Perspectives on the global economic meltdown- (Nov 28 2010)

[svinayak]

Biggest Price Fixing Scandal Ever
Matt Taibbi always uses plain talk to expose financial evil doings. This time we have another price fixing scandal that is bigger than Libor.

Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates.
Citizens for Tax Justice reported that Facebook Inc. had used a single tax break, for executive stock options, to avoid paying even a dime of federal and state income taxes in 2012. Since then, CTJ has investigated the extent to which other large companies are using the same tax break. This short report presents data for 280 Fortune 500 corporations that, like Facebook, disclose a portion of the tax benefits they receive from this tax break.

http://www.economicpopulist.org/content ... r-shortage

[ramana]

Pentiah, Please back off from making comments on other members. TSJones in particular.
Thanks,

ramana

[Theo_Fidel]

Oh mi ! Now they have fixed the ISDAfix...

The media has not picked up on this yet though. So data is sparse on the ground

[vishvak]

Yet another example of western financial system, similar perhaps in fixing to gold price fixing, LABOR fixing, etc

When LABOR scandal broke out it was termed as the biggest scandal! But then there were reports of inability to correct the fixing.

All fixers should be denied VISA in India and such models must not reach Indian markets from western countries from where those fixing models originate.

[ramana]

Gold Experts study Hindu Culture

...
But the 800-pound gorilla of the physical gold market is India, which devours as much metal as China and the US combined. It happens that the global sell-off by speculators was ideally timed to be offset by Indian retail buying. April is the height of the spring wedding season, and Indian brides signal their social status by bedecking themselves in gold jewelry and ornaments.

Weddings taper off through May and go dead in June, when the monsoon rains come to South Asia. Gold buying should continue apace at least until May 13, though, which this year marks the Hindu festival of Akshaya Tritiya.

For the anthropologically minded, this holiday commemorates the birth of Lord Parasaruma, the sixth incarnation of Lord Vishnu, and the day when two ancient scholars sat down to record the Hindu scripture Mahabharata. More to the point for gold speculators, it is by tradition a day of auspicious beginnings and a lucky occasion for buying material goods or gifts. Like Western marketers hijacking Christmas, the Indian gold machine has deftly turned Akshaya Tritiya into one of the year’s primary shopping occasions.

So by all means, gold investor, read the financial page tea leaves. But don’t forget how the other half buys. Expect strong demand until mid-May, after that the stormy season

[akashganga]

Gold Experts study Hindu Culture

...

Like Western marketers hijacking Christmas, the Indian gold machine has deftly turned Akshaya Tritiya into one of the year’s primary shopping occasions.

Westerners buy toys, electronics, other junk, etc during christmas and indians buying gold and more gold during Akshaya Tritiya, and Diwali. It is not hard to see who comes out winner at the end.

[svinayak]

Are you saying that toys, electronics, other junk are the same as the useless metal called Gold?

[akashganga]

Are you saying that toys, electronics, other junk are the same as the useless metal called Gold?

The useless metal called Gold has been used as real wealth in all major cultures of the world in the last 5000 years. Long before all the fiat paper currencies US dollars, British Pounds, Indian Rupees appeared Gold was the currency. Sometime in future all these fiat paper currencies US dollars, British Pounds, etc will disappear. Gold will continue to be looked upon as wealth.

[TSJones]

Okay, but gold can collapse in value every once in a while and one can lose a fortune.

[akashganga]

Okay, but gold can collapse in value every once in a while and one can lose a fortune.

Yes it is possible to lose money in US dollar terms when dollar strengthens versus gold. It happened from 1980 to 2000. But gold will never become worthless the way company stocks can become. The way US fed is printing money dollar will continue losing value against gold. If you want to leave wealth for next generation gold is definitely much better than any fiat currency including almighty dollar. My 2 cents.

[vishvak]

Okay, but gold can collapse in value every once in a while and one can lose a fortune.

