FAQs about Inflation

(1) What is the real cause of inflation?

Answer 1 (A1) –

Inflation in general increases ONLY when rupees(M3) are manufactured in form of loans etc and given to the rich increasing rupee volume per citizen,increasing rupee supply and decreasing value of rupee and increasing the value of other items such as food, oil etc.

As per RBI figures, rupee volume per citizen(total amount of rupees in the form of cash, deposits, coins divided by the number of citizens) in 1950s was approximately Rs. 65 per citizen and today it is approximately, Rs. 50,000/- per citizen.

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The value of everything is relative and is determined according to demand and supply.

Let us consider this with a example. Say there is a market and nothing else for simplicity sake. In the market, there is a seller selling 10 kilo potatoes and a buyer having Rs.100. Say, in next scenario, the seller has instead of 10 kilo potatoes, 20 kilo potatoes, will the cost of potatoes decrease or increase ?

Easy guess- It will decrease since the supply of potatoes has increased.

In another scenario, say that the seller has 10 kilo potatoes but there are now two buyers with each Rs.100 . Now, will the cost of potatoes increase or decrease ?

Easy guess- The cost of potatoes will increase since the supply of rupees has increased and the value of the rupee will decrease and other items costs including food, petrol, gas etc. will increase.

This same thing happens in reality.

(2) Who manufactures rupees and Where did the rupees (rupees =M3 is defined as sum of all notes, coins and Fixed deposits ) come from ?

 Answer 2 (A2) –

The Reserve bank has licence to manufacture it and also Scheduled Banks (Banks licenced by Reserve Bank to manufacture rupees in form of F.Ds). There is no Gold standard which was abolished since decades, the RBI-gov on instruction of the government manufactures them.

Only RBI can print notes and mint coins but scheduled banks like SBI, ICICI etc, can also manufacture rupees (M3) in the form of F.Ds.

This increase in supply of rupees decreases the value of rupees and increases the costs of other items including food , oil prices and causes general inflation.

(3) Why does the RBI and scheduled banks manufacture rupees ?

Answer 3 (A3) –

They do so for the rich.Let me give you a example. Say there is a rich company, which has connections with the RBI governor, finance minister etc. They take loan of Rs. 1000 crore from a government bank and pay back Rs. 200 crore.And since they have connections, they will tell the RBI-gov, FM, etc that they will give them cuts/bribes in return for allowing to declare their company bankrupt.

So the company is declared bankrupt.Now , if the bank declares this loss of Rs. 800 crore, then the bank will also become bankrupt and the bank customers also will loose their deposited money and the customers who are common citizen-voters will raise hue and cry and the government will have to face wrath of public. To avoid this, the government asks the RBI-governor/scheduled banks to manufacture Rs. 800 crore rupees. This excess of supply when comes into the market will decrease the value of rupee and increase the cost of the goods.

(4) Rupee volume has increased almost thousand times from 1951 to date .Is that since GDP has also increased or since rupee was devalued?

A4 –

GDP has increased only three times which does not account for the increase of rupee volume increase of thousand times.

Rupee has devalued compared to dollar and other currencies only 25-30 times which does not account for the increase of rupee volume increase of thousand times.

(5) Inflation increases due to stocking of goods by traders or increase in exports creating shortage or due to stock market , future market speculations or shortage of production.

A5 –

All these are local factors and do not cause in general increase of prices , that is inflation.

In stocking of goods, the stocking will cause a shortage and increase the prices, but no one can/will stock for ever and on release of the goods into the market ,the prices will decrease while the general price increase is ONLY UPWARD and prices do not fall once they have rosen.

Similar is the price fluctuation trend seen with speculation of food and other items in stock and speculative marketes.

Not all items are exported , so exports do not account for the general upward trend of increase in prices.

(6) This price rise=inflation affects all citizens , poor and rich, those with connections and without connections ?

 A6 –

No. Those who are poor and without any connections become more poor as price of items increase. While the rich, elite form a nexus with the government and illegally get the manufactured rupees for FREE!!

In a way, the rich, connected people are looting the poor, unconnected common people !!

(7) Petrol prices increased due to conspiracy of the government. Why did the petrol prices did not increase uptil now?

