Bad Loans at State-Run Banks Add to India's Woes … Slow payments to construction companies from the government are adding to the headaches of a slowing economy and a growing deficit. When people talk about Europe's "government debt problem" they mean something easy to describe: countries that borrowed more money than they can easily pay back. In India, it's a bit more complicated. Here, where the government is grappling with national debt and a growing budget deficit, the state might play the part of the delinquent debtor, the imperiled lender or the foot- dragging regulator — or may play all three roles in a single set of tail- chasing transactions. The private company Hindustan Construction, for instance, is trying to renegotiate its $1.3 billion debt, some of it owed to government banks, to avoid defaulting. The company says its financial problems are partly a result of the government's slow payments for road and highway projects, as well as government delays in giving final go-ahead on other projects already tentatively approved. Bad loans now pose "the most significant risk to the financial system" in India, according to a recent survey of 100 bankers by the Reserve Bank of India. – New York Times
Dominant Social Theme: Public banks are the best. Anyone who believes the government isn't competent to run the economy doesn't understand the grandeur that was the USSR.
Free-Market Analysis: One of the big elite promotions in the past five years or so has been, in our view, an outpouring of prose celebrating the efficacy of state-run banks and "public" central banks.
In this New York Times article, we see that India's state-run banks are having a good deal of trouble with the loans they've made. Having traduced the Invisible Hand and substituted bureaucratic judgment for competition, this is entirely to be expected.
The idea that a person behind a desk knows better than the market itself what is good for Indian culture, business and infrastructure is a patently ridiculous one. But this is the system, nonetheless, that India runs by.
Why does the New York Times report it? As a mouthpiece of the power elites that apparently want to create world government, the New York Times surely provides promotions that bolster this goal. One would think that the New York Times would quash reports about state dysfunction.
But maybe not. Two things come to mind concerning this report. First, there has been a spate of reports that India is the midst of raising additional money to bolster its state banks. Thus, reports about how badly state banks are doing can be counteracted with reports about the dynamic moves that Indian bureaucrats are making to shore up their foundering banks.
Second, and likely far more important, is the larger strategy that the elites are apparently pursuing. There is no doubt by now that the power elite planned the European sovereign crisis. We've reported this in numerous articles, as have many others in the alternative media.
Now the elites are evidently beginning to take down the BRICs – just as we and others have reported, as well. The New York Times article lays the foundation for an entirely reasonable justification as to why India's economy is now beginning to stumble. We shall see similar articles about Russia, China and Brazil. In fact, we already are.
Why are these articles a kind of phony justification for what's being planned? Because these economies, in fact, are entirely artificial. They are central banking economies, created and installed by the same elites that are now using their bought-and-paid-for publications to warn about their foundering. They have achieved their "miracles" via plain-old (and eventually destructive) monetary stimulation. Not much magical about THAT.
We think the outcome is possibly as obvious as it is unfortunate. As these economies, stimulated by monetary crack, begin to come down from their phony high, the world is perhaps headed for a global depression. The depression is surely to the benefit of a tiny power elite that intends to implement global government and a new global currency via economic chaos and regional or world war (albeit of the limited kind).
The happy talk currently being offered by the US media about the national economy will give way to grim prognostications, in our view, once Barack Obama is re-elected. He is evidently the elite's man, and we think they intend to put him back in power.
One would think that the blogosphere, having aptly analyzed what is going on, would call in one voice for a return to a private market economy – one featuring competitive currencies and economic freedom, but that's not what is happening.
Despite the evident and obvious intentions of the elites to continue with their mad goal of realizing world government, there are those within the alternative news media who CONTINUE to maintain that societies are better off with more government rather than less government.
Yes … it seems incredible in this day and age given what we know of how state-run organizations operate, but there are plenty of people in the alternative blogosphere who have accepted the idea that when it comes to money, the state knows best.
The "state" murdered about 150 million people in the past century via wars and other methodologies according to sober estimates. Why intelligent, enlightened people, believe that the state – run by the ever-amorphous "people" – is a valid antidote to current and historical statist abuse is a conundrum.
Regardless of the reasons for promoting government solutions to private problems, reality dictates realistic reporting at some point. When a continent the size of India begins to capsize it can't be covered up. This may be another reason for the New York Times report. Some things are just too big to conceal. Here's some more from the article excerpted above:
The Indian government's debt stands at nearly 69 percent of its gross domestic product, according to Citigroup. That is little changed from 71 percent a year earlier. But its fiscal deficit has been rising, and many analysts expect it to be 5.8 percent of G.D.P. at the end of March, up from 4.8 percent a year earlier.
Meanwhile, as India's slowing growth creates financial challenges for state-run and private companies alike, the risk has fallen disproportionately on government-owned banks, which account for about 75 percent of India's banking system.
At the end of December, 3 percent of loans made by the 15 largest state-owned banks were nonperforming, compared with about 1.8 percent for six newer private banks, according to Avendus Securities in Mumbai. CARE Ratings, a credit rating firm, estimated that 17 public and private banks collectively had $25.7 billion in bad loans on their books at the end of 2011, a figure expected to grow in the coming months.
Over the past two years, RBI was raising rates in a futile effort to contain stubborn inflation, as the government fumbled on fixing decrepit infrastructure and other supply bottlenecks in the economy. Now, it has switched to pumping huge amounts of cash into the banking system to cool another government-led crisis, a funding crunch caused by heavy public borrowing to finance popular subsidies on fuel and other goods.
