Tuesday, December 29, 2009

Humorous and illuminating quotes

It is dangerous to be right when the government is wrong. --Voltaire
A politician is someone who will lay down your life for his country.
Everyone wants to live at the expense of the State. They forget that the State lives at the expense of everyone. --Frederic Bastiat
A government big enough to give you everything you want is a government big enough to takeaway everything you have. --President Gerald Ford
Useless laws weaken the necessary ones
Ninety-eight percent of the adults in this country are decent, hardworking, honest Americans. It's the other lousy two percent that get all the publicity. But then, we elected them. --Lily Tomlin
Bureaucrats do not change the course of the ship of state. They merely adjust the compass.
If presidents don't do it to their wives, they do it to their country.
Rome did not create a great empire by having meetings, they did it by killing all those who opposed them.
Never underestimate the power of very stupid people in large groups.
The decision doesn't have to be logical, it was unanimous.
We can't be so fixated on our desire to preserve the rights of ordinary Americans. -- President Bill Clinton
In the past we have tried too hard to prevent the making of mistakes. --Dan Quale
One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato
If they can get you asking the wrong questions, they don't have to worry about the answers. --Thomas Pynchon
In nature, there are neither rewards nor punishments--there are consequences.
No matter who you vote for, the government still gets elected.
Be Patriotic- Question Authority.
No one is free when others are oppressed.
I love my country, but fear my government.
The government is best which governs least --Thomas Jefferson
Under capitalism, man exploits man. Under communism the reverse is true. -John Kenneth Galbraith
Democracy's the worst form of government except for all the others. -Winston Churchill
The difference between a politician and a snail is that a snail leaves its slime behind.
Blessed are the young, for they shall inherit the national debt. --Herbert Hoover
Giving money and power to governments is like giving whiskey and car keys to teenage boys. --P.J. O'Rourke
The very powerful and very stupid have one thing in common. Instead of altering their views to fit the facts, they alter the facts to fit their views... which can be very uncomfortable if you happen to be one of the facts that needs altering.
I either want less corruption, or more chance to participate in it. --Ashleigh Brilliant
Those who desire to give up freedom in order to gain security, will have, nor do they deserve either one.
Without order, nothing can exist; without chaos, nothing can evolve.
Those who make peaceful revolution impossible will make violent revolution inevitable. --John F. Kennedy
Conquest is easy, Control is not. --James T. Kirk
Freedom is the right to be wrong, not the right to do wrong. --John G. Riefenbaker
The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficent warrant. --John Stuart Mill
A man may die, nations may rise and fall, but an idea lives on. --John F. Kennedy
Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying all the wrong remedies. --Groucho Marx
Mankind has corrupted every institution into which it has entered.
The Church and the Government are two prime examples
--J. Mike Reed Jr.
Government logic-- Why get one when you can get two for twice the money?
God giveth, and the government taketh away.
When the legislative and executive powers are united in the same person, or in the same body of magistrates,
there can be no liberty. –Montesquieu
Vote Republican: It's easier than thinking...
War is politics carried out by guns and bullets. –Clausewitz
Democracy can survive anything but democrats
Many that live deserve death. And some that die, deserve life. Can you give it to them? Then do not be too eager to deal out death in judgment. For even the wise cannot see all ends.
--Gandalf the Grey, J.R.R. Tolkien
In America anyone can become President. That's just one of the risks you take. --Adlai Stevenson

