Bastiat on Why Protectionism is a Philosophy of War

Protectionism is a philosophy of war, partly through conquest.

The great classical liberal Frédéric Bastiat destroys the supposed moral high ground of mercantilism which are based on blatant self contradictions. (source Mises Institute, all bold mine)

There is one thing that confounds me, and it is this. Sincere publicists, studying the economy of society from the producer's point of view, have laid down this double formula:

1. "Governments should order the interests of consumers who are subject to their laws, in such a way as to be favorable to national industry."
2. "They should bring distant consumers under subjection to their laws, for the purpose of ordering their interests in a way favorable to national industry."

The first of these formulas gets the name of protection; the second we call outlets, or the creating of markets, or vents, for our produce.

Both are founded on what we call the balance of trade: "A nation is impoverished when it imports; enriched when it exports."

For if every purchase from a foreign country is a tribute paid and a national loss, it follows, of course, that it is right to restrain, and even prohibit, importations.

And if every sale to a foreign country is a tribute received, and a national profit, it is quite right and natural to create markets for our products even by force.

The system of protection and the colonial system are, then, only two aspects of one and the same theory. To hinder our fellow citizens from buying from foreigners, and to force foreigners to buy from our fellow citizens, are only two consequences of one and the same principle.

Now, it is impossible not to admit that this doctrine, if true, makes general utility to repose on monopoly or internal spoliation, and on conquest or external spoliation.

I enter a cottage on the French side of the Pyrenees.

The father of the family has received but slender wages. His half-naked children shiver in the icy north wind; the fire is extinguished, and there is nothing on the table. There are wool, firewood, and corn on the other side of the mountain; but these good things are forbidden to the poor day-laborer, for the other side of the mountain is not in France. Foreign firewood is not allowed to warm the cottage hearth; and the shepherd's children can never know the taste of Biscayan wheat, and the wool of Navarre can never warm their benumbed limbs. General utility has so ordered it. Be it so; but let us agree that all this is in direct opposition to the first principles of justice. To dispose legislatively of the interests of consumers, and postpone them to the supposed interests of national industry, is to encroach upon their liberty — it is to prohibit an act; namely, the act of exchange, that has in it nothing contrary to good morals; in a word, it is to do them an act of injustice.

And yet this is necessary, we are told, unless we wish to see national labor at a standstill, and public prosperity sustain a fatal shock.

Writers of the protectionist school, then, have arrived at the melancholy conclusion that there is a radical incompatibility between justice and utility. 

On the other hand, if it be the interest of each nation to sell, and not to buy, the natural state of their relations must consist in a violent action and reaction, for each will seek to impose its products on all, and all will endeavor to repel the products of each.

A sale, in fact, implies a purchase, and since, according to this doctrine, to sell is beneficial, and to buy is the reverse, every international transaction would imply the amelioration of one people and the deterioration of another.

But if men are, on the one hand, irresistibly impelled toward what is for their profit, and if, on the other, they resist instinctively what is hurtful, we are forced to conclude that each nation carries in its bosom a natural force of expansion, and a not less natural force of resistance, which forces are equally injurious to all other nations; or, in other words, that antagonism and war are the natural state of human society.

Thus the theory we are discussing may be summed up in these two axioms: 

Utility is incompatible with justice at home.

Utility is incompatible with peace abroad.

Now, what astonishes and confounds me is that a publicist, a statesman, who sincerely holds an economical doctrine that runs so violently counter to other principles that are incontestable, should be able to enjoy one moment of calm or peace of mind.

For my own part, it seems to me that if I had entered the precincts of the science by the same gate, if I had failed to perceive clearly that liberty, utility, justice, peace, are things not only compatible, but strictly allied with each other, and, so to speak, identical, I should have endeavored to forget what I had learned, and I should have asked,

"How God could have willed that men should attain prosperity only through injustice and war? How He could have willed that they should be unable to avoid Injustice and War except by renouncing the possibility of attaining prosperity?

