How the Web Nurtures Underground Economies

Through Anonymous Web Proxy Servers.

From author Bill Rounds (howtovanish.com), [hat tip Charleston Voice]

Communist Cuba is a great example of how this is being done. It has a thriving market for goods and services, even though strict regulations prohibit entrepreneurship, because the citizens find ways to exercise their enterprising minds. A site similar to Craigslist, called revolico.com, allows Cubans to exchange everything from baseball equipment to their place in line and they love their hawaladar. For the good of the people, the site is blocked by the government. But the site thrives nonetheless. How do the Cubans get around the repressive and immoral policies of their overbearing government? They use anonymous web surfing practices.

Anonymous web surfing is generally done by using proxy servers. Proxy servers allow the proxy computer, outside of Cuba and not subject to Cuban government regulations, to do the web surfing for the Cubans. The ISP registers that they have visited the proxy server, not the sites visited by the proxy server on their behalf. And, because there are many thousands of servers available at any moment, some of which have never been used before as a proxy, it is far more difficult to restrict access to proxy servers than to individual websites. This way, the web surfing activity of individual Cubans is made anonymous to those who are watching them.

Cubans using anonymous proxy servers for anonymous browsing which don’t disclose their IP address to the websites that they visit, nor the fact that the proxy server is even surfing for someone else, make it that much harder for a repressive government, like Cuba, to discover which citizens are visiting a site and then prevent them from visiting the site.

Cuba is not the only example. China, Iran, and many other countries have seen their citizens utilize proxy servers to spread information and ideas. I am sure that governments are not done trying to prevent their citizens from accessing information, sharing information, or associating with others through the internet, but I am also sure that there will always be those who circumvent limitations placed on them through the use of anonymous web surfing techniques. Some people might want to seek residency in another country that is more free and allows for more privacy.

Rapid innovation and accelerating diffusion of technology usage has been eroding the political framework of the 20th century. Also these have been fostering economic activities that goes beyond the clutches of political authorities.

And this means that the greater the penetration levels of technology, the bigger the informal economy, as well as, greater pressures applied to existing vertical structured political institutions. Put differently, closed door political economies are incrementally being pried open by the globalization through technology.

The relationship between markets and regulations can be analogized to a “cat and mouse” game which Wikipedia.org defines as “a contrived action involving constant pursuit, near captures, and repeated escapes” where the interrelationship exists via a feedback mechanism: the markets always discovers means to skirt political shackles, and the political response to innovation would be to introduce new regulations.

Nonetheless the markets are always way ahead of and smarter than politicians, which is one fundamental reason to be optimistic despite the many challenges posed by the incumbent political agents and their lackeys.

Applying Bernanke’s Doctrine: Central Banks ‘Invests’ in Stock Markets

Ben Bernanke’s crash course for central bankers has become the mainstream creed in approaching risks of economic downturn or prospective crises.

To refresh your memories here is what Mr. Bernanke wrote in 2000

There's no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.

Zero bound rates and QEs has been the du jour indirect means of supporting the stock market. But there seems to be more…

From Bloomberg,

The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities.

The investment, which in the initial phase will amount to 2 percent of the $77 billion reserves, or about $1.5 billion, will be made through UBS AG and BlackRock Inc. (BLK), Bank of Israel spokesman Yossi Saadon said in a telephone interview today. At a later stage, the investment is expected to increase to 10 percent of the reserves.

A small number of central banks have started investing part of their reserves in equities. About 9 percent of the foreign- exchange reserves of Switzerland’s central bank were invested in shares at the end of the third quarter, the Swiss bank said on its website.

So central bankers now collaborate with each other to prop up the stock markets.

Central bankers like to keep the “animal spirits” in continued vigor with the hope of instituting permanent quasi booms through 'investments' (which in reality are euphemism for interventionism).

In short, by increasing people’s time preferences, central bank policies have been encouraging monumental speculations, arbitrages, distorting price signals (stimulating 'greed') and prod for consumption activities at the expense of production and savings. Unfortunately, there is an obverse side of quasi perma booms, they are known as economic busts or crisis.

Video: Peter Diamandis: Abundance is our future

Peter Diamandis, Founder and Chairman of the X PRIZE Foundation, an educational non-profit prize institute whose mission is to create radical breakthroughs for the benefit of humanity, in a talk at the TED explains why he thinks the world is headed for abundance.



Essentially Mr.Diamandis is banking on the explosive growth of human capital facilitated by technology (information age) through the following media

Technologies riding Moore’s Laws:
1. Infinite Computing
2. Sensor and Networks
3. Robotics
4. 3D Printing
5. Synthethic Biology
6. Digital Medicine
7. Nanomaterials
8. Artificial intelligence

Here are some noteworthy quotes

When I think about creating abundance, it is not about creating a life of luxury…it is about creating a life of possibilities. It is about taking that which was scarce and making it abundant. You see scarcity is contextual and technology is a resource liberating force. 6:34

It is not about being scarce it’s about accessibility. 8:17

By the way the biggest protection against population explosion is making the world educated and healthy 12:26

3 billion new minds would never been heard before are connecting to global conversation. What do these people want? What would they consume? What do they desire? Rather than having an economic shutdown we are about to have is the biggest economic injection ever. These people represent tens of trillions of dollars injected in the global economy 12:47

In spite of the restrictive role of governments, I share his optimism that people will find ways and means to circumvent them mostly through technological innovations.