Thursday, December 24, 2009

Savings in an Economy like Kenya

In Kenya, in order to save, you must invest.
Picture this, in the 1970s, one could buy a car with Kes 5,000. In the 1980s, one could only buy a motor cycle. It gets worse, in the 1990s, Kes 5,000 could only get you a bicycle. Now, Kes 5,000 is fit for only shoes. Imagine the individual who put aside Kes 5,000 in the 1970s and went to the shops to buy commodities. I think that the illustration gives on the picture. But this is a scenario played out in almost every country in varying degrees. The US Dollar is estimated to have lost more than 90% of its value over the last century. North Korea have just undergone a serious devaluation that has seen the holders of the current currency lose a significant amount of value.
One is therefore forced to ask why any government would think that destruction of wealth is a sure way to prosperity. Why would anyone save their money in a currency that is doomed to lose value? In other words, why hold your money in monetary form?
For those who doubt, the general purpose of a Central Bank is to, inter alia, hold prices steady in order to achieve a stable macro-economic environment. The main purpose of this is to instill confidence in the use of currency so that those who buy or sell are able to do so using local currency. Kenya’s Central Bank Policy is to hold annual inflation at 5% year on year. This means that the monetary authorities at Kenya’s Central Bank will allow a 5% reduction of the purchasing power of the Kenya shilling every year.
As earlier stated, the central purpose of a Central Bank should be to maintain stability in prices and the primary reason for this is to maintain currency as a credible store of wealth. For the general citizenry to be able to use currency, they should have faith that the value of their production is stored efficiently in whatever form until when they feel a need to exchange this value, commonly referred to as purchasing power, with another commodity or service that will satisfy their needs. In short, money is not held for its own sake, but to facilitate a transfer of value from one’s production to acquiring goods or services one needs in order to satisfy specific wants or needs.
One can already see the contradictions of the average Central Bank’s actions with its supposed role. A lot of Central Banks have adopted this inflationary policy that is sure to lead to metamorphosize into a currency crisis in the future.
The excuse a lot of Central Banks have given for this apparent inflationary policy is to sustain, nay, encourage economic growth. This is ostensibly done through two ways:
1. Inflationary policy aids in creating new money which can be used to make available credit to investors and consumers alike leading to higher investment and higher consumption; and
2. In some cases, this also helps hold down interest rates so that money can be ‘affordable’ to investors.
This inflationary policy has, however, its side effects. The first is that it can lead to a commodity boom. Low interest rates are fodder for speculation. In the international markets, this has been very apparent with money being used by large banks for speculation. Prior to the financial crisis, the world first witnessed a commodity boom which saw oil hit a high of USD 147/BBL. The commodity boom then went on to feed inflation into the general economy causing sever inflation. The commodity boom was, however, a bubble and just as the housing market earlier on, burst destroying a lot of wealth in the process.
Secondly, the low inflation regime was responsible for financing a lot of consumption and this was not sustainable as when the inflation rates forced interest rates up, there was a lot of demand destruction leading the economy to go into a depressionary spiral that threatened to turn deflationary.
Thirdly, the low interest rates discouraged savings which are essential to sustain investment and interest rates down and also helps temper boom-bust cycles.
In recent times, the governments and the monetary policy authorities have sought to intervene in order to ‘save the economy’ from the sever boom-bust cycles through stimulus packages and low interest rates. What we have then, is a highly unstable environment in which investors are supposed to conduct their economic activity. Interest rates are artificially low which is likely to lead to asset bubbles and later on inflation.
The fiscal stimulus is also likely to lead to inflated tax bills and possibly deflationary pressures in some industries when government is forced to withdraw its spending.
All this combined could lead to capital flight to safe currencies. However, seeing that the US Dollar, the Chinese Reminbi and the Japanese Yen face credibility challenges and the Euro, seeing the weakness in the Spanish, the Austrian, the English and the Greek economies, is also not very attractive, we may see people beginning to save in commodities, commodity stocks and in gold. I separate gold from commodities because, unlike other commodities, gold does is not consumed and therefore does not have a shelf life.
In summary, to save in the current world scenario, holding funds in local currency may lead to savings being wiped out. Government paper is looking more and more like the new sub-prime. We are only left with stocks and bonds. Bonds don’t look too good during inflationary times. This leaves stocks… especially commodity stocks and commodities as the only viable stores of wealth.

Wednesday, December 16, 2009

Greek tragedy: Is Kenya following in the same footsteps?

I was looking at the short history of Greece. The uncontrolled government spending in the name of welfare, the high taxation, the corruption...etc. The only thing that Greece out-does Kenya is government deficit which is projected to be 12% of GDP (the EU thinks its going to be higher) and the high level of indebtedness. My God!! We are walking down the same path! And they don't have a restrictive economy with protectionism in Agriculture and energy sectors. Boy are we in trouble. Follow the story here