"Dare I adopt, as the basis of the legislation of a great nation, a science that thus misleads me by false lights, that has conducted me to this horrible blasphemy, and landed me in so dreadful an alternative? And when a long train of illustrious philosophers have been conducted by this science, to which they have devoted their lives, to more consoling results — when they affirm that liberty and utility are perfectly reconcilable with justice and peace — that all these great principles run in infinitely extended parallels, and will do so to all eternity, without running counter to each other — I would ask, Have they not in their favor that presumption which results from all that we know of the goodness and wisdom of God, as manifested in the sublime harmony of the material creation? In the face of such a presumption, and of so many reliable authorities, ought I to believe lightly that God has been pleased to implant antagonism and dissonance in the laws of the moral world? No; before I should venture to conclude that the principles of social order run counter to and neutralize each other, and are in eternal and irreconcilable opposition — before I should venture to impose on my fellow citizens a system so impious as that to which my reasonings would appear to lead — I should set myself to re-examine the whole chain of these reasonings, and assure myself that at this stage of the journey I had not missed my way."

But if, after a candid and searching examination, 20 times repeated, I arrived always at this frightful conclusion, that we must choose between the right and the good, discouraged, I should reject the science, and bury myself in voluntary ignorance; above all, I should decline all participation in public affairs, leaving to men of another temper and constitution the burden and responsibility of a choice so painful.

Beware of their hypocrisies

The US Dollar Renminbi Standard Myth

Another bizarre mercantilist claim today is that the world monetary system operates on a supposed “USD-Renminbi” standard.

(From Tradingeconomics.com)

Such claim has been anchored on supposed “trade imbalances”, particularly US trade deficits, from where the world evolves only around only two nations, the United States and China. From such premise it is easy to dismiss this as false choice.

A further assumption is that central bankers of both nations have only been fixated on each other’s economy while ignoring the rest of world.

Nevertheless here a few charts to dispel such myths

Based on merchandise trade, it would be a mistake to assume that both these countries equally been trade oriented.

The fact is that the US despite the deficits, external trade in goods account for only a little over 20% of the economy. This makes the US essentially relatively a closed economy.

Meanwhile China’s merchandise trade is about half their economy. In contrast Germany’s external trade accounts for more than 70%. 

Germany largest share among the three squares with the EU’s position as the largest trading bloc. (Wikipedia)

To further add, China accounts as the second largest trading partner to the United States. (US Bureau of Commerce)

Also in terms of trade deficit with the US, while it is true that China has the largest surplus, there are many other countries that maintains where the US has a deficit. (US Bureau of Commerce) Add all to the 9 largest trading partners with surpluses these will easily overshadow China. A further implication is that should protectionist measures be imposed on China, US deficits will only shift to these countries.

Yet for those blinded by deficits, they fail to also account that China’s exports have been (51%) owned by foreign owned companies based on China.

In reality, the obsession towards trade deficits are misleading for the simple reason that trade deficits are balanced out by capital account (Mark Perry)

To quote Professor Mark Perry (bold original)

As a direct consequence of our current account deficits, the U.S. economy has been the beneficiary of more than $8 trillion worth of capital inflows from foreigners since 1980. Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis.

The other side of the coin is that China’s ownership of US debts has been overstated.

In reality, foreign ownership as a total of US treasuries account for only 25% (Wikipedia)…

…where China owns about 8% share of total foreign ownership as shown by the breakdown above. 

In terms of international currency reserves…

The Euro-USD constitutes 90% of global foreign exchange reserves. Add the pound sterling, yen and the swiss franc such would account for 95% of foreign reserves. (Wikipedia) In other words, global trade and banking reserves have hardly been about the Chinese yuan yet. Although China has been making inroads with other emerging markets (e.g. ASEAN, Brazil India Russia, Chile and even Africa) to use her currency as an international reserve.

China’s fixed currency has partly been accused for such relationship. But China’s currency has been fixed since 1994. If fixing currency to the US dollar has been about stealing jobs…

…then all these countries have been guilty

But then again, currency fixing or pegging has been adapted by these countries mostly to promote stability.

According to Investopedia.com

The reasons to peg a currency are linked to stability. Especially in today's developing nations, a country may decide to peg its currency to create a stable atmosphere for foreign investment. With a peg, the investor will always know what his or her investment's value is, and therefore will not have to worry about daily fluctuations. A pegged currency can also help to lower inflation rates and generate demand, which results from greater confidence in the stability of the currency.

Other reasons have been for expanding trade network externalities and importing policy credibility, (University of California) aside from lack of depth in their respective domestic and sophistication in domestic financial markets. 

