Oct
18
On first account, it may sound like a real example where the government proves its significance to help and foster the economy of country, but on a little deeper analysis, it will show simply that it is no help or try by government to help the economy, but it is just a fraud a robbery, it is a simple game of money and power by the government to further hold the life-line of freedom.
Basically, RBI is transferring Rs 2000 crores from the tax-payers of India to a few financial institutions. After all, from where does the all money of RBI comes from?
RBI or government doesn’t create any wealth; it is us, the Tax Payers of India whose money it is. And who will get benefited, some of the big banks and financial institutes of government choice.
It is assumed that these Rs 2000 crores will be used to revamp the Industries and stock market and will be used to strengthen the mutual funds for credits and liquidity. But how reasonable it is to induce the tax-collection of Indians for a particular market?
The taxpayers are not going to be treated as equivalent to shareholders of a firm that just acquired Rs 2000 crores in assets. The taxpayers are not going to get a cut of the monthly mortgage payments (less the servicing costs on the Rs 2000 crores in new debt) tied to the government’s massive profits. Instead, the government will simply increase its yearly spending by a few thousand crores. Maybe it will have to spend the money on homeownership programs, or homebuilder job retraining or midday meal programs, but the net income from those government-owned assets certainly won’t translate into a Rupee-for-rupee tax cut. That is, while the money of the Indian Tax payers will be used, the actual creator of money, the common tax-payer won’t get any benefit from it.
On the other hand, the government officials running this operation will make out the favors on both ends, when the mortgage-backed securities are coming and when they are going.
The RBI is simply buying the shares of the mutual funds market at a beneficial rate, and in future at some point, there will again be a push to “privatize” the secondary mortgage market, and the government’s share at that time will be auctioned off at very charitable prices to politically associated institutions. For example, maybe the Rs 2000 crores assortment is auctioned off for Rs 500 crores. (Perhaps the big banks have to set up subsidiaries owned by minorities and women who get preferential treatment in the bidding process or the bidding process may also work according to reservation quotas. But whatever the hoax, they will find a way to justify the low prices.) When all is said and done, the government will have played hot potato with the liquidity, and the national debt borne by taxpayers would be Rs 1500 crores (=Rs 2000 - Rs500 ) crores higher. The favored financial institutions would be “up” roughly the same amount, collectively.
Not to mention that during all this transactions, there are enough and ample amount of possibilities to further create a Hawala scam.
It is quite simple fact, if RBI and Indian Financial Ministry is injecting capital or “liquidity” that money has to come from somewhere. If it is taxed or borrowed, then it is just a shell game; the liquidity is drained from elsewhere, to be injected into the Indian Banks.
On the other hand, if to inject liquidity, RBI simply issues new currency notes, than it will further increase the inflation to extreme heights. Why? It has already been explained here in the article
By issuing new currency notes, government doesn’t create any new wealth; after all there are not extra tons of wheat corn and soybean produced, just because government issued new notes.
Now some people may say that the step taken by the RBI to inject Tax-payers money, (without giving the tax-payers any benefit of it) in the mutual fund and credit market is essential for the banks to survive. And they will say that these banks are necessary for Indian economy to grow healthy. People say that if there won’t be banks available for giving credits and lending money, business transactions will stop.
What they miss out is Banks don’t lend their own money; they lend other people’s money (their depositors’ and their stockholders’). Just because the banks disappear doesn’t mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they’ll be able to find each other.
As any user of Shadi.com can tell you, the technology for finding partners has improved since the 1990s. When a firm wants to raise capital, why can’t it just sell bonds over the web? Or issue new stock? Or approach one of the hedge funds that seem to be swimming in cash? Or borrow abroad?
I am not sure that banks are so much necessary that government transfers such a huge amount of money from Tax-payers pockets to these banks which won’t flinch to auction your house if you have taken a loan from that bank to own a house. And if it is necessary, than PM Man Mohan Singh and Finance Minister P.Chidambaram must explain with a debate, that why these banks are important and if the Indian Tax payer is expected to help these banks, then why should not the common tax-payer gains from this transfer directly?
Recently, Jet Airways re-employed the 1500 employees it expelled from the job, why it happened? Why were those employees expelled?
