Monday, December 11, 2017

The Time I Tried to Give Economic Advice to a Middle East Tyrant

 Ali Abdullah Saleh

Richard Ebeling emails:

Dear Bob,

My latest article on the website of the Future of Freedom Foundation is on, “An Audience with the Tyrant of Yemen.”

The press has reported the murder of former Yemeni President, Ali Abdullah Saleh. I actually had an “audience” with him in Yemen in 2006, as part of a delegation of American “experts” offering advice on making Yemen more “business friendly.” It was a “fool’s errand,” given the corruption and political manipulation of almost every facet of the Yemeni economy and society.

But it gave me the opportunity to meet with and watch a tyrant “up close” and the workings of his power lusting mind, as well as the terror and control it imposed on almost all others in society. It also gave me the chance to better see the reality of collectivism in their political and dogmatic religious forms and how they not only kept people in poverty, but suppressed freedom and individuality through political plunder and theological indoctrination.

The economic and social crisis that Yemen is currently experiencing in an on-going bloody and brutal civil war has its root far deeper and much farther back historically and theologically than headline news of Saudi Arabian bombing runs and American drone strikes.



The Flashing Danger Overbought Signal

Today's headlines:

The Flashing Danger Overbought Signal
U.S. stocks rose to another record last week, and in the process reached their most overbought level in more than two decades, according to the relative-strength index.

You have to be real careful with technical indicators but...

No Signs of Recession in the JOLTS Numbers

Labor Productivity Up 3% And The Price Inflation Indicator

Why Gold and Silver Are Lower Today


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INSANE: Senate Bill’s Marginal Rates Could Top 100% for Some

Some high-income business owners could face marginal tax rates exceeding 100% under the Senate’s tax bill, far beyond the listed rates in the Republican plan, reports The Wall Street Journal.

That means a business owner’s next $100 in earnings, under certain circumstances, would require paying more than $100 in additional federal and state taxes.

According to WSJ, the possible marginal tax rate of more than 100% results from the combination of tax policies designed to provide benefits to businesses and families but then deny them to the richest people. As income climbs and those breaks phase out, each dollar of income faces regular tax rates and a hidden marginal rate on top of that, in the form of vanishing tax breaks. That structure, if maintained in a final law, would create some of the disincentives to working and to earning business profit.

Of course, this tax structural problem will be removed in reconciliation but the point is that when it comes to this tax bill, the devil is in the details--and no one fully understands all the details.

Keep this incident in mind when you hear any media outlet discussing just how the tax bill will impact taxpayers. The truth is that they don't know---and that any tax details aimed at the middle class that are not widely understood will likley result in higher taxes for the middle class.


The Coming Russia-China Gold Alliance

This is big.

The BRICS counties are considering starting an internal gold trading platform, according to Russian officials, reports RT.

"We have to put the BRICS initiative into a broader context. It is just part of a geopolitical tectonic shift which started decades ago. We have seen a constant outflow of physical gold from the West to the East. At the same time, the West has lost the economic war, and as a consequence, the focus now turns to the financial system. China dominates the world economy and has displaced the US as the world’s most formidable economic powerhouse,”  Claudio Grass, of Precious Metal Advisory Switzerland. told RT.

The creation of a new gold standard by BRICS is also a step to end the US dollar’s domination of the global economy

“As Bejing and Moscow understand that America used the dollar to control the world, by implementing a new kind of ‘Gold standard 2.0’ they want to distance themselves from this control.," said Grass.


Larry Summers: The Economy is Still On a Sugar High

Larry Summers, Treasury Secretary from 1999 to 2001 under President Bill Clinton and an economic adviser to President Barack Obama from 2009 through 2010, writes for The Washington Post:
The approaching end of President Trump’s first year in office, another strong employment report and a still-strong stock market make it appropriate to revisit my year-old judgment that the economy is enjoying a “sugar high.” Unfortunately, the best available evidence suggests that signs of current market and economic strength are largely unrelated to government policy, that the drivers of this year’s economic strength are likely transient and that the structural foundation of the U.S. economy is weakening. Sugar high remains the right diagnosis...
Of course, I do not believe that Summers would identify the "sugar high" as a direct result of Federal Reserve manipulation of the money supply but that is exactly what is keeping the boom going.

It won't last but in the very near future, although the stock market looks vulnerable, there appears no immediate threat to the current overall structure of production of the economy.


Sunday, December 10, 2017

Another Bitcoin Trading Problem After Massive Bitcoin Sell-Off

One of the points I have been making at the EPJ Daily Alert is that, among other problems, transaction execution is a danger that faces Bitcoin speculators.

Bitcoin surged on Thursday to a then record high of $19,340 on the Coinbase exchange. Just Wednesday, it traded in the range of $14,800.

But then selling came in and the digital currency fell more than 20 percent from that level to $15,198.63.

Then things got really interesting. Traders who tried to sell Bitcoin on Coinbase, saw this message:

Saturday, December 9, 2017

"If I ever join a health club in San Francisco..."

AR emails:
I bought your pamphlet  [Dear Fellow Health Club Member, Please Leave Me the Hell Alone: An economic analysis of the water "shortage"] on Amazon the other day, after the price drop, and I just finished reading it.

