More Devaluation Myths

Investing guru Mark Mobius, executive chairman of Templeton Emerging Markets Group says,

In some cases, a devalued currency can be an engine for future growth. A lower currency price means the nation’s exports will be more competitive (less expensive) in the global market, and imports will become more expensive, so many companies can benefit.

A discussion about currency values should include a discussion about inflation, which is closely interconnected. Inflation has been problematic for many emerging economies, and while it does seem to be ebbing temporarily in some markets, it’s important to remain vigilant about it. High inflation can cause a strong public response (even a mass uprising), as consumer purchasing power quickly erodes.

It would be patently misleading to present devaluation as a different animal from inflation. That’s because devaluation IS inflationism. Consumer price inflation signifies as the effect of prior monetary inflation.

Professor Jeffrey M. Herbener explains,

When a government announces devaluation, as the United States did in 1934 and again in 1971, it is merely recognizing the reality of the consequences of its monetary inflation. Its inflationary policy has eroded the purchasing power of its currency which will be suffered both domestically, with price inflation, and internationally, with devaluation.

The undesirable effects of monetary inflation cannot be eliminated with floating exchange rates. Then the price inflation and devaluation occur gradually instead of being bottled up behind the government’s unsustainable peg. But whether the currency is pegged, as the dollar was in the 1920s and 1930s, or floats, as the dollar has since 1971, monetary inflation and credit expansion cause a boom-bust cycle.

Yet prescribing devaluation is tantamount to, or a euphemism of saying poverty promotes growth.

By having to lower standards of living, as a consequence of the transference of resources to politicians and their cronies, people are expected to work harder in order to generate growth.

So inflationistas are essentially moral schadenfreudes—finding satisfaction in the miseries of people.

Not to mention that inflation represents highway robbery (plunder) by governments of their people.

Even the divine inspiration of statists and facists, John Maynard Keynes admitted to these. (Wikipedia.org; bold highlights original)

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Let’s take the Philippines as example.

The Peso devalued from 2 pesos: 1 US dollar in 1960s to about 42 pesos to a US dollar today. This means the Peso devalued by about 4% annually.

From the perspective devaluation exponents, this should have made the Philippines an export giant. However the Philippines ranks only 57th based on 2011 data according to Wikipedia.org

Ironically, most of the top exporters are represented by ‘strong’ currencies from developed economies, and not from economies that has massively devalued their currencies as Zimbabwe.

It’s good news to see that the Philippine GDP per capital has skyrocketed from $257 in 1960 to $ 2,140.12 in 2010, according to Index Mundi.

But this only accounts for an average annual growth of about 1.7%. That’s way below the rate of devaluation (inflation) at 4%. Also the surge came amidst globalization. As a side note, to put a political spice on this, much of the increase came from the 2003 onwards.

And this has been the "magic" that has spawned PEOPLE exports or the Overseas Filipino Workers (OFWs) whom has been politically labeled as today’s economic heroes, out of the paucity of economic opportunities.

In reality, OFWs are MANIFESTATIONS of an uncompetitive economy borne out of interventionism and inflationism.

And much of that “economic growth” has not only emanated from OFWs, but from the INFORMAL economy which government statisticians downplays or deliberately hides behind the numbers. The informal economy has also been symptom of government failures and of the uncompetitive nature of the economy brought by sustained interventionism and inflationism.

Lastly the idea that exports or tourism benefit from the policy of poverty as a path to prosperity (devaluation) also misrepresents the reality. Devaluation or inflationism provides short term benefits at the expense of the long term.

The great Professor Ludwig von Mises exposes such deception,

If one looks at devaluation not with the eyes of an apologist of government and union policies, but with the eyes of an economist, one must first of all stress the point that all its alleged blessings are temporary only. Moreover, they depend on the condition that only one country devalues while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively. A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems.

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption.

Legal plunder through currency inflationism or devaluation has neither provided long term (or lasting-sustainable) economic solutions nor has it been a moral one.

War on Credit Rating Agencies: EU’s Proposed Ban Eased

A stereotyped and knee jerk way politicians deal with crisis has been to shoot the messenger, particularly through various forms of price controls or through muzzling of information.

EU politicians believe that credit rating agencies help fueled the crisis and thus earlier moved to ban them.

From Reuters,

A central plank of European moves to rein in credit rating agencies was diluted by lawmakers on Tuesday, bowing to pressure from banks and companies who argued that proposals were unworkable or counterproductive.

An initial plan for ratings agencies to be rotated or switched every three years will be weakened to apply only to very specific types of credit and only every five years, the source said.

The pullback comes after Europe's biggest companies and banks warned that forcing them switch between so few global agencies could force them to use less well-known bodies carrying less credibility particularly with investors from the United States or Asia.

The proposed reforms come after the credit ratings sector, dominated by the "Big Three" of Standard & Poor's, Moody's and Fitch Ratings, was slammed for giving high ratings to securitised debt or ABS linked to U.S. home loans, leading to the market crisis of 2007 through 2009.

Policymakers worry ratings carry too much clout and have blamed the timing of Greek debt downgrades for making an EU bailout harder. The issue remains pertinent as Moody's is expected to downgrade some of the world's top banks this month.

Politicians believe they can censor away the crisis through price manipulation. Credit rating agencies help shape investors valuations and perceptions of financial securities and consequently their prices.

Although I have a beef with credit rating agencies over their integrity, as conflict of interests have hounded the industry (yes they functioned as institutional accomplices to the bubble blowing phenomenon of the US real estate boom), shooting the messenger will not solve the crisis rooted on an unsustainable and insolvent parasitical arrangement inherent in the structure of incumbent political institutions.

Bad News Is Good News: Global Markets Rise on MORE Stimulus Expectations

Bad New is Good News.

Global markets continue to ascend on EXPECTATIONS of MORE bailouts. [yes markets have been enchanted by the Bernanke Put- pattern of providing ample liquidity to protect the asset markets]

From the Bloomberg,

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as investors speculated the Federal Reserve will announce more measures to stimulate the world’s largest economy…

Signs of slowing growth amid Europe’s turmoil could mean the Fed, which began a two-day meeting today, could extend its so-called Operation Twist, according to JPMorgan Chase & Co. (JPM) and Jefferies & Co. The program involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed see high costs in a slowdown of growth.

