India: Gresham’s law gone crazy

Dear Everyone:

India continues to become a police state.

The banned bills are today being sold in the grey market for a premium of about 10%. Gresham’s law has gone crazy. The reason is that after the notes were banned, these were the ones used the most for many days. Companies trying to get rid of them paid in the old notes. Now, they have suddenly realized that cash-in-hand that they show in their balance sheets on 31st October 2016 must be deposited in banks, or else the government will assume that companies paid in the banned bills, making them pay a huge penalty and of course nice bribes. With most of the banned bills now deposited (which shows that they caught no unusual number of people by demonetization), they are now in shortage.

Today two things are becoming clear… They will likely soon put capital controls in place. I have been told that public sector banks are making it very difficult to move money abroad. Also, from tomorrow, any deposit of old notes over Rs 5,000 ($75) will require interview with two bank officials. Also, government is likely to bring in new rules to impose how much cash one can hold.

India in my view has gone past the tipping point. India’s descent into utter stupidity continues. Given that India is a very irrational, superstitious and tribal society, there is no mechanism to control this descent. As long as British institutions still provided some guidance, India seemed to work. Now, those institutions have been hollowed out and are showing advance stage of decay.

Here is my latest interview with Maurice Jackson of Proven and Probable:

Maurice Jackson and I will likley continue to talk about the demonetization issue. You can subscribe to him here:

Warm regards,

Jayant Bhandari

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