It is one of the funniest things I have ever read! Did you actually give it to anyone who harassed you? What were their reactions?

It would be great if you made a blog post somewhere on people's reactions. If I ever join a health club in San Francisco, I would always come with this book in my hand so that if I see you, I could get it autographed after you shaved.

"Thus, when you tell me there is a 'shortage' of water, as an economist I shrug. Brother, there is a shortage of pretty much everything relative to the amount all of us would like at our disposal"

I am still laughing.
RW response:

I keep a supply in my personal locker at the gym and have in the past handed about two or three a year. But I recently switched my schedule and generally go to the gym in the afternoon so I am not shaving there as often. BUT just this week, a regular that I talk to at the gym gave me a hard time about taking long showers. "Save some water for the crops," he said, so I gave him the booklet. I haven't seen him since I gave it to him, so I am not sure what his reaction will be.

For the others, I say, "I have a different theory on water shortages" and hand them the booklet. They are, of course, very surprised. But they all seem to read it. If I see them again, they usually want to debate some technical point they misunderstand but also generally concede I have a point.

On Professional Harassers (It Goes Well Beyond Sexual Harassment)

A Don Boudreaux letter to The Hill:
You report on “Congress reeling from sexual harassment deluge” (Dec. 9).  Of course, all decent people are grateful whenever those who shove themselves unwanted, to satisfy their own lusts, into other people’s personal spaces are exposed and punished for their offensive intrusions.
But let’s be clear: politicians at all levels typically shove themselves unwanted, to satisfy their own lusts, into other people’s personal spaces.  With trade barriers politicians harass – to satisfy their lust for reelection – innocent people who wish to import sugar, clothing, tires, and many other goods.  With civil asset forfeiture they harass – to satisfy their lust for power – innocent people who use cash and recreational drugs.  With occupational-licensing restrictions they harass – to satisfy their lust for the support of their cronies – willing buyers and willing sellers who seek only to peacefully do business with each other.  And with taxes they harass – to satisfy their lust for lucre – those who create wealth.
That these professional harassers harass others also in more carnal ways should surprise no one.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek

VICIOUS Brad DeLong Aligns With Paul Krugman and Goes Brutal

I love to see Keynesians battle each other

The latest round in the Krugman vs. Mankiw battle is absolutely vicious

This round reminds me of the time the Roman emperor Domitian had a heckler in the Coliseum, who jeered a favorite gladiator, dragged into the center of the arena and thrown to a gang of ravenous dogs, which ripped him apart from limb from limb.

Here's Brad DeLong as a ravenous dog:
Greg Mankiw [writes]: PAUL KRUGMAN... SIGH: "Paul says I have never admitted to making a math error. Well, I would if I thought I made such an error. I make them all the time. But in this case I am not convinced. Neither is University of Chicago professor Casey Mulligan, who thinks Paul made a math error. I spoke with several other economists (some of whom share Paul's politics) and they don't see Paul's point either."...

And now we come to the part that makes me sad. Mankiw writes:
I am not convinced. Neither is University of Chicago professor Casey Mulligan, who thinks Paul made a math error...
Greg: Casey Mulligan is not a very good economist. You know that he is not a very good economist. You have read his writings as much as I have... 
The only rational conclusion is: ideologically-blinded unprofessional incompetence. Don't cite Casey Mulligan as an authority on anything. (And it is also unwise to

Doug Casey on the Coming Commodities Boom and Ayn Rand on the Poor

Doug Casey writes:
 I’m looking forward to a bubble in commodities in general (most are down 50% from the previous peak in 2011), and precious metals in particular. And not just a bubble, but a hyper bubble in mining stocks.

So, if I’m right, in the next few years we could stand to make a fortune while the world is falling apart. I know—that sounds harsh to be eating caviar while the masses are forced to grub for roots and berries. But, as Ayn Rand said when asked what you should do about the poor: “Just make sure you’re not one of them.”

Friday, December 8, 2017

Are The Bitcoin Whales Coordinating Bitcoin Sales (and the Price)?

Another problem with Bitcoin, among many others, is that major sellers are likely coordinating their sales in classic pump and dump style.

Bloomberg reports:

On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.
Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.

About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.
“I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.”...

 Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices...

As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”...

Like most hedge fund managers specializing in cryptocurrencies, [Kyle Samani, managing partner at Multicoin Capital] constantly tracks trading activity of addresses known to belong to the biggest investors in the coins he holds. (Although bitcoin transactions are designed to be anonymous, each one is associated with a coded address that can be seen by anyone.) When he sees activity, Samani immediately calls the likely sellers and can often get information on motivations behind their sales and their trading plans, he says. Some funds end up buying one another’s holdings directly, without going into the open market, to avoid affecting the currency’s price. “Investors are generally more forthcoming with other investors,” Samani says. “We all kind of know who one another are, and we all help each other out and share notes. We all just want to make money.”...

Ordinary investors, of course, don’t have the cachet required to get a multimillionaire to take their call. While they can track addresses with large holdings online and start heated discussions of market moves on Reddit forums, they’re ultimately in the dark on the whales’ plans and motives. “There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it’s very difficult to figure out what’s going on.”