Fed’s Options

The central bank may expand its balance sheet, extend Operation Twist and/or lengthen its short-term interest rate guidance beyond late 2014, Goldman Sachs Group Inc. chief economist Jan Hatzius wrote today.

“A decision not to ease is tantamount to a tightening,” he wrote in an e-mailed report to clients today. “At this point we’d be quite surprised if we saw no easing.”

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

Markets have constantly been fed with the forging of new deals and from vows of a backstop from policymakers to mitigate or curb the crisis.

The US Federal Reserve’s FOMC concludes their periodical meeting today and will be announcing their actions.

As pointed out above, the markets have already been pricing in, or have been frontrunning, a supposed new easing program from the FED.

Earlier, emerging markets including the Philippines through the IMF, has also promised contributions to assist in the rescue of Europe’s political and banking class. This serves as an example of the ‘poor’ (Filipino and EM Taxpayers) rescuing the rich.

Now the it’s the G-20’s turn to make the next round of pledges.

From another Bloomberg report,

Euro-area leaders at the Group of 20 summit pledged to “take all necessary policy measures” to defend the currency union and boost protection of the region’s struggling banks, according to the final statement issued at a meeting in Mexico.

With contagion from the debt crisis rippling through the world economy, participants at the G-20 summit in the beach resort of Los Cabos backed measures to spur growth and cut budgets in Europe while saying the U.S. will “calibrate” the pace of its spending cuts to avoid a “sharp fiscal contraction” in 2013.

At the end of the two-day summit, the leaders of advanced and emerging economies said Europe is taking steps toward closer economic union “that lead to sustainable borrowing costs.” The G-20 also backed Europe’s plans to move toward a more integrated banking industry.

Talks among G-20 leaders at Los Cabos were dominated by the crisis in 17-nation euro region and its threat to the world economy. Bond yields in Spain, the region’s fourth-biggest economy, rose to a euro-era record yesterday, above the 7 percent level that led to bailouts in Greece, Ireland and Portugal.

The group welcomed the plan to rescue Spain’s banks and the European Union’s efforts to build up its crisis defenses, including the European Stability Mechanism, the region’s permanent bailout fund scheduled to start up in July.

Pledges upon pledges upon pledges.

Again market dynamic becomes a question of the FULFILLMENT or NON-FULFILLMENT of such expectations. Eventually markets will DEMAND not merely promises or assurances but ACTION.

Oh by the way, technician Carl Swenlin, at the stockcharts.com Blog says that the markets deserve a cautious stance, than blindly fixating on the bullish reverse head and shoulders pattern

My problem is that, being a person who likes things to be nice and neat, I wanted the right shoulder to be more even with the left shoulder. But no. What we have is a formation that is very lopsided, but I think it is close enough to be considered a completed reverse head and shoulders pattern. The neckline has been penetrated, so the minimum upside target is about 1430.

Unfortunately, the bullish breakout on the price chart is contradicted by the Climactic Volume Indicator (CVI) chart, which spiked to a level that usually signals a short-term top.

Conclusion: It is possible that Saturday's upcoming elections in Greece may have triggered some short-covering ahead of the weekend, resulting in a rally that may prove to have no legs. The breakout is far from decisive, and the CVI indicates a possible exhaustion climax, so I remain skeptical of the rally.

A REVERSAL of markets expectations, which may be prompted for by the diminishing returns from guarantees and or from dissatisfaction from political actions, can be swift, dramatically violent and nasty.

Be very careful out there.

For Parents who Think that their Kids are Unfit for Inheritance, Try Brewster’s Millions

Some wealthy parents think that their kids are not qualified to inherit their fortune.

According to CNBC, (bold emphasis mine)

A new study from U.S. Trust says that only half of millionaire baby boomers think it’s important to leave money to their kids. A third of them said they would rather leave the money to charity rather than their kids.

There are two explanations for their stinginess.

The kind explanation is that today’s boomers want their kids to grow up with the same middle-class values they had. They want their offspring to learn struggle and hard work and failure and the joys of earned success and all the other lessons that helped the boomers become successful (those, along with 30 years of bull markets and strong economic growth).

As Warren Buffett said, he wants leave his kids enough to do anything they want, but not so much that they can do nothing.

Aligned with this benevolent explanation is their commitment to charity and the broader world.

The second and perhaps more realistic explanation is that boomers don’t think their kids can handle all that money. Only 32 percent of baby boomers are confident their children will be prepared emotionally and financially to receive a financial legacy.

Granted, not all generations feel this way. Gen-Xers and Gen-Yers, along with the generation older than the baby boomers, are more disposed to leave money to their kids. More than two thirds of those aged 18 to 46 and those over 67 say it’s important to leave a financial inheritance to their children.

“Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities,” said Keith Banks, president of U.S. Trust. “The next generation has not experienced the consistently strong economic growth or investment returns that baby boomers experienced during the longest bull market in history.”

And there may be a third explanation: the baby boomers plan to spend most of their money. Given the low investment returns in today’s markets, their long lifespan and their famously non-apologetic lifestyles, the boomers are probably burning through their fortunes at a rate that won’t leave much for the next generation.

In the end, however, the phenomenon outlined in the survey boils down to a simple problem: The baby boomers have raised kids who are unequipped to inherit large amounts unearned wealth.

I think that this subject is strictly subjective and a familial issue which can NOT be judged as a one-size-fits all thing as every family has their own idiosyncrasies.

The issue of inheritance derives from many complex intertwined factors in terms of people relationships—particularly psychological, behavioral and ethical aspects—that includes among others the perception of the degree of interpersonal relationship, individual attitudes, values and work ethics, learning ability, acquired traits, and more.

Nonetheless, for the heck (or fun) of it, parents who think that their children are unfit for inheritance, may want to try the Rupert Horn approach (the great uncle of Monty Brewster from the 1985 comedy film Brewster’s Million starred by the late Richard Pryor-and also the late John Candy).

Filipinos to Join Emerging Market Consortium in the Rescue of the European Political Elite!

