Year: 2012

233% custom embroidered teddy bear tax

rafifarber Economics ,

Long ago, around February or so when my daughter Dafna Betty was born, my cousin Ginny decided to send us a gift from America. We told her not to do anything that crazy, but instead to buy something from Israel, because sending something from America is asking for trouble. A few weeks later I got a package slip notifying me that something was waiting for me at the post office and that I would have to pay 274 shekels to see what it was. That’s about $70.

I didn’t even bother to even attempt to pick it up because I wasn’t going to pay the government anything for my right to accept baby gifts, certainly not 274 shekels. And where the heck did that number come from anyway? Who decided it was 274, and why?

Eventually my landlord, with whom I share a mailbox, told me that the post office was getting angry because I wasn’t even acknowledging that I owed them 274 shekels, and that I should tell them what to do with the gift. I responded that I really didn’t care what they did with it, I’m not paying them anything.

Eventually, I had to go to the post office to pick up my glasses I ordered from China for $10 which work great. Glasses are about 20 times more expensive here, money I’d rather not spend. I got lambasted at the post office by the woman who told me I was taking up room in her post office because I never picked up my other package. I said I didn’t want the other package. She asked why. I said because I don’t want to pay the customs fees. I didn’t even know what was in the package or who sent it.

How it works in Israel is that if you feel the government has wronged you, you can fax in a complaint to an office about why you should not have been required to pay the customs fees. If they feel like giving you the time of day, they will send you a refund. I’m sure this works great. Nevertheless, I didn’t attempt to use this system.

Today I got a phone call from my mother in law who informed me that the gift was in fact two stuffed teddy bears embroidered with the names Tzitzia and Netanya, one for each of my daughters.

Their names are Tzivia and Dafna, but close enough. (Both were born in Netanya so Ginny got that right. And I in no way am demeaning the gifts. In fact, I can’t wait to pick them up when I get to the US because now there’s a story behind them. When Dafna asks me why she has a bear with the name Netanya, I can tell her that she was born in Netanya, and she’ll think that’s pretty cool. No one else has a teddy bear indicating their birth city.) My guess is they’re worth about $30 for the custom embroidery. So the 274 shekels would constitute roughly a 233% custom embroidered teddy bear tariff.

Well, I guess the Israeli government has to try and rip me off for my teddy bear importation. They do have a lot of $100 Katyusha rockets to shoot down with $1 million precision guided missiles. Somebody’s gotta pay for that. May as well take it out on the damn bears.

Hey, at least our budget’s balanced…more or less.

Why the bond bubble will be the final bubble

rafifarber Economics ,

When I was a kid, maybe 6 years old, my mom got me these giant balloons. I mean huge…huge balloons. It took me maybe 30 minutes to blow the biggest one up. I remember I was sitting in the living room and the balloon was on my legs which were up on the coffee table. I was sitting on a blue couch with flowers in Kendall, Florida. All the sudden I heard the loudest balloon explosion of my life to this day. It reverberated in my ears, and my balloon was gone. I was too stunned by the noise to react.

On March 10, 2000, the Nasdaq bubble popped at 5132.52. That was the highest it ever got, and it’s never even gotten near coming back. The cause of the Nasdaq bubble was the Federal Reserve under Alan Greenspan.

The Fed fueled the Nasdaq bubble by buying government debt for cash it invented out of nothing. That cash was stored in big banks like Goldman Sachs, which then used that cash to buy tech stocks.

Sometime in December 2007, the housing bubble popped. The cause of the housing bubble was the Federal Reserve under Ben Bernanke.

The Fed fueled the Housing bubble by buying government debt for cash it invented out of nothing. That cash was used to subsidize mortgage loans for people who could not afford them. These people used that cash to buy mortgages, which then crashed when these same people defaulted on said mortgages.

Sometime in 2012 or 2013, the debt bubble will burst. The debt bubble was the cause, the actual fuel used for both the Nasdaq bubble and the housing bubble. Without the Fed’s ability to buy government debt with money they invented, neither of those bubbles would have happened.