 Answer 7 (A7) –

Petrol prices like other items also depend on the rupee volume and demand and supply principle. Since the rupee volume per citizen has increased, the value of rupee decreased and petrol prices increased. Only difference here is that the petrol price is artificially controlled upto a certain extent, but after a limit , the government has to increase the price which would have anyway increased if the petrol price would not have been regulated. So, 80% of the reason why petrol prices increased is illegal rupee manufacturing.

(8) Inflation , that is general price rise is due to increase in petrol prices due to increase in transportation cost.

A8 –

Share of Petrol cost and transportation cost is only 2-5 % in the cost of a item. For example, cost of rice was Rs. 20 per kilo five years ago, of which share of transportation was Rs. 1 . Petrol price increased 1.5 times, so if cost of rice increased due to petrol price increase alone, the cost of rice now should have been maximum Rs. 21, but now the actual cost is Rs. 40 per kilo.

So, the increase in petrol price and transportation cost does not account for the general price rise of items or inflation.

(9) What is the solution for stopping this? We need to remove the government and make good policies.

A9 –

This illegal rupee manufacturing for the rich has been happening during Congress and also BJP governments` rule. So, removing the government and installing other government will not solve the problem.

Following are the solutions-

a) Right to recall Reserve Bank Governor and RTR-FM- Presently , the RBI governor illegally manufactures rupees for the rich on instructions of the government. Once the posts of RBI governor and FM are DIRECTLY accountable to the masses, they will not do so. Please see the procedure of RTR-RBI governor in chapter 9 of http://www.righttorecall.info/301.pdf

b) The RBI governor should be able to manufacture rupees ONLY with the approval of 51% of the citizens of India. For this, we need Transparent Complaint/Proposal procedure (see chapter 1 of http://www.righttorecall.info/301.pdf)

Please also see chapter 23 of http://www.righttorecall.info/301.pdf for details of `Real Cause of Inflation`

(10) Are progressive taxes, percentage with respect to the income or wealth which increases as income or wealth increases. For example , income tax ,are they unconstitutional ?

 A10 –

Progressive tax does not violate equality. The taxes are used to pay for police, military etc to protect wealth. Now cost of security rises more than linearly with wealth needed to be secured. I.e of cost of securing Rs 1cr of gold is say Rs 100,000/yr, then cost of securing gold of Rs 2cr can be more than Rs 200,000/yr. Hence progressive tax rate is constitutional.

Two set of parallel laws, almost amounting to “two nations inside one land” doesnt violate equality? Well, that is YOUR interpretation of constitution. And also SCjs’ interpretation of Constitution, and perhaps the fact most SEZ owners have SCjs’ sons on their panel and paying crores of rupees had no impact on SCjs’ decision. But the way we 105cr commons INTERPRET constitution, SEZs violate equality.

(11) If Banks allow 100% CRR (Credit Reserve Ratio) accounts (money in those accounts cannot be lent) to liquidate DIC (Depositors Insurance Company) provision , what would be their (banks`) ‘interest’ in accepting such a deposit in the first place? How would that be different from stashing away cash/gold in a locker account?

A11 –

With DIC (Depositors Insuranse Company), banks have become reckless and started giving out loans without any reason, and this has created a huge bubble (instability). Liquidate DIC, give option of 100% CRR to depositor and tell him that if he wants interest, *he* has to risk his money and find a good bank on his own. NPA (Non-performing Assets) will reduce within months.

The interest in 100% CRR account will be less. It is better than stashing gold because

1. Fund transfer is possible

2. There is insurance against theft

It will  fetch less interest, but many people still use it. The 100% CRR will be insured by Govt. The higher interest bearing accounts will be held ONLY by private bank, will not be insured by Govt and every passbook, cheque etc will have a clear warning that “GoI and citizens will pay nothing in case bank goes bust, and this bank may go bust any minute”. Similar to warning on cigarette packs that “smoking can kill you”. After all, truth is that banks do go bust and so let truth be written on every passbook.

This may or may not save depositors. After all, despite warning, people do smoke and do die of cancer caused by smoking. But this surely lessen the economic burden of us commons — we dont need to save depositors when bank pops out. And it also pushes the moral burden on the depositor — he was told that his bank may go bust. So no tears.

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(12) What is the solution for stopping manufacturing of rupees by RBI every time dollars and other foreign currencies depositsare made in India ?

