Earlier this month, Indian Prime Minister Narendra Modi, in one fell swoop, made 85 percent of the nation’s currency notes — the 500 and 1,000 rupee bills — worthless.
“What he did,” a friend from India said following the announcement, “is completely demonic. I have all of these rupees here in America. What am I supposed to do, fly back just to exchange them?”
Modi’s zealots say he did it to smoke out the “black money” from India’s informal market, which makes up at least half of the country’s GDP (and that’s being extremely conservative).
“But, in reality,” Shikha Dalmia, a senior policy analyst at the Reason Foundation writes in The Week, “this demonetization scheme is the equivalent of killing the patient to cure a headache. And it marks an end to India’s three-decade flirtation with market liberalization.”
According to Dalmia, about 600 million of India’s poor and uneducated are without bank accounts. And around 300 million don’t even have proper government IDs.
“It’s not easy,” she says, “to swap their soon-to-be worthless cash, which is a catastrophe given that they live hand-to-mouth.”
Modi was supposed to be the small government guy. His landslide victory was predicated on the slogan “Minimum Government, Maximum Governance.” One of his biggest promises was to end what’s called babu raj — a common practice where corrupt politicians demand bribes from regular citizens.
Rather than targeting corruption through deregulation (less arbitrary power, fewer bribes to demand) and sniping away taxes and capital controls (making for fewer reasons to hide transactions), he’s declared a war on all private Indian funds in the name of fighting illicit funds.
If it all went according to his plan, rich and illegitimate hoarders of the cash would happily forfeit their money to stay out of jail and middle-class and poor people could happily and swiftly swap their bills in.
Everyone smiles. Everyone’s happy.
“The reality,” says Dalmia, “is different. Yes, the rich have indeed gotten poorer. But the poor have been decimated. Call it trickle-down poverty.”
As Larry White from the Cato Institute and Shruti Rajagopalan from the Classical Liberal Institute report this week on the Alt-M blog:
In the last two weeks, some daily wage laborers have not been paid due to the currency shortage and are down to only one meal a day because of the drop in earnings. Farmers and vendors unable to sell fresh produce have lost their entire stock of perishables. Other small businesses are unable to operate without access to sufficient new currency notes. And since November 9, close to 50 deaths have been attributed to the currency shortage. A policy ostensibly intended to inflict losses on tax evaders and criminals is imposing, at least in the transition, much greater losses on honest users of currency.
The real modus operandi is blatant. It’s not, at its core, to fight illicit funds. This move is to drain private wallets into the government’s coffers. Just imagine, from Modi’s perspective, the immediate rupee jackpot…
Since 90 percent of economic transactions are in cash, White and Rajagopalan point out, if only “20% of the old notes are never turned in, the government’s revenue windfall is up to Rs. 2.9 trillion ($42.5 billion).”
The demonetization strategy, in the end, of course, won’t do much to fight tax evasion, government corruption (that’s a laugh), or “black wealth.” The richest black marketeers of India very likely already had their wealth diversified out of rupees in things like tangible assets (such as gold and real estate), foreign currency and offshore bank accounts, corporate shares, and on.
Modi’s scheme will only incentivize more movement out of the rupee from all classes. For example, according to Delmia, the poor are already buying jars of Tide for barter, “giving new meaning,” she quips, “to the term money laundering.
“This means,” she goes on, “that this crackdown will set the stage for future crackdowns. Indeed, Modi, who himself will always be able to indulge his taste for $16,000 suits, has already indicated that he’s on the job.”
Another unintended consequence of Modi’s move is that there’s now a massive influx of interest into bitcoin from India’s rich and young professionals.
Sandeep Geonka, co-founder of Indian bitcoin exchange Zebpay, told Investopedia that his exchange is set to add 50,000 new users this month and he expects that trend to keep. “We hail the unprecedented move by PM Modi’s vision for a cashless and corruption free India,” he said. “More people have started looking at bitcoins and interest has surged. We are working hard so that bitcoins and this technology can help fulfill the government’s dream.”
As Dalmia mentioned, this war on the private economy is far from over: “… you can be sure that Modi, who has already warned of further action before the end of the year, will go after gold and other assets next. He’s already raised excise duties on gold and requires jewelers to check the tax identification card of anyone purchasing gold worth over $3,000, echoing India’s notorious 1968 Gold Control Act that criminalized gold holdings by private citizens.”
And you’d be wise to pay attention. Because India’s simply pulling from the global elite’s playbook. What’s happening in India could happen anywhere.
America has already seen a gold confiscation in the past century (see: Executive Order 6102) — and only the naive would believe it couldn’t possibly happen here again.
Which is why, today, we invite Rickards to the show to rap about what to expect from the ongoing war on cash (and ever-looming potential gold confiscation) — and how to protect yourself from its wrath.
First the War on Cash, then the War on Gold
The global elites are using negative interest rates and inflation to make your money disappear. The whole idea of the war on cash is to force savers into digital bank accounts so their money can be taken from them in the form of negative interest rates.
