn any prosecutor who might proceed with charges.
Some have claimed that Comey was forced to cave to Obama administration pressure in order to protect his family. Of course, Comey could have resigned his position rather than take a position he regarded as unethical. Then the task of clearing Clinton would have fallen to Comey’s successor. There are precedents for this. When ordered by Nixon to fire the special prosecutor in the Watergate scandal, Attorney General Elliot Richardson resigned rather than do what the president mandated. Comey could have done the same, but then he would have had to give up some of his comforts and privileges. To find work, he might have had to move to an unexciting place like Indianapolis or Albuquerque.

This post was published at Ludwig von Mises Institute on July 7, 2016.

What’s India Got Over China? Plenty. — Gary Shilling

When Narendra Modi, the prime minister of India, speaks to a joint session of the U.S. Congress on June 8, he may find it hard to convince lawmakers of his country’s promise. He shouldn’t: As China, Russia and Brazil slow down, India is barreling ahead. It’s one of the brighter spots among all the emerging markets.
True, India’s economic growth in the last 25 years has been slower than China’s. India’s growth rose to almost 11 percent of U.S. gross domestic product in 2014 from about 4 percent in 1990, while China’s vaulted to 60 percent from 9 percent in the same period. But unlike China, India never became an export-driven manufacturing juggernaut and so its growth has been steadier. Last year it was 7.5 percent.
India also didn’t benefit as much as China when manufacturing shifted from the West to developing countries, and thus the decline in offshoring is hurting India less than China.
India certainly has its problems — notoriously slow bureaucracies, a lack of good infrastructure, and too much regulation and corruption to name a few — that need to be addressed before economic growth can explode. Modi has sought reforms for many of these issues, though with limited success so far.

This post was published at bloomberg

Obama’s Latest Whopper – -Let’s Raise Social Security Benefits!

The U. S. has approximately $80 trillion of unfunded liabilities for social security, medicare and other entitlements sitting atop a work force that is rapidly aging and an economy that is lapsing into stasis. Yet in the midst of a campaign diatribe about Donald Trump’s alleged lack of preparation for the highest office in the land, the current White House occupant proved that in nearly eight years he has learned exactly nothing about the nation’s abysmal fiscal plight.
‘And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned,’ Obama said in an economic call to arms in Elkhart, Indiana.
Don’t bother to say he must be kidding. After all, our President also claims the disaster known as Obamacare is a roaring success; and that he has created 14 million jobs – -when, in fact, there are fewer full-time, full-pay ‘breadwinner jobs’ in America today than when Bill Clinton scuttled out of the White House 16 years ago.
Still, your don’t have to be even a know nothing about baby-boom demographics to recognize that the words ‘increase’ and ‘social security benefits’ will never again inhabit the same universe. To wit, there are about 50 million persons 65 or over at present, but this number will rise to 80 million by around 2040 and nearly 100 million a decade or two thereafter.

This post was published at David Stockmans Contra Corner on June 2, 2016.