Economics

Yael German’s Crazy Amazing Plan for Misrad HaBriut that Will Save The Country

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Yael German is a sick woman. Besides Naftali Bennett, who earns my title for worst, most disgusting Knesset Member/Minister, Yael German is right behind him for her callousness. Lapid I pity because he’s more clueless than callous, even though arguably he does more damage due to the power of his position as Finance Minister.

One reader turned my attention to this article in The Marker, which outlines German’s new crazy amazing plan for the Government Health Mafia to make it better. My disdain for Yael German comes from the fact that she fought Moshe Feiglin hard on the cannabis legalization issue, and actually made it harder for sick people to get marijuana by giving the entire industry to Sarel, a government crony company in charge of supplying the Health Ministry and all its crony hospitals with all its supplies at monopoly prices.

Yael German, apparently, has the moral authority to make sick people suffer and not let them take what helps them. She is therefore unforgivable in my eyes, unfeeling, and evil for the pain she causes suffering sick people.

But anyway, the title of the article here is “Equalizing the Burden Begins at the Health Ministry”. Already you can tell this is about taxing the rich more to support public hospitals. And indeed that’s all it is. Here is the relevant half of a paragraph about German’s new “plan” that’s supposed to make the Misrad HaBriut a powerhouse of modern health blah blah etc.

גרמןהציגה שני מהלכים גדולים שעודם בחיתוליהם ואמורים להיות הזרזים לשוויון המיוחל: הראשון הוא שינוי שיטת החישוב של מס הבריאות, שיהפוך אותו לפרוגרסיבי יותר באמצעות העברת נטל מהעשירונים הנמוכים לגבוהים. השני הוא הקמת ועדה ציבורית לבחינת דרכים לחיזוק הרפואה הציבורית.

Basically, German is doing two things. One thing really, because the second thing is so stupid it’s only worth mentioning for comedy. First, she’s making the taxes that go to the Health Mafia more “progressive” AKA raising them on the rich people to support the Mafia. Second, she’s…jeez, it’s really hard to write this without rolling my eyes so I can’t even type…she’s “establishing a committee to investigate ways to strengthen the public health system.”

Translation: She’s paying a bunch of her friends and relatives or political allies and donors some tax money so they can sit on their fat asses and drink coffee all day somewhere in the Knesset’s meeting rooms and discuss how they can raise taxes even more to make the Health Mafia even stronger. This committee will probably cost millions of shekels because everyone on it will be paid obscene amounts to discuss raising taxes even more on you, while spending your money talking about it.

So that’s it. She’s going to raise taxes, and appoint a committee of her friends to discuss how to raise taxes still further. That’s her plan. Ingenious.

G20 Sets the Stage for a Global Bail-in, OR: The Protocols of the Elders of Global Finance

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Today we’re going to pick apart some Newspeak. Here’s the relevant paragraph, from an article in Reuters about the leaders of the most powerful financial institutions all coming together and conspiring about how to rob the entire human race of all its savings and transfer them all to governments, all in one shot.

Government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.

The bonds, known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail”.

Here’s the translation into English:

There’s this problem with banks that have gotten so big, thanks to government coddling and favors, that to let them fail would endanger the government itself. Therefore, up until now, every time they almost fail, which happens repeatedly because they are all fractional reserve banks that lend out demand deposits, the government bails them out by raising taxes and printing, and giving the money to the banks in what is called, colloquially, a bail out. In 2008 it was $700 billion in taxes (remember the TARP act?) and $16 trillion in printing, 22x the taxes spent on the banks.

The problem is, relying on taxpayers to back banks is politically unpopular, so instead of having to rely on the government to transfer tax money to banks through direct taxes and inflation, governments are enabling the banks to steal from depositors directly without using the government as its thieving middleman.

GLAC bonds will be backed by none other than demand deposits, in other words the money you deposit in your checking account. You can’t just invent capital out of nothing if you are not a central bank and do not have the ability to steal through inflation. So in the event of serious financial stress, these GLAC bonds will be on the balance sheets of banks listed as assets to pay off creditors.