Bottom line: As I have been pointing out, US trade balance, aside from the conditions of the US dollar has mostly been a function of domestic boom bust cycles, the Triffin dilemma (frictions arising from the collision of international and domestic interests based on short and long term objectives) and many other domestic interventionists policies. 

There has not been a single factor. (Fallacy of a single cause)

Financialization of the US has been an outgrowth of these from which trade deficits have been funded through the growth of financial industry. Wikipedia points to the “greater role arising from the issuance of fiat currency untethered to gold or other commodities, as well as the “end of the post-World War Two Bretton Woods system of fixed international exchange rates and the dollar peg to gold in August 1971”. 

Neither has supposed trade imbalances been deliberately caused by China.

Boom bust cycles, for instance, draw in lots of resources and labor to malinvested areas where during a booming phase distorts the price mechanism and distribution and production process via overvaluing wages, the domestic currency, asset prices, welfare (pensions), fake profits and etc....

Once a bust arrives these policies induced boom becomes key sources of retrenchment.

Mercantilists have been flagrantly blind to this.

Finally as I pointed out, Ben Bernanke has not been targeting the exchange rate for his latest QE. This means, if you believe his uprightness, then he acknowledges that the issue has been local, particularly putting a floor on asset prices and hardly about foreign (devaluation).

Seeing things from reality (than from political biases) gives us a better chance at being right in our investment positions.

World Economic Trend: Mercantilism or Globalization?

To paraphrase a recent comment I received from a mercantilist: Because of the US dollar standard, mercantilism have been more prevalent today.

It is easy to dismiss such an argument as post hoc fallacy since two distinctive variables have been made to function as causally related. Nevertheless let us see from a few charts and graphs whether this claim has validity, even if we exclude the role of the US dollar.

To rephrase the issue: Has the world economic trend been more about mercantilism or globalization?

According to Google’s Public Data World merchandise trade as % of GDP has ballooned from a little less than 20% in 1960s to about nearly half of the world's economy today.

Even trade balance of services, again from Google Public Data, based on OECD economies volume has leapt sixfold since 1996.

Above is the breakdown of global trade per sector in 2010 (World Trade Organization)

Add to the current dynamic the dominance of intra-region trade

One major reason for the surge in global trading activities has been due to major moves to LIBERALIZE trade via substantial reductions tariffs which came from Regional Trade Agreement (RTA), Multilateral Trade Negotiations (MTN) and or even unilateralism (WTO)

Bilateral investment treaties peaked in 1995 but the effects of these are still being felt today through massive growth in cross border investments

While there have been some protectionist pressures as consequence to the financial crisis of 2008, generally speaking trade liberalization has been minimally affected.

From IMF Finance 

The number of new protectionist actions peaked in the first quarter of 2009 and bottomed in the third quarter of 2010. However, recent GTA data suggest that protectionist measures are increasing again; protectionist actions in the third quarter of 2011 alone were as high as in the worst periods of 2009 (Evenett, 2011).

The Group of 20 (G20) advanced and emerging economies account for most of the trade measures, most of which did not involve tariffs, imposed since 2008. There has been no significant increase in the overall use of tariffs or temporary trade barriers, such as antidumping measures, aimed at assisting local firms injured by import competition (Bown, 2011). Such measures affected only about 2 percent of world trade (Kee, Neagu, and Nicita, 2010; WTO, 2011). The trend of gradual tariff liberalization observed since the mid-1990s has not been affected

The World Trade Organization (WTO) notes of the recent increases in Non-Tariff Measures (NTM). But these have been based on technical barriers to trade (TBT) regarding standards for manufactured goods and sanitary and phytosanitary (SPS) or measures concerning food safety and animal/plant health, and partly domestic regulation in services which have hardly been about restricting competition.

From the WTO,

“I think it is a good time for the WTO to have a closer look at non-tariff measures (NTMs)”, said WTO Director-General Pascal Lamy, at the launch of the Report. “A clear trend has emerged in which NTMs are less about shielding producers from import competition and more about the attainment of a broad range of public policy objectives. The new NTMs, typically SPS and TBT measures but also domestic regulation in services, address concerns over health, safety, environmental quality and other social imperatives. The challenge is to manage a wider set of policy preferences without undermining those preferences or allowing them to become competitiveness concerns that unnecessarily frustrate trade.”

The above trends seems quite clear. Globalization has been the dominant theme of the world economy over the past decades, regardless or in spite of the role of the US dollar.