A12 –

We need to modify the system as follows : When a person deposits $1000, his entry should stay as $1000 till he explicitly converts it. And when he converts it, he will be sending a cheque to private company in dollars and getting rupees from him. i.e. no rupees will be manufactured when dollar comes. The GoI buy dollars needed for Military and other GoI needs only. The dollar for petrol imports and all imports will have to be obtained from private sources only. And income in dollars will NOT be tax exempt and expenditure in dollars i.e. imports will NOT be deductible from income. And in addition, we should impose 100% to 300% customs duty, to be paid in dollars only. And we should enact these laws using YESes of commons ONLY. We must not impose it by bribing MPs and getting legislation in Parliament.

(13) What are the pro and cons of having Gold as a currency ?

A13 –

When will any entity, be rupee or dollar or gold become “currency” in India?

When almost all Indian citizens need it and almost everyone see that that entity will enable them to buy goods in future. And if one entity cant meet all needs of everyone, then there will be multiple currencies. eg in India today, rupee is dominant currency. But people do use gold, silver and dollars for hoarding, exchange in a limited way.

Now every Indian citizen needs Military, Police and Courts – directly or indirectly and payment to these services is done in form of taxes – excise, income tax etc. Now if GoI were to demand tax payments in dollars, then importance of dollar will increase. If GoI were to demand tax payments in gold, then importance of gold will increase and if GoI demands tax payments in rupees, rupees will become importance. But if Military, Police and Courts themselves become unimportant and incapable, then the demand for rupees will decrease and demand for gold/dollars will increase.

Now only advantage of Gold over existing rupee is that elitemen cannot increase its volume arbitrarily. But that can be attained by enacting a law that RBI chief cant increase rupee volume without explicit consent of us commons. Hence the “Citizens Rupee System” I have proposed has this advantage of the gold, that elitemen cannot increase the volume as per their whims. Also, in the Citizens Rupee System, the newly manufactured rupees are spent ONLY for Military, Police and Courts. So the flaw of existing rupee system where in elitemen can pocket the newly manufactured money via SBI etc goes away.

But gold has disadvantage that citizens cant increase the volume even if they want. Whereas in Citizens Rupee System , citizens can increase money supply. And gold has another fatal flaw that enemy can take away gold, while rupee does not have this flaw. The enemy cannot take away rupee, because he has to bring rupees to India to get anything valuable. And once rupee is make 100% electronic with all transactions tracked by ID, thefts of rupees as well black transactions will drastically reduce, which will improve tax collection and improve Military, Police and Courts. This cannot be done with gold. If gold is made currency, the undocumented economy will thrive and may also increase.

And another fatal flaw of Gold is that it will makes it difficult for GoI to fund war against USA, China etc . In event of war against USA, China etc GoI may need tons of currency to buy goods, pay soldiers, pay civilians for services etc. Now if gold is the only currency, then GoI will have to obtain gold. Gold can be hidden or sent out of India. So the elitemen will hide it or send all their gold to Swiss banks so that GoI cant touch it. So GoI will run out of currency and would lose the war against USA, China etc. So gold is worst and most fatal form of currency if war against US, China etc is a likely scenario.. Now I am assuming that India *will* have to fight several wars against US, China, Saud, Pak, BD etc and so I oppose gold.

(14) Which is more bad, subsidies or Tax rebates for the economy of the country?

Answer 14 (A14) –

Both, subsidies and tax rebates are bad.

But subsidies are worse.

When GoI says : “earn money from industry A, and instead of usual 35% tax rate, pay a lower tax rate”, the industrialists will

a) invest more in A or

b) wrongfully try to show that their income was from A and not from other sources.

(b) is what I call as diversion or deliberate mis-classification of income.

But here, the person has to at least do some activity to earn income in industry A or some other area from where he can siphon money into A.

But when GoI says that start industry A and GoI will be give Rs X crores as subsidy, many neta-IAS-judges-elitemen etc will start A only on paper and devour all subsidies. So GoI loses money and there is no industrial activity either.

IOW, in tax rebates, GoI loses money but some industrial activity does happen which will benefit society. While in subsidy, the neta-IAS-judges-intellectuals-elitemen chew away all subsidies and no activity may happen.

Now, I am hostile to BOTH. But I am more hostile to subsidy due to above reason.

But most intellectuals , who claim themselves as anti-subsidy are in reality supporters of subsidies that subsidize rich. eg Most oppose LPG subsidies but support land/cash subsidies given to JNU, IIMA etc. as IIMA, JNU etc subsidy goes mainly to the elitekids. The concerned citizens should be aware of their selective fraudulent opposition to subsidies.

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