Got that? Thanks to G20 governments, the biggest banks now have the ability to pay off their creditors with the money you deposit in your checking and savings accounts by calling that money a “GLAC Bond” and declaring it an asset.

Now taxpayers do not have to be robbed by government in order to pay off bankster debts. Now they can be robbed directly by the banks themselves through GLAC bonds. Remember Cyprus in 2013? When the Cypriot government took a percentage of everyone’s deposits to pay off its debt?

It just went global.

The Protocols of the Elders of Global Finance

SHOCKER Finance Minister Yair Lapid is a Corrupt Playboy

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Who would have guessed that the Minister of Male Grooming Yair Lapid is a corrupt spendthrift little pisher.

According to an investigation by Ynet, he took a trip to the US in October 2013 that cost, somehow, 54,000 NIS. His sidekick, some politician named Micki Levi, the deputy Finance Minister, had a refrigerator installed in his car for 3,534 NIS. The list of profligacy is long.

The really funny part though is to see the various different government apparatuses try to steal from one another. How? License renewal for all the cars driven by gang members of the Finance Ministry cost 529,000 NIS last year. This of course goes right to the pockets of the gang members of the Transportation Ministry which charges monopoly prices on license renewal by outlawing all competition. The head of that gang is Yisrael Katz, who really looks and acts like Boss Tweed.

Boss Katz Tweed

So Lapid isn’t “spending” half a million shekels on license renewal. He’s just transferring the money to another government office, that of transportation. Same with the million shekels he spent on gas. Half of it goes to Katz and his disgusting 100% Blu Tax on gasoline.

Lapid may be corrupt, but he’s a beginner compared to Katz.

Half a million shekels for holiday gifts including Pesach, Purim, and Rosh Hashana, because being a tax receiver isn’t enough. This is for 1,000 tax receivers who “work” for Lapid in the Finance Gang.

But that’s nothing compared to the Computerize the Government program, that has been going on since 2004 and was supposed to be finished in 2006. 82,000,000 NIS just this year, eight years behind schedule, who smells a computer-industrial complex here? BOONdoggle.

But we should all be proud to pay taxes, as I heard a Rabbi say recently in his Rosh Hashana sermon. The Rabbi is also a tax receiver, partly.

The Finance gang says it will cut all unnecessary spending. Sure. If I ever head the Bank of Israel, I will cut off the money at the source, so if they want to spend that much, they’ll have to tax you for it directly instead of have me print it for them and tax you through inflation.

The whole article, in Hebrew.

A Free Market Look into the Stupid Israeli Plastic Bag Law

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Here we go again. The government is setting another price control. This time on disposable plastic grocery bags.

I shop with my own reusable bags. My wife’s grandfather, may he live long and prosper, gives us a bunch of crap every time we visit the US. Among the crap he gathers at retiree broker conventions is occasionally useful things like the bags the crap comes in. We shop with those bags because we are one of the few that are environmentally conscious. And we don’t like having plastic bags everywhere in our house.

But being environmentally conscious is not a good trait to have. I’m not bragging about it. It’s a form of OCD. It’s a compulsive thing we have, my wife and I. I don’t wish it on others. In fact, I’m a big fan of littering from a moral perspective. See Defending the Undefendable, page 205. Read it for free. Autodidactify.

That said, I have no problem at all with people who triple, quadruple, and quintuple bag, take bags right out of the dispenser just to play with for fun and throw in the garbage, etc. Why don’t I have a problem with this?

Let’s grant there there are environmental problems that may kill us all one day. Let’s say landfills will inherit the Earth. Why is it happening? Well, whenever the price for a good or service is pushed below the market rate by force, you end up with a shortage on the sell side and an excess on the buy side. If bananas are 10 shekels a kilo, then if the government comes in and says you’re only allowed to sell them for 5 shekels a kilo, there will be too many buyers (an excess) and not enough sellers (a shortage).

The key is, it’s the same exact thing with dumping garbage. If the price of dumping your garbage is zero, then you will have an excess of dumpers, an excess of landfills, too much trash. The price of dumping is set by government at zero by force of monopoly. No private company is allowed to come into the market to try and compete with the government for the service of dumping people’s trash.