(hat tip Professor Mark Perry)

Record Bank Borrowing from ECB’s Second Round LTRO

Here is what I wrote last Sunday,

Despite talks of ‘stigmatization’ or the reluctance to avail of European Central Bank facilities by several banks, I expect the reopening of the second three year Long-term Refinancing Operations (LTRO) facility will be utilized to the hilt.

Apparently there had been no signs of stigmatization as European banks flocked to the ECB to borrow in record numbers.

From the Bloomberg,

The number of financial institutions flocking to the European Central Bank’s three-year loans soared to 800 and borrowing rose to a record in an operation that may boost the euro-area economy.

The Frankfurt-based ECB said it will lend banks 529.5 billion euros ($712.2 billion) for 1,092 days, topping the 489 billion euros handed out to 523 institutions in the first three- year operation in December. Economists predicted an allotment of 470 billion euros in today’s tender, according to the median of 28 estimates in a Bloomberg News survey.

“The astonishing number this time is the number of banks participating, which signals that a lot more small banks looked for the money and it is likely they will pass it on to the economy,” said Laurent Fransolet, head of fixed income strategy at Barclays Capital in London. “So the impact may be bigger than with the first one.”

Two factors here:

This is about the preservation of the debt based welfare political system and thus the gargantuan subsidies to the banking system, the chief financiers of the welfare state.

Second, “who the heck would refuse free money???!!!” Certainly bankers will take them and did so.

As for yesterday’s 5% crash in gold prices, rumors have it that cartel operations could have been responsible for the bear raid for unspecified reasons. If true, my guess is that the manipulation gold-silver market must have probably been aimed at dampening the effect of the record ECB borrowings by Euro banks. Nothing to see here, move along.

Yet the inflationism (currency debasement policies) seen above represents a fundamental reason to remain bullish on gold.

Video: Ron Paul to Bernanke: The Fed is Going to Self Destruct Eventually

Fed Chair Ben Bernanke receives a tongue lashing from Ron Paul. (hat tip zero hedge)



Some note worthy quotes

System designed to pyramid debt. We have a debt based system. The more debt we have, the more debt the Federal Reserve buys, the more currency they can print. And they monetize this debt. No wonder we are in debt crisis, it’s worldwide. I think this something we have never experienced before 2:48

The Fed is going to self destruct eventually anyway when the money is gone 6:42

By the way in confirmation to Mr. Paul's statement here is a fresh news report from Bloomberg anent China's slowdown in US treasury acquisition in 2011.

The Fed remains the top holder of U.S. debt with $1.66 trillion on its balance sheet.

Gold’s near $100 Price Drop Hardly has been about Bernanke’s Stimulus Statement

Media attributes the slump in gold prices to the US Federal Reserve chair Ben Bernanke’s statement last night.

From Bloomberg,

Gold futures fell as much as $100 to below $1,700 an ounce on signs that that the Federal Reserve will refrain from offering more monetary stimulus to bolster the U.S. economy.

In testimony before Congress today, Fed Chairman Ben S. Bernanke gave no signal that the central bank will take new steps to boost liquidity. The dollar rose as much as 0.8 percent against a basket of major currencies, eroding the appeal of the precious metal as an alternative investment. Yesterday, gold reached $1,792.70, a three-month high, even as coin sales by the U.S. mint slumped in February

I am not persuaded that the the reaction in the gold market has entirely been about “refrain from offering more money stimulus”, this seems more like the available bias or post hoc fallacy

That’s because the sell-off seems to have been limited to gold and silver prices. Oil prices seems to have shrugged off the stimulus issue (No, oil prices has hardly been about Iran). The US stock markets too which closed modestly lower has hardly reflected on the the scale of gold’s collapse.

Any concerns over ‘stimulus’ which extrapolates to 'liquidity' would bring about an across the board selling pressure similar to September of 2011

While Mr. Bernanke’s statement may have served as aggravating circumstance, I’d say that either profit taking (yes gold market looked for an excuse and found one in Bernanke) or some unseen developments over the past 24 hours may have led to a crash in gold’s prices.

Nevertheless this is likely to be a temporary episode which means gold prices will recover...soon.

Another important issue to bring up is how mainstream now associates policy stimulus to gold prices. When the public gets to realize that money debasement (inflationist) policies have been the principal cause of price inflation in the asset markets which eventually diffuses into the real economy, the political heat against central banking or central banking policies will intensify.

