Editorial
Switzerland Will Continue to Thrive and Outperform
"Senator John Kerry released his plan today to eliminate the deficit. He said all we have to do is find a really rich country like Switzerland and marry it." ~ Jay Leno; the approach of courting the Swiss has since turned out to be a little less amicable...
The presidential debates are deservedly receiving a lot of attention these days. Over the past few weeks, to the great surprise of many, Mitt Romney has taken the lead in the polls. That is particularly intriguing in light of the fact that the mainstream media seems to have generally favored the incumbent. In the midst of the presidential debates and campaigning, it has gone somewhat unnoticed that several indicators in Europe have started turning negative again. Moreover, the US keeps heading towards a fiscal cliff that, no matter who takes the wheel in the upcoming elections, cannot be avoided without incurring considerable economic pain.
In my view, the somewhat optimistic and hopeful pattern that financial markets have taken over the past few months is rapidly coming to an end. I am concerned that you may have to buckle up for what comes after the elections. We will discuss our expectations and scenarios for the global economy in more depth next week. Today, I would like to focus on Switzerland and its future.
Lately, I've been getting quite a few questions about my expectations on Switzerland's future. Some of our clients wondered whether Switzerland still has what it takes to be a successful and strong economy in the future. Will Switzerland remain independent? Is Swiss private banking and wealth management doomed? Is the Swiss franc still that number one safe haven currency that it used to be?
These questions are reasonable and understandable. Over the past few years, most of the mainstream news on Switzerland has normally been subject to a very negative spin. And there is no doubt that a number of developments have given rise to concern and even frustration for me as well. Most of all, I am not very happy with the compromises and rule-bending that occurred in the context of the UBS case. In my view, a big mistake − a mistake loaded with multiple layers of moral hazards − was made when UBS was safeguarded by the Swiss government, i.e., with Swiss taxpayers' money.
However, I do not want to spend time reiterating matters that have been discussed at length here and elsewhere already. Instead, I want to explain, as concisely as possibly, why I have the highest of expectations for Switzerland − in terms of its economy, its financial center and its currency.
A Country's Fundamental 'Health' is Reflected in the Strength of its Currency
Let's start with currency. We live in a time of historical transition, a period during which global dominance by the historic great powers is giving way to something new. This transition of power not only impacts geopolitics and economics, but it also impacts that ultimate indicator of economic power and health, the strength of each nation's currency.
Safeguarding capital from the unknown consequences of aggressive and experimental central bank policies is of paramount importance to today's investors. In the aftermath of the financial crisis, determining which currencies will hold their value for the longer term and which will fall has become harder to do more so than ever before.
The same old approaches to currency investing do not seem comprehensive enough to address today's challenges. For example, interest rate parity and purchasing power parity are useful constructs, but they do not offer the guidance needed today to help us more fully determine relative currency strength. What process can we use to separate winners from losers in the pursuit of currency diversification?
The following 'STRONG' variables can be employed to determine the fundamental economic strength of a nation:
• S: Sustainability − Sustainable balance sheets, healthy fiscal trends
• T: Transparency − Readily available statistics, reliable information
• R: Rule of Law − Reliable legal framework, regulatory quality
• O: Openness − Freedom of travel, free exchange rates, etc.
• N: National Fundamentals − Healthy economy, competitiveness, education, history, culture, etc.
• G: Governance − Time-tested political system, democratic mechanisms
Historically, currency markets have rewarded countries with strong fundamentals. The more positive the aforementioned STRONG valuables are in aggregate, the stronger a nation's economy and its currency will be in the medium to long term. Switzerland has been and continues to be a beacon of strength along all of these dimensions.
I will not bore you with a lot of statistics, but I will share a few with you which reflect on the above factors of strength.
Strong 'National Fundamentals' and 'Sustainability'
The following factors afford an indication of a country's fundamental strength and fiscal sustainability:
• Fiscal management: Quality and proven track record of fiscal management and discipline. Based on the Swiss "debt brake," a law invoked and ratified by the Swiss people in 2001, Switzerland has written budget surpluses continuously, even during these difficult recent years.
• National competitiveness: Economic competitiveness can be measured in many ways. The most prestigious ranking is provided annually in form of the Global Competitiveness Index. Switzerland leads that ranking as the most competitive economy in the world.
• Fundamental macroeconomic variables: A number of macroeconomic variables can be used as indicators of strength in the dimensions of 'Sustainability' and 'National Fundamentals.' The following are arguably the most critical: Low national debt to GDP ratio, high surplus to GDP ratio, and positive current account position. Again, in all of these variables Switzerland comes out on top.
The following chart compares currency returns versus the US dollar to the Debt / GDP ratio from 2000 to 2010. Clearly, stable to falling debt to GDP ratios have tended to correlate with positive currency performance. The Swiss franc has outperformed all other (paper) currencies.
Source: OECD as of 12/31/10
Strength Regarding 'Openness and Freedom'
Switzerland is widely considered to be one of (if not) the freest and most open countries in the world. This is primarily based on the Swiss system of direct democracy and its long history of independence and neutrality, combined with its high level of diversity and international interrelations.
Currency markets have a history of rewarding countries that are free. Why is that?
Freer countries have the tendency to avoid over-taxation, over-regulation and support policies that promote freedom and innovation. Freer floating currency regimes allow market forces to play a role in determining value. Market forces and (truly) democratic systems, and particularly the Swiss system of direct democracy, create feedback mechanisms to help keep the excesses of government in check.
Obviously, the measurement of freedom and openness is one prone to subjective nuances and arbitration. Nevertheless, a generally accepted measure you might consider taking a look at is the Index of Economic Freedom by the Heritage Foundation, or the Economic Freedom of the World Index by the Fraser Institute.
Countries with more economic freedom also have the tendency to have strong currency performance vs. the dollar. The following diagram displays the currency returns (vs. USD) of international currencies from 2000 to 2010, in comparison to the Index of Economic Freedom by the Heritage Foundation.