And now, lo and behold, people are dumping, because the price is zero. And the government suddenly has a problem of how to get people to stop dumping so much. So instead of getting out of the dumping industry and letting the free market price the service so people will have to pay to get rid of their trash, or perhaps even be paid for organic trash, the government intervenes even more and messes with another price, that of plastic grocery bags.

And on our side, we try to make people “environmentally conscious,” to voluntarily control themselves when there’s someone messing with the price mechanism. If bananas were decreed to be 5 shekels a kilo instead of 10 and suddenly there’s a shortage, you can do one of two things. You can either ask people to voluntarily restrict their banana consumption, or you can push the price back up to equilibrium at 10. 

Same with dumping. We can either waste our time educating people about landfills to alleviate the dumping excess, or we can push the price of dumping to equilibrium by freeing the market. Educating people to be environmentalists won’t ever work. It’s a lost cause, and it’s stupid. The answer is free market pricing.

It’s to have private companies figure out what to do with plastic bags. An entrepreneur buys a plot of land and starts a dumping business. His interest is to preserve the capital value of his land and make money, so he’d obviously prefer organic trash over toxic waste. Organic trash he pays for, because it makes his land more fertile so he can sell it to a farmer when it’s full. Toxic waste he doesn’t want, so he jacks the price way up for dumping it, and separates it from his organic pile to cordon off any problems. If anyone mixes toxic waste in with the organic, he charges a major premium. Or, alternatively, he separates it himself to make it easier on his customers, investing in that capital.

Another entrepreneur comes in and figures out a way to turn plastic bags back into oil like this guy, who sounds like he smokes too much pot.

So he starts collecting, or maybe even paying for, plastic bags. Why does he do this? Because private dumpers charge such a high price for dumping them since they ruin the capital value of dumping sites, and there is a need in the market to lower the price for dumping plastic bags.

In such a case, where dumping is not free but rather a service that you pay for just like any other, people will use much less plastic bags because the price for dumping them is so high. Prices are how humans divide resources on the planet. There is no other way to do it.

That’s why being “environmentally conscious” is nothing but a form of OCD. There is no benefit in trying to make people “environmentally conscious”. There is no point, and it should not be a goal. There is no way in hell or on Earth that we will get enough people to voluntarily care, for no economic reason, about a landfill somewhere that they don’t see, enough to be able to actually tackle the problem. People care about their wallets. Environmentalism cannot work for the same reason that socialism can’t work. Because there is no way to divvy up resources without private property and free market prices.

Every single environmental problem on Planet Earth is a result of government monopolies and price controls. Every single one. Water, air, dumping as well.

What will happen now that the government is forcing a minimum price on bags? The stores that cannot afford the capital equipment necessary for this mess, like bag counters and whatnot, will not be able to comply. Cashiers will be sitting there counting bags manually, causing longer lines. It will be a big mess.

There is no need for such a law. All you need to do is get the government out of the dumping business and let private entrepreneurs figure out how to get rid of trash in the most cost efficient way possible. All the government does is take it from you and stick it all in a landfill, organic, toxic, and everything in between all together. Why? Because they just take whatever land they want for free and just dump on it. Would a businessman who bought his land with his own money do such a thing? No, he would dump in the most efficient way possible to preserve his purchase and even make it more valuable.

 

Why sales taxes do not affect prices directly

rafifarber Economics, The Jewish Libertarian Blog , , ,

This is a continuation as to why Feiglin is wrong when he says that zero VAT on newly built homes will benefit the rich more than the poor, thereby widening the gap between rich and poor. (For people new to this blog, I still support Feiglin for Prime Minister enthusiastically. He’s just wrong on this issue.)

This is a very important point that few people understand, precisely because it is so counterintuitive. Consumption taxes like value added taxes, in Hebrew מע״מ for מס ערך מוסף, do not have a direct impact on the prices of goods that are taxed. If you search this blog, you’ll find that earlier posts from several years ago have made the same mistake in assuming that VAT is simply passed on to the consumer. It never is. It is impossible to pass on a consumption tax to a consumer. It is always passed backward onto the retailer, never forward on to the end consumer.