But each time the bubbles popped, government used its own debt to reinflate the economy. Stimulus, subsidies, what have you. Treasury yields are the lowest in history. The price of bonds is the highest in history. This bubble is not just one bubble – it is a combination of every single bubble since the Fed was born in 1913. It is the bubble that has caused every other bubble we’ve ever had, the bubble that engulfs other bubbles and gets bigger every time a smaller bubble pops.

When this blows, the world’s eardrums will shatter. And this time they won’t be able to use debt to reinflate it.

How would the Eurozone function under a gold standard?

rafifarber Eurozone Crisis, Gold and Silver , , ,

How the Eurozone functions now:

  1. Government of Country A wants money to bribe citizens of A for votes.
  2. Government A goes into debt by selling bonds, and gives money to people of A, and gets reelected.
  3. Government A needs more money, so it sells more bonds, and gives it to people of A.
  4. Government A sells so many bonds that debt surpasses GDP of A. People get worried that A will not pay bonds. Interest rates rise.
  5. ECB buys hundreds of billions in bonds of A to “stabilize the system”, and gives A the money it printed to buy them, in exchange for going even deeper into debt.
  6. A defaults, ECB stops giving them Euros.
  7. A leaves the Euro and prints its own currency.
  8. Currency A plummets in value because nobody else wants it. People of A have nothing to exchange for goods and services. They starve and riot.

Debt is encouraged in a fiat system because in the back of their minds, investors always know the central bank will guarantee the bonds, enabling countries to go so deep into debt that they will never be able to pay it back. How would it work under a gold standard?

  1. Government of B wants to bribe its citizens for votes.
  2. Government A goes into debt by selling bonds for gold, gives gold to people of A, and gets reelected.
  3. Government A needs more gold, so it sells more bonds. But they can’t sell as much since investors are trying to conserve gold rather than keep lending it to A. Interest rates rise.
  4. Investors in A’s bonds are literally running out of gold. They stop buying bonds in order to conserve gold for other purposes.
  5. ECB does not buy any bonds either since ECB does not exist. Gold is money and it is spread around, given in exchange for goods and services.
  6. A’s debt is large, but manageable, because nobody allowed them to go too deep into debt in an attempt to conserve their gold reserves.
  7. A cuts its budget, stops borrowing gold, and begins to pay back its debt in gold by exchanging goods and services for gold. Life is harder, but the budget is eventually balanced and the debt is repaid.
  8. In the next election, people of A elect fiscal conservatives who understand that it is a bad idea to go too deep into debt.

World War III will be started with a printing press, not a bomb

rafifarber Eurozone Crisis , , ,

Aside from the fact that the mantra is repeated by virtually every media outlet, mainstream and otherwise, why should any Eurozone country defaulting have anything to do with that country leaving the Euro? Except for Yanis Varoufakis, who is virtually the only Keynesian econometrician who seems to have a workable solution for Europe, everyone else just assumes that default equals exit. Why should this be?

Take the United States for example. The US is a dollar zone. All fifty states use the dollar, and California is about to go bankrupt. Is anyone seriously discussing California leaving the dollar zone if it defaults on its debt? No. Miami, where I come from, declared bankruptcy when I was a kid. Did anything happen to my family? No, because we weren’t stupid enough to buy the municipal bonds of a bankrupt municipality. And by the way, Miami did not exit Florida after it went bankrupt. As it should happen in a bankruptcy, those who own the debt lose the money. That’s it.

So why are we even discussing Greece “leaving the Euro”? Why should they? How does that help anything? Who decides if they are going to be kicked out? Who is in charge of the Eurozone who makes these decisions? Why should it even be an option? What is going on here, has anyone asked these questions?

If Greece did “exit,” it wouldn’t be Greece leaving of their own accord. What would happen is that the European Central Bank would stop giving Greece euros to fill their ATMs, and the country would literally run out of currency and they would have to start printing their own. So the answer is whoever is in charge of the ECB makes these decisions.

