With the Indian rupee plumbing new lows against the US dollar and the country’s current account deficit at record levels, the Reserve Bank of India (RBI) is taking the easiest route to tackle both; it has declared a war on gold. Our Chart of the Week shows the Indian current account deficit from 1970 to the end of 2012. As you can see, it has hit a record deficit level and continues to weaken. Put simply, a current account deficit occurs when a country’s total imports of goods is greater than its total export of goods; this situation makes a country a net debtor to the rest of the world. India is the largest consumer of gold, almost all of which is imported and is a significant contributor to this deficit.

The RBI has drawn the battle lines and targeted gold imports as the main culprit. The central bank has announced a series of measures over the past month, including restraining lending against gold-backed assets, and restricting gold imports. The hike in gold import duty to 8% this month is the most recent announcement in this drive and doubles the duty that was applied at the beginning of this year.1 The RBI has asked bank trading houses not to import gold on a consignment basis for domestic sales, further insisting on 100% cash margin for letters of credit. The restrictions were invoked after imports soared to 162 tonnes in May from 142 tonnes in April on the back of weak international prices. In their campaign against gold imports the Indian finance minister P. Chidambaram has even urged banks to advise their customers not to invest in gold. “I think the Reserve Bank has advised banks that they should not sell gold coins,” said Chidambaram, while speaking at an event in Mumbai.2

Read More at goldseek.com .By David Franklin.

Government is increasingly exerting control over all sorts of markets, business actions, and personal behavior. People will soon be required to purchase health insurance, businesses need government approval to merge, an ever-lengthening list of businesses and professions cannot operate without a license from some government agency or sanctioning body. While the government is trying to improve things with all its programs and regulations, the problem lies in the intelligence and information necessary to achieve the desired goals.

Free markets work by coordinating the actions of millions of buyers and sellers through the incredible simplicity of price signals. All the parties involved in a market adjust their behavior in response to prices. Those adjustments in supply and demand cause prices to change and this back-and-forth continues until the market settles into equilibrium. Markets work without anybody knowing anything except information about his own business (for sellers) or tastes and preferences (for buyers).

For government to make a market work by exerting control it needs to know everything: the cost structure of every seller and the willingness to pay of every buyer. Without all this information, the government cannot obtain its desired result. Certainly government can try to adjust as it goes and might eventually get it right, but, unfortunately, since business costs change and people’s preferences are fickle, the government has to hit a moving target.

When you factor in not just the amount of information required but also the intelligence, the problem gets even worse. The politicians and the bureaucrats in all the government agencies think they are very smart. After all, it takes at least intellectual confidence if not arrogance to believe you know enough to legislate and regulate the economy to where you want it to go.

Unfortunately for the government, an important lesson to learn is that the people are smarter than the government.

Read More at Real Clear Markets . By Jeffrey Dorfman.

For weeks, Japan’s stock market has been in an absolute freefall.

Last night the Nikkei fell to 12,445, down 6.4%. But it wasn’t long ago that commentators were rejoicing in Abenomics – the policy moniker for Japan’s monetary stimulus and government spending plan – for its bold three-pronged approach to juice the Japanese economy.

Now, with the Nikkei taking a turn for the worse and the yen strengthening, it appears Abenomics has not had the intended effect.

Felix Zulauf, swiss hedge fund manager and macro thinker, goes even further. He thinks Japan will spark a global crisis within the next 18 months.

Read More at Business Insider .