Murray Rothbard wrote about this in Man Economy and State, Chapter 12, section D, paragraph 4. Here it is: (I finished the 1,369 page book two months ago. Yay for me.)

In considering the general sales tax, many people are misled by the fact that the price paid by the consumer necessarily includes the tax. If someone goes to a movie and pays $1.00 admission, and if he sees prominently posted the information that this covers a “price” of 85¢ and a tax of 15¢, he tends to conclude that the tax has simply been added on to the “price.” But $1.00 is the price, not 85¢, the latter sum simply being the revenue accruing to the firm after taxes. The revenue to the firm has, in effect, been reduced to allow for payment of taxes.

The general sales tax Rothbard refers to is the VAT, or the מע״מ. So if we translate that to houses and use Feiglin’s flawed analogy, a house that costs 1.6M NIS, does NOT actually cost 288K less than that on the free market because of the VAT which is supposedly tacked on to the end. The house costs 1.6M, period, regardless of whether there is a VAT or not. Why must this be so?

Because a price is not just a number that a seller sets in order to make a certain profit he feels like making. If that were true nobody would ever sell at a loss. A price is what the seller can get on the market regardless of the profit he makes or doesn’t make. In other words, it’s not like the seller of a house or the builder of a house who is selling it feels like he has to make X profit on the house and therefore sells it for 1.6M assuming a VAT, but would sell it for 288K less if he sells it without a VAT and get the same profit. It doesn’t work that way.

A price is a finely tuned level where buyers and sellers equal out. It is the point where supply and demand meet, not the point at which the seller feels he has made enough money. If by divine intervention the VAT were abolished tomorrow, the price of housing would NOT suddenly shrink by 20% or whatever the VAT is. If it did you’d have a rush of demand that would immediately bid the price back up to the current levels.

A clear illustration of this is what happens at a supermarket sale designed to get you interested in a product. The supermarket often sets something at below a market price and then limits you to a certain amount of it. Say tomatoes are on sale for a shekel a kilo when the real free market price is 3 shekels a kilo. The store will inevitably limit you to, say, 3 kilos. Why the limit? Because by going below the free market price, it has voluntarily introduced a shortage, necessitating the limiting. If it were at the free market price, there would be no limit on any customer, because the free market price IS ITSELF the limit.

The current price of housing is the equilibrium point between supply and demand. If VAT were gone tomorrow on everything, the prices of everything would stay the same because the equilibrium point between buyers and sellers of anything has not changed overnight. If suddenly the price of housing dropped by the VAT amount, then you’d have more buyers willing to buy than sellers willing to sell, and the price would quickly jump back up to the current market price. Perhaps a few sales would be made at current prices minus the VAT, but they would be made so fast that the competitive bidding would very quickly push the price back up within days or hours to reach equilibrium again.

Therefore, there IS no benefit to rich people of 288K on a 1.6M house, because the price WOULD NOT CHANGE. Neither is there any direct benefit on any other buyer of any house no matter how rich or poor he may be.

Where there IS direct benefit is on the SELLER of the house, or the builder of the house who is the seller, in that he gets to keep the amount of money previously stolen from him by the government. The SELLER of a 400K house and a 1.6M house could be the same person. In fact, the seller of a 400K house could be rich while the seller of a 1.6M house could be poor. The benefit to them of getting rid of the VAT is that they no longer have to pay 20% (or whatever the VAT is) to the government, so they can keep that and reinvest it in say building more houses instead of buying more $60K Iron Dome missiles to swat flies out of the air from Gaza.

That eventually ups supply, gradually bringing the price down on everything. So yes, getting rid of VAT does lower prices INDIRECTLY, only by increasing supply through reinvestment of profits that would have otherwise been taken by government and spent on some inner city school prison. But in Israel, since the government owns 93% of the land, there is no way to up supply even if the VAT is obliterated. So housing prices would continue to rise, as Feiglin says in his post. However, even so getting rid of the VAT would lower prices on whatever the bigger profits were reinvested in, so we’d be better off on net anyway even if housing prices are not affected because of the government land monopoly restricting supply.

