Monthly Archives: December 2012

Breaking the Buck

In 1992, George Soros broke the Bank of England.  This is hailed as the greatest currency trade of all time.  Of course, it was not so great for England.  The pound fell by 30% over four months, and England had to drop out of the Exchange Rate Mechanism (ERM).  Soros is estimated to have netted $1 billion on the trade.

Jeremiah wonders if a modern-day Soros might not be planning an attack on our own inflated currency.  Soros has stated that a new world currency must replace the dollar.  Chinese banks are working to replace it with the yuan, and they have also asked the IMF to designate their Special Drawing Rights (SDR) as the world’s supreme currency.

Because SDRs are denominated in several national currencies, no single currency would enjoy an unfair advantage.

So, what would a speculative attack look like?  First, you need a thesis – some anomaly that is open to arbitrage.  In England’s case, it was the ERM.  When they say Soros “broke” the Bank, this currency peg is what broke.

America enjoys exactly such an anomaly.  Because the dollar is the world’s reserve currency, we are able to fund our national debt below market rates.  This makes American bonds a likely target for short sellers.  The thesis would be, “given America’s debt problems, bond yields should be 7%,” or, “the dollar should be worth fifty yen,” or both.

Next, you need another currency to trade long.  Helpfully, the IMF has just designated two new reserve currencies – the first since the Euro was created.  Any trader can now take a  speculative position in Aussies versus the dollar.

This brings us to the final requirement – a trigger.  You must launch the attack at a key point, and stampede other holders – like the Bank of China – into dumping their reserves.  Note that while the Fed can bid bonds up, they cannot simultaneously protect the dollar.  Our epic national debt is a fundamental weakness, and the thesis for an attack.

The trigger could be any event that spooks the bond market – a war, a downgrade, a default, or a weak bond auction.  The event could also be orchestrated.   Keep an eye on the next bond auction, January 10.  Happy New Year!

See also: Soros Convenes ‘Bretton Woods II’


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Second Class Workers

Unions do not always work in the best interest of the workers.  Jeremiah has described the proper role of unions in this essay.  In a tough job market, unions perform their basic function of protecting the members, but they also discourage employers from taking on new workers.  The members do well enough, but other workers remain unemployed.  This two-tier labor market has led to massive unemployment in Europe, especially youth unemployment.

Even among union members, we now see a two-tier system developing, in which older members are protected at the expense of younger ones.  Thus, the labor market is segregated:

  1. Elite union workers
  2. Second-tier union workers
  3. Non-union workers
  4. The unemployed

The answer from union leadership is, “everybody needs a good union job and screw the employers.”  This article will describe a more practical approach.  First, consider the incentives for each tier.  If you are in the elite, of course, you want to protect your privileges.  Never mind that this is contrary to basic ideas about collectivism that created unions in the first place.

If you are in the lower tiers, you are anti-union.  You are willing to work below the union scale because you just need a job.  You should move to a right-to-work state, and support right-to-work legislation.  President Obama quips that this means “right to work – for less money,” and that is exactly what you want.

Finally, if you are a second tier union member, you have some interesting choices.  You can campaign for reform within your union, you can join or create a different union, or you can quit.  If you quit, you will join the ranks of anti-union scabs who like their chances in right-to-work states.  Your best bet is to organize the younger members and press for reform by threatening to split off.

The Supervisory Board of Siemens AG has 20 members. As stipulated by the German Codetermination Act, half of the members represent Company share­holders, and half represent Company employees.

Alone among Europe’s unions, the Germans have this figured out.  They long ago realized that the unions – not the employers, and not government – must accept responsibility for full employment.  Germany has some powerful unions, like IG Metall.  They will accept shorter hours so that everybody can have work.  They also have seats on the board, and they know how much to demand without killing the golden goose – as the UAW did to GM.

See also:  IG Metall union sells out German contract workers

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Comrade Santa

bigbrother‘Tis the season for culture warriors to contemplate the meaning of Santa Claus.  Jolly Saint Nick with his bag full of merchandise is seen as a shill for Consumerist Christmas.  He represents both materialism and secularism.

On the other hand, we might say that unearned gifts from Santa represent the largesse of the socialist state.  If you believe in that, you might as well believe in Santa Claus, too.

Jeremiah leans toward the socialist interpretation.  For one thing, Santa is dressed in red.  Then, there’s this:

He sees you when you’re sleeping.  He knows when you’re awake.  He knows if you’ve been bad or good.

That’s right.  Santa has omniscient surveillance.  He is, obviously, Big Brother from Orwell’s 1984.

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Save the Checks!

