When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.

 

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

 

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The Gift that Keeps on Giving

Every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

 

Unbeknown to many, Santa Claus paid a high price for enriching investors [PT]

 

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Questions and Answers

A reader emailed us, to ask a few pointed questions. Paraphrasing, they are:

 

  1. Who cares if dollars are calculated in gold or gold is calculated in dollars? People care only if their purchasing power has grown.
  2. What is the basis good for? Is it just mathematical play for gold theorists? How does knowing the basis help your readers? Is it just a theoretical explanation of what has already happened?
  3. Prove that if someone has known the basis for the last four years, he has benefited.

 

Tell us about your crystal ball, oh great oracle. Is it any good? Can you divine the future for us and make us all rich? Quick? [PT]

 

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Rude Interruptions

As long as the US Empire can be funded and maintained on the backs of its taxpaying public, the chance of a deescalation of tensions not only on the Korean peninsula, but throughout the world are practically nil.  And as long as the nation’s current interventionist ideology holds sway, it will only be through a financial meltdown that the role of the US as global policeman will come to a much-needed end.

 

Hamhung, North Korea, June 30, 1950; an example of minor collateral damage suffered by North Korea during the behavior-modification police action of the early 1950s. Let us be clear that we have no sympathy for the hereditary Stalinist dynasty/junta oppressing the people of North Korea. Nevertheless, it should be crystal clear by now why military interventionism is problematic: it usually not only fails to achieve anything remotely resembling the desired result, in most cases it actually brings about the exact opposite. It bolsters popular support for even the vilest regimes, as the focus of the population’s anger is redirected at an external enemy; instead of destabilizing  autocrats and tyrants, it often ends up fortifying their position. Anything short of a complete victory will leave an implacable enemy in place, who as we can see in the example of North Korea can end up posing a major problem for decades. Past attempts to persuade the regime to abandon nuclear weapons (usually in exchange for economic concessions) often failed because the NK regime sabotaged them; all indications are that its decisions are driven by intense paranoia. In light of this, past agreements were often ill-conceived, as they inter alia involved the transfer of nuclear technology for supposedly “peaceful” purposes. The regime’s actions are mainly informed by a desire for self-preservation – its threats and posturing have to be seen in the context of this overarching goal. Given the deep scars left by the Korean war and the examples of tinpot dictators elsewhere who surrendered their WMD capabilities only to be hunted down and killed while their fiefdoms were bombed back into the stone age, it should not be too difficult to figure out why the NK regime wants to hang on to its nuclear weapons. [PT]

Photo credit: STR/AFP/Getty Images

 

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Eternal Spendathon

The Senate just passed a 500-page tax reform bill. Assuming it lives up to its promise, it will cut taxes on corporations and individuals. Predictably, the Left hates it and the Right loves it. I am writing to argue why the Right should hate it (no, not for the reason the Left does, a desire to get the rich).

 

The Federal debtberg has grown beyond all measure since Nixon’s gold default. So has the money supply and the amount of private debt. No-one expects this debt to be paid back ever. The idea that it is payable (without a massive devaluation of the currency) is a kind of illusion we have collectively decided to live with. Government spending perforce leads to capital consumption – while it disturbs the  production structure intra- rather than inter-temporally, it still results in an allocation of scarce resources that is not in line with actual consumer wants. Government bureaus cannot possibly ascertain the opportunity cost of their spending. They are not expected to make profits, economic calculation is not something they even care about. On the contrary, their incentives are often quite perverse: the more lavishly they spend, the better from their perspective, as that is often the best way to ensure they will receive the largest possible budget allocations every year. [PT] – click to enlarge.

 

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Style Over Substance

There are many things that could be said about the GOP tax bill.  But one thing is certain.  It has been a great show.

Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago.  Instead of addressing the Country’s mounting insolvency, lawmakers chose expediency without exception.  They kicked the can from yesterday to today.

 

The empty chairs meeting – this is slightly reminiscent of the Clint Eastwood skit in which he addressed an empty chair that was supposed to represent Barack Obama. No-one can accuse the current tax reform plan of making a lot of sense, but the problem is that any comprehensive sensible reform package would never make it past the lobbies interested in maintaining the status quo. Given that elections are advance auctions of stolen goods (h/t HL Mencken), any perceived interference with the stealing will tend to be strongly resisted. [PT]

Photo credit: Kevin Dietsch-Pool/Getty Images

 

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A Twitch of a Toe

In our recent update on credit spreads we proposed to use the seemingly deceased  Monty Python parrot Polly as a stand-in for the suspicion of creditors in today’s markets.  The question was whether Polly was indeed dead or merely in a deep coma. Depending on this, one should be able to gauge how powerful a miracle will be required to resurrect her.

 

Meet Polly. Is she alive?

 

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Known for Being Terrible

For the past few decades, Japan has been known for its stagnant economy, falling stock market, and most importantly its terrible demographics.

