Monthly Archives: December 2015

Use Nuclear Weapons on Terrorists?

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Russian President Vladimir Putin said Wednesday the Russian missiles used to combat terrorists in Syria could be fitted with nuclear warheads, the Russian government-funded news agency RT reports.

He’s not talking to the terrorists in Syria, though. He’s talking to Poland, the Baltic States, and eastern European nations generally.

And to us.

Naturally, this is not necessary when fighting terrorists and, I hope, will never be needed,” Putin said of the possibility. “But overall, this speaks to our significant progress in terms of improving weaponry and equipment being supplied to the Russian army and navy.

Hmm….

A Weapon in an Economic War?

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A growing number of Central Bankers around the world are considering ways to develop and issue digital versions of national currencies, in response to and somewhat analogous to Bitcoin.

This raises a question in my paranoid pea-brain.

Many electronically delivered items, most ubiquitously music and books, but software programs, also, are delivered with DRM—Digital Rights Management—software embedded in them. These DRM thingies are used to limit, for instance, subsequent redistribution of the items without prior permission from the original seller.

Many electronically delivered items, primarily images here, although the concept need not be limited in practice, also have embedded in them malware, encrypted messages, and the like. This is what steganography is all about.

So: what’s to keep a nation’s Central Bank from embedding DRM and/or steganographic files in each unit of its digital currency? A couple of uses come to mind.

One use is simply to track the currency unit’s—a dollar, maybe—movement around the globe from the time of its initial issue. The economic information from such gloriously detailed information boggles the mind. The economic information made available to intelligence agencies about the inner workings of another country’s economy and government handling of that economy is equally boggling.

But think of a country with a large holding of a foreign currency as a reserve—the way the PRC’s renminbi, the US’ dollar, the EU’s euro, Great Britain’s pound, and Japan’s yen are used. Think further of a country whose foreign exchange holdings represent a significant fraction of that nation’s cash on hand.

Now think of the outcome if a file embedded in the particular units held were triggered, and all those units of the targeted digital currency were simple erased and ceased to exist as if they never were.

The mind reels.

Negative Interest Rates?

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University of Michigan Professor of Economics and Research Professor of Survey Research Miles Kimball had an interesting remark the other day in The Wall Street Journal. The article itself was a discussion of the EU’s Central Bank use of negative interest rates on deposits, of national Central Bank use of negative interest rates on deposits, even of some commercial banks such use.

In the context of an additional discussion of whether the US Fed should go that route amid concerns about whether rates are already so low in the US that there’s nothing the Fed could do to influence a future recession (assuming it’s a good idea at all for the government to interfere intervene with the market), Kimball said this:

It’s wrong to say central banks have run out of ammunition. Negative rates can be on tap before the next recession. There’s no limit to how deep we can go.

In an environment of negative interest rates—where depositors are paying the banks to store their money—why would depositors put their money into a bank, or any other financial institution, come to that, as mere deposits? These deposits are the source of funds from which banks and other lenders draw in order to make loans. Where else will such institutions get the funds to lend? If the lenders lend even less than they are now, with interest rates near zero but positive, from where will the capital come to support business factory maintenance, production expansion, short-term payroll needs, supporting credit card borrowing by consumers?

Now magnify this by the fractional reserve requirement imposed on lending institutions: a bank must keep a certain per centage of its loans outstanding as cash held in the bank, whether directly or as deposits in the Fed.

Hmm….

An Iron Curtain

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The USSR set up an Iron Curtain around its nation and its “sphere of influence” in Europe that was designed to keep its citizens from leaving for greener pastures. The Curtain became a real, physical barrier in the form of the Berlin Wall. To a large extent, it worked: even though citizens did manage to escape, the outflow was reduced markedly, and far too many citizens died on the Berlin Wall (or under it) attempting to escape.

Now the proud Progressive and Democratic Party Presidential candidate wants to erect an Iron Curtain around the United States designed to keep American businesses from leaving.

Hillary Clinton’s plan to deter companies from leaving the US will include an “exit tax,” her campaign said Monday, making it even more restrictive than President Barack Obama’s proposals.

Never mind that American business owners and managers have a fiduciary duty—embedded in our laws as well as our morality—to maximize profits for the company and its owners—partners, shareholders, Mom and Pop. Never mind that this mandate to maximize profits necessarily includes minimizing costs. Never mind that the US taxes its businesses at the highest rate in the world, and that these tax bills are significant costs.

Never mind that minimizing the tax bill is a necessary part of that fiduciary duty, and it must, then, include consideration of foreign tax environments—and tax inversions, the process of buying, or being bought by, companies in jurisdictions that have lower tax rates and then moving the company into that lower tax jurisdiction.

Mrs Clinton would…require[e] companies to pay US taxes on deferred foreign earnings if they attempt to “game” her new threshold….

The current “threshold” is current law that allows inversions so long as the American company’s shareholders will own less than 80% of the new, merged company. Clinton’s lower threshold is, carefully, not yet specified.

This is the sort of barrier to our economic freedom, the sort of increase in Big Government taxation, the sort of destruction of our individual liberties to which we can look forward if we get this Progressive Democrat for President.

This is only a precursor to additional barriers to free movement we can expect from this Progressive Democrat.

It’s Not A New Idea

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Adam Smith articulated it two and a half centuries ago, for instance.

The prudent man always studies seriously and earnestly to understand whatever he professes to understand, and not merely to persuade other people that he understands it; and though his talents may not always be very brilliant, they are always perfectly genuine. He neither endeavours to impose upon you by the cunning devices of an artful impostor, nor by the arrogant airs of an assuming pedant, nor by the confident assertions of a superficial and impudent pretender.

 

h/t The Wall Street Journal