Source: Heritage Foundation as of 12/31/10
Strength Regarding 'Rule of Law'
Switzerland is a safe jurisdiction with solid rule of law. Investors and businesses, both internally and internationally, value the solidity and dependability of Switzerland's legal system.
It is not by chance that Switzerland is home to some of the world's largest global corporations and organizations. You will probably recognize some of the names, including Nestle, ABB, Roche, Novartis, Google, FIFA, Swatch, UBS, Credit Suisse, UNESCO, WHO, WTO, United Nations, International Red Cross, the World Intellectual Property Organization, the Universal Postal Union, etc.
The fundamental rights bestowed on Swiss businesses, citizens and residents are reflected well in the country´s high level of trust in the law and the quality of regulations. As an example, you can look at the interaction of Swiss citizens with the Swiss tax authorities. In most countries, any attention by the tax authorities tends to be one of those items in life you try to avoid at all cost. In Switzerland, personal meetings and negotiations with tax authorities, particularly at the Cantonal level, are an avenue sought regularly by taxpayers. Frequently, tax payers are able to exploit the tax competition between different Cantons. It is, in my view, that kind of tax competition that contributes most to the fact that taxes are still comparatively low in Switzerland.
A generally accepted measure of "Rule of Law" is the Worldwide Governance Indicators by The World Bank. Again, as depicted by the following chart, currency markets have favored the fundamentally strong countries with solid rule of law.
Source: World Bank as of 12/31/10
It is based on some of these considerations that, first of all, we continue to favor the Swiss franc as a currency of safety in our portfolio management. Secondly, it is based on the fact that a country's currency reflects its economic fundamental strength that we are optimistic about Switzerland's future as a free nation and strong economy.
Is Swiss Private Banking Dead?
Many have been quick to predict the end of Swiss private banking if not the end of Switzerland as a reputable financial center altogether. Such conclusions are based on the two bubbles that have burst.
First of all, the business with non-declared assets has come to an end. Worldwide, citizen transparency is moving in as the "commonly accepted standard." Based on the assumption that Swiss private banking could only be successful in a world that tolerates tax evasion and banking secrecy, many concluded that investors would seek shelter elsewhere and Swiss banking would dwindle into oblivion.
Secondly, the global credit machine is stuttering. Investors, particularly in Europe and the US, are hesitant to invest, and certainly hesitant to employ leverage in their investments. This, of course, is bad news for banks and brokers that have profited from transaction turnover and volume. Switzerland would surely feel this painfully as well.
On both accounts, these concerns have been justified but they are proving to be wrong. Yes, a large number of investors − for example, Germans with non-declared accounts − have transferred their assets out of Switzerland, frequently to jurisdictions like Hong Kong or Singapore. Based on the media's focus on Switzerland, a somewhat skewed impression was created that Switzerland has completely given up on banking secrecy and sold out on its banking clients.
However, this has not happened. The Swiss government is working hard to retain and protect Swiss banking secrecy via a series of double taxation treaties, with Germany, the UK, Austria, Greece and others that aim at protecting privacy in exchange of withholding taxes on the accounts. In other words, investors from countries with such tax treaties in place will continue to enjoy the absolutely legitimate benefit of privacy − banking secrecy was NOT erected for the purpose of tax evasion but for personal safety in the context of Germany's Nazi regime − but they will be taxed on their gains according to the rates defined in the respective treaties.
Therefore, Switzerland has not "folded." On the contrary, investors that transferred their funds to Singapore, for instance, are awakening to the fact that they are not better off. Such jurisdictions are not equal in terms of service, privacy or regulatory safety. Furthermore, the regulatory framework there has changed much more drastically and rapidly.
Singapore, just like Switzerland, has come under increasing pressure. And, as it appears, they have indeed folded lock, stock and barrel. Just last week, Singapore signed a tax information exchange agreement with Germany. Others, including the US and UK, are expected to follow soon. The Monetary Authority of Singapore has actually announced plans to penalize banks that open accounts with untaxed money.
Furthermore, as reported in last week's update, the Monetary Authority of Singapore ("MAS") has announced a law on October 9th that includes tax offenses as a predicate offense for money laundering in Singapore. This law will take effect on July 1st of 2013. This means that tax offenders will be treated equally to drug dealers, smugglers or members of organized crime. They will be reported and prosecuted accordingly.
Switzerland, still the World Leader in International Private Banking
Switzerland, a small country, rich, healthy, economically competitive, smack dab in the middle of Europe: of course it is under pressure from its not so fortunate neighbors and bankrupt "allies." The trend toward more transparency and tax compliance will hardly seize, not in a world of growing debt and deficits. The Swiss have recognized this. They are adjusting their private banking business model, painfully, but pragmatically and steadily. Most Swiss want to retain banking secrecy for as long as possible, thus the aforementioned double taxation treaties.
There will be more downsizing and firing, particularly in the large banks. And, most Swiss banks will continue to be hesitant of accepting US clients, at least for as long as the tax treaty with the US is still in the making. However, I believe that to conclude that Swiss private banking has come to a standstill is false.
Contrary to the impression created in the press, and against all odds, Switzerland continues to be the leader in cross-border private banking. In terms of market share, and based on a study conducted by Boston Consulting, Switzerland makes up more than 27% of the global cross-border private banking market.
Cross-border private banking, market share in percentage
Source: Boston Consulting Group; SBVg Research
Furthermore, in an age of increasing fiscal and monetary imbalance, one prone to financial repression and intrusive government policies, wealthy investors around the world are still looking for a safe haven to keep their assets. Most Swiss private banks continue to see net inflows of funds.