They were expelled because government hasn’t reduced the Fuel costs and taxes involved with petroleum and hence the aviation market was not able to bear the burden of such a large crew and fleet as it is not gaining anything because of high fuel costs.
Not only private air services, but government owned AIR India is also thinking of proposing a no-salary-5 year-leave for its 15000 employees.
Doesn’t this example simply show that the interference of government authorities in any economic market ruins its easy-going procedure? Why cannot and should not the market decide the Fuel prices and the flight prices? Why should government decide the fuel prices and why should it take taxes?
By announcing this Rs 2000 crores of injection of liquidity in market, Financial Ministry of India has actually announce that just like it controls public education sector by its boards, now it will control the economic sector and markets too as it has got a larger share of it. More importantly, the money the government has use or will use for this buying of market, is our, the common tax-payers money who will get no benefit from all this embezzlement, yet we will have to face a national debt of Rs 1500 crores. The only way by which government can help Indian economy is by keeping away from it, but nah, it won’t do that.
India again is in socialist grip of Statism and government, there’s no Capitalism in India.
Update: The Dilemma of Reserve Bank of India
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1 views15 Responses to “Government's Help for the Economic Crisis”
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KHUSHI Says:
October 19th, 2008 at 2:37 pmlike ur blog…. and post too…. keep it up…
RawThinkTank Says:
October 19th, 2008 at 11:06 pmExcellent article
sushant Says:
October 20th, 2008 at 12:09 amI liked your post but it presents a very uni dimensional overview of the problem. You have stated the problem but have not suggested any other convincing solution to it. I am not sure if there is any other effective alternative to increase liquidity in the market which is life and blood of business.
The capitalism as we know it is not working out and failure of American financial system is a glaring example of what free markets can do when they go out of control. This is of course not a failure of capitalism but side effects of uncontrolled freedom and error of judgment which results from lure of making easy money. The failing of great institutions is not much of a concern to me but sudden demise of such institutions take a huge toll on the normal society and years of savings are wiped out in matter of hours and business collapse like deck of cards.
There is an urgent need by the government to have a calming effect on the markets. I agree that it is Tax payers money which is being used to create the necessary liquidity but it is essential to keep the growth going. It keeps the jobs running and is thus necessary for the society to be stable. Government can buy the assets very cheap currently and can sell them for a great profit later when economy stabilizes. The government of Sweden did the same thing during its banking collapse and later sold the assets for a hefty gain. I think it is just regressive to assume that our government is going to do it in a loss.
I personally think liquidity crisis needs to be averted and government needs to do whatever possible to save it ..
Unpretentious Diva Says:
October 20th, 2008 at 1:01 amI agree that it is Tax payers money which is being used to create the necessary liquidity but it is essential to keep the growth going. It keeps the jobs running and is thus necessary for the society to be stable. Government can buy the assets very cheap currently and can sell them for a great profit later when economy stabilizes.
What growth are you talking of? that growth was because of a certain degree of freedom in market. About liquidity crisis, its just timely hoax and government is making profit of it. About government making profits, yes it will certainly make profits, it that profit won’t reach to the taxpayers whose money government is using, and that is the loot.
Remove taxes and there will be ample money in hands of free public to safeguard liquidity questions in market for always.
faisal Says:
October 20th, 2008 at 2:52 pmI like your blog. They are well researched and on serious issues. Govt pumps in money to save a few companies, but that’s the least they can do. I don’t think there is any other way out… Just throw them the life jacket and hope that would help..
siddarth Says:
October 20th, 2008 at 8:28 pmi do not agree with all that is said in the article but never the less it is a good and taught provoking article.
