Structural Pliancy

Don't be fooled—it's flexible at the top.

A lot of people—and I am one of them—claim that personal and business freedoms are being eroded as never before. They show as evidence the roll-back of civil liberties, the over-regulation of business, the insistence on “compliance” by the various security agencies of every little rule, no matter how trivial—in short, the over-regulation of American life.

They are right: The U.S. government is guilty of over-regulating individuals and businesses—egregiously so.

On the other hand, a lot of other people—and I am one of them too—claim that certain persons and corporations act lawlessly as never before. They show as evidence the abuses of power of those in leadership—be it business, government, the military, or the intelligence/security aparatus—and they insist that something has to be done about it, some regulations have to be imposed.

They are right too: The U.S. government is just as guilty of under-regulating certain individuals and businesses as it is of over-regulating other people and businesses.

Obvious question: How can they both be right? How can it be that a few people, a few businesses, a few institutions are getting away with murder—in some cases literally—while most of us are under a crippling yoke of excessive, dishonest, petty and trivial rules and regulations that either serve no purpose, or actively pervert the welfare of our society?

Simple answer: Structural Pliancy.

Let me explain.

You Are Free To Travel—If The IRS Lets You

A bill that nobody is paying any attention to is sailing through Congress: Senate Bill 1813. It passed the Senate by 74 to 22, and is expected to sail through the House as well. It’s an act “[t]o reauthorize Federal-aid highway and highway safety construction programs, and for other purposes.”

It’s the “and for other purposes” part of the title that has me worried—specifically Section 40304: “Revocation or denial of passport in case of certain unpaid taxes.”

This section would give the IRS the power to keep a U.S. citizen from traveling—

—and it’s another example of Executive Power run amok. It’s another example of how the United States is turning into a police-state.

The right to travel freely is sacrosanct—it’s not some privilege that the government bestows on us: It’s one of our basic freedoms as citizens. In point of fact, the countries that have limited their citizens’ ability to travel—the Soviet Union, the People’s Republic of China, North Korea, Cuba—were all rightfully called “police-states”: It’s one of their defining characteristics—the fact that they were keeping their citizens hostage.

In the United States, there are several, clearly defined reasons why you would have your passport either denied or revoked—and all of them pass the smell test.

Will There Be A “Corralito” In Spain?

Yes, it’s a metaphor. Of what, I dunno.

How Spain could exit the eurozone—a practical guide.

In late 2001, while everyone was in shock over 9/11, the Argentines were going through a little shock of their own: The “Corralito”.

Argentina was bankrupt, a product of a stagnant economy, rampant crony-corruption, and—most important of all—of having its currency fixed to the dollar. This currency peg had created a huge credit bubble, and of course massive capital outflows as a result, eventually leading to the depletion of foreign reserves by the government and an inability to raise more funds on the open markets.

In other words, sovereign bankruptcy.

Coupled to these problems, in the months leading up to the December 2001 crash, people were aware that the country was going bankrupt—so they were quickly converting all their Argentine pesos into dollars, and then sending this money to safe havens overseas.

To solve these problems of sovereign insolvency and massive capital flight, and at the same time to stabilize the situation, on December 1, 2001, the Argentine government imposed the infamous corralito—literally, the “little bullpen”: A series of measures designed to hold in capital and prevent it from fleeing the country, while devaluing the currency to a more realistic, sustainable rate of exchange.

As part of the corralito measures, the Argentine government froze all dollar-denominated bank accounts; converted those dollars into Argentine pesos on a one-to-one basis—that is, confiscated people’s dollars; limited all withdrawals in Argentine pesos to a weekly maximum of AR$250 (you read right: per week); and of course—the cherry on the sundae—it devalued the Argentine peso against the dollar.

The devaluation was at first a “mere” 40%—but shortly thereafter the Argentine peso was allowed to float: And it dropped to a rate of four to one against the dollar.

Literally millions of people lost their life-savings in one fell swoop. The local equity market tanked catastrophically, as did the local bond markets. People on a fixed income also got clobbered, as their pensions lost their purchasing power by 40% overnight—and then eventually by 75%.

Chaos ensued.

Now, the situation in Europe today is virtually identical to that of Argentina in 2001: Overleveraged, with an insolvent banking sector, a flatlining economy and growing unemployment.

But of all the countries, Spain in particular is the biggest trouble.

Spain Will Exit The Eurozone First—This Year

This post is adapted from a piece that originally appeared at my Strategic Planning Group. I've been doing a lot of work over there—hence the scarce postings over here. Sorry! GL

In the LiraSPG Scenario “When The Euro Breaks”, I discussed what would happen to the euro and the eurozone when those countries—unable to continue under their massive debt burdens—began exiting the European monetary union.

One of the assumptions I made was that one of the smaller nations of the eurozone would leave the monetary union first, thereby encouraging one of the bigger nations to follow their example and leave as well. I postulated that the small country would likely be Greece, and that the large country would probably be Spain.

