Will the ECB Impose Negative Deposit Rates?

This Bloomberg report thinks so.

European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve.

While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15.

“The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.”

Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.

‘Psychological Effect’

“A rate cut could have an important psychological effect in the current environment,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $20 billion. “Negative interest rates aren’t an irrational concept. I’m not sure, though, whether in the case of the ECB it will have the desired effect.”

The ECB uses three interest rates to steer borrowing costs in financial markets. The main refinancing rate determines how much banks pay for ECB loans, while the deposit and marginal rates provide a floor and ceiling for the interest banks charge each other overnight.

If the deposit rate was cut to zero or lower, it would discourage banks from parking excess liquidity with the ECB overnight, potentially prompting them to lend the cash instead. Almost 800 billion euros ($1 trillion) is being deposited with the ECB each day.

On the other hand, a deposit rate cut could hurt banks’ profitability by lowering money-market rates, potentially hampering credit supply to companies and households and reducing banks’ incentive to lend to other financial institutions.

Central banks have only one thing in mind: That is to expand to credit (inflationism) to supposedly boost aggregate demand which is reality serves as an academic cover for the true purpose—finance extravagant governments.

Unfortunately the world isn’t that simple. People refuse to take on more credit for several reasons: They have been drowning in debt, they have been tarnished by bad or blemished credit scores, they could be suffering from lower income or unemployment is high due to the recession, business environment has been hampered by politics banking institutions have been clogged and for many other reasons which reduces their incentives to do so.

What negative deposit rates will likely do is to destabilize allocation of resources and spawn more malinvestments and fuel frenetic speculation that leads to boom-bust cycles and worsen the situation

As the great Ludwig von Mises once warned,

But today credit expansion is exclusively a government practice. As far as private banks and bankers are instrumental in issuing fiduciary media, their role is merely ancillary and concerns only technicalities. The governments alone direct the course of affairs. They have attained full supremacy in all matters concerning the size of circulation credit. While the size of the credit expansion that private banks and bankers are able to engineer on an unhampered market is strictly limited, the governments aim at the greatest possible amount of credit expansion. Credit expansion is the governments' foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.

The ECB seems to be grasping at straws.

Myanmar’s Property Bubble

The impact from global negative real interest rates and monetary measures such as QEs seems to have percolated to Myanmar.

From Global Post,

Hoping to set up shop in Yangon? Bring duffel bags full of cash.

You might assume that property in Myanmar, one of Asia’s most impoverished and dysfunctional nations, would rent for a pittance.

But as the long-shuttered pariah zooms towards political and economic reform, it is swarmed by foreign investors speculating that Myanmar’s big boom is nigh. There are now too few hotels and office buildings in the crumbling commercial capital, Yangon, to cope with the influx of moneyed outsiders.

It doesn’t take an economics whiz to guess what happens to property markets with a glut of interest and a paucity of supply.

Yangon hotels that once charged $60 a night are charging $250 or more. The average rental price for office space has surged to $60 per square meter, according to Antony Picon, an associate director of research with the Colliers International real estate services firm.

“I’ve seen a swamp in the middle of nowhere and they’re asking the same thing they’d ask in the center of town,” Picon said. Houses that recently rented for a few hundred bucks a month are going for thousands.

While economic reforms through liberalization has been a good development, unfortunately this has been accommodating the international monetary policies fueled ballooning property bubble in Myanmar.

Biggest Cyber Banking Heist Hits Over 60 Banks Worldwide

Speaking of hacking, over 60 banks suffered from a recent grand scale cyber banking heist.

According to Sky News

Sixty million euro has been stolen from bank accounts in a massive cyber bank raid after fraudsters raided dozens of financial institutions around the world.

According to a joint report by software security firm McAfee and Guardian Analytics, more than 60 firms have suffered from what it has called an "insider level of understanding".

"The fraudsters' objective in these attacks is to siphon large amounts from high balance accounts, hence the name chosen for this research - Operation High Roller," the report said.

"If all of the attempted fraud campaigns were as successful as the Netherlands example we describe in this report, the total attempted fraud could be as high as 2bn euro (£1.6bn)."

