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

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.


Israel to increase budget deficit; risk economy for buying votes

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.

The gluttonous Israeli gov’t & the gluten-free subsidy

Every so often a flash of hope flickers past my eye and I think that maybe, just maybe in these times of global debt turmoil, the Israeli government is smart enough not to do too many idiotic things and get themselves in too much debt. And then I see stories like this one.

According to the proposal, the cost of gluten-free bread will be kept at a level that is never higher than that of standard bread. In addition, those who suffer from celiac disease will be reimbursed for up to NIS 500 per month per family for purchasing special food, and the income tax rates of companies that sell gluten-free food products will not go above 25 percent.

So now I have to pay for the gluten free bread of some guy with celiac who wants to eat a sponge. Beyond costing hundreds of millions of shekels a year, the program will:

  1. Waste every shekel that goes into it
  2. Disrupt market forces and the prices of other foods competing with the gluten free bread
  3. Raise the price of corn that goes into these gluten-free sponges
  4. Cause many many many more people who don’t even have celiac to be diagnosed with celiac just so they can get 500 shekels more a month from Uncle Shmuel
  5. Cause 20 more unintended consequences that the government will then have to regulate by force with committees who get government paychecks
  6. Be immoral, because I shouldn’t have to pay for the luxuries of a celiac, a luxury by the way that tastes like crap.

Before anyone objects to my heartlessness, I am also on a gluten free diet. Not because I am celiac, but because I subscribe to the Primal Blueprint diet and way of life. And I do not eat gluten-free bread either, because I do not eat corn. My food is much more expensive than someone’s who eats grains, and I’m not asking for other people to subsidize my shopping list.

It will be a long time coming before I will be able to convince anyone in this country that it is not the government’s role to take care of someone’s celiac, that it is immoral and unjewish to force someone to pay for someone else’s luxury. Israel is still a country deeply mired in Marxist ideology and is very statist.

I shiver to think that this is where our money is going while the finances of the entire western world are on fire.

What do Ron Paul, Moshe Feiglin, and Moses have in Common?

I will come to the title at the end. Bare with me.

These days, I’ve been waking up in the morning totally nonplussed about the age I live in. So much is happening every single day that it’s hard to believe what is going on. I always try to ask myself whether or not I’m losing my mind predicting doom, but I can’t find my way around the precipice. The financial world is falling into a giant vortex of debt and no one will escape.

What is debt, really? It’s when someone promises to do work that will equal or exceed the value of the capital given to them in advance by the creditor. When no work is done, both debtor and creditor lose out, and there are less goods in the world for the amount of people in it. People then become poorer.

There are no creditor nations left on the planet. I came to realize this when Jim Rogers of all people, one of the more honest, moral investors who is genuinely good at simply being a human being, named Japan as a creditor nation. Few people know this, but Japan’s debt to GDP ratio is more than 220%. This means they owe more than twice what they produce in one year. Work promised for capital given in advance, not done.

The problem is, they’re a huge holder of US bonds. If they go bust, which they will, what happens to those? What happens to the dollar? Everything is so sickeningly intertwined that global finances are impossible to sort out. Everyone has promised everyone work in exchange for capital given (debt), and have not done that work. Now that capital itself that was given is itself in question.

The capital is capital because governments said it is. Governments are losing control of the entire planet. Once this truth is realized, everything, and I mean everything, falls in the hole. When you have a government backed global monetary system, government is the last stand and the last stop. Every government has promised every other government money in return for value. But value itself is backed by government in a fiat system, making this whole thing a sick joke. It’s sort of like the world returning to the tohu vavohu of Genesis 1:2.

So what do Ron Paul, Moshe Feiglin, and Moses all have in common? They are all leaders who hate government. This may sound like an oxymoron, but it isn’t. Any leader who loves leadership will inevitably concentrate power into one point – himself. That power then eventually gets sucked into the vacuum of reality and everything goes back to zero.

The Torah notes that Moses was the most humble man to have ever walked the earth. What that means is that he had no false illusions as to who he was: just a simple man like everyone else. This reality was so ingrained in him that he was able to talk to God himself face to face and not let it go to his head as if he were special. He wasn’t. He was just Moses. What made him “special” was the fact that he understood the true nature of his own being.

When I hear Ron Paul speak, I hear a person with self awareness speak to me as if he were speaking to any other person. All he’s interested in is the truth. I hear the same when Feiglin speaks. The only thing special about these people is that they understand and address reality, and they don’t ever think that there is anything special about themselves.

Judaism does not worship Moses of course. He was just a guy. The same as you or me. He was just a really good guy. Government has been lying to us for a long time. It will fall, because reality always catches up. And when it does, we’ll need leaders who will focus us in the darkness.

And in the chaos, these leaders will cut through the din in order to focus the truth when it comes screaming in our faces.