The Entire Iceberg

The lead editorial in the Economic Times today, on rising inflation in India, has an eerie title: “Iceberg’s Tip Now Shows.” However, they conclude:

At this juncture, monetary tightening by lifting policy rates will not be the appropriate measure to check inflation. Experience in the recent past shows that the RBI has had little success in containing food inflation with its monetary stance. Surging food prices can be contained only by improving supply and attacking hoarding. Monetary tightening could prove counter-productive to credit growth and reviving growth. Yet, the central bank will need to remain vigilant, as managing excess liquidity arising from an anticipated gush of foreign capital inflows could harden rates.

Meanwhile, in the USSA, where some people have seen the entire iceberg, the Wall Street Journal blog of Sudeep Reddy, who covers the US Fed, has an interview with Ron Paul titled “Audit the Fed, then end it.” This quote is telling:

What is a dollar? We don’t even know what a dollar is. There’s no definition for a dollar. There’s never been a time in law that said a Federal Reserve note is a dollar. That’s the basic flaw. There’s no definition for money. We’ve built a worldwide economy on a measuring rod that varies every single day. That’s why it was fragile, and that’s why it collapsed. There was no soundness to it. So that’s why you have to have a stable unit of account.

If you live in a primitive society, you’d trade goods. And if you wanted to advance, then you would trade a universal good, which would be a coin. But we’ve become sophisticated and smart and say, ‘Oh, you don’t have to go through that. We’ll just print the money. And we’ll trust the government not to print too much, and distribute it fairly.’ That’s often just a total farce. People are realizing that it is.

We need to ask ourselves the same question:

What is the rupee?

Only then can we think of how to contain inflation, which is a tax on the poor, which redistributes wealth away from savers to borrowers and which, in countless other ways, destroys the character of society and promotes "de-civilization."

Today, currency notes are “property titles without property.” Yet, with “legal tender” laws, these propertyless notes are used to gain possession of real properties. When the propertyless notes increase, while the real properties don’t, inflation is bound to occur, accompanied by a redistribution of wealth away from those who get to use the new money last – like the guy who cashes in his fixed deposit next year.

I hope you now see the whole iceberg.