Depreciating Currency in India Leads to Spike in Gold Demand

According to a recent article in the Wall Street Journal the currency in India (rupee) is depreciating and that is leading to an increased demand for gold as a hedge against the loss in purchasing power.

For the people to buy gold they need to sell off their rupee and buy dollars so they can buy gold.  Of course this is leading to a further falling in value of the rupee, which is vexing the progressive government in India.

Like most progressive regimes they are deficit spending and want to continue to do so.  The problem is with a falling currency value that gets harder and harder to do as borrowing costs go up and purchasing power decreases.  Bad news if you are deficit spending progressive.

What is a progressive deficit spending regime supposed to do?  Well, they have come up with a really original, never thought of before solution.  They added a tax to all imports of gold effectively raising the cost of gold to their citizens.

The farmers out in rural areas who like gold as a vehicle for saving and wealth preservation as well as many others have come up with an equally creative solution, buy gold on the black market created by smugglers sneaking gold into the country that isn’t taxed.

Progressives, not to get with their pants down have started wasting untold resources to catch the smugglers…

Does this sound like a familiar tale?  It should it has been going on forever.  The countries differ.  The product being smuggled may differ, but the cause is always the same.  The government trying to stop free commerce by applying taxes or otherwise interfering with a free market for a highly sought after, i.e. in high demand good.

This will not work.  It never does.  If their is a demand for a product, regardless of what it is all the taxes, bans, and police in the world will not stop a black market from being created for the product.  Just ask the DEA in the U.S. how well that “war on drugs is doing”.

In this case this is particularly rotten because the people are simply trying to protect themselves from their own government’s stupidity of depreciating the currency out from under them.  When you depreciate a currency through deficit spending and lower people’s purchasing power over time you are effectively levying another tax on them.

The farmers work out in the fields busting hump and keep getting poorer year after year.  They of course see this and try to stop it by moving to a hard currency only to get taxed for that on top of the depreciating currency tax.

This will not work of course.  The gold will keep flowing the black market will keep growing and the currency will keep depreciating.  The government will keep wasting resources trying to stop the smuggling, when all they really need to do is stop spending money they don’t have and taxing people for simply trying to protect themselves.

So simple even a liberal progressive deficit spending government can figure it out… or not.

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