The automated malicious software programme was discovered to use servers to process thousands of attempted thefts from both commercial firms and private individuals.

The stolen money was then sent to so-called mule accounts in caches of a few hundreds and 100,000 euro (£80,000) at a time.

Credit unions, large multinational banks and regional banks have all been attacked.

As the the world becomes more interconnected, the cyber space has become ground zero for all sorts of attacks. This includes governments (like Flame and Stuxnet) and all sorts of hackers with different missions, e.g. Wikileaks, Anonymous, Drone hackers, cyber robbers and etc…. Interesting.

Students Hack US Drone

From RT.com, (hat tip Bastiat Institute) [Italics original]

There are a lot of cool things you can do with $1,000, but scientists at an Austin, Texas college have come across one that is often overlooked: for less than a grand, how’d you like to hijack a US government drone?

A group of researchers led by Professor Todd Humphreys from the University of Texas at Austin Radionavigation Laboratory recently succeeded in raising the eyebrows of the US government. With just around $1,000 in parts, Humphreys’ team took control of an unmanned aerial vehicle operated by the US Department of Homeland Security.

After being challenged by his lab, the DHS dared Humphreys’ crew to hack into their drone and take command. Much to their chagrin, they did exactly that.

Humphrey tells Fox News that for a few hundreds dollar his team was able to “spoof” the GPS system on board the DHS drone, a technique that involves mimicking the actual signals sent to the global positioning device and then eventually tricking the target into following a new set of commands. And, for just $1,000, Humphreys says the spoofer his team assembled was the most advanced one ever built.

“Spoofing a GPS receiver on a UAV is just another way of hijacking a plane,” Humphreys tells Fox. The real danger here, however, is that the government is currently considering plans that will allow local law enforcement agencies and other organizations from coast-to-coast to control drones of their own in America’s airspace.

“In five or ten years you have 30,000 drones in the airspace,” he tells Fox News. “Each one of these could be a potential missile used against us.”

I guess that with “30,000 drones in the airspace” encroaching on people’s privacy, drone hackers will be in big demand.

Out of Cash, Local Chinese Governments Sell Cars

From Valuewalk.com

With their fortunes going out the window, Chinese local governments have been compelled to auction official luxury cars, according to the Financial Times. This move, though unorthodox, is geared towards improving revenues that have since hit rock bottom amid the unending slowdown.

Auctions have begun taking place far and wide spanning areas like Datong in the north and Kunming in the south. It is a nationwide affair as pressure from citizens has reached an all-time high. Some disgruntled citizens have blatantly displayed their disappointment in the government by going to lengths of uploading high-end official cars (Porches and even a Maserati) on the internet.

This adds to the string of negative signs for China and for the world.

China’s Shanghai index completed a technical breakdown during the past two days.

Today she closed modestly higher today, but this would be more of dead cats bounce.

Be careful out there.

Understanding Political Terminologies

The following are excerpts from the splendid article of the distinguished economist Thomas Sowell. Here are the meaning of some popular political terms:

1. FAIRNESS

One of the most versatile terms in the political vocabulary is “fairness.” It has been used over a vast range of issues, from “fair trade” laws to the Fair Labor Standards Act. And recently we have heard that the rich don’t pay their “fair share” of taxes.

Some of us may want to see a definition of what is “fair.” But a concrete definition would destroy the versatility of the word, which is what makes it so useful politically.

If you said, for example, that 46.7 percent of their income — or any other number — is the “fair share” of their income that the rich should have to pay in taxes, then once they paid that amount, there would be no basis for politicians to come back to them for more — and “more” is what “fair share” means in practice.

Life in general has never been even close to fair, so the pretense that the government can make it fair is a valuable and inexhaustible asset to politicians who want to expand government.

2. GREEDY, COMPASSION and HUNGRY

A more positive term that is likely to be heard a lot, during election years especially, is “compassion.” But what does it mean concretely? More often than not, in practice it means a willingness to spend the taxpayers’ money in ways that will increase the spender’s chances of getting reelected.

In the political language of today, people who want to keep what they have earned are said to be “greedy,” while those who wish to take their earnings from them and give it to others (who will vote for them in return) show “compassion.”

