Laundered inflows drives up Indian rupee exchange rates !

Isn't it strange that as global currency markets shiver over the intense Eagle-Bear cold war, the India Rupee is appreciating? The rupee has gained six per cent since August 29, 2013 against the dollar, when it bottomed out. Then the Reserve Bank of India (RBI) and the finance minister P Chidambaram and the mandarins in North Block had then attributed the fall to "speculation." Very little has changed other than the hot air from the mandarins in North Block.

Soaring prices drive Indians to the sea

Curiously, this round of rupee appreciation appears to have accelerated in the second half of January despite adverse economic fundamentals. In January this year the depreciation pressure on the rupee was high, especially since the key economic parameters, inflation, current account and capital flows - influencing exchange rates have remained in the danger zone. Consumer inflation as measured by the consumer price for labour remains in double digits. An inflation differential of one per cent between the $ and the rupee has an 800 basis points impact on exchange rates. With dollar zone consumer inflation at 1.6 per cent, the differential would mean 6.7 per cent currency depreciation.

The second indicator, the current account deficit appears to have shown some improvement. The current account deficit for the December quarter of this financial year was 0.9 per cent of the Gross Domestic Product. This was largely due to the improved exports. Merchandise exports rose 7.5 per cent to $80 billion for the third quarter of this year. About 70 per cent of merchandise exports are to Europe, Americas and China. As for services exports, particularly software and IT services, Europe and the Americas have not shown any increase in imports. In fact, imports into both these regions have shown little improvement. U S imports from all over the world increased by only $3.5 billion in the last quarter of 2013. In the case off Europe, there is little or no increase in imports of goods and services from India. (See here and here). So where has the improved export earnings come from? Certainly not from Africa or Indonesia!

One pointer is that the 70 and 80s trends are reversing. During the 70s and 80s it was imports that were over invoiced. It is exports that are being over invoiced to facilitate money laundering. Increase in gold imports was precisely intended to facilitate that move. This is because increased duties make gold imports through trade channels unattractive. Instead, gold through non-trade channels or criminal channels are encouraged! The duty hikes have pushed up gold smuggling from zero to 200 tonnes in just one year! The second pointer is the boom in the equity markets.

That cash is entering the equity markets, when global financial markets are faced with uncertainty over the Russian-US standoff, is interesting. The Bombay Stock exchange index has just set a record 22000 points. Obviouly equity markets are hardly reflective of the economic or political fundamentals, especially in an environment where barely 1 per cent of the population invest in equities and over 400 million still continue to scrounge for a living.

But then equity markets in India are another vehicle for laundering cash. Curiously this rise in Indian equity markets have coincided with the downturn in the real estate markets of Ukraine, Latvia, Estonia and other European countries where some of India's well healed have park their wealth, beyond survelliance. Preferred assets of these Indians being real estate or farm land in Eastern Europe. See here .

But the Putin Obama standoff has resulted in that Indian cash making haste back home. Therefore it is hardly surprising that even at a point of time of global uncertainty the rupee should be appreciating. By no stretch of imagination is the Rupee a "safe haven currency."  

It is this inflow of foreign currency that triggered the Rupee's rise. But the inflows have some benefits. The appreciation in exchange rate helps the Chidambaram to camouflage the inflationary impact as the government prepares for the 2014 general elections.        

For election expenditure however, what is required is rupee liquidity or cash. This is particularly so in an election year, when most transactions by political party candidates are made in cash. This includes bribing Indian voters a practice that has been refined by India's political establishment and tacitly supported by government.

That cash is in demand was also apparent from currency with the public. There has been a reserve money expansion on account of the inflows. This is partly due to the RBI's purchase of foreign currency from the banks or banks entering into swap arrangements with the central banks for credit. After all Indian banks need rupee liquidity to lend and not dollars. Even if the dollars are parked into Indian bank deposits through non-resident deposits, the withdrawals are made in rupees. Each of these operations leads to demand for rupee liquidity.

The impact is that there has been big increase in currency with the public by almost Rs 1.13 trillion (Rs 1.13 lakh crore) since the beginning of this financial year (April one, 2013). Currency in circulation has also increased by Rs 1.2 lakh crore. This was also part of the reason for the Reserve Bank of India putting on hold the policy of withdrawing currency notes issued before 2005 from circulation, where the year of print does not appear. If the notes had been withdrawn, then cash in the system would have shrunk and election funders would not have been in a position to account for the large amounts of cash for conversion.  

Once the elections are completed, the illusion exchange rate appreciation evaporates and high prices of essential goods will once again overwhelm Indians. 

The fundamentals of a bubble economy kick in, translating into another steep collapse of the currency, hike in prices and tariffs of essential services. Indians will be returned to the time tested standard monotone, "The economic fundamentals are sound and the inflationary pain was necessary and would translate into long term benefits."  But then in the long term we are all dead. Isn't that what the economist, John Maynard Keynes said.

