One of my most cherished possessions is a letter I got from Prof Friedman. I had proudly mailed him an article my friend Marc and I wrote on international sanctions on India and published in the Economic Times.  He, in his own polite manner, congratulated us and said he had argued the same in an article in 1952. I guess some things need to be repeated year after year, decade after decade.

Saw a piece on TV on fake money being pushed into India by some really bad guys via Nepal. No debate here about what should be done to them since the fake money is used to buy weapons and recruit bad guys who harm Indians. Catch them and punish them badly. Very badly.

The questions I have are about the currency.

Question: what is the difference between fake Indian rupee and the rupee printed by RBI?

Security advisor M K Narayanan said in the piece, goes something like, “though the issue is serious, there is no threat to the economy”.

I assume he means that the amount of fake money coming into India is small, compared to the amount already in circulation.  Hence the dilution is not much.

Something like the milkman adding water to milk and diluting the value of the milk you get. If he adds a lot, milk is really worthless. If he adds a few drops, not a big problem.

Question: If the milkman is RBI, and RBI is adding a lot of paper money to the system, what happens to the value of the currency that already exists in the system?

Question: why is this not considered a threat to the national security or at least a threat to the economy?

Seriously, what is the difference?

Few things I find amazing.

1) Only in the wonderland of regulation – you find people who had the power to do something, yet they can’t/don’t do what they claim they were supposed to do as our protectors and saviours, screw up badly, then go back to their boss (taxpayers) and say, “I screwed up badly, I need more power, more money, more authority, more ….” This they get to do again and again, and their bosses fall for the trick every time.
2) People who set the fire (dot com bubble, asset bubble, etc. with loose monetary policy and fairyland credits) to the barn (banks and financial institutions) keep pouring more fuel over the still hot embers; now want to play the role of the fire service, with more money, power, people and bigger fiefdom.

I promise you that once you understand monetary policy, your interpretation of world events (at least in the economic sphere) will never be the same again. Check out the following. Very much applicable in India or any other country you live in.

• Private Coinage
• Good and Bad Credit
• The Myth that Laissez Faire …
• Is the Fed an Inflation Fighter or Creator?
• More articles (on money, inflation, credit, crisis) from Frank Shostak

Happy enlightenment!