From the Euro zone, America and the UK, after-tax, or so-called "white" funds, are flowing to Zurich and Geneva. And now, these are by nature after-tax, declared assets. Considerable growth is reported from other regions, primarily Asia, Latin America and Russia. A growing number of new millionaires and high net-worth investors are looking for a solid and dependable jurisdiction, with good service and a long tradition of private banking. Switzerland fits the bill.
Will Switzerland stay unaffected by the global economic weakness? Is the floor versus the Euro not a problem? Will private banks and wealth managers have to adjust their business models? Of course, the answer to all of these questions is yes. The Swiss economy, including its financial sector, is facing a very challenging environment.
However, in the end, as with any competition, the winner does not have to be perfect. The winner just has to be a little faster and better than the rest. If I had to bet, Switzerland would certainly be high up on my list.
Frank Suess is CEO and Chairman of BFI Capital Group. To subscribe to BFI's weekly Mountain Vision Update, in which this column appeared, click here.
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Posted by seer on 10/27/12 12:34 PM
Seems CHINA is missing from these charts???
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Posted by dimitri on 10/27/12 03:50 PM
Let's not overlook Liechtenstein, which has been viewed favorably by the DB on previous occasions.
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Posted by Bischoff on 10/28/12 02:33 AM
I like reading what Frank Suess has to say. However, on the subject of Switzerland's economy and monetary system, I prefer the ideas and descriptions of the Swiss citizen, Ferdinand Lipps over those of Frank Suess.
I am affraid that Frank Suess has spent too much time in American universities. While American business schools at the turn of the 20th Century where rightfully the magnate for students the world over, their teachings after 1935 has been totally influenced by Keynes and Friedman.
Frank's statement, "... in the end, as with any competition, the winner does not have to be perfect. The winner just has to be a little faster and better than the rest... ", is a perfect example of centrialized thinking, instead of letting the collective decisions of individuals, expressed through the circulation of redeemable currency based on the gold standard, determine the fate of Switzerland's economy as well, as that of the world economy.
Redeemable currency based on the gold standard makes for a more nimble and effective determination of "prices" when compared with central bank currency based on Keynesian and Friedmanite "demand and supply" thinking.
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Posted by pauloportugal on 10/28/12 07:54 AM
@Bischoff
I too enjoyed reading Ferdi's work ... but unless he is going to be resurrected I hardly see how you can be so bold as too speculate on what he might have to say today (being an international banker himself motivated by profitability, BTW) if he were penning editorials.
Seems to me you live in ideology Mr. Bischoff and bathe in the glossary imprints of yesteryear which blind you from reality. Mr. Suess happens to be on the front line dealing with real-life people and their financial lives. he lives and works in Switzerland. Aren't you in California somewhere festering on endlessly about Henry George's land value taxation system - an idea that has never gained more than a smidgen of interest?
Once again, Ferdinand Lipps was great, IMHO. A lot of the reasons for that were his vantage point ... being on the front line dealing with real people, real money problems and the related issues. Seems Mr. Suess and him have a lot in common.
No need to reply.
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Posted by Bischoff on 10/28/12 12:46 PM
@ pauloportugal
PAUL: "No need to reply."
BISCHOFF: Au contraire... There is every need to reply. Though, I am sure you won't like it.
First, I said that I liked Ferdinand Lipp's ideas as he stated them when he was alive. I never speculated whether he would disavow those ideas were he to come back. Therefore, your outrage is misplaced.
Second, as to the reality in which I live, I must tell you that I too deal with real-life people in a business setting on a daily basis.
As to my advocacy of Henry George's land value taxation system, you show your ignorance by saying that it is "an idea that has never gained more than a smidgen of interest?"
It seems to me, if I may make this observation, that you are a person devoid of critical thinking and lacking an understanding of history as well. Your reference point seems to be the popularity of an idea, regardless whether it makes sense, or not.
Henry George's land value taxation idea is nothing but the Anglo-Saxon administration of land use. After the initial failings of settlements on the North American Continent, it was Sir Thomas Dale who forced the Anglo-Saxon land use system upon the Jamestown settlement, thereby ensuring its survival and prosperity. The Anglo-Saxon system at Jamestown was embodied in the first Constitution on the North American Continent, the Connecticut Constitution which served as the model for the constitutions of the other twelve original states, the U.S. Constitution and the constitutions of the subsequent 37 states.
Please be advised that the county system enshrined in every state constitution is the old Anglo-Saxon shire system, and that the County Assessor and the County Recorder are part of the land use administration under that system. Whether that was apparent to Henry George is not material.
However, land speculators are intent to enjoy the advantages provided by nature for their own benefit. It is therefore easier to demonize George than to fight the constitutional local "property tax" head on, though California made a pretty good attempt at it with Proposition 13. You can see what effect this has had on California.
Evenso George didn't point it out specifically, there is an absolute necessity to collect the wealth due to natural advantage in order to maintain a stable economic system, and a stable monetary system. California and Prop 13 is the proof.
I won't go on to point out your ignorance about the American political economy as well, as your lack of understanding monetary systems, other than to say that a redeemable currency based on the gold standard and a Real Bills market is infinitely more efficient for markets to operate and for prices to be discovered than is possible with the use of a managed currency based on the "demand and supply" model.
A little bit of critical thinking when evaluating ideas, and less concern about the popularity of ideas will help get a grip on reality for you.
What is right is not always popular, and what is popular is not always right. You ought to keep that in mind when you judge other people's ideas.
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Posted by Danny B on 10/28/12 12:49 PM
"glossary imprints of yesteryear"
Quoting Douglas MacArthur;
History fails to record a single precedent in which nations subject to moral decay have not passed in to political and economic decline.[31]
Moral decay has thoroughly permeated our entire American power structure. It has a rigid death-grip on the invisible-hand that once guided our economic system.
Click to view link
What can we expect for an outcome?
Click to view link
The chain of "imprints of yesteryear" is going to have another link added.
This is your fate. This is my fate.
