In many ways, India is the “poster child” of all that’s wrong with the financial world. Sure, the clueless Federal Reserve destroys the world with its “reserve currency printing press” – while the ECB hopelessly attempts to cohere the ill-fated European Union with smoke and mirrors and the cursed land of the setting sun embarks on history’s most maniacal money printing scheme. However, no nation’s politicians have sold their soul more deeply – and irreparably – than India’s.
The Reserve Bank of India’s notion that exploding deficits are due to citizens’ gold purchases – as opposed to their own, hyperinflationary monetary policy – is borderline psychotic; and consequently, the world’s second most heavily populated nation is well down the “Egyptian road” toward widespread social unrest. To wit, recall the incredible King World interview with Pippa Malmgren three months ago – when she spoke of exploding Indian food prices. In fact, things have gotten so bad, the Indian government recently enacted legislation to feed two-thirds of the population with essentially free food; an insane move that will not only balloon said deficits, but puts the government at open-ended risk of further price increases. And now that the Fed – and other Central banks – is in “QE to Infinity” mode, the odds of such an occurrence have dramatically increased. And if you don’t believe me, take it from my extremely knowledgeable Indian source…
Between 2004 and 2013, food prices in general rose by 157%. But when you get into the nuts and bolts, the real pain becomes starkly clearer. India is the second largest producer of vegetables in the world, yet chronic supply shortages – coupled with serial hoarding – has led vegetable prices to shoot up by a deadly 350% over that period. Onion prices have increased by an incredible 521% since 2004, and it’s not a smooth, even rise. There were times when onion prices doubled, even tripled within weeks. This happened in the winter of 2010-11, and it is happening again now – with onion prices touching Rs 70-80 levels in most parts of the country. Guess what, the government says inflation is under 10 %. Total bull.
Tuesday’s news that the Indian government escalated tariffs on gold jewelry imports will only fuel the growing PM black market; not to mention, dissidence against an “Apartheid-like” government forsaking citizens’ long-standing love of REAL MONEY. Moreover, today’s asinine mixed signals of a token rate increase – coupled with extreme liquidity injections – will only undermine the RBI’s dying credibility further.
Now that the Rupee’s intervention-based “dead count bounce” is on its last legs, don’t be surprised if its next move – as well as those of the other “Fragile Five” currencies – is sharply lower. Remember, the root cause of “second world” currency collapses is imported inflation; and now that the Fed loudly validated its “QE to Infinity” policy, said collapses appear destined to intensify in the coming months and years.