One way to avoid negative interest rates is to go to physical cash…
They can’t impose negative interest rates on cash.
In order to prevent people from using that option, the elites have launched a war on cash, as recent events have borne out. The war on cash is old news, but it is escalating rapidly…
India’s decision to make 1,000- and 500-rupee notes worthless is having devastating ripple effects in the Indian economy and the market for gold.
The consequences of the decision are both appalling and encouraging — appalling because they show governments’ ability to destroy wealth, and encouraging because they show the ingenuity of individuals operating under the thumb of an oppressive government.
One immediate consequence of the cash ban was that paper money began trading at a discount to face value. The entire banking system in India has been running out of cash and alternative forms of payment such as gold and barter have been emerging.
In plain English, you might be able to sell your illegal 1,000-rupee note to a middleman for 750 rupees in smaller denominations. You would get legal tender for your worthless 1,000-rupee note. The middleman presumably has some connection with the banks that allows him to deposit the funds without being harassed by the tax authorities.
It’s not unusual for bonds to trade at a discount due to changes in interest rates or credit quality, but this is the first time I’ve ever seen cash trading at a discount (although I did predict this development in Chapter 1 of my new book, The Road to Ruin.)
The second distortion is that gold is selling in India for over $2,000 per ounce at a time when the world market price is under $1,200 per ounce. This is because Indian citizens are rushing to buy gold for cash.
The gold dealers can then deposit the cash for full value. This is just another form of discount on the face value of the cash. It’s not that gold is more valuable; it’s just that your $2,000 is worth less than $1,200 (in rupee equivalents) when it comes time to buy the gold.
I’ve said for a while that the war on cash would be followed quickly by a war on gold. India may prove the point.
Don’t think of this as something that happens only in poor countries. Similar scenes will play out in the U.S. and Europe as elites become more desperate to take your money.
It should be clear that the war on cash has two main thrusts. The first is to make it difficult to obtain cash in the first place. At home, U.S. banks will report anyone taking more than $3,000 in cash as engaging in a “suspicious activity” using Treasury Form SAR (Suspicious Activity Report).
The second thrust is to eliminate large-denomination banknotes. A 1,000-rupee note may sound like a lot, but it’s only equivalent to about $15 U.S. dollars. The U.S. got rid of its $500 note in 1969, and the $100 note has lost 85% of its purchasing power since then. With a little more inflation, the $100 bill will be reduced to chump change.
Of course the European Central Bank announced that they were discontinuing the production of new 500 euro notes (worth about $575 at current exchange rates). Existing 500 euro notes will still be legal tender, but new ones will not be produced.
This means that over time, the notes will be in short supply and individuals in need of large denominations may actually bid up the price above face value paying, say, 502 euros in smaller bills for a 500 euro note. The 2 euro premium in this example is like a negative interest rate on cash.
Ken Rogoff is a leading voice of the elites in the war on cash. He recently wrote an article detailing the ways elites can steal your money. The first is negative interest rates. The second is the elimination of cash (governments can do this by declaring the $100 bill worthless, just as India did with the 500- and 1,000-rupee notes).
The third way is to set higher inflation targets. Rogoff wants to raise the Fed’s inflation target from 2% to 4% per year. At a 4% rate, the value of a dollar is cut 75% between the time you’re 30 years old until a normal retirement age of 65. The money you save in your younger years is nearly worthless by the time you need it.
Why should you care what Ken Rogoff thinks? Because Rogoff is not just another big brain. He’s a professor of economics at Harvard University and the former chief economist of the International Monetary Fund. More importantly, his name is frequently mentioned as a possible nominee for a seat on the Board of Governors of the Federal Reserve. If Rogoff were on the Fed board, he’d be in a position to turn his confiscatory ideas into policy.
But even if Rogoff remains at Harvard, his views are highly influential on economic policy in general. Rogoff is not alone in his views.
One solution to negative interest rates is to buy physical gold. But if the government has a war on cash, can the war on gold be far behind?
Governments always use money laundering, drug dealing and terrorism as an excuse to keep tabs on honest citizens and deprive them of the ability to use money alternatives such as physical cash and gold.
When you start to see news articles about criminals using gold instead of cash, that’s a stalking horse for government regulation of gold.
Guess what? An article on the topic of criminals using gold just appeared this spring, in Bloomberg. This is one more reason to get your physical gold now, while you still can.
If you do not already have a 10% allocation of investible assets to gold, it’s time to make that allocation. Gold is almost the only way to avoid the plans for confiscation that Rogoff and the other elites have in mind.
Most people who use social media have figured out that Facebook and Google are in cahoots with the government, for those who are well aware of the issues it’s high time you switched over to Seen.life. It is a website that is similar to Facebook but without all the censorship.
[Ed. note: I’ve said it plenty of times before, but if you haven’t already I urge you to reserve your FREE copy of Jim Rickards’ newest book The Road to Ruin. If anything, it’ll make you think twice about depositing another dollar into your bank account.]
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