The Swiss must be worried too. They have recently implemented big increases in the number of military personnel for self defense. They have also wired the transportation system to blow up to keep invaders out. It's a leftover from decades past but, you can be sure that it is all in working order.
Click to view link
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Posted by pauloportugal on 10/28/12 01:32 PM
@Bischoff
First of all ... you state you wrote, "First, I said that I liked Ferdinand Lipp's ideas as he stated them when he was alive."
What you wrote below is exactly this: "I like reading what Frank Suess has to say. However, on the subject of Switzerland's economy and monetary system, I prefer the ideas and descriptions of the Swiss citizen, Ferdinand Lipps over those of Frank Suess."
Just where do you state anything remotely close to what you now purport? Where do you mention the words "when he was alive?"
Next. You write, "It seems to me, if I may make this observation, that you are a person devoid of critical thinking and lacking an understanding of history as well. Your reference point seems to be the popularity of an idea, regardless whether it makes sense, or not."
Wow! What an interpretation. You sir are the ego-blaoted idiot who preaches "down" at others within this site on a regular basis. Not I. I am fairly new to this platform but obviously not at steeped in wisdom as His Holiness Bischoff. Congrats on your ability to discern critical thinking!
Next. You state, "I won't go on to point out your ignorance about the American political economy as well, as your lack of understanding monetary systems, other than to say that a redeemable currency based on the gold standard and a Real Bills market is infinitely more efficient for markets to operate and for prices to be discovered than is possible with the use of a managed currency based on the "demand and supply" model.
A little bit of critical thinking when evaluating ideas, and less concern about the popularity of ideas will help get a grip on reality for you."
Once again, you do not know me but are the one "outraged" because I didn't bow down to your Holy George Grail. Just what populist idea was I referencing in my post Mr. San Fran Professor of Ultimate Arrogance and Supreme Judgement?
Next. You end with your dribble cliche, "What is right is not always popular, and what is popular is not always right. You ought to keep that in mind when you judge other people's ideas."
I simply end on ... It is you who judge and have little outside perspective other than that which is popular in your own HG circle. Must be a joy for the business people associated with your "reality."
Great article Mr. Suess. Too bad we have to have losers like this Bishoff character at this site bloating off his BS.
You are not worthy of a battle. I submit to your superior wisdom oh holy one. LOL.
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Posted by Bischoff on 10/28/12 05:16 PM
@pauloportugal
PAUL: "Once again, you do not know me but are the one "outraged" because I didn't bow down to your Holy George Grail. Just what populist idea was I referencing in my post Mr. San Fran Professor of Ultimate Arrogance and Supreme Judgment?"
BISCHOFF: That's right, I don't know you. Yet, you pretend to know me. Funny, isn't... ???
Bowing down to my "Holy George Grail"... ??? You seem to have become obsessed with my support of the George LVT idea, which in fact is the local property tax. The one person being obsessed with 'George' is you, not me, and I am starting to wonder why... ???
Until recently, when I became involved in congressional campaigns, I never knew that George's LTV could evoke such paranoia. I knew that George had his detractors, but that it reached the stage of full blown paranoia with some of those politicians was totally unexpected. As it turned out, these politicians, both Democrat and Republican, were invariably supported by commercial real estate developers.
Your response to my advocacy of the LVT mirrors the paranoid behavior of those politicians. I find that interesting. To dismiss George's LVT as being unwanted and unpopular, I have already shown how incorrect you are by explaining that the constitutional, local property tax is the LVT. The answer why land value taxation is not popular is supplied by Frederic Bastiat. However, since you have taken the time to reply to me regarding George, I am very curious about your personal objection to the LTV.
As to calling me the San Francisco Professor of Ultimate Arrogance and Supreme Judgment, do I deserve that... ???
I may express my opinions forcefully and without regards to tact. If you want to attack me on the opinions I hold, go to it. On the other hand, all you seem to be able to do is cast aspersions, without trying to refute the things I say. Why don't you pose a real argument, if you disagree with me…??? Why be bothered by my self-assuredness and by my brash way of presenting things…???
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Posted by pauloportugal on 10/28/12 09:00 PM
@Bischoff
Sure I know you! For aren't you the same man who has interviewed here in the past? Obviously you are. So your views appear quite well documented.
You believe a "little" government taxation isn't so bad. You believe the land value tax creates a more even playing field, one that leaves labour and capital free to grow unencumbered. On surface I agree with that premise. And having read Progress and Poverty some 25 years ago and again about 10 years ago, I still find myself not agreeing with the incremental good it may portent to offer.
See, I believe that NO GOVERNMENT TAXATION is best. I believe that a pure free-market where private interests are free from ANY FORM OF GOVERNMENT TAXATION is best. I do not believe that the power controlling government can be stopped from continually "upping the ante." So to grant the power to the State to tax land, or the capital accumulation or labour is all just a stepping stone to all of the above and many other forms of wealth redistribution.
You also believe in a gold standard. I do not as long as it is government enforced. I believe in free banking and NO FORM OF GOVERNMENT SANCTIONED FORM OF MONEY. Let the market use whatever it chooses as money, but do so free of force by decree. Legal tender laws imposed by government should not exist and play no part in a truly free market. BTW, likely gold and silver both would surface as "popular" money in a true free-market economy. But heck, if a man wants to trade his goat for a new pair of shoes ... so be it. And if the shoes aren't ready yet and the goat farmer chooses to accept a box of laces as interim payment, then let a box of laces pose as a store of value. The whole system of payments and stores of value should be entirely up to the individuals trading and saving within it. And no where should the government have a cut. And that includes taxing the "value" of the land on which those trades happen.
You disagree with the 17th amendment. Here we agree. Although it doesn't much matter anyway as it seems citizens of the United States have long lost their way as it relates to the constitution. Other than that, I see your positions as "quasi" free market and aligned with a "little less" government. To me a "little less" just isn't quite far enough.
