Monday, April 16, 2012

Silly continentals hoard %35 more Barbarous Relic in eccentric hermit mountain kingdom.

The BBC is reporting that gold shipments from Italy to Switzerland have increased %35.

They then add this gem:

"Experts say improvements in the trade deficit could be a sign that Prime Minister Mario Monti's economic reforms are starting to take effect."

If by working they mean people with savings or wealth getting their money the hell out of the country before it can be seized under the aegis of wealth taxes, then yes Monti's policies are working...

Mario Monti is probably doing what's right for Italy, that is, ensuring it remains a sovereign country with control of its budgets, policy and public accounts. In the longer term anyway. It is hard not to look at Europe and be concerned that something wicked this way comes. Monti knows that the only way to make finances work is to cut spending, which means public sector salaries and benefits.

In the west, public servants make up much of the middle class, and a lot of those unemployed students are children of public servants. The pendulum is swinging in the other direction, and if there is one thing we can rely on it is that everyone thinks someone else should pay more in taxes.

If you are an unemployed European, the only job with any near term growth seems to be "riot cop."

The reason gold is exiting the country is probably a few-fold. First, depending on local laws, gold may be a commodity and not a monetary instrument so the reporting requirements may be different. That is, you may have to declare monetary assets, but if gold doesn't count, it's as opaque as shipping a painting.

Second, at current prices, very small physical quantities store a significant amount of value and they are easier to move. Consider that the iPhone weighs about 5oz (4.9oz or 140g), which in round numbers is about US $8250.00 in gold.

Here's one for the kids' homework: "If Giuseppe converts his Euro cash savings into gold to reduce his exposure to extreme events - like a sudden currency devaluation, a forced conversion to Lire (!?), seizure by authorities while he proves his compliance during a crackdown, or public sector salary clawbacks - by weight, how many iPhones worth of gold will he need to get out of the country to be sure that his family has money to survive for six-to-eight months in the event of a crisis?" Show your work.

Third, a quantity of cash near-to or greater than $10,000 US is effectively contraband. Cash sniffing dogs have been deployed at the Italy-Switzerland border to catch people trying to spirit their money out of the country. See a similar story in english from Businessweek about Argentina.

The BBC is usually pretty smart, but like the CBC, they have a bit of a blind spot when it comes to institutions failing. Like professional courtesy, it's a bias that makes it a reasonable bet they will always find a way to say something that supports another institution, and never publicly question its viability. In this case, the BBC has essentially said, "Silly continentals hoarding %35 more barbarous relic in eccentric hermit mountain kingdom."

Let's call it what it is: Capital flight. A gentleman has no need for euphemisms.

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