I could infer that Marketers need to specialize in communicating the right thing in a right way to the customers with complex minds rather spending on fogged focus. No matter how they achieve it but still it remains a huge challenge even after many technological transformations in marketing strategies.

The day i read this article, been thinking on it enormously because it has raised alot of question in my mind.

After reading the article the first thing that comes into my mind is that even though the banks have option to issue loan without having it but still they will need money in physical form to lend to the customer. You have suggested that banks have RBI as the unlimited source of money but the next question is that even the RBI can not issue notes untill and unless it has some reserves to back it like bullion or foreign reserves or BOP receivables. So if this assumption is not correct then how it is decided that how much currency the RBI can print?

Regards,
Saurabh Singh Gaur

2. Pure fiat money does not signify the value of the original precious metal. One can only say that the regression theorem helps us work our way to the explanation of how the fiat currency gets its particular purchasing power.

3. Even under a system of market determined money, how prosperous people were was not really explained by the amount of money people held but by how much they were able to produce and hence consume. What moving away from market determined money has done is not just to delink “economic status” from gold reserves. It has forced the economy into a repeated cycle of inflationary booms and busts that will and can only end with the collapse of the fiat money system. Until then, massive human suffering is caused by the fiat monetary system.

Your mistake is also in seeing “cash flow” on what you consider “productive” as the proper goal of an economy. On this platform, you seem to think preventing other people from spending their cash on what they find most appropriate is OK.

Putting a stringent cap on gold imports will only lead to gold smuggling. While there may be a temporary improvement in CAD, in the long run, more foreign currency will reach the hawala market and fuel gold smuggling. So there isn’t much anyone can do about it.

Finally, the point of the article is that the entire question of CAD is a manufactured one. It is caused by the fiat monetary system with limited international currencies. Going back to a market determined system of money eliminates the problem of CAD once and for all. Attempts to retain the present monetary system and crying out loud about CAD is a good case of wanting to have your cake and eat it too.

From the interpretation of the solutions given to Aditya’s misunderstandings, I got intense knowledge on FRB and elimination of gold reserve from the existing system. But, still a fog is there in my understanding. Please correct me if my following interpretations are wrong.

1. FRB replaced conventional Gold reserve driven economy. This means that printing of fiat money or cash flow (on both electronic and paper means) in the economy should be based on the Banking rates REPO, reverse REPO, GDP, CAD and other current economic criteria but not based on Gold reserves.

2.Pure fiat money or currency of today is just an abstract to signify the value of any precious metal from which it is evolved.

3. Because of de-linking of Gold reserves, the economic status quo of a country stays independent of Gold reserves. Now, gold is just considered like a resource (just like iron or coal) on which only investments are attracted because of its scarcity.

Can we add “Burgeoning fuel price hikes” with the above list of factors which affect fall in auto sales?
If yes, What could be the scale of influence of fuel price hikes in Auto sales?
I believe, for an aam aadhmi, more than banking regulations, fuel price occupies the major attention which actually correlates with his/her day-to-day expenses. What is your comment on this?

*Here, Aam aadhmi is someone who is interested more in buying economic bikes (Splendor, Discover,etc.,) and cars (Alto, Indica,etc.,).

Gold and Oil resources form nearly 40% of our import bill. Oil is something on which we cannot impose any compromises other than slight hike or drop in prices/ subsidies. But, gold is actually an unproductive expense for the economy. The more we import, more we hinder the scope of cashflow in the economy. According to economic statistics, almost 40% of the gold on world trade has been imported by India. By putting a stringent cap on this limit, can we foresee any fall in CAD?

First, I wouldn’t use the word “investment” when I speak of Gold, unless you are talking of it as an investment in a cash balance. The reason to hold gold is simply that in the long run, fiat paper money is bound to get diluted. Given enough time, any fiat paper money regime enforced under a fractional reserve banking system must reach a point where it implodes in a crack-up boom. When that time comes, people are certain to look for an alternate form of money. There are few options available in the form of goods that are highly marketable, are scarce, have a high value to volume ratio and are durable other than precious metals like gold and silver. So people like me who swear by the free market would say that in that eventuality, having already converted worthless paper money into precious metals when it would have got you much more gold and silver would be deemed a very wise move (Note that at the time the fiat paper money has become worthless, it will get you very little gold or silver). So, the real need to hold gold and silver is to be able to permit you to restart commercial quickly transactions when fiat paper money becomes worthless.

So, holding a certain proportion of your cash balance in the form of gold and silver is something I would always recommend. What proportion is up to each individual depending on their immediate cash requirements, their cash flows and their perception of the time horizon of the inevitable crack-up boom.

Please do explain (any other better example to explain this will also do).

http://consultingbyrpm.com/blog
http://krugman-in-wonderland.blogspot.com
http://bastiat.mises.org/

A very good book available as a pdf version to understand this very concept that I have touched upon is this

http://mises.org/books/mysteryofbanking.pdf

Economics, however, will take far more serious reading spread over much more time. A good introductory book would be

http://mises.org/books/lessons_for_the_young_economist_murphy.pdf
Also available in epub version as
http://mises.org/books/lessons_for_the_young_economist_murphy.epub

A more elaborate book to learn hard core Austrian School economics is

http://mises.org/books/ManEconState.epub or http://mises.org/books/mespm.pdf

If you want a quick intro to Business Cycle Theory, try this

http://mises.org/books/economic_depressions_rothbard.pdf

Hope you find the time to check these out.

Also sir, are there some good blogs that address issues such as these apart from your own here ?

Actually, a proper reply to your question would be an entire article by itself. In fact, it would become an entire series of articles. For the moment, I will just mention that there are many errors of understanding that are visible in your question itself. Once these are corrected (which I will do in my next article), we can move on to the proper understanding. Do bear with me for a day or two as I am travelling on work.

Also, when this delinking took place, did anyone (economists etc.) see any alarm bells ringing ?