Gee, it looks like state-run banks aren't any better than the mercantilist private/public model adopted by much of the West. We're not surprised, of course. We've been pointing this out for years.
Monopoly fiat money is the culprit, not how it is administered. And monopoly fiat money is inevitably a government invention because NO ONE ELSE can insist on a monopoly. That's why those who constantly maintain that Western central banks are private are deliberately providing misinformation.
There is NO SUCH THING as a private monopoly, unless it is one that the public actually wants and grants. And evidently and obviously the public does NOT want a monopoly central banking system that has inflated away some 99 percent of the dollar reserve currency in the past century. Still it persists: The elites that control government make sure their pliant surrogates don't ban the cash cow.
Yes … the only reason the Fed and other Western central banks still remain in power is because they are propped up by their GOVERNMENTS. They are evidently and obviously "public" within this context. In fact, their enabling acts are inevitably provided by the governments they regularly interact with.
This is the Western "model" then – a quasi-public model we call mercantilist. The elites that apparently control hundreds of trillions via these banks and utilize mercantilist practices in order to "rule from the shadows." That is, they encourage big government and control it and pass laws that benefit themselves to the detriment of others.
Central banking is the main mercantilist driver of the modern state, the most triumphant elaboration of mercantilism that has ever been developed. These quasi-private/quasi-public enterprises are the result of the manipulation of government.
It is highly doubtful that MORE government shall provide an antidote to mercantilist central banking. For this reason, we often propose that government ought to be shrunk as much as possible. The idea that government somehow can be controlled "by the people" strikes us as naïve.
The best solution is to encourage free-markets and free-market thinking. What is the alternative – to encourage government with all its evident and obvious excesses and abuses? Of course, ye shall likely ALWAYS have government. But there is a big difference between putting up with government and actively making a case for it.
Nonetheless, people do, even within the alternative media. And even more inexplicably, smart people actually make a case for the continued issuance of monopoly fiat money via central banks. What will make a difference, these smart people insist, is that GOVERNMENT shall control these banks rather than quasi-public/quasi private entities such as those that putatively control, say, the US Federal Reserve.
This is why these factions insist that an outfit like the Federal Reserve is PRIVATE. Of course, this is obviously and evidently untrue. Fed backers spent decades lobbying the US federal government to pass the Fed's enabling act. It was finally passed in 1913, and the Fed, with Congress' enthusiastic support has been debasing currency ever since.
In India – with a fully "state run" central bank, we find little that improves on the West's mercantilist model. As we have often mentioned, the problem is the monopoly fiat itself – the brief that allows the bank to print as much money as it wants.
Power corrupts. Absolute power corrupts absolutely. Given the opportunity, bankers and politicians shall ALWAYS print too much money. That's what the Indian central bank is doing. That's what the "state run" banks of other BRICs are doing. Monetary inflation is a problem everywhere. The problem is the monopoly not the facility.
Reuters recently reported in an article entitled, "Inflation: Reserve Bank of India stuck in damage control mode" that India's state-run central bank was staring at the abyss of monetary inflation in 2012 just as it had in 2011. Reuters called the stance of the bank one of "damage control."
What was the verdict? "[The stance] could leave the economy trapped in an unhealthy confluence of high inflation and slowing growth, with little the RBI could do — other than easing bank funding — to encourage investment or to direct cheaper money to the most stressed parts of India's supply chain."
And Reuters added, "The central bank has been forced to step into this policy vacuum, announcing in quick succession two large reductions in mandatory reserve levels for banks. The latest, last week's surprise 0.75 percentage point cut in the cash reserve ratio, was meant to ease a cash crunch in the banking system that progressively worsened over the past year as inflows into the country dried up and inflation eroded savings."
There you have it, folks. India's central bank – in the face of rampant inflation – has been forced to "adopt a dovish stance," as Reuters delicately puts it.
Perhaps additional growth can moderate the surge of inflation that is now in the works? Not so fast. According to the New York Times, "industry is [not] helped by India's slowing economy, which grew by 7.4 percent last year, down from 9.9 percent in 2010, according to the International Monetary Fund."
And this year, India is scheduled to grow at about 7 percent, even lower, the Times informs us. Of course, we don't believe any of these numbers. These numbers are invariably issued by the same governments that are "running" their economies. The politicians have every reason to fudge, and no doubt they always do.
There is no magic bullet, unfortunately. Mercantilist systems are horrible. But giving full power to the state will not ameliorate the problem – which is one of monopoly on the one hand and lack of competition on the other.
Of course, this observation is being played out in real life. The BRICS, inevitably, will crash and burn as they are likely scheduled to do, as they are beginning to do now that the magic of monetary stimulation is losing its power (as it always does sooner or later).
Those who have argued for "public" solutions controlled "by the people" will be finally abashed as it becomes evident that public monetary solutions are no more effective than mercantilist public/private ones. They will perhaps fall silent. But such arguments will already have done damage.
Why not speak up now? Explain that freedom is the antidote to public and mercantilist abuses, that individual human action is far preferable to being told what to do by bankers and bureaucrats. Why not make the case FOR freedom, monetary and otherwise? It's never too late.