Yes you read it right, Filipino taxpayers will be joining Emerging Market contemporaries in transferring resources to European bankers and European politicians, through the IMF, to supposedly “erect a firewall” from an escalating Euro debt crisis.

From Bloomberg,

Emerging-market nations including China and Brazil formalized funding pledges to the International Monetary Fund, helping to almost double its lending power to protect the world economy from Europe’s debt turmoil.

With the addition of new pledges from 12 nations that also includes Russia, India and South Africa, the Washington-based lender said it now has received funding commitments of $456 billion, up from the roughly $430 billion it said it had secured in April. The temporary contributions will add to the $380 billion the IMF currently has available for lending.

“Countries large and small have rallied to our call for action,” IMF Managing Director Christine Lagarde said in a statement on the sidelines of a Group of 20 summit, adding that the new contributions would only be used as “second line of defense” after existing resources are depleted.

G-20 leaders are gathering in the Mexican beach resort of Los Cabos for a two-day summit dominated by the financial crisis in the 17-country euro region just as Spanish borrowing costs soar to a euro-era record. Canada and the U.S. abstained from pitching in for the IMF, despite calls by German Chancellor Angela Merkel for the rest of the world to do more.

“It’s going to be the first time the fund is capitalized without the U.S., which reflects the importance of emerging markets,” Mexican President Felipe Calderon said on June 16.

Pledge Amounts

The meeting’s host said Mexico would contribute $10 billion to the fund, matching pledge amounts made here by Russia, India and Brazil. China said it will provide $43 billion, while South Africa, Colombia, Malaysia, New Zealand and the Philippines were among nations offering smaller amounts.

Where do you think the Philippine government will get the funding to help in the bailout of the European elites? From domestic taxpayers, of course. This includes me.

So the poor (developing nations) will be rescuing the rich (particularly the politicians and the bankers of developed nations). Pope Benedict XVI, are you paying attention?

Emerging market politicians want to swagger about the growing significance of their economies in order to have a greater role in the IMF. But this, by throwing away scarce resources that could be used for local contingencies (e.g. disasters)?

Politicians have been fixated with the present at the expense of the future. What happens if and when another future crisis arrives, especially if such will be a domestic or a regional phenomenon?

This also exhibits that personal status symbols are more the priority for politicians than what they preach as serving the ‘general welfare’.

Also this demonstrates how political agents can thoughtlessly and brazenly fritter away other people’s money.

The European crisis has been transformed into a giant vortex that continues to suck or drain away productive resources out of the global economy.

Since the crisis will likely continue for the simple reason that EU's politicians do not want to deal with its roots, particularly the parasitical relationship of their political economies, and instead look for more hosts to prey upon, then the likelihood is that every nation will get dragged into the financial and economic black hole.

Have a nice day.

Quote of the Day: Factual Free Market Fairness

The free market is an ethical system better than all the rest

Professor Deirdre McCloskey makes a compellingly superb argument at the Bleeding Hearts Libertarians (hat Professor Peter Boettke) [bold emphasis mine]

Externalities do not imply that a government can do better. Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers. Efficiency is not the chief merit of a market economy: innovation is. Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them….

How do I know that my narrative is better than yours? The experiments of the 20^th century told me so. It would have been hard to know the wisdom of Friedrich Hayek or Milton Friedman or Matt Ridley or Deirdre McCloskey in August of 1914, before the experiments in large government were well begun. But anyone who after the 20^th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19^th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

In the 19^th and 20^th centuries ordinary Europeans were hurt, not helped, by their colonial empires. Economic growth in Russia was slowed, not accelerated, by Soviet central planning. American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers. “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women. State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats. Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized. Minimum wages protected union jobs but made the poor unemployable. Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor. Zoning and planning permission has protected rich landlords rather than helping the poor. Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive. The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power. The Securities Exchange Commission did not help small investors. Federal deposit insurance made banks careless with depositors’ money. The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting. American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men. Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.

Germany’s economic Lebensraum was obtained in the end by the private arts of peace, not by the public arts of war. The lasting East Asian Co-prosperity Sphere was built by Japanese men in business suits, not in dive bombers. Europe recovered after its two 20^th-century civil wars mainly through its own efforts of labor and investment, not mainly through government-to-government charity such as Herbert Hoover’s Commission or George Marshall’s Plan. Government-to-government foreign aid to the Third World has enriched tyrants, not helped the poor.

The importation of socialism into the Third World, even in the relatively non-violent form of Congress-Party Fabian-Gandhism, unintentionally stifled growth, enriched large industrialists, and kept the people poor. Malthusian theories hatched in the West were put into practice by India and especially China, resulting in millions of missing girls. The capitalist-sponsored Green Revolution of dwarf hybrids was opposed by green politicians the world around, but has made places like India self-sufficient in grains. State power in many parts of sub-Saharan Africa has been used to tax the majority of farmers in aid of the president’s cousins and a minority of urban bureaucrats. State power in many parts of Latin America has prevented land reform and sponsored disappearances. State ownership of oil in Nigeria and Mexico and Iraq was used to support the party in power, benefiting the people not at all. Arab men have been kept poor, not bettered, by using state power to deny education and driver’s licenses to Arab women. The seizure of governments by the clergy has corrupted religions and ruined economies. The seizure of governments by the military has corrupted armies and ruined economies.

Industrial policy, from Japan to France, has propped up failing industries such as agriculture and small-scale retailing, instead of choosing winners. Regulation of dismissal has led to high unemployment in Germany and Denmark, and especially in Spain and South Africa. In the 1960s the public-housing high-rises in the West inspired by Le Courbusier condemned the poor in Rome and Paris and Chicago to holding pens. In the 1970s, the full-scale socialism of the East ruined the environment. In the 2000s, the “millennial collectivists,” Red, Green, or Communitarian, oppose a globalization that helps the poor but threatens trade union officials, crony capitalists, and the careers of people in Western non-governmental organizations.

Yes, I know, you want to reject all these factual findings because they are “right-wing” or “libertarian.” All I ask you to do is, once in a while, consider. Don’t believe everything you read in the papers.

Amen.

Video: Milton Friedman: Minimum Wage Causes Unemployment and Poverty

(hat tip Professor Mark Perry)

Shortage of the US Dollar as Pretext for More Inflationism

Newswires say there has been a shortage of US dollars in the global financial system.