A political term that had me baffled for a long time was “the hungry.” Since we all get hungry, it was not obvious to me how you single out some particular segment of the population to refer to as “the hungry.”

Eventually, over the years, it finally dawned on me what the distinction was. People who make no provision to feed themselves, but expect others to provide food for them, are those whom politicians and the media refer to as “the hungry.”

Those who meet this definition may have money for alcohol, drugs or even various electronic devices. And many of them are overweight. But, if they look to voluntary donations, or money taken from the taxpayers, to provide them with something to eat, then they are “the hungry”.

Beware of the Orwellian doublespeak

Italy’s Regulation Choked Labor Markets

Here is another example of the normative way of how politicians deal with problems: They treat the symptoms rather than the disease.

From the Wall Street Journal,

Prime Minister Mario Monti has issued a new "growth decree" to revive Italy's moribund economy. Among other initiatives, the 185-page plan proposes discount loans for corporate R&D, tax credits for businesses that hire employees with advanced degrees, and reduced headcount at select government ministries.

Will any of this solve Italy's economic problems? Only in the sense that one could theoretically drain Lake Como with a ladle and straw. Allow us, then, to illustrate why Italy's economy stagnates.

Imagine you're an ambitious Italian entrepreneur, trying to make a go of a new business. You know you will have to pay at least two-thirds of your employees' social security costs. You also know you're going to run into problems once you hire your 16th employee, since that will trigger provisions making it either impossible or very expensive to dismiss a staffer.

But there's so much more. Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include stress that is work-related or caused by age, gender and racial differences. You must also note all precautionary and individual measures to prevent risks, procedures to carry them out, the names of employees in charge of safety, as well as the physician whose presence is required for the assessment.

Now say you decide to scale up. Beware again: Once you hire your 16th employee, national unions can set up shop. As your company grows, so does the number of required employee representatives, each of whom is entitled to eight hours of paid leave monthly to fulfill union or works-council duties. Management must consult these worker reps on everything from gender equality to the introduction of new technology.

Hire No. 16 also means that your next recruit must qualify as disabled. By the time your firm hires its 51st worker, 7% of the payroll must be handicapped in some way, or else your company owes fees in-kind. During hard times, your company may apply for exemptions from these quotas—though as with everything in Italy, it's a toss-up whether it's worth it after the necessary paperwork.

Once you hire your 101st employee, you must submit a report every two years on the gender dynamics within the company. This must include a tabulation of the men and women employed in each production unit, their functions and level within the company, details of compensation and benefits, and dates and reasons for recruitments, promotions and transfers, as well as the estimated revenue impact.

I earlier posted the labor markets of France and Germany compared to Spain.

Such astounding maze of regulations has been one of the major dynamics for today’s crisis. This has produced a huge bureaucracy that has been draining productive resources from entrepreneurs. This has also increased the costs of doing business. Reduced the incentives of entrepreneurs to expand. Shifted many activities to the informal or shadow economy.

Italy has one of the largest informal economies relative to the OECD nations

As well as encouraged corruption. Italy ranks as one of the most corrupt in Eurozone. Overall, such regulations has reduced Italy’s competitiveness.

So reduced competitiveness leads to diminshed output (income) – ballooning government (expense)= crisis (deficits)

And how does the Italian government intend to fix the problem?

Among other initiatives, the 185-page plan proposes discount loans for corporate R&D, tax credits for businesses that hire employees with advanced degrees, and reduced headcount at select government ministries

Gosh, 185 pages of more regulations and more bureaucracy.

Note: reduced headcount at “select” government ministries looks more symbolical and seems like a loophole.

Yet the mainstream advice of solving this problem by inflation will only worsen the situation, as this does not address the root: asphyxiation from big government.

Doing it over and over again and expecting different results only reinforces the worsening of this crisis.

Quote of the Day: Your Identity Properly Belongs to you

Everyone has areas of utter privacy to protect. Some people wear lockets containing photos of deceased relatives; others daydream about a forbidden love; still other people lock the door while luxuriating in a hot bubble bath; or, perhaps, they write a love letter that is meant for one other set of eyes only. These acts are a line drawn between the private and public sphere; they constitute a boundary over which no other human being can rightfully cross without invitation.