So far central banks can still afford to hide underneath the cover of esoteric econometrics which the public does not comprehend--a tenuous cover which will eventually be unmasked.

End the Fed, abolish central banking.

I Told You Moment: Phisix Hits 5,000

chart from technistock.net

Much ahead of my expectations, nevertheless fulfilled. Next should be the confirmation of the psychological level breakout.

Putting Into Perspective Brazil’s Ban on Outdoor Billboards

Since 2006, São Paulo, Brazil has eliminated billboard ads

Image from Smartplanet.com

From Newdream.org

Imagine a city of 11 million inhabitants stripped of all its advertising. It’s nearly impossible when the clutter and color of our current urban landscapes seem inextricably entwined with the golden arches of McDonald’s or the deep reds of Coca-Cola.

Yet for the residents of São Paulo, Brazil, this doesn’t require imagination: city dwellers simply have to walk down the street and look around to see a city devoid of advertisements.

In September 2006, São Paulo’s populist mayor, Gilberto Kassab, passed the so-called “Clean City Law," outlawing the use of all outdoor advertisements, including on billboards, transit, and in front of stores.

Before being enacted, the law triggered grave alarm among city businesses and other economic constituents. Critics worried that the advertising ban would entail a revenue loss of $133 million and a net job loss of 20,000. Fears that the city would look worse without the mask of the media alarmed residents. Despite the concerns, the law passed and the 15,000 billboards cluttering the world’s seventh largest city were taken down.

Five years later, São Paulo continues to exist without advertisements. But instead of causing economic ruin and deteriorating aesthetics, 70 percent of city residents find the ban beneficial, according to a 2011 survey. Unexpectedly, the removal of logos and slogans exposed previously overlooked architecture, revealing a rich urban beauty that had been long hidden.

Articles like this like to paint the world as operating in a vacuum. The idea is once a law has been imposed, what you see is what you get.

In reality, there is much beyond what has been stated above. Part of the consequence of the Clean City Law has been to bring Brazil’s advertisement industry underground.

According to the Financial Times

Advertising creatives and marketing directors were forced quickly to find new ways to spend money that had been earmarked for outdoor advertising, especially since the law came into effect almost immediately. “Usually in Brazil it takes a little time for laws to get set up,” says Marcello Queiroz, an editor at Propaganda and Marketing newspaper in São Paulo. “It was really dramatic how quick things changed. Big companies had to change their focus and strategies.”

Marketing directors had to find a place to spend the money they previously put into billboards. The result, they say, was a creative flowering of new and alternative methods – including indoor innovations such as elevator and bathroom ads – but primarily in digital media.

“The internet was the really big winner,” says Mr Oliveira. In 2007, there was already a move towards the internet, digital media and social networking marketing worldwide, but the Cidade Limpa law gave Brazilians an extra push, he says.

So advertisements have shifted from the outdoor to the indoor and mostly to the web.

Second, Brazilian companies realized that billboard ads were hardly as effective or as feasible as they were, such that even those with advertisement licenses diverted their money elsewhere.

Again from the same FT article,

Anna Freitag, marketing manager of Hewlett-Packard Brazil, says a realisation came that outdoor advertising is less effective than these newer strategies. “A billboard is media on the road. In rational purchases it means less effectiveness . . . as people are involved in so many things that it makes it difficult to execute the call to action,” she says.

“HP decided to go deeper and understand consumer behaviour – the path to purchase, and place media in this direction . . . The internet and social media are the big trends associated with point of sale presence.”…

The law is now so popular that some companies that were able through legal action to maintain some outdoor presence chose not to, so as not to be seen as flying in the face of Cidade Limpa.

And considering that Brazilians were hooked into the web, the local advertisement industry followed the money…

Again from the same FT article

It also helped that Brazilians were extremely active in social media. The country has one of the highest percentages of active Twitter users in the world and Brazilians are avid social networkers.

Lalai Luna, co-founder of Remix, a new agency specialising in digital and social media strategies, often focusing on music culture, says this opened up opportunities and cash flow for young creatives with experimental models to develop their craft.

“Companies had to find their own ways to promote products and brands on the streets,” she says. “São Paulo started having a lot more guerilla marketing [unconventional strategies, such as public stunts and viral campaigns] and it gave a lot of power to online and social media campaigns as a new way to interact with people.”

The point is that people incentives, or in this case the advertising industry's incentives, adjusts or responds to regulations.

Since consumer’s preferences in Brazil have already been shifting (even prior to the law), the outdoor ban only expedited the transitional process, thus giving the impression of the positive externality from the said regulation.

Another very important point to stress has been the radical impact of digital media to the advertisement industry.

Nevertheless Brazil’s politics have their idiosyncrasies too.

Politicians got rid of outdoor ads, but decriminalized graffiti (which for me is a good thing).

