Thoughts on economics and liberty

The real issue with India’s foreign reserves – the US is playing a ponzi game

My follow up email to my previous blog post. I copied Raghurajam Rajan into my email, plus bccd. some senior leaders of India.


Shubhendu. So long as India’s reserves hold their value, there is no issue with having large reserves. Indeed, a freely floating and convertible INR (which is not the case today, sadly) would have risen in response, making imports cheaper and distributing the benefits of the reserves to our consumers.
The issue that since the 1971 default by the USA (going off the gold standard), currencies are no more equivalent to gold and don’t hold their value. US Treasuries are not God-mandated values but are contingent on the actions of the the US government – which has been driven by Keynesian and socialist ideas for many decades. US policy makers have gone bonkers. They are borrowing as if tomorrow will never come.
Accordingly, the US has no choice but to default on its debt. A Trump Presidency seems most likely to be the time when such default will occur. Such a default will send shock waves across the world, but this outcome can’t be reversed, now. The die is cast. US debt levels are just too high to service with a normal interest rate environment.

Now, Raghuranjan Rajan has been calling for a more normal interest rate environment, but as we know, Janet Yellen is NOT going to oblige him, given the risks of a meltdown of US government finances. Therefore, the US is fooling the world in plain sight. Those left holding the USD and US government debt will be left holding the [wooden] spoon. This is a sort of Ponzi game.

If Rajan carries on holding USD and US securities, he could cause tens of billions of dollars of losses to India.

I consider he should immediately diversify – and away from currencies (since almost all fiat currencies are excessively debt-ridden). Gold appears to be the best safe haven. And maybe Bitcoin/ cryptocurrencies – anything of value whose supply is limited. Fiat currency always tends towards unlimited supply. They are all a bogus piece of paper.

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Sanjeev Sabhlok

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