Reuters published "India's 'gold monetization' scheme could have a big impact on global demand". According to that article:

"Last week the Indian government approved the so-called gold-monetization scheme . . . [by] creating a system in which Indians holding private gold will be able to deposit it at banks-and then earn interest on their bullion holdings.

"The government plans to then make the deposited gold available to buyers across India. The aim is to reduce gold imports from outside the country, which run at nearly1,000 tonnes yearly.

"India's cabinet also approved a 'gold bond' program in which citizens will be able to buy interest-bearing bonds backed by gold, rather than owning physical gold.

"Estimates are that private citizens across India holdtens or even hundreds of millions of ounces of gold-which could become available to the banking system, if the monetization program is well received."

First, note that a metric ton weighs 2,200 pounds. If India imports 1,000 metric tons of gold at $1,200 per ounce, they're importing $42 billion worth of gold each year. India's current GDP is about $2 trillion per year. Thus, India currently spends 2.1% of its annual GDP purchasing more gold from foreign sources. That's 2.1% (more or less) last year; 2.1% this year; 2.1% next year. That's a significant expense for an economy the size of India's and cause for governmental concern.

Second, the Indian government proposes that the Indian people deposit their privately-owned gold into bank accounts and accept a paper receipt in return. Then, the Indian government intends to sell the deposited gold to other Indians who wish to buy gold. The stated purpose for this scheme is said to be to reduce the amount of gold imported into India-but I doubt that's the primary purpose.

The Indian government is trying to put gold into circulation as money rather than allow Indian women to continue to wear their accumulated gold as jewelry to demonstrate their wealth.

Why? What's the Indian government have against gold jewelry and/or gold "saved" in the form of bracelets and necklaces? Well, I doubt that they have anything against gold, per se. But, as you'll read, they have a lot against savings.

The Reuters article also tells us that the primary, intended beneficiary of the new "gold-monetization scheme will be the bankers rather than the Indian people. One of the reasons Indians save/hoard gold is that they don't trust their fiat currency (rupee), India's bankers or India's government. By admitting that the new "gold-monetization scheme" will help the bankers, India's government has almost certainly alienated the Indian people and guaranteed that their newly-proposed "scheme" will flop.

Even so, we can learn a lot by considering India's proposed "gold-monetization scheme".

* For example, India's fundamental monetary problem is that the Indian people traditionally turn their excess wages (paid in rupees) into gold, which they can bury in the back yard or give to their wives to wear as jewelry. Saving their gold is a well-established tradition and also an insurance policy against their government's monetary shenanigans. However, by saving in the form of gold, Indians reduce the supply of rupees in the national money supply or at least slow the velocity of money in their national economy.

By saving their wealth in any form, including gold, and thereby reducing the money supply and/or slow the velocity of money, the Indian people provide a deflationary force in the Indian economy which causes the national economy to be less vigorous and less prosperous than it might otherwise be. Because their gold is saved and therefore taken out of "monetary circulation," the Indian economy is slowed or impaired.

If the Indian people own, say, 300 million ounces of privately-owned gold, they're a wealthy people holding about $330 billion worth of gold. But, because they save that gold rather than spend it, none of that $330 billion is circulating in the Indian economy.

If that $330 billion were circulating in the Indian economy, it would stimulate the economy to grow faster and become more prosperous. Under a fractional reserve banking ratio of 10 to 1, if the Indian people deposited their gold into private banks, those banks could lend the equivalent of at least $10 for every $1 worth of gold deposited into their vaults. Thus, if the Indian government could persuade the Indian people to deposit even half of their estimated $330 billion in gold into the banks, the banks could lend about $1.6 trillion into the Indian economy. Given that India's annual GDP is about $2 trillion, an "extra" $1.6 trillion loaned into the economy could be very "stimulating".

Therefore, you can see why India's government and banks would want to persuade Indians to deposit their gold into Indian bank vaults and then sell their gold to other Indians: doing so would actually reduce gold savings and place more gold/savings into circulation to stimulate the economy.

The problem is that the Indian people know from bitter experience that they can't trust the fiat rupee, Indian government or Indian bankers. Therefore, they trust in gold. Big time. They won't be easily persuaded that "this time it's different" and they can trust the bankers, the government, and whatever gold-backed paper debt-instruments are about to be issued.

* By using their earned rupees to pay for imported gold, India's people allow their rupees to be collected by foreign banks and businesses that then spend the rupees in India to buy India's most prosperous businesses and valuable properties. That foreign ownership should also tend to drain profits out of India and slow and impoverish the Indian economy.

