Ref: To avoid man made financial Tsunamis, Federal interest cut not enough.
Dear Sir
Last week’s interest rate cut by Federal Reserve of USA which again injected life in share market of India which got decimated after fall of SENSEX from 22,000 to 16,000 has proved (if at all any proof was needed) that sovereignty in contemporary world has no meaning in traditional sense of the term and USA is economically all powerful to influence economies of various countries including of India, especially in this age of globalization.
But if USA wants to retain this global economical leadership in the interest of avoiding such and other man made financial Tsunamis, then USA will have to do much more and take the cognizance of the following:-
(1)- One need not be Islamist to realize the impact of interest on economy. This is again proved by said Indian example where Fed interest cut made all the difference on crashing Indian share market. Therefore banking system needs immediate following transformation.
(i)- First and foremost, the long term depositors (more than three years) of the banks should be made the share holders of the banks (by converting their deposits into share holdings proportionate to their deposits). This will take care of the problem of money laundering due to carelessness and of non-performing assets which is the result of greed of present bankers who lend money irresponsibly without taking into account the recovery and of its legal mechanism. These NPAs disturb the economy of most of the countries (including of USA where this is one of the major cause of on going economical problems in USA with disturbing implications all over the world)
(ii)- Interest rates chargeable by banks should be made compulsorily unchangeable (any where between 0 to 4 or 5%) through out the world (through UN by making it a mandatory condition for becoming a member of UN) if globalization has to have any meaning.
(iii)- If all the member countries of UN do not agree to come under unchangeable interest rate regime then USA ought to take initiative to form a group of willing countries who may give preference to this group in their financial and economical dealings so that such type of financial Tsunami as witnessed last week in Indian share market are not witnessed by the countries of this group.
(2)- Whatever the economists all over the world may say under the influence of various schools of economics (most of which are nothing but merely a justification for misappropriation of people’s financial & economical space by State) but “Unless the holder of money has its stated value under his physical or constructive possession through money issuing authority – it is not money”. Even checking money issued by banks has collateral as asset back up. Though all the countries have dispensed (and rightly so) with gold (and other precious metals) backup of their currencies M0 but in this process they have made all the M0 not worth the paper these are written on (as these countries have not replaced gold etc. with other assets) with devastating implications for world economy.
(i)- Like India USA is also producing Currency M0 without having proper asset backups. As per last balance sheet of Federal Reserve the Net Federal Reserve Notes are $773,636 Millions whereas tangible asset backup of this currency is merely Gold plus Coin $(11,037 + 932) Millions.
(ii)- Foreign securities as asset backup of currencies also do not have much meaning for two reasons. First, all foreign monies are equally the result of similar monetary farce and secondly in case of default, the use of military power for enforcing redemption is almost ruled out in contemporary world.
(iii)- This monetary farce could easily have been avoided by realizing an important difference between physical possession (as in case of metallic back up) and constructive possession (which can also be real estates – land and houses) with their titles under recoverable pledge with Currency Issuing Authority.
(iv)- Because constructive possession basis of currency M0 requires efficient judiciary which mankind does not have therefore governments of the world, instead of improving their judicial system resorted to said monetary farce. Bu now this monetary farce needs to be stopped immediately if globalization has to succeed.
(v)- For this, Currency Issuing Authority of a country should issue currency (above minimum prescribed amount) to its any citizen who brings gold or any other recognized (by this Authority) precious metal for physical possession of this Authority or who brings recognized (by this Authority) real estate for constructive possession of this Authority.
(vi)- All the government securities against which currency M0 is issued should be returned back to government and in its place government should be asked (as a transition measure) to furnish equal value of its properties to be kept under constructive possession of this Currency Issuing Authority for a period of say 5-10 years during which governments should be constrained to retrieve its pledged properties (as properties of sovereigns are not supposed to be pledge) by returning, to this Authority, equal value in the currencies collected by governments through taxes and other revenues.
(vii)- Governments should be allowed to raise loans through legislation by directly issuing bonds / securities through its treasury (without taking the help of said Currency Issuing Authority) for the maximum permissible amount as a fixed percentage of its revenue receipt
[In this context even Articles 292 & 293 of the Constitution of India has remained ineffective and has served no purpose as governments flagrantly borrowed money in much excess of the security of their consolidated funds].
(3)- Foreign exchange reserve should not be the jurisdiction of Federal (Reserve) Banks. Rather people should trade it in open market as per its value parity to meet their business and other requirements. Even governments for their requirements should obtain or dispose foreign exchange in open market. This is essential if mankind has to be spared from exchange destabilization which is bound to come sooner than later in view of the said monetary farce being practiced by most of the countries and in view of the accelerated globalization.
(4) If merely the doctrinaire money (which forms the major part of money being used by the mankind) is allowed to move freely as being done in this rapidly globalizing contemporary world then these man made financial Tsunamis born out of such baseless money (without tangible asset backups) are gong to be the recurring order of the day.
(5)- Foreign investment in developing countries should also be regulated in such a way that most of the foreign money goes in primary market where it will be used for starting new enterprises which will be beneficial in generating employment in these developing countries. The present practice of allowing (as in India) the foreign money in secondary markets (where already existing shares issued through IPOs are being purchased and sold) is not only benefiting merely the speculators but also causing huge upheavals in share markets.
(6)- If other countries of this world want to avoid such problems as witnessed by India (due to economical problem of USA) during share market catastrophe of last week where India had to sound alert all over the country (including in the States of Maharashtra and Gujarat) in view of anger and frustration (one even committed suicide) of small investors throughout the country then all other countries especially developing countries ought to persuade / constrain USA to take initiative for transforming the global monetary economy through UN, as mentioned above.
In this entire monetary transformation India’s support, cooperation and participation can always be counted. Because India has unimpeachable credentials where it has shown time and again that despite being economically humble, India has always adopted most modern, humane and progressive politico-economical policies (like democracy, socialism of Indian variety, secularism, women liberation, National Rural Employment Guarantee Program etc) and India will not remain behind in adopting globalization also as is evident from the fact that despite last week Tsunami in share market (caused by foreign money), India (the largest democracy) did not take a second look on globalization.
Yours truly
Hem Raj Jain
208, Supriya, Plot # 20, Sector – 10, Dwarka,
New Delhi -110075, INDIA.
Ph: – +91 11 32940177, Mob: 09871194983