If gold is not important how come there are gold exchange in London, Chicago commodities, New York, Sydney etc and why does USA possess biggest gold reserves in Fort Knox etc?

Western countries do have gold reserves and gold exchanges but show no overt acceptance of importance of gold which is alarming since western countries can tell others what's important in gold only and default as normal western defaulting behavior. It is upto other parties to take troubles and convince much as part of dealing with western countries.

[TSJones]

Okay, but gold can collapse in value every once in a while and one can lose a fortune.

If gold is not important how come there are gold exchange in London, Chicago commodities, New York, Sydney etc and why does USA possess biggest gold reserves in Fort Knox etc?

Western countries do have gold reserves and gold exchanges but show no overt acceptance of importance of gold which is alarming since western countries can tell others what's important in gold only and default as normal western defaulting behavior. It is upto other parties to take troubles and convince much as part of dealing with western countries.

I never said gold wasn't important. I said you could lose a fortune in it. There is a difference, you know?

[Neshant]

Andrew Maguire - a strange whistle blower character that popped out of nowhere back in 2010 or so to give account of manipulation of gold prices.

He alleged massive manipulation of the gold market from London which on any ordinary day would be dismissed as nonsense conspiracy theory. What's interesting is he literally reported the time when gold prices would be manipulated to the CFTC and it occured exactly as he had stated. Not sure if I trust the guy - why would a guy who knows about massive market manipulation of gold prices spill the beans instead of profiting off it himself. I don't believe the altruistic motive.

Nevertheless, he seems genuine enough on the surface. Fast forward to 12:45 in the video to hear what he has to say. If what he says is true, bullion banks are in trouble, not on account of manipulating prices but on account of selling paper receipts to gold investors with enormous leverage with no gold to back it up.

[Neshant]

an interesting read.

http://www.thedailybell.com/29044/Antho ... ney-Metals

[Theo_Fidel]

Long before all the fiat paper currencies US dollars, British Pounds, Indian Rupees appeared Gold was the currency.

This is not true. Most of Indian currency was in coinage.

Due to its excessive value gold itself has rarely been common currency. There was never enough gold to support the economy as currency, esp. as the rich would simply hoard it or turn it into jewellery or permanently sequester it in monasteries or places of worship immediately triggering deflation.

Even now it is useful to remember that the the 2500 tonnes of gold produced each year is only worth about $125 Billion per year. In a 1:1 gearing this would mean the entire world economy could only add $125 Billion per year. Any higher growth would trigger deflation. Any higher gearing and the gold becomes just another currency that is valued higher than its intrinsic worth. Paper gold.

[akashganga]

Long before all the fiat paper currencies US dollars, British Pounds, Indian Rupees appeared Gold was the currency.

This is not true. Most of Indian currency was in coinage.

Due to its excessive value gold itself has rarely been common currency. There was never enough gold to support the economy as currency, esp. as the rich would simply hoard it or turn it into jewellery or permanently sequester it in monasteries or places of worship immediately triggering deflation.

Even now it is useful to remember that the the 2500 tonnes of gold produced each year is only worth about $125 Billion per year. In a 1:1 gearing this would mean the entire world economy could only add $125 Billion per year. Any higher growth would trigger deflation. Any higher gearing and the gold becomes just another currency that is valued higher than its intrinsic worth. Paper gold.

Most of the indian currency was in coinage (again metallic?) only duirng the last 1500 years may be and gold is a metal. Our hindu ancesters were smarter and they knew that gold will outlive all currencies whether metallic or any other form and so ornaments are primarily made in gold so that if necessary they can sell off ornaments if money is needed for other use.

One pf the main reasons world accepted US dollar as reserve currency was US claimed to hold world's largest gold reserves back then during second world war. For economy to expand you can always device a system bypassing gold. Going by the history gold will always be valued no matter what. IF in future world is affluent with lots of dollars floating around but with limited gold supply, the price of gold will definitely go up.

[Neshant]

This is not true. Most of Indian currency was in coinage.

