How long will the bluff work?

The new Chief Economic Adviser of India, Raghuram Rajan said today," After the initial policy burst in the immediate wake of the of crisis, stimulus both on the fiscal side and on the monetary side, we ourselves in India are reaching the limits of stimulus and we must contemplate ways of generating growth again." It is not easy for us mere mortals to understand the pearls of wisdom dropping from the lips of economic gurus. " Initial policy burst " means the naked bribery of the electorate that the Congress adopted in 2008 to win the general elections in 2009 when they forgave all loans to farmers, increased salaries of worthless civil servants by 80% and started the NREGA scheme which pays rural folk for fictitious work. " Limits of stimulus " on the fiscal side means that the government cannot spend any money because it is broke, with both the fiscal and the Current Account deficits beyond control. Any wild spending will see deficits jump, a credit rating downgrade and a free fall of the rupee. The government hoped to raise Rs 5.7 trillion in taxes but will fall short by Rs 750 billion. The reason is double digit rise in the Consumer Price Index and the punishing increase in taxes on everything across the board. This has hit consumers so hard that they are unable to spend, as shown by a fall of 8.25% in sales of cars in November. The government blames the lack of growth on the RBI keeping interest rates high in an effort to reduce inflation but this is belied by a 10% increase in property prices. If interest rates were a hindrance to growth how are property prices, dependent on mortgages, increasing at a scorching pace. The reason is that the property market is financed by black money which is independent of the RBI. High tax rates have prompted the rise of hawala transactions within India. Previously hawala was run by smugglers in foreign currency. Expatriates would hand over dollars to gang members and someone in India would pay in rupees. The smugglers used those dollars to smuggle gold, guns and alcohol. Now there is a thriving hawala market inside India. You pay cash in one city and an equal amount is paid to a person designated by you in another city. It is instant and the fee is Rs 200 per Rs 100,000 remitted, which is the same a bank would charge for a demand draft. " Limits of stimulus " on the monetary side means that inflation is out of control and if the RBI reduces interest rate inflation would zoom and consumer confidence will collapse. The economy runs on consumer spending and not on exports. Exports were down by 4% in November to $23.2 billion which means that we are not going to achieve a target of $300 billion for this year, an amount that China exports every month. Instead of saying that we are in a pile of steaming dung it is so beautifully expressed. Love these gurus.