Thursday, June 26, 2008

US Inflation Pandemic (Effects of a ballooning dollar supply and connivance of central banks in propping up the US dollar)

Yahoo reports that Japanese inflation has risen the quickest in a decade here. Chuck butler from dailyreckoning says that although the Reserve Bank of India's (RBI) CRR tightening up is a good move, it has come quite late in the day.

The Reserve Bank of India (RBI) raised interest rates 50 BPS last night, and the RBI Governor issued a statement that said he believed capital inflow into India had remained strong. The Big Brokers, Goldman and JP Morgan don't believe this rate hike will help a sliding rupee (INR)… I tend to disagree (you knew I would!) with them. Yes, India's current account deficit is higher than I would like to see a country's deficit, but, if traders swept New Zealand's huge deficit under a rug because of their huge rate differential, then they could also do it for India.

I guess we'll have to wait-n-see… But, kudos to the RBI for raising rates aggressively. Unfortunately… I'm still mad as hell and won't take it anymore about the RBI's intervention months ago to stem the rise in the rupee. Goofballs! If they had allowed the rupee to continue to gain, it would have done some of the inflation fighting for them! But, as usual, central bankers just can't leave a good thing alone!

Read his full article here. He also says that if the RBI hadn't intervened in the money market to prop up the dollar whenever it fell, it should have done the job of fighting inflation for India. But then how would we have impressed our US masters? How would we have impressed our exporter lobby and our software "industries"? For an analysis by Mike Moffatt on how we import inflation by keeping exchange rate controlled (say, by propping up the dollar against the rupee), read this article (actually the article is an reverse analysis, he goes from inflation to exchange rate, we will have to go reverse). The monetary and fiscal policies of the Indian governemnt has been ruinous and will take a heavy toll on the common man in the coming days. It is also expected that the oil prices aren't going to ease any sooner (for the reasons, see Jim Cramer talk on this video). Are we on the brink of an economic disaster?

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