Conclusion: It’s not that buyers of more expensive houses will get a greater benefit. They won’t. It’s that sellers of more expensive houses will have less stolen from them. Those sellers could be anyone. Stop with the class warfare, I don’t want to hear anything about Rich vs Poor and the supposed battle between them. The battle is between taxpayers and tax receivers. The battle is between rich and poor taxpayers vs rich and poor tax receivers.

We need to fight the tax receivers until they no longer receive anything. (Yes, this includes Feiglin himself as a Knesset Member, and the only reason I give him an exception is that he is leading the fight from within the government, and there is no other way I see of taking them down legally and nonviolently.)

Moshe Feiglin Makes a Mistake on Zero VAT מע”מ אפס

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This is for all the people who think I’m a mindless follower in a personality cult. I have criticized Feiglin in the past and I don’t agree with him on everything. Well now I’m going to do it again.

In his last Facebook post, he writes:

מע”מ – אפס פיתרון.

מע”מ אפס – פתרון למצוקת הדיור או העמקת הפער לטובת העשירים?

כבר מזמן פרסמתי את דעתי כי השורש של מצוקת הדיור הוא במצוקת הקרקעות לבנייה. כל עוד מדינת ישראל תחזיק ברוב הקרקעות ותספסר במכירתם מחיר הדיור ימשיך לעלות.

יש לחלק קרקעות לבניה לכל מי שסיים שרות צבאי או אזרחי באזורי הפריפריה בתנאי שהוא אכן יממש את הבניה בתוך פרק זמן סביר. יש להקים ערים כדוגמת מודיעין בשיפולי השומרון והרי יהודה. הגדלת מצאי הדירות תוריד את המחיר.

ברור שהצעתו של השר לפיד למע”מ אפס לא תייצר אף דירה חדשה ורק תעלה את המחירים. אך יחד עם זאת, פתאום הבנתי שהצעה זו חמורה פי כמה באמירה החברתית שלה היות והיא מגדילה את הפערים בין העניים לעשירים באופן מובנה.

לדוגמה: זוג בעל אמצעים שיקנה דירה ב-1.6 מליון שקל יזכה להטבה של 288,000 ₪. לעומת זאת, זוג בפריפריה שיקנה דירה ב- 800,000 ₪ יזכה רק למחצית מהטבה זו וכך השר לפיד יתרום באמצעות הכסף שלנו להגדלת הפער בין המשפחות בעוד 144,000 ₪.
יתרה מזו, ההטבה היא רק למי שקונים דירות חדשות, אבל מי שאין בידם אמצעים לקניית דירה חדשה ומסוגלים לקנות רק דירה יד שניה ב-300 או 400 אלף שקל לא יזכו לשום סיוע וכך הפער יגדל בין משפחות אלו לבין המשפחות שיקנו דירה ב- 1.6 מיליון ב- 288,000 ₪.

בקיצור, השר לפיד, אם אתה רוצה לחלק הטבות לזוגות הצעירים שאין להם דירה גם בלי לפתור את בעיית הדיור לפחות תעשה זאת בדרך הוגנת שלא מגדילה את הפער בין עניים לעשירים.
תקבע שכל מי שעומד בקריטריונים שקבעת יקבל בעת קניית דירה שתעלה לא יותר מ- 1.6 מיליון שקל, מאה אלף או מאה וחמישים אלף או כל סכום אחר שתחליט.
בדרך זו לפחות תעזור לכלל הזוגות הצעירים ממעמד הביניים ומטה באופן שווה, אף על פי שסביר להניח שתגרום להקפצה של כלל מחיר הדירות.

.ותודה לחבר מרכז הליכוד עובד חוגי שהעיר את עיני בנושא זה.

Translation, and I will put in my notes in italics:

VAT = Zero Solution

Zero VAT – A solution for the housing shortage, or a deepening of the divide in favor of the rich?

Immediately he starts off here on the wrong foot, talking in terms of class warfare between rich and poor, in a classic Marxian antagonistic sociological setup.

I have already made clear my position that the root of the housing shortage problem is the shortage of land for building purposes. As long as the State holds 93% of the land and will not sell it, the price of housing will continue to rise.

Spot on, nothing wrong with that sentence.