Copper - The money of Peasants
Silver - The money of Nobels
Gold - The money of Kings

and I'd add..

Paper - The money of Con men
Debt - The money of Slaves

Even now it is useful to remember that the the 2500 tonnes of gold produced each year is only worth about $125 Billion per year.

What it means is gold is significantly undervalued relative to the blizzard of paper out there. Gold isn't the only thing global wealth can flow into. But in the end, money has always defaulted to gold. Of the 64,000 paper currencies that have come into existance, fully 99.9% of them have ended up as toilet paper - which is quite a track record.

The end result is not in doubt.

Its only a question of how this super nova of paper currencies occurs. Do debt defaults roll through the system making cash (temporarily) more valuable than anything else. Or will there be a sudden loss of confidence among savers.

One major problem is that there are not enough savings in the world relative to debt and notional debt. This situation is going to have to resolve itself somehow.

A quote from Ludwig von Mises - one of the fathers of the Austrian school of economics is appropriate here. We have just witnessed a massive credit boom and bust (with an attempt to reflate) and he gives his prediction as to the outcome. One of the few guys to have foreseen the first Great Depression mind you :

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency involved."

[Neshant]

I really like this book. Originally written in the 1920s believe it or not.

I thought I'd share it with the rest of you.

Its called "The Richest Man in Babylon"

There's a whole lot of wisdom in it about all things money. Download it to your ipod and listen to it when you can.

[johneeG]

This is not true. Most of Indian currency was in coinage.

Copper - The money of Peasants
Silver - The money of Nobels
Gold - The money of Kings

and I'd add..

Paper - The money of Con men
Debt - The money of Slaves

Seems true. Strictly speaking Copper and Brass also seem untenable in the long run.

I think Gold and Silver are the only two metals which are really considered as Money across the times, places and circumstances.

Gold and Silver combined with gems(Navaratnas) would be more than adequate as currency, IMHO.



Tuglaq tried to implement Copper and Brass coins after he saw the Chinese do it. In Tuglaq scheme, the copper and brass coins would be backed by the Gold and Silver in the treasury. So strictly speaking, the copper and brass were not seen as have intrinsic value but only as valuable because they were pegged against Gold and Silver. But the plan didn't work out for him because the people did not trust Copper and Brass as money. And also Copper and Brass coins were easy to forge and that led to increase in fake currency. (If Copper and Brass was easy to forge, one can only imagine how easy it is to forge paper money)

It would be interesting to know when the paper money started being used in India?

Nizam of Hyd used the silver coins as his currency. So, about 60 years ago, silver coins were being used in India as the currency.

BTW, the word 'Ruppee' comes from 'Raupya'. 'Raupya' is a sanskrit word and it which means Silver. Even now the India coin resembles a silver coin.

----
Also why is Gold so valued? Is it decreed by God(s)/Goddess(es)?
Yes. Vedas declare that Gold is valuable. Infact, it is said in Vedas that wearing Gold cleanses a person of all the sins. It is for this reason that Gold is preferred as metal for Ornaments by Hindus. It is for this reason that Hindu weddings involves Gold. Vedas, of course, are the oldest literature...

As far as I know, after the Gold, it is Silver that has been accorded the next place by the Hinduism.

Copper, Brass and Iron respectively follow next in hierarchy.

[Neshant]

^^Interesting history.

I'm not sure about gems - I don't think any civilization has ever based its monetary system on gems. One problem with gems is that it does not meet a certain criteria of money - divisibility. Its not like you can split a gem and put it back together like you can melt & form gold. Also there's no easy way to judge the value of a gem - with the definition of a quality gem being subjective. No easy test for a genuine gem unlike pure gold coins.

Overall I'd be hesitant to say anything good about gems other than they have ornamental value. Diamonds are alot more common than most people realise. Its only high in price because one company DeBeers controls a large chunk of the world's commercial diamond supply and uses its position to restrict supply to keep prices up.