From Untappedcities.com (image theirs too)

In March 2009, the Brazilian government passed law 706/07 which decriminalizes street art. In an amendment to a federal law that punishes the defacing of urban buildings or monuments, street art was made legal if done with the consent of the owners. As progressive of a policy as this may sound, the legislation is actually a reflection of the evolving landscape in Brazilian street art, an emerging and divergent movement in the global street art landscape. In Brazil, there is a distinction made between tagging, known as pichação, and grafite, a street art style distinctive to Brazil.

Perhaps the defining line between “street art” and “advertisement” may converge or may become a gray area.

St. Louis Fed Economist Warns of Inflation Inferno

Well this seems unusual—a Fed economist demonstrated tenacity to challenge the position of his bosses and of the establishment.

From the Wall Street Journal blog, (bold emphasis mine)

New research from the Federal Reserve Bank of St. Louis warns there is more than enough kindling to start an inflation inferno.

The paper, written by staff economist Daniel Thornton, stands in opposition to the views of key central bank officials like Chairman Ben Bernanke and others, who argue that even as the Fed has pumped liquidity into the financial system, it has the tools it needs to control the inflationary potential of those actions.

In his paper, Thorton bases his warnings on the interaction between Fed liquidity actions and growth in the money supply. He acknowledges that in focusing on what happens with money supply, he is standing apart from the current view of many economists. Also, Thorton isn’t asserting the inflation environment has turned sour, only that central bank policy has created conditions for trouble, and that problems could develop quickly.

“Both economic theory and historical experience suggest that a significant and persistent expansion in the money supply will be associated with a significant increase in the longer-run inflation rate,” Thornton writes.

He indicates current rates of inflation could suffer should money supply start to expand quickly: “The recent acceleration in the growth of the money supply is of particular concern because the year-over-year consumer price index inflation for December 2011 is 3.0% and the year-over-year personal consumption expenditures inflation for November is 2.5%, both of which are already above the [Federal Open Market Committee's] implicit inflation target of 2%.”

Thorton’s worry is rooted in the massive and ongoing liquidity the Fed has provided the economy since 2008. Much of that money actually hasn’t made it out into the economy, with banks parking the funds back at the Fed in the form of excess reserves.

The study seems to take the central banking dogma of inflationism to task (I have not read it but am basing from the above account).

It’s a wonder if Mr. Thornton has been closet Austrian or if the mainstream has now been “infiltrated” by the Austrian School analysis.

Moreover, it would be doubtful if his warnings will ever be heeded. My guess is that Mr. Thornton may have signed away his resignation letter through this study.

Nevertheless, broaching echoes of truth from a potential reformer from the US Federal Reserve is a refreshing development.

Quote of the Day: Life is More than Math…

"It's not prime enough"

"That number is too even... can you make the next one even odder?"

The thing about math is that it's right or wrong, on or off, yes or no. Seven is a prime number, there's no improving it.

The thing about life/business/culture and the things we make and do is that they are not math.

From my favorite marketing guru Seth Godin. Indeed, life is about human actions.

Video: Murray Rothbard on Insider Trading

Insider trading regulations are regulatory shields used by the elites to prevent competition (source: Lew Rockwell blog).

Why The Gold Standard was NOT Responsible for the Great Depression

Rebutting critics of the Gold Standard, monetary economist George Selgin writes,

This classical gold standard can have played no part in the Great Depression for the simple reason that it vanished during World War I, when most participating central banks suspended gold payments. (The US, which entered the war late, settled for a temporary embargo on gold exports.) Having cut their gold anchors, the belligerent nations’ central banks proceeded to run away, so that by the war’s end money stocks and price levels had risen substantially, if not dramatically, throughout the old gold standard zone.

Postwar sentiments ran strongly in favour of restoring gold payments. Countries that had inflated, therefore, faced a stark choice. To make their gold reserves adequate to the task, they could either permanently devalue their currencies relative to gold and start new gold standards on that basis, or they could try to restore their currencies’ pre-war gold values, though doing so would require severe deflation. France and several other countries decided to devalue. America and Great Britain chose the second path.

The decision taken by Winston Churchill, then Britain’s chancellor of the exchequer, to immediately restore the pre-war pound, prompted John Maynard Keynes to ask, “Why did he do such a silly thing?” The answer was two-fold: first, Churchill’s advisers considered a restored pound London’s best hope for regaining its former status – then already all but lost to New York – as the world’s financial capital.

Second, Britain had other cards to play, aimed at making its limited gold holdings go further than usual. Primarily, it would convince other countries to take part in a gold-exchange standard, by using claims against either the Bank of England or the Federal Reserve in place of gold in international settlements. It would also ask the Fed to help improve Great Britain’s trade balance by pursuing an easy monetary policy.

The hitch was that the gold-exchange standard was extremely fragile: if any major participant defected, the British-built house of cards would come tumbling down, turning the world financial system into one big smouldering ruin.

