The Catastrophic Consequences of Banning Cash

I’m about to give you some very good and very sound investment advice, so take this down.

My good friend at the Esser Agoroth blog sent me this post on the new editions of cash bills to be printed by the Bank of Israel. He links to Ynet, which makes a big deal about the nice little pictures of dead people that will be on the new bills, and because they are women we are all supposed to clap about how amazing and equal the world has become.

For the record, I don’t want any person created in the image of God on any government bill. Make it dots, or stick figures, or whatever. In fact, I consider it a dishonor to have one’s face on a government cash bill. Someone who really cares about the status of women should insist that no women appear on any cash bill. To delve into this specific narrow issue for only a single sentence, since that is all I can bear of this nonsense of who is on a bill, they plan to have Leah Goldberg and Rachel the Poetess on the 20 and 100 shekel bills. These are both Jewish women and good writers who I admire, who wrote beautiful poems.

Because I admire them, the last thing I wish for them is to have their likenesses printed on inflationary government money.

Anyway, the point of my friend’s repost of the Ynet news blurb was to emphasize the last paragraph of the sneaky monstrosity and journalistic serpentine trickery. Here’s the last paragraph:

Economic officials have estimated this would be the last series of paper bills issued in Israel, as paper money is only changed once every few decades, as has been the case in this instance, and in 10-20 years payments are more likely to be made using smart phones, computers and credit cards, all but nullifying the need for cash.

This way, the article is set up to focus the attention of the masses on women being featured on government paper as the important item. The very last paragraph of the article mentions a seemingly bedieved (after the fact) consequence that most people do not read at all, that is structured to make it sound like there is no consequence to it, namely that this “happens to be” the last cash that the bank of Israel will ever print.

Well, here are the consequences of a cashless economy. Before you read my extrapolations for Israel, here’s what happened in India when only high-denomination bills were banned there. Cash is still legal, just not the highest denomination bill there. The results for people’s lives were still catastrophic.

The first thing that has to be understood about a cashless economy is that banks now control 100% of the money supply, and all of it is within the banking system at all times. The banking system is built on fractional reserve, meaning only about 10% (depending on the specific insistence of your local central bank) of your bank deposits are available in the form of physical tangible cash at any given time. The only thing that keeps banks from continually loaning out 90% of your money, from bank to bank, is the fact that theoretically, you can legally withdraw your money in the form of physical paper at any time from any ATM in the country.

The fear that any and all of your deposits theoretically can be withdrawn out of the banking system in the form of physical cash is the only thing that keeps banks from inflating the money supply continuously through infinite loans to other banks and making profits off the interest and enslaving you even further. If every single transaction is electronic, then everything remains in the centralized banking system at all times, with loan volume exploding. The money supply goes sky high and price inflation gets out of control. In the absence of real, physical cash, prices skyrocket. Real assets like gold, oil, food, real estate, skyrocket.

That’s the main, theoretical point. But let’s get down to things that are more specific and concrete.

Think about cash transactions that happen in the economy. Normal, legitimate ones, not drug deals, which these mainstream media government shills are obsessed with you focusing on. Say your kid does some babysitting for cash. Your wife does a private lesson and is paid in cash. The guys at the shuk in Machaneh Yehuda in Jerusalem sell fish or fruit or whatever for cash.

Now, all that cash is gone. All transactions are now digital and therefore recorded. That means they are all recorded by government. And government taxes every single one of those transactions. What does that mean?

It means that every transaction that used to be finalized in physical cash and which may or may not be taxed because the sellers can hide some of the cash, will now be taxed fully at the legal limit set by idiotic politicians in the knesset who can dictate how much money from each transaction they feel like taking for themselves. Let’s assume, reasonably and conservatively I think, that 30% of the cash earned by the simple Jews at the shuk is not delcared as income. That means in a cashless world, taxes rise on shuk food purchases by 30%, because now it would all be taxed. Profits fall by 30%, marginal producers are forced out, supply gets lower, demand stays equal, prices go up.

But worse than that. I’d be willing to bet that 90% of babysitting services in the entire country are undeclared. It’s 90% under the table, because it’s done mostly by kids. With no cash, it’s all taxed. Profits for babysitting plummet. Which means, by supply and demand, that the cost of babysitting services skyrocket by around the same price as the tax. More for food, more for babysitting. At least.