Personally I'd rather stick to gold because that is what central banks keep in their vaults. They keep the gold in their vaults (the good money) and issue paper (the worthless money) to the people. Indians have been reversing that trend by giving the bankers back their worthless paper and taking out the gold for centuries.

3 times in history India accumulated a vast hoard of gold. Twice it has been taken away by force. Once during the islamic invasions of India where much of it was grabbed. The second during the time of the British where once again much of it was stolen. This time however, India has the means to defend itself against any external force looking to swoop in on the gold the country collectively owns. The only thing India needs to watch out for are banking crooks the likes of Goldman Sachs which devise ways and means of indenturing entire nations into debt slavery via paper money games.

Always let the money stay with the people. Never have some wise old man sitting in an ivory tower (aka central banking) trying to run the economy from his chair. Invariably he fools himself into thinking he knows more than the market and starts fiddling around creating a mess. Worse yet, he will get corrupted by the lure of personal gain and sells the whole country down the river. Its too much power for one person.

[Neshant]

Documentary from the Canadian Broadcasting Corporation :
The world's central banks have printed unimaginable amounts of money in recent years. Neil Macdonald explores what this means for the global economy and for your financial well-being.

[akashganga]

This is not true. Most of Indian currency was in coinage.

Copper - The money of Peasants
Silver - The money of Nobels
Gold - The money of Kings

and I'd add..

Paper - The money of Con men
Debt - The money of Slaves

Even now it is useful to remember that the the 2500 tonnes of gold produced each year is only worth about $125 Billion per year.

What it means is gold is significantly undervalued relative to the blizzard of paper out there. Gold isn't the only thing global wealth can flow into. But in the end, money has always defaulted to gold. Of the 64,000 paper currencies that have come into existance, fully 99.9% of them have ended up as toilet paper - which is quite a track record.

The end result is not in doubt.

Its only a question of how this super nova of paper currencies occurs. Do debt defaults roll through the system making cash (temporarily) more valuable than anything else. Or will there be a sudden loss of confidence among savers.

One major problem is that there are not enough savings in the world relative to debt and notional debt. This situation is going to have to resolve itself somehow.

A quote from Ludwig von Mises - one of the fathers of the Austrian school of economics is appropriate here. We have just witnessed a massive credit boom and bust (with an attempt to reflate) and he gives his prediction as to the outcome. One of the few guys to have foreseen the first Great Depression mind you :

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency involved."

Kool. I like your analysis.

[RamaY]

Myth: Gold loses value
Fact: There is no consumable in the world, including children parents and BRF membership, that doesn't lose value over time.

Myth: Gold is not an asset
Fact: Gold is an asset that comes after Farm land (lively hood for people same as an SMB), House. It is definitely a better asset than derivative driven pension schemes, financial assets and even long-term bank deposits. It is less invasive than a credit card in some aspects. When you lose a credit card size of gold (Say 20-30gms) you just lose the money. If you lose a credit card there is a chance for you to lose everything in your bank and also your identity.

Myth: Gold is not a safe asset
Fact: There is no "safe" asset in life. Every asset has the potential to make profit or loss. Yes, one can live in the house even if it loses its value, but one cannot live in 6 houses.

Myth: Gold Jewelry is not for fun
Fact: Gold Jewelry is like expensive toy, albeit mostly for women (exceptions are there like the guy who made gold shirt and so on). Whoever says Jewelry is not good they are male chauvinists and oppress women by taking away their most loving possession.

Myth: Gold can be taken away or made illegal by Govt.
Fact: Yes they can, but it is a early (or late) sign of govt bankruptcy. In the same way Govts can take your bank balances (Cyprus) and your lands (ask those farmers whose lands were taken away for SEZs and others)

Myth: Gold imports doesn't create economic value or employment
Fact: There are at least one gold smith per village. That means nearly at least 1million goldsmiths are employed in this sector. In addition to that in 2011 India exported $14B worth of Gold Jewelry (just gold jewelry and not all types of jewelry) in 2011. To achieve this it should have employed at least 14x25000 = 350,000 permanent employees. All this employment without losing the value of gold, value addition from jewelry making (15% that people claim to lose when they buy jewelry).

