These days everybody used to cheap money. Government used all its might in the past decade by fooling people and now people are very happy with high inflation regime. The same people ridiculed Zimbabwe when they print 1 million currency note.

When we pitch for high interest, we are being looked like a villian who comes to crash their party. Excuse me. your party is already done with. Now it is pay back time. Today we will rewind some of the basic economics

1. Capial should not be created by central banks. Capital moves from savers. People save from their earnings by way of bank deposits and it moves from banks to business.
2. The cost of capital should be always 2% more than the prevailing inflation.
3. In India as per govt figures inflation is 7.5%. Consumer inflation says it is 10.5.
4. We all know, real inflation is more than govt figures.And world over countries use consumer inflation and not like India where we use WPI.
5. Taking all into accounts, I liberally give the benefit of doubt to govt, and assume real infation is somewhere near 10%.
6. Based on this fact, interest rate should be atleast 12% for somebody who wants to save. if it is not so, can I say RBI is doing a fraud on the system and government is cheating the common man who comes and deposit his hard earned money in Bank?

We are atleast 4% down from the real interest rates. Can any economist reply to me. It is an open challenge.

I want to say inspite of your connections with financial service industry and probably friends in bureaucracy you are very open and forthcoming in your views..

Please continue…

Ok, think of doing an armchair exercise – assume companies do not have to pay salaries, then what happens? Lower costs to customers, better profitability for self and customers, perhaps a little tanking of asset values all around, now guess what is more important – your asset values or your transactions? Of course zero salaries is just a metaphor for realistic sustainable cost structures. Only if this exercise in rationalization could be done without losing one’s head or blood or sanity, we would be back in business because there is so much development yet to happen – here or anywhere globally!

This is all tied to the crazy paradigm of modern economics ‘Long Term Sustainable Growth’. That statement is in itself an oxymoron…an impossibility given limited resources of the planet, not to mention limited resources of a country.
At some point, the so-called growth will begin to falter, cracks will begin to appear at the periphery. I’m not talking about short term regression to the mean…I’m talking of long term regression to the mean. What is the long term mean of the human population? (Notice I didn’t use the word population growth…another oxymoron). What is the long term mean of the earth’s energy output (heh heh..that’s simple isn’t it? whatever is the usual energy *input*! i.e. whatever’s received from the Sun) How far away are we from that mean? Does anybody really think oil driven irrigation that feeds hungry billions is sustainable long term?
The craze for growth is most evident in the Finance Industry (is it because its filled with number crunchers? or vice-versa?)
Another easy question…what happens when a country’s resources run out or cannot cope up with increasing growth aspirations? Resources are finite (or renew in finite time) whereas humans’ wants and aspirations can grow infinitely large. Now compare that with what’s happening in our country or the developed world…and you have your answer.