It is clear that Lapid’s proposal for zero VAT on new housing projects will not  create a single new apartment and will only raise housing prices.

Right on the first part, wrong on the second. Getting rid of the VAT will not create any new apartments than otherwise would have been built because consumption taxes do not affect the price of goods directly. Only supply and demand does, and taxes are never passed down to the consumer. They can only be passed up to land and labor factors, ultimately. Will zero VAT raise housing prices? Certainly not. Housing prices will be unaffected because VAT has nothing to do with supply or demand directly.

We must parse out land for building for free to anyone who completes military or civil service on the periphery on the condition that he builds on the land within a reasonable time frame. We should build cities like Modi’in in the Shomron Valley and the Judean Hills. Raising the supply of apartments will lower the price.

Mostly good, except I wouldn’t condition it on the completion of any service to the State. To hell with serving the State. Anyone at any age who wants to build anywhere should build there, anything, anytime, on any virgin unsettled land, period. Just announce that this is now legal, and you’ve solved the entire problem.

It is clear that Finance Minister Lapid’s  proposal for zero VAT will not create a single new apartment and will only raise prices. But together with this, I now understand that the proposal is much worse in what it says socially since it broadens the gap between rich and poor substantially.

Oh no! Moshe is talking like a politician now. Anyone talking about “the rich” and “the poor” and “the gap” between them is trying to be a social engineer through tax policy, and that is not good. But here’s where it gets bad:

For example, a couple with the wherewithal that buys an apartment for 1.6M NIS will get a benefit of 288,000 NIS from this bill. That’s compared to a couple on the periphery that buys an 800,000 NIS apartment and will only get half of the benefit, and so Lapid widens the gap between rich and poor by another 144,000 NIS. Worse, the tax benefit is only for those who buy new apartments, but those who cannot and only buy a secondhand apartment for 300 or 400,000 will not get the same benefit and therefore the gap between these families and the ones that buy a new apartment for 1.6M NIS will be 288,000.

Wow. That sounds like it came right out of Shelli Yechimovich’s textbook, or one of Amir Peretz’s stump speeches. It is quite bad. Here’s a reductio ad absurdum: Lapid proposes to get rid of all VAT for everyone on everything. No more sales tax on anything period. Now, a couple that buys an apartment for 1.6M will get a benefit of 288,000. Compare that to a couple that buys a house for 800,000. That couple only gets 144,000 in tax benefits. Worse, rich people buy a lot more stuff than poor people, so getting rid of sales taxes will widen the gap between rich and poor.

The basic fallacy here is taking the post tax status as the natural one, and then treating the tax-free status as some artificial benefit. Worse, it is assuming that VAT affects the price of goods directly, and Feiglin contradicts himself. He says it will raise the price of houses, but that the rich couple will get a benefit? How can it be both? Either the price will rise, or the price will fall and there will be the benefit. You can’t have it both ways. The price will not fall, there will be no benefit in terms of prices, only in terms of the amount of profit that the homebuilder can take home, and then use that to build more houses, which would in theory lower the price if the government didn’t own 93% of the freaking land supply. 

The price is the price regardless of how much the government rakes from the top. It will not change if you take away VAT. so there is no direct benefit for anyone except the home builder, not the buyer. Backward, never forward. 

Cutting taxes in any case is not a “benefit”. It is not a benefit. It is JUSTICE.  If someone steals less from you, that doesn’t widen a “gap”. All it means is that overall, less theft is going on, and that’s good. The government’s job in a miarchist society is not to maintain a gap at a certain maximum level. If that were true one could just steal money from anyone above a certain income and subsidize anyone below a minimum. That would at once maintain a gap and destroy the country pretty quickly at the same time.

The richer people are, the better off everyone is, assuming the money did not come from the political means, meaning direct government money taken from plunder. The richer people are, that means the more they are providing for people’s needs, which means the richer EVERYONE is. A profit means there is a demand for something, so keep making it until the supply grows to the point where there is no more profit, and then move on to something else. Screw the gap, the gap doesn’t matter, and it should not be Feiglin’s goal to engineer a gap to a certain size. What matters is how much money is kept by the people who work, versus how much is stolen by the people who rule over them. 