The Indian government presumably wants to slow or stop the growth of foreign ownership of prosperous Indian corporations and businesses. In order to do so, the Indian people must be prevented from buying gold from foreign sources.

However, because:

1) the Indian culture reveres gold as a store of wealth;

2) the Indian people distrust the fiat rupee;

It follows that India's appetite for gold savings is,

3) insatiable and reducing India's supply of currency (rupees) and/or slowing the velocity of money and thereby pushing its economy towards recession.

The Indian government is helpless against the Indian people's distrust of the fiat rupee, the banking system and the Indian government, itself. The government could print more fiat rupees, but that would only cause more inflation, more distrust of the rupee, higher prices for gold, more public demand for gold, more gold being imported by the Indian people, less rupees in circulation-and a persistent drag on India's economy.

There's a lesson here. Once a nation's people lose trust in their government, currency or economy, they tend to save rather than spend, and government will be hard-pressed to regain their trust and restore the economy. Irresponsible governments tend to destroy their own nations.

We see that lesson in India and perhaps also in the US.

I.e., in the Great Depression, the American people lost confidence in the government, economy and possibly the currency. They stopped unnecessary spending and saved whatever they could. The economy stayed in a depression until WWII was arranged and managed to drag America back into prosperity.

More recently, the US government's irresponsible economic manipulations and creations of "bubbles" laid the foundation for the Great Recession of A.D. 2008. Since then, the American people have shown an increased tendency to save and a decreased tendency to spend. Repeated bouts of Quantitative Easing and Near Zero Interest Rates have had little positive effect on the US economy.

If the general theme of this article is roughly correct, I doubt that the US economy will be restored until the government figures out how to restore the American people's former trust in the US government, the Federal Reserve and our fiat currency. Those who don't trust in government, tend to save rather than spend.

In just the last two or three years, the Indian government attempted to stop the flow of gold into India by raising import barriers. That effort resulted in more smuggling of gold into India, a stronger black market for gold, and a rising market for silver and an increased outflow of rupees to foreign gold markets. The Indian government's attempt to use a "stick" to stop Indians from buying foreign gold failed utterly.

OK-given that the "stick" approach (import restrictions) failed, the Indian government is now trying to temp the Indian people with the "carrot" of a new-and-improved "gold monetization scheme". Again, I doubt that they'll succeed.

One implication in all of this is that once the people of any nation lose confidence in their fiat currency, they'll begin to save their wealth in the form of something physical like gold. The only way to overcome a widespread urge to save wealth in the form of something physical is to make that physical substance the backing for the monetary system.

This implies that if the people start saving (rather than spending) and store their savings in something physical like gold, the government may be forced to restore a monetary system that's based on the people's preferred substance for savings. That preferred substance could be gold, silver, petroleum, some other commodity or even collectibles. But in the end, if people start saving rather than spending, government may be compelled to reestablish a currency that's backed by physical gold.

* The Indian government seemingly believes that the easiest way it can stimulate their national economy is to persuade or deceive the Indian people into putting their gold into "circulation" with bank accounts denominated in gold or government bonds backed by gold.

In other words, given that Indians don't trust the fiat rupee, hoard gold, and reduce the money supply, the only way to "stimulate" the Indian economy may be to (at least indirectly) restore a gold-based monetary system that will put private Indians' gold into "monetary circulation". I.e., India wants its people to deposit their gold into bank accounts and allow their gold to be resold to other Indians who will presumably deposit the same gold into their bank accounts only to be sold again and an again to the Indian people. Thus, India's gold would be taken out of private savings and put into "circulation" in the public economy.

India's slow-moving economy is being driven to recreate a gold-based monetary system because the Indian people: 1) are nearly fanatical in their dedication to save whatever wealth they acquire; and 2) won't trust anything other than privately-held gold to save their wealth.

But note well that the Indian economy isn't being ruined by gold-it's being inhibited by savings.

The Indian government's "gold monetization scheme" is less an attack on gold than it is on savings.

* Much the same analysis should apply to any nation whose people come to distrust their government, banks and fiat currency. As distrust builds, more and more people use their fiat currency to purchase gold and drive the price and desirability of gold upward. As people buy more gold and the prices rises, more of the fiat currency is taken out of circulation and saved in the form of physical gold-which tends to slow the economy.

The US Government has, for most of my lifetime, tried to stimulate the economy by inflating the dollar, making it persistently lose value and thereby encourage people to quickly spend their fiat currency rather than save it in banks, hidey holes, etc.. But inflation normally also pushes the price and desirability of gold higher, which causes more people to save their wealth in the form of gold rather than US dollars, which savings tends to reduce the supply of currency in circulation (or at least the velocity of money) and thereby slow the economy.