Now of course, events of the past may not extrapolate to the future. 

Bottom line: The religion of politics makes many people see fantasies as self constructed reality.

Quote of the Day: The False Doctrine of Altruism

Altruism is a code of ethics which hold the welfare of others as the standard of "good", and self-sacrifice as the only moral action. The unstated premise of the doctrine of altruism is that all relationships among men involve sacrifice. This leaves one with the false choice between maliciously exploiting the other person (forcing them to be sacrificed) or being "moral" and offering oneself up as the sacrificial victim.

This is from Jeff Landauer and Joseph Rowland at the ImportanceofPhilosophy.com

Ron Paul: Government Dependency Will End in Chaos

The distinguished Ron Paul on why the welfare dependency culture will end in chaos 

The media insists on characterizing statements about dependency on government handouts as controversial, but in truth such statements are absolutely correct.  It's not that nearly half of Americans are dependent on government; it's actually more than half.  If one includes not just people on food stamps and welfare, but also seniors on Medicare, Social Security and people employed by the government directly, the number is more like 165 million out of 308 million, which is 53%.

Some argue that Social Security and Medicare benefits are a right because people pay into these programs their whole lives, or that we need a government safety net in place for people who fall on hard times.  However, this all becomes a moot point when the funds people depend on become worthless due to government default or rampant inflation.

This is less an issue of dignity or dependence on government, and more about the deceitfulness of government promises.

The Fed recently announced that it plans to keep interest rates near zero and keep buying near worthless assets from banks indefinitely.  This enables Congress to spend without having to take deficits or the debt seriously and there is every indication they intend to spend with impunity until the system collapses.  There are no brakes on the runaway train.  The federal debt ceiling law does nothing to limit spending. The ceiling will have to be raised yet again perhaps before the year is out.  What is happening in Greece with austerity measures and riots in the street will happen here within a decade according to some realistic estimates if we do not find some way to fiscally restrain our government.

There is little point in a debate about being entitled to healthcare or food or shelter from fellow taxpayers if the whole system has collapsed.  And, with the way our politicians have taken over and mismanaged vast amounts of resources, collapse seems almost unavoidable.  Yet the number of Americans who have significant dependency on government is dangerously high, and I honestly fear for them.

Worse, corporate welfare is also at an all time high with no signs of diminishing.  Though it is hard to quantify, Tad Dehaven at Cato has estimated that the government spends nearly twice as much on corporate welfare than on social welfare.  Both parties are equally guilty.  More and more, the business sector is learning to rely on taxpayer largesse in one form or another.  They used to be solely concerned with providing a better product to the consumer at a better price.  Now, success on Wall Street depends entirely too much on having the best lobbyists on K Street.  If one includes the employees of "private" businesses who depend on government contracts, grants or bailouts, there are even more people dependent on government in some way.

Read the rest here

This is a lesson isn't just for Americans but for all society. 

Bottom line: The Santa Claus fund has limits.

Video: George Carlin on Politically Correct Terminlogies

The inimitable comedian the late George Carlin on politically correct terminologies.  (hat tip Lew Rockwell Blog)

Loved that punchline at 3: 42 

This poor people have been bullshited by the system into believing that if you change the name of the condition somehow you change the condition...

  

Mr. Carline's much missed stint reminds me of a gem of a quote from author individualist feminist anarchist and senior associate of Laissez Faire Books, Ms. Wendy McElroy: (bold emphasis mine)

The deepest form of social control is to govern what a human being believes is true and false, right and wrong. When you short-circuit a person’s critical faculty and moral sense, he will obey authority with no need for force because authority has defined who he is. 

Such control requires the monopolization of information. That is why totalitarian states establish compulsory state schools, throttle freedom of speech and the press, broadcast propaganda, legislate the Internet, and obsessively monitor what people say to each other. They need to eliminate any competition in the ‘truth business’. And, so, those who know the “Emperor has no clothes” are silenced by various means. 

The control of what is true and false can be called the democratization of reality. ‘Facts’ are manufactured by those who control information and, then, they are broadcast widely to unquestioning people who believe them because the ‘facts’ spew from authorities or the media. If enough people believe the heavily gerrymandered stats on unemployment and inflation, then the economy is not so bad. If the media is upbeat about the economy, then consumer confidence will turn things around. If enough people believe the police “serve and protect,” then those who cry ‘brutality!’ become troublemakers. If politicians are viewed as “public servants,” then they cease to be masters. Thus, what is reality becomes established by consensus.