From this exodus, I analyzed what would happen to the euro vis-à-vis gold and the rest of the world’s currencies—namely, that the euro would suffer a staggered loss of value against commodities and other currencies: An initial drop-and-recovery when the smaller nation exited the eurozone, followed by a sustained drop when the big nation exited the monetary union.

The Scenario was written and published on the LiraSPG site in May 2011.

Since then, I have changed my mind: I no longer think that a small country will exit the eurozone first, followed by one of the bigger countries.

I now think that Spain will exit the eurozone first—precipitously and without warning—and that the impact on the euro will be much more sudden and dramatic than I had earlier thought.

In this SPG Supplement, I will explain my thinking. First I will discuss the general European situation; then the Greek debacle, and how the European leadership has lost sight of what salvaging Greece was supposed to be about; then the current Spanish situation, how it is unsustainable, and how the new Rajoy government’s only escape—politically and economically—is to default and then exit the eurozone.

The Execution of Lady Jane Grey

The Execution of Lady Jane Grey
by Paul Delaroche (1830).
(click to enlarge)

I’m an arts junkie. Since I was a kid, I hoovered up just about every piece of literature, music, art, film—whatever I could lay my hands on.

Because I started to appreciate art at so young an age, I’ve got a healthy promiscuity in my tastes, and lack any snobbery about what can be great art. Pop music or academic paintings, cheap industrial design or refined Swiss watches—it’s all good to me.

What I loved was the high you get from discovering a truly great work of art. I loved the familiarity that great art produces in you—the sense that you’ve seen this work before (when of course you never have), heard this music before (when of course you never have), heard this story before (when of course you never have). Few people can remember the first time they heard The Police’s “Every Breath You Take” or The Beatle’s “Yesterday”, or saw The Godfather or Casablanca—they can’t remember because they are such perfect works of art that they slip into your consciousness as if they’d always lived there. As if they are as much a part of you as breathing.

So I went to the Louvre today, the first of a six day exploration I have mapped out—and it was a bit disappointing: I’d seen everything already.

Certainly it was a thrill to see, say, David’s The Coronation of Napoleon in the flesh. The sheer size of the painting made it memorable—after all, all of the version’s I’ve ever seen fit on a computer screen or a coffee-table book. None of those versions could compare to the brilliance and life and sheer size of the 60 square meter original.

But there was nothing novel about that painting, or in fact, any of the other works that I saw: They were all paintings and sculptures that I’d either seen countless times before, or in fact had studied and memorized; or works which, though I didn’t know them, I recognized as part of a movement, or as a lesser example of so-and-so’s work, or as a—

—then I came across Delaroche’s The Execution of Lady Jane Grey.

It was overwhelming. I was overwhelmed. It was like stumbling on a scene I had always had in my mind, yet could not recall. The brightly lit, white central figure—helpless, as she reaches out to keep from stumbling—reaching out to the discrete executioner’s block, which will be the end of her. The grave men beside her, at once determined yet sorrowful. The wailing, duplicitous women. The plush velvet cushion—to absorb the weight of the young girl’s knees, and protect them from injury—contrasted with the coarse straw matting—to absorb the young girl’s blood, and protect the ground from its stain.

The longer I stared at the painting, the more its beauty overwhelmed me.

France’s Upcoming Election Means Euro Devaluation—and a Pop In Gold

On May 6, France is holding its second round of Presidential elections, where the Socialist François Hollande is fully expected to win.

François Hollande

I’m pretty sure two things will happen immediately following the election: The first is, Carla Bruni will leave Nicolas Sarkozy (because everyone knows that a professional courtesan never stays when the going gets tough for her patron).

The second thing that will happen following the election of Hollande is that the euro will begin to fall—amid persistent, insistent calls by the new French President for Europe to spend its way out of the hole it’s in.

In other words, France is about to elect their version of Paul Krugman to the Presidency.

My Lunch with Francis Ford Coppola

Le Marais, Paris.

I was walking to my apartment along the rue Réamur, looking for a place for a quick late-lunch, when I noticed the moving dishes at this sushi bar called Eat Sushi—

Francis Ford Coppola

—and spotted Francis Ford Coppola sitting at the window.

I thought, “That can’t be him—that’s way too random. But I sure could eat!”

So I walked in, and plopped myself just two stools over from him, thinking he was just some random Frenchman who looked a lot like the Big Man of films.

The guy sitting at the stool in the sushi bar looked like a random French gentleman: Big and portly, plump of lip, froggy-eyed behind his round steel bifocal glasses, in a light brown beret and colorful but old scarf. And of course the beard: Snow white, and surprisingly well groomed.

Was he him? Nah—can’t be him: I’ve just arrived in Paris and I run into Francis Ford Coppola? Of all people? When, just two nights before—true story—I had been berating my girlfriend for never having seen The Godfather or The Godfather, Part II? And telling her—at length—that everything you needed to know about men was in those two Coppola movies?

Too weird and random to be true.

I’m not particularly interested in celebrity or celebrities per se. But for some reason, I’ve met an awful lot of them—all by chance.