Mexico’s Government Declares War on Cash

The war on cash transactions has been gaining traction among governments. Crisis stricken European countries as Italy, Spain and Greece have earlier initiated the curtailment in the use of cash. 

The Mexican government has joined this bandwagon by announcing a ban on “large” cash transactions supposedly to stem money laundering, most likely emanating from the drug war.

From the Washington Post 

Mexican President Felipe Calderon has signed into law a ban on large cash transactions as part of an effort to fight money laundering that experts estimate may amount to around $10 billion per year in Mexico.

The bill forbids buyers and sellers from giving or accepting cash payments of more than a half million pesos ($38,750) for real-estate purchases. It also forbids cash purchases of more than 200,000 pesos ($15,500) for automobiles or items like jewelry and lottery tickets.

It is kindda odd for governments to pin the blame on the public in the knowledge that for the top 10 lists of most corrupt government officials, many of them have been known to launder pelf acquired during their morally tainted regimes. 

In the financial world they are known as Politically Exposed Person (PEP), which according to Wikipedia.org, “describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person” 

The Wikipedia.org also notes of the relationship between corruption and money laundering… (bold mine)

By virtue of their position and the influence that they may hold, a PEP generally presents a higher risk for potential involvement in bribery and corruption. Most financial institutions view such clients as potential compliance risks and perform enhanced monitoring of accounts that fall within this category….

PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a fundamental role. Despite attempts at regulation, certain political leaders like Muammar Gaddafi and Hosni Mubarak have made news for having frozen assets located in US banks that did not follow these processes for these individuals.

So by virtue of the connection of corruption and laundering then Mexico cash ban should also implicate politicians. But this isn’t likely the real score.

In the understanding the politicians typically use noble sounding justifications to camouflage the genuine design to impose social controls, cash bans have mostly been about governments wanting to take control of the public’s savings in order to finance their profligacy.

Except for the quirk this 2012 in terms of government budget as % of GDP—perhaps due to initial reporting, but as of September Mexico’s debt will equal to 42.9% of GDP—generally speaking, Mexico’s fiscal position (mostly supported by oil revenues) has been in marked deterioration. (chart from tradingeconomics.com) 

With oil production falling from declining reserves, and where oil revenues account for 40% of Mexico's national budget…

…we now get a better picture or understanding of the seeming desperation exhibited by the Mexican government which impels them to corral public’s savings through currency restrictions.

Of course ban on cash would do little to control supposed “money laundering” which in reality represents an offshoot to corrupt arbitrary laws.

In the US, the war on drugs, for instance, has prompted drug trades to migrate to other marketable commodities as the Tide liquid detergents as means of payment. Instead of dealing with failure of the war on drugs, governments typically resort to attacking symptoms. This has been no less than political showmanship or the pretense of doing something. 

Economic and financial restrictions or blockade against Iran by the US has prompted Iran to use gold as money. So essentially, the US government has taken steps to underwrite the decline of the US dollar standard by incentivizing emerging markets to trade using other mediums as gold. 

As I previously wrote, 

As governments stifle people’s social and commercial activities through tyrannical laws, expect the use of more cash, local currencies or commodities (such as Tide) as alternative medium of exchanges, as the informal or shadow economies grow. 

Most importantly, real assets will become more valuable and may become an integral part of money, as sustained policies of inflationism, as Voltaire once said, will bring fiat money back to its intrinsic value—zero. 

The Mexican government’s war on cash will do little to help what truly has been the problem of political greed.

Competitive Devaluations: Japan Intervenes to Curb Yen gains for the Third Time this year

Japan intervened in the currency market today, to allegedly halt a rising yen. Today’s action is the third intervention this year.

From Bloomberg

The yen dropped by the most in three years against the dollar as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened exporters.

“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Japanese Finance Minister Jun Azumi told reporters today in Tokyo after the government acted unilaterally. “I’ll continue to intervene until I am satisfied.”

The yen weakened against the more than 150 currencies that Bloomberg tracks as Azumi said that he ordered the intervention at 10:25 a.m. local time because “speculative moves” in the currency failed to reflect Japan’s economic fundamentals. Today’s drop reversed this month’s previous gain by the yen against the greenback, which came amid speculation the Federal Reserve may add to stimulus measures as the U.S. economic recovery stagnates.

Statements like this “I’ll continue to intervene until I am satisfied’” might mislead people to think that political authorities really have the power to control the markets.

It is true enough that their actions may have a momentary or short term impact.

That’s the yen headed lower following today’s intervention.

But from a one year perspective, the first two interventions eventually resulted to a HIGHER and NOT a lower yen (blue uptrend)! The initial intervention was in March 18 where the BoJ bought $1 billion and the second was in August 4, both interventions are marked by green ellipse.