What is reality becomes established by the consensus is exactly the message imparted by by Mr. Carlin

Graphic of the Day: Voting Doesn’t Make You Free

While this graphic is targeted to American audience, amidst the coming US presidential elections,this message is relevant to all.

(source Lew Rockwell Blog)

Tom Woods and Bob Murphy Refutes HuffPo’s 11 Myths about the Fed

Austrian economists Tom Woods and Bob Murphy turns the table on an apologist for the FED at the Huffington Post with a terrific smackdown

From Messrs. Woods and Murphy [bold original]

The other day the Huffington Post ran an article by a Bonnie Kavoussi called “11 Lies About the Federal Reserve.” And you’ll never guess: these aren’t lies or myths spread in the financial press by Fed apologists. These are “lies” being told by you and me, opponents of the Fed. Bonnie Kavoussi calls us “Fed-haters.” So she, a Fed-lover, is at pains to correct these alleged misconceptions. She must stop us stupid ingrates from poisoning our countrymen’s minds against this benevolent array of experts innocently pursuing economic stability.

Here are the 11 so-called lies (she calls them “myths” in the actual rendering), and our responses.

HuffPo’s Myth #1: “The Fed actually prints money.”

She leads off with this? As if this is some big discovery that will refute the end-the-Fed people? When we talk about Fed money-printing, we are speaking in shorthand. We’re pretty certain someone like Ron Paul knows the Fed doesn’t actually print money. But he, along with pretty much the whole financial world, speaks of the Fed as printing money. You know why? Because it’s a teensy bit more convenient than saying, “We need the Fed to credit some banks’ accounts with increased balances, which it does by means of a computer, though if these balances are lent out and the borrowers prefer to use some of this lent money as cash, the Treasury will go ahead and print the cash.”

HuffPo’s Myth #2: “The Federal Reserve is spending money wastefully.”

You may think the Federal Reserve is throwing around money like crazy, just like the federal government. But you’re wrong! As Kavoussi explains, the Fed doesn’t spend money like the federal government does; it creates money! That’s just totally different! And so we read, “Both CNN anchor Erin Burnett and Republican vice presidential nominee Paul Ryan have compared the Federal Reserve’s quantitative easing to government spending. But the Federal Reserve actually has created new money by expanding its balance sheet.”

She then points out that hey, the Fed earned a profit of $77.4 billion last year. We are supposed to be impressed. But if you can create money out of thin air and buy bonds with it, and then earn interest on those bonds, wouldn’t it be pretty hard to lose money? (But they just might, if interest rates should spike.)

HuffPo’s Myth #3: “The Fed is causing hyperinflation.”

Is it just us, or does Bonnie Kavoussi word things awkwardly? Do you know of anyone who says the Fed is causing – as in present progressive tense — hyperinflation?

Kavoussi then goes on to tell us that the CPI is showing low price inflation — again, as if she’s reporting some extraordinary revelation that will put all Fed critics to shame. There is no hyperinflation because the banks are holding the newly created money as excess reserves with the Fed. If the banks begin lending and the money multiplier is enacted, an inflationary spiral could easily occur — trillions of dollars of high-powered money would expand via the fractional-reserve banking system into tens of trillions of dollars. The only way for the government to stay ahead of the curve would be for the Fed to keep creating boatloads of new money — which is how hyperinflation happens, after all. If that were to happen, we rather doubt Kavoussi would want to come tell us how the CPI is doing.

HuffPo’s Myth #4: “The amount of cash available has grown tremendously.”

“Some Federal Reserve critics claim that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation,” says Kavoussi. “But not only is inflation low; currency growth also has not really changed since the Fed started its stimulus measures, as noted by Business Insider’s Joe Weisenthal.”

This looks like another silly gotcha with definitions, like the “printing money” canard. The graph below shows that the currency component of M1 hasn’t shot up like a rocket, it’s true; but M1 itself (which consists of not just physical paper but also checking account deposits) has indeed risen sharply, notwithstanding the insights of Business Insider’s Joe Weisenthal.

HuffPo’s Myth #5: “The gold standard would make prices more stable.” 