Dec 15 (Reuters) - Greece has been in turmoil since then Prime Minister Costas Karamanlis called early elections in September, 2009 seeking a new mandate to deal with Greece's economic slowdown.
The government was dragged down by discontent with the economy, scandals, the worst riots in decades and its handling of bushfires which had ravaged large areas of the country.
Oct. 2009 - The snap election on Oct. 4 returns George Papandreou's socialist PASOK party to power with a comfortable majority. It will hold 160 seats in the 300-seat parliament. The new government discloses the 2009 budget deficit will be 12.7 percent, more than double the previously announced figure.
Nov. 2009 - The new government pledges in its 2010 draft budget to save the country from bankruptcy by cutting the deficit while keeping electoral promises to help the poor amid the economic crisis. The final budget draft is submitted on Nov. 20 and is due for adoption on
Dec 23. 2009 - Greece aims to cut its budget deficit to 9.1 percent of GDP in 2010 to assure EU partners and markets it is serious about restoring fiscal health, its final budget draft shows.
-- It also sees public debt rising to 121 percent of GDP in 2010 from 113.4 percent in 2009. EU forecasts on Greece for 2010 are worse, with the deficit seen at 12.2 percent of GDP and national debt rising to 124.9 percent of GDP, the EU's worst.
Dec. 2009 -- S&P on Dec.7 puts the country's A- sovereign rating on negative watch. By 1215 GMT the next day, Greek bank stocks <.FTATBNK> shed almost 6 pct, extending the previous day's losses, as the S&P report said Greek lenders faced the highest risk in Western Europe. The broader Greek market <.ATG> falls 3.6 percent. Yield spreads between Greek and German 10-year government bonds widen to as much as 226 basis points - the highest since April.
-- The same day, Dec 8, Fitch Ratings, which had cut Greece to A- when the government revealed the higher deficit, cuts Greek debt to BBB+ with a negative outlook, the first time in 10 years a ratings agency puts Greece below the A investment grade.
-- Shares in Greek banks deepen losses to fall almost 8 percent while the euro hit a day low after the downgrade. On Dec. 9, Papandreou says he is determined to win back the country's lost credibility.
-- On Dec. 14, Papandreou outlines policies to cut the country's ballooning budget deficit and try to regain the trust of investors and EU partners before a strike planned by leftist parties for Dec. 17 to protest against austerity measures.
-- Papandreou announces a 10 percent cut in social security spending in 2010. Says he will abolish bonuses at state banks and slap a 90 percent tax on private bankers' bonuses. Vows a serious fight against corruption and tax evasion, calling them the country's biggest problems.
-- He announces a drastic overhaul of the pension system in six months and a new tax system that will make the wealthier carry more of the burden.
-- On Dec. 15, markets fall in reaction to Papandreou announcements and workers immediately protest the cuts in social security.
-- Greek bank shares drop 2.9 percent in early trading, with analysts citing market concerns about the government failing to announce tougher measures to shore up the country's finances.
Copyright 2009 Reuters, Click for Restriction

Wednesday, December 2, 2009

Liberty and Economics-What ails Kenya

Sun Tzu says, “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.”
We in Kenya keep seeing and marvel at the riches of countries like the US, Japan, Asia and Europe. We go further and profess at the love of the lifestyle of the citizenry of these countries. We always ask ourselves, “how can we be like them?”
The founding fathers of America were clearly great thinkers. They came up with the quotes below:
• If we can prevent the government from wasting the labors of the people, under the pretense of taking care of them, they must become happy.-Letter to Thomas Cooper (29 November 1802)
• Our legislators are not sufficiently apprized of the rightful limits of their power; that their true office is to declare and enforce only our natural rights... and to take none of them from us. No man has a natural right to commit aggression on the equal rights of another; and this is all from which the laws ought to restrain him... and the idea is quite unfounded, that on entering into society we give up any natural right.- Letter to Francis W. Gilmer (27 June 1816); The Writings of Thomas Jefferson edited by Ford, vol. 10, p. 32
• Government big enough to supply everything you need is big enough to take everything you have ... The course of history shows that as a government grows, liberty decreases.- Commonly quoted on many websites, this quotation is actually from an address by President Gerald Ford [ to the US Congress (12 August 1974)
• "Society in every state is a blessing, but government even in its best state is but a necessary evil; in its worst state an intolerable one."- Thomas Paine
• That government is best which governs least.
• Where the people fear the government you have tyranny. Where the government fears the people you have liberty.
This betrays their underlying thought… Capitalism is based on liberty of man, free from the tyranny of government and largely dependent upon the sweat of his brow, not the handouts from other men.
The founding fathers of the US and subsequent leadership were very skeptical of government because their reason was government is a conglomeration of individuals who act in their own interest first and others later… and they were right. Throughout history, we have seen politicians who seek popularity expand government ostensibly to solve people’s problems. They end up taxing the populace more and as a result, the government ends up transferring resources from the most productive members of our society to the lesser productive members of society thereby wasting resources.
When taken to extremes, we have a situation like we have in Kenya where people keep talking in terms of “naomba serikali inisaidie…” The more this culture of dependency is ingrained into the national psyche, the more likely the nation is going to be ultra competitive during elections. The rationale of the populace will of course be, since those in government eat (read waste), then we would rather our people waste.
The problem in Kenya’s set up is too much government. If we look at the worst performing sectors of the economy, they all have one thing in common. They suffer from micromanagement by government. These include the fields of energy and agriculture. These two are regulated, nay, controlled by thought that is based on a mixture of feudalism and mercantilism- where the state favors a few existing at the expense of many.
Adam Smith and Ricardo showed us arguments such as ‘The government is protecting home grown industries’ does not make sense because cost of maintaining these industries to society is much more than the general ‘welfare’ that these so called home grown industries offer society in general… classic broken window fallacy. Secondly these industries never become as efficient as they ought to be during the time of protection so it is rarely a logical argument that this mercantile approach to doing business actually helps anyone.
When all is said and done, the ultimate cost the mercantile/feudal policies of Kenyan government are a disincentive to investment and therefore there are fewer entrepreneurs wiling to venture in these murky waters. These policies ultimately make society poorer and the resultant economy is one of high dependency, low tax base, high black market activity and a volatile society. Kenya anyone?