If a neighbor reads takes it upon himself to read letters in your mailbox or copies down the details of deposits in a bankbook he has ‘encountered’ in your desk drawer, you would feel violated and enraged by the invasion. What is wrong for your neighbor to do is also wrong for a government agent to do because there is only one standard of morality. Theft is theft, invasion is invasion. You have the right to slam the door on the face of anyone who says differently. A peaceful human being owes no debt to any other person.

Hold the state up to the same standard as your neighbors…because there are no double standards of right and wrong. Privacy is a right, not an admission of guilt. Your identity properly belongs to you…not to the state.

This is from author Wendy McElroy at the Laissez Faire Books

China-Chile Plans to Double Trade in 3 years and Use the Yuan as Medium

China continues to promote her currency, the yuan, as an international currency reserve through a package of trade and investment bilateral deals.

China and Chile plans to double trade within 3 years through free trade. Wow.

From Xinhua,

China and Chile agreed Tuesday to upgrade their bilateral ties to a strategic partnership, and double trade in three years.

Chinese Premier Wen Jiabao and Chilean President Sebastian Pinera announced Tuesday the establishment of China-Chile strategic partnership and the completion of negotiations on investment-related supplementary deals to a bilateral free trade agreement.

During their talks, Wen urged speedy signing and ratification of these supplementary deals and called for the finalization of the China-Chile free trade area…

Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China's renminbi.

Aside from Chile, as Zero Hedge points out, the list of China’s trading partners who now use the yuan as medium (including setting up of currency swaps) includes Japan, Russia, Iran, India and Brazil.

The world is in a gradualist path of bypassing the US dollar, which I believe, aside from the yuan as global forex reserve, could be partly motivated as insurance against a currency crisis

And as I have been saying, China’s supposed gunboat diplomacy and promotion of the yuan (or the seeming Dr. Jekyll and Mr. Hyde relationship with Philippines) just doesn’t add up.

Austrian Business Cycle and September Market Crashes

September has been the slowest month for the stock markets.

In fact, the September October window has had the most number of incidences of Stock market crashes.

Chart above from Investopedia.com

Austrian economist Bob Wenzel sees the link between stock market crashes and the Austrian Business Cycle,

Austrian business cycle theory holds that the boom-bust business cycle is the result of central bankers printing money and distorting the consumption-savings ratio in favor of savings and the bust occurs when the printing stops and the economy adjusts itself back in favor of a more consumer leaning consumption-savings ratio, which sees more money head into the consumption sector.

When a central bank stops printing money, September may act as something of a catalyst to push the consumer-savings ratio in favor of consumption more rapidly, since September is likely a very heavy consumption spending month. Consumers spend money in September for new school clothes for kids. The colder months begin to approach, so winter clothes are bought. More televisions are likely bought because of the colder weather, as more people spend time inside. Thus, there is more consumption and liquidation of savings (including stock ownership and withdrawals from banks) in September to fund the increased consumer spending.

October actually seems to be the month when stock market crashes occur most often (Think October 1929 and October 1987), as opposed to September. This may be a continuation of the problems started in September. Stocks go down and consumers have spent money that previously would have propped up the stock market. Further, October stock market liquidations also occur late in the month as people start thinking about Christmas shopping and less money is added to the stock market.

Video: Food Stamps Make You Healthy

Here is an advertisement, which really is a government propaganda, promoting the welfare state and dependency on government.


In the US according to Breitbart.com

Almost 48 million people received food stamps in 2011, an increase from the 28.2 million who received the welfare benefit in 2008. The cost to taxpayers has more than doubled during this period, to $78 billion, and will account for 78% of Farm Bill spending over the next ten years.

A parasitical relationship can only last for as long as the host can provide.

As the great Ludwig von Mises warned,

In fact, the Welfare State is merely a method for transforming the market economy step by step into socialism.

More On BSP's $1-B loan to IMF as Part of the EU Bailout

Recently I commented about the immorality of the Philippine government’s participation in the bailout of the Eurozone through the IMF.

