Sunday, May 20, 2012

Why the f*** we want high interest rates?

These days everybody used to cheap money. Government used all its might in the past decade by fooling people and now people are very happy with high inflation regime.  The same people ridiculed Zimbabwe when they print 1 million currency note.

When we pitch for high interest, we are being looked like a villian who comes to crash their party. Excuse me. your party is already done with. Now it is pay back time. Today we will rewind some of the basic economics

1. Capial should not be created by central banks. Capital moves from savers. People save from their earnings by way of bank deposits and it moves from banks to business.
2. The cost of capital should be always 2% more than the prevailing inflation.
3. In India as per govt figures inflation is 7.5%. Consumer inflation says it is 10.5.
4. We all know, real inflation is more than govt figures.And world over countries use consumer inflation and not like India where we use WPI.
5. Taking all into accounts, I liberally give the benefit of doubt to govt, and assume real infation is somewhere near 10%.
6. Based on this fact, interest rate should be atleast 12% for somebody who wants to save. if it is not so, can I say RBI is doing a fraud on the system and government is cheating the common man who comes and deposit his hard earned money in Bank?

We are atleast 4% down from the real interest rates. Can any economist reply to me. It is an open challenge.

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