Lapid’s proposal for zero VAT on ANYTHING should be supported. Whenever a government official wants to lower taxes for anybody at all, that is a good thing. It doesn’t matter for who. Is it a perfect proposal? Absolutely not. But it lowers taxes, and therefore Feiglin should support it. If we start nitpicking that we don’t like a tax lowering proposal because it doesn’t lower taxes the way we want, we will never shrink the state. 

Final note: Feiglin makes mistakes sometimes. It’s OK, he doesn’t make many, and a few here and there is understandable. But everyone should know that I am no cult follower of anyone whatsoever and I will point out when the people I support make mistakes. It is actually a source of relief to know that despite my fire about these things, I am no true believer.

I have contacted him on the matter and he answered that he was writing from within the conceptual framework of Lapid, not his own. Well, OK. But to me that wasn’t 100% clear from the post. 

The Chinese Government is Killing its Golden Macau Goose

rafifarber Economics, The Jewish Libertarian Blog , ,

My latest article on CalvinAyre about why Beijing is killing the Macau gambling market via its power grabbing stupid capital controls. Basically, capital controls are limits that the Chinese government places on rich people looking to gambling lots and lots of money. So instead of taking the money from China to Macau (which is illegal) where they can gamble, they go to a junket operator in Macau who gives them money, and promise to pay them back in China if they should lose money.

China doesn’t recognize gambling debts so there is no judicial redress in the event of a dispute, and things get really nasty.

Now China is clamping down on capital controls in order to deal with the nastiness, instead of letting go of the capital controls and letting disputes be solved in court as opposed to the street.

Here’s an excerpt.

While a Macanese junket operator does typically perform the legitimate function of catering to the swanky needs of superrich VIP’s (everything including those little paper margarita umbrellas), that is not the main reason for their existence. The main reason for the existence of a junket operator is not as a swanky butler, but as a financial middleman performing a function a lot more shady. Beijing places strict limits on the amount of capital that can be taken from the mainland at any given time, restrictions that are being more strictly enforced as time goes by. This forces the superrich to employ the services of a junket, because that way a VIP gambler can take loads of cash from a junket operator who has capital already in Macau, and pay him back later when they both return to China. That way, capital does not technically cross the border from China to Macau.

This presents one huge and dangerous problem. Since the whole process is very dark grey, and since Beijing does not recognize gambling debts incurred by skirting its own capital controls, junket operators cannot exactly defer to the courts in order to settle gambling debts. Things therefore can get very nasty if a conflict ensues. I would venture to guess that this nastiness, caused by Beijing in the first place by necessitating the use of junkets due to arbitrary capital controls, is the very selfsame “corruption” that the government is cracking down on in the first place.

Continue reading here…

Money Supply beats Fundamentals and Technicals

rafifarber Economics, The Jewish Libertarian Blog , ,

My latest article for TheStreet hits the homepage must read section. In it, I discuss why, before fundamentals, technicals, sentiment, chart patterns or anything else, what matters most is money supply. If the money is not there, stock prices cannot go up.

Here’s an excerpt.

Before fundamentals, technicals, interest rates, sentiment or anything else, the bottom line of why stock prices go up or down is money supply.

If money is available, one of the places it can go is the stock market. That is a necessary but not sufficient condition for the market to rise. But if not enough loose money is available, all the fundamentals and technicals in the world won’t matter. The market has to go down.

Continue reading here

 

Argentina Defaults and Repegs to the Dollar. But what happens when the US Defaults?

rafifarber Economics, Gold and Silver, The Jewish Libertarian Blog , , , ,

My latest article on TheStreet hits the homepage. Go me.

Here I explain, using Ludwig Von Mises’ monetary regression theorem, why any other country that defaults can quickly regain economic footing by pegging to the dollar and starting a new currency. But if (when) the US defaults, there will be nothing to peg the dollar to.

Except gold.

Here’s an excerpt.