Kavoussi writes, “Rep. Ron Paul (R-Tex.) has claimed that bringing back the gold standard would make prices more stable. But prices actually were much less stable under the gold standard than they are today, as The Atlantic’s Matthew O’Brien and Business Insider’s Joe Weisenthal have noted.”

Does our critic even read the things she links to? Her two authors’ blog posts depict a very brief period in the twentieth century, after the classical gold standard had already given way to the gold exchange standard. What is that supposed to prove?

So against Bonnie Kavoussi’s two blog posts that examine the gold exchange standard and only for a period of about 15 years at that, all we have in reply is only the most meticulous study of gold and its purchasing power ever written, Roy Jastram’s The Golden Constant: The English and American Experience 1560-2007, which finds gold to be extraordinarily stable over four and a half centuries.

Even John Kenneth Galbraith, not exactly gold’s biggest fan, conceded that once someone had gold, there was little uncertainty about what he would be able to get with it. “In the last [19th] century in the industrial countries there was much uncertainty as to whether a man could get money but very little as to what it would do for him once he had it. In this [20th] century the problem of getting money, though it remains considerable, has diminished. In its place has come a new uncertainty as to what money, however acquired and accumulated, will be worth. Once, to have an income reliably denominated in money was thought…to be very comfortable. Of late, to have a fixed income is to be thought liable to impoverishment that may not be slow. What has happened to money?”

Of course, gold standard advocates, at least in the Austrian tradition, are not fixated on price stability in the first place.

Read the rest here

How True is it that the BSP Refuses to Print Money?

My colleagues recently posted a report which says that the BSP has been hesitant to print money.

From the Inquirer  

The Bangko Sentral ng Pilipinas has ignored proposals for it to print more money so that the peso will become weaker than it is now against the US dollar.

Although the BSP admitted that it has been buying dollars from the market to help temper the appreciation of the local currency, it stressed that it would not increase its dollar-buying activities just so the peso would become artificially weak.

According to BSP Governor Amando Tetangco Jr., the act of printing more money to significantly weaken the peso will have serious and adverse effects on the economy.

“A few have encouraged the BSP to ‘print more money’ instead of sterilizing as a response to capital inflows. They would like the BSP to be more ‘resolute’ in influencing the exchange rate,” Tetangco said in a speech during an economic forum Friday.

“My response to this is that doing so would be inflationary. [It] would lead to a tremendous expansion in domestic liquidity that would fan price pressures,” Tetangco explained.

While I should be the first to rush in to applaud and to embrace Mr. Tetangco for such supposed gallant stand against political pressure, I would first inquire if such assertions has been true.

Just to show some charts: 

The BSP, as well as other, ASEAN peers as I pointed out earlier has been expanding their balance sheets like everyone else.

M3 Growth from tradingeconomics.com 

From Trading Economics: (bold emphasis mine)

Money Supply M3 in Philippines decreased to 4607662 PHP MIL in July of 2012 from 4738239 PHP MIL in June of 2012, according to a report released by the Bangko Sentral Ng Pilipinas. Historically, from 1980 until 2012, Philippines Money Supply M3 averaged 1276131.0 PHP MIL reaching an all time high of 4738239.0 PHP MIL in June of 2012 and a record low of 56544.0 PHP MIL in January of 1980. 

Broad money—defined by tradingeconomics as the sum of currency outside banks; demand deposits other than those of the central government; the time; savings; and foreign currency deposits of resident sectors other than the central government; bank and traveler’s checks; and other securities such as certificates of deposit and commercial paper

Quasi Money –-defined by tradingeconomics.com as time, savings, and foreign currency deposits of resident sectors other than the central government.

Money and Quasi Money Growth Rate 

Tradingeconomics.com: 

The Money and quasi money growth (annual %) in Philippines was last reported at 5.31 in 2011, according to a World Bank report published in 2012. Average annual growth rate in money and quasi money. Money and quasi money comprise the sum of currency outside banks, demand deposits other than those of the central government, and the time, savings, and foreign currency deposits of resident sectors other than the central government. This definition is frequently called M2; it corresponds to lines 34 and 35 in the International Monetary Fund's (IMF) International Financial Statistics (IFS).

Although money and quasi money growth has declined in 2011, they are still far above from the GDP 3.7% growth rate of 2011.

