Saturday, 29 June 2013

Printing Money, HyperInflation and Currency Failure

Asia's third largest economy's currency, Indian Rupee (INR) tumbled to its lowest ever level of 60.76 per Dollar on 26th of this month.

Indian Rupee like most of the emerging markets currencies including South African Rand, Brazilian Real  has been under the hammer from the time Federal Reserve chairman Bernanke hinted a slow down in the printing press or Quantitative Easing (QE) which is flooding insane $85 Billion per month in purchasing bonds and mortgages.

This money is indirectly entering the emerging markets like India. Unwinding of QE will definitely result in huge sell off of these already beaten down currencies, pushing them down even further.

                              Three Months USD/INR currency chart (Source: Yahoo Finance)

Rupee has got a temporary respite from
  • RBI's data that Current Deficit (CAD) of India for the first quarter of 2013 narrowed down to 3.6% of GDP as against 6.7% in its preceding quarter. 
  • The USA's GDP expanded at 1.8% from January to March, down from a previous estimate of growth of 2.4%.
 Three months back, around Rs.55 would have bought us a dollar, today one has to pay around Rs.60  to get the same dollar. Lets just imagine for a second that rupee continues to fall breaching Rs.100 per dollar, Rs.500, Rs.1000, Rs.1 Million , Rs.1 Billion, Rs.1 Trillion, Rs.1 Quadrillion, Rs.1 Quintillion, Rs.1 Sextillion per Dollar, ok lets stop our imagination here, I'm running out of names of these large numbers!!

What will happen then ?
        If you are too smart and over intelligent, you would probably be thinking that this is a great situation, All is well !!

How ?
        Hmm, if one dollar is worth lets say, one trillion rupees, if I export one dollar worth of goods, for instance a mango, I'll get trillion rupees!!
Whoa I become a trillionaire just by selling a mango!! This is ridiculous , ok, let me buy a dozen of mangos this time, what will it cost ? Rs.50 ? Uh who cares? I'll give a tip of Rs.1000 and export them to get 12 trillion rupees. This is wonderful, I need not go to work next morning !!

Well you are right and congrats for becoming an overnight trillionaire and joining the league of Ambani's. Don't even bother to resign your job, let them fire you. You can anyways go in your free time and buyout that company itself !!

Things are great, but there is a small problem.

Next morning, when you open your door to pickup the news paper, you'll not see it.
why ? Newspaper boy made Quadrillions by selling Apples !! why would he bother to do this job now ?

On the flip side, you'll have to pay a trillion rupees to an imported item which costs just one dollar.

Try going to hotel, a cool drink which used to cost Rs.10 will now cost Rs.10 trillion.
Your maid who used to work for Rs.5000/month will now charge Rs.5000 trillion. Don't worry your salary will also get increased in your company.

This is the problem if everyone becomes millionaires !!
On a side note, If somebody tells you that a country will become prosperous if ever citizen in that country becomes rich, then it's a crap. You now know why.
Remember, there will be no value for a good looking and charming girl, if every girl around is as good looking and charming !!

Soon everyone will realise that nothing much has changed.
If we look at it, we have done nothing more than, just replacing numbers right ?
We have replaced Rs.1 by Rs.1 trillion. That's it. Everything else is functioning the way it was.
So, again all is well right ?


We have not yet discussed the real problem.

We have started to live in Hyperinflation and our currency is just one step away from getting devalued, Redenominated and completely thrown to the dustbins garbage very soon.

What ? We have just replace Rs.1 by Rs.1 trillion, tomorrow we will replace it by Rs.100 trillion, our income is also increasing by that standard, why should this create an hyperinflation and currency devaluation ?

This is an hyperinflation because,
  • our savings have eroded. Rs.5 Million one must have had in his bank account was more than enough to buy a nice flat and a car, which is now almost worthless.
  • Our income will not increase with the pace of our falling currency.
Our Currency will devalue because,
Demand for our currency in foreign exchanges comes down, as those who held our currency previously have made huge losses, no new buyer will come forward.
So we can't import any products from outside, as we need to exchange our currency to buy foreign currency.
It will difficult for government to raise funds by issuing instruments like bonds, it will have to pay huge interest on these bonds. Which again compels to print more money and further devaluation of it.

Finally everyone stops recognising our currency and it will be worth nothing more than toilet papers!!