Bloomberg reports,

Central banks rebuilding foreign- exchange reserves at the fastest pace since 2004 are crowding out private investors seeking U.S. dollars, boosting demand even as the Federal Reserve considers printing more currency.

After falling to an all-time low of 60.5 percent in the second quarter of last year, the dollar’s share of global reserves rose 1.6 percentage points to 62.1 percent in December, the latest International Monetary Fund figures show. The buying has left the private sector with $2 trillion less than it needs, according to investment-flow data by Morgan Stanley, which sees the dollar gaining 8.2 percent in 2012, the most in seven years.

While the Fed has created more than $2 trillion under its stimulus programs since 2008, the flows signal that there may actually be a shortage of dollars to meet demand as Europe’s debt crisis deepens and the global economy slows. The dollar has risen 3.5 percent since the end of April against a basket of the most-widely traded currencies even amid speculation that the Fed, which meets this week, may undertake the type of stimulus measures that weakened it in the past.

“The market often assumes that people are long dollars, but many of those dollars are held by central banks, which are unlikely to move out,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said in a June 13 interview. “That leaves us with the private sector, which is short,” meaning they don’t have enough of them, he said. “In an environment where we see a global slowdown, the dollar will be well supported.”

Dollar Scarcity

Morgan Stanley says the potential scarcity of dollars among foreign private borrowers represents the U.S.’s net position with lenders abroad of minus $2.4 trillion, adding $4.8 trillion of U.S. financial assets held by central banks, and subtracting $500 billion of foreign official assets held by the U.S.

That equals about $2 trillion of demand from foreign private banks and companies. The gap has expanded from $400 billion in 2008, according to the New York-based firm. In 2002, there was a dollar surplus of $900 billion, the data show.

The shift in the share of global forex reserves weighted towards the US dollar hardly translates to a US dollar ‘shortage’. But it can be made to look that way.

Instead, these accounts for symptoms of capital flight (see chart below of deposits of foreign lenders at the US Federal Reserve), ongoing liquidations (loan repayments margin calls etc..) and growing concern over a dysfunctional banking system, which has been magnified in Europe.

Chart from Bloomberg

The statement “many of those dollars are held by central bank” are manifestations of such concerns or of distorted price signals where politicians arduously struggle to protect privileged institutions from market forces through massive interventions. The ensuing uncertainty from regulations and political directions prompts the private sector to seek refuge in central banks than to operate normally.

The innuendo behind the dollar shortage analysis nonetheless represents the clamor for the FED to inject more money into the system.

As the great Ludwig von Mises once wrote,

In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about.

Solve the problem of inflation with even more inflation. Yet people forget inflation is a policy that will not and cannot last.

A Global Migration U-Turn?

In the past, people from developing countries flocked to developed nations mostly to find greener pastures. Such flow of migration caused controversial social issues as the mythical “brain drain”, “immigration restrictions” and etc..

As pointed out before, this trend seems to be in reversal.

From Gillian Tett of the Financial Times, (bold highlights added) [hat tip Sovereign Man]

It is a telling little indication of how the world is being subtly turned on its head, amid the rolling crises. During the past five decades, if anybody has been packing their bags to travel overseas to send remittances home, it has typically been the Brazilians, or other “emerging markets” peoples, not the developed Europeans. In recent years, Spain and Portugal have been pulling in vast quantities of migrant workers, both skilled and unskilled, as Poles and other eastern European workers have flooded to places such as the UK and Ireland. America has sucked even larger numbers of migrants, not just from Brazil but from other parts of South America. A couple of months ago, for example, the Pew Hispanic Center (PHC) in America released a fascinating report which calculated that 12 million immigrants have moved from Mexico to the US in the past four decades alone, to seek jobs and cash. “The US today has more immigrants from Mexico alone – 12.0 million – than any other country in the world has from all countries of the world,” the PHC report observed, noting that in absolute terms “no country has ever seen as many of its people immigrate to this country as Mexico has in the past four decades.”

Yet these days the most fascinating detail of the PHC report, which echoes that Boston lunch, is that a change is afoot. Last year “the net migration flow from Mexico to the United States has stopped and may have reversed,” it says, for the first time since records began.

Part of the explanation is “the weakened US job and housing construction markets, heightened border enforcement, a rise in deportations,” along with “the growing dangers associated with illegal border crossings and the long-term decline in Mexico’s birth rates”. But another issue is the improved “broader economic conditions in Mexico”. Life south of the border, in other words, is no longer quite as grim as it was before, or not relative to the risks of moving to the US.

Sadly, there is surprisingly little comparable data for other immigration flows. As Ian Goldin, an Oxford academic, has long lamented, the world lacks any centralised system to track migration flows in a timely way, let alone devise policies. Thus we do not really know how many young Portuguese or Spanish are seeking jobs in Latin America now (although Reuters reports that around 328,000 Portuguese hold work permits for Brazil, 50,000 more than last year, it is unclear whether these have been exercised). Nor is it clear how many Poles are returning to their homeland from the UK or Ireland, as austerity bites there; or how many young Irish may now be seeking their fortunes overseas (yet again). While I have recently heard plenty of anecdotes at American dinner parties and conferences about how young American graduates are becoming so disillusioned with their jobs markets that they are moving “temporarily” to Brazil or India, tracking data on that American flux – if it exists – is hard.

The other unmentioned factors are the repressive measures undertaken by governments of developed economies to forcibly wring out resources from the private sector, only to transfer them to crony or pet industries of the political class, that has led to sharp deterioration in investments and thus reduced employment opportunities.

Such is aside from the explicit policies of currency devaluation (or inflationism) by developed nations, that has caused boom bust cycles and thus reduced their respective standards of living. Example, the net worth of US families fell by almost 40% between 2007-2010

A reversal of the poor to rich global migration trend are manifestations of the wealth convergence dynamic.

War on Internet: Google Reports Increasing Government Requests for Censorship

Governments of western economies has been breathing down the neck of Google to censor ‘political’ content on Google’s cyberspace.

From TGDaily.com

Google's released data on the governments aiming to censor internet content, and says it's seen a worrying rise in the number of such requests from Western democracies.

