Monday, September 29, 2008

India’s Macro Manipulation

Economist Dr Subroto Ro writes in Business standardIndia has followed in peacetime over six decades what the US and Britain followed during war. Our vast growth of bank deposits in recent decades has been mostly a paper (or nominal) phenomenon caused by unlimited deficit finance in a fractional reserve banking system. Policy makers have widely misinterpreted it as indicating a real phenomenon of incredibly high savings behaviour. In an inflationary environment, people save their wealth less as paper deposits than as real assets like land, cattle, buildings, machinery, food stocks, jewellery etc”.

It is also quite interesting to note the India’s money, income and prices situation since 1935-2008.

If you see the second graph growth of money supply exceeds both growth of wholesale prices and the real income.

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