 Well if you are laughing, thinking what kind of crap story is this guy telling, and these things have never happened or will never happen, then read on, this article is written exactly for you.

Fiat economy in which we are living has its problems. Currency failures are more frequent than one could imagine. To name some, Germany, Argentina, Peru, Hungary, Chile, Angola, Belarus have all had their currencies declared useless. See the full list here.

The most recent being the fall of Zimbabwe dollar on 12th April 2009. So, lets just go back few years and see what really happened.


You have to believe, when Zimbabwe dollar came to circulation in 1980, it was valued higher than USD. Just one man Robert Mugabe single headedly eroded its value with the able support of the Central Bank Governor Dr. Gono. These two have shown the world, how not to run a country and how not to run a central bank.

The man Robert Mugabe, who is famously or infamously called as democratically elected Dictator, was the Prime Minister from 1980-87 and is the controversial president from 1987 till date.

Dr.Gideon Gono, who had crashed Zim Dollor in his five year term from 2003-08, was controversially reappointed in 2008 by Mugabe to complete the unfinished job.

Till 1998, Inflation was hovering around 20%. This was high but still was under control.

While some positive inflation is healthy but when it starts to cross a certain level (RBI likes to keep it below 5%) things become uncomfortable.

This is where central banks come into the picture and start to check the flow of money into the system. It raises the interest rates, increases the minimum Credit Reserve Ratio etc.
Governments on the other hand, starts to cut down on the expenditure, increase taxes etc.

When these things don't work inflation keeps rising creating hyperinflation, this in turn increases the foreign exchange rates and decreases the value of the currency.

It then gets difficult for the government to borrow external money without paying higher interest rate. This is when things start to turn ugly.

There are only two ways to come out of this situation.
  1. Austerity - Where government cuts down spending, increases taxes, stalls hiring, reduces salary of its employees etc. As you can see this is not the popular one. Obviously politicians don't like this.
  2. Running printing press - This is more popular amongst the politicians. You want more money for government spending ? Just ask central bank to print more money for you. This is the most easiest and the most dangerous option.
No prices for guessing, what Mugabe asked his Central Banker to do.
Yeah right.
Just print more money.
This is exactly what he said in Feb 2006: "I will print money today so that people can survive."
And this is what happened, the inflation breached all possible levels.

In 2006, realising that the Zimbabwe Dollar(ZW$) was becoming worthless, they started to print new denominated currencies by chopping off three zeros.
In 2007, ZW$500,000 notes were issued. Salary hike of 900% was given to soldiers

In 2008, they came up with new currencies by chopping off ten zeros from the existing notes, as computers and ATMs failed to handle basic transactions in billions and trillions of dollars. Inflation was 231 million percent a year.

In 2009, ZW$100 trillion was issued. Inflation was just 6.5 quindecillion novemdecillion percent a year (65 followed by 107 zeros)!!. Prices doubled everyday.

The country was full of millionaires and billionaires. Kids were playing with millions of Zimbabwean dollars.                                                                                                                                                       
 Fruits and vegetables were costing no less than billions of dollars.

Shops were forced to slash prices, which took them out of business. Leading to the long queue of starved people outside empty shops.                                                                                                 

 Finally the German company, which was assigned the job of printing money stopped to print any more currencies as government couldn't provide them foreign currency to buy ink and special paper required. And people were forced to trade in Gold, Silver, USD, South African Rand, Botswana Pula, Pound Sterling.

Zimbabwean dollar was thrown to garbage and used as wall papers and toilet papers.

 Many who didn't had the access to accepted currencies, were forced to trade only in gold.

The country was headed no where. People were starved, there was no water, no electricity, no public transport. Country was on its knees.                                                                                          
Till Date they don't have their own official currency after suspending Zimbabwean dollar, they use USD for all official government transactions.
Old Zimbabwean dollars are nothing more than collection items these days. You can get them here if you want.

Positive thing to note is, things have improved in Zimbabwe in the last four years and future is expected to be much brighter.
As I said earlier, Zimbabwe is just one amongst many countries whose currency disappeared taking millions of families to misery.

Check this presentation video of Timothy D.Terrell for information on other currency collapses.                                                                                                                     

On a conclusive note, Emerging markets like India have to reduce their dependency on cheap      foreign money to fund their deficit. Once money enters the system, it will go out one day or the other, eventually selling home currency. There is no respite till the time countries offset their import cost by the export earnings.                                                                                                                                
Although Bernanke's move to slowdown printing press is causing some temporary hiccups in emerging markets. It's good for everyone in the long run that we are not going to see the below currency note in the future.                                                                                                                  

Saturday, 8 June 2013

Amway: The Most Intelligent Scam Ever?