Further, the private tutoring economy will be destroyed. Very little of that cash is declared. It will all be taxed. Private tutors make less money for their services, marginal players exit the market, supply of private tutors shrink, prices for them go up, and the middle class will be less able to hire private tutors for their kids. Only the rich will be able to afford it. Contributing to that dreaded “inequality” that the left fears so much.

Private tutors, babysitters etc. though are just the tip of the iceberg. I only mention these examples because I am personally familiar with them. Can you think of any other legitimate services that are mostly cash transactions that will be destroyed by the lack of cash? Ah, I can, here’s another, and this has to do with a situation that Moshe Feiglin has spoken out about as the child of divorced parents. (This is public information.)

I have a friend in Katzrin in the Golan where I live who is a divorced father. Through some stupid mishap the government still thinks that he needs to pay alimony, when his own ex-wife has agreed that he owes her nothing. But since there is a computer error somewhere, his bank account is frozen. He can only eat and live if paid in physical cash.

Without cash, he would starve. Literally. He gets his salary through some convoluted path ending in cash. Without it, he’d be screwed. He would rely entirely on tzedaka to stay alive. The government controls the banks, and therefore all the bank accounts. If there’s an error, it’s your problem, not the government’s. That’s the reality.

Now think of anything in your personal lives finalized in cash that will now be taxed because it will all be recorded. All of those prices will go up because marginal providers are forced out of those markets, constricting supply and raising the price.

This will cause severe disruptions in the economy and will make those people’s lives who are just making end’s meet in Israel absolutely miserable, even more so than they are now, and add on top of this the exploding price inflation by the fact that there will be no check on factional reserve bank loans. It will be a disaster. People’s lives will be ruined.

But at least tax evasion will be a thing of the past in Israel.

הודו לה’ כי טוב, כי לעולום חסדו.

The investment advice I have? This will happen. Zehut cannot stop it. We will only stop it when Moshe Feiglin is Prime Minister. Before that happens, load up on commodities and physical assets of your choice. Provided they are still needed to make stuff, anything that humans need or want, they will rise in price dramatically when physical cash is no longer available.

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The Beautiful Thing About the Bitcoin Split

Bitcoin split into two different currencies today. I don’t really understand why except vaguely something about the software being too overloaded and needing to be either upgraded or split to lighten the transaction burden on the network. Or something like that.

There was something amazing about the bitcoin split that isn’t being reported by anyone. That is, no government was involved in the decision to split the currency into two. There were no squabbles, no politicking, no building coalitions, nobody forcing anything on anybody. The guys who hold up the bitcoin network, they simply came to an amicable decision to split up, and social justice warriors were not even involved.

And what happened to the bitcoin price? Nothing much at all. It was fine. The people who use it are fine. The people who buy it and sell it are fine. Everything is fine.

Whenever I suggest privatizing something – roads, courts, airport security, garbage disposal, the water supply, etc. – I am invariably asked how the private sector could possibly handle X. Well, this is how the private sector would handle a money dispute. Amicably, cleanly, efficiently, and quietly. So we can all live our own lives.

Beyond all the thing things I want to privatize, first and foremost and my utmost priority, is to privatize money creation. Let the government have the shekel if they want. Manage it however they want. Print it, don’t print it, I don’t care. Just let the private sector produce its own money and allow people to use whatever money to pay their taxes at market value.

Why is this my top priority? Because the Israeli government is the source of 99% of all problems in Israel. From the Temple Mount and the government-funded police who beat and tazer defenseless Jews on Tisha B’Av to skyrocketing real estate prices to the war with the Arabs and Oslo, it’s all their fault. All of it.

Government power needs to hacked away and the single greatest power – the source of all the other powers the Israeli government has is the ability to print money that we are all forced to use. The monetary monopoly is the seat of all of its power. Break the State’s monopoly on money, and you have hit the weak spot at the center of the Death Star. You break the State’s biggest power monopoly by far. Once money is privatized, the State can no longer inflate with impunity because the shekel would deteriorate fast. The government in an environment with monetary competitors, must either shrink fast or go bankrupt even faster.

How do you privatize money? Just allow taxes to be paid in any currency at market value, and allow business to create money. Gold, silver, copper, stocks, bonds, dollars, euros, bitcoin, ethereum, whatever. It’s all up to the market whether to accept a currency or not.

How would the private sector handle money creation and money squabbles? The answer: very simply, as we just saw with bitcoin.

