India's Failing Gold Monetization Scheme: Seizure Imminent?

Tyler Durden's picture

Submitted by Paul-Martin Foss via The Mises Institute,

India’s newest gold monetization scheme has been a colossal failure. After one month, it has netted only one kilogram (2.2 pounds avoirdupois) out of an estimated 20,000 tonnes (44 million pounds avdp) of privately-held gold. Why is that? Well, let’s look at how the program works.

  1. Gold-holders turn their gold over to a bank. The banks melt the metal down and provide it to the central bank to loan to jewellers.
  2. In exchange, the central bank provides gold accounts to the banks on behalf of the gold depositors and pays interest on those deposits.
  3. The interest rate on those deposits is a little over 2%, while the inflation rate in India right now is over 5%.
  4. The deposits are time deposits, meaning that depositors receive their principal repaid at the end of the term; short-term depositors receive gold or rupees back, while medium- and long-term depositors receive only rupees.

So you give up all your gold, get at most a -3% rate of return on your investment, and might get both your interest payments and principal paid in rupees that the government has historically devalued at up to 15% per year. And the government wonders why gold-holders aren’t flocking to offload their gold?

But not to worry, the government will make sure this scheme works:

“A finance ministry official said if banks fail to win over temples, the government could intervene directly as it is looking for a big boost to the scheme to keep both imports and the current account deficit under control.”

Shades of 1933 all over again. One would imagine that outright gold confiscation from Hindu temples would result in massive protests and quite a bit of bloodshed. And while most rational people would assume that the government would be smart enough to avoid doing something so drastically stupid, this is the same government that developed the cockamamie gold monetization scheme in the first place. Never underestimate the idiocy of government bureaucrats, especially when those bureaucrats are trying to save face.

Let’s hope for the sake of the Indian people that their government learns its lesson and quietly shelves its futile attempts to monetize private gold holdings. If it really wanted to monetize gold, it would end any restrictions on the importation, transfer, and use of gold as money and allow markets to determine what money they wanted to use. Control is hard to give up, but the Indian economy would be far better off with gold as money instead of rupees.

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SillySalesmanQuestion's picture

Dear leaders, please pay attention to us when we say, no, you are not taking it away...our guns, gold, silver, just sayin...

Escrava Isaura's picture

 

 

What’s next in India? Place the Japanese in concentration camps.

 

You know, keep up with the Roosevelts.

 

knukles's picture

See, this is what you get when you import too much gold.
Us exceptional people on the other hand, know enough to be selling all our gold to them Indians, Chinese and the rest of their buddy buddy pal pals along the Silk Road.
See, we don't have to worry about that, because we can print infinite fiat, all everybody ever wants.

Manthong's picture

“the Indian economy would be far better off with gold as money instead of rupees” 

..as if the control freaks really give a hoot about what’s good for the people and the real economy.

They only care about the numbers on the balance sheets and to stay in good stead with the western monetary regime.

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) Manthong Dec 13, 2015 8:11 PM

Temple gold is a sacred cow.

SixIsNinE's picture

Sai Baba Temple givin' it up - 200kilos GOLD to the .gooberment scheme ....

http://timesofindia.indiatimes.com/city/mumbai/To-beat-court-ban-Shirdi-...

from the article :

...."Just days after the Siddhivinayak temple decided to move 40kg of its gold reserves to the government-sponsored Gold Monetisation Scheme, the Shirdi Sai Baba temple has made a similar pledge, but on a much larger scale.

The Sai Baba temple caretakers want to deposit 200kg gold with the government, but the glitch is the Bombay high court ban on the temple trust from melting the gold that has been offered by the devotees over the years."....

NidStyles's picture

You know, I like the Japanese. They are a little quirky and strange, but they are very honest people in my experience. They have honor and respect, and their engineers have grown a lot since the days of them copying the British. 

 

Unfortunately they are a host nation to the squid as well. 