In the event, the fatal huffing and puffing came then, as it has come several times since, from France, which decided in 1927 to cash in its then large pile of sterling chips. The Fed, in turn, decided that pulling back the reins on a runaway stock market was more important than propping-up the pound. Soon other central banks joined what became a mad scramble for gold, in which Britain was the principal loser. At long last, in September of 1931, the pound was devalued. But by then it was too late: the Great Depression, with its self-reinforcing rondos of failure and panic, was well under way.

So the gold standard that failed so catastrophically in the 1930s wasn’t the gold standard that some Republicans admire: it was the cut-rate gold standard that Great Britain managed to cobble together in the 20s – a gold standard designed not to follow the rules of the classical gold standard but to allow Great Britain to break the old rules and get away with it.

The typical ruse employed by anti-gold standard proponents have been to misinterpret effects as causes.

Inequality: Chinese Politicians Wealthier than US Peers

Wall Street activists and the left should look at this, wealth of politicians in China and the US have been ballooning

Reports the Bloomberg,

The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.

The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.

The income gain by NPC members reflects the imbalances in economic growth in China, where per capita annual income in 2010 was $2,425, less than in Belarus and a fraction of the $37,527 in the U.S. The disparity points to the challenges that China’s new generation of leaders, to be named this year, faces in countering a rise in social unrest fueled by illegal land grabs and corruption…

The wealth gap between legislatures holds with statistically comparable samples. The richest 2 percent of the NPC -- 60 people -- had an average wealth of $1.44 billion per person. The richest 2 percent of Congress -- 11 members -- had an average wealth of $323 million.

The U.S. figures come from a downloadable database on the website of the Washington-based Center for Responsive Politics. The U.S. figures are inflated because the database includes members of Congress who were retired or defeated in the 2010 elections as well as their replacements.

The wealth of members of Congress did increase at a higher rate than that of their Chinese peers in the most recent disclosures as U.S. equity markets outperformed China’s. The average wealth of the richest 2 percent of Congress rose 22 percent in 2010 from 2009. The Standard and Poor’s 500 Index rose 12.8 percent in 2010.

Funny how the news above attempts to paint the wealth of politicians as mostly derivative of conventional economic means.

In reality a significant portion of the wealth of politicians account for as economic and financial benefits from political inequality: the greater the political power over society, the more access to what Bastiat would call as “lawful plunder”.

From the great Frédéric Bastiat in The Law

Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.

Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.

It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution — some for their evilness, and some for their lack of understanding

Accounts of lawful plunder are manifested through gaming or manipulation of the laws to secure their self-interests, e.g. insider trading, anti-competition laws and etc…, crony capitalism, logrolling and or corruption through earmarks (pork barrel) or through other means.

The same Bloomberg article gives us some clues

“The rich in China have strong incentive to become ‘within system’ due to the relative weakness in the rule of law and of property rights,” Victor Shih, a professor at Evanston, Illinois-based Northwestern University who studies Chinese politics and finance, wrote in an e-mail.

Transparency International’s corruption perception index also gives us more hints…

China is perceived as more corrupt compared to the US which could partly explain the wealth inequality between Chinese and American politicians.

Bottom line: Unknown to most, (wealth or income) inequality mostly emanates from political actions, particularly instituted arbitrary laws which facilitates “lawful plunder” that works to benefit the political class, their cronies and their dependants at the expense of everyone else.

Laws create corruption, to quote the legendary investor Doug Casey, and corruption engenders laws.

Quote of the Day: Bank Privacy is Dead

Bank privacy is dead, and murdered by crisis affected governments conspiring through new edicts channeled to “inter-governmental partnership” with various governments to financially repress (read: plunder) on people’s savings.

So argues Simon Black

There are two key points I’d like to make here-

1) There is no such thing as banking privacy. Do not trust your banker to keep secrets for you, and definitely do not trust a government-regulated banking system to keep secrets for you. If you have undeclared income that’s been nestled offshore, it should be obvious at this point that such arrangements will soon unravel.

Voluntary disclosure is always better than getting caught by your home government’s tax authorities. And, especially if you’re a US citizen where tax noncompliance is a criminal offense, paying hefty penalties is a much better outcome than going to court and ending up in a day-glow orange jumpsuit.

2) Most people who are interested in financial privacy tend to use cash. But since carrying large amounts of cash is more and more being criminalized (and confiscated), this is no longer a viable option.

The best form of financial privacy at the moment is physical gold, at least until a better option for digital currency hits the market. Gold may not be useful for day-to-day transactions, but as a store of value tucked away in an anonymous offshore facility, there is no better way of maintaining financial privacy.

Mr. Black hit on the head. I was almost made criminal for unknowingly having brought marginally excess Peso cash out of the country.

This just goes to show how welfare based governments are deeply into the muck and are desperately resorting to anything to preserve a collapsing system.