Buenas noches!
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Posted by Bischoff on 10/28/12 11:41 PM
@ pauloportugal
Well, finally some stated opinions, instead of casting aspersions. I am happy to engage in a discussion.
First, it is necessary to agree on some definitions. Taxation is the voluntary or involuntary collection of revenue to defer the cost of government. The taxes allowed to be levied under the U.S. Constitution to defer the costs of the federal government was
1. a per capita tax to be paid by the states for the specific purpose of paying for the national defense and for conducting foreign relations.
2. an excise tax which is a tax on domestic production primarily for the purpose of controlling the production of socially undesirable products. The tax on liquor and tabaco is an example.
3. an impost which is a tax on gambling for the purpose of checking anti social conduct.
4. a duty which is a tax on foreign products for the purpose of checking the intentional undermining of domestic production.
These four taxes are the only revenue authorized to be collected by the federal government under the original U.S. Constitution. All other taxes are the exclusive purview of the sovereign, separate states.
Under Article IV of the U.S. Constitution, every state constitution must create a republican form of government based on the Anglo-Saxon county system as was embodied in the constitutions of the original 13 states.
The Anglo-Saxon system placed emphasis on collecting the part of wealth created which was clearly due to aspects provided by nature. Under the county system (parishes in Alaska and Louisiana) the County Assessor assesses the "aspects" (value) provided by nature of a parcel of land registered for use ("fee simple title") with the County Recorder and furnishes a list of assessed valuations to state chartered, incorporated, local taxing jurisdictions. The amount of local tax collected is established in public hearings. That is the system under the constitutions of the 50 states (mostly thanks to Roger Sherman, delegate from Connecticut at the constitutional convention). The constitutionally provided local property tax is called by Henry George the "land value tax".
From the very beginning of the Union, the Anglo-Saxon system of taxation was undermined by those who preferred the Norman feudal system of taxation centered in the Southern states. It attempts to collect the advantages provided by nature as part of the claim over the "ownership" of the land itself. Its latest manifestation is disguised in the passage of Proposition 13 by which California voters altered their constitution by capping assessments. Now they reap the results of their stupidity. I hope the next generation will see the light and get rid of Prop 13, unless the Mexican feudal system gets intrenched and attempts to undermine the local property tax system in the rest of the states.
The local property tax, or LVT as George calls it, as revenue to pay for government revenue has the added advantage of collecting only that part of wealth produced which is clearly do to the contribution by nature, while the rest goes as return to labor and capital. Thus the local property tax equalizes the playing field for labor and capital. This is fundamental to basic economics and to establishing a viable monetary system. Nobody seems to understand that the local property tax made possible the industrial might of the U.S., despite the widespread corruption in its local application.
"See, I believe that NO GOVERNMENT TAXATION is best." I take from your comment that you do not believe in the need for government. In contrast, I do accept the need for government, however minimal. We disagree on the need for government.
As to the gold standard, I fail to understand what you mean by having it "enforced" by government. In Section 10 of Article I the framers acknowledged the universal acceptance of gold and silver to be money. In Section 8 of Article I, the framers left it up to the Congress to set the monetary standard for the currency. For the Congress to set weights and measures is no different than having a private institution set it. The idea is that once set as a standard, the standard must be adhered to. If you object to the enforcement (meaning adherence) of weights and measures, that is your business. However, I think that you will find few people who share your sentiment. Besides, how are you harmed by having the mass called a kilo or the distance called a foot be the same from one day to the next... ???
I am afraid that you really do not understand the gold standard. The gold standard sets the amount of "work" (human exertion) to mine and refine a specific amount of gold as a standard by which to measure the "work" involved in creating any other wealth. That is the "gold standard". People all over the world have used that standard since Babylonian times some 3,000 years ago. Evenso, the gold standard is no longer part of any currency, since all currencies today are managed currencies, only GOLD is still MONEY.
The RBD currency system I promote has nothing to do with government other than for states to assure that private banks create currency commensurate with the provisions set out in the U.S. Constitution.
"Let the market use whatever it chooses as money, but do so free of force by decree. Legal tender laws imposed by government should not exist and play no part in a truly free market." This statement proves that you do not understand the difference between a "medium of exchange" and "money". Legal tender laws are not necessary for the circulation of RBD currency redeemable in gold. Such laws are only necessary for the circulation of managed CB currency.
The idea you express of having commodities compete with each other for the status of being money is some crazy idea that seems to crop up with the libertarians. This only proves that they have no understanding between barter transactions and money transaction and how "use value" is transformed into "exchange value" to discover "prices". So here again, we have a disagreement. We do not agree about the function of the gold standard nor the nature of money.
As to the 17th Amendment, it has essentially altered the American Republic and turned it into a "quasi" democracy. It centralized government, and together with the 16th Amendment is responsible for sucking the life blood out of the American political economy. The future for this country does not lie with centralized government, but with local government. The repeal of the 17th Amendment is essential to restore the voice of the separate, sovereign states in the U.S. Congress.
While you agree with me about the effect of the 17th Amendment, I find it a copout to toss the question of its repeal off by saying, "it doesn't much matter anyway as it seems citizens of the United States have long lost their way as it relates to the constitution."
Auf Wiedersehn !!!
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Posted by pauloportugal on 10/29/12 07:43 AM
@Bischoff
First, you still seem to believe in the necessity of the State to tax and defer to the U.S. Constitution as if it is gospel. It is not. It is a flawed document that left many subjective holes for snakes to slither through and destroy the overall beauty of the constitution. For the majority of it was well conceived and provided a good framework for protecting individual freedoms. But perfect it was not.
So if you basis point of reference in making your points is to constantly refer to it to support your belief in "government necessity" then we have no ability to converse, as I do not. Government has never proven to be able to do anything better than the private sector. Not one thing. If you can name one instance where government is necessary and can do a better job then I stand to be corrected. Give it a shot sir! I mean give me one example you can point to in reality, not theory.