The BSP have NOT been printing money? Perhaps in the future, but certainly NOT from the past and recent past evidences shown above. 

But I would certainly bet against such "heroic" iconoclastic idea, given that money printing has been the new dogma for central banking. If global central banking is a cartel, then Mr. Tetangco with his supposed "sound banking" approach will surely lose his job.

Video: The Robot Chefs are Coming

A Chinese entrepreneur has invented the "robot chef" to do his noodle bars. 

I believe this is just an ice breaker, along with 3D printing, I think robots or the automation of parts of kitchen chores will become part of the commerce first, then the household soon. (hat tip Professor Mark Perry)

Argentina's Government Openly Promotes Poverty

Poor Argentinians. The Argentine government does not only want to subtly confiscate savings of ordinary folks through inflationism, their government openly promotes poverty for the Argentina’s population through economic fascism and political repression.

From Nasdaq.com 

The president of Argentina's central bank has affirmed the government's policy of eliminating the U.S. dollar as a transaction and savings medium in the South American economy.

"De-dollarizing the economy is a challenge" and Argentines "have to save in local currency like [people] do everywhere else in the world," Mercedes Marco del Pont said in a speech late Friday night.

Argentines have long viewed the U.S. currency as a haven in times of economic uncertainty because of their country's long history of high inflation and periodic devaluations.

Mrs. Marco del Pont wants Argentines to save in pesos amid a backdrop of one of the highest rates of inflation in the Americas.

Annual inflation, which most economists say hovers around 25%, has eroded faith in the peso and fueled demand for dollars. The interest rates banks pay on deposits are well below inflation.

The government's data--which has been widely criticized by economists and the International Monetary Fund--put 12- month inflation at 10% in August.

Inflationism has only been part of the overall strategy of financial repression which has been coursed through fascist policies of nationalization, currency controls, strangulating regulations, civil liberty proscriptions (e.g ban on imported books) and more…

Since late October 2011, the government has severely restricted the public's access to the foreign-exchange market to stop capital flight that was slowly draining the central bank's international reserves.

The currency controls have dented economic activity, especially in the real estate sector where most transactions were done overwhelmingly in dollars.

Property sales in the capital city Bueno Aires plunged 35% on the year in August.

Argentina, aside from Venezuela, are likely or potential candidates to join Iran as models for modern day hyperinflation.

Europe’s ESM Activated, Expect ECB to Rev Up on the Printing Press

Europe’s permanent bailout fund has been activated. This means that ECB’s “unlimited” bond purchasing program which the ESM serves as part of the conditionality for bailouts of crisis stricken member states will go into full throttle.

From the Bloomberg,

European governments set up a full- time 500 billion-euro ($648 billion) fund to aid debt-swamped countries and, not for the first time in the three-year crisis, expressed confidence that the extra financial muscle won’t be needed anytime soon.

Finance ministers from the 17 euro countries declared the European Stability Mechanism operational, while saying that Spain, its biggest potential near-term customer, isn’t on the verge of tapping it. Decisions were also put off on Greece’s next aid payment and on an assistance program for Cyprus.

Creation of the ESM “makes the strategy of member states credible and equips the euro area with much better tools to appropriately respond to future crises,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Luxembourg today before a meeting of euro finance chiefs that began at 5 p.m.

The fund’s birth was eased by the European Central Bank’s offer in August to buy bonds of fiscally struggling countries, which has driven down interest rates in Spain and Italy and bought European governments time to address the root causes of the crisis.

The ESM will replace the temporary European Financial Stability Facility, which has spent 192 billion euros of its 440 billion euros on loans to Ireland, Portugal and Greece. The two funds will run in parallel until the EFSF is phased out in mid- 2013.

Oh you may ignore the propaganda about "financial muscles won't be needed anytime soon".

This marks the path towards further centralization of the EU. Again from the same article.

Controlled by euro finance ministers, the ESM can lend directly to governments, intervene on bond markets, offer credit lines and provide loans that can be used to recapitalize banks. It would be authorized to pump capital into banks directly only once the euro zone sets up a central supervisor, possibly in 2013.

The ESM inherited those powers from the temporary fund. For now, it will go without two other EFSF tools that have yet to be used: debt-insurance certificates and co-investment vehicles that were designed to use leverage to multiply their impact.

With the ESM in place, expect the ECB to rev up on the presses.

