Free markets are like atoms

Free markets are like atoms: a harmonious and predictable movement of people and resources arising from chaotic, spontaneous, unpredictable actions of billions of individuals. 

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Saving For Tomorrow

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Will we soon make origami artwork out of dollar bills?

Richard Segovia is a Venezuelan citizen who migrated to Columbia with his wife and a cousin to sell handmade artwork made of paper. The origami-made paper wallets, belts and even purses sell at a price between 10 and 15 dollars each. His earnings are far from being a fortune, but at last he can make a living and send to his family in Venezuela about 15 dollars from times to times, “enough to have a breakfast” as he says.

That is a big deal: according to the annual Survey on Living Conditions released by 3 Venezuelan universities, in 2017, 90% of Venezuelans reported that they don’t have enough food for a healthy living. 74% of Venezuelans reported involuntary weight-loss caused by starvation, at an average of 11.4 kg (25 pounds) per person. More than 61 percent of respondents said they had gone to bed hungry over the past three months. Alarmingly, workers of the PDVSA, the National Oil Company in Venezuela, are quitting their jobs by hundreds because of anemia. They just don’t get enough calories to resist the hard work in the single industry that brings some wealth to the country.

Segovia has no worries for getting cheap paper to make his items from. His artwork is made of Venezuelan bolivar bills. He had this idea while looking to a pile of bolivars with his cousin, back in Venezuela. “We had a lot of cash but nothing to buy, because in Venezuela your money is worth nothing”, he says. Each item that Segovia crafts is made of 800 to 1000, 50 and 100 bolivar notes. That makes roughly 70,000 bolivars which value is less than 50 US cents on the black market.

With an inflation level in the three zeros range, Venezuela’s national currency loses value from one day to another. And the International Monetary Fund projects an inflation of 13,000% by the end of 2018.

The destruction of the bolivar by state driven hyperinflation ended with Venezuelans using foreign currency and doing barter for daily exchanges. Even the Venezuelan government tries to replace it with the Petro, a cryptocurrency based on oil.

To prevent us following Venezuela to hyperinflation and misery, we must understand why the Venezuela’s government has come to issue so much money. Chavez and Maduro’s socialist programs promised a social welfare greatly exceeding the taxpayer’s possibility to sustain it. To make up for the difference, Venezuela borrowed money up to the point where creditors stopped trusting that it will ever pay back. At that point, Venezuela’s Government only way to pay for the welfare was to print money. Far from being specific to Venezuela, today all the world Governments spend more than their tax revenues, either for welfare or for war. The difference is covered largely by adding to the debt, and slightly by printing money. Moreover, Governments pay the interest on current debts by issuing more debt, thus spiraling up the total. When the trust that Governments will pay back the debt is lost, the only way to cover for all the expenses and to pay back the debt will be by printing money. That is, by hyperinflation.

This pattern began since the creation of Central Banks. But it really went wild with the end of the Bretton Woods system back in 1971, when currencies where totally deprived of their linkage to gold: the only mechanism that was keeping the quantity of money in control. If we use gold as a reference, using CPI statistics, the US paper dollar lost 96% of its purchasing power since the creation of the Federal Reserve in 1913, from which 82% were lost since the end of the Bretton Woods.

Last month in the US, a new bi-partisan spending bill signed in effect by the president allows for another trillion-size increase of the national debt over the next 2 years. This adds to the current debt of almost 21 trillion US dollars. That, once monetized, will bring America on the list of countries devastated by hyperinflation. But, at least, we are not alone on this path.

If the world Governments and Central Banks didn’t learn the consequences of monetary debasement from thousands of years of economic history, at least they could learn from the present day’s tragedies in countries like Zimbabwe and Venezuela.

If the US Government won’t match its spending with the budget, and it won’t back the US dollar by gold as once did, we will all follow Segovia to handcraft origami paper artwork out of dollar bills.