There are two issues more I want to add.

Because international reserves from the local central bank, will be used to finance the loan to the IMF, there is this notion that tax money isn’t involved.

First of all the Bangko Sentral ng Pilipinas (BSP) is a creation of the Congress via REPUBLIC ACT No. 7653 or the THE NEW CENTRAL BANK ACT

The law says

Section 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.

Section 2. Creation of the Bangko Sentral. - There is hereby established an independent central monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral.

The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully subscribed by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos (P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this Act and the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner and form as the Government, through the Secretary of Finance and the Secretary of Budget and Management, may thereafter determine.

Since the BSP is a government-owned corporation, then the Philippine government stands as an explicit guarantor of the BSP.

There has been a precedent to this.

Central Bank of the Philippines, the predecessor of the BSP, suffered massive losses to the tune of an estimated Php 300 billion as consequence of the series of bailouts provided by then President Cory Aquino to her favorites.

The losses were eventually transferred to the central bank board of liquidators.

This from an ADB study,

In 1993, the new Central Bank Act was approved. This law aimed at ensuring the independence of the conduct of monetary policy from political interference. It also provided for the recapitalization of the central bank and the transfer of over P300 billion worth of losses of the old central bank to a board of liquidators. The new central bank is now known as the Bangko Sentral ng Pilipinas (BSP).

The board of liquidators constitutes an ad hoc government agency (Philippines Executive Order no. 141 Reconstituting the Central Bank Board of Liquidators) headed by the President of the Philippines, and whose other board members include members of the monetary board, Department of Finance, Department of Budget and Management and an executive director nominated by the board.

This means that the losses of the old central bank has been carried over to the Philippine government (at taxpayer’s expense)

The Point is: ALL actions by the Bangko Sentral ng Pilipinas, as a government agency, are underwritten by the taxpayers.

And the second point is that no matter the complexity of the structure of political institutions, in essence, government survive from taxes, central banks notwithstanding.

Another idea is that $1 billion represents a small fraction of the BSP’s portfolio.

This has ethical, institutional and behavioral implications.

First the EU crisis exists because there hardly has been any private sector willing to finance insolvent institutions. Only governments, through the use of badges and guns on their citizenry, have been willing to finance them.

This means that the risks to loans for bailouts are REAL.

As Professor Arnold Kling rightly points out,

For private debt issued within a country, creditors have recourse to the court system to try to recover their money. But there is no court with the power to force the government of Spain to pay anything to its creditors. So, even if the German government, in order to "save the European union," agrees as an agent for its citizens to buy existing Spanish debt at par in exchange for new debt worth 70 cents on the euro, how can we be sure that Spain will pay off the new debt?

In short, governments recklessly expose people’s money to greater risks, and worst, they do this even without the public’s consent.

Next is that a billion here, a billion there, pretty soon, you're talking real money, it’s a quote attributed to the late US Congressman and Senator Everett Dirksen. This means governments freely spend or allocate other people’s money without compunction.

Of course there will always be the issue of opportunity costs or money spent on the EU through IMF could be used for other political expenditures.

Finally, bailouts leads to more bailouts as what we are seeing today. Eventually the accumulation of debts from all these, in the HOPE that bailouts will produce the intended effect, will lead to systemic fragility, which risks dragging along the entire world into a black hole.

ADB’s Imprudent Investments in the Philippines

From the ADB

The Asian Development Bank’s (ADB) Board of Directors today approved a $350-million Increasing Competitiveness for Inclusive Growth Program loan to help the Philippines improve its business climate through a mix of policy reforms and programs to promote competitiveness and develop labor skills among out-of-school youth.

“There has been marked improvement in the Philippines’ global competitiveness, but regulation, lack of domestic competition in key sectors, underinvestment in infrastructure and a mismatch of skills in the labor market are keeping the country from realizing its full potential,” said Kunio Senga, Director General of Southeast Asia Department.

To help young people better integrate into the labor market and develop workplace skills, ADB is working closely with the Department of Labor and Employment to design a youth job search program, called MyFirstJob, which will be piloted in 2013. The initial pilot will provide up to 1,600 youth with career counseling services, grants for vocational training, and internships with employers.