Myth: Indian Oil imports create economic activity but not Gold imports.
Fact: India's Oil imports grew ~10% a year where as the economy grew only ~5% between 2005 and 2009. That means nearly half of Oil imports produced no economic value at all. On the other hand India's Gold imports do not lose value (not more than 5-10% depreciation consumers see - most of this gold is recovered by gold smiths in the form of gold waste/powder).

Then why people question India's gold consumption? Due to the religious bigotry of secularists. There is no other reason.

[akashganga]

^^^ RamaY, you explained it very well. Gold provides economic security for india. If you translate all the wealth of the world including gold assets into kilos or ozs of gold from US dollar or other paper currencies we might find India richesest nation. The only problem is that nobody really knows how to estimate private gold held by people of india.

[TSJones]

"If you lose a credit card there is a chance for you to lose everything in your bank"

Not the in the US. There is a law that limits your loss.

[RamaY]

^

That is the only contention you found?

Imagine you have a credit card with high limit and you lost your credit card. There is a "possibility" that you may lose up to that credit limit if you fail to take immediate corrective action. That is what implied in that point.

[Theo_Fidel]

The wealth of the world is not a base metal.

The world is wealthy by producing things with increasing efficiency, not hoarding metals.

At the bottom line the wealth of the world is built on the fact that 2% of the folks in the wealthy countries can produce the food needed for the other 98% to live on.
All else is maya.

[TSJones]

^^^ RamaY, you explained it very well. Gold provides economic security for india. If you translate all the wealth of the world including gold assets into kilos or ozs of gold from US dollar or other paper currencies we might find India richesest nation. The only problem is that nobody really knows how to estimate private gold held by people of india.

You can define "richest" however you want, but it all boils down to economic vitality. That is to say production of goods and services. GDP in other words. You guys need to take Econ mic and mac and Money and Banking 101. Geez.

Banking is the machine upon which the economy functions. Letters of credit, underwriting corporate borrowing (issuance of bonds), guaranting giant construction projects, short term construction loans, etc. You cna't have a dynamic, fluid, responsive economy with out the banking system and the credit it fosters.

You guys can wear all the gold jewelry ya want, I'll take citizenship in Norway and winter vacations in the Caymans. Yeah, I know, dream on. Anybody ever see any poor people in Norway? Just wandering..........

edited to add: South Texas is not bad in winter although the ambiance may be rather sparse here and there........

[RamaY]

The wealth of the world is not a base metal.

The world is wealthy by producing things with increasing efficiency, not hoarding metals.

At the bottom line the wealth of the world is built on the fact that 2% of the folks in the wealthy countries can produce the food needed for the other 98% to live on.
All else is maya.

Whole economics is maya after one gets his two full meals After that it is all "perceived value" of a given product be it paper, plastic or metallic. There is nothing wrong or self-flaggating if Indians buy Yellow-metal where China buys Black-metal and West the liquid-gold. We all are different people only.

China shocked the electronic world by hoarding few thousand tons of rare-earth metals.

[TSJones]

The wealth of the world is not a base metal.

The world is wealthy by producing things with increasing efficiency, not hoarding metals.

At the bottom line the wealth of the world is built on the fact that 2% of the folks in the wealthy countries can produce the food needed for the other 98% to live on.
All else is maya.

So much of it, they have to export at least half of it. Can't sell it all in the US for example. And that is with the government paying a lot of farmers NOT to grow and to put their land in conservation.

[RamaY]

You can define "richest" however you want, but it all boils down to economic vitality. That is to say production of goods and services. GDP in other words. You guys need to take Econ mic and mac and Money and Banking 101. Geez.

Banking is the machine upon which the economy functions. Letters of credit, underwriting corporate borrowing (issuance of bonds), guaranting giant construction projects, short term construction loans, etc. You cna't have a dynamic, fluid, responsive economy with out the banking system and the credit it fosters.