 

Sources:

https://www.japantimes.co.jp/news/2018/02/26/business/venezuelan-family-recycles-worthless-piles-bolivar-bills-crafts-origami/#.WpWNh6huZPY

https://www.ucab.edu.ve/investigacion/centros-e-institutos-de-investigacion/encovi-2017/

https://www.caracaschronicles.com/2018/02/21/encovi-2017/

https://www.bloomberg.com/news/features/2018-02-22/hungry-venezuelan-workers-are-collapsing-so-is-the-oil-industry

https://www.bloomberg.com/news/articles/2018-01-25/imf-sees-venezuela-inflation-soaring-to-13-000-percent-in-2018

https://www.npr.org/2018/02/09/584431561/government-funding-lapses-while-congress-looks-to-vote-on-budget-deal

https://en.wikipedia.org/wiki/Bretton_Woods_system

https://www.zerohedge.com/news/41-years-after-death-gold-standard-look-how-we-ended-economic-purgatory

http://www.usdebtclock.org/

https://en.wikipedia.org/wiki/Petro_(cryptocurrency)


A Practical Private Gold Money System

The reason why people don’t use gold as money is that after the governments ceased to provide this service, the gold industry also failed to provide it.

One way people could use gold as money is gold cash. The reality is that with the current technology, producing any bill or coin containing small decimals of gold grams is several times more expensive than the gold content. By intensive R&D,  low-cost, low gold content cash may be achieved anywhere in future but now we have to look for an alternate system of gold exchange. One solution is a world network of gold banks providing pool-allocated and segregated accounts.

The gold monetary system can be imagined only with the client requirements in mind:

Clients want trust: clients would not keep their money with depositories that they don’t trust. Clients need to recognize the name of a depository as a certified gold dealer or refiner, a well-known brand, a trustful financial services business etc.

Clients want proximity: people need to know that they can walk, drive or take a short-distance bus or train to their depository to redeem their physical gold any time they need. You don’t have to ask clients a reason for wanting proximity, nor to convince them that the gold location is not that important. Take it as it is, serve them what they want. Proximity adds to trust: a local business is more trusted than a foreign company.

Clients want allocated accounts: it’s not that the clients want the same bar or coin that they put in the depository (the same serial number). Gold is fungible. But they want to redeem preferably the same number of coins and bars, with the same weights and from the same refiners. Again, don’t ask for reason. Take that as it is.

Just as gold depositories (banks) are constraint by client needs, clients are also constraint by nature and by… other clients:

Clients have a strong incentive not to redeem physical gold (except in extreme cases of natural disasters, government nationalization, war, bank runs). As long as the gold bars and coins stay with trusted gold dealers, gold depositories and secure transportation, the gold assayed certification remains valid and the gold is accepted not only by any gold industry player, but also by any depository client in the world. When a person redeems physical gold, he or she will have to re-assay it for a cost in order to deposit it again or sell it to a dealer. A person having redeemed gold would encounter difficulties exchanging physical gold with another person, by lack of trust. Though clients will very rarely redeem gold for the above reason, clients still need to know that they can redeem at any time. It’s one of those situations when you suffer for not being able to do something though when you can, you’ll most probably not doing it. All the thing is to know that you can.

Clients have a strong incentive to deposit small coins and bars. If clients want to exchange gold for goods and services, they need to deposit gold in the most fragmented possible way: deposit many 0.5 gram and 1 gram coins and bars, keep a few larger size bars for long term savings. This incentive helps depositories since the demand for small weight coins and bars comes from the clients and it is served by the gold refiners and dealers. The depository may need sometimes to recast gold in other weights for daily operations but this shall not be a main activity.

How the system works?

John in Saskatoon, Canada, has 1.5 grams of gold registered with the local gold depository of the Alpha Gold bank in Saskatoon (he deposited 2 coins, of 1 gram and 0.5 grams respectively).

Endel has 1 gram of gold in the books of Delta Gold Bank, deposited in the local depository in Tallin, Estonia.

John buys a Photoshop image created by Endel who is a freelancer, for 0.3 grams of gold, by completing an exchange on an online marketplace priced in gold.

In the books of Alpha bank, the account John will have 1.2 grams of gold in the Saskatoon vault. In the inter-bank clearing table, Alpha Bank will have -0.3 grams in relation to Delta bank.

In the books of Delta bank, Endel will have 1.5 grams in the Tallin vault, and another 0.3 grams stored at Alpha bank. In the clearing table, Delta bank will have +0.3 grams in relation to Alpha bank.

There is no need for Delta bank to redeem the bullion from Alpha bank. Clearings may be applied at the end of each day or week between gold depositories. There are situations when a depository may consider necessary to redeem gold from another depository:

– When a depository faces an increased number of redemptions from clients or other banks so it needs to bring in its gold;

– When there is a high imbalance between two depositories so a problem of trust arises.

The clearance of accounts with less than 0.5 grams of gold could be done in nature (until economically feasible low weight gold cash will be invented). From a movie ticket to a dinner in a restaurant, banks could find solutions to compensate when small fractions of gold remain at the closure of accounts.