In the second half of last year, for example, Spanish regulators asked for the removal of 270 search results that linked to blogs and newspaper articles referencing individuals and public figures, including mayors and public prosecutors.

One example that's more entertaining than chilling came from the Canadian authorities. They called for the removal of a YouTube video showing a man urinating on his passport and flushing it down the toilet. Google let the video stand.

"When we started releasing this data in 2010, we also added annotations with some of the more interesting stories behind the numbers. We noticed that government agencies from different countries would sometimes ask us to remove political content that our users had posted on our services. We hoped this was an aberration. But now we know it’s not," says senior policy analyst Dorothy Chou…

Google also received a number of requests from US law enforcement agencies. One concerned a blog post alleged to defame a law enforcement official in a personal capacity; another a series of 1,400 YouTube videos that were claimed to constitute harassment.

Google has so far ‘refused to comply’ with these requests and thus deserves a pat on the back.

Google earlier announced that they will warn users of state sponsored privacy intrusions.

My guess is that governments will continue to pressure Google, but perhaps more through indirect channels (taxes, licenses, anti-trust etc..) to get their wishes done.

Will Google eventually cave in?

Henry Hazlitt on the Task of Libertarians

The great late Henry Hazlitt, in an article at the Mises Institute today, tells Libertarians to work on TWO fundamental aspects in preaching liberty. (dedicated to my Filipino libertarians and Casey Phyle friends, as well as, passive libertarian audiences or visitors)

One is to specialize or apply liberty in our respective field of expertise… (bold emphasis mine)

We libertarians have our work cut out for us.

In order to indicate further the dimensions of this work, it is not merely the organized bureaucracy that the libertarian has to answer; it is the individual private zealots. A day never passes without some ardent reformer or group of reformers suggesting some new government intervention, some new statist scheme to fill some alleged "need" or relieve some alleged distress. They accompany their scheme by elaborate statistics that supposedly prove the need or the distress that they want the taxpayers to relieve. So it comes about that the reputed "experts" on relief, unemployment insurance, Social Security, Medicare, subsidized housing, foreign aid, and the like are precisely the people who are advocating more relief, unemployment insurance, Social Security, Medicare, subsidized housing, foreign aid, and all the rest…

We libertarians cannot content ourselves merely with repeating pious generalities about liberty, free enterprise, and limited government. To assert and repeat these general principles is absolutely necessary, of course, either as prologue or conclusion. But if we hope to be individually or collectively effective, we must individually master a great deal of detailed knowledge, and make ourselves specialists in one or two lines, so that we can show how our libertarian principles apply in special fields, and so that we can convincingly dispute the proponents of statist schemes for public housing, farm subsidies, increased relief, bigger Social Security benefits, bigger Medicare, guaranteed incomes, bigger government spending, bigger taxation, especially more progressive income taxation, higher tariffs or import quotas, restrictions or penalties on foreign investment and foreign travel, price controls, wage controls, rent controls, interest rate controls, more laws for so-called consumer protection, and still tighter regulations and restrictions on business everywhere.

This means, among other things, that libertarians must form and maintain organizations not only to promote their broad principles — as do, for example, the Foundation for Economic Education at Irvington-on-Hudson, New York, the American Institute for Economic Research at Great Barrington, Massachusetts, and the American Economic Foundation in New York City — but to promote these principles in special fields. I am thinking, for example, of such excellent existing specialized organizations as the Citizens Foreign Aid Committee, the Economists' National Committee on Monetary Policy, the Tax Foundation, and so on.

…which should include or cover law and politics.

But, of course, liberty cannot be enlarged or preserved unless its necessity is understood in many other fields — and most notably in law and in politics.

We have to ask, for example, whether liberty, economic progress, and political stability can be preserved if we continue to allow the people on relief — the people who are mainly or solely supported by the government and who live at the expense of the taxpayers — to exercise the franchise. The great liberals of the 19th and early 20th centuries, including John Stuart Mill and A.V. Dicey, expressed the most serious misgivings on this point.

Second is to focus on inflation, as all interventionism starts and ends with inflationism… (italics original, bold mine)

This issue has the inherent advantage that it can be made clear and simple because fundamentally it is clear and simple. All inflation is government made. All inflation is the result of increasing the quantity of money and credit; and the cure is simply to halt the increase.

If libertarians lose on the inflation issue, they are threatened with the loss of every other issue. If libertarians could win the inflation issue, they could come close to winning everything else. If they could succeed in halting the increase in the quantity of money, it would be because they could halt the chronic deficits that force this increase. If they could halt these chronic deficits, it would be because they had halted the rapid increase in welfare spending and all the socialistic schemes that are dependent on welfare spending. If they could halt the constant increase in spending, they could halt the constant increase in government power.

Well this blog is has both contents. The truth will set us free.

Quote of the Day: A Greek Reprieve

The tragedy of Greece, and much of the rest of Europe, is that it overborrowed during the euro's first decade to finance a higher standard of living than it could afford. Now the debtors have to adjust.

The best way to do so is with supply-side reforms in taxes, pensions and labor markets that will lure investment and make Europe's economies more competitive. They need austerity for government but growth for the private economy. Without that, the Greek reprieve will be merely another opportunity lost.

That’s from the Editorial of the Wall Street Journal

China’s Property Prices Fall, Mixed Signals on Stimulus from Chinese Authorities

Markets are in a state of bacchanalia in celebration of the pro-austerity pro-bailout parties in Greece.

Bad news is good news even in China.

China property markets remains stuck in a muck.

A fresh report from Bloomberg,

China’s home values fell in a record 54 of 70 cities tracked by the government in May as developers cut prices to boost sales amid housing curbs.

The eastern city of Wenzhou led declines with a 14 percent slump in values from a year earlier, while Beijing and Shanghai recorded losses of as much as 1.6 percent, according to data released by the statistics bureau today.

China has pledged to maintain its curbs on the housing market even as economic growth is slowing, prompting the central bank to cut borrowing costs for the first time since 2008 on June 7. The Housing Ministry said this month that China will steadfastly continue with its property curbs that have so far included higher down payments and restrictions on the number of homes being bought.