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War threats against Russia and the social crisis in the United States - World Socialist Web Site

War threats against Russia and the social crisis in the United States - World Socialist Web Site
 War threats against Russia and the crisis in the United States

Joseph Kishore

 19 March 2014

Once again, the American people are faced with a full-scale propaganda drive for war. The crisis in Ukraine, set off by a US- and European-backed putsch one month ago, has been followed by a campaign against Russia over the referendum in Crimea that includes economic sanctions and a threatened military response by NATO.
The present crisis is the latest iteration of what has become a permanent feature of life in the United States. Just last summer the American people were subjected to a manufactured war fever that nearly led to a bombing campaign against Syria. Before that it was Libya, with the people being told that immediate military action was required to prevent a “human rights” catastrophe. Threats against Iran and China are permanent, with the possibility of military action always “on the table.”
Over the past 25 years, the United States has been engaged in a campaign of global militarist violence that has taken on an increasingly reckless and unrestrained character. The collapse of the Soviet Union in 1991, accompanied by proclamations of the “end of history,” has been followed by a string of military interventions, from bombings and drone attacks to outright invasions: Panama, Iraq, Haiti, Somalia, Sudan, Serbia, Afghanistan, Iraq again, Yemen, Pakistan and Libya.
An unending “war on terror” proclaimed after the 9/11 attacks has been used to justify constant scare-mongering and the erection of the framework of a police state.
The scenario, with minor variations, has been repeated again and again: A hyperventilating media demonizes the latest incarnation of Hitler; there are manufactured pretexts and hypocritical denunciations from the president; a string of congressmen demand more aggressive measures. Any sliver of information that calls into question the official narrative—such as the fact that the US is working with fascistic and anti-Semitic forces in Ukraine—is ignored.
By now, the population has become somewhat inured to the process, yet the war hysteria emanating from the political establishment only intensifies.
The fact that the country is always at war or on the verge of going to war is a political and sociological phenomenon that requires explanation.
There are, first of all, the geopolitical and financial imperatives of American capitalism. The American ruling class saw in the collapse of the Soviet Union an opportunity to exercise unrestricted control over the entire world. In foreign policy, it conducts itself as though it is inconceivable that a country could have interests that do not perfectly align with those of the United States. Any government that thwarts its ambitions, including control over the most important markets and resources, is a potential target for attack, subversion or regime-change.
However, a central factor in the perpetual drive for war is the social situation within the United States itself. The atmosphere of war crisis serves a definite function—to direct the social pressure within the country outward against the latest proclaimed enemy.
Certain indices give a picture of the state of social relations in America, five-and-a-half years after the crash of 2008:
* Officially, 10.5 million people in the United States are unemployed, but these official figures vastly understate the extent of the jobs crisis. Over the past five years, another 5.5 million people have dropped out of the labor force for economic reasons (and are not counted as unemployed). The percentage of the population that has a job has remained essentially flat since the depths of the 2008-2009 economic collapse, while already meager jobless benefits have been slashed or eliminated.
* Poverty is epidemic, in recent years rising to levels not seen since the 1960s. One in seven US children is living in poverty, ranking the United States 26th out of 29 developed countries, according to the United Nations. A greater percentage of children live in poverty in the US than in crisis-stricken Greece. Some 1.65 million households (including 3.55 million children) live on less than $2 a day per person.
* The response of the ruling class to every social problem has been to lock people behind bars. The United States imprisons a higher percentage of its population, by far, than any other country in the world—743 out of 100,000, or more than 2.3 million people. About one quarter of the world’s prisoners are in the United States, which has only 5 percent of the world’s population.
* Wages of American workers have been under sustained attack for decades, and the share of the national income going to labor has declined steadily. Consumers confront surging prices for basic commodities. Families are saddled with unsustainable levels of debt from credit cards (averaging $15,252 per indebted household), student loans ($32,986) and mortgages ($152,209).
The ruling class has exploited the economic crisis to carry out a vast redistribution of wealth from the bottom to the top. Corporate profits are at record highs, as is the stock market. The richest 400 individuals now possess $2.2 trillion in wealth, an increase of $500 billion from 2012 to 2013 alone. The top one percent has received 95 percent of all income gains since 2009.
In domestic policy as in foreign policy, the past five years represent an escalation of processes that have deeper roots. For four decades the ruling class has been engaged in a systematic effort to reverse all previous social reforms and regulatory restrictions on business, engineering a historic retrogression in the living standards of the majority of the population.
The ruling class itself has taken on an increasingly criminal character, amassing its fortune through fraud, speculation and theft. The depraved social physiognomy of the corporate-financial elite finds expression in both foreign and domestic policy—in war, social counterrevolution and the dismantling of democratic rights.
The tremendous social tensions built up through this restructuring of class relations find no political expression, let alone progressive outlet. The state and its auxiliary organizations, including the media, function as wholly-owned subsidiaries of a ruthless and increasingly criminal financial oligarchy.
Military actions, whatever their geopolitical aims, serve to divert and regulate class antagonisms. The ferocity of American militarism is an expression of the depth and insoluble character of the crisis of American capitalism. It points to the inevitability and necessity of its opposite—social revolution.
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Blog editor's comments : Isn't this what the Ambani group's Relinace is all about. For that matter isn't this this story similar to India's privatisation efforts or the so called sham economic reforms instituted by politically weak ministers, Manmohan Singh and P Chidambaram. Ukraine's present prime minister is the Arseniy Yatsenyuk, also an economist and supported by the World Bank. 

However, unlike in Ukraine, the Indian trio of Manmohan Singh, P Chidambram and Montek Singh have faced opposition. Therefore have never been able to fully implement Washington's agenda in India. The only agenda they implemented was cronyism, soaring unemployment and high inflation caused by income polarisation. The Congress party will pay a high price for that in the 2014 elections.