On another point you state: "Evenso, the gold standard is no longer part of any currency, since all currencies today are managed currencies, only GOLD is still MONEY. "
Who made you lord of the free-market? In a true free-market MONEY IS WHATEVER PEOPLE CHOOSE IT TO BE. And although I believe gold, and likely silver too, would be the most likely and probable forms of money elected by individuals to serve as the best medium of exchange, I do not have so much arrogance as to make the statement that "only GOLD is still MONEY. "
I certainly do not need a history in gold as money. See the problem with you is YOU You think because you state that Gold is Money that is the case. Well, that is exactly the type of thinking that enables others to do the same and before you know it ... enter stage left, Gold Standard by government decree. Why? If Gold is to be the form of money then let a system of private enterprise devoid of ANY government influence make that determination. And, as I stated before, I believe that it would be gold and silver that would emerge.
Once again we have a major difference of opinion on fundamentals. You sir are a soft statist and a blowhard that wants to TELL others what money is. You want taxation to support your "need" for your purported need for government. Why is that a voluntary association of individuals cannot govern themselves as individuals - free to come and go from the association or not without any form of forced compliance?
Give me your one, and I only ask for one example of a program of ANY kind that government has instituted that has benefited people more than a free-market private initiative could do.
Then we can see that the very vantage point that your overall analysis preaches from is flawed and why statements such as this show who is the one portraying ignorance.
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Posted by Bischoff on 10/30/12 12:40 AM
@ pauloportugal
PAUL: "For the majority of it was well conceived and provided a good framework for protecting individual freedoms. But perfect it was not."
BISCHOFF: One has to know perfection to judge whether something is perfect or not. I claim no such knowledge. As regards the U.S. Constitution, it is a document that has to be understood from the standpoint of human nature and natural law. You seem to look at government as an entity in and of itself, rather than a necessity dictated by nature.
PAUL: "Government has never proven to be able to do anything better than the private sector. Not one thing. If you can name one instance where government is necessary and can do a better job then I stand to be corrected. Give it a shot sir! I mean give me one example you can point to in reality, not theory."
BISCHOFF: Your mistake is to look at government to be proactive and as "DOING" things. That is not the purpose of government. The purpose of government is to prevent things. What things you ask... ???
Because of the genetics inherited from our arboreal ancestors, human behavior engages instinctively in conduct which is detrimental to survival in the terrestrial setting. These detrimental instincts have to be countered through habituation which is best be accomplished in a family setting. For example every new born human must be habituated to use a toilet. It's the parents job to teach him the habit. If the habituation fails to take place in the family, there is a need for "government" to serve as back up to do what's necessary to insure survival of the species. The absence of instinct "not to pollute" is only the most obvious human instinct which threatens survival unless checked. These arboreal instincts with which humans are settled are a natural phenomenon. Natural law requires that they be overcome by habituation. The framers, particularly Franklin, Jefferson, Adams, Sherman and Ellington understood this clearly. They saw the need for government as a necessity dictated by natural law.
On the other hand, you seem to subscribe to the crazy notion that government is only there to make "laws" to fix "prices". The Constitution didn't leave holes for snakes to slither through, as you say. Instead, the Constitution is a document which recognizes the existence of "snakes", and serves as a blue print on how to deal with them. As such, the Constitution is only as good as the sincerity of the people to accept it, and their willingness to be guided by its precepts. The Constitution was written for a federal union of independent, sovereign states, not to govern individual Americans. I find that you lack an understanding of the U.S. Constitution and its purpose.
A have given you an example why government is necessary. The framers well understood why government was necessary for survival and to enjoy liberty. Jefferson expressed it well when he said, "there can be no liberty without government, yet government is the greatest threat to liberty."
The type of government and the amount of government is the issue, not whether there is a need for government. However, you seem to hold the naive views of anarcho-capitalism promoted by the late Murray Rothbard which lack any consideration of human nature and natural law in their prescription for organizing society.
PAUL: "Who made you lord of the free-market? In a true free-market MONEY IS WHATEVER PEOPLE CHOOSE IT TO BE."
BISCHOFF: You, sir do not have the slightest understanding of what constitutes MONEY. "In a true free-market, MONEY IS WHATEVER PEOPLE CHOOSE IT TO BE." What you are describing is BARTER, not MONEY. Barter is a system which requires that you choose the exchange value for commodities in a two party transaction. If you want to call every commodity in a exchange tranaction Money, then Money = Barter, but Money transactions are fundamentally different than Barter transactions. MONEY is a commodity which serves as an intermediate to arrive at an exchange value the exchange of other commodities. As such, Money is a commodity used as a standard to measure value. Money frees exchange transactions from the constraint of space and time which are present with Barter.
PAUL: "You think because you state that Gold is Money that is the case."
BISCHOFF: No, I don't think that at all. Money is a commodity with constant marginal utility. The only commodity which fits this description has been GOLD for the last 3,000 years. Gold isn't Money, because I say so. It is Money, because it is the commodity with constant marginal utility. Period.
PAUL: "You sir are a soft statist and a blowhard that wants to TELL others what money is. You want taxation to support your "need" for your purported need for government."
BISCHOFF: Since we are at it, let me tell you that I perceive you to be such a sycophant of the Murray Rothbard, Lew Rockwell libertarian crowd that you can't muster an original thought. You keep beating me over the head with all that anarcho-capitalism diatribe, and you think that because it has garnered a following from other sycophants like as you, anything to the contrary of that nonsense is offensive to you. BTW, what's a soft statist... ??? I am not all that familiar with the anarcho capitalist lingo.
PAUL: "Give me your one, and I only ask for one example of a program of ANY kind that government has instituted that has benefited people more than a free-market private initiative could do."
