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More on India's Attempt to Curtail Cash

Nov 22, 2016


BALTIMORE - Today, we look at the biggest threat to Mr. Trump's presidency.

So far, we have been delighted with the election of Mr. Trump. Not because we have any confidence in, or affection for, the man.

But he claims to be a disrupter. And this is an economy that badly needs disrupting. We want to see what happens.

Curtailing Cash

So, let's begin by looking halfway around the world, where a dear reader updates us on India's recentĀ attempt to curtail cash:

  • My daughter is in India for a wedding and has personally been impacted by the lack of cash. ATM lines for five to six hours to get out the equivalent of about $20. No taxis because no one has any money. Hotels don't have money either. Things have ground to a complete halt.

Not interested in India?

But this story is a warning to us. There is not enough physical cash in the system. We rely on bank credit to fill the gap. And that means the credit system must not fail... credit must not contract... ATMs must work... credit cards must be honored...

...the whole system has to work... or it will collapse into an awful mess.

Ours is a system that runs - since 1971 - on credit, not cash. And credit is subject to the credit cycle. It expands. And it contracts.

But a credit contraction in a global economy with $63 trillion in debt is a big deal. That's why the feds fight so hard to stop it. Economists, politicians, Deep Staters - everyone wants to avoid a correction in the credit market. At all costs.

The pattern began after the great stock market crash of 1987, when newly arrived Fed chief Alan Greenspan rushed to support stock prices with aggressive rate cuts.

It was the debut of the 'Greenspan put' - the Fed policy of cutting rates to put a floor under prices if the stock market tried to correct.

After that, each time the market sneezed, the feds were there to wipe its nose.

The recession of the early 1990s (which George H.W. Bush blamed for his election loss to Bill Clinton)... the 1997 Asian financial crisis and the collapse of the hedge fund Long-Term Capital Management... the mini recession following the 9/11 attacks... and finally the 2008 crisis.

Each time, the Fed (aided and abetted by the same Wall Street insiders who are now joining the Trump team) made credit available on easier terms.

And now, by our estimate, we have about $35 trillion in excess debt. It's a 'debt bomb' that will probably blow up in Mr. Trump's face.

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But the Fed was not leading...

It was following the example set by the Bank of Japan, which has been fighting a credit contraction for more than a quarter-century.

It was the BoJ that was a pioneer of Zero Interest Rate Policy (ZIRP), Quantitative Easing (QE)... and Negative Interest Rate Policy (NIRP).

And now, the BoJ leads the way again. Reuters:

  • The Bank of Japan on Thursday fired a warning shot to markets by offering to buy unlimited bonds for the first time under a revamped policy framework, as domestic debt yields surged in the wake of Donald Trump's upset U.S. election victory.

Whoa! Unlimited?

Yes, that's what it says. The Japanese have finally gone 'full retard' in their fight to stave off a correction.

They can win battles in this war against the markets, but they can't win the war. Markets can be held off. They can be deceived. They can make mistakes. But they can never be stopped.

This week, we are preparing another open letter to Mr. Trump. (You can catch up on our firstĀ here.)

We will advise him to 'disrupt sooner rather than later.' It will be painful. So, take the pain now... and make it hurt.

Oh, yes... and put the blame on the people who most deserve it: Clinton, Bush, and Obama... Greenspan, Bernanke, and Yellen.

Go on TV. Address the nation. Tell them that you have been left a $35 Trillion Debt Bomb. Disrupt the system. Let it explode... just like Reagan backed Paul Volcker at the Fed and let the inflation bomb explode.

BILL BONNER Founder, Agora Inc

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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9 Responses to "More on India's Attempt to Curtail Cash"

Kapil Dev

Nov 24, 2016

India is on the move with people having enough resilience to this temporary inconvenience. Banks are working very long hours with calm and cool composure. They are also devising methods to help all especially the poor and needy. Some of the ATMs are working dispensing notes and old cash is being deposited in some. People are helping each other and voluntarily sharing with more needy . The long lines outside some Banks are due to the policy of exchanging limited quantity of Notes, which the people are keen to exchange at the earliest. There is also a tendency o misuse this by the people with unaccounted cash trying to defeat the sentiments behind such a move. However when all ATMs are freely accepting and dispensing currency , these lines would also get shortened.
While Notes of large denominations are banned smaller currencies are easily accepted . US also does NOT have large denomination notes as per price parity situation and a large section uses other instruments of making transactions . Cabs , hotels and other expensive establishments dealing in high value are accepting credit cards. Surely the young lady on landing in India did not carry bundles of Indian cash with her. She can use Net banking or mobile along with her plastic money. I am also sure her Indian Hosts looked after her did not make her run errands for petty things.
The recent social media news of a high profile Indian wedding must have explained the extravaganza surrounding an India wedding demonetisation of high value currency not with- standing . Even a modest Indian would prefer that all guests carry happy memories of the wedding celebration and would make superhuman efforts to look after all guests.



Nov 24, 2016

@ATM lines for five to six hours to get out the equivalent of about $20. ---Sir, it seems your information sources are highly misguided. I suppose it would have been appropriate to do some research yourself before mentioning such half truth.

No taxis because no one has any money. Hotels don't have money either.---- Haha.. U really think we Indians have no money..Outrageous..

Things have ground to a complete halt. --- Kindly wake up...

Not interested in India?--- Is equitymaster publishing your posts without your knowledge . I do not see how you could mention this when you are aware that your post may be published in India.



Nov 23, 2016

Everything is fine, at least in Hyderabad. People are using debit/credit cards and mobile/digital wallets. Merchants, most of them, are fast adopting to the system.


Vivek Sharma

Nov 23, 2016

Mr. Nitanjan should not have let his daughter go alone. Now she's certainly lost...... May be on another planet?
Certainly not in India! It took me 25 minutes today to withdraw cash from the ATM outside my residence.
No taxis? As I write, I am in an Uber, for which I have paid from my digital wallet.
To the best of my knowledge, all hotels (even the basic non star variety) in Tier 2 and Tier 3 towns accept payment by credit/debit cards or digitally.... also online through credit card via their websites.
If Mr. Nitanjan seriously has a problem please request him to contact me and we shall be happy to resolve his daughter's problem immediately.
India is on the move. No halts here!



Nov 22, 2016

With regard to your comment on cash crunch in India in your article, please do not paint a scary picture as if everything has come to a standstill. There are some inconveniences, but everything is on the go. People of India have welcome this move and support it whole heartedly.

Like (1)

ramakrishnan k g

Nov 22, 2016

more sensation than facts and sounds like PAPPU.I hope what he writes about the US is not similar Balderdash!!

Like (1)

Prakash Pillai

Nov 22, 2016

Please question that reader whose daughter had such a problem. Was the wedding in some village? Cards are widely accepted across most towns and cities in India and neither me nor anyone I know is facing any major problem.

Like (1)


Nov 22, 2016

"My daughter is in India for a wedding and has personally been impacted by the lack of cash. ATM lines for five to six hours to get out the equivalent of about $20. No taxis because no one has any money. Hotels don't have money either. Things have ground to a complete halt."

She does not have credit and debit cards?

Like (1)


Nov 22, 2016

Strongly feels that so called communication from daughter in India is an exaggerated. Things have not come to a standstill with nobody having any money. While it is true that people are inconvenienced it is misleading to paint a picture like this

Like (1)
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