May
7
paddyfeild
I just got a historical (12 Feb. 2006) price of rice per ton in India
$236 per ton
Gold price on (12 Feb. 2006)
$550 per ounce
So price of a ton rice in 2006 in terms of gold (because you cannot mess up with the value of gold be printing more gold)
0.429 ounce of gold will buy one ton of Rice
Current price of Rice in India (28 march 2008)
$1,000 per ton
Current Gold price (28th March 2008)
$950 per ounce
So price of a ton rice in 2008 in terms of gold:
1.0526 ounce of gold will buy one ton or Rice.
Now in terms of dollars, the price of rice has jumped $1000/$236=4.23 times
And in terms of Gold the price of rice has jumped only 1.0526/0.429=2.45 times
Now the jump you see in terms of GOLD, is the actual supply-demand jump. The demand of rice has jumped 2.45 times more than supply of rice compared to what it been back in 2006.
But, the jump you see in terms of dollars, it means that in addition to demand of rice going up, the money supply of dollars is that much more in the market(simple way of finding out is to take the ratio of gold price now by gold price in 2006 i.e. $950/$450=2.11 times).
That means the American government (and any counterfeiters, basically everyone who can create more dollars), have printed and pushed 2.11 time more money into the Market than it was in 2006.
chrome_dollar_symbol
Why? Because American government is spending trillions of dollars in Iraq war, they need that money so they printed more money and spent it.
Now this still doesn’t explain why there is a 2.45 times surge in demand-supply ratio, its not that unluckily people just started to consume more, well the point is there are three stages of inflation:
1) At first when price rises people think “Well this is weird, the price of this product has gone too high, but there might be some emergency, I will buy when the prices come down”, a housewife who needs a frying pan at this stage thinks the same and postpones her purchase of Frying pan for a later date when the prices drop.
2) Sooner or later, the people, and our housewife in the above example realizes that the Government plans to keep on inflating the money supply, and therefore the prices are going to rise more and more. Then she reasons: “I do not need a new frying pan today; I shall only need one next year. But I had better buy it now because next year the price will be much higher.” If more and more people think like that then everyone rushes to buy more and more stuff. People buy more and more rice to store for future when the prices will be even higher. The demand of Money falls down considerably and demand of products rises up even more. At this point the government is called to “relieve the money shortage”.
3) Soon the country reaches to a stage of “crack-up boom” where people say: “I must buy anything now — anything to get rid of money which depreciates on my hands.” The supply of money skyrockets (like last week Bush administration with a Joint opposition effort decided to mail everyone a check of $600), the demand plummets and price rise astronomically. Production falls sharply, as people spend more and more of their time finding ways to get rid of their money. The monetary system has, in effect, broken down completely, and the economy reverts to other moneys, if they are attainable — other metal, foreign currencies if this is one-country inflation, or even a return to barter conditions. The monetary system has broken down under the impact of inflation. This stage is also called Hyper-inflation.
As you can see we are right now in second stage of inflation, people bought more rice than they need because they were afraid that the price of Rice is going to rise even further. The market wasn’t REALLY having a demand of rice, but the government distorted market’s signals and people thought the market is running out of rice so they ran to buy more rice, and now the market is Actually running out of rice.
How Federal Reserve of United States inflating the dollar is is related to Inflation in India?
Well here is the thing, contrary to what many people believe Indian Rupees is not tied to Gold, it’s actually tied (like most of the currencies in the world) to Dollar. The price of Indian Rupee in International Market is determined by the American dollars, Indian government has that is the issuer of Indian Rupees.
If you guys remember a few months ago we saw Indian Rupees rising against the Dollar (thus proving my point that Dollar caused the inflation) because American government created more dollars, and spent a lot of them in International Market, so when India got it (India and China are the two biggest direct receivers of American Dollars), Indian Rupee rose, but soon when everyone got enough American dollars, the price of commodities in International Market in terms of dollars rose crazily.
What is the solution?
gold
A 100% gold backed Indian Rupee. How can we even think of having our currencies tied to another country’s currency, so when they are fighting a war, we end up paying for it by going hungry. Some people now suggest that we should tie it to Euro now, which is again same stupidity, contrary to what you may believe George W Bush can be more trusted with Dollars then Europeans with Euro.
According to the World Gold Council, privately held gold in India is worth US$920 billion , which is four times the amount held in Fort Knox(where all the Gold of US is kept) and about 1/5th of all gold ever mined in the world. That simply means if in future people lose their faith in fiat currency and everyone shifted to Gold standard, Indian public will be world’s richest society in the world(because American dollars will be worthless).
Anyone who really understands the value of gold in today’s economy, had they invested all their Rupee/Dollar deposit in Gold (around 12th Feb 2006), by now would have been in much less of a trouble because of inflation. Anytime a war starts government prints a lot of money, any time a poverty eradication program (like the latest Debt elimination program by Indian Finance Minister where Rs 60,000 Crore will be created out of thin air), just buy more and more gold.