       (If you can't see the player above, please download the audio version of this article here )

Few days back Amway India Chairman and CEO William Pinckney was arrested along with two directors and booked under the Prize Chits and Money Circulation Schemes (Banning) Act., while this didn't surprise many but what followed after is quite interesting.

India's corporate Affairs minister Sachin Pilot gave a statement that the government is looking to remove the legal ambiguities to differentiate between fraudulent Ponzi schemes and genuine businesses run by "reputed and law-abiding" entities (referring to Amway).

And Kerala government ordered a probe into the circumstances that led to the arrests.

One reason why the government is so vocal in supporting Amway is because of the investments it is making in India, the foreign money it is bringing to the desperate economy.
As a side note, India is in serious Current Account Deficit (Expected to be around 5% of GDP for 2013) and most of it is balanced by using the foreign investments. So, once the cheap money entering this country stops, things will worsen more. Hence the government want to keep its image clean in the eyes of the foreign investors.

As they have put in their own website, Amway invested around Rs 200 crores ($35 million) and one tenth of it is in the form of FDI (foreign direct investment).
And they have made Rs 2300 crores ($420 million) in sales turnover in 2012 alone.

Amway, like HUL, Avon, Tupperware sells their products directly to consumers. They are members of regulatory body Indian Direct Selling Association. And Amway is the biggest direct selling company in the world.

So everything is great, what's the problem ?
why do we hear no complaints about Avon or Tupperware which also sells their products directly to the consumers like Amway?
Why is it always Amway which is news for all the bad reasons ?
With so many complaints and arrests all over the world, how is this company still sticking around and making millions year after year in more than 100 countries ?
Are Amway Products so great that consumers are behind them , and made Amway a $10 billion company ?

There's only one simple answer for all the above questions :
Amway is so meticulously planned SCAM that it is impossible to prove legally that it is a SCAM!!

But anyone with little bit of common sense can strip their business model and say with no doubt that it is the mother of all intelligent scams. So, let's do it.

Before writing this article, I have attended a session from Amway distributors who claim themselves as intelligent IIM's and IIT's !! (The Indian versions of MIT's and Princeton's)

Amway guys would never tell anyone they pitch that they are Amway distributors.
Why ?
The name Amway is so terribly tarnished over the last 50 years that they can't use it upfront. No body would even listen to them, if they tell that they are Amway guys.

The Amway guy talked for more than 30mins but never used the word AMWAY even once till he reached the end of the presentation.

While I'm not going to reproduce the entire transcript of the presentation, will mention the major lies/sucker punches which concerns us,

Mr IIM started by saying how he was drawing huge salary before he quit his job to pursue his passion, interest : to start his own business, which is now making business with most of the fortune 500 companies !!!

He gave a well rehearsed lecture about recession and how companies are laying off employees, and we should have our own business to tackle it.

LIE No.1: When a consumer purchases a product from retail outlet, he pays the middle men like wholesalers , retailers, their staff salaries, real estate cost, maintenance cost etc. but our business(Amway) removes the middle men , hence customer will get the products at the wholesale price!!

 As they have put in their website, Amway has more than 3 million distributors or middle men, more than any other company. Can you compare this with P&G which made more than $85 billion dollars in sales last year ?

So, when a consumer buys an Amway product or a product marketed by Amway, he pays huge middle men commission, paying insanely more than for the better product available in the retail outlet. According to their own statements, when a product of $100 is sold, more than $40 dollar will be given to the IBO(Independent Business owners or distributors). Can you see the difference ?

LIE No.2: Our products are costly because of their exceptional quality. For example one vitamin tablet of Amway is equal to 4 vitamin tablets of other best companies or One drop of Amway liquid washer is equal to 10 drops of P&G liquid dish washer!!

While I wont say that their products are crap, but it would be an outright lie to say that their products are costly because of their unmatchable quality.

They are over priced because the way Amway works. When someone buys an Amway product from a distributor, part of the money spent will go as commission to all those distributors in his uplink (above him in the chain).
According to Amway, more than 40% of the product cost is pure middle men commission.

