Onionated, Potatoed &Tomatoed
January 9th, 2011
First an introduction, why am I writing this, suggestions invited.
I was out there at Mart, doing my weekly shopping. Now, like all of us, i too read newspaper. I did had read about the increasing costs of vegetables. Yup! i saw it onion -55/-; tomatoes - 25/-. Costly, really costly. I wanted to write then, but I withheld, I don’t have a solution. Government’s job. This saturday, I went back. and realized costs haven’t changed. Does not effect me too much. But I could I see costs same, just out of curosity when to local road side vendor asked for cost, Onion they do not keep any more. Tomatoes costed 40/-. I was a bit worried. I thought whole night- I said, I don’t specialize. then today I saw a caravan living a few meters away. I said to myself - “they won’t ever go to that mart. They don’t even earn as much as I do”. I said again to myself - I don’t specialize.
Then I read a post by a friend of mine(very recent post), it quoted Bishop Tutu.
”“If you are neutral in situations of injustice, you have chosen the side of the oppressor.” ~Bishop Desmond Tutu
So I write, as much as I know & understand the economics of price. For your information only.
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What is price? well, for us guys it is the money that we pay to buy. that is all. What has happened these days is that we are paying high. Higher then what we can afford. Higher then what we can manage out of our income( salary). What the newspapers call it is INFLATION.
Now we are common people are not concerned with and word. What mattes is that for basic food commodities, like vegetables, fruits, grocery we are being asked to pay an amount most of us can not afford.
It was there earlier too. But that time most of the middle society could manage to buy. But now even they have to sweat more. ( what about the “below middle class” ? Majority of India falls in this group).
Why have to costs increased?
Easiest to blame is the Mother Earth. Yup! heard it all, due to rain, due to drought, bad harvest. And the costs have plunged up. Did we did this bad? I mean, every year, we have lots of surplus we let rot. How could it happen that we did that bad?
Easiest to blame is the Mother Earth. Yup! heard it all, due to rain, due to drought, bad harvest. And the costs have plunged up. Did we did this bad? I mean, every year, we have lots of surplus we let rot. How could it happen that we did that bad?
What could have happened? Well, here is another theory?
First let me create a base for us to understand.
We live in a world, which runs under a system of banking called - Fractional banking. it means Even though there is say a deposit of say Rs 100 crore. It can be used by banks to loan up amounts higher then that. we will stay in a very, very close by amount say Rs 200 crores( which is very conservative).
It all is based on the fact we all don’t need the whole money at one time. So it is allowed.
what decides the actual costs of our products is how much high this amount loaned is. Fine, not a problem!.. This system is what has allowed us all to live this luxurious life we have. The cars, the malls, the multiplex, the expensive vacations we afford are all based on this. This is the international standard of banking. This is how the world runs.
How it runs is like this. As much less we withdraw in hard cash( i mean use cards, cheques, online banking, direct investment using our banks). More amount of actual money never leaves the bank. That much freedom the bank gets to loan the amount. (More then it has) As much more money bank loans which it does not have, that much high the cost go in the market. Because there is no actual money in the market. Fine, that is how the world runs.
What happens when more money has been lent then there are deposits. There is a risk, what if everybody asked for their money in cash. So, to decrease that chance we are asked to buy using cards, use cheques, pay online and the risk decreases. And the game goes on. More they cross the borders, higher the costs. Fine Government controls that. We are happy people(most of us).
But imagine a case, when suddenly a bank finds it has landed too much & suddenly someone is asking it’s money back (people, industry, etc)!!
And It does not have that money!! And it is being asked back and back again to pay! what would happen??
The bank may ask time, It may give options. But Now there are people who are in need of money. and there is no money that they are getting back. What will happen!
I will give you an example.
I will give you an example.
you are a sabjiwala and you ask for your money say 1000 rs from your wife. And she says - I brought a saree with it. I am so sorry. You are angry! but you need the money, what will you do?
You will increase the cost of sabji you sell. You need that money desperately, you don’t have any other option but your sabji and the people who buy it.
Now sabjiwala is a small guy, consider huge amount, big examples and you may understand what I mean.
..Then again it is just a theory. For your information only.