Who is in charge of the ECB? Mario Draghi, an Italian? I doubt he’s the one who’s going to make the final decision to stop giving currency to a Eurozone member.

Whoever has his hands on the switch is probably in Germany. The implication is that the Germans literally control Europe. They decide who’s in, who’s out, who starves, who lives, who dies. Germany conquered Europe. Again. Without anyone noticing. It’s August 31, 1939, but instead of Poland, the Krauts are about to invade Greece.

It’s interesting. We always thought World War III would be started with a nuclear bomb. It looks more and more likely that it will be started with a printing press.

3 for 1 book sales are now illegal in Israel: Yay Government!

rafifarber Economics, Israeli Politics, The Jewish Libertarian Blog

Stuff like this would never have bothered me a few years ago, not that I ever buy new books. I would have just glanced at the title, shrugged, and moved on with my life. But now these stories hit a real nerve.

The subtitle:

“3-for-1 deals at book stores will become a thing of the past in move designed to protect author’s income.”

So the government is going to decide for us what a good price for books is. They already do this with gasoline and interest rates. This piece of legislative thuggery was drawn up by Likud MK Limor Livnat, who voted for the Disengagement by the way, and is the “Culture and Sport” Minister because, well, the government needs to be in charge of that aspect of our lives as well. God forbid culture and sport be managed by the people. Likud is also, technically, the “free market laissez faire right wing” party.

The reason it is being passed is this:

The bill follows the entreaties of leading authors and publishers saying that the competition between the major bookstore chains – Tzomet Sfarim and Steimatzky – undercuts author royalties and threatens the viability of publishing houses. According to a statement put out by the Prime Minister’s Office, “the law is designed to protect the author’s income.”

So the free market is competing to lower prices for consumers like you and me, and the big guns are going to the government to make competition illegal.

According to the bill, stores will not be allowed to discount the price of a book for 18 months following its publication. Therefore, the logic goes, people will be forced to buy the book at a higher price, thereby “protecting the author’s income”.

Well, this is genius. That should work well.

But there’s another possibility, with a likelihood of something along the lines of absolutely certain: Sales of new books will plummet at Tzomet Sfarim and Steimatzky when consumers can no longer find good deals on them. Authors’ royalties will fall through the floor. Tzomet Sfarim and Steimatzky’s sales will plunge in general,  chains will go out of business, unemployment will go up, and people will cry to the government to bail out the bookstores, or better yet, pass a national “support Israeli literature tax” to give the industry a boost so authors don’t starve because nobody is buying their books. Sales of 18-month old books will skyrocket, but at an even lower price than new books were selling for at 3 for 1 deals because the chains will be trying to get rid of them in liquidation sales to make room for the new books that they can’t sell at a discount.

What will happen then is that the same thugs will complain to the government that the liquidation sales are killing author’s royalties, so those will be illegal too, and then the stores will just have to either burn them, or simply not take in new books, which will hurt author’s royalties as the books won’t even be available at Steimatzky anymore.

Livnat’s legislative bullying goes farther still:

The bill also states that for the first 18 months authors will receive a minimum 8% royalty for the first 6,000 books sold, and royalties of at least 10% for all books sold after that number. For the next seven years, publishers will be obligated to pay authors at least 16% royalties on profits from their books.

So the government also feels that it should force retailers to pay a certain amount to the authors, because God only knows what awful things could happen if they were left alone to decide the rates between themselves privately by contract. Such a thing cannot be done.

Netanyahu, Mr. Free Market Privatization, had this gem to quip:

“As the People of the Book, we are committed to maintaining the income of the authors who create our cultural treasures. The law creates the right balance between the aspiration that books not be a luxury item and that everyone be able to enjoy the experience of reading, and the need to protect authors and their works.”

Protect those authors Bibi! And when sales drop and they complain some more, I expect a subsidy or a tax or whatever it is that you’ll do to protect the industry from the consequence of your government interference with yet more government interference, thereby making it even worse. Maybe cut Barak off from first class flights to France, or maybe cut every MK’s salary 50%? How about getting rid of the entire Office of Culture and Sport and firing Livnat?

