Living on borrowed time

If you had access to money at 2% interest per annum what would you do?

Borrow as much as is possible and enjoy your life to the maximum. Buy stuff that you don’t require and spend on cars, holidays, parties and purchases.

You would buy all the things that you always wanted to buy and hope to pay off the loan over a period of time. As you were a US citizen, you would be sure to enjoy the highest standard of life while being sure that you would have a steady job that would allow you to pay off the loans that you had taken. You would live beyond your means.

The world would salute you as a consumer from a nation that makes the factories of the world run. The world would lend you its own money to sustain your consumption and spoil you for choice. You would not have to bother about saving any money as countries across the continents would be lending you their savings in the hope that you buy from their factories. When you want some more money, your bank would support you by in turn borrowing from the Federal Reserve. The Federal Reserve would just print the dollars that the banks needed to lend to you. The banks would in effect live much beyond their means too.

And to prop your habits of living beyond your means, the Government would float another scheme of printing more dollars. 700 Billion to be exact to start with and keep printing till your life was restored to the same level of comfort that you always enjoyed.

And one day the countries that were lending to you would realize that all the dollars that your government gave for purchasing the commodities from them were worth nothing but just pieces of paper that said ‘In God We Trust’. Your government would then never be able to prop up its own currency as even God would not have any trust in the paper that was printed by the Federal Reserve.

Is this the situation that you want to be in?

The young generation will shout Why the Bloody Hell not! Who has seen tomorrow anyway?

But the laws of economics have a strange way of catching up. When supply increases, demand increases. When supply of money increases, prices increase. Goods and services become expensive. There is unmitigated inflation. Bread costs millions and prices change by the hour. You see paper that is not backed by any asset has no value.

Do you see this scene repeating in India?

Well all the indicators point to such a scene replaying in India. Supply of money has increased by leaps and bounds. RBI along with the Government of India is doing the very same thing that US did; why not copy the model that is so successful at raising standards of living eh?

Property prices have increased by 300 to 400%. Commodity prices are on an upward march as are the salaries. But are savings also increasing?

Government of India is happy with the advance tax that it is collecting. It fails to realize that tax is being paid from the increased money supply that has hit the markets.

Till such time that people wake up to the problem, we are all living on borrowed time.