MyFirstJob is one of several initiatives that will be used to make the labor market more inclusive. Others include the tourism industry-led skills development program and a new tourism quality assurance and accreditation system that will improve skills and competitiveness in the tourism industry.

(bold highlights mine)

Well ADB seems to be throwing away taxpayers money on some wishful thinking measures that, in reality, treats the symptoms than the disease. These will represent taxpayers (ADB’s contributors) money down the drain, as well as more burden to Philippine taxpayers because of the spendthrift loan program.

First of all, the ADB admits that the problem has been one of "regulation and lack of domestic competition in key sectors". So the answer here is to substantially reduce regulatory and legal impediments as well as taxes and all of other barriers and costs to businesses. But ADB has been silent on the details of their proposed reforms.

Second, ADB sees another problem of “a mismatch of skills” in the domestic labor market.

Plagued by a poor investing climate, this only means that domestic markets has been heavily distorted by political interventions.

This is why many Filipinos would rather seek employment overseas and why commerce have largely been done underground or through the informal or shadow economy.

So how on earth does ADB know of a “skills mismatch”? By mere comparison with other economies?

In a free market environment or in market economies, economic systems emerge out of specialization (law of comparative advantage), so what may be advantageous for country X may not be advantageous for country Y. But specialization through the markets has not been sufficiently addressed, again out of political obstacles.

In essence, matching of skills and jobs is hardly the cause the problem but rather a symptom. Yet without a salutary marketplace, there hardly seems a way establish the domestic comparative advantage from which local labor market should cater to. ADB then seems to be presuming the possession of the right knowledge which it doesn't have.

ADB should instead address reforms based on the liberalization not only of labor markets but of the entire economy.

So what good does the MyFirstJob project do?

With the lack of investments, job searches won’t have any material impact. The answer, instead, is to CREATE JOBS through a business friendly environment. Job searches will become a natural dynamic once the business environment expands. Also, job searches can be accomplished by many private sector internet based platforms.

To add, tourism industry-led skills development program can also be handled by the private sector. Tourist enterprises would want to have employees with the right skills to meet the demand of their consumers for them to profit from.

So the demand of the industry will be reflected on supply as local citizens will conform with changes in the industry and of the economy. If the tourism industry continues to boom, so will the number of people who would want to join the sector by acquiring the skills required. And this will be most likely provided by schools or by enterprises themselves through in housing training or education outsourcing. This does NOT need the government.

However “new tourism quality assurance and accreditation system” only means more bureaucracy, red tape and regulations which ADB sees as a problem. So the ADB the loan proposes to do more of the same thing and expecting different results. Hasn't this been called insanity?

At the end of the day, the money that ADB lends money to the Philippine government accounts for as nothing more than political symbolism, wasted taxpayer resources (which means more tax burden for us) and a wonderful ($350 million) business opportunities for domestic cronies and for the pockets of political officials.

A side comment: Could this be the money used to recently pump up the local stock market?

Agricultural Protectionism is an Environmental Hazard

Protectionism isn’t just economically destructive, it is also an environmental hazard. Agricultural protectionism is usually couched in terms of ‘self sufficiency’ or in the US the “Locavore’s dilemma”.

An excerpt from a Book Review at the Wall Street Journal explains why: (hat tip Cato’s David Boaz) [bold emphasis mine]

Pierre Desrochers and Hiroko Shimizu seem to have had the most fun among this group of authors. "The Locavore's Dilemma" argues that the benefits of eating local have been vastly overstated by food activists and its serious detriments swept under the rug. The tone is distinctly upbeat, no doubt because being a gleeful debunker is fun but also because the two authors are resolutely cheerful about the world's food situation.

Mr. Desrochers and Ms. Shimizu, a married couple who are both professional economists, present a counterintuitive but well-supported case that local self-sufficiency is the worst thing you can do for the environment, since it requires many crops to be grown in the wrong places, with damaging ecological consequences. American farmers, they observe, used to grow wheat locally in the Shenandoah Valley, tilling steep and rocky slopes—and unleashing a torrent of soil erosion. With the shift of grain farming to the far more productive and erosion-resistant soils of the Midwest, "more grain is now being produced on fewer acres and, overall, more habitat is available for wildlife." Their study of the history of American agriculture is one of the strongest points of this book.