This isn’t about protecting authors. It’s about power and flexing muscle. That’s what it’s always about. Always.

Stocks, the dollar, bonds, gold, and Warren Buffet

rafifarber Gold and Silver , ,

Let’s begin from the end. Warren Buffet likes to claim that gold is not a worthy investment because gold can’t do anything. Own it for a century  and a century later, you’ll own nothing more. It’s not like gold reproduces by binary fission like an amoeba or something like that. And no central bank can print gold.

Buffet is right. Gold is not a worthy investment. In fact, it’s not even an investment at all. It’s a material that stores value. Gold doesn’t go up or down. It’s the dollar that goes up or down. The question is, what would you rather hold: gold, which maintains its purchasing power, or the dollar, which is a man made fiction?

In 2008, stocks began to seriously crash, and the dollar index went up. The dollar index is an arbitrary measurement of the dollar in terms of how many units of other paper currencies it can buy. It means nothing in relation to actual commodities. The dollar index went up because stocks plummeted. Stocks plummet because people sell them in exchange for dollars. So in 2008, everyone was demanding dollars, so the dollar index went up. The dollar was the “safe haven” even though dollars buy less and less every year.

There are other safe haven options. One is US treasury bonds. For example, one can purchase a piece of paper for $1,000 that says that the US Government will owe you $1,100 in ten years, when the US national debt will exceed something like $30 trillion and every penny of tax revenue will be going to the interest payments of creditors like you who, looking for a “safe haven” loaned the US $1000 ten years before. As good as gold, as they say. Sound good?

Traditionally, if stocks go down, the dollar, or bonds, go up. One of the two. This has certainly been the case up to now. But what happens when people suddenly realize the US  dollar actually loses value? The dollar will stop being a safe haven. And what if they start realizing that the US will not pay up on its bonds, just like Greece or Spain? Perhaps they will stop buying them. At that point, bonds will no longer be a safe haven, nor will the dollar.

Will some other currency? Doubtful. All other currencies are backed by the dollar. If the dollar falls, so do the other currencies.

All that’s left is gold and precious metals. Everyone out of stocks, out of bonds, out of dollars. Where does all that money go? Into gold.

As long as either stocks, or the dollar, or bonds – ONE of those three, goes up, then the system is still intact. But the minute all three of those go down simultaneously, the only thing left standing will be gold, silver, and commodities that people actually need to live.

This started to happen on Friday, when stocks, the dollar, and bonds all went down, and gold went up 4%. That was just a taste. We’re not there yet. But we’re teetering.

Warren Buffet is right. Gold is a lousy investment. Own it today and you’ll own the same thing in ten years. The only difference is, by then, you’ll own everything, because gold is a store of value, and value will by then have chased down gold as the only real safe haven. Gold will be money. Buy money now before people finally figure out that paper is just paper.

Greece is out of bailout money; Spain is locked out of bond markets

rafifarber Eurozone Crisis , ,

The New York Times is reporting today (June 6) that Greece is running out of money to pay its immediate obligations. This is mostly because they’re not getting enough bailout money because the bailer outers don’t know if Greece’s next government will agree to the terms of the bailout, and Greece doesn’t have a government yet because the Greeks couldn’t decide whether or not they want to agree to those terms. So another election is scheduled for the 17th, elections cost millions of Euros which the Greeks don’t have, and in the meantime they have no money left.

The terms, by the way, are that Greece must commit suicide if they are to be able to collect on their bailout.

The budget gap is widening as the so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — withholds 1 billion euros in bailout money earmarked for government financing while it waits to see whether new leaders elected June 17 will honor Greece’s commitments.

Even if the troika delivers that money, Greece will struggle to cover its obligations. It underscored a harsh reality that is playing out in other troubled euro zone economies. Prolonged austerity is making it harder, not easier, for governments like Greece to become self-reliant again.