Another report from Bloomberg said that China won’t engage in the same degree of stimulus as she had in 2009.

Premier Wen Jiabao has an unspoken message to his Group of 20 counterparts in Mexico today: This time, don’t count on a growth bailout from China.

In the depths of the 2008 credit crunch, Wen’s 4 trillion yuan ($586 billion) fiscal injection over two years and 17.6 trillion yuan credit surge helped prop up the global economy. In China, it fueled a property bubble, stoked inflation and amassed bad debts that Fitch Ratings says weakened the banking system…

China has accelerated approvals for wind farms, hydropower plants, airports and steel mills endorsed in its five-year plan through 2015. The government released 66 billion yuan in funding for 2.3 million low-cost houses, and will allocate a 26.5 billion yuan subsidy for eco-friendly household appliances and 6 billion yuan to stimulate sales of energy-efficient vehicles.

Policy makers have relaxed lending rules for banks and expanded loans for first-home buyers to try to support the property market without fueling the speculation that drove up house prices in 2009.

While China’s equity benchmark seems to have partaken in today’s revelry, mixed signals from China’s political authorities don’t seem encouraging.

I guess the actions in the financial markets over the next few weeks should give us a better picture.

Top 10 Alcoholic US Presidents: President Obama Tops the List

From the Top Ten List (hat tip LewRockwell.com)

Many US Presidents have a colourful past. Many of the Presidents on the list are/were alcoholics and took pride in their drinking habits. This article identifies them and who they are/were.

1. Barack Obama:

A 2010 news report surfaced surrounding Barack Obama’s drinking problem. The Daily Mail reported that the doctor recommended the President stop drinking excessively and stop smoking. This recommendation came after Obama’s cholesterol levels were up to borderline high.

2. George W. Bush:

Bush was no saint in the 1960s and 70s. Bush even admitted to substance abuse under the age of 40. He described this period as nomadic and irresponsible youth. This all occurred before he made a religious conversion and was enlightened by Billy Graham.

The rest in the top 10 alcoholic list:

3. Richard Nixon

4. Martin van Buren

5. Ulysses Grant

6. Franklin Pierce

7. James Buchanan

8. Franklin D. Roosevelt

9. William Taft

10. John Adams

Read them here.

That’s the top 10, which could mean that many others were likely drinkers too.

Ex- President Warren Harding during the Prohibition era drank bootleg whiskey which he also gave out to his guests. Talk about the highest executive of the land defying stupid arbitrary regulations.

Better drink than intervene. To President Obama, Bush and the rest of the political alcoholics, Cheers!

Video: Murray Rothbard on Understanding Libertarianism

(hat tip Bob Wenzel)

Surprise, Manny Pacquiao is Human

Veteran sport analyst and commentator Ronnie Nathanielsz finally awakens to reality and asked the right question “Is Pacquiao Slowing Down”

Mr. Nathanielsz at yahoo.com

As we cautioned some years ago, the late nights, the drinking and gambling would eventually take its toll on Pacquiao's physical condition and when the effects of abuse of a person's body and the effects of dissipation set in, it often happens abruptly.

A careful review of the fight tape shows Pacquiao has lost a split second in terms of speed, which both Arum and trainer Freddie Roach long pointed to as a key factor in Pacquiao's arsenal which effectively accentuated his power.

"Speed kills" was what Arum pointed to before Pacquiao pulverized De La Hoya that saw him quit on his stool at the end of the seventh round.

That speed has diminished as Pacquiao nears his 34^th birthday on December 17, and as we assess his diminishing assets of speed and devastating power we need to accept the reality that the passing of the summers inevitably takes its toll on even the finest, relentlessly hardworking athlete who walked through the doors of Roach's Wild Card Gym in Los Angeles in the first week of June 2001, eleven long years ago. The innumerable fights, the punches he has taken, the burdens of training and the demands on his time as a congressman, a crossover superstar, a TV personality and a caring human being not to mention his former wild and wooly ways have surely taken their toll and its time we admit it, although such an admission doesn't mitigate the high crime committed in Las Vegas last June 9.

Let us put in a simple way: Contrary to popular expectations, Manny Pacquiao is just human. Yes read my lips, human. Mortal. Not superman. Yes, he susceptible to physiological ageing as anyone else.

Even if Mr. Pacquiao did away with gambling, drinking or late night escapades during his early years, unless technology will save the day, age will function as Manny’s neutralizing factor. This exempts no one, not even priests, monks or other vice free celibates.

You can go to the Boxing Hall of Fame and examine one by one and determine the median, if not the average age, when these former boxing legends had their career inflection point or when they retired.

That’s where the legendary Manny Pacquiao is today.

In the past, most of Pacquiao’s scintillating or brilliant victories came at the expense of OLDER boxers as noted I here. That cycle has turned.

Mr. Pacquiao will now wear the shoes of his former older opponents as most of his contemporaries have hanged up their gloves. So he will be faced with YOUNGER boxers even if he wins against Tim Bradley in a return bout.

The point is the more Pacquiao fights, the lesser the chances of his victory. Of course, this comes in the condition that he duels with younger foes with world class caliber.

And if he insist on staying on the ring, we should expect that after 3-4 more bouts (assuming 2 fights a year), the chances of losing badly (by KO or TKO) will become very significant. And that's when reality will sink in to him (that's if he remains stubborn to pursue more ring engagements)

So while relative age matter, a boxer’s career cycle has even more impact.

In economics, this is merely called the law of diminishing returns.

The law of diminishing returns based on the physiological ageing process has brought upon the twilight of Mr. Pacquiao’s boxing career.

Truth hurts. But that’s how nature works.

Deal with it.

Shelve the Greece Moment; Greeks are Pro-Austerity After All

We had been repeatedly told (if not lied to) by media and neoliberals that Greeks has been anti-bailout.

The election nears conclusion and the results run opposite to what has been bruited.

From Bloomberg,

New Democracy won 130 seats in the 300-seat parliament, according to Interior Ministry projections with almost 90 percent of the vote counted. Pasok, which has alternated in power with New Democracy over the past four decades, won 33 seats, enough to forge a coalition that backs the creditors’ austerity demands.