Talk about hubris.

Nevertheless, the inflationism or competitive devaluations being undertaken by Japan has hardly been about exports—why prop up exporters when this sector account for only less than 15% of Japan’s GDP?

Instead, like her contemporaries, the devaluation has been meant to prop up Japan’s rapidly decaying debt laden political institutions of the welfare state-banking system-central banking.

Japan’s government has the largest share and has the biggest growth of Japan’s overall debt (McKinsey Quarterly)

And as the great Ludwig von Mises wrote

The devaluation, say its champions, reduces the burden of debts. This is certainly true. It favors debtors at the expense of creditors. In the eyes of those who still have not learned that under modern conditions the creditors must not be identified with the rich not the debtors with the poor, this is beneficial. The actual effect is that the indebted owners of real estate and farm land and the shareholders of indebted corporations reap gains at the expense of the majority of people whose savings are invested in bonds, debentures, savings-bank deposits, and insurance policies.

It is sad know how politicians misrepresent what they stand for and use class warfare or supposed underprivileged sectors to rationalize the imposition of what are truly designed as self preservation measures.

Put another way, the BoJ’s serial devaluations has actually been meant to illicitly transfer the resources of the average Japanese citizens to the political class and her banking system. Incidentally, the latter, like the Euro counterparts, has been under strain.

From Bloomberg (Topix Banks index)

Share prices of Japan's banks have slumped since 2007.

So much for blabbering about public interest. Devaluations are all about political greed.

Greed and the ONE Percent

Greed.

One way to win voters during an election period is to bash a minority group and appeal to the majority for the use of institutional or organized political force to achieve social goals as ‘equality’.

This Wall Street Journal article spares me precious time to parse on the newly released 2011 Wealth report from Credit Suisse, but nevertheless reflects on the du jour political theme: Greed is evil.

Wall Street the Wealth Report Blog’s Robert Frank writes,

Here’s another stat that the Occupy Wall Streeters can hoist on their placards: The world’s millionaires and billionaires now control 38.5% of the world’s wealth

According to the latest Global Wealth Report from Credit Suisse, the 29.7 million people in the world with household net worths of $1 million (representing less than 1% of the world’s population) control about $89 trillion of the world’s wealth. That’s up from a share of 35.6% in 2010, and their wealth increased by about $20 trillion, according Credit Suisse.

The wealth of the millionaires grew 29% — about twice as fast as the wealth in the world as a whole, which now has $231 trillion in wealth.

The U.S. has been the largest wealth generator over the past 18 months, according to the report, adding $4.6 trillion to global wealth. China ranked second with $4 trillion, followed by Japan ($3.8 trillion), Brazil ($1.87 trillion) and Australia ($1.85 trillion).

There are now 84,700 people in the world worth $50 million or more — with 35,400 of them living in the U.S.. There are 29,000 people world-wide worth $100 million or more and 2,700 worth $500 million or more.

The fastest growth in the coming years will be in China, India and Brazil. China now has a million millionaires. Wealth in China and Africa is expected to grow 90%, to $39 trillion and $5.8 trillion respectively, by 2016. Wealth in India and Brazil is expected to more than double to $8.9 trillion and $9.2 trillion respectively.

The article does not specify ‘greed’ or what form of greed constitutes evil. Nevertheless, the article already suggests that the statistics presented by the study could serve as an emotional fodder for the current movement of global protests.

Yet to broaden the perspective let me add more charts from the same study

Worldwide wealth in dollar terms has been expanding

The degree of growth varies from nation to nation

Or even seen from the perspective of region to region. The point is that wealth is relative.

Alternatively, this also means that wealth creation basically reflects on the idiosyncratic structure of a nation’s political economy.

Bottom line: Wealth is NOT created equally and will never be equal.

This runs contrary to socialist utopian abstractions which tries to project ‘equality’ where everyone should not only have same degree of income and wealth or access to public goods, but also perhaps the impossibility of us having to look alike, think alike, share the same value, share similar space for our presence and spouse, etc...

A Wall Street Journal editorial expounds on Asia’s newfound wealth (bold emphasis mine),

Rising net worth ought to be a sign that a growing number of individuals are spotting productive economic opportunities and profiting handsomely in return for the big entrepreneurial risks they've taken. That's certainly how the likes of Steve Jobs or Richard Branson made their billions in the West. There's also a fair share of that in Asia.