Therefore, it would seem to follow that-from the government's perspective-in order to stimulate the economy, government must both inflate the currency at the same time it suppresses the price of gold. Why? Because, so long as the price of gold is stable or falling, less people buy gold, less people store their wealth in gold, and the fiat currency supply is not as diminished by people who save their wealth rather than spend it.

Thus, it appears that the US government's economic war is not against physical gold, per se-it's against people who save their wealth, remove their savings from monetary circulation, and thereby slow the economy.

If that's so, then government should be averse to any savings in any physical form. If you spent your wealth on land, buildings, perhaps even commodities, government should be regulating those investments so as to suck the savings out of those investments (perhaps by taxes or fees) in order to prevent wealth from being saved in a way that removes currency from the currency supply or at least slows the velocity of money.

* If you think government isn't waging a war against savings and those who save, explain the Near Zero Interest Rates that we've had for nearly seven years. Near Zero Interest rates are great for borrowers, but terrible for lenders. And who are lenders? They are people who've saved their wealth. They are savers.

Who wants to save their wealth in a bank account if the prime rate is 0.25%? By holding interest rates near zero, the government forces savers to stop "saving" and instead spend/invest their money in riskier enterprises like stocks or bonds. In theory, these riskier investments will stimulate the economy. In fact, Near-Zero interest rates will discourage conventional savings and impoverish those who save.

The government is waging war against savers.

If Near Zero Interest Rates aren't bad enough for savers, what about proposals to implement negative interest rates?

The government is waging war against savers.

David Stockman, economist, former Congressman and Budget Director under President Ronal Reagan agrees. He was recently featured in a video and article entitled "The Fed Is Waging Jihad Against Savers and Retirees".

Stockman knows that government is waging war against savers.

But why a war against savings and savers? Yes, we can see that savings are "anti-social" insofar as they tend to slow the economy. But, surely, there was no "war" against "savers" when I was boy or young man. Why now?

Q: Why would there be a war against savers today?

A: Times have changed. When I was a boy, this nation was a producer. By definition, a "producer" produces more than he consumes. Savings are the result of excess production. At bottom, only "producers" are capable of savings. Savings are good in a productive economy since those savings can be invested in productive corporations, businesses and enterprises that generate more wealth and more prosperity.

But today, we've become a nation of consumers. By definition, "consumers" consume more than they produce. Consumers are largely incapable of savings. As a consumer, your primary job is to spend your currency. You're encouraged to "shop 'til you drop." Insofar as you're saving your wealth in a consumer-based economy, you're not spending-and that's anti-social. From the government's perspective, anti-social "savers" should be punished with low interest rates and higher property taxes in order to get their money out of savings and back into circulation.

In fact, when I stop to think about it, I can see that all private property is a form of savings. For example, everyone knows that, since WWII, the primary form of savings for the American people hasn't been their bank or stock accounts-it's been their homes. In fact, until the onset of the Great Recession, we used our homes as "private ATM machines" to release some of our home-savings for spending by means of second mortgages.

If you can see that your home is a form of savings, how 'bout your car? What about your desk, your computer, the books on your shelves and the clothes in your closet? What about the two years' worth of "emergency food" you've stored in the basement? Just like your gold and silver, aren't all of these items of private property examples of "savings"?

What about deficit spending and the National Debt? Can they be viewed as taxes on (and war against) even future savings?

From this perspective, taxes on private property could be viewed as taxes on private savings. It's arguable that government taxes your private property (private savings) year after year in order to liquidate your savings into a currency that will circulate within, and stimulate, the economy.

It's interesting that Karl Marx said that the essence of communist revolution is the destruction of private property. Given my argument that all private property (land, cars, petroleum, commodities, gold) is a store of wealth and a form of savings that's been pulled out of the national economy and thereby slows the national economy-is it possible that Communism's primary enemy is savings in any physical form (like land, homes, petroleum, gold or other private property) that reduce the money supply or slow the velocity of money and thereby impair the economy?

Without savings, aren't we all necessarily more dependent on government? Without savings, aren't we all less able or inclined to resist government edict? Don't higher taxes necessarily empower the government and disempower the people?

From this perspective, don't higher taxes reduce savings and constitute part of the war waged by government against the nation's producers and savers? Insofar as the producers and savers are being diminished or even destroyed, isn't that evidence that your government is bent on establishing an oppressive, totalitarian regime?

Insofar as we perceive modern economics as a war against savers, we open a new perspective for understanding economics, government actions and government intent.

I suspect that new perspective might provide a much clearer basis for understanding modern economic events.