Sunday, August 23, 2015

Who Is Underwriting the Drug Lords?

Buying and selling illicit drugs is a cash business.  The medium of payment consists largely of US$100 currency notes.  The Federal Reserve Bank estimates that 50-70% of US currency is held abroad, either as a store of value against local depreciating local currencies, or as a medium of exchange.

Over the past twenty years, the value of $100 currency notes in circulation has more than quadrupled.

Value of Currency in Circulation in Billions of Dollars, 1984 and 2014
Denomination 1994 2014 Increased Value Percent
1994-2014 of Increase
$1 6.10 11.00 4.90 0.5%
$2 1.00 2.20 1.20 0.1%
$5 7.30 13.10 5.80 0.6%
$10 13.80 18.90 5.10 0.6%
$20 80.50 162.20 81.70 8.9%
$50 43.90 76.90 33.00 3.6%
$100 229.10 1014.50 785.40 85.7%
Total 381.70 1298.10 916.40 100.1%

The Bureau of Printing and Engraving is working overtime to print $100 Federal Reserve Notes. Why would an agency of the federal government respond to this enormous increase in demand when it knows that a substantial portion underwrites the drug business?

U.S. currency notes are liabilities of the Federal Reserve Bank, which are matched by interest-earning assets.  After paying the costs of running the Fed, the surplus is turned over to the U.S. Treasury. During 2010-14, the surplus amounted to $431.4 billion, thus relieving the government of raising that amount in new taxes or borrowing.

One way to reduce the drug trade is to stop printing $100 notes and perhaps cap the supply of $50 notes in circulation.  It will be a lot harder for the drug lords to conduct business if they have to deal in giant stocks of $20 notes.

Freezing the supply of $100 and $50 currency notes will not pose any hardship to American producers and consumers since ATMs supply $20 notes and an ever-increasing share of payments are made electronically.

Of course, an easier way to curtail the drug trade is to legalize drugs, as is the case with marijuana in several of the states.  However, it is much easier to stop supplying more $100 and $50 notes than get Congress to legalize drugs.

Friday, August 21, 2015

Wy Greece Got Its Bailout

First, Europeans must never be deprived of their sacred right to a summer vacation.  The negotiations that begin early in 2015 were concluded in principle just in time for German Chancellor Angela Merkel and her fellow Eurozone leaders to take their annual summer vacation.

Second, Merkel did not want to be blamed for any dissolution of the eurozone, which would tarnish her place in history.

Forget every other explanation that economists have put forth, and will continue to offer, why Greece had to remain in the eurozone for its own good and that of Europe.

This third Greek bailout of $95 billion will see Greece through this year and next, insuring that Europe's leaders can look forward to their 2016 summer vacation with equanimity.

Don't laugh!  Remember, World War I broke out on July 28 and World War II on September 1, leaving time for summer vacations in both periods.

Friday, July 17, 2015

Coloring Books for Adults

Your friendly proprietor was walking from a parking garage at Stanford to his office on the other side of campus when he passed a group of six-year olds wearing orange t-shirts with the words "Media Academy" printed on them.  I have been reading numerous stories of two-year olds using ipads, kindles, and other digital devices.

Imagine coming across an Associated Press story on July 15, 2015, "Trendy But Calm:  Adult Coloring Books Selling Like Crazy."  Indeed, at one point during that week adult coloring books occupied 8 of the top 20 slots on Amazon's best-seller list.

Are adults regressing to their childhoods?  One book title hints at their fast-rising popularity:  "Adult Coloring Book:  Stress Relieving Patterns."  Adults are joining coloring clubs, entering coloring contests, and posting on social media about the therapeutic benefits of coloring (presumably within the lines?).

There it is.  Fearless six-year olds taking over the digital world as their parents sit at home coloring books to relieve stress.  I suspect the subject of next year's camp for seven-year olds will be how to monetize their media apps and/or platforms, which will likely be taught by financially successful eight-year olds.

Thursday, July 16, 2015

It's time for a Little Honesty on the new Greek Bailout

Greece and its creditors--European Commission members, the European Central Bank, and the IMF--have been playing a game of pretend to oppose austerity and pretend to keep Greece in the Eurozone.

Neither matters nearly as much as enabling everyone involved to go on their European Charter guaranteed right of five weeks vacation beginning the last week in July and extending through the end of August.  Summer vacation is sacrosanct in Europe. Neither rain, sleet, hail, tornadoes, floods, heat, cold, fire, wind, earthquakes, or any other crisis can be allowed to disrupt the summer vacations of the residents of Europe's social market economies.

So to all our European friends, bon voyage and guten appetit! September will be soon enough to deal with any Greek problems that remain unresolved.

Monday, July 13, 2015

Greditors 1, Grebtors 0

To expand the universe of new "Gre" words, the EU's humiliating agreement to grant Greece another loan was a total victory for the Greek creditors (Greditors) and a stinging defeat for the humiliated Greek debtors (Grebtors).

Greeks now understand the Golden Rule:  He who has the gold rules!

Friday, May 29, 2015

Whatever Happened to The Third Way of Bill Clinton and Tony Blair?

The Third Way is a position that tries to reconcile right-wing and left-wing politics by synthesizing conservative economic and social welfare policies.  It was exemplified by a group of political leaders in the 1990s that included President Bill Clinton, Prime Minister Tony Blair, Chancellor Gerhard Schroder, and leaders of Brazil, Portugal, the Netherlands, and Israel.

The Third Way dissipated after Clinton and Blair left office, becoming the way to acquire vast fortunes.  President Bill Clinton accumulated an estimated $130 million in personal wealth, Tony Blair anywhere between $45-100 million, and Al Gore $300 million.

Many politicians and appointed officials of all stripes–left, center and right-prosper after they leave office.  These include cabinet officials, agency heads, generals, legislators, governors, mayors, and other prominent public officials.  Public service has become a path to millions in private (self) service.  No doubt President Obama will top them all with a book contract, board memberships, speaking fees, investments, and partnerships.

It is not illegal to reap large rewards trading on influence and contacts made during office after leaving office.  Nor is it necessarily unethical.

Your friendly proprietor believes that “public service,” which conveys a higher order of virtue than earning a living in the private sector, should not be a means to acquire large fortunes.  It demeans the high offices these individuals held.  He finds this kind of money-grubbing distasteful, unbecoming, and undignified.  Better are the words of Star Trek’s Lieutenant Worf, “they have no honor.”

Is it any wonder that public servants are held in such low regard.

Friday, May 8, 2015

Identity Politics in the United Kingdom

Why did the pollsters get it so wrong in the United Kingdom?  How can this be?

The pollsters were not willing to accept the rise of identity politics. They could think only in conventional class terms of right vs. left, Conservative vs. Labor.. 

Identity prevailed:

Scots voted for Scotland (the Scottish National Party).
English voted for England (the Conservative Party).

Diversity failed:

Diversity oriented Brits voted for a United Kingdom (Labour, Liberal Democrats).  They were trounced.

Ethnicity is now the dominant factor in British politics.  Get used to it.