But it's also true—and troubling—that so much wealth-creation in the region is related to various forms of government patronage. There are the Hong Kong tycoons who benefit from favorable government land-sale rules, or the Korean chaebol executives who gain from lenient treatment "for the national economic interest" when corporate fraud allegations pop up. China is especially notable for being an environment where friendly connections with government officials can pave the way through a bureaucratic labyrinth, even easing access to capital that's scarce for purely private-sector enterprises.

In a modern free economy it's false to suggest that the wealth of one entrepreneur impoverishes others—the pie can grow for everyone even if it grows faster for some. But wealth amassed through collecting government favors often does impoverish others: those who don't enjoy similar benefits. This fact, and the cynicism it breeds, is a greater threat to social stability than unequal wealth distribution.

In short, wealth is achieved either by political means or by market (economic) means.

The other way to say this is that ‘greed’ as a human trait influences BOTH the market and politics. And the process undertaken to achieve an end (‘equality’) extrapolates to a TRADEOFF between these two means.

For example if society aims to attain ‘equality’ through the markets then the tradeoff equates to lesser political interventions. Yet if society opts to distribute resources ‘equally’ via the political means then market influences will diminish.

The $231 trillion question is which of these two means will function as the more efficient way to arrive at social prosperity.

Thus such tradeoffs suggests that there will either be market inequality or political inequality. The reality is that there will be no equality in whatever sense.

In the real world operating on scarce resources, then equality is no more than a utopian fantasy or mental self-abuse.

To give you an idea how some of the world’s wealth have been politically derived, the following excerpt is from the New Scientist (bold emphasis mine)

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.

The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships. Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world's large blue chip and manufacturing firms - the "real" economy - representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

The list of the biggest interlocking companies

Focusing on the financial behemoths, the above serves as example of crony capitalism or corporatism, where politically privileged private companies benefit from political concessions, regulations, monopolies, subsidies, private-public partnerships or other anti-market policies premised on “privatizing profits and socializing losses” that SHOULD BE differentiated from wealth derived from entrepreneurial or capitalist functions, whose gains are derived from pleasing consumers.

Political wealth (pelf) is mainly extracted from the looting of the taxpayer.

In fact the above only underscores the Austrian economic school’s thesis of a central-bank-cartel based [banking-and-financial sector cronyism] whom has lately been living off tremendous amounts of government subsides, bailouts, central bank QEs and massive interventions in the marketplace all of which has been designed to preserve the current cartel based welfare-warfare state.

Of course not all of the abovestated interlocking companies represent cronyism or politically generated wealth.

Cato’s Dr. Tom Palmer explains the differences of wealth in the video below

Cato’s Dan Mitchell also expounds on differences of entrepreneurship from political privileges in this Fox interview

Finally a good reminder comes from this classic video interview of the illustrious Milton Friedman on Greed, as I earlier posted

The magnificent Milton Friedman quote:

Well, first of all, tell me is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy; its only the other fellow who’s greedy.

The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

As said above, greed is a human trait that plagues politicians too.

Here is the list of the richest politicians of the world

Again to re-quote Milton Friedman above

none of us are greedy; its only the other fellow who’s greedy

Italian Minister: Cocaine responsible for Market Volatility

From the Guardian (bold highlights mine)

First it was the hedge funds, then the ratings agencies. Now, a member of Silvio Berlusconi's government has pointed to a different reason for the world financial turmoil. The problem — or one of them — is cocaine. And to tackle it, Carlo Giovanardi, a junior minister with responsibility for the family, said he intended introducing drug tests for securities traders on the Milan Borsa. Speaking in a YouTube interview, he said the drug is one of the causes of fluctuations on the stock exchange and "an alarm that needs to be listened to". The minister said testing traders to see if they had been snorting the odd line was part of a wider project for checks on pilots, professional drivers, public officials, surgeons and police officers. "The idea of giving drug tests to people with great responsibility is absolutely acceptable," he said. "I rather doubt that an investor would entrust his or her savings to an alcoholic. And the same thing holds good for cocaine."

I don’t know about the rest, but as a 'trader', I frequent beer and has never touched or used cocaine. So I am not party to the accusation of so called cocaine driven market epileptic seizures.

Yet I don’t see any of my beer stupors as having to affect my market positions. I guess anyone exposed in the financial markets would be risking real money enough to sensibly make economic calculations as major part of their decisions or actions--even if such action would represent as miscalculations for one reason or another.

Besides, volatile markets as I have been repeating are manifestations of boom bust policies meant to preserve the current political order.

Funny how politicians are finding fault on everyone and everything else except themselves.

First, this demonstrates utter ignorance of the market process. Second, such is a symptom of desperation. And lastly, this also signifies the innate desire by politicians to use more political power to control people's actions--political greed--which is actually the source of all the volatilities

How imbecilic.