Circumventing Political Term Limits via Political Dynasties

Chidem Kurdas at the Thinkmarkets notes that term limits on political authorities don’t serve as sufficient protection against the concentration of political power, and points to the recent events in Russia as example.

The point of term limits is to prevent the buildup of political power by one person or group. In Russia’s ersatz version, Vladimir Putin merrily plays revolving door with his protégé Dmitry Medvedev. Mr. Putin may win the election on March 4th despite the persistent protests sparked by his latest round of musical chairs with Mr. Medvedev.

That means Mr.Putin could potentially be Russia’s president again for two terms lasting through 2024, bringing his overall reign at the top as either prime minister or president to almost 25 years…

Mr Kurdas further argues that democracy and term limits may not be compatible.

It is sometimes argued that term limits are undemocratic—why not let the voters decide whether or not they want the candidate to stay in office for another term? This is the same type of argument as those used against Constitutional checks and balances.

The Russian situation shows how very dangerous is the notion of dispensing with limits and leaving it all up to elections. If anything, term limits need to be more stringent and unconditional so as to function as an effective barrier against politicians looking to consolidate their hold. Mr. Putin’s massive power, built over the years and now giving him almost complete control over the media as well as much of the economy, may yet enable him to overstay his welcome even as many Russians take to the streets to show their displeasure. To add a postscript to the wise old adage that power corrupts—the longer the reign, the greater the corruption.

The failure of democratic check and balance on political term limits has been a very relevant issue to the Philippine political setting.

Philippine politicians in almost all levels have become quite efficient in or adept at the gaming of the system.

In contrast to Russia’s experience, local politicians mechanistically circumvent term limits by having family relatives run for local or even national elective positions, thus resulting to pervasive political dynasties.

According to Wikipedia.org, the 14^th Congress of the Philippines (from July 23, 2007 to June 4, 2010 had about 75%) more than 75% of the lawmakers are members of the old political families.

Philippine politicians have done this through a mélange of tactics in the form of manipulation of the political system through laws, buying voters with various forms of welfarism and through Pork Barrel politics.

There has also been a marketing dimension in the promotion political dynasties, political debates have been reduced to personal issues (what I call as personality based politics) which has been amplified by mainstream media, and lastly, selling elections via the celebrity cult status (where politicians try to get a lot of media mileage or associate themselves with media or sports celebrities).

The failure of democracy to curb political abuse through term limits represents the proverbial tip of the iceberg. That’s because the chink of the armor of mob rule politics is mainly rooted upon the popular reliance to the political means of allocation of resources

As the great Professor Ludwig von Mises wrote,

The capitalistic social order, therefore, is an economic democracy in the strictest sense of the word. In the last analysis, all decisions are dependent on the will of the people as consumers.

For as long as people remain highly reliant on politicians rather than themselves, the political environment will be highly vulnerable to the manipulations by the political class and their allies (directly or indirectly).

Democracy only works if the system benefits individual liberties.

As US Chief Justice Charles Evans Hughes one said

While democracy must have its organizations and controls, its vital breath is individual liberty.

World Bank to China: Economic Freedom or Bust

To read about the departure from traditionalist policies by the multilateral agency the World Bank, who usually espouse on more regulations and bigger governments, but now recommends Economic FREEDOM for China or else risks a collapse in the face unsustainable state based Keynesian policies, is certainly a refreshing development.

The mainstream seems to be more and more assimilating the reality that only economic freedom (laissez faire capitalism) is the key to prosperity.

From the CNN Money

The World Bank and a Chinese think tank will have a stern warning in store for China's government on Monday: Transition to a freer commercial system, or else face an impending economic crisis.

As first reported by the Wall Street Journal, the "China 2030" report recommends China enact reforms promoting a freer econom. Those reforms include a major overhaul turning China's powerful state-owned companies into commercial enterprises.

The World Bank confirmed it will release the report Monday in Beijing.

The report is compiled by the World Bank and the Development Research Center, a research group that reports directly to China's State Council. According to the Wall Street Journal, it encourages China to also promote innovation, competition and entrepreneurship as a means of economic growth, rather than allowing growth to be primarily government engineered.

The world's second largest economy has been rising rapidly, averaging around 10% growth a year for the last three decades. Much of that momentum has come as China's rural population moves into the cities and as the government has funded massive infrastructure projects and retained a powerful influence over the country's biggest companies.

State-owned companies dominate China's banking, energy, telecom, health care and technology sectors. Overall, they account for about 40% of the country's gross domestic product, estimate Andrew Szamosszegi and Cole Kyle, who have researched the topic for the U.S.-China Economic and Security Review Commission.

Their latest report to the commission puts it bluntly: The Chinese government has not "expressed an interest in becoming a bastion of free market capitalism."

Yeah. The last statement seems like an epiphany for the World Bank.

Here is the official press release from the World Bank, where you can download on the report

China should complete its transition to a market economy -- through enterprise, land, labor, and financial sector reforms -- strengthen its private sector, open its markets to greater competition and innovation, and ensure equality of opportunity to help achieve its goal of a new structure for economic growth.