So, if this is the case if one buys from a distributor , what if you directly buy online from their website ?
In this case you are not paying any middle men commission, so you should get the products cheaper right ?
If you get the product cheaper directly in their online store who will buy from their distributors ?
So, distributors stop buying their products making huge loss for the products they have already bought.

so what ? who cares about distributors ? A company should concentrate on customer but not on distributors right ?
Wrong again. This is why I said earlier that Amway is an intelligent scam.

If there are no distributors Amway will shut down in months!! talk about $10 billion dollar company creating world class products !!

Here's why...

As a consumer what will u shop online ?
Cell phones, iPod's , cameras, clothes, shoes, drinks, groceries, books what else ?
ok, now checkout Amway Global or Amway India website, do you find anything that you want to buy ? energy drinks ? vitamin tablets ?

If you have, that's great,  now check their prices.

You should be insanely mad, out of your mind, lunatic idiot , screwed psychopathic, bizarrely paranoid person to buy them at their fatuously inflated prices. Well most won't be and will simply come out of their site.

In fact they have added few products with price tag in their website recently, before that there was no option to see their catalogue, only thing was we had to enter reference number of the distributor and click on buy!

They say, they make business with most of the fortune 500 companies, where are their products in the Amway website ? Isn't selling directly from their website to the consumer called direct selling ?

Then how does a distributor sells these products to consumers ?
Here is the catch. Hardly any distributor sells the Amway products to a new genuine consumer.
A distributor buys products for himself and/or will sell products to another distributor under him aka new sucker.

So, unlike P&G or HUL, Amway hardly makes any money(Roughly around 5%) by selling their product to the genuine consumers. 

LIE No.3: We are perfectly legal and not running a Pyramid Scheme.

This is what you'll hear from Amway CEO to bottom level IBO. And this lie is what still keeping them in the business, as it's not possible to prove legally that they are running a Pyramid Scheme.

They say, they are running a perfectly legal MLM (Multi Level Marketing) structure, where one can recruit to sell the products.

Hmm wait, is this really what's going on ?

When you come across an Amway guy, what does he try to convince you ?
Will he ever try to convince you to buy their awesomely high quality products ?

Ok, lets imagine a distributor is very ethical and just try to sell products, he'll pitch people for hours and if he is really good in it, he'll convince lets say one among 20 of them to buy his overpriced products.
He must  pitch say about 35 hours to find one buyer, and he earns 2% commission on it!!!

One must be out of his mind to do it right ?

Yes, this is the reason why you'll not find any Amway distributor trying to sell products, they are just looking for more suckers under them. As they get more IBO's under them, more they'll buy for themselves and more suckers they'll recruit. If one doesn't find anyone under him and keep on buying for himself, he'll keep on loosing money.

Looking at the pyramid more than 90% of the IBO's lose money, which will be promptly shared by the people at the top. Higher you are in the pyramid, more you'll make.

If this is not an illegal pyramid scheme, damn what the hell is a pyramid scheme then?

As they hardy have any genuine consumer, more than 90% of the people involved in this business must lose money for Amway to make profit. If they can't find any sucker, they can't make any money. No new money enters the system. Thankfully for them, as P.T. Barnum once said, “there’s a sucker born every minute”.

Amway announced record sales of $10.9 billion for the year 2012. You must know by now, how much did its distributors lost last year.

If everyone knows this fact, then what's the problem in prosecuting them ?
Because Amway OFFICIALLY doesn't ask their IBO's to do it. Intelligent.

LIE No.4: You are required to work only 6 to 8 hours a week in your spare time, and man you will make millions in 6 months.

 This is just one among many deceptive statements their IBO's make. Let's see some statistics.

According to their own statistics, more than 60% of the IBO's are inactive.
What does it mean? Out of 100, 60 realise after loosing some money that it's a crap and time to move on. If they are making lot of money why would they ever quit?

This is what they say, when you buy the products for the first time, you'll get them for discount (oh you have already started to earn ), you get some people under you lets say 20, they all will get people under them, everyone buys the products, and you make huge money!!!
whoa it's so easy.

Let's believe it for a moment, see what happens,
You'll start to hunt for people, You'll first go to your friends and relatives and say, hey guys I have a wonderful business idea, it's called Amway, we all can make lot of money!!
You can imagine the reaction from them the moment they hear the word Amway !!!