Imagine if there was a political effort to split the dollar or shekel into two currencies. Could you imagine the fighting that would be involved? All the worthless news we’d have to read, all the voodoo econometricians babbling about GDP and XYZ and 123 and using words that make us all feel dumb and unqualified to have an opinion?

But bitcoin split into two in a mutually agreed upon divorce by the developers. No violence, no public bickering, no social justice warriors, nobody blabbing on about how the poor or the rich or the middle class would be hurt by the split or the non split or anything. That’s how the private sector would handle money creation and monetary disputes. With peace and quiet.

With private competition against the shekel, inflation would end. People’s savings would increase in value. Real estate prices would plummet. The war with the Arabs would have to be ended for lack of money to keep it going. If you believe that’s a bad thing, you probably have a PhD in macroeconomics, Rachmana Litzlan. (Yes, many PhD economists actually believe war – AKA the mass destruction of goods and services and people – is actually good for the economy. It isn’t.)

 

The Caveman Minimum Wage Argument

Here’s an original approach to debunking wage minima.

Imagine that in 10,000 BCE, when humanity was just beginning to learn how to farm crops, that the minimum wage was $15 an hour in today’s value numbers.

Would there be a human race today?

The surprising answer is yes, because whatever government that may have existed back then would not have had the resources to enforce a minimum wage.

How much resources does it consume to enforce a minimum wage? How much money is minimum wage enforcement erasing from the incomes of the earners of minimum wage, e.g. those with skills JUST high enough to make it over the employment high-jump?

“Minimum Wage, so stupid, even a caveman wouldn’t do it.”

How Obama Just Exacerbated Income Inequality With His Overtime Meshuga’as

In a fit of absolute genius the likes you wouldn’t see from a highly evolved muskrat, Obama today is forcing buyers of labor to pay more for that labor at any rate over 40 hours per week. He thinks this will mean that more workers will make more money. As in the total number of dollars spent on labor will rise because of this law.

What he doesn’t understand is that less workers will be making more money and the remainder will lose, because laws cannot magically increase the amount of money people are willing to spend on labor. Less people will make more money in order to equal out the total dollar amount spent. The others will either be cut to part time or fired.

What happens is we go from a situation of relative equality, where say:

100 people make $100 overtime, for a total overtime dollar amount of $10,000

To a situation of less equality where:

90 people make $111.11 overtime for a total dollar amount, again, of $10,000, and the other 10 people have zero.

Therefore, overtime legislation creates income inequality. 

Obama doesn’t think. Therefore he isn’t.

Senate Passes 9/11 Bill That Would Force Saudi Arabia to Dump $750B in Treasuries

Oh boy, another possible trigger to the collapse of the US bond market. Today, the Senate unanimously passed a bill that would expose the Saudi Arabian government to lawsuits by victims of the 9/11 attacks. Saudi Arabia has threatened to dump its $750B worth of US government bonds if this were to happen. That, well, sort of hints that the Saudi Arabian government is partly responsible for sponsoring 9/11, otherwise they wouldn’t care.

President Obama, whose first responsibility is protecting his own ability to borrow ad infinitum in the bond markets to fund his socialist paradise spending schemes, has threatened to veto the bill because he doesn’t want the Saudis to dump the bonds and send his borrowing costs through the roof with a $19 trillion debt hanging over his head.

So to hell with 9/11 victims and their families, he’s going to protect a muslim government responsible for more public beheadings than ISIS.

But here’s the interesting part. It looks like the Senate and House will successfully pass the bill over Obama’s veto. It was already passed unanimously, and nobody, no Republican or Democrat or whatever other silly label or letter they put after their names, wants to vote against this bill because everyone knows that it should pass. The politicians on Capitol Hill aren’t even aware that this could really crash the bond market. Here’s NYT:

Senator Chuck Schumer of New York, a Democrat and bill sponsor, said the legislation would help the families of the victims seek justice. “For the sake of the families, I want to make clear beyond the shadow of a doubt that every entity, including foreign states, will be held accountable if they are found to be sponsors of the heinous act of 9/11,” he said shortly before the bill passed.

“If the Saudis did not participate in this terrorism, they have nothing to fear about going to court,” the senator said. “If they did, they should be held accountable.”

Mr. Schumer also said he believed Democrats would override a veto from Mr. Obama.

He said he believed Saudi Arabia’s threat to pull its assets, a concern of the administration, was “hollow,” adding, “It will hurt them a lot more than it hurts us.”