These are some of the key findings of a joint research report by a team from the World Bank and the Development Research Center of China’s State Council, which lays out the case for a new development strategy for China to rebalance the role of government and market, private sector and society, to reach the goal of a high income country by 2030.

The report, “China 2030: Building a Modern, Harmonious, and Creative High-Income Society”, recommends steps to deal with the risks facing China over the next 20 years, including the risk of a hard landing in the short term, as well as challenges posed by an ageing and shrinking workforce, rising inequality, environmental stresses, and external imbalances.

While I agree that current policies by the Chinese government have been merely blowing bubbles—which eventually would meet its fate—paradoxically, much of the world have been pursuing the same policy template, albeit at varying degrees. (yes the Philippines too)

In particular, crisis afflicted nations led by the US and key developed economies seem to be reversing their embrace of the market economy paradigm as inflationism has emerged as the dominant trend in policymaking.

Add to this are the numerous regulations being imposed, aside increases in taxation that suppresses and inhibits ‘competition and innovation’.

Selective censures would only be discerned as politicking that may cause insulation and would likely be ignored by the Chinese authorities.

The World Bank has to make Economic Freedom (laissez faire capitalism) the foundation of their economic development model for everyone.

As the great Ludwig von Mises once wrote,

A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society.

Gold is Money: Iran Edition

Economic sanctions on Iran seems to be ushering in gold’s default role as money.

Earlier I pointed to a rumor where under economic sanctions from the US and Europe, Iran would circumvent these by using gold to trade with India.

Andrey Dashkov and Louis James at the Casey Research has an update

It proved to be nothing but a rumor, however: the sides decided to arrange the deal in a more tactical manner. India will partly cover the purchases with its own currency, and Iran will later use those funds to acquire imports.

But gold is not out of the equation yet. The US-initiated sanctions were effective, at least in the sense of making international institutions avoid the pariah nation. Reuters reported that Iran has failed to organize imports of even basic food staples for its population of 74 million. Prices on local markets rose sharply; and as the country nears parliamentary elections on March 2, the government is taking radical steps to provide citizens with basic necessities. One of those unconventional solutions was offering gold as barter for food.

"Grain deals are being paid for in gold bullion and barter deals are being offered," one European grains trader said, speaking on condition of anonymity while discussing commercial deals. "Some of the major trading houses are involved."

Another trader said: "As the shipments of grain are so large, barter or gold payments are the quickest option."

Trading in gold rather than a fiat currency is "cashless." That may sound as if there's no medium of exchange, but that is of course a misconception: gold is history's longest-standing medium of exchange.

As long as the sanctions remain in force and the Iranian government has limited access to international currency markets, gold will remain an obvious way to settle transactions. Decreasing oil imports to Japan, the world's third-largest importer, will impact the Iranian economy further, draining foreign currency inflows. Lacking foreign currency may push the country to continue using its foreign exchange reserves, or gold, to cover its international liabilities. Oil looks like a viable, though less convenient, alternative as well.

The Iranian economy is in a state of crisis, and due to the lack of trust in its currency, leaders are increasingly resorting to extraordinary offers to trading partners. The situation would clearly worsen if the country enters a state of war. While that's still speculation, imagine what would happen to the price of gold if a part of Iran's 29-million ounce gold reserve becomes a medium - not an object - of exchange in international trade.

That reduction in potential supply could be a game-changer, not only because of crisis-struck Iran, but because it could open the door for other countries to follow suit. The price of gold would likely respond very positively.

This scenario, while possible, may not happen very soon: large-scale trading in gold has occurred only rarely in recent years. Traces of deals are difficult to track down due to the anonymity of the yellow metal. This re-emphasizes our point regarding gold as money in extremis: when economic push comes to shove, gold will outlast any other medium of exchange in existence. As the evidence from Iran shows, even governments - the masters of the central banks - will resort to mankind's oldest form of money when pressed.

Which brings us to this evergreen conclusion: Gold is one of the best assets to own in both good times and bad. It can rise with inflation in a surging economy, and it can be practical for exchange when times are bad.

Gold isn't just a hedge; it's money.

The policies of inflationism, compounded by protectionism and imperial foreign policies account for as self-designed path towards the perdition of the current monetary standard. And if these conditions intensify, gold may redeem its role as money overtime.

In the meantime gold’s role in the financial system will deepen, expanding its functionality from hedge to collateral, and perhaps to become an integral part of financial securities, such as bond issuance backed by gold, and possibly in the fullness of time, towards a medium of exchange.

The Honor of Japan's 'Lonely Deaths’

From BBC.co.uk (bold emphasis mine)

The discovery of three bodies that lay unnoticed for up to two months in an apartment in Japan has raised concern over so-called "lonely deaths".

