Economics

Israel to increase budget deficit; risk economy for buying votes

rafifarber Economics ,

Today’s Israel Hayom Newspaper: Deficit Widening goes to Government for Vote.

Netanyahu, the fiscal conservative, has decided that it’s a good idea to spend even more money that Israel doesn’t have. Why? Because people want stuff without paying for it. See this clip below from the newspaper.

This is a poll of Israeli citizens. From top to bottom:

Haviv Banai (55): I am against raising taxes. It’s best if they take more money from the tycoons so we wouldn’t have to go into debt.

Eli Lavi (58): If the State needs more money, it’s better to raise taxes rather than widen the deficit.

Doctor David Yishai (57): The economic situation is good and we can relax a bit. We need widen the deficit and not raise taxes.

Doctor Eldad Berkowitz (48): We must not under any circumstances widen the deficit. Be we must not raise taxes either on those who are buckling under the pressure.

Sarah Keidan (56): We don’t need to widen the deficit, but we can raise taxes on the rich and high income earners.

Ra’anan Kahta (33): The State needs to honor its payments and we can only do that by widening the deficit or raising taxes. The treasury will need to find creative ways of getting more money into its coffers.

What’s astounding here is that nobody suggests that perhaps the government should just spend less money. It’s an option that doesn’t even exist according to everyone polled. You either raise taxes or go into debt. If the State says it needs money, then whatever – it needs money and we cannot dispute that.

What about halving the salaries of every Knesset Member? They earn what, 44,000 a month or something? They can’t survive on 22,000? how about every government employee has to pay for his own car and gasoline, just like I do, instead of the government paying for it. How about they pay for their own flights to cockamaymee events where they blow air at people? How about we eliminate the entire Shlav Bet army program from new immigrants where we waste time doing nothing for six months at 50,000 shekels a worthless soldier?

How about limiting the number of ministers in the government? How much do they make a month for doing nothing? Nobody here thinks of these things, because they are all government slaves.

Netanyahu is doing this now because he wants the people yelling in the streets for things from the government to shut up, so instead of cutting his salary, he’s endangering everybody’s income. What happens when you go too deep into debt? Ask Greece. They seem to be doing fine.

Get rid of Stanley Fischer and end the Bank of Israel

rafifarber Economics, The Jewish Libertarian Blog , ,

Economic Policy Journal led me to an article in the Times of Israel talking about how African central bankers are on their way to Israel to figure out why our economy isn’t as screwed up as everyone else’s. The answer is, we don’t borrow as much as everyone else. Instead, we just tax Israeli citizens to the point that they think something’s wrong if their mortgage payments go down for some reason.

Many of the average Israelis who I talk to from time to time when economic crisis becomes the subject line believe that we are safe because we have this genius at the helm whose name is Stanley Fisher who is all-knowing and omnipotent and can save us from any crisis. It’s human nature to attribute all the good to one tangible point that you can see. This is the essence of the emotion that leads to idolatry.

There is nothing amazing about Stanley Fisher, except for the fact that he refuses to use his power of printing money AS MUCH as other central bankers. He’s relatively better than most central bankers precisely because he does very little. So what I can tell these Africans who are checking out Israel’s central bank is:

  1. Don’t have a central bank.
  2. If you insist on having one, then just let it collect dust and don’t use it.

Let’s do an analogy here: After the Continental Army won the Revolutionary War, American colonists were begging for George Washington to be their new king. We think that’s crazy, but they knew no better. Get rid of King George, install a new King George. The idea of separation of powers was foreign to them. Even Alexander Hamilton, the guy on the $10 bill, wanted a king, and criticized the Constitution for lacking a provision for a monarch. Hamilton, by the way, was also a proponent of a Central Bank of the United States. Coincidence?

Washington, thank God, refused to be King, and instead we got the Constitution and separation of powers.

Fast forward to today and we want one guy to be in charge of everybody’s money. We think that if we don’t have this one guy in charge, everything will be anarchy. Just like the colonists thought that if you had separation of powers, you’d have anarchy. So we want to crown King Fisher as head of our central bank. We cannot conceive of not having a central bank, just like the Colonists could not conceive of not having a King.

How would money work without a central bank? Very simple. Competition. Different firms would rise coining different monies, and the one that is most trustworthy with the best purchasing power would be the one used in the end. It would probably end up being backed by some metal, if not be that metal itself. No one would use a fiat paper currency if they had the choice not to use it.

So…get rid of legal tender laws, take taxes off gold and silver, and let people use them as money like mankind has been doing for thousands of years. You don’t even have to “get rid” of the central bank of Israel per se. You just have to take away its monopoly control over the money supply and let competitors put Fischer out of business.

Fischer, by the way, was Ben Bernanke’s thesis adviser at MIT. Now the student controls the value of the dollar. The teacher controls the value of the shekel.

I say forget them both. I own gold and silver, something Ben and Stan can’t print away into oblivion.

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.

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.

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.