Where Schumer is wrong is that it’s not a hollow threat. It’s not like the Saudis would have a choice. Once they become open to lawsuits, their treasuries become collateral and can easily be confiscated by US courts no problem. The Saudis would be forced to sell everything before that could happen. It’s not a threat, but a necessity.

Hey, if the tax spender in Congress want to really jack interest rates higher and bankrupt themselves, go for it. They need two thirds to override Obama’s veto, which will come. They already have unanimity, so two thirds doesn’t seem all that difficult. It’s not exactly an uphill battle.

 

Keynesianism Is A Mystical Religion That Believes Paying Taxes To Government Makes You Richer Because The Government Is Wise

I came across this post today at Mises.org by William Anderson, reposted at EPJ, about Tax Day. It’s important to read in its entirety, then I’ll explain how it relates to mystic religion.

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April 15 is here and we are required to do the following: tell the government our income and send much of it to Washington.

Austrian-school economists are likely to tell you this is a bad thing and that taxes and government spending lower our living standards. In other words, the more government we are required to finance, the poorer we will be. According to the Austrians, economies grow through capital investments reflecting time preferences of individuals. Furthermore, Austrians actually claim that individual savings lead to economic growth. The more we pay in taxes, the less money we have for capital investment and saving. In other words, the more taxes we pay, the less we have for the building blocks of economic growth.

However, disciples of John Maynard Keynes, like Paul Krugman and others, take a rather different view. For them, wealth is achieved by spending, which creates economic growth. When consumers don’t spend enough, government rescues the economy by upping its spending. Because of this, should government raise taxes, it actually stimulates the economy more than individuals can do through their own spending. We could allow people to spend their money as they see fit. But, it’s better to be on the safe side and tax as much of it as possible, instead.

The Keynesian “Balanced Budget Multiplier” makes it all possible. It is a version of 2 + 2 = 5. The tax-fueled magic is explained as follows:

  • All spending has a “multiplier” effect. Spending increases the incomes of others, who then spend their increased income, and the pattern continues indefinitely.
  • Individual savings, according to Keynesians, are “leakages” from the system, and if not offset by equal “injections” via government spending or increased exports, the “multiplier” then works in reverse, pulling the economy into recession.
  • Government tax increases, however, have two-fold positive net effects. First, government spends new tax revenues, which quickly multiplies and creates new jobs. Second, by reducing individual incomes, people must spend larger percentages of their incomes to uphold their present standard of living. (The famed Keynesian “multiplier” equals 1 over the savings rate, so the less we save, the greater the multiplier.)

The “logic” of the balanced-budget multiplier differs from the logic of taxation and spending in Denmark. There, individuals pay most of their income in taxes, but supposedly receive marvelous government services that are more valuable to them than what they would have purchased on their own had high tax rates not existed.

Instead, the “Balanced-Budget” multiplier creates wealth by destroying savings. Austrians obviously disagree, and the “reality gap” between Austrians and Keynesians is widened. Austrians emphasize savings, capital accumulation, market prices and market interest rates, profits, losses, with entrepreneurs making decisions in an uncertain climate under the umbrella of economic calculation.

Keynesians promise an easy way out. Just give money to the government, which will spend and spend, and the spending multiplies prosperity. Interestingly, modern intellectuals will tell you that Keynesianism is “real world,” while Austrian economics is “pie in the sky.”

On April 15, Keynesians will contribute to growing prosperity by sending more money to Washington. However, Austrians likely will have a different take.

——

So, we are supposed to believe, according to Keynesian economics, that being robbed means we are becoming wealthier. That government spending is somehow magical because when politicians spend the same money on their own stuff, such as killing people or giving billions to Israeli or Arab despots, it somehow creates prosperity, whereas when you spend that money on what you actually want, it makes you poorer.

So I’m in the middle now of Volume I of Murray Rothbard’s An Austrian Perspective on the History of Economic Thought. It’s such a well written book and so fantastically organized, it’s a pleasure to read. Rothbard writes like the Rambam in terms of organization, though Rothbard is more verbose. It is impossible to be more succinct than Maimonides, unless you’re Rashi, but Rambam was clearer than Rashi most of the time. Maybe I’m the first one to make that comparison.

Anyway, Rothbard writes about the history of a town in Germany where a guy named Bockelson decided Jesus wanted everything collectivized and to each according to his need etc. Sound familiar? And that everyone was going to be forcibly converted to his brand of Christianity called something or other. Anabaptism maybe? I don’t care enough to double check.