Check out many digital gold currencies:
Also check this service where you can open a free gold currency account and they will do the buying and storing of the gold for you (for a service fees)
http://www.goldmoney.com/
I do not take any guarantee for their services, for guarantee check this page:
http://www.goldmoney.com/en/guarantee.html
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26 Responses to “The Price of Rice, What caused it to go so high?”
Leave a Reply
Stand Up Says:
May 7th, 2008 at 6:52 amI was wondering about the rice issue! thanks for explaining that!
and yeah, good to be back
how r u ?
Pratee Says:
May 7th, 2008 at 8:23 amIncrease in buying power of people also caused this. Along with it there is consumption.
Ron Lemon Says:
May 7th, 2008 at 2:58 pmwith economy you cant predict anything. end of the day, things turn out good :)
unpretentious_diva Says:
May 7th, 2008 at 3:13 pm@ron
Economy is not something mystical to be predicted.
Economy is reasoning, economy is shear math and use of mind to simplify human trades
Arun Kumar Says:
May 7th, 2008 at 4:51 pma really informative post…
more like an advice to tackle inflation….(the need of the hour..)
n cud you pls explain about the debt elimination programme…whats that…???
BTW can i know what course are you studyin or studied…??
unpretentious_diva Says:
May 7th, 2008 at 5:10 pm@ arun kumar.
Here is the Loan Waiver program by P.Chidambaram.
Read This too.
You can read how government waste money and creates Water Crises that post has included a recent scientific report on the government’s strategies which find it corrupt and waste.
and here you can read How Bush is fooling public.
Tina Says:
May 7th, 2008 at 7:53 pmThis is a neat post..m a research analyst myself…i liked the way u have gone abt ur post…u have given numbers to justify…xplained the reasons for inflation and given a solution..
LOVELY!!!
Cheers
Tee
Swarnadeep Chatterjee Says:
May 7th, 2008 at 8:40 pmwhat is the solution ?
- wouldn’t it work if we can minimise out current population by half?:P
unpretentious_diva Says:
May 7th, 2008 at 8:58 pm@chatterjee
I know some people like you find it difficult to read something and understand it.
Population is no problem.
It is another illusion created by government to fool public that population is too high. It is not.
Solution, I have already mentioned.
But as usual, you weren’t in mood to read it.
Ilyas Kazi Says:
May 7th, 2008 at 9:37 pmWow! what a great information you have… Keep it up bravo!
Arun Kumar Says:
May 7th, 2008 at 10:47 pm@unpretentious diva…
read those articles…liked them..especially the article about how inflation is caused..
n once again what have u studied…??
or its jus acquired knowledge thro reading??
unpretentious_diva Says:
May 7th, 2008 at 11:42 pm@Arun
I am an architect.
Completed my B.Arch, from Malviya National Institute of Engineering Jaipur.
Economy, philosophy, social sciences, humanities, politics is my sort os my passion. Afterall I am living, hence I am thinking.
Prashant Says:
May 8th, 2008 at 6:05 am@Pratee
Increase in buying power of people also caused this. Along with it there is consumption.
What do you think causes increase in buying power of people? You are talking as if its a Natural calamity.
In fact tell me this, if people are not able to buy rice(because its too costly) does that mean people’s buying power has increased or decreased?
Looking inflation in terms of purchasing power of people is totally wrong. Look what CAUSES that.
@Ron Lemon
with economy you cant predict anything. end of the day, things turn out good
Ok I am sorry you thought its all good that we have that much gold, since we are NOT on Gold standard that Indian govt is literally totalitarian in nature over us, and the only effective weapon to counter the despotic nature of the govt is Gold Standard.
Secondly, why do you think American people don’t have that much gold as we have? Well the reason is because since Great Depression it was illegal for private citizens to possess Gold(yeah that happened in America).
So if someday govts of the world get disenchanted by fiat currency standard, Indian govt will simply seize our gold and you won’t be able to do anything about it.
Prashant Says:
May 8th, 2008 at 6:27 am@Arun Kumar
BTW can i know what course are you studyin or studied…??
Anyone who studies Economics in India thinks high prices are caused by:
*) Low rice production
*) Global Warming
*) People suddenly eating more
*) Speculators
*) Rahu-Ketu caused it
*) Shani Grah crossed Mangal planet
Basically everything BUT blaming the govt. Just because they were never taught this way, coz if they do start teaching that, then all the Indian economics professors will be out of job(all are on govt salaries).
@Swarnadeep Chatterjee
what is the solution ?
- wouldn’t it work if we can minimise out current population by half?:P
NO IT WON’T!