Lets say some wont be knowing it, and finally after making lot of phone calls and meeting so many friends whom you wouldn't not have met for years, lets say you'll able to convince 3 to join you.

Now how to find more ? your upline will preach you not to use the word Amway when pitching others and go to markets, shopping malls, bus stations, railway stations pitch everyone you get to talk to.
Is this what you really want to do in your life?

ok, lets imagine you started to do it,

9 out of 10 persons you pitch will say, not interested, lets say you pitched 50 persons.
you'll give big presentation to those 5 guys, say one gets convinced and join you. It must have taken you at least a month to find one new guy.

Now you slog really heard and find 10 guys in 6 months !!!
Now, 60% of them lose interest and quit in few months.
you'll be left with 4 people under you. And will they be as enthusiastic and talented as you to find more people under him ?
lets say 2 of them are really good and start to find people under them.

Bottom line is you found 2 people under you after slogging for 6 months. 6 to 8 hours of spare time per week for ???
It's a joke.

And how much did you earn ? if those 4 have bought lets say $200 products each, you'll make maximum $5.

All this time if you are buying stuffs for yourself including their CD's , books, tapes and attending their functions, then you are in bigger shit.

Lie No.5: You are not getting more people because you don't have the skills to pitch them, you need to get educated, attend our functions, meetings, buy CD's , books, you'll see wonders in few days.

 When you join Amway , your upline will force you to attend paid functions, meetings, to buy their books, CD's or tapes of Diamonds. In these functions/CD's Diamonds will tell about their lavish life style, how many cars they have, how big is their mansion, how much they earn almost doing nothing, how you can do it by not listening to negative news about Amway and all. A complete brainwash.

While Amway doesn't make money by these tools, people at the top will.

Imagine some IBO succeeded in convincing you to join the scam under him. And you are pretty intelligent and don't want to buy product for yourself. Now that person who recruited you is not making any money from you. If you leave in between without recruiting anyone, it's a waste of effort on his part.

Hmm they are smarter than you. Here's what they'll do,

As soon as you join, they'll tell you to attend these meetings and buy their CD's and tapes. They'll tell that these are not compulsory but are damn necessary to succeed in Amway. They will convince you to buy these tools , so before you leave, they'll make sure you'll lose some.

Only truth they tell is , they made billions even in recession time.
That's true. During recession, layoff's time, it is easy to find gullible people desperate and nervous about their future. No surprises here.

 Here's one such diamond, brainwashing the audience. Observe, as everyone in the audience is a new Amway distributor, they never ask him any questions and listen to all the bullshit he has to say.

 But ultimately, the truth is,

Only 1% of the IBO's will be able to at least recover the money they have spent.
Now you can imagine the odds of you becoming a diamond.

Do you want to involve yourselves with a business which has 99% chances of you loosing your money and 100% chance of loosing your friends and family ?


IDSA, which jumped into the scene as soon as Amway CEO got arrested and put pressure on government to come up with policy changes to give Amway business model a clean chit, has to answer one simple question: Doesn't it know the pyramid scheme Amway is running and how much is it getting from Amway which incidentally is it's biggest member?

Corporate Affairs minister who refers to Amway as "reputed and law-abiding" must be -
  • Ignorant of the sheer number of cases going on against Amway all over the world.
  • Ignorant of the fact that Amway agreed to pay $150 million in 2011 to settle fraud cases against it in US.
  • Ignorant of the fact that Amway paid the largest criminal fine in the history of Canada for tax evasion.
  • Ignorant of the fact that Amway is banned in China from direct selling.
  • Ignorant of the fact that India received $30 billion last year as FDI and counting mere $3.5million from Amway.
  • Ignorant of the fact that of all Amway distributors involved in India, more than 50% are college students who are mind washed to spend their time and energy in loosing their family income ?
Banning Amway distributors from buying products for themselves will not affect India's reputation in the eyes of foreign investors. Every one knows how reputed and law-abiding Amway is.

On a final note,
Amway constantly attacked bloggers and its critics who wrote against it. Sidney Schwartz was one such critic, Amway filed lawsuits against him, threatened, finally made him to shutdown his website. Here are the links to the copy of his site - Amway: The Untold Story and Amway: The Continuing Story.

P.S : If somebody pitches you and tells you that he has a great business Idea and it's Not Amway, it's 100% Quixtar, an online version of Amway. Don't fall for it.

Thanks for reading and thanks Manohar for the audio version.