A Battle Won, Another To Go

The citizens of the City of Bangalore must be congratulated for winning the battle against Hindoo fascism. People came out in droves to celebrate Valentine's Day, the pubs were full, the police on guard, and the Hindoos were sent to jail by a BJP government. The pink chaddi campaign was a thundering success. Liberalism and modernity won the day.

Let us now turn our attention to another, even more important battle: the battle against central banking. As in America, so too in India, there has been huge over-investment in real estate.

Here is a news story on a Goldman Sachs report on the real estate sector in India requiring a major correction.

Therefore, the news that our The State is "infusing" billions into its own banks should come as no surprise. Government banks in India, just like Fannie Mae and Freddie Mac in the US, have taken a big hit by extending huge loans to real estate projects. This "infusion" of new money into these banks represents loot on the part of our banksters. Their cronies have taken loans they cannot repay; our The State, by pumping more money into these banks, is merely subsidizing bad loans. They are robbing their own banks. Loot.

Thus, the advice of the chief economist of the IMF, to further lower interest rates and thereby increase the supply of money, should be seen as very wrong advice. Ideally, real estate values should be allowed to fall. The malinvestments should be liquidated. We in India must not do what the US is doing under Obama, who will destroy the US dollar with his 800 billion dollar "stimulus." We are in danger of going the same way. Our The State has also announced a similar "stimulus" of new paper money.

Friedrich Hayek's 1932 preface to his "Monetary Theory and the Trade Cycle," originally published in German in 1929, the year the Great Depression hit, is worth quoting 80 years later, because the vital lessons in economic theory have not yet been learnt. Hayek says:

"It is a curious fact that the general disinclination to explain the past boom by monetary factors has been quickly replaced by an even greater readiness to hold the present working of our monetary organization exclusively responsible for our present plight. And the same stabilizers who believed that nothing was wrong with the boom and that it might last indefinitely because prices did not rise, now believe that everything could be set right again if only we would use the weapons of monetary policy to prevent prices from falling. The same superficial view, which sees no other harmful effect of a credit expansion but the rise of the price level,
now believes that our only difficulty is a fall in the price level,
caused by credit contraction.

"There can, of course, be little doubt that, at the present time, a deflationary process is going on and that an indefinite continuation of that deflation would do inestimable harm. But this does not, by any means, necessarily mean that the deflation is the original cause of our difficulties or that we could overcome these difficulties by compensating for the deflationary tendencies, at present operative in our economic system, by forcing more money into circulation. There is no reason to assume that the crisis was started by a deliberate deflationary action on the part of the monetary authorities, or that the deflation itself is anything but a secondary phenomenon, a process induced by the maladjustments of industry left over from the boom. If, however, the deflation is not a cause but an effect of the unprofitableness of industry, then it is surely vain to hope that by reversing the deflationary process, we can regain lasting prosperity."

For the layman: Suppose we are in a cowrie-shell economy. And we find a hoard of cowrie shells on the beach one day. Will this find stimulate the local economy? Or will the value of cowrie shells fall – inflation?

What if our currency is gold coin. And miners discover a rich haul of gold, and all this gold is "infused" into circulation. Will this act as a "stimulus"? Or will gold prices fall – inflation?

With fiat paper money, the situation is much worse. As Hayek said, in another book, the fiat paper money inflationists have got hold of "a tiger by the tail."

So don't get deceived. Oppose banksterism. Fight for sound money. The health of the economy, by which we all seek survival, is at stake.