Gaurav Says:
October 21st, 2008 at 4:31 amAh! as always it’s was quite intresting but i read these words somewhere,Any economic boom created by extrapolation of some mathematical probablities and not by producing Tangible asset will bust one day.But yes till i am not able to imagine any institution where Government keeps his hands off in all ways from nation’s economic order ,the question being who will be printing on all those notes for the nation and If the Government should be only about printing who will be deciding these regulation of these notes? The market ,maybe not because you need a living identity to take a decision and if there will be any committee made by the market only ,they will be the defacto Government and most probably i think maybe in some similar sort of way our Govt. is elected
Twisted Elegance Says:
October 21st, 2008 at 7:04 amI think this article fails to understand the common sense behind the injection of 2000 crores into the market. We must all understand the fact that a stable market means a stable economy and a more properous economy. The success story of our economy can be highly attributed to foreign investments through the stock market. What the bail-out package tries to do is stop or minimize a major sell-off, like that which took place in the dow jones, in our own Indian market. A huge sell-off will mean total crash of the financial system and at the end it would affect only the common man. It has been seen historically that stock market crashes lead to extreme levels of inflation and also heavy slowdown in Industrial growth. If this happens we are bound to lose jobs and pushed into the vicious cycle of price rise and unemployment. A stable market is in the great interest of the common tax payer and I don’t see why the government should not take such measures to ensure liquidity of firms and security of shareholders.
A well written article though it seems the author is conditioned by some sort of prejudice towards government control of economy
Twisted Elegance Says:
October 21st, 2008 at 7:10 amAnd I don’t see any sense in the argument of removing taxes completely. No government in the world can function without taxes. An economy without taxes will only lead to extreme disparity in wealth, where a few selfish entrepreneurs will stay affluent and others would roast in poverty.
Unpretentious Diva Says:
October 21st, 2008 at 12:50 pmAnd I don’t see any sense in the argument of removing taxes completely. No government in the world can function without taxes. An economy without taxes will only lead to extreme disparity in wealth, where a few selfish entrepreneurs will stay affluent and others would roast in poverty.
Ohh wow! And what is the need of government in market?
And you say, few selfish entrepreneurs will cause poverty, and how will the entrepreneurs boom in a surrounding where all are poor?
And who stops a poor from becoming rich entrepreneur himself? Its the government which stops people from becoming entrepreneur and rich.
You cannot see any sense in removing taxes because you are strongly biased towards socialism and statism. You think that you cannot live without the help of government, but its your problem because you actually just cannot mention the importance of government that why it is necessary?
Further twisted says
First of all, you must understand that Economy, be it Indian or American or anywhere in the globe is STABLE and it will remain stable always. Any interference via government in Economy always ruins it though. But why is that necessary for government to interfere?
Government stays on statistics, A bumping sensex number shows government’s proxy success and it tries to gain out further voting to rule. As a matter of fact, Sensex or Nifty numbers doesnot shows Indian Economy at any account.
Market has its own cure. Recession and Inflation are its own assets. people have and should have freedom to decide where to invest and where not to, any governmental interference in the persons ability to decide brings a hard result. As for example, in Agriculture sector, Government supports Biofuel crops and subsidizes it and lures farmers to stop growing wheat or sugarcane or pulses but to grow bio-fuels like maize soyabeen etc by giving higher costs to the bio-fuel crops, what does it brings about? It brings about a shortage of Wheat and Rice and hence price rise and hence further poverty.
Although a very few of farmers becomes a little rich because of governments interference as they grows biofuels, but whole country suffers the price-rise in the foodgrains. And what government does to that?
It further subsidizes foodgrains and provides the public at very low prices, now India is not self-sufficient in growing its own needed wheat, so it buys wheat from outside at a cost which is much higher than what we get foodgrains at. (furthermore, this year under UPA government there was a case where government bought wheat of low quality at high price too.) Now this food grain which it bought at high prices is provided at low prices for the public. Government goes in deficiency and loss, but it says that It helped poor. How did it helped? Who gave money to government for helping poor? The poor Indians gave money to government.
It was people’s money which government distributed. So while you did charity, you just don’t know whom you gave your own earned money, plus you became poor too and you got low-quality foodgrains.
Second thing is, in all this process, there are many holes, if Whole public of India provided an amount of Rs X for this distribution via taxes, An amount of Rs Y goes in the pockets of corrupt government and offcials, a further amount of Rs Z goes in dealers and governmental brokers, rest that Rs (X-Y-Z) comes out back in the hands of the same poor public which gave the amount Rs X to the government.
Government is a looting machine nothing more. Same happens in market.
As for recent example, Aviation industry is live.
