What is the effect of increase of interest rates in developing economy on cost push inflation?

   

               THE FREEMEN

Dear Brethren,

In response to my appeal Dated August 5, 2010, the Executive Director vide his reply Dated September 27^th, 2010 stated that there is no way to know the effect of increase in interest rates on inflation, increase in unemployment, poverty, closure of industries, foreclosure of mortgages and general effect. http://kapildevaggarwal.blogspot.com/2010_11_01_archive.html

This is palpably incorrect. The effect of increase in interest rates on inflation, increase in unemployment, poverty, closure of industries, foreclosure of mortgages and general effect is easily known. Following is the response which I sent to him;

To,                                       Dt January 20^th 2011

                                                                                                        

Sh C Krishnan, Executive Director,

Reserve bank of India, Shahid Bhagat Singh Marg,

Fort, Mumbai – 400001.

Sub; Your letter / order Dt 27.9.2010

Ref; My letter /appeal Dt August 5 2010

Dear Sir,

A.     Demand pull inflation can be controlled by increase in lending rates but cost push inflation can only be controlled by reducing lending rates.

1.         Vide my letter /  appeal Dt 5.8.2010 I has asked the following query under RTI;-

“After RBI decides to increase rates;-

1)         How many company / business declare bankruptcies?

2)         How many accounts are declared NPAs

3)         How many people loose employment?

4)         How many mortgages are foreclosed?”

2.         Vide your order Dt 27.9.2010 you were pleased to pass the following order;-

“4.        …. It’s needed to be mentioned here that the queries made by the appellant are not capable of eliciting any definite information from the Reserve bank or for that matter, any public authority….”

3.         Should the matter simply end there or is it our duty of to measure the effect of monetary policy on public at large. Is the information too difficult to collect?

a)         Banks collect monthly NPA figures and send them to RBI. The format can include bankruptcies. NPA figures are directly proportionate to repo rates.

b)         Banks have KYC Norms whereby they should also get monthly employment figures of their loanees or can get them along with monthly stock statements.

c)         Banks already submit monthly statements where they have foreclosed mortgages under securitization Act.

d)         Government is already giving monthly IIP (Index of Industrial production) which sees a dip whenever there is increase in repo rates.IIP figures are inversely proportionate to repo rates.

When I asked my query under RTI, I already knew the answer. Object was that RBI should start tabulating / collecting data which is the most important input required for laying down monetary policy. You may argue that closure of factories of business may be for lot other reasons than merely high cost of debt. However a careful analysis of the above data will give a reasonable accurate data about the businesses which are closed / increase in NPAs / increase in unemployment solely because of increase in repo rates.

4.         In my August 5 2010 letter, I had mentioned in ‘PS’ Para 5 that current monetary policy of RBI will lead to hyper inflation in economy. After 5 months results are before you. The simplified version of my contention in Para 5 is as below;-

Causes of Inflation;

Inflation is dependent on constraint in supply.

Lesser the supply- higher the inflation.

Supply is further dependent on cost of supply.

Higher the cost of debt - higher the cost of supply

higher the cost of supply - leads to reduction in supply/

Successive increase in cost of debt since march 2010 has led to present situation.

Suggestions;-

Reduce the cost of debt (lending rates) ie Repo Rate by at least 1.5% immediately.

RBI should buy back bonds in open market operation to increase liquidity which has seen a dip.

I hope you will take my suggestions in the right perspective.

Yours truly in service of nation

            Sd/-

CA K D Aggarwal

Copy to ; Sh Manmohan Singh, Prime Minister of India, 7 Race Course Road, New Delhi for information and necessary action.

Judge Jokes I

Judge Joke 1
The cross eyed judge looked at the three defendants in the dock and said to the first one, “So how do you plead?” “Not guilty” said the second defendant. “I wasn’t talking to you” the judge replied. “I never said a word” the third defendant replied.

Judge Joke 2
The defendant stood up in the dock and said to the judge, “I don’t recognize this court!” “Why?” asked the Judge. “Because you’ve had it decorated since the last time I was here.”

Judge Joke 3
Taking his seat in his chambers, the judge faced the opposing lawyers. “So,” he said, “I have been presented, by both of you, with a bribe.” Both lawyers squirmed uncomfortably. “You, attorney Leon, gave me $15,000. And you, attorney Campos, gave me $10,000.” The judge reached into his pocket and pulled out a check. He handed it to Leon … “Now then, I am returning $5,000, and we are going to decide this case solely on its merits.”

Judge Joke 4
A red-faced judge convened court after a long lunch. The first case involved a man charged with drunk driving who claimed it simply wasn’t true. “I m as sober as you are, your honor,” the man claimed. The judge replied, “Clerk, please enter a guilty plea. The defendant is sentenced to 30 days.”

Judge Joke 5
The Judge admonished the witness, “Do you understand that you have sworn to tell the truth?” “I do.” “Do you understand what will happen if you are not truthful?” “Sure,” said the witness. “My side will win.”

Judge Joke 6
The Judge asked the defendant, “Mr. Jones ,do you understand that you have sworn to tell the truth, the whole truth and nothing but the truth?” “I do.” “Now what do you say to defend yourself?” “Your Honor, under those limitations… nothing.”

Judge Joke 7
The judge said to his dentist: “Pull my tooth, the whole tooth and nothing but the tooth.”