He ended up getting sieged along with his followers while everyone was starving because the division of labor broke down, as it always does in forced communism. Rothbard writes the following about Bockelson, towards the end, after he had already declared himself king and everyone was starving to death.

It is not surprising that the deluded masses of Munster began to grumble at being forced to live in abject poverty while the king and his courtiers lived in extreme luxury on the proceeds of their confiscated belongings. And so Bockelson had to beam them some propaganda to explain the new system. The explanation was this: it was all right for Bockelson to live in pomp and luxury because he was already completely dead to the world and the flesh. Since he was dead to the world, in a deep sense his luxury didn’t count. In the style of every guru who has ever lived in luxury among his credulous followers, he explained that for him material objects had no value. How such ‘logic’ can ever fool anyone passes understanding.

And then I realized, the Keynesian nonsense ‘logic’ that giving your money to politicians and bureaucrats makes you richer, is the same exact thing. All western society has been indoctrinated into a religion that essentially preaches the government as King Bockelson. Bockelson can live in luxury while the his people starve because Bockelson is beyond the flesh.

And Washington can live in luxury while its subjects are forced to pay the taxes that Washington consumes, because giving Washington money makes the people richer, since Washington is beyond the flesh. Spending makes you richer. Savings makes you poorer. The more money politicians have, the better off everyone is. The richer Bockelson is, the better off his people are.

It’s the same religion. Keynesianism and insane early protestant Christian messianic communism.

Deep Praxeological Thoughts by Rafi Farber

I’m not exactly Jack Handey, but I’ll give this a try. It’s ironic, because I used to be a humor writer and now I’m taking a humor icon and turning it somber and serious. Life happens.

In hard sciences nobody has the audacity to try to change the laws of nature. They are what they are, and scientists attempt to use the laws of nature to navigate towards specific goals. The more they find out about the laws of nature, the more they can use them to construct outcomes. This is the long form description of “technology”.

It’s what physicists do, it’s what chemists do, it’s what (some) ecologists and psychologists do, but it’s not what most economists do. Notice that the more macro you get, the more politics interferes. There are almost no political physicists. Not to say there aren’t physicists who have political opinions, but almost none of them allow politics to infect their scientific thinking. There are no politics as to where a rocket will go when fueled with x at y trajectory. Same with chemistry, one level macro above physics. Biology you start having political biologists somewhat when it comes to the “gender pay gap” and whatever other nonsense explained by “biology”, but there’s not so much. Biology is macro-chemistry.

When you get to ecology/psychology, which are both macro-biology, you start getting political. Climatologists and other soothsayers are surveyed by the government about what laws should be passed for carbon footprints and whatnot. Psychologists often advocate government interference for a bunch of stuff. Those reading this who believe in global climate warming change should know that my carbon footprint is astronomically small for my economic position (which is not high, but I live quite beneath my means), so don’t give me any crap please. I’d bet it’s smaller than most climate global change warming activists.

By the time you get to economics, which is macro-psychology and macro-ecology, almost everything is political. Economists do not respect the immutable laws of economics. They attempt to change them. Supply and demand no longer apply when they can be changed by politics. Minimum wage doesn’t unemploy those whose labor is not worth minimum wage. Increasing the quantity of money does not decrease purchasing power. Supply and demand doesn’t apply all the time. Free markets don’t always work, like gravity always works. Etc. But supply and demand actually do, always, work, which means minimum wage causes unemployment, the end. But this is ignored by most “economists”.

The humbling thing about economics is that its laws cannot ever be changed. And people desperately want to change lives by force. It is the drive for power. Someone figures out the laws of motion and can create a rocket. By the time you get to economics, you are dealing with free will of human beings, which has a divine quality to it. If the laws of physics and biology are immutable, so are the laws of economics. Everything is one system.

And that is the difficulty of being a real economist. You cannot use your knowledge to tinker with the system, without betraying the knowledge you have learned. Once you try to tinker through politics, you start playing God with human lives without their consent. With biology you can tinker with human lives, but only with their consent. With economics, suddenly it’s OK to tinker with the entire human population with impunity? No. It is not.

This is why economics, real economics, is the most important subject in the world to learn, understand. The smartest people in the world think they can interfere with good results. They are all, 100%, absolutely wrong. Only the Austrian School understands this.