You guys can wear all the gold jewelry ya want, I'll take citizenship in Norway and winter vacations in the Caymans. Yeah, I know, dream on. Anybody ever see any poor people in Norway? Just wandering..........

edited to add: South Texas is not bad in winter although the ambiance may be rather sparse here and there........

shrill logic
Tell that to Cypriots. Which western country gives citizenship to Indians if they have say $1m bank balance?

[ArmenT]

Myth: Indian Oil imports create economic activity but not Gold imports.
Fact: India's Oil imports grew ~10% a year where as the economy grew only ~5% between 2005 and 2009. That means nearly half of Oil imports produced no economic value at all.

Just pointing out that this logic doesn't make sense at all (except, perhaps to a pakhanomist ). Increase of 10% for X and increase of 5% of Y does not necessarily mean 50% of X is wasted, especially if X and Y are different numbers and X is somewhat < Y. Also, Y value (the overall economy) is not entirely dependent on the X value (oil imports), there are other pieces that contribute to Y's value as well.

[vishvak]

During barbaric colonial times, UK refused to hand over Indian gold when the world was switching to gold during industrialisation. That slowed down industrial progress for decades in India as gold was medium of exchange then. This when Indian traders were demanding Indian gold to be brought to India as also that Indian traders never complained as such - these are facts rest is rhetoric.

Barbarians have looted gold since ages while exhibiting lack of recognition of civilized lifestyle of citizens who were at receiving end of barbarism as barbaric colonialism demonstrated for centuries and invasions prior to that too.

In today's world there are bullions in many cities of the western world. To not recognize its importance even while acknowledging its presence is contradictory. Western countries should sell off all gold reserves and close down these exchanges, but then that would be similar to western banks offering cheap oil as financial structures-hedging risk and offering actual commodity- even when western banks are good at banking. Not gonna happen regardless of export only ideas of gold as not important while hoarding gold.

[Suraj]

Myth: Indian Oil imports create economic activity but not Gold imports.
Fact: India's Oil imports grew ~10% a year where as the economy grew only ~5% between 2005 and 2009. That means nearly half of Oil imports produced no economic value at all. On the other hand India's Gold imports do not lose value (not more than 5-10% depreciation consumers see - most of this gold is recovered by gold smiths in the form of gold waste/powder).

Is the 10% figure the volume or dollar cost ? If it is cost, it makes little sense - nominal oil prices rose significantly then. If it is volume, is it net volume (only domestic consumption) or gross ? Keep in mind that we run the largest export oriented refinery system in the world - quite a bit of gross oil imports are exported as refined components with the value add being profits in the pockets of Reliance etc.

The average GDP growth figure quoted is way off. Official data from the Economic Survey, page A7:
2004-05: 7.0%
2005-06: 9.5%
2006-07: 9.6%
2007-08: 9.3%
2008-09: 6.7%
2009-10: 8.6%
The average for the period, including the year prior and after, is 8.45% real GDP growth rate, and much higher in nominal terms.

[Theo_Fidel]

Neshant,

How would this over valuing of gold proceed. Would it not create another bubble with human endeavor being diverted to find gold rather than productive activity...

[RamaY]

Myth: Indian Oil imports create economic activity but not Gold imports.
Fact: India's Oil imports grew ~10% a year where as the economy grew only ~5% between 2005 and 2009. That means nearly half of Oil imports produced no economic value at all.

Just pointing out that this logic doesn't make sense at all (except, perhaps to a pakhanomist ). Increase of 10% for X and increase of 5% of Y does not necessarily mean 50% of X is wasted, especially if X and Y are different numbers and X is somewhat < Y. Also, Y value (the overall economy) is not entirely dependent on the X value (oil imports), there are other pieces that contribute to Y's value as well.

Agreed. But there is another angle to it.

Assume X amount of oil imports result in Y amount of GDP in 2005 (X:Y). The ratio became 4X:2Y in 2009.