US-Uncut-DC-logoJeremiah lives for ironic inconsistency – on both sides of the aisle.  Today’s topic is sustainability.  All across Europe, young people are protesting against cuts in social programs.  They are demanding their governments continue to pay for social benefits, like “free” health care in the UK.

Of course, UK Uncut is right to pursue tax evaders – that’s half the problem.  Their main idea, though, is that government is obliged to support its citizens.  This is a completely new theory of government!

The hard fact is that all government is a net cost to the taxpayers.  Government does not produce goods for export, and it does not have an infinite supply of money.  The citizens, in aggregate, support the government – not vice-versa.  “Tax the rich” is just a smug way of saying, “I am financially illiterate.”

So, President Hollande slaps the rich with a punitive tax – and Bernard Arnault decamps to Belgium.  This is pure symbolism, a distraction.  In America, our spending exceeds revenue by 100% every year!

Here is the ironic part.  These young, socially aware people are quick to tell you that burning fossil fuel is not sustainable.  Logging?  Not sustainable.  Meat?  You get the idea.  Mr. Clegg should adopt the language of resource scarcity:

“We’re sorry your dole check is smaller this month.  You see, the money pool is drying up and we’re having to harvest them before they can grow to maturity.  If we don’t act to save the money pool, we may see the dole go extinct altogether.”

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Morbid Nation

This piece began about a week ago, and then with today’s tragedy the pieces fell into place.  We were at Starbuck’s and a woman came in wearing a skull-print scarf.  Exactly what kind of depravity, Jeremiah wondered, has made skulls a fashion motif?


There are plenty of places, from Indochina to the Balkans, where people have seen real human skulls.  Much of the world’s population lives within recent memory of some mass grave or massacre.

Americans, fortunately, have never seen real horror – and so, like children, we make a fetish of it.  We adorn ourselves with festive skulls, and we play violent video games.  Notice that these shooters are always rich white kids from the suburbs.

Imagine packing up your Xbox and travelling back in time to 1950. “First person shooter” is a game?  Really?

A key element in homicidal psychosis is “dissociation.”  Recall how the shooters at Columbine were dressed – long coats concealing rifles, as in The Matrix.  In the matrix, life is cheap because it isn’t real.  Social constraints don’t apply, and you never run out of ammo.

How could someone do something like this?  Imagine – a grown woman wearing a skull-print scarf.

See also: Elegy for Colorado

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Backdoor Spending

It’s always nice to find both political parties united in support of the same dumb idea – in this case, the idea that certain expenses are “special” and should be encouraged via the tax system.  Every tax deduction is nothing more than a transfer of wealth from one class of taxpayers to another.  Along the way, most of this wealth will be absorbed by a third party.

The right can’t talk about ending deductions because that sounds like a tax hike, especially if you’re Grover Norquist.  The left can’t talk about it because deductions “give” to deserving people by reducing their tax payments.  Jeremiah is guilty, too.  He likes the special treatment for capital gains.

For an example, consider the tax deduction for mortgage interest.  This deduction is sacred, because every home owner in America relies on it – but does it really work?  First, it encourages you to take out the biggest mortgage you possibly can, because Uncle Sam will help with the payments.  This sounds like the formula for a housing bubble.

Now, Uncle Sam still has to raise revenue, so renters must pay more tax.  This deduction is simply a wealth transfer from renters to homeowners.  Who else benefits?  Mortgage lenders!  They get more business and higher margins.  That’s right.  They know you have that deduction, and they set their rates accordingly.  House prices are distorted, too.

Does that sound like a dumb idea?  It sure does, but no one in Washington will dare change it.  You can apply this same formula to any tax preference in the code.  Help with college loans?  Tuition goes up!  Help with health care?  Fees go up!

The Simpson-Bowles commission found $1.1 trillion of tax expenditures, which they call “backdoor spending in the tax code.”  If you are watching the fiscal cliff debacle in Washington right now, figures 6 and 7 in this report are your best guide to a bipartisan solution.   Jeremiah’s cap gains exemption gets the axe, too.

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African Leapfrog

Some were skeptical of our report on the One Laptop per Child project in Ethiopia, so here is another.  This article is mainly about tablet computers in Kenya but it mentions the earlier story, as well as Kindle readers in Ghana.

In Ethiopia researchers found that even in the absence of teachers, children figured out how to use tablets

What is interesting about all this, is the “technology leapfrog” effect.  Outside of rich South Africa, the continent never had much of a telephone network.  Evolving technology has allowed Africa to skip landline telephones entirely, and go straight to cellular. As a result, Kenya has become a leader in mobile payment systems.

Jeremiah wonders if tablets might also be a leapfrog technology, allowing Africa to surpass the overpriced schools in America.

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