Monday, November 14, 2016

Possible additional motive for demonetization move

Came across this article posted as citizen journalism:

http://www.jantakareporter.com/india/the-masterstroke-policy-of-demonetisation/75165/

Following up on that.

I know for a fact that the big corporates have borrowed and defaulted on huge sums of money from psu's. Raghuram was pushed out for exposing this n trying to take action.

If govt doesnt confiscate their assets or take action like on sahara group or even kingfisher, then only way is to do bailout like usa did for their banksters.

For that they need public's money. See, India cannot print large amts of money as usa can, as rupee is not world's reserve currency. Else runaway inflation will happen like zimbabwe/venezuela. Please search online to find how US is able to get away with it. "Hidden secrets of money" series on youtube can explain the details.

So the only way, if you're not confiscating the assets of the defaulters, is to collect surplus cash reserves from the people of the nation and use it to settle the defaulter's debts. Basically, socialism/communism for the rich and capitalism for the poor.

At the end it results in massive amounts of money collected from citizens that could have been used for nation's progress, transfered to big corporates instead. Classic crony capitalism case.

This isn't the only source. Earlier there have been reports of govt not lowering petrol-diesel prices despite intl crude prices crash. They have been collecting huge surplus as result, and there were speculations of govt deliberately hoarding these reserves so that they can be used to bail out the big defaulters.

This demonetization move would not directly give money to govt's treasury, but is massively increasing the cash reserves of the banking sector. Our banks follow fractional reserve lending, meaning to be able to lend large amounts of money, or in this case to write off bad debts, they need higher reserves of cash.

India traditionally doesn't keep very high reserves in its banks; the term 'black money' has been overzealously used to blanket-paint all the money of indians that doesn't pass through the banks.

Actually there is no real reason for it to be so : banks were originally solely for people to store their money in a safe place so they don't get robbed of it at home. The lending out at interest was a way to make use of this collected money, and a part of the interest earned was passed on to the depositor. So banking is just one for-profit service in the economy, among many. There is really no reason to make banks the holy temple of all money : doing so has caused many problems.

But I digress. Anyways, while i also agree this demonetization move has many benefits, its worth exploring the possible other motives too. A vigilant citizenry is necessary for a healthy democracy.

1 comment:

Shantanu Mundhada said...

Yes, infusing capital in banks by using up fiscal surplus is a way to favour defaulters at the cost of taxpayers. Demonetisation does directly add to the government kitty. Of approx 14 lac cr of cash in high denomination, if 3lac cr does not get deposited, it reduces the liability of the RBI to that extent...huge gain

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