Petroleum ministry didn’t reduced the price of fuels as per the standard international prices because it wanted to help out the petroleum industires which are already working at loss. WHy they are working at loss? Because they never had freedom to decide the price. Government didn’t let them to increase common fuel prices of diesel and petrol, but they had to compensate, hence the high quality fuel is at extreme high prices, Now at that prices, Air ways and aviation industries cannot work, so they had to reduces flights, to remove workers and to reduce salaries in order to bring a stability. Its all governments fault. Whereever government interferes, public suffers.
Now when Market is at lower grades, people are taking out there money from stock market because money is dieing there cos of inflation, government cannot control inflation (Government caused Inflation) So people are taking their fiat money of investing it in other aspects of market, (gold? land? etc) Government can’t let it happen, if it happens, there are sure chances that fiat currency will loose all its importance, so it is bound to control.
Now about economy, economy doesn’t depend on government, it depends on people. People need to work an produce and create and earn and they will. Hence economy can never die and it won’t until all people ies which is impossible. So what is government for?
Government is to provide safety for people for each an every Iniviual. Government always fails in doing so. Some person will beat you in mumbai because you are a bihari, someone will blast you in train. Yesterday, policeman looted a passenger train in delhi. That is what government is, a looting body.
Lol! Again same question, what is an entrepreneur? What is an Innovator? Is he not a man?
Are you not a man? who stops you from becoming entrepreneur? Its only government which stops you not another entrepreneur.
Selfishness is Humanity, it is life, No species which is Unselfish can live. For living selfishness is necessary it is a virtue, The Virtue of Selfishness!
Infact, while writing that silliest comment, you were also acting Selfish, you were very mean an selfish against the innovators an hardworkers an honest people who works for their honest living by enterprising new ieas new tactics, new works new earning situations. Infact you were selfishly trying to criticise Humanity.
To be selfish is a property of human so you being selfish was no wrong, but selfishness must be reasonable it shoul be rational, but you were irrational. You want to exploit those who actually makes it possible for you an me to live successfully. The man who innovated Fire was an Entrepreneur..
The man who innovate Agriculture was an Entrepreneur.
The Man who Innovated first Stone weapon to fight against Wild animals was an Entrepreneur…
The Man who made first house on earth an took humanity from caves to homes was An Innovator…
Every prosperity of Humanity was caused by these Entrepreneurs an Innovators..
It was very selfish of human to develop agriculture an discover fire, man exploited the nature and animals an plants selfishly for his success. Without being selfish, there was no chance for Humans to be successful.
Unpretentious Diva Says:
October 21st, 2008 at 12:57 pmGaurav says,
Well, gaurav I would like you to understand the issue of Fiat Money Vs Gold money.
It is no new concept of debate and it is being discussed in the economic sections since long.
You can read about it here, at “Fiat Money Vs Gold Standard!”.
That article will solve out all your questions related to the doubts like “who will print the money?”.
About any committe of market, I never said there should be a committe of market, I sai there should be a freedom for you and me to decide, There should be soverign power in our hands to issue currency. Gold Standard provides that Freedom and soveriegnity to each and every individual be he poor or rich, and it gives almost no situation of exploitation of anybody by anybody.
You can check about it at wikipedia too here at, Gold Standard.
renegade_division Says:
October 21st, 2008 at 1:29 pm@Sushant says
What do you think is the definition of Capitalism?
The system of governance in America is Capitalism, then yes Capitalism has failed.
If you mean the system of Liberty where Capital governs everything, then NO America does not have Capitalism and Capitalism has not failed.
Although on the second sentence you do claim Capitalism has not failed, but then you say its because of uncontrolled freedom. That’s like saying Socialism failed because too much equality was reached.
@Faisal
First of all thanks for the appreciation. Now lemme explain you why throwing life jacket to them is actually going to worsen the problem.
On second thoughts lemme write an article on it, just check the blog again later.
renegade_division Says:
October 21st, 2008 at 2:59 pm@Faisal
Here is it:
http://www.reasonforliberty.com/reason/economic-meltdown-explained.html
Kunal Says:
October 21st, 2008 at 7:07 pmwell its a good article,but sorry to say,its too stale a news in the economic world.so many new things hv happened recently,for a stock analyst like me,its too old…dont mind…but good article on a whole.
RawThinkTank Says:
October 23rd, 2008 at 10:48 amU r not Diva , u r a Goddess