Ignatius's picture

"1. Gold-holders turn their gold over to a bank. The banks melt the metal down and provide it to the central bank to loan to jewellers."

My guess is that Krugerands-on-a-Chain might become a very popular fashion accessory.

Money_for_Nothing's picture

How do you loan Gold to a jeweler?
Traditionally you sell gold to a jeweler.
Are jewelers forced to register their customers so the gold can be recouped and melted down again at some point?

HardAssets's picture

Obviously the house slaves in the Indian government attended 'elite' Anglo-American schools where they learned . . . to be good house slaves.

The ones with good grades are so good at learning lies.

We have lots of them in America too. All races & national origins - - we have equal opportunity for house slaves.

WillyGroper's picture

Slave,

On the odd occasion you offer a nugget of wisdom, but this has got to be the dumbest of the dumb you've contributed.

WTF

Escrava Isaura's picture

 

 

Just doing god’s work. Wisdom I’ll leave to the experts…… you know, the Jews.

 

38BWD22's picture

 

 

Escravita

You take abuse well, with good humor.

Don't let them drive you away.

Escrava Isaura's picture

 

 

I am an slave, remember? I can take all kind of abuses.

 

Slomotrainwreck's picture

The guys with a California crawl space for rent are interested in renting to you.

Buck Johnson's picture

Why put Japanese in Camps?  Are they the ones buying the gold in India?

 

ThroxxOfVron's picture

“A finance ministry official said if banks fail to win over temples, the government could intervene directly as it is looking for a big boost to the scheme to keep both imports and the current account deficit under control.”

 

Stealing from churches/temples being contemplated?    -How very Jacobin..

I'm surprised they don't just levy some crazy high property taxes on the churches/temples and force payments in Gold or sale of the Gold to make the tax payments.

HenryHall's picture

> Gold-holders turn their gold over to a bank. The banks melt the metal down

The fact that the banks melt the gold down is reason, right there, that temples will not part with their gold. Irreplaceable history would be lost during the melting.

Winston Churchill's picture

Lets see trhem start with the Golden Temple in Amritsar.

The Indian armed forces are way overrepresentd with Sikhs in the officer corp.

Indira Ghandi learned the hard way about pissing off Sikhs.

Francis Marx's picture

I think the only Seizures over there will be in the PM body when the gold owners start stoning him...

FPearl602's picture

The fucking BANKS, whether Indian, British, American or Canadian, want control over the collateral value of the deposits. The Indian populace are pretty intelligent in that paycheques get converted to gold very quickly leaving the banks no COLLATERAL upon which to lend. This scheme will fail.

Ghandi was no dummy.

83_vf_1100_c's picture

 I'd beat obama more stupid with a 9 iron.

ThroxxOfVron's picture

That gold creates nothing, builds nothing, solves nothing, cures nothing, secures nothing..

 

The ONLY collateral in the world is HUMAN PRODUCTIVITY.

Tall Tom's picture

Human Productivity has no guarantee as there is currently a vast oversupply of human potential productivity and an astonishing lack of demand for that productivity....which means that it has extremely low cost and very high storage and maintanance expenses.

 

(Yes the beasts do need to be housed and they do need to eat. And then they breed...like rabbits.)

 

WHEREAS...

 

The available Gold is real, it is not a "potential", and there is comparatively little effort involved when transfering that hard good or using it for collateral. Storage and maintanace costs are minimal when compared to that of this vaccouus idea "Human Potential".

 

Gold is value dense whereas Human Potential is just as light as air.

 

I was going to save thsi for FoneStar but I will expose it here so that we may all hammer him in unison...

 

The alleged founder of Bitcoin sold that in order to buy...GOLD. Gee...I wonder why.

 

http://www.gata.org/node/16028

where_is the_nuke's picture

You are a moron of a first degree. "Human Productivity has no guarantee--" Guarantee to what? Guarantee of what?
Productivity is independent of demand supply mechanism.

DaveA's picture

"The ONLY collateral in the world is HUMAN PRODUCTIVITY."

