Germany’s Gold Delusion

Germany’s gold is on the move. For the first time since official gold transactions became more transparent, the Bundesbank has given notice that a significant portion of its holdings will be transferred home from France and the United States. Ostensibly, this is just a matter of monetary housekeeping. But why now?

One possibility is that German policymakers believe that we are approaching an every-country-for-itself scenario – and only gold guarded by one’s own police is worth anything.

But this is more than far-fetched. The world in which financial trust breaks down completely between Germany and France or Germany and the US is one in which we have much bigger problems than where a country’s gold is located. International trade would collapse, and major global companies would struggle to sell their products. Having more gold at home, rather than in the vaults of the New York Fed, would be neither here nor there in such a situation…

Perhaps German central bankers sense a longer-term shift in international preferences away from the dollar and want to be ready in some fashion. This is plausible in terms of a future decline in the dollar’s importance as a reserve asset and safe haven. Reserve holdings of dollar assets (primarily by central banks) were worth around 2% of US GDP in 1948 and about the same in 1968. Today, such holdings are at least 15% of US GDP – with some estimates as high as 30%…

But moving Germany’s gold is hardly helpful in this regard. What would help is to turn the euro around – in the sense of convincing investors that the common currency has a bright future, because it is underpinned by a stronger monetary, fiscal, financial, and political union. When seen in this light, the physical location of gold is purely a distraction…

…Moving gold does nothing to keep inflation under control or change the behavior of central banks. The link between currencies and gold was irrevocably broken in 1971, when US President Richard Nixon decided to suspend the convertibility of dollars into gold for central banks. We have lived in a purely fiat money system ever since – meaning that our money’s value is not backed by gold or any other physical item…

German politicians would thus seem to be suffering from some serious delusions about the importance of gold and the effects of shifting its location. But they are right to worry about the ECB’s policies: Providing unconditional credit to eurozone governments is unlikely to make these governments more careful…

The German fascination with gold is a red herring. Its fear of wayward monetary policy is not.

Regular readers of this blog are aware of my dedication to Project Syndicate. I owe no loyalty to any unifying credo at the site. I’m not certain you could describe one – other than a predilection for modern and up-to-date economic analysis and thought.

I’m drawn back most often by the quality of writing and understanding of economics. Many of these Doctors of the science of economics [whatever that might mean] are individuals whose opinions frankly serve as fodder for discussion around a portion of our extended family. Whether the provocation be political, philosophical or directly concerned with economics – these functions served by a nation’s commerce within and without borders illuminate the bedrock foundations of how our society progresses.

Florida DMV yanks drivers license because newly married man takes his wife’s last name — UPDATED

A newly married South Florida man who opted to take his wife’s last name is fighting the state’s Department of Motor Vehicles after it suspended his driving license on grounds of fraud.

Real estate investor Lazaro Sopena offered to change his name following his 2011 marriage to Hanh Dinh in order to help his wife’s Vietnamese family perpetuate their family surname.

Shortly after their marriage, Lazaro Dinh obtained a new passport and Social Security card and changed his bank account and credit cards before applying to update his drivers license.

“It was an act of love. I have no particular emotional ties to my last name,” said Dinh, 40, who was born in Cuba and came to the United States at the age of 11 in 1984…

Lazaro Dinh was initially issued a new license after presenting his marriage certificate at his local DMV office and paying a $20 fee, just as newly married women are required to do when they adopt their husband’s name.

“It was easy. When the government issues you a new passport you figure you’re fine,” he said.

More than a year later Dinh received a letter from Florida’s DMV last December accusing him of “obtaining a driving license by fraud,” and advising him that his license would be suspended at the end of the month. Ironically, it was addressed to Lazaro Dinh.

I thought it was a mistake,” he said.

But when he called the state DMV office in Tallahassee he said he was told he had to go to court first in order to change his name legally, a process that takes several months and has a $400 filing fee.

When he explained he was changing his name due to marriage, he was told ‘that only works for women”…

Most states formerly in the Confederacy seem to take special pride in acts of stupidity. One of the qualities required of state officials must be ignorance. Certainly the scumbags in charge of the Florida DMV lead the pack when it comes to fear of modern society.

Aside from the fact that drawing this affair out to the point where a civil suit or federal intervention will be required – building a cumulative debt the state of Florida will have to settle with the happy couple – they also perpetuate nationwide laughter over the spectacle they make of themselves.

UPDATE: The state of Floriduh has relented. The DMV is reissuing Lazaro Dinh’s driver’s license. They say they will have to retrain some of their staff to understand that both men and women can change their names upon marriage. And might even have to include men marrying men, women marrying women.

Republicans fail at blocking aid to victims of Superstorm Sandy


Never forget how little Republicans care for Americans in need

A long-delayed $50.5bn aid package for victims of superstorm Sandy has cleared the US senate, three months after the storm destroyed and damaged hundreds of thousands of homes and businesses in New York, New Jersey and Connecticut.

The package, approved 62-36 by the Democratic-controlled senate on Monday, now goes to President Barack Obama to be signed into law…

All of the opposing legislators were Republicans. But nine Republicans joined Democrats in voting yes to narrowly cross the 60-vote threshold required to overcome a possible Republican filibuster, which could have delayed the bill indefinitely.