NEW YORK (TheStreet) — Argentina defaults, and the cycle repeats once again, exactly as before. After defaulting, the government pegs to the dollar, as tracked in the PowerShares DB U.S. Dollar Index Bullish (UUP). Then it spends too much money buying votes, prints money to compensate (currency devaluation, no more peg), inflation results, the printing presses are shut on the verge of hyperinflation, government can’t pay its debts, it defaults, and everyone loses their savings and starts over, Fight Club style. Then someone else is elected and promises to peg to the dollar, and everything happens again.

I Don’t Want to Cover the Gaza War. Let’s Cover Big Macs.

rafifarber Economics, The Jewish Libertarian Blog

Yesterday I came across one of the stupidest Jerusalem Post articles I have ever read. From start to finish, it is so completely filled with nonsense that even I was a bit shocked. If this doesn’t confirm to you that empirical econometrics is nothing but soothsaying astrological voodoo tarot reading drivel, and that calling an economist is akin to phoning the psychic hotline, then nothing will.

I present to you the conclusion, based on the “Big Mac Index” that the shekel is “6.9% too strong” because a Big Mac in Israel is 6.9% more expensive than a Big Mac in the US.

Here are two paragraphs from this diuretic gem:

The idea, according to the newspaper, is this: The price of a Big Mac captures a lot of what’s going on in a given economy, from labor to rent to the price of produce. Since Big Macs are just about the same in most countries, they should, according to the economic theory of purchasing power parity, cost about the same when converted into the same currency.

“Since a Big Mac costs 48 kroner ($7.76) in Norway and only $4.80 in America, the kroner is overvalued by 62 percent according to this lighthearted, protein-rich analysis, making it the most puffed-up currency in the index,” The Economist offered by way of example.

Let’s leave aside the futility of imaginary indexes and the unfounded assumptions that they are based on. Let’s just examine the pure illogic of the statement “If X is more expensive in Y currency by Z%, then Y currency is Z% too strong.”

If one day you buy a pack of gum for 5 shekels, and the next day that same pack of gum costs 10 shekels, did your currency strengthen, or weaken? Obviously, it weakened by 100%. So how on Earth can one make a claim that if something is more expensive in shekels than in dollars, that this shows that the shekel is strong? If anything it shows that the shekels is weak.

I’ll say it again. If it costs more money to buy the same stuff, it shows a weakness in the money and a strength in the stuff, not the other way around. It is such simple logic, I’m at a loss to explain it any more simply.

But nevermind that. The entire method with which this soothsaying economist came to this conclusion is the same as astrology. Making a statement that Big Macs “should be the same price everywhere” is the same thing as saying “When Capricorn intersects Jupiter and invades Aquarius at an angle perpendicular to Virgo while Pisces is giving birth to Cancer and Sagittarius is in a drunken brawl with Leo after accusing the latter of stealing his girlfriend, you should be expecting to choke on a raisin at 3:00am on September 28th.”

Big Macs neither should, nor should not be the same price anywhere. Big Macs in different locations are different goods. A Big Mac in Manhattan is different from a Big Mac in Wyoming. A Big Mac in Wyoming is cheaper. The prices of Big Macs have no special constancy regardless of location any more than real estate does. Just look at the $50 homes you can buy in Detroit these days.

The price of a Big Mac is determined by two things, and two things only. Supply of Big Macs, and demand for Big Macs. Not the cost of making a Big Mac, not the greed of the McDonald’s franchise owner, not the price of Big Macs anywhere else in the world. Only the supply of Big Macs in a given location, and the demand for Big Macs in that given location.

If the average price of a Big Mac in the US is 6.9% lower than the price of a Big Mac in Israel, that only means one of two things. Either the supply of Big Macs in relation to the demand in the US is 6.9% larger than in Israel, or the demand for Big Macs in relation to the supply in Israel is 6.9% higher than the US, or a combination of the two factors, yielding a market-clearing price 6.9% higher than the market-clearing price in America.

That’s it. That’s all it says. It does not say anything about the shekel, and it certainly does not say that the shekel is “too strong“.

Then why write this nonsense, that besides not having any scientific basis, the conclusion even based on dumb premises is flipped on its head?

It’s because economists work for governments and central banks. Governments need money to fight wars. If they can get in your head that the currency they control is “too strong” then they can print more and use it to fight more wars.