One way to look at this is that the incremental value of Oil imports is decreasing OR the incremental Oil imports are going into non productive sectors like personal automobiles etc.,

If we take the first inference then future Oil bill will grow exponentially to achieve current rate of GDP growth. That is for India to become a 5T economy, India's Oil imports bill would be say 10-15X (exponential curve) probably reaching a whopping US$250-400B per annum.

Thus the incremental value of Oil imports can be worse than importing potato chips and do nothing (per capita potato chips consumption can be $400 with that money) and fart around.

[RamaY]

Myth: Indian Oil imports create economic activity but not Gold imports.
Fact: India's Oil imports grew ~10% a year where as the economy grew only ~5% between 2005 and 2009. That means nearly half of Oil imports produced no economic value at all. On the other hand India's Gold imports do not lose value (not more than 5-10% depreciation consumers see - most of this gold is recovered by gold smiths in the form of gold waste/powder).

Is the 10% figure the volume or dollar cost ? If it is cost, it makes little sense - nominal oil prices rose significantly then. If it is volume, is it net volume (only domestic consumption) or gross ? Keep in mind that we run the largest export oriented refinery system in the world - quite a bit of gross oil imports are exported as refined components with the value add being profits in the pockets of Reliance etc.

The average GDP growth figure quoted is way off. Official data from the Economic Survey, page A7:
2004-05: 7.0%
2005-06: 9.5%
2006-07: 9.6%
2007-08: 9.3%
2008-09: 6.7%
2009-10: 8.6%
The average for the period, including the year prior and after, is 8.45% real GDP growth rate, and much higher in nominal terms.

Suraj garu,

They are back of napkin calculations. Why would be cost meaning less? We are doing all these calculations in $ terms right so why not take cost of oil consumption as the basis, even though my numbers were about quantity?

As you can see in this source the Oil imports and Exports curves are similar. That means the ratio is similar making my calculations valid.

Coming to your GDP growth calculations, did you take inflation into consideration?

If you want we can calculate the REAL REAL values after taking everything into account and my point will be still valid.

[Suraj]

RamaY: I really suggest you tear up your figurative napkin and start again. Your estimates are way off - 3.45% real growth differential, and probably over 5% in nominal terms means that over the 6 year period the economy would be ~35% larger than on the basis of your estimate. Please re-read the previous post - the quoted figures are real GDP growth, not nominal figures. It says as much in the Economic Survey data as well. While the Economic Survey data doesn't quote nominal GDP growth data, it does report GNI data in page A4:
2004-05: 13.4%
2005-06: 14.1%
2006-07: 16.5%
2007-08: 16.4%
2008-09: 15.5%
2009-10: 15.2%
Average: 15.2%

The problem with your argument is you attempt to compare madrassa math real GDP growth figures against nominal priced oil imports. The nominal price of oil primarily provides an insight into demand elasticity, but doesn't really provide useful insight into contribution to growth. Please compare real vs real , or nominal vs nominal. Volume provides that real basis for oil, based on some multiplier translating hydrocarbon consumption volume to generated output, i.e. engines didn't become dramatically better at oil consumption recently, nor did the energy density of oil change.

The best oil consumption volume data I could find is 2004 figure of 2.45mbbl/day and 2010 figure of 3.18mbbl/day, which gives me an annual consumption growth figure of 4.4%, half the 8.45% real GDP growth figure.

Comparing nominal economic growth against nominal oil import price growth (which is what I assume your 10% figure is, based on your statements), we see that nominal GDP growth actually outpaces nominal oil price growth by a factor of 1.5 over the period stated. The differential would probably be even more if you compare net oil consumption volume against nominal GDP growth, since oil prices were not static and instead grew dramatically.

Therefore, both on a real vs real and nominal vs nominal basis, economic growth much outpaces oil consumption growth.

[TSJones]

The coffee stain on his napkin distorted his figures. It could happen to anybody.

[RamaY]

Suraj - You are right. I stand corrected.