Famines were common in the past precisely because food security rested on the vagaries of local conditions rather than the resiliency of trade, they observe: "Subsistence farmers periodically starve while commercial agricultural producers who rely on monocultures for their livelihood don't."

Doug Casey: The Human Species will Evolve to Other Species

The visionary Doug Casey believes that people will continue to evolve in line not only with the changes in the environment, but also along with the changes in technology or through adaption to technology

Once humans get established in space, evolution will take over – and take off. Before then, however, and likely even before we leave the planet, I'll bet there's going to be a lot of intentional, as opposed to natural, genetic alteration. It will start with efforts to eliminate undesirable genes that predispose one to heart disease, cancer, or genetic disorders. But while we're at it, why not also select for blue eyes, taller, more muscular frame, greater intelligence, and anything else people might want their children to have? Some people won't want to go that route, preferring to leave things to nature, but their children will be at a disadvantage to those whose parents have selected superior genes. That could lead to speciation along several lines.

Read the rest here.

I encountered this article earlier.

But having been immersed in too many readings, it took Bob Wenzel’s post to remind me to share with you this, what I think is a, significant outlook.

If I am not mistaken, Mr. Casey may have been reading futurist Ray Kurzweil’s Singularity is Near.

UN Hits on President Obama’s Drone Warfare

The UN sees Obama’s drone warfare as violating international human rights.

From Personal Liberty Digest,

A U.N. investigator wants some answers regarding President Barack Obama’s penchant for carrying out targeted drone attacks overseas that routinely result in civilian casualties.

The United States uses military drones to carry out attacks in Afghanistan, Pakistan, Iraq, Yemen and Somalia. In a 28-page report addressed to the U.N. Human Rights Council, Christof Heyns, special rapporteur on extrajudicial, summary or arbitrary executions, said that Washington must clarify the legal basis for the policy of killing suspected al-Qaida and Taliban leaders and associates rather than trying to capture them.

“The government should clarify the procedures in place to ensure that any targeted killing complies with international humanitarian law and human rights and indicate the measures or strategies applied to prevent casualties, as well as the measures in place to provide prompt, thorough, effective and independent public investigation of alleged violations,” the report says.

President Obama’s imperial role as one man judge, jury and executioner through the drone warfare has in fact been implemented in the Philippines.

In my view, the territorial disputes, which I think China has been complicit, has only opened the doors for deeper intervention by the US in local politics.

And more incidences of drone warfare or overt interventions (in the name of war on terror) will likely lead to more anti-American protests.

As Ron Paul recently warned,

The use of drones overseas may have become so convenient, operated as they are from a great distance, that far more “collateral damage” has become acceptable. Collateral damage is a polite way of saying “killing innocent civilians.”…

This dramatic increase in the use of drones and the lowered threshold for their use to kill foreigners has tremendous implications for our national security. At home, some claim the use of drones reduces risk to American service members. But this can be true only in the most shortsighted sense. Internationally the expanded use of drones is wildly unpopular and in fact creates more enemies than it eliminates.

President Obama perhaps believes that he is the world’s savior.

Singaporization’ of Georgia: The Economic Freedom Model

A fundamental pillar for the deepening of the global wealth convergence trend is that developing or emerging markets are likely to loosen up on their economies from politics as opposed to the financially desperate developed nations.

Sovereign Man’s Simon Black seems bullish with Georgia, (bold emphasis mine)

One of the biggest reasons for this is that there is hardly any natural wealth in the country. Like Hong Kong or Singapore, Georgia has figured out that it can’t get rich by becoming a resource powerhouse.

Consequently, the last several years has seen what they call the ’de-Sovietization and Singaporization’ of Georgia.

Georgia has shot up in the ranks of international business… from slumming with the likes of Pakistan just a few years ago, to besting places like Estonia and Switzerland.

They’re doing it by tearing down worthless, extractive economic institutions and making things easy for business and investors.

