by Jayant Bhandari, Acting Man:
A Market Gripped by Fear
The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state.
The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.
Fear has gripped the bullion market, for one is deemed to be guilty until proven otherwise. People with perfectly legal cash are afraid of cameras recording their purchases and having to pay outrageous bribes. After an adjustment period people will buy more — not less — gold. For now, the gold market has gone mostly underground with the gold price hovering around US$1,700 per ounce. Did Modi want to boost the informal economy?
The Cultural and Political Undercurrent
The individual has been reduced to a cog in a big machine that exists in Modi’s imagination. The country is expected to rally behind him, for his glory. The IMF is going along with Modi, for in their simplistic view, enforcing western-style institutions on India will lead to the replication of western economic development and the rule of law in India.
Not that increasingly totalitarian and centralized governing institutions work even in the West, but in the alien culture— irrational and tribal — of India, they rapidly mutate and become very corrupt. That is, unless such institutions are run by Europeans. But the days when Britain ruled India are over.
In the irrational and extremely tribal society of India, where calculation and planning are much more difficult, institutions must be much more decentralized than in the West if they are to function properly. At the moment Modi is doing the exact opposite: rapidly increasing his centralized control.
Modi and the other fake-elites are not the only people responsible for the mess. The real poison comes from society itself. India’s salaried middle class has been given western education. But the concept of critical thinking and reasoning never really got any traction in India’s society. The situation has steadily worsened since the British left 69 years ago.
Similar to other Indian institutions, the education system has continued to deteriorate. Members of the middle class, while retaining their superstitions, did learn the superficial mechanics, but devoid of any deeper meaning. In their simplistic, mechanical thinking (for complex thinking never evolves until one has critical thinking), they came to believe that superficially copying western institutions should be the way forward for India.
Moreover, the salaried middle class that supports to Modi, is currently unaffected by the currency ban and hence can claim the moral high ground. It is the hungry, wretched and starving people, the small businesses, the real backbone of the economy, that are worst affected.
Politicians within Modi’s party and in the opposition have struggled to oppose Modi effectively, for they are all corrupt. Given the irrationality of Indian society, people tend to communicate in slogans and sound-bites, not through argumentation. The slogan they have been given by Modi is: If you oppose demonetization, you are hiding unaccounted for, corrupt money.
What most in the self-centered salaried middle class forgot to consider is that their paper-shuffling jobs will soon be at enormous risk, as the cascading effect of the harm done to small businesses will eventually destroy their own jobs. Within three weeks, people are getting laid off across the country. The middle class will also suffer from the inevitable increase in crime that the hunger and desperation of poor people is likely to bring about.
Factories are closing. Millions of the most vulnerable are rapidly losing jobs. Hunger, poverty and famine are on its way. Is this Modi’s version of Mao’s cultural revolution?
Indian institutions had to mutate to cater to the underlying culture. Institutions of India as left by the British are now rapidly degrading, with Modi acting as the catalyst. India will become more totalitarian as the last vestiges of democracy and the associated liberties are destroyed.
It is hard to believe that India can continue to exist as a single unit for long. The problem is that nothing in India is structured to allow for a peaceful breakup. Secession is not recognized in the constitution or in the law, ensuring that any breakup will be accompanied by massive violence and pain, perhaps worse than what happened in 1945, when India and Pakistan split up.
Laid off from jobs, people now visit religious institutions — here a Sikh institution — for free food
It would have been almost impossible for me to believe that a single person would be able to bring a large, complex, and extremely diverse society like India to a sudden standstill.
One could change the government, change some important laws, or even impose dictatorship, but it is almost impossible to quickly and significantly change the direction of the Titanic.
Despite my pessimism about India, I had not considered that there could have been a single key issue that would fundamentally change society, stall the economy, and throw society into utter confusion, desperation and depression – but Modi found a way.
Banning 88% of the monetary value of the currency in circulation, which catered to 97% of consumer transactions, meant that the economy went into a traumatic shock, throwing financial commitments and contracts out of gear. Now a vicious cycle is underway.
Fiat currency is fully under the government’s control. This paper-based currency system is extremely corrupt, as it has no inherent value of its own. All its perceived value is derived from regulatory edicts and citizens have to look to the government for directions. Control over the printing press gives the government autocratic control over inflation, deflation, and credit.
I realize now that monopolistic control over the currency is an even worse problem than I thought. As a result of Modi’s decrees, the concept of money has died for a large section of society.
Please follow SGT Report on Twitter & help share the message.