BISCHOFF: You simply do not understand the purpose of government. Government isn't there to institute programs. The system we have, or at least had until 1913, was Anglo-Saxon type government from the bottom up, not a quasi Democracy which put a Norman type government in place to attempt to govern from the top down. I fear however, you don't have the slightest ideas about the difference.
Furthermore, government isn't in the PRODUCTION business. Government does not produce a single damned thing. Government is a SERVICE. It's up to the people to choose the service they want the government to perform. The local property tax pays for delivering the service. The title holders within local jusrisdictions can determine the type and amount of services they want, and how to pay for them in taxes.
Personally, I just as soon have no government, provided I could be confident that parents would do their job to habituate their offspring. I will however accept a minimal level of government when parents are unable or unwilling to curb the arboreal instincts of their young and to teach them habits which allows them to coexist.
Judging from our back an forth, I think you would be much better off to learn to think for yourself, instead of being such a sycophant of the libertarian crowd. You really can't argue very well. In your previous reply you had the guts to put forth firm opinions. However, when I disagreed with you, and when I gave you my reasons why, you could respond, except with the liberterian diabtribe and to cast aspersions again.
Heavens knows I tried to carry on an argument, but I have concluded that it is hopeless. Thanks for the intercourse, anyway.
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Posted by pauloportugal on 10/30/12 06:59 AM
@Bischoff (Part 1)
BISCHOFF: As regards the U.S. Constitution, it is a document that has to be understood from the standpoint of human nature and natural law. You seem to look at government as an entity in and of itself, rather than a necessity dictated by nature.
P: Government, especially large bureaucratic governments are NOT dictated by nature. They are the artificial constructs of powerful people, and intended for control and exploitation.
BISCHOFF: Your mistake is to look at government to be proactive and as "DOING" things. That is not the purpose of government. The purpose of government is to prevent things.
P: Most modern governments don't prevent anything. They create problems that they then pretend to "solve."
BISCHOFF: Because of the genetics inherited from our arboreal ancestors, human behavior engages instinctively in conduct which is detrimental to survival in the terrestrial setting. These detrimental instincts have to be countered through habituation which is best be accomplished in a family setting. For example every new born human must be habituated to use a toilet. It's the parents job to teach him the habit. If the habituation fails to take place in the family, there is a need for "government" to serve as back up to do what's necessary to insure survival of the species.
P: Here you go with these strange genetic arguments that attempt to sum up six million years of primate history in one or two sentences. It's really loony. You are trying to make a case for modern Leviathan based on the evolution of tree-dwelling primates.
BISCHOFF: On the other hand, you seem to subscribe to the crazy notion that government is only there to make "laws" to fix "prices". The Constitution didn't leave holes for snakes to slither through, as you say. Instead, the Constitution is a document which recognizes the existence of "snakes", and serves as a blue print on how to deal with them. As such, the Constitution is only as good as the sincerity of the people to accept it, and their willingness to be guided by its precepts. The Constitution was written for a federal union of independent, sovereign states, not to govern individual Americans. I find that you lack an understanding of the U.S. Constitution and its purpose.
P: More looniness. The US Constitution was built on a kind of lie! From Click to view link: Legal historians and constitutional scholars always point out one nagging fact concerning the delegates to the Constitutional convention. They exceeded their instructions; at least many of them did so. The states sent representatives to Philadelphia under the Continental Congress' dictum that they were only to gather there to suggest amendments to the Articles of Confederation. Congress, on the eve of the convention, declared that it only had the authority to propose changes to the Articles, and even then a unanimous vote of the states was necessary for any amendment to be approved. Congress said the convention could meet, but then any suggestions to come out of it would not have the force of law. The delegates at Philadelphia were aware of this, but they pushed ahead anyway with their design to replace the Articles of Confederation with a completely new constitution. They even changed the rules of the game for ratification by declaring that the new constitution would take effect when only nine of the states gave their approval rather than all thirteeen. Constitutional scholars generally agree that this proviso was actually illegal, even though the Continental Congress finally agreed to abide by it.9 In fact the Congress did not have the authority under the Articles of Confederation to do so. In this sense one might be warranted in saying a conspiracy took place at Philadelphia.
See: Click to view link
BISCHOFF: The type of government and the amount of government is the issue, not whether there is a need for government. However, you seem to hold the naive views of anarcho-capitalism promoted by the late Murray Rothbard which lack any consideration of human nature and natural law in their prescription for organizing society.
P: You wish to spend your time advocating FOR government. It is the one thing in this world of which there is never any short supply. Yet you want more of it and make endless arguments in support of it. There are plenty of fools that can make arguments for ever-expanding bureaucracies. That doesn't make the arguments valid.
BISCHOFF: You, sir do not have the slightest understanding of what constitutes MONEY. "In a true free-market, MONEY IS WHATEVER PEOPLE CHOOSE IT TO BE." What you are describing is BARTER, not MONEY. Barter is a system which requires that you choose the exchange value for commodities in a two party transaction. If you want to call every commodity in a exchange transaction Money, then Money = Barter, but Money transactions are fundamentally different than Barter transactions. MONEY is a commodity which serves as an intermediate to arrive at an exchange value the exchange of other commodities. As such, Money is a commodity used as a standard to measure value. Money frees exchange transactions from the constraint of space and time which are present with Barter.
P: This is a ridiculous statement. I describe something accurately and you call it something else and then proceed to elaborate based on your 'definition.'
BISCHOFF: Money is a commodity with constant marginal utility. The only commodity which fits this description has been GOLD for the last 3,000 years. Gold isn't Money, because I say so. It is Money, because it is the commodity with constant marginal utility. Period.
P: This is why silver-as-money (silver pellets) has been discovered as early as 5,000 years ago? Ludicrous on its face. Silver is just one money that people have accepted over the course of the millennia.
