An example of how the not so lean but still mean Bureaucracy Autocracy machine works.

First expert technocrats concoct and impose bank capital requirements implying their bureaucrat colleagues, those with no skin in the game, know better what to do with credit than e.g., small businesses.

“Assets for which bank capital requirements were nonexistent; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

Then politicians "complain" banks are not lending sufficient to small businesses.

And so, bureaucrats with access to lots of credit, further subsidized by central banks QEs and the preaching of MMT, design their own lending programs to small businesses, implying they know much better how to lend to small businesses than bank loan officers. This generates new jobs for loads of new bureaucracy associates, while adding loads of costs to be paid by tax payers or inflation.

Just an example of how Bureaucracy Autocracies empower themselves to grow and grow and grow

Of course, no matter those preaching MMT promise easy money ever after, that is unsustainable. The members of the fallen Bureaucracy Autocracies will also suffer. 

Citizens in countries suffering the curse of centralized oil revenues, they don’t live in a nation but only in somebody else’s business. Opposition politicians in such nations, more than changing that, usually only aspire to be the new owners of the business.

The same can be said of all countries suffering the easy public credit curse. Citizens there live in the business of their respective Bureaucracy Autocracy. Most of their respective opposition politicians, sometimes all, also aspire to be the new owners of that business.

Bureaucracy Autocracies were empowered by stealth.

Is freezing at Christies US$ 450 million in purchasing capacity in Leonardo Da Vinci’s Salvator Mundi something good or something bad?

Clearly Leonardo da Vinci has to personally, from above, be extending his deepest gratitude to Janet Yellen of the Federal Reserve and Mario Draghi of the European Central Bank. Had it not been for their quantitative easing (QEs) and ultra low interest rates, he would never ever have seen his Salvator Mundi valued, so soon, at an incredible US$ 450 million.

Of course the wealth redistribution profiteers will scream bloody murder. The US$ 450 millions is like a voluntary tax that has escaped their franchise. 

The real question though is: Was the freezing of US$ 450 million in purchasing capacity in a painting (or in a storage room), like with a sort of voluntary tax, something good, or something bad. If bad how do you reverse it without other negative unexpected consequences?

But, for the time being, what is much more interesting is what are the vendors to do with US$ 450 millions in cash?

Curses and blessings quite often come hand in hand

I will keep here my reflections on the subject in Kenneth Rogoff’s book “The Curse of Cash”. (For full disclosure I have yet not found the time to read it in its entirety)

In my comments I will often also refer to Professor Rogoff’s blog.

Kenneth Rogoff writes: “But for all the advantages of cash, we have to recognize that the current system is badly off kilter. A lot of central banks and finance ministries know it, as do justice departments and tax authorities.”

I fully agree, 100%, but do “We the People know it? There are reasonable and unreasonable doubts out there. And I am not 100% sure among which of those mine could best qualify.

Should not abolishing larger anonymous practical ways of storing wealth have to be subject to something like a referendum? I have no idea?

Yes cash might cause some local tax evasion, but does anyone really believe that big tax evaders keep their fortunes in cash like some seem to say? I just know that the word “cash” is open to all types of confusions (that are sometimes exploited)

Cash in hand, if devalued, looses its value equally for all. Non-cash can be devalued discriminatorily. Do we want our grandchildren to be subject to such great Big Brother power? As a Venezuelan, not me for sure!

Cash, as can oil, can indeed be a curse. But does that mean that we in Venezuela should stop extracting oil? I don’t think so.

And how would the elimination of for instance $100 bills, that might represent about one trillion dollars take place? I have no clue.

Would it not just dramatically increase the value of other assets? Not much, it seems like peanuts when compared to what is done with Quantitative Easing.

Do I want cash to assist drug trafficking? Of course not, don’t be silly.

Rogoff writes: “but most world holdings of dollars are in the underground economy (crime and tax evasion). I am not sure. First of all because I do not agree that all underground economy must be either illegal or bad. Then because I think criminals have many alternatives of how moving cash into something else. Moreover, much cash might make even many hardened criminals nervous.

The solutions I offer are ignored. Might it be because these provide too little business to expertize and redistribution profiteers?

Before the 2007-08 crisis there was some economic growth resulting from a big expansion of credit, which was fed by some very low capital requirements to banks and that allowed these to, in some cases, leverage their equity over 50 to 1.

Then disaster struck, as a consequence of excessive exposures to what had very little capital requirements, like loans to sovereigns (Greece), investments in AAA rated securities and the financing of houses. 

In panic, floods of money, for instance by means of QEs, were poured over the economies, with little results to show for it, and now, the most important world economies, are stuck. Any additional stimuli, be it by means of public borrowing for infrastructure projects, QEs or low or negative interest rates will only complicate matters much more... like for pension plans.

The truth is that trying to get strong and sustainable economic growth, while keeping in place credit risk-adverse capital requirements for banks that exclude SMEs and entrepreneurs from fair access to bank credit, is just impossible.

What to do?