At a 15% flat rate, for example, corporate taxes are essentially as low as Singapore or Hong Kong. Capital gains, in many cases, is zero.

Regulation has been reduced dramatically– registering a property or starting a business, for example, are easier in Georgia than just about anywhere in the world.

And with both a US and UK comprehensive tax treaty (sorry Canada, Australia, and New Zealand), Georgia could make an excellent place to establish a tax efficient international business structure.

Ultimately, its ease of doing business is going to be one of the major growth catalysts for this economy– just like Panama, Dubai, or Estonia before.

Georgia is surrounded by places that are marred in obscene regulatory minefields, Byzantine tax codes, and corrupt officials. In the future, this will make Georgia the natural choice to do business in the region.

What’s the point: Prosperity does not emanate from sheer resources. To the contrary, resources may lead to a resource curse—where economic growth has been impeded by the abundance of resources due to lack of competitiveness. This has mostly been due to cronyism, economic fascism and or state capitalism.

This applies to the Philippines whom has been blessed by resources but has failed to take off economically. Yet instead of focusing on what is needed, politics keeps diverting people's attention to the superficial.

For instance, having Scarborough or Spratly’s has NOT and will not lead to prosperity. This only shows how such political controversies are really a waste of time and energy.

More, such disputes serves only to stir up nationalism and increase the risks of military conflagration at the expense of everyone.

In reality, territorial disputes over supposed resources (which is more a propaganda than reality) represents a façade meant to protect the interests of domestic cronies than of the average Filipinos. (Guess who will get the service contracts for resource extractions once the dispute is settled?)

Add to that the interests of foreign military industrial industries.

What truly is required are reforms ala Georgia: Economic freedom or the Singaporization’ of the Philippines.

Quote of the Day: The Spurious Idea of Measuring Value

The basis of modern economics is the cognition that it is precisely the disparity in the value attached to the objects exchanged that results in their being exchanged. People buy and sell only because they appraise the things given up less than those received. Thus the notion of a measurement of value is vain. An act of exchange is neither preceded nor accompanied by any process which could be called a measuring of value. An individual may attach the same value to two things; but then no exchange can result.

This is from the great Ludwig von Mises from his magnum opus Human Action Chapter XI Section 2 p.204. (hat tip Mises Blog)

This is in accord to yesterday’s quote of the day where Professor Deirdre McCloskey bashed the notion of using mathematical formalism to measure “happiness”.

EU Summit Faces Political Deadlock, Cyprus Seeks Bailout

Political impasse at the EU, amidst a global economic slowdown, continues to hound the markets…

From Bloomberg,

Chancellor Angela Merkel hardened her resistance to euro- area debt sharing, setting Germany on a collision course with its allies at a summit starting on June 28.

In signs the debt crisis is worsening, Cyprus said it will seek a financial lifeline from the euro area’s firewall funds, and Greek Prime Minister Antonis Samaras consented to the resignation of his finance minister, Vassilios Rapanos.

Moody’s Investors Service downgraded 28 Spanish banks, citing the country’s sovereign debt and rising losses on real- estate loans. The lenders’ long-term debt and deposit ratings were cut by one to four notches, Moody’s said yesterday in a statement. The New York-based rating company also downgraded 16 Spanish banks on May 17.

Italy and Spain will sell debt today amid concern Europe’s fiscal crisis is infecting bigger economies.

The EU crisis adds a new victim: Cyprus. This only translates to the worsening of the crisis in the face of internecine political squabbling.

Political stalemate has also been a scourge to China and the US.

I have been saying that political pledges will eventually yield to the law of diminishing returns and that financial markets will eventually DEMAND real action.

It appears that financial markets are beginning to see through the façade of political fables or seems to have initiated the discounting of these phony promises.

Be careful out there.

Quote of the Day: The Folly of Measuring Happiness

What the economists could measure pretty easily, though, was the money you have for buying sandwiches or paying the rent. Income is not your happiness and doubling it will not make you twice as happy—but it does measure your capability for action.

That’s from a lengthy critique, by Professor and author Deirdre McCloskey, on experts who fallaciously attempt to “engineer a happy society”