BISCHOFF: Since we are at it, let me tell you that I perceive you to be such a sycophant of the Murray Rothbard, Lew Rockwell libertarian crowd that you can't muster an original thought. You keep beating me over the head with all that anarcho-capitalism diatribe, and you think that because it has garnered a following from other sycophants like as you, anything to the contrary of that nonsense is offensive to you. BTW, what's a soft statist... ??? I am not all that familiar with the anarcho capitalist lingo.
P: This too is ludicrous. One of the problems with Rothbard is that he was dogmatic about gold-as-money just as you are. He would be more in favor of your arguments than mine!
BISCHOFF: You simply do not understand the purpose of government. Government isn't there to institute programs. The system we have, or at least had until 1913, was Anglo-Saxon type government from the bottom up, not a quasi Democracy which put a Norman type government in place to attempt to govern from the top down. I fear however, you don't have the slightest ideas about the difference.
P: The voice of God again. The best government governs least. It's not complicated.
BISCHOFF: Furthermore, government isn't in the PRODUCTION business. Government does not produce a single damned thing. Government is a SERVICE. It's up to the people to choose the service they want the government to perform. The local property tax pays for delivering the service. The title-holders within local jusrisdictions can determine the type and amount of services they want, and how to pay for them in taxes.
P: Good Lord. Around the world, 150 MILLION people died in the 20th century alone from "government." Probably you would call this a "service."
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Posted by pauloportugal on 10/30/12 07:00 AM
@Bischoff (Part 2)
BISCHOFF: Personally, I just as soon have no government, provided I could be confident that parents would do their job to habituate their offspring. I will however accept a minimal level of government when parents are unable or unwilling to curb the arboreal instincts of their young and to teach them habits which allows them to coexist.
P: I have never read anywhere that the real purpose of government was to toilet train the young. You are evidently confused in most of your assertions ... as anyone reading this exchange would conclude.
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Posted by Abu Aardvark on 10/30/12 08:58 AM
Bischoff: "However, you seem to hold the naive views of anarcho-capitalism promoted by the late Murray Rothbard which lack any consideration of human nature and natural law in their prescription for organizing society."
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It's the tried and tested method, of course, to read the works of someone, to possibly disagree with it and to subsequently formulate a critique based on the actual wording of the subject-matter.
However, having read "the late Rothbard", two variants come to my mind, considering your above statement:
1) You have indeed read Rothbard, and decided - for whatever reason - to distort, misrepresent and twist the content and meaning of Rothbards works entirely, instead of answering to what Rothbard actually wrote.
2) You haven't read Rothbard, and - for whatever reason - are merely pretending to have done so.
Either way, one wonders (NOT) what you're up to, apart from making the case for government ad nauseam.
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Posted by Bischoff on 10/30/12 09:30 PM
PAUL: "You wish to spend your time advocating FOR government. It is the one thing in this world of which there is never any short supply. Yet you want more of it and make endless arguments in support of it. There are plenty of fools that can make arguments for ever-expanding bureaucracies. That doesn't make the arguments valid."
BISCHOFF: You misstate my position about government, yet I clearly stated it to you. The purpose is to prevent arboreal instincts from threatening survival.
Fine, you disagree, and you see no problems with that part of human nature. I on the contrary see a problem.
Natural law can be stated as "that which works, survives". Habituation of offspring by their parents to overcome detrimental arboreal instincts works to make survival possible. Government is needed only for backup, if parental teachings fail. That is my position. Does that sound like I want MORE and MORE government... ???
PAUL: "One of the problems with Rothbard is that he was dogmatic about gold-as-money just as you are. He would be more in favor of your arguments than mine!"
BISCHOFF: Rothbard was dogmatic about 100% backing of currency with gold, not merely gold-as-money. However, since you do not understand the Real Bills Doctrine and how redeemable currency is created according to it, I cannot expect you to understand the difference between gold-as-money and RBD currency and 100% backing of currency with gold.
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Posted by Bischoff on 10/30/12 09:36 PM
@ Abu
ABU: "Either way, one wonders (NOT) what you're up to, apart from making the case for government ad nauseam."
BISCHOFF: Admittedly, I am no expert on Rothbard, but I have read enough to disagree with the idea of anarchy as a form of governance. As to me making a case FOR government as nauseum, I see government only as a necessary "evil" forced upon the human race by the laws of nature. That is hardly "making a case ad nauseum".
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Posted by pauloportugal on 10/31/12 03:44 AM
BISCHOFF: The purpose of government is to prevent arboreal instincts from threatening survival. Natural law can be stated as "that which works, survives". Habituation of offspring by their parents to overcome detrimental arboreal instincts works to make survival possible. Government is needed only for backup, if parental teachings fail. That is my position. Does that sound like I want MORE and MORE government... ???
P: Thomas Jefferson: "Every man is entitled to life, liberty and the support of government to help him control his aboreal instincts." Idiocy.
BISCHOFF: Rothbard was dogmatic about 100% backing of currency with gold, not merely gold-as-money. However, since you do not understand the Real Bills Doctrine and how redeemable currency is created according to it, I cannot expect you to understand the difference between gold-as-money and RBD currency and 100% backing of currency with gold.
P: It is difficult to reason with you because you've actually never read Rothbard. Rothbard believed in gold. He believed in specie. He believed in gold as money. He felt it had won the monetary competition. You feel free to comment on Rothbard even though you don't know what you're talking about.
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Posted by Abu Aardvark on 10/31/12 07:59 AM
BISCHOFF on 10/30/12 12:40 AM:
"However, you seem to hold the naive views of anarcho-capitalism promoted by the late Murray Rothbard which lack ANY consideration of human nature and natural law in their prescription for organizing society."
BISCHOFF on 10/30/12 09:36 PM:
"Admittedly, I am no expert on Rothbard"
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Gee, I love it when habitual liars debunk themselves! Saves time as well. So, thanks, Ingo ...
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