Judge Joke 8
Judge: “Is it true that you owe your neighbor a thousand dollars?” Defendant: “Yes, it’s true.” Judge: “Then, why don’t you just pay him back?” Defendant: “Because it wouldn’t be true anymore.”

Judge Joke 9

A drunk is in front of a judge. The judge says, 'You've been brought here for drinking.' The drunk says, 'Okay, let's get started.'

Judge Joke 10
A young woman was appearing in court to face a public disorder charge. The charges were read out, and she was asked how she pleaded. “Not guilty,” the woman answered emphatically. The prosecution council then approached the woman and said: “Is it true that on the 11th of December, last year, you committed an act of gross indecency with a one-legged dwarf – who was waving a union jack – on the roof of a car, whilst travelling at over 100 mph through the center of London, in a blizzard?” The woman composed herself, looked straight at the prosecution council and calmly said: “What was the date again?”

Judge Joke 11
A prosecuting attorney called his first witness, a grandmotherly, elderly woman, to the stand. He approached her and asked, “Mrs. Jones, do you know me?” She responded, “Why, yes, I do know you Mr. Williams. I’ve known you since you were a young boy. And frankly, you’ve been a big disappointment to me. You lie, you cheat on your wife, you manipulate people and talk about them behind their backs. You think you re a rising big shot when you haven’t the brains to realize you never will amount to anything more than a two-bit paper pusher. Yes, I know you.”

The lawyer was stunned. Not knowing what else to do he pointed across the room and asked, “Mrs. Williams, do you know the defense attorney?”

She again replied, “Why, yes I do. I’ve known Mr. Bradley since he was a youngster, too. I used to baby-sit him for his parents. And he, too, has been a real disappointment to me. He’s lazy, bigoted, he has a drinking problem. The man can’t build a normal relationship with anyone and his law practice is one of the shoddiest in the entire state. Yes, I know him.”

At this point, the judge rapped the courtroom to silence and called both counselors to the bench. In a very quiet voice, he said with menace, “If either of you asks her if she knows me, you ll be jailed for contempt!”

Judge Joke 12
Prosecutor: Did you kill the victim? Defendant: No, I did not. Prosecutor: Do you know what the penalties are for perjury? Defendant: Yes, I do. And they are a hell of a lot better than the penalty for murder.

Judge Joke 13
Judge: All your responses to the questions must be oral. Do you understand? A: Yes Judge: What school did you attend in the fall of 1995? A: Oral.

Judge Joke 14
Judge: Are you married? A. No, I m divorced. Judge. And what did your husband do before you divorced him? A. A lot of things I didn’t know about.

Judge Joke 15
Judge: Your first marriage was terminated by death? A: Yes, by death. Judge: And by whose death was it terminated?

Judge Joke 16
Judge: You stated that the stairs went down to the basement, is that correct? A: Yes. Judge: And these same stairs, did the also go up?

Judge Joke 17
Judge: What is your relationship with the plaintiff? A: She is my daughter. Judge: Was she your daughter on February 13, 1979?

Judge Joke 18
Judge: Doctor, how many autopsies have you performed on dead people?

Ans: All my autopsies are on dead people.

Judge Joke 19
Jury: Twelve men and women trying to decide which party has the best lawyer. Justice: A decision in your favor.

Judge Joke 20

Prove : 2 / 10 = 2
Art student : Out of syllabus
Engineering student : Wrong Question
Medical student : Not possible.
CA. We have to audit to find out.
Judge I will prove it.
TWO / TEN = WO / EN
(W=23rd letter, O=15th letter, E=5th letter & N=14th
letter)
=23+15 / 5+14
=38 / 19
=2
 

Judges only ask the right person Whatever you will want, you will get.

Kaps. 

.

.

Dedication to service is need of hour.

Roxna Swamy, who probably boasts of an even better academic record than her Harvard-educated husband, Subramanian Swamy, recalled in an e-mail that "in the early 50s an American journalist interviewing Nehru expressed a desire to see the floods in Bihar from the air. Nehru, always with a glad eye for a comely white woman, assured her he would make her wish come true.

"Accordingly, he ordered the Defence Ministry to make a plane available to the lady. The file came to my father, a joint secretary, with a proper respect for the nation's property... A stickler for rules, my father turned down the oral requirement of the PM. An indignant Nehru hauled up my father's superior, H.M. Patel, and demanded to know who had the temerity to disobey him. He ordered the errant officer to be hauled up before him... My father presented himself before Nehru, who gave him a long lecture on India and freedom and the need for sacrifice for the country and demanded that my father sign the requisition.

"'Give to me in writing', said my father. Whereupon Nehru treated him to further abuse of which the least offensive was that he was 'a hidebound bureaucrat'. More abuse followed but Nehru did not give the requisition in writing. The American lady was disappointed... My father was sent to the boondocks with a reputation for being difficult..."Her father, the late J.D. Kapadia, was an ICS officer, who had served as the collector of Mumbai and Ahmedabad in the 1950s. Though senior-most, he was denied the post of Chief Secretary of the newly-created state of Gujarat because of his deserved reputation for being a stickler for rules. He took premature retirement and pursued his academic interests till his death.

However, the moral of the story his daughter was keen to convey is simple. These days when asked to bend, bureaucrats begin to crawl. All for private gains. This should stop if the quality of governance is to improve.

If we do our duty honestly like Salman khan’s body guard who till his last breath confirmed that Salman was driving the car and he was drunk. He realized that duty of his job is to protect his employer from outside attack but not to shield him if he does a crime. The world needs more such persons.