Syriza Demands

Syriza matched its second-place ranking of last month by stepping up demands to abandon the fiscal-tightening program.

Alexis Tsipras, the head of eight-year-old Syriza, had vowed to keep Greece in the euro while winning concessions on the rescue terms from European leaders including German Chancellor Angela Merkel. He said New Democracy and Pasok, which united last year to back further fiscal tightening by a caretaker government, had “lowered the Greek flag and surrendered it to Angela Merkel.”

Tsipras signaled yesterday that Syriza won’t join a government with New Democracy and Pasok, saying his faction “will be present in all developments as the main voice of the anti-bailout vote in Greece.”

With 166 out of 300 or a 55% vote (New Democracy and Pasok) for the pro-austerity camp, reality finally trumped fiction. The victory cannot be considered as marginal in race among about 8 political parties, namely, New Democracy, Syriza, Pasok Party, Independent Greeks, Golden Dawn, Democratic Left, Communist Party and Ecologist Greens

This squares with accounts of capital flight and resistance to pay taxes (mostly in reaction fears over a Greece exit) which implied that Greeks did not want to exit the EU. This has also been consistent with earlier polls which indicated that a vast majority of Greeks wanted to remain part of the EU.

Demonstrated preference prevails over statist canard.

Only in the eyes of neoliberals and rabid inflationistas, who salivate for massive devaluation as panacea to social ills, has reality been skewed. So there is no Greece moment for now.

The Greece pro-austerity victory does not diminish the crisis. As earlier explained, Greece in or out of the EU will mean inflationism. The difference lies on who will do the inflating. What the pro-austerity victory does is to simply buy off time with the ECB functioning as the main bridge financier, but whose costs will be borne mostly by the Germans overtime. For as long as strong parasitical relationships remain in place, and without real reforms, this crisis will continue.

Greece will now form a government. The ECB should be expected to unveil another region-wide monetary rescue program and perhaps cut interest rates. One thorn has been temporarily taken out. The next is to wait for the announcement of concrete measures from major central banks not limited to the ECB.

With fears of an exit diminished, capital flight in the crisis affected EU nations will likely ease. This would have an impact on the monetary systems of many economies who functioned as shock absorbers. Volatility remains.

Greece’s real reform must be made through economic freedom, not from the illusion of having to turn economic knobs and shower money to the public from helicopters as elixir to economic woes as recommended by experts trying to get social plaudits.

What to Expect from a Greece Moment

The economist must deal with doctrines, and not with men. It is for him to critique errant doctrine; it is not his charge to uncover the personal motives behind heterodoxy. The economist must face his opponents under the fictitious assumption that they are guided by objective considerations alone. It is irrelevant whether the advocate of a false notion acts in good or bad faith; what matters is if the stated notion is true or false. It is the charge of others to reveal corruption and enlighten the public concerning the same Ludwig von Mises, Memoirs p.40

For some, today’s Greece elections serve as the defining ‘Greece moment’ of the Euro crisis. This would seem like a paradise for the advocates of drachmaisation or the return to the local currency, drachma which enables domestic governments to inflate the system.

Yet whether Greece decides to stay within, or departs from the EU, there won’t likely be significant changes in the dominant policies espoused by policymakers in addressing this crisis.

Inflationistas have been drooling for the aggressive use of monetary inflation as the easy way out of the crisis.

The difference would be that of the policy responses by global authorities as consequence of the political choice made by Greeks.

Uncertainty from the resultant political actions will establish the feedback loop between policy responses to the market’s reaction and market’s reaction to policy responses. That’s why policymakers have incessantly talking about erecting firewalls. Spain’s recent bailout has reportedly been predicated against contagion risks[1] from today’s election.

Utopian False Choice

Inflationistas give us a proposition based on a false choice/ false dilemma[2], analyst John Mauldin[3], a populist, gives a good example

Europe is down to two choices. Either allow the eurozone to break up or go for a full fiscal union with central budget controls. The latter option ultimately means eurobonds and a central taxing authority.

If only the world have been that simple where people think alike, move and act alike and economies are mechanized that can be switched on and off or modulated like temperature gauge of an air conditioning unit. Or that people’s actions can be captured in aggregate numbers.

Yet if this is true, then we won’t be having today’s crisis at all.

As the great F.A. Hayek once warned against utopian thinking[4]

it is probably no exaggeration to say that economics developed mainly as the outcome of the investigation and refutation of successive Utopian proposals—if by ‘Utopian’ we mean proposals for the improvement of undesirable effects of the existing system, based upon a complete disregard of those forces which actually enabled it to work.

The false dilemma presented to us fails to take to account the micro conditions of what plagues the EU crisis affected nations.

This vignette of the Greece government, which has been drawn by a Greek public servant and labeled as macaroni, which I earlier posted on my blog[5], has illustrative been of the anatomy of the Europe’s crisis.

The public servant Mr. Panagiotis Karkatsoulis, who works in the Greek Ministry of Administrative Reform and e-Governance and teaches at the National School of Public Administration, has partly been accurate in the dissection of the origins of crisis, particularly, “More than 30 years of scant coordination has resulted in a morass of contradictory rules and a lack of legal clarity” and “the first government of George Papandreou in 2009 had 15 ministers, 9 vice-ministers and 21 adjunct ministers, along with 78 general or special secretaries, 1,200 counselors, 149 directorate generals and 886 directorates — this for a population of just over 11 million, or the same number of people as those living in Cuba. The resulting mesh of interdependencies for decision making has made governing Greece increasingly difficult”.

So Europe’s fundamental problems can be summarized into the following: mishmash of ambiguous, unenforceable and conflicting arbitrary rules and regulations, bloated bureaucracy, unsustainable welfare state, obscure property rights, politically restrained markets through various interventionist policies and high tax rates[6], and a public sector far larger than the private sector, which has been draining away resources from the private sector, as evidenced by Greece’s consumption economy despite relative lower nominal wages or earnings[7] compared to other developed EU nations. As a side note, the perceived or expected cost of labor has been higher in most crisis affected nations in Europe due to stringent labor regulations and bubble policies[8].

In short, Greece’s economy has survived on a parasitical relationship where unproductive sectors have essentially been draining out resources from the depleted hosts.