As I said we are programmed to think that all problems are temporary, but they are not, they are deeply embedded in our system, no matter how less energy you consume, no matter how LESS rice you consume, Govt will still point out that its because WE are over-reproducing, its because WE are over-consuming, no matter whose fault it is, the Govt will always run a propaganda campaign telling us how since we are not doing something that’s why we are suffering.
Eliminating corrupt people can never get rid of corruption, reducing population can never bring prosperity because even when we were only 30 Crores we will poorer than now when our population is 100 Crores.
Whenever you see a govt sponsored ad on Television just presume that if Govt is willing to spend Crores of rupees on something on Television, they are definitely hiding something they screwed up badly.
unpretentious_diva Says:
May 8th, 2008 at 7:00 amAnyone more interested in reading a short book about What has govt done to our Money please read Murray Rothbard’s book:
http://mises.org/money.asp
Its really a short book, but a must read. Its written for American audience but its equally applicable in India. Our Reserve Bank of India is their Federal Reserve bank or just Feds.
unpretentious_diva Says:
May 8th, 2008 at 7:03 amAnyone more interested in reading a short book about What has govt done to our Money please read Murray Rothbard’s book:
http://mises.org/money.asp
Its really a short book, but a must read. Its written for American audience but its equally applicable in India. Our Reserve Bank of India is their Federal Reserve bank or just Feds.
Dark_Gal Says:
May 8th, 2008 at 7:18 pmNeat post!
Really informative and substantially calculative!!
About gold, an eye opener!
Good one!
Keep up the good work!
Pratee Says:
May 8th, 2008 at 10:15 pmPrashant said…
@Pratee
Increase in buying power of people also caused this. Along with it there is consumption.
What do you think causes increase in buying power of people? You are talking as if its a Natural calamity.
In fact tell me this, if people are not able to buy rice(because its too costly) does that mean people’s buying power has increased or decreased?
Looking inflation in terms of purchasing power of people is totally wrong. Look what CAUSES that.
You have a nice point. What I am talking about is the rich becoming richer and poor becoming more poor.
Sid Says:
May 9th, 2008 at 12:05 pmhey whrs my comment..i had posted a comment here few days ago…??
frm how long r u into blogging…coz u luk like a pro in dis…awsum
C R D Says:
May 11th, 2008 at 11:36 amwell..i doubt the first world countries would allow third world nations to follow the gold standard..theyd definitely try their best to place obstacles..mebbe theyd introduce a few restrictions.
gold is in great demand in the subcontinent mostly for religious and ceremonial purposes.tht wud mean countries like india,pak,srilanka,nepal,etc. the dubai gold shopping festival has 90% of its customers from these places.
Prashant Says:
May 12th, 2008 at 5:28 am@C R D
well..i doubt the first world countries would allow third world nations to follow the gold standard.
Seriously dude on what basis are you saying this? Is there a basis for that, or its just some anti-developed world rant.
None of the third world countries are even remotely thinking about getting back to Gold Standard, and you know why, because going to gold standard means all our quasi-fascist govts(including Indian govt) will have to give up MASSIVE amount of power.
No more loan waivers, no more money to IITs, no more making damns nobody uses, no more creating Golden Quadrilateral, no more subsidies to farmers before elections.
No govt would wanna go back to Gold Standard, it simply means power TO the people, taken FROM the govt.
If gold standard had something for the govt’s own survival too, then the govts would have supported it.
Right now all sorts of reasons are cited that “Gold standard is impractical, gold standard is cumbersome, we don’t have enough gold to back the wealth floating around already”.
All are simply excuses to not go back to Gold Standard.
theyd definitely try their best to place obstacles..mebbe theyd introduce a few restrictions.
Gold is Gold, and anyone who wants to do business with us will have to trade purely in Gold, if any country has to take a payment from us, they would rather take it in Gold rather than our fiat currency.
Till 1999 there was only one country in the world which was on Gold Standard(Switzerland, what else). Because of fears of payback to Jews, they went off the Gold Standard.
ArUn raFi Says:
May 18th, 2008 at 2:37 pmpower of gold has always been there and amazingly benficial to those who have invested in it systematically..good information ..some that i knew and some that i did not think about much earlier.. certainly hv issues to think about..
nice one and i dont oppose much of the facts that u have put either..
agree with you on this..
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June 4th, 2008 at 6:10 am[…] discussed how government interference in market causes all inflations and depressions here The Price of Rice, What caused it to go so high? And here The story of Money; what causes Inflation. Yet, even price of gold can change, appreciate […]
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July 12th, 2008 at 5:41 am[…] Lets check what happened to the logical advice I gave back in my rice article. […]
aswin Says:
July 22nd, 2008 at 1:52 pminteresting, i always thought precious metals like gold would be a better investment rather than money. even immovable property makes good economic sense.. though it can push up prices of such stuff too….
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