The three people, believed to be from the same family, were discovered on Tuesday in Saitama, north of Tokyo.

Electricity and gas to the house had been cut off, there was no food in the house and just a few one-yen coins.

Despite being the world's third richest country, Japan has seen a number of similar cases in recent years.

Such deaths are referred to as "kodokushi" - lonely deaths.

The BBC's Roland Buerk, in Tokyo, said when the police broke into the apartment in Saitama, they found the three bodies extremely thin.

It is believed they were a couple in their sixties and their son in his thirties who died of starvation. The alarm had been raised by the building's management company.

The Asahi Shimbun newspaper said that the family had asked a neighbour for help, but had been refused and instead advised to contact the welfare authorities.

The family did not do so, a move some local media outlets have put down to feelings of shame.

Asahi Shimbun quoted lawyer Takehiro Yoshida as saying: "Some people have a resistance to going on welfare and are reluctant to consult with authorities. Others are isolated in their communities."

Our correspondent says the case has prompted soul-searching in one of the most affluent societies on earth about whether the needy are falling through gaps in the welfare system.

The left points to this as an example of the lack of compassion of the system, which they use as an excuse to advocate for bigger welfare states.

Yet it is not true that Japan lacks safety net, in reality, the number of people enrolled in Japan’s welfare system has reached nearly reached the record set during post World War II.

According to the Japan Times

There were 2.02 million people receiving welfare as of March, close to the record 2.04 million in the aftermath of World War II, while the number of households on welfare in March hit an all-time high of 1.46 million, the government said

The total number of people was almost equivalent to the record monthly average of about 2.04 million logged in fiscal 1952, the Health, Labor and Welfare Ministry said Tuesday.

Moreover, not only has the welfare state increased dependency of many Japanese, which reduces their productivity (as well as of the nation), another adverse consequence has been to diminish community values.

As the above report shows, calls for assistance by the affected to seemingly desensitized neighbors “had been refused and instead advised to contact the welfare authorities.”

Already burdened by heavy taxes paid to the government, neighbors must have probably thought that such responsibility should be the cargo of the welfare state, thus the reluctance to extend aid.

To quote Professor Shawn Ritenour in a Biography of Economist Wilhelm Röpke

Compulsory aid "paralyzes people's willingness to take care of their own needs" and its financial burden makes people depend more on the state and expect more from it. "To let someone else foot the bill" is the "very essence" of the welfare state; moreover, the people who pay are "forced to do so by order of the state"--the opposite of charity. "In spite of its alluring name, the welfare state stands or falls by compulsion. It is compulsion imposed upon us with the state's power to punish noncompliance. Once this is clear, it is equally clear that the welfare state is an evil the same as every restriction of freedom."

Hence, the politics of coercive welfare redistribution reduces the zeitgeist of voluntary charity.

Finally, the few Japanese who endured the 'lonely deaths', who by their “resistance to going on welfare and are reluctant to consult with authorities”, willingly refused to become a liability to taxpayers, or wards of the state, which they perhaps deemed as stigma. They must have died out of principle, and thus should be honored as true patriots.

Animal Rights Activism: Do What I Say, Not What I Do

Well in politics, noble intentions and actions often diverge. This goes with taxpayer subsidized nonprofit organization animal rights activist group, PETA.

From the Daily Mail

In 2011, government report obtained by nonprofit organization claims 1,911 animals killed

Only 34 adopted in same time span

People for the Ethical Treatment of Animals killed more than 95 per cent of animals in its care last year at a Virginia shelter, a shocking new report states.

The report, released by non-profit consumer group, claims that PETA - which is known for its outspoken stance on animal rights - were responsible for the deaths of nearly 2,000 adoptable animals last year alone.

The records also show that the animal-rights organization has killed more than 27,000 animals at its headquarters in Norfolk, Virginia since 1998.

Read the rest here

The Center for Consumer Freedom even accuses PETA for financing “criminal activities” and advocating “breaking the law”.

Quote of the Day: Climate Debate is all about the Feedbacks

Notice that the skeptics agree with the government climate scientists about the direct effect of CO₂; they just disagree about the feedbacks. The climate debate is all about the feedbacks; everything else is merely a sideshow. Yet hardly anyone knows that. The government climate scientists and the mainstream media have framed the debate in terms of the direct effect of CO₂ and sideshows such as arctic ice, bad weather, or psychology. They almost never mention the feedbacks. Why is that? Who has the power to make that happen?

That’s from Dr. David M.W. Evans at the Mises Institute.

The reality is that the climate change debate has hardly been about the environment but about the promotion of socialism and or statism.

The environment has only been used as pretext, front, and leverage or as means to advance an end, particularly the attainment of greater political power and control over lives from which the political class and their cronies acquire the mandate (from vulnerable voters manipulated by media) to rob their respective taxpayers.

Climate change politics, specifically the anthropomorphic strain, signifies a popular delusion and a sham that is being exposed for what they truly are.