Finally, for such a system to work, the gold industry should make a list of globally acceptable assayed, standardized coins and bars, and to use a common notation of accounts (e.g. in the form of IBAN numbers).

I hope the gold industry will work together for the creation of a gold monetary system, otherwise there is little chance to see it happen.


Dignity, Happiness, Independence And The State

There is a line of thought among the statesmen that the Government is responsible for the happiness and the dignity of the governed. The people should be aware of that. Each person in the society, they say, must know that there is a Government out there that will provide material assistance in case, for whatever reason, he or she falls in a state of poverty.

Thus, they say, the individual will rise from misery and it will recover its lost dignity. The individual assisted by the Government would be happier, more worthy and more independent.

Quite the contrary I think. Both happiness and dignity are the responsibility of the individual. They emanate from the inside out. If someone believes that the Government is responsible for its happiness and its dignity, it will expect the Government to come to its aid in case of need. This creates a state of dependency. The happiness and the dignity of the person will depend of the effectiveness with which the Government will answer to the person’s expectancy. “Will depend” is the opposite of independence.

An adult should know that the feelings of happiness and dignity come from within. This is the responsibility that comes with the advantages of being an adult. Ideally, this should be thought to a free child by an educator parent. Most often, this is not the case.

If the statesmen want to be helpful, they should repeat over and over to the people that each one is responsible for its own state of mind. In a given situation, the individual has the liberty and the power to choose its emotional response. To be successful with consciously choosing its emotional response and its state of mind, the individual must first know that it has the liberty and the potential to choose and second, to practice this liberty until it becomes good at it. The Government acts detrimental to this knowledge, hurting, maybe involuntarily, the society that it pretends to help.

While external circumstances like becoming very poor will shock and shake the affected person, the person will stabilize relatively fast if it has the psychological knowledge to do so. Given a state of misery and hunger and of being publicly humiliated for that, the individual still has the liberty to stand and to express its inner dignity.

That doesn’t lead to the conclusion that the Government shouldn’t continue to assist the individuals in trouble. There is another reasoning about this. Just remind to the poor that the material assistance is possible because everyone, including them, contributed to the budget allocated for social services. And make it clear to them that the assistance doesn’t make the Government responsible in any way for their happiness and for their dignity. Again, those come from inside.


Free Trade Is Communication

Without communication, humans are very little. Almost everything we do is related in one form or another to interactions with other persons.

We consider communication to be the exchange of sounds and gestures. The exchange of labor, products and services directly or by the intermediate of money as a medium of exchange, is labelled as trade or economic exchange.

The communication with the meaning of sound and gesture exchange is subject of enormous social judging and normalization but very weak Government interfering. The laws governing this communication do most often guarantee the free speech rather than restrain it.

The economic exchange is without doubt a social subject of interest and debate but the Government has the ultimate power of regularize it and it makes use of this power in abundance.

My idea is that all form of exchange between people is communication. It starts with a very simple exchange of a flower for a kiss, or a service for a “thank you”. Giving money or some object to someone else as a present is communication. It means we appreciate the role that the other person plays in our life. We give an amount of importance to its existence, we don’t ignore it.

The easiest way of seeing a trade of goods as a form of human communication is with children. How many times we see young children willing to communicate, to get to know each other, but being too shy to say the first words. We see them exchanging toys as a first “hello”. The material communication continues throughout our lives, just the needs that determine us to use it diversify.

We seek appreciation and gratitude, or forgiveness, for everything we do. This is also true when we use our hands, our minds and “our hearts” to do a labor or to create a product. The reward that we look for when we give our time and labor, or the product of our labor, is also a form of appreciation and gratitude for what we’ve done. That recognition can be a good word, an emotion that is shown to us or it can be very well a service, another product or money. But for some reason we call “communication” the reward in the form of words, gestures and emotions and we call “trade” the reward in the form of material things. Though the happiness that we feel for both forms of recognition can be at same intensity, the Government protects the first and taxes the later.

This is a call to all of us to be more open and more careful with our needs of interaction and to put free trade where its place is: next to free speech, in the common notion that is communication. Free, natural, unbiased, unrestricted.


Representation In Politics

Merriam-Webster Definition of represent
6
a
(1) :  to take the place of in some respect
(2) :  to act in the place of or for usually by legal right
(3) :  to manage the legal and business affairs of athletes represented by top lawyers and agents
b :  to serve especially in a legislative body by delegated authority usually resulting from election

My view is that what is currently perceived to be representation in politics, is not at all servitude. It’s all about several people who pretend to take decisions on the behalf of their constituents at the best, of the entire nation or world at the worst.