What the New York Times isn’t telling you is that the ECB is making a nice profit off the so-called Greek austerity, which is only inflating Greek debt all the more. Yanis Varoufakis calls it “ponzi austerity”.

Meanwhile, Spain is complaining that nobody wants to lend Spain money anymore. They warn that if that happens and nobody lends Spain money anymore, they won’t be able to pay back the money they owe to other people who lent them money in the past. So they need new money to pay back previous lenders.

The Ponzi scheme is about to end! Quick! Somebody print some Euros for the love of the Eurozone!

Tomorrow there’ll be something about Italy. Just end this thing already and put Europe out of her misery.

World War II was the Flood; the Eurozone is the Tower of Babel

rafifarber Eurozone Crisis, The Jewish Libertarian Blog, Uncategorized

The picture to the left is an actual Eurozone ad campaign.

The parallels are uncanny. In the 1930’s, Europe, led by Germany, descended into violent chaos. Everyone killed everyone for every reason. A flood came, the biggest war ever fought on planet Earth. 60 million were killed – 2.5% of the global population at the time. Then things calmed down for a bit. Then Europe wanted to unite, to build a giant monetary Tower of Babel, to secularize and to expel God from the continent. The European Union and the Eurozone were born…

Eurenesis, Chapter 11

1) And the whole of Europe was of one union and one purpose. 2) And it came to pass, as they journeyed to Germany, that they found a valley in the land of Frankurt am Main; and they dwelt there. 3) And they said one to another: ‘Come, let us make money, and distribute it thoroughly.’ And they had paper for money, and tokens had they for coins. 4) And they said: ‘Come, let us build a European Central Bank, and a currency with its top in heaven, and let us give it the name Euro; lest we be scattered abroad upon the face of the whole of Europe.’ 5) And the LORD came down to see the ECB and the Euro, which the children of Europe built.

6) And the LORD said: ‘Behold, they are one Union, and they have all one currency; and this is what they begin to do; and now nothing will be withheld from them, which they seek to do. 7) Come, let us go down, and there confound their Eurozone, that they may not understand one another’s currency.’ 8 ) So the LORD scattered them abroad from thence upon the face of all Europe; and they stopped using the Euro.

The sin of the Eurozone was that it was trying to control too much, to mold the world in its image and to expel God from the planet by replacing Him as Creator, to conquer the  economy through unity, just like the people of Babel did. But the project was too much for man to handle. Now Europe will fragment, and life will go on.

Austrian Keynesian parting of the ways: Jim Rogers and George Soros

rafifarber Economics, The Jewish Libertarian Blog , , ,

It’s fascinating to see two financial giants have such spectacular success but have such differing views on economics, morality, and goals. George Soros and Jim Rogers are like two sides of the same coin. One is a radical leftist Keynesian, the other a free market Austrian. Both worked together in the 70’s on the Quantum Fund, a hedge fund that made both men spectacularly rich. After that, one retired to a quiet life of motorcycling around the planet and seeing the world. The other started doing mischief.

George Soros is known to many as a scary manipulator and radical leftist who has his hand up the world’s shirt, playing the Globe like a puppet master. He is said to have “broken the bank of England” though I have little idea what that actually means. The man believes in globalization, central planning, inflation, bailouts, and State control. He loves Obama and the Federal Reserve.

Jim Rogers is known to many as an affable guy who likes the Orient. He lives quietly and gets interviewed by this and that financial network about what investments to make. He talks about morality a lot, the immorality of bailouts, believes in sound money, gold, believes the Fed should be abolished, and loves Ron Paul.

The question is, how is it that these two men actually worked together on the Quantum Fund, split apart and developed such different ideas about macroeconomics and politics?

The answer, I believe is that they don’t actually have different beliefs. They have different goals. Soros wants to control as much as he can. This is why he is a Keynesian. Not because he believes it’s good for the people, but because once you’re on the top, inflation, government control, and centralization can only benefit you. Jim Rogers and George Soros both know that the free market is the only thing that works, and is the only thing that is moral. It’s just that George Soros would rather keep all the power for himself and fool people.