Devaluation, thus, will not solve the problem of SOLVENCY, PRODUCTIVITY and COMPETITIVENESS as inflation only destroys real savings and extinguishes purchasing power.

Greece’s problem has not been prompted for by rigidity in wages emanating from market forces, but from the rigidity of her incumbent POLITICAL system. Politics simply won’t allow markets to do what the market does best. And obsession to politics is the price paid through a crisis.

As previously discussed, accelerating capital flight has been spawned by the sustained barrage for the siren song of the devaluation elixir as advocated by the political order and their Keynesian protégés, most of whom ironically are residents outside these crisis affected nations.

It’s easy to make recommendations that don’t affect one’s interests or where errant endorsements don’t have a direct personal impact.

The capital flight in the crisis affected EU nations has accounted for as symptoms of savers and creditors who seek refuge out of their nations (again to preserve savings) as well as risks of a banking collapse, while debtors have practically deferred on making payments, possibly in anticipation that their debts would be best paid on a devalued currency.

Also capital controls[9] from the elevated risk of a potential exit has likely been seen as a consequential threat.

All these, including tax increases, negative interest rates, price controls, inflationism and various regulatory proscriptions, are financial repression measures undertaken by desperate governments and endorsed by their institutional apologists who seek to persecute and expropriate assets of their private sector constituents in order to sustain the privileges of the political elite.

Add to these the rising incidence of protectionism[10] which mostly emanated from developed nations, particularly the EU.

So Keynesian (and Fisherian) snake oil prescriptions has essentially backfired or produced a series of unintended consequences. Aside from capital flight, falling tax receipts (including Italy[11]) and a breakdown of trade has been intensifying the crisis[12].

Also fiscal and political union naively extends the problem of the tenuous parasitical relationship. Eventually new hosts or EU’s creditor nations as Germany, Finland, Netherland and the others will also get drained by such unproductive and unsustainable redistributive relationships.

Fund manager John Hussman makes a great analogy of mainstream’s foolish ideas which he analogizes as the “WarrenBonds”[13],

This is like 9 broke guys walking up to Warren Buffett and proposing that they all get together so each of them can issue "Warrenbonds." About 90% of the group would agree on the wisdom of that idea, and Warren would be criticized as a "holdout" to the success of the plan. You'd have 9 guys issuing press releases on their "general agreement" about the concept, and in his weaker moments, Buffett might even offer to "study" the proposal. But Buffett would never agree unless he could impose spending austerity and nearly complete authority over the budgets of those 9 guys. None of them would be willing to give up that much sovereignty, so the idea would never get off the ground. Without major steps toward fiscal union involving a substantial loss of national sovereignty, the same is true for Eurobonds.

Even if 9 broke guys accedes to give up on their sovereignty, for as long as the structural system of parasitical relationship remains, even Warren Buffett will see his resources dwindle and will go bankrupt.

In short, all sorts of proposed and implemented bailout mechanisms—banking union, Eurobonds, EU regional deposit guarantee schemes, European Stability Mechanism and or the European Financial Stability Fund (“EFSF”), Securities Markets Programme (SMP), Long Term Refinancing Operations (LTRO) and Target2—are essentially transfers of resources from productive to unproductive nations, which ensures capital consumption and the eventual demise of the Union.

Of course what exponents of inflationism via devaluation don’t see or refuses to see are that there are other practical market based options such as outright default or restructuring and ‘shock liberalization’[14] as coined by University of Chicago Professor John Cochrane, viz., liberalize economy, allow banks to fail, reduce government spending (by cutting down the bureaucracy and repealing unnecessary regulations), reduce tax rates and sell state assets or privatization.

Whatever the outcome of today’s election, the crisis will continue to linger and will most likely fester for as long as solvency, productivity and competitiveness issues will not addressed by giving the private sector a bigger hand.

Exploring the Greece Moment

A Greece vote to stay within the EU will likely have concerted efforts by the European Central Bank (ECB) to reflate the system backed by some superficial ‘austerity’ policies. This will be another attempt to delay the day of reckoning.

This will likely another incite short term upswing for the markets but eventually will wear off, as with all the rest.

In short, boom bust cycles until the grand finale: defaults either by massive inflation (which likely brings the end of the euro experiment) or by outright default (disunion may or may not happen).

A Greece vote out of the EU to may spell interim trouble for the global markets, but this would likely prompt central banks to collaborate by massively inflating the system. So volatility can swing fiercely from downside to upside and vice versa, depending on how large these actions will be.

I would make another guess. Under the conditions where global central banks steps on the proverbial pedal to the metal, the RISK ON RISK OFF environment will probably transition to a stagflationary environment[15] (slow economic growth, high unemployment but also high consumer price inflation).

Again this will be conditional or mainly dependent on the scale or degree of actions which is something cannot be foreseen. I have to admit I don’t have telephatic powers that would allow me to read the minds of central bankers.

Yet under a stagflationary setting, market’s attention may likely be focused on commodities as inflation hedges.

And that’s where I’d be.

---

[1] Bloomberg.com Euro Bloc Faces Greek Vote Giving First Spanish Test, June 11, 2012

[2] Wikipedia.org False dilemma

[3] Mauldin John MAULDIN: The 'Bang!' Moment Is Here Businessinsider.com, June 16, 2012

[4] Hayek Friedrich von Four History And Politics The Trend Of Economic Thinking p.15 libertarianismo.org

[5] See Chart of the Day: Greece’s ‘Macaroni’ Bureaucracy, June 15, 2012

[6] Wikipedia.org Tax rates of Europe

[7] Eurostat Wages and labour costs European Commission

[8] See Germany’s Competitive Advantage over Spain: Freer Labor Markets May 25, 2012

[9] See The Coming Age of Capital Controls? June 13, 2012

[10] See More Wall of Worry: Rising Accounts of Protectionism June 15, 2012

[11] See Italy’s Pro-Growth Tax Increases Backfires, June 13, 2012

[12] See Is Greece Falling into a Failed State?, May 28, 2012

[13] Hussman John P. The Reality of the Situation, May 28, 2012 Hussmanfunds.com

[14] Cochrane John H. Euro explosion, June 15, 2012

[15] Investopedia.com Stagflation