I do consider each voting person a mature individual, with its own character, will, desires, aspirations, ideas, beliefs, principles, all these changing more or less in time. Though people find common points with others, rarely two individuals match on almost every aspect, and rarely their agreements last as long as several years. One person sharing the same positions with thousands or even millions other people on each subject, serving them by only acting on their will and doing so for several years, is an absolute utopia.

Most of the people do believe that what’s good for them is good for the nation or for the world. Most of the people are looking for means to somehow impose their “good” on the society and they consider this legitimate.

Part of the people acknowledge that they don’t know what are the right actions to undertake for the “good” to be achieved so they are looking for knowledgeable people sharing their goals but better knowing what to do. They are ready to invest their power in those knowledgeable people, to act in their names.

Part of the people believe they know the actions to undertake for their “good” to happen. Most of them are reactive, they only talk about those actions. Few are pro-active, they step forward and compete for a position that grant them the power to act.

During election, a candidate can receive letters and messages with wish lists from thousands of people expressing their views on what decisions the future “representative” should take once elected and what fields of interest should be prioritized. The requests are diverse, many times different and even contradictory. Candidates receive contradictory advices even from their own staff, both in campaign and once elected.

The candidate in election usually sustains the ideas of the majority of the supporters of its party. It does so to win the election. Once elected, the chances that the “representative” will vote according to the will of the majority of its constituents is even lower. Either the elected person votes according to the party line, or in the case of strong personalities, according to their principles and disregarding both party directions and majority of constituents.

What kind of “representative” an elected person becomes is unknown at least when first elected. Statute and power changes people. A strong, independent candidate can be overwhelmed by its position once elected and align behind its party as well as a humble party player candidate can differentiate once elected, to become its own voice.

During a mandate, an elected person takes dozens of thousands of decisions. Considering a member of a Parliament, the field and the importance of their decisions are immensely varied. From a vote on a treaty to a choice of a secretary for the cabinet, everything has some impact on the life of every person of the nation.

What I think to be a good picture of the reality follows. Very few, pro-active people with a strong desire for statute and power, with a strong conviction that they know better what is to do for the “common good” of the Society and sometimes truly believing that they act in the name of their constituents or of the people, compete for a role in power. Once in power, they take decisions: rules that apply for everyone and change the life of every person in a nation. They act solo or in group, organized in camps called “parties”.

The actions of the elected are watched closely and diffused to the entire world by individuals named “journalists”, or on the whole, “media”. Some un-elected people form so called “civic associations”, “non-governmental organizations”, “syndicates” and “industry associations”, with the intention of influencing the elected towards decisions that they consider to be in their interest or of “common good”. The elected are very careful with their image as presented by the media and interpreted by the electorate. They use their relations and their influence to get positive reviews by the media and to score high in popularity.

The re-active people interested in politics spent 99.93% of their time acting outside of the decision-making scope. They do talk a lot about politics, expressing their frustration about what was or their hope for what could be. Once every several years, they vote to choose representatives. Though they are overwhelmingly disappointed by the elected ending their mandates, and despite their recognition of the fact that the actions of the elected in power are very much different than their promises as candidates and different than the will of the electorate, the people interested in politics will continue to vote and will be very critic with the people that don’t vote. They accuse the non-voting people of being guilty for the election of the opponent of their preferred candidate, that opponent often representing the definition of evil. They also accuse the non-voting people of putting in peril the stability of the social construct, causing chaos.

The non-voting people acknowledge that chatting, commenting or complaining is loss of time and energy. They also acknowledge that acting 00.07% of the time by voting, will only give power to someone who most of the time won’t do what they want anyway. Non-voting people tend to be more apathetic in relation with politics and political behavior. That doesn’t necessarily means that they aren’t pro-active or interested in other non-political fields like business, science, arts or entertainment. Part of them express a genuine interest for social affairs by protesting when necessary: that is when the elected take decisions that severely impact liberty and justice.

To return to the definition of represent, “delegated authority usually resulting from election” is well said. It’s not representation meaning that the elected will act per elector request. It’s more like a wild card for the elected to act as it wishes. Once this is understood, the fear of chaos is overcome and the excessive need for laws and regulations is healed, we can move over politics, delegate less authority, and spent more time and energy acting ourselves inside the decision-making scope.