Sri Lanka Joins Global Money Printing Contest

I have been saying that global central banks have embraced Bernanke’s approach as a newfound doctrine (here and here) such that ALL central banks have practically been engaged in money printing in one form or another.

Sri Lanka reportedly joins the money printing bandwagon via forex intervention.

From Lanka Business online 

Sri Lanka's central bank has sterilized a foreign exchange sale injecting 8.0 billion rupees in one-month money into the banking system, ending several weeks of monetary policy that has been favourable of a stronger exchange rate.

On Friday the central bank printed 8.0 billion rupees for one month at 9.81 percent, slightly above the 9.75 percent reverse repo rate at which overnight liquidity is injected into the banking system for 31 days.

Until Thursday the monetary authority was injecting cash overnight in to the banking system, following a large liquidity shortage that occurred in late September. In a pegged exchange rate system, a large liquidity shortage occurs through an unsterilized foreign exchange sale.

While overnight rupee injections also generate demand in the economy, it can be less damaging than longer term cash injections, since bank managers will not try to grow the loan book while funding the balance sheet with overnight liquidity.

Instead they will try to cover the positions by curbing loan growth or raising more deposits or both.

But central bank liquidity injections through term Treasury bill purchases allow banks to focus on loans again, preventing the adjustment of the economy to the outflow of money through the central bank foreign exchange sales and triggering balance of payments trouble.

Here is the 6 month chart of Sri Lanka’s Colombo Stock Exchange

Central banks worldwide have been blowing bubbles.

Regime Uncertainty and US Employment Woes

Dr. Ed Yardeni’s noteworthy perspective on the recent ‘conspiracy theory’ controversy over US employment data: (bold added) 

The employment gain was attributable to an increase of 838,000 in full-time employment, while part-time employment fell 26,000. What’s odd is that among those working part-time (which edged down slightly), there was a 582,000 increase in those working part-time for economic reasons. In other words, lots of people found full-time jobs, and lots of people who wanted to work full time could only find part-time jobs. Got that? Even odder is that the payroll survey showed that employment in the temporary help industry edged down by 2,000 in September.

While I doubt that anyone at BLS tampered with the household data for political motives, I’m certain no one even thought to bother with the payroll employment numbers. September’s increase was a measly 114,000. I give much more weight to the revisions to the previous two months, which tend to be upwards when the economy is expanding. They totaled 86,000 during July and August, raising their monthly average gain to 161,500. The oddity here was that upward revisions occurred at the local-government level--mainly the hiring of school teachers (up 77,000)--which nearly matched the revision to overall payrolls…

The debatable question is whether the Obama administration’s policies are creating jobs. The answer, of course, is they didn’t create them. Mitt Romney says he’ll create 12 million jobs if he is elected to be the next president. Presidents don’t create jobs. Profitable companies expand and create jobs, especially small ones that turn into big ones.

So politics could have played a sleight of hand trick in the statistical improvements of US employment conditions.

Well, the real reason for the sluggish job conditions can be traced to concerns of small business which makes up the kernel of employment: growing political uncertainty, as I earlier pointed out here.

Sluggish hiring has been an outcome of lethargic business fixed investment…

…which can be traced to REGIME UNCERTAINTY

As Professor Robert Higgs writes, 

I have argued for years that this anemic investment recovery evinces, at least in part, the prevailing regime uncertainty brought about by the Fed’s and the Bush and Obama administrations’ massive, ill-advised, and counter-productive interventions in the economy during the past five years. These interventions are continuing, however, and continuing to prolong the recovery. The idea that these actions will ultimately succeed if only the authorities persist in them long enough and on a sufficiently great scale was a bad idea from the start, and its bankruptcy became fairly evident a long time ago even to many observers wedded to mainstream economics and conventional economic policy making.

Policy makers have cost the U.S. economy a decade or more of normal economic growth. How long will people in their capacities as political and financial actors continue to tolerate this foolish, destructive policy making? I do not know, but I believe I know what the result of these misguided ongoing experiments will be—economic stagnation at best, relapse or another bust at worst.

The bottom line is that in contrast to the quack idea that Presidents "create" jobs, the reality is Presidents “unmake” or “destroy” jobs from repeated interventionism-inflationism which only engenders regime uncertainties or from a political environment which have been antagonistic or hostile to businesses.