Substitutes...

The tax liability levied upon U.S. citizens is one of the crucial elements that give value to the U.S. Dollar as a world reserve currency.

Since I have mentioned on this blog that sovereign governments will likely "mean revert" to different forms of organization (likely rejecting republican democracy in favor of simpler, more historical arrangements), what other currencies might fulfill a desire to place capital?

Since the Euro area will likely be relegated to the scrap heap of history, The Vatican can revert to issuing its own currency which may carry reserve currency status.

What about a currency based on Islam? On Buddhism?

My point here is that currencies can form balkanizing points just as well as geographical boundaries on a map.

Obama's prohibition against prop trading...

...will never work.

This being the U.S.A., it cannot happen.

One disadvantage of being a "nation of laws" is that fallible humans write the laws, which are "influenced" to a large degree by those who have access to the writers (draw your own conclusions regarding this fact).

So this country is somewhat unique in enforcing laws as opposed to enforcing more "social" relationships (such as class, nobility, etc.) The "spirit" of the laws are not enforced, and in fact to do so would invite disaster. Thus, we have monstrosities like the Tax Code, the breadth of securities and banking regulations, and many other examples of massive rule books which attempt to detail what you cannot do (as opposed to what you "should" do under a more pliant standard of enforcement)

So the rules (e.g.: the law) is written with loopholes via either unintended consequences or explicitly included by way of "influence".

Obama can wax on populistically and cite some standard of "fairness" (which apparently only he understands in total), but the rules will be bent and broken. They always are.

Fading this meme...

Polls are not very useful, as most market participants would rather disguise their intent and positions, but I thought this quite amusing:

"This time, almost three out of 10 investors said China posed the greatest downside risk, ranking it the second-riskiest market behind the European Union. "

Full article here.

I suppose its time for me to start focusing on other eventualities in the world economy...

Twice the pride, double the fall...

I recently revisited the infernal prequal trilogy (which must not be named). In one of the more interesting scenes, Anakin Skywalker informs his dueling opponent, Count Dooku, that his powers have doubled since they last met.

Count Dooku then states "Good, twice the pride, double the fall".

Now, this is an economics blog, so I will not bloviate about the heresy that manifests itself physically in the form of Hayden Christiansen playing Darth Vader, but...

Immediately, as a central nervous system response, I thought of this:

Fitch Affirms China at 'A+'; Outlook Stable

He almost has it!

The first article I have read in the MSM that sort of "glances" the fact that current account deficits are less about goods changing hands than the net desires of foreigners to hold U.S. dollar denominated financial assets.

And, dear reader, has the world gotten any safer? Has uncertainty regarding both short term and long term outcomes disappeared? In China? In the Euro area?

And yet we continue to hear about the "inevitable" demise of the dollar and the coming storm of inflation, in the face for strong U.S. Treasury demand, even for the long bond.


"There is no doubt that the pressure on the U.S. financial system [that led to the financial crisis] came from abroad," says Caballero, who is the head of MIT's economics department. "Foreign investors created a demand for assets that was difficult for the U.S. financial sector to produce. All they wanted were safe assets, and [their ensuing purchases] made the U.S. unsafe."

Humorous item du jour

We SHOULD be more liberal with our trade policies...just like China. Ridiculous.

Jan. 15 (Bloomberg) -- China’s government charged the U.S. with “backsliding” toward protectionism and said it should ensure its companies comply with foreign laws in the aftermath of Google Inc.’s threat to pull out of the country.

The U.S. use of trade remedies against China in 2009 was “unreasonable,” Ministry of Commerce spokesman Yao Jian said at a briefing in Beijing today. China’s officials hope that “multinationals’ parent countries, including Google’s home country, step up oversight of their companies’ overseas’ businesses,” he also said.

The comments signal China’s confidence that the dispute with Google won’t affect foreign companies’ plans, and came as a government report showed foreign direct investment into the country more than doubled last month. Microsoft Corp. Chief Executive Officer Steve Ballmer said yesterday in a Bloomberg Television interview that he wouldn’t consider exiting the market, citing the nation’s growth.

The Rating agencies...

...are at it again. Threatening downgrades against countries (and entire currency unions it seems) because of precarious fiscal positions, etc.

I have outlined my main disagreements with their methodology on this blog multiple times. The world of non-convertible currency creates much different cause and effect relationships than commodity-reserve type of arrangements. Its such a fundamental component of global capital that making an error in this type of analysis unfortunately effects all subsequent conclusions.

And so it goes with the large rating agencies. Inflation, rather than the ability or willingness to pay, is the endgame with non-convertible currency. The definition of "default" is therefore a bit more pliable than the ratings agencies would leave us to believe.