Central Banking

Give me the Bank of Israel and I’ll destroy it

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

In response to one of my posts on the Manhigut Yehudit listserv, of which I am a frequent commentator on free market issues, one of my allies responded with the post, “Rafi Farber for Finance Minister!”

To which I responded thusly:

I don’t want the finance ministry. I want the Bank of Israel. Let me be BoI Chairman in the Feiglin administration and I know exactly what I’ll do and how. Without the Bank of Israel printing the money and creating inflation, the Finance Ministry is completely castrated, and it will have to raise taxes like crazy in order to fund all the waste and welfare, which would be impossible to do without endangering the regime itself. The government will be forced to either shrink down or risk a revolution.

Give me the Bank of Israel, and within a year I will sell almost all the dollars and the rest of the foreign exchange, buy gold and silver, hand it out to every bank in proportion to how many shekels each bank has on its books, tell them that they are now all completely on their own, close the BoI doors, fire everyone who works for me, resign, and call it a day.

Whew! Wouldn’t that be awesome. I salivate and get teary eyed just thinking about it. I’d need to hire a bodyguard.

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Rating Agencies are the Central Bankers of Gossip

rafifarber The Jewish Libertarian Blog , , , ,

I’ve come to realize that credit rating agencies like Moody’s, S&P, and Fitch are not only unnecessary. They are more often wrong and part of the problem. The problem being centralization and market manipulation.

People hire these rating agencies to tell them how risky a bond is, meaning how likely it is that a country will pay interest to you on it when that interest is due. Why not let individual people decide how risky a bond is instead of centralized bureaucracies paid by the very people they are rating?

The existence of rating agencies creates the huge problem that people start to erroneously pay attention to them. Then when they do something, such as downgrade Portugal, markets respond with volatility. This is what happens when you have too many central players in the markets instead of decentralized free markets. In the theory of centralization, why not just have one person dictate how much Apple stock is worth tomorrow?

These days people have been rebelling against credit rating agencies to the point where the recent S&P downgrade actually caused bond price to go UP and yields down for the US. Meaning, S&P said US Treasuries are more risky, and then people actually bought MORE of them. Now interest rates are as low as they have ever been at any point in history. Want to short the crap out of the next bubble? Bonds are the way to go. Just make sure you’re not leveraged.

And two days ago, Germany couldn’t even sell its bonds because people don’t believe Germany will pay them back, given that Germany has to bail out the entire European continent. But they still have a AAA credit rating. See a problem here?

Something fishy here? Credit rating agencies make no sense. People can determine risk themselves, and therefore the market becomes fluid instead of choppy when controlled by central powers.

If you think America will pay back its bonds, then by all means buy them. If you think they’ll go bust, stay away. Screw the credit agencies, which are just overpaid technocrats who aren’t even good at what they’re supposed to do. Like much of the rest of the West these days, they don’t actually produce anything of value with the money they are given.

Which is why, once again, the monetary system does not reflect value for work done. And therefore, it will crash.