International student tuition fees in “Dollars” & “Gold” show inverse relationship

After the Federal reserve announced the QE3 (Quantitative easing), I came across to the bold statement made by Marc Faber (Investment Guru) and he said http://www.resourceinvestor.com/2012/09/17/marc-faber-own-gold-dont-store-it-in-the-us?t=precious-metals&page=3  “Fed reserve (USA central bank) will collapse the world and don’t save the Gold in USA”. Indirectly he is saying that time has come to shift the assets in Gold and Fed reserve is printing unlimited dollars which will collapse the economy and one day Gold will be the only currency.

 Casey Research said http://www.caseyresearch.com/cdd/demise-petrodollar  – The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints.

Now let’s imagine, if we had a system that the Indian International students can pay the tuition fees by paying ‘Gold’ and not the fiat / paper currency. In such circumstances the tuition fees for an Indian International students in Australia will be the cheapest at this point. Let me explain with the help of the below table:

Year

Avg Tuition Fees

Avg Exchange Rate

Avg Fees in

Avg Gold

Price per KG

Avg Tuition

Increase in

AUD$

AUD$ equivalent

Indian Rupees

in India

Fees per

Money supply

HE courses

Indian Rupees

/KG of Gold

US$ (trillions)

 A

B

C = (A*B)

D

E = C / D

Base money

 M1

1997

11,500

27.011007

       310,626.58

480,000

0.65

0.15

1998

11,500

25.980662

       298,777.61

470,000

0.64

0.2

1999

12,500

27.791416

       347,392.70

480,000

0.72

0.2

2000

14,000

26.076315

       365,068.41

490,000

0.75

0.4

2001

14,500

24.420905

       354,103.12

495,000

0.72

0.45

2002

14,500

26.397292

       382,760.73

500,000

0.77

0.55

2003

15,400

30.392224

       468,040.25

520,000

0.90

0.65

2004

17,600

33.330657

       586,619.56

520,000

1.13

0.75

2005

17,600

33.500305

       589,605.37

530,000

1.11

0.7

2006

18,200

34.090772

       620,452.05

750,000

0.83

0.8

2007

18,200

34.616789

       630,025.56

1,000,000

0.63

0.85

2008

18,900

37.010234

       699,493.42

1,000,000

0.70

2

2009

20,700

38.224614

       791,249.51

1,500,000

0.53

2.1

2010

21,500

41.958694

       902,111.92

1,750,000

0.52

2.7

2011

22,360

47.952709

   1,072,222.57

2,000,000

0.54

3.1

2012

24,180

55.013989

   1,330,238.25

3,065,650

0.43

unlimited supply

Source
Exchange rate – http://www.ozforex.com.au/forex-tools/historical-rate-tools/yearly-average-rates
Gold prices – http://www.goldprice.org/spot-gold.html
Tuition fees – past Take off Education offer letters
USA money supply – http://en.wikipedia.org/wiki/Money_supply

Some signification observations from the above table are:

  • International student tuition fees in terms of ‘Gold’ – Today the cost of an annual tuition fees if quoted in Gold is equivalent to 430 grams. In the year 1997 it was 650 grams and in the year 2003 it was 1130 grams. This proves the fact that the cost of Education in Australia has not gone up at all. It is the monetary policy which has failed to take the correct economic decisions which has resulted in the loss of purchasing power of the Indian rupee.
  • International student tuition fees in terms of ‘Indian Rupees’ – In terms of Indian rupees the annual tuition fees in the year 1997 was approx Rs 310,000 which has now climbed to Rs 13,30,238 currently. The increment (inflation) is approx 22% cumulative every year. The Indian Govt still announces the official rate of inflation at 10.03%. It is no longer true as the figures don’t match at all.
  • Exchange rate – In the year 1997 the exchange rate to an Australian dollar was Rs 27.01 and today it is Rs 55.03. India’s fiscal deficit is approx 4% of the GDP, growing population, growing demand, growing gap in rich & poor, lack of competitive Education, lack of productive work population, slow growth of exports and slow economic reforms has resulted in the loss of purchasing power of the Indian rupee.
  • Australian Dollars tuition fees – In terms of the Australian dollar, the tuition fees for higher education has gone up from average AUD$ 11,500 per year in the year 1997 to average AUD$ 24,180 currently. Historically the Australian inflation from 1973 to till date has been approx 5.73%.

A few interesting questions

  •  What is the relationship between US$ money supply, price of Gold and the exchange rate ?

As the US$ money supply increases via quantitative easing the price of Gold appreciates against the US$. Depreciated US$ increases the demand for the crude / oil and the petro dollar appreciates which leads to inflation and the commodity prices go up. In return, India will pay a lot more for importing crude, oil and commodities and hence the inflation goes up. This leads to depreciation of an Indian Rupee against the US$ and the Australian dollar. Hence, the Indian rupee has depreciated from Rs 27 in 1997 to Rs 55 currently. Now with Fed reserve (USA central bank) printing unlimited currency the Indian Rupee will depreciate further against the US$ and the Australian dollar. This will make the cost of Australian Education for an Indian student more unaffordable.

  • How does the US$ money supply impact the Indian students ?

Traditionally Indians don’t sell gold. Most of the resources are invested in Indian rupees (assets) and are not hedged against the US$ money supply. As the Indian rupee depreciates the cost of Education in Australia becomes more expensive.

  • What are we trying to prove at the end ?

There is a significant correlation between US$ money supply, Gold prices and the impact on the Education Industry. As the US$ supply goes up the Gold prices go up and the Indian assets (spending capacity) don’t increase in that proportion.

Bottom line – US$ money supply causes structural damages to paper based wealth. History has taught us that paper currencies will come and go but Gold hold’s value and have preserved wealth for over 5,000 years.

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