The point is this. Those at the top, in the Fed, at the helm, in the treasury, the ones actually in charge of the central plan that is killing us, all know very well that the whole thing is rotten. They just don’t care.

The battle between Keynesianism and free markets is not a battle between economic ideologies. It is a battle between freedom and slavery, good and evil.

The global economy is starting to remind me of Atlas Shrugged

rafifarber Economics, The Jewish Libertarian Blog

“What more can the Federal Reserve do?” is a question that keeps cropping up, especially in the last few days. They’ve already purchased so many bonds that their balance sheet is now heavier than the entire mass of the solar system, and there are no more bonds to “twist”, meaning, they cannot exchange any more short term bonds for long term bonds, because they have no more short term bonds to exchange.

The only thing the Fed has a mandate from Congress to actually do is buy or sell bonds. If they buy bonds, they buy them with money they conjure out of nothing (read money they steal from you and me) and if they sell bonds, the obliterate the money they earn from those bonds out of existence. They are like a giant monstrous liquidity black hole that magically spits out and sucks in cash, in and out of existence.

But as many dollars as the Fed can vomit forth into the economy, there seems to be no stopping the recession. What you have here is a world that doesn’t know how to produce anymore because everyone is stealing money from everyone else. When money is stolen, wealth is not produced. Only transferred, and each country is trying to steal more and more money from every other country by borrowing without any intention of paying back, and inflating GDP numbers by printing currency. It’s like a bankrupt college kid trying to show his parents that he’s making more money because he’s borrowing more from his friends and having his powerful bully go around beating people up for their lunch money and calling it “stimulus”. Except, in our case presently, we the people are the parents, the powerful bully is the Fed, and the bankrupt kid is the global economy.

Atlas Shrugged is not a very well written book. Fun to read, but way too long, droned on forever. Ayn Rand was never known for her writing skill, but for her ideas. What happened in the book was this: as the government lost more and more control, they started issuing stricter and stricter economic edicts (regulations) to keep things from dying. At one point, the government issued an edict that no company or person was allowed to produce any more or less than he is now, so GDP would stay exactly the same and nothing would change. This is pretty much what Constantine did when he took over the Roman Empire when he forbade sons from pursuing any occupation different from their fathers. So there is precedent for governments to do such things.

The danger now is that while Keynesians are crying that the Fed can’t do anything more, they may just be tempted to tell the government to give the Fed more power, and, say, buy stocks straight up and inflate the stock market directly instead of indirectly by buying bonds and forcing money into equities by saturating the bond market as they are doing now with QE.

If God forbid that happens and the Fed gets even more power than it has now, then we are all going to suffer excruciatingly. A monetary black hole entering the stock market can do untold damage to everyone involved, and the entire capitalistic system as we know it will be in danger. I’m pretty gloomy on this blog, but the thought of the Fed being allowed to enter the market directly, quite frankly scares the daylights out of me.

After that, the government may, a la Atlas Shrugged, just issue an edict that no one is allowed to sell stocks at a loss anymore, thereby keeping prices inflated.

Regulations are already making it so unbelievably difficult for a company to go public and issue an IPO that only gargantuan companies can do so, at the point where they already have $100 billion market caps and there’s no point in buying them because they are already at their highs. (FACEBOOK FACEBOOK FACEBOOK) What stops the government from issuing a mandatory hiatus on selling stocks? They already issue bans on short-selling. The point of a company going public is not for a colossus to raise $100 billion for God’s sake. It’s so a small company can raise a few million to expand by offering shares to the public and hopefully grow and share the profits. But what do any of us know from real capitalism anymore. We’ve become the world of $100 billion IPO abortions and failed startups who can no longer attract capital because JPMorgan is sucking it all out of the economy.

Watch out for the cries for the Fed to be able to do more. These are the most dangerous of cries. The world is falling apart and people are terrified of any semblance of freedom. Very soon this planet is going to look like something out of an Ayn Rand horror story.

Who is Ron Paul?

I mean John Galt.