The senate also defeated a Republican amendment that sought to offset the Sandy aid with cuts to discretionary spending spread over the next nine years…

Sandy’s victims “have been waiting for three months for their federal government to step up and help them rebuild their lives and rebuild their livelihoods”, Barbara Mikulski, Democratic senator from Maryland, said.

They have been waiting and waiting…”

The Republican-controlled House of Representatives passed the $50.5bn package on January 15, largely with Democratic votes.

The $60.2bn in aid is short of the $82bn initially requested by New York, New Jersey and Connecticut.

This whole affair illustrates how little Republicans care for their fellow Americans. 31 of the 36 Republican senators who voted against aid for Northeast victims of Superstorm Sandy begged for federal aid for storm damage in their home states in the last year. If Christianity hadn’t beat them to it, the Republican Party would have invented hypocrisy.

Mobile phones irreversibly disrupt India

mobile India

In 2012, India had 925 million mobile phone subscribers. The phones have helped organize protests by middle-class Indians, most recently against the savage rape and slaying of a young woman in Delhi.

They have also starred in one of India’s biggest-ever scandals. The country’s most prominent politicians, journalists and businessmen were incriminated in a rigged auction of 2G spectrum; they were exposed by the secretly taped phone conversations of a corporate lobbyist…

In the early 1990s, when I first started living in a village in the state of Himachal Pradesh, the local post office, which tellingly had a broken clock and a nonfunctional phone, was still the main center of communications.

Like most residents of Mashobra, I had no phone at home — the government’s waiting list for one extended indefinitely into the future. I went often to the bazaar to make calls from a public phone and to pick up my mail at the small post office, where a migrant laborer or two would invariably request I write brief messages on postcards and money-order forms to their loved ones…

My application for a phone was finally approved in 1999; and Daulatram, who had then started to officiate as a priest at weddings and funerals, become one of my Bakelite’s regular users, along with a couple of young men looking for jobs outside the village.

But the prohibitive cost of national and international calls meant that I had to monitor the conversations and put the phone in a padlocked wooden case, lest a reckless talker plunge me into penury.

Mobile phones had arrived by then in India. But they hadn’t reached our village. Doron and Jeffrey date their rapid proliferation to 2000, when the cost of mobile calls per minute collapsed from 16 rupees to 4 rupees (about 36 cents to 9 cents). But I kept scribbling messages in awkward Hindi at the post office until the middle of the decade, when cheap, prepaid connections became widely available and known.

Cold statistics tell the story of this dramatic transformation much more vividly. Subscribers grew from 45 million in 2002 to almost a billion in 2012.

Pankaj Mishra is the author of much more than articles for Bloomberg. That doesn’t diminish the information, the feeling of what this truly disruptive technology is beginning to mean to life in India.

RTFA and enjoy his descriptive color, experience. Learn more and more about the changes, good and bad, brought by a device small anough to fit in your pocket – and give you access to the whole world.

Iceland wins court ruling over bailouts in UK and Netherlands

The Icelandic government was justified in refusing to compensate Britain for the state expense of bailing out depositors in Icesave, the court of the European Free Trade Association (EFTA) has ruled.

In a surprise conclusion to a long-running and acrimonious saga, the court said pan-European depositor protection rules do not require nation states in the throes of a financial crisis to honour fully the overseas liabilities of their failed commercial banks.

The government in Reykjavik said yesterday that it took “considerable satisfaction” from the ruling by the EFTA. Ministers in the Nordic nation of just 320,000 people had been preparing for defeat.

Icesave’s parent bank, Landsbanki, collapsed in 2008 at the height of the global financial crisis, threatening the savings of tens of thousands of UK residents who had opened high-interest-bearing online accounts. Iceland’s bank deposit scheme at that time did not have sufficient funds to compensate all its overseas depositors.

The former Chancellor, Alistair Darling, in the interests of domestic financial stability, paid out £3.5bn to these savers to ensure that they did not lose a penny, and then demanded that the government in Reykjavik pick up the bill. The Dutch government, which also bailed out its citizens who had opened Icesave accounts, did the same.

The critical element in the court’s ruling is left out of this article. Iceland and citizens are committed to completing repayment up to the level of depositors’ insurance mandated by the European Union. Brits and the Dutch panicked over the possibility of a run on their own national banks as a result of the collapse of Landsbanki. They decided to pay out 100% of deposits even if above the insured level. Then, they tried to get the whole amount they decided to pay out – from Iceland.

At first, the Icelandic administration agreed to transfer the money – which was close to half of the nation’s annual GDP – but then reversed itself after the decision was rejected by two referendums in Iceland in March 2010 and April 2011. The British government’s use of anti-terrorist legislation to freeze Landsbanki’s UK assets in 2008 after the bailout created widespread anger in Iceland.

The ruling by the EFTA, which has links with the European Union, does not mean the UK government will not be compensated for the expense. Iceland has so far used the liquidated assets of Landsbanki to pay out 90 per cent of what foreign governments are owed. This process will continue, the Icelandic foreign ministry said yesterday. But the ruling does establish the principle that national governments are not always responsible for the overseas liabilities of their banks that fail.

Nor are they responsible for the sillyass decisions about bailouts made by foreign governments.