1. Very carefully remove the risk-weighted capital requirements for banks that distort the allocation of bank credit to the real economy. In order to make sure banks have sufficient capital while adapting, and that credit is not constrained, central banks could offer to purchase some of their bad portfolios, with the understanding that no dividends would be paid until these portfolios had been repurchased by the banks. (See what Chile did)

2. Create new demand (and lessen inequalities), by means of 100% tax-funded Universal Basic Income schemes. One of these could, if funded with carbon taxes, also help with environmental sustainability.

I have been arguing against the risk weighted capital requirements for banks for soon two decades, and I have explained many of its mistakes over and over again. I have yet not been able to obtain one single answer from those responsible, like from the Basel Committee or the Financial Stability Board. Could it be because they have no answers? 

Or could it be that my counter proposals are too straightforward, to simple, and would therefore erode the earnings potential of bank regulators (and consultants), of climate change and inequality fighters, and of the general expertize and redistribution profiteers?

Or is it that I just don’t know what I am talking about? It could be, though I think I can prove I do know by means of somecertifiable early opinions on these issues.

With interest rates and bank credit officially manipulated, what market-fundamentalism does statism's nobelist Stiglitz refer to?

We have many central banks purchasing public debt in outrageous amounts, and thereby manipulating and distorting all interest rates yield curves in favor of their governments.

And the regulators, with their risk-weighted capital requirements, allow banks to leverage much differently their equity, depending on the ex ante perceived or decreed risk; something which distorts entirely the allocation of bank credit to the real economy.

And since the risk weight of the Sovereign has been decreed 0%, while that of We the People has been set at 100%, most of that regulatory manipulation is in favor of the government.

And then time after time we hear experts, like Nobel Prize winner Professor Joseph Stiglitz, attributing most of our current problems to neo-liberalism and market fundamentalism; and often suggesting that the solution lies in increased government spending. What free markets are they referring to? In Stiglitz case, could it be he is only a statist nobelist creatively adapting the facts to his storyline?

PS. I have not read Stiglitz’ “The Euro” yet but, from what I hear he does not link Euro’s troubles in any way to loony bank regulations.  The Euro did indeed present challenges but, when in Venezuela I wrote my “Burning the bridges in Europe”, I had no idea it would also have to face such statist and distorting regulations.

PS. When utilities were being privatized in South America, I often heard accusations in terms of savage neo-liberalism. Since these utilities were not adjudicated to whoever offered to serve us citizens the best and the cheapest, but to whoever offered to pay the government the most, a tax advance that left us with a huge bill to pay at private investment rates of return, to me those privatizations were more an expression sadist statism.

My current list of prominent inequality drivers

I do not care about some having much more wealth than others, for instance having Picasso's on their walls that if taken down only had to go up on somebody else’s wall… and I fret where all those jobs which are based on obnoxiously expensive manual procedures would be were it not for the insanely wealthy… and, if there were no accumulation of wealth where would all those savings that can be invested come from?... 

But I do care profoundly when wealth is acquired by ways of opportunities not accorded to everyone... like mothers (and fathers), not getting any direct monetary societal reward, for their extraordinary efforts when staying home to lovingly take care of their children.

And here are some new non traditional inequality drivers of which I am currently most suspicious.

Intellectual property rights which give way to incredible fortunes… there should be some more explicit limits on these… like a maximum amount of profits covered … a fixed number of units produced protected… or at least that profits derived from intellectually protected activities should be taxed at a higher rate than profits derived from competing naked in the market.

Monopolies… profit derived from monopolies should perhaps be taxed at a higher rate than ordinary profits.

Market shares/globalization… profit derived from activities that have achieved especially large local or global market shares should perhaps be taxed at a higher rate than ordinary profits.

Financial returns produced by the fact that banks because of implicit government guarantees are able to hold less capital than other normal commercial entities should be taxed at a higher rate than ordinary on their profits… something which they could naturally avoid by simply keeping more capital. 

And then there are those regulatory inequity drivers like pushing quantitative easing flows through a banking system with risk-weighted capital requirements, which so much favoring what is perceived as absolutely safe so much discriminates against what is perceived as risky, and something which of course impedes that liquidity and credit gets to where it is needed the most.

And had it not been for bail-outs and QEs Piketty’s book Capital in the 21st Century would not stand a chance to have seen the light as so much wealth would have been wiped out. 

And then there is the wealth tax, which if applied in a system where inequalities like those explained above persist, will only end up concentrating wealth more and more among fewer and fewer Plutocrats.

And, of course, perhaps foremost, all those other sources of discrimination that exist and hinders some from having the same opportunities as others... and all those resulting from the many existing inequalities at the start point.

And the list goes on, and the list goes on.. most likely including the low interests too.

And I also utterly dislike those who are only out to make a buck on the redistribution of wealth. If there is going to be redistribution do it through a system that guarantees that at least 99% goes where it was supposed to go… and that it all does not end in the hands of for equality fighting opportunists

But before ending let me pose the BIG Q.: Professor Thomas Piketty. What’s better, to live in your own inequality, or in somebody else’s equality?