 

 

A chart of Japan’s much-bewailed demographic horror-show. Most people consider a declining population to be a bad thing due to the implications for assorted state-run pay-as-you-go Ponzi schemes, primarily those related to retirement. It is hard to be sympathetic, since it would have been possible to do something completely different from the outset. Even with respect to existing schemes, we don’t recall that anyone forced politicians to direct funds designated for funding social security claims to alternative uses at the time when these schemes still enjoyed a surfeit of revenues. Of course one has to be sympathetic to the future victims – those who paid in during their working lives and will end up getting stiffed. However, this is a problem that could be easily resolved by simply winding up the State in orderly insolvency proceedings prior to abolishing it. Most nation states have large amounts of assets at their disposal (e.g., they are often the by far largest land owners in the territories they control), which should suffice to cover the claims of creditors and to pay out the NPV of accumulated pension claims in lump sums. There is one way in which a declining population still has to be regarded as a drawback though. The market will so to speak have to function with fewer network nodes as the population shrinks. There will inevitably be a concomitant decline in distributed knowledge. Thus fewer ideas will occur to people and will be pursued; markets will become less efficient, the division of labor in the broadest sense will suffer a setback. Consider in this context that the market is the opposite of central economic planning in every way – the larger the network of people included in it, the better it will work for everyone. [PT] – click to enlarge.

 

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Grain of Salt Required

The price of gold fell $7, and that of silver 24 cents. This was a holiday shortened week, due to Thanksgiving on Thursday in the US (and likely thin trading and poor liquidity on Wednesday and Friday). So take the numbers this week, including the basis, with a grain of that once-monetary commodity, salt. We will keep the market action commentary brief.

 

Relatively modern examples of salt money which was widely used in African countries until the early 20th century. The bars were clad in fibers to keep them from breaking up. The specimen at the top and in the bottom left corner were collected in Ethiopia (formerly known as Abyssinia), where they are used as a medium of exchange among nomads living in the Danakil Plains to this day. The salt-filled package made of leaves in the bottom right corner is late 19th century salt money from Angola. [PT]

 

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A Useful Infographic

When we last wrote more extensively about Bitcoin (see Parabolic Coin – evidently, it has become a lot more “parabolic” since then), we said we would soon return to the subject of Bitcoin and monetary theory in these pages. This long planned article was delayed for a number of reasons, one of which was that we realized that Keith Weiner’s series on the topic would give us a good opportunity to address some of the objections to Bitcoin’s fitness as a medium of exchange voiced by critics (we have kept the final three parts of Keith’s discussion in abeyance as well, we intend to publish these concurrently).

 

BTC was easily the best investment asset of 2017 (we may have overlooked some other “alt coins”, but in terms of market cap only the 6 – 10 largest cryptocurrencies look like serious contenders in this market). We should probably write more often about it, then you would e.g. have learned that we thought BCH (the post-fork younger brother of BTC) was likely to play catch-up at some point. We actually believe this particular valuation gap is likely to narrow further, and the same may well happen with DASH, another cryptocurrency with quite similar features (both BCH and DASH are lacking some of the legacy technical drawbacks of BTC). As an aside, we always had a certain minimum target for the coming gold bubble in mind which we never mentioned in public, because we felt it sounded silly. Usually we just recommend that people use their imagination, in the hope that their imagination is big enough. By now it probably sounds a lot less silly –  we will revisit this topic once gold has overcome certain technical hurdles – click to enlarge.

 

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Standing In Your Way

Governments across the planet will go to any length to meddle in the lives and private affairs of their citizens.  This is what our experiences and observations have shown.  What gives?

For one, politicians have an aversion to freedom and liberty.  They want to control your behavior, choices, and decisions.  What’s more, they want to use your money to do so.

 

As this by now famous cartoon implies, the State is essentially a gang of criminals waving a flag. We realize that most people have a far more romantic and naïve view of the nature of the State. Some have even swallowed the propaganda slogan asserting that ”we” are the State (hint: no, “we” are not). The misguided belief that it can be reformed if only the right people come to power (you just have to elect them!) is as widespread as is the erroneous notion that it is a “necessary evil” that protects us from the imminent outbreak of uncontrollable chaos its absence would provoke. Think of the children! States were originally established when gangs of thieving, raping and murdering marauders realized that killing their victims after a raid was actually not the most economic decision; it was far better to enslave them by instituting a protection racket. Essentially the deal went: you let us rule over you and pay us protection money, and in exchange we will protect you against all those gangs of marauders out there greedily eying your possessions, including ourselves. This basic structure of the State has never changed, but it has of course become a lot more sophisticated. This increased sophistication has made the State more tolerable to the average serf, but that is not its main aim – rather the aim is to ensure its survival. [PT]

 

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Peculiar Behavior

In the last issue of Seasonal Insights I have shown that the gold price behaves quite peculiarly in the course of the trading week. On average, prices rise almost exclusively on Friday. It is as though investors in this market were mired in deep sleep for most of the week.

 

The title of this blog post is a play of words on the title of an early Wim Wender movie, The Goalkeeper’s Fear of the Penalty, which in turn is based on a famous novel by Peter Handke (sometimes the title is also translated as “The Goalie’s Anxiety at the Penalty Kick”) [PT]

 

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