So I should sell my gold and buy slaves instead?

Money_for_Nothing's picture

Human collateral is wasted by government bureaucrats. Gold is a promise that is difficult to take back. Government promises are not only worthless but are also destructive over time.

Tinky's picture

Interesting to note that while the broad populations of both China and India have long histories of acquiring and passing gold down through generations, the government of the former is actively encouraging such ownership, while that of the latter is stupidly attempting to steal that wealth from the masses.

As the author suggests, any such efforts are sure to fail spectacularly.

wanderer9641's picture

One can suspect that "seizure imminent" = "revolution imminent"

Nobody For President's picture

Fail? Hell, they got a whole kilo back.

Ms No's picture

They probably will at some point.  The problem with confiscation is that you have to know who has gold first.  The temples are a no brainer target.  WTH is going on in India that their .gov is this desperate already?  Indians are not going to fall for this, they know their gold. 

tarabel's picture

 

 

I think they need to do an interview with the guy who forked over the one pound of gold already.

My guess is that he is a distant relative of the bank president out priming the pump or else he hasn't yet learned how to color inside the lines.

Sleepless Knight's picture

They loan the gold to jewelers. Define "jewelers"" and where are they, New York?

TurnwiseWiddershins's picture

Tel Aviv probably, or maybe Bruges. 

Perhaps they cut diamonds too, not only using DeBeers to hold inventory off the market, but enforcing the Kimberly Accords so that small competitors aren't even allowed to get off the ground.

PoasterToaster's picture
PoasterToaster (not verified) Dec 13, 2015 8:01 PM

The definition of "current account deficit" is interesting in the post-gold standard world.  It's also interesting because of the fact it represents a "government" aggregation of individual and corporate transactions, writ into some kind of quasi-religious belief system that apparently makes the world go round.

Rabbit holes.  They are deep.

FranSix's picture

Ok guys. Here's something. You need to mine the gold first.

TurnwiseWiddershins's picture

U no take temple gold!

VISHNU ACKBAR!!!

SixIsNinE's picture

 ..from the link i posted upthread :

...Just days after the Siddhivinayak temple decided to move 40kg of its gold reserves to the government-sponsored Gold Monetisation Scheme, the Shirdi Sai Baba temple has made a similar pledge, but on a much larger scale.

The Sai Baba temple caretakers want to deposit 200kg gold with the government, but the glitch is the Bombay high court ban on the temple trust from melting the gold that has been offered by the devotees over the years.

InnVestuhrr's picture

If TSHTF as so many PM cultists believe, then the very first thing that the regimes will outlaw and confiscate is PMs.

Anopheles's picture

Governments don't care about PMs in public hands, the amount is tiny, and the majority of it is in jewelry.  In the event of a global SHTF, PMs will have only token value compared to today.   It is specifically becasue of a functioning and reasonably robust world economy that PMs are high value right now. 

They will however confiscate guns and ammo. 

38BWD22's picture

 

 

 

Molon Labe

 

Anything legal that I spent my money to get is mine.  Includes guns & ammo.

Or at least what I have left after so much fell off the boat that afternoon.

Perimetr's picture

I'm pretty sure everyone here in my county will happily line up yo turn over all their guns, ammo, and PM. Not

kiwimail's picture

Ain't gonna HAPPEN!  If all the gun owners march down to the local  county courthouse WITH their firearms, there will be no politicians there to collect them.

hotrod's picture

Who in India would enforce a confiscation?  Gold is part of their life.

Anopheles's picture

Not a single person who's posted, or the author of the article have actually said WHY the Indian government wants the gold.

It's very simple,  the Rupe is a closed currency (not exchanged outside India), and India has a real problem with FX.   Importing gold uses up a very substantial amount of their FX reserves.   So, they want to "reuse" gold that's already in the country.  

So, no, they aren't going to confiscate gold, like most of the conspiracy theorists, and posters here believe.   Why would they confiscate gold just to give it back to jewellers?