Category: simonblack

October 15, 2014
En route to New York

“John Galt is Prometheus who changed his mind. After centuries of being torn by vultures in payment for having brought to men the fire of the gods, he broke his chains—and he withdrew his fire—until the day when men withdraw their vultures.”

Sick of the overbearing regulation, taxation, and entitlement mentality in society—in the book Atlas Shrugged, John Galt went to one entrepreneur after another to convince them that they just didn’t need to put up with it anymore.

They didn’t need to keep propping up a system that was trying to destroy them. Where’s the point in continuing to feed a parasitic system?

So one by one, these innovators and producers simply closed up shop, deciding to just “shrug” and abandon what they were providing thanklessly to the looters.

Today many companies are doing the same. They may not be abandoning their businesses altogether, but they are moving them out of the hands of the parasites by moving their tax bases abroad.

In Ayn Rand’s book, the Economic Planning Bureau dealt with this by legislating that no businesses could leave: “[a]ll the manufacturing establishments of the country, of any size and nature, were forbidden to move from their present locations, except when granted a special permission to do so.”

In real life today, we have a string of policies being proposed to similarly discourage companies from leaving, or failing that, to try to claw as much money as possible from them first.

First, take the H.R. 5278: No Federal Contracts for Corporate Deserters Act, which bars federal contracts for American companies that have gone overseas for tax purposes.

Then take the H.R. 5549: Pay What You Owe Before You Go Act, which seeks the seizure of unrepatriated corporate revenue.

Even the language used by these bill’s supporters is eerily similar to the novel, as politicians call for corporations to pay their “fair share” and bemoan that Americans have to “pick up the tax burden inverted companies shrug off.”

At the time, Rand might have thought that she was writing about an extreme, fictional society. But it seems that the Land of the Free is eager to exceed even her worst expectations.

When she wrote about the “Economic Emergency Law”, which forbade any discrimination “for any reason whatever against any person in any matter involving his livelihood”, she was likely thinking about criteria such as race, gender, and age.

She might have even considered they would try to prevent employers from making judgments based on a person’s ability, though I’m sure she would not have even imagined what politicians have actually come up with in the US.

Try the S. 1972/ H.R. 3972: Fair Employment Opportunity Act that proposed to prohibit discrimination according to a person’s history of unemployment.

Or even worse, the S. 1837: Equal Employment for All Act that would have prohibited employers from even looking at prospective employee’s credit ratings.

The literary similarities don’t just stop with corporations either. Compare the fictional Project Soybean, designed to “recondition” people’s dietary habits to the actual H.R. 4904: Vegetables Are Really Important Eating Tools for You (VARIETY).

Tell me, which one sounds more ludicrous to you?

With each new piece of legislation being proposed in the Land of the Free, Atlas Shrugged seems to be ever more prophetic.

While even the most terrifying elements of the book are coming true, so are the reactions.

People and companies are leaving, refusing the put up with the looting of their efforts any longer.

Despite politicians’ desperate attempts to stop it, Atlas is already shrugging.

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October 15, 2014
En route to New York

True story.

One of our SMC members just received a package from HSBC giving him and his wife a deadline to comply with FATCA—US’ global tax law.

As Canadians they’d long felt bad for Americans having to deal with the overbearing burden of FATCA. Never did they think it would affect them.

But suddenly they had just four weeks to prove that they were not US taxpayers, all because at one point they had purchased a service that gave them a US phone number.

And now they, as Canadian citizens and residents, have to submit a fully completed W8BEN IRS form, along with a government issued photo ID and a detailed letter of explanation to make it very clear that they were not in fact Americans.

It used to be that foreigners were vying to become US citizens, but today they’re begging not to be confused as one.

In aiming to make itself the warden of the world, the US government has become very comfortable with reaching beyond its borders.

Historically, the pursuit of global dominance involved taking over others’ territories with guns blazing. Today, there’s more finesse, but the intentions are the same.

FATCA, the new Manifest Destiny, is probably the most arrogant piece of legislation ever enacted, at least in modern times.

Assuming that the entire world should be subject to its own arcane and excessive tax legislation, FATCA requires foreign banks to sabotage their relationships with their clients and breach their own privacy standards to comply with the US government’s will.

This overreaching piece of legislation demands that they reveal the information of US citizens with accounts over $50,000.

Otherwise the banks will be frozen out of the US banking system and slapped with a 30% withholding tax—effectively killing their business.

Those that resist can even face criminal charges.

Which is what happened in 2009, when the IRS accused Swiss bank UBS of aiding tax evasion, imposing on it a $780 million fine. The fines have been piling up and increasing ever since, with Credit Suisse having to pony up $2.6 billion this year.

Thus, everyone is complying. They can’t afford not to.

With the Swiss banking system in particular in the crosshairs of US authorities, the Department of Justice “offered” a deal to Swiss banks to avoid prosecution before the end of last year, and over 100 Swiss banks rushed to take it before the December 31^st deadline.

However, the actual terms of this deal didn’t come out until now. It turns out that, from its position of dominance, the US government is demanding “total cooperation” from Swiss banks.

This means an open, one-way flow of information of American account numbers, balances, names, addresses and identification numbers. In addition, they must reveal all cross-border activities and close the accounts of any Americans said to be evading taxes.

Doing otherwise, the banks are breaching the deal and thus immediately face prosecution.

This is the economic equivalent of a military occupation.

Between compliance documentation, and facing massive fines and potential criminal charges, it’s no mystery as to why foreign financial institutions are going out of their way to avoid US customers.

And increasingly they’re looking for alternatives to the whole system as well. If you’re a foreign bank that gets reminded constantly of the potential penalties, breaches and charges that you could face simply for doing business, it’s only prudent that you hedge your bets and look to minimize your exposure to the US dollar and the US banking system.

It really just isn’t worth it anymore.

The US thus just continues to shoot itself in the foot.

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October 15, 2014
En route to New York

[Editor’s note: This is the third piece in our series covering exciting startup locations in thriving markets around the world. See also, Medellín, Colombia, and Vilnius, Lithuania.]

A strong community of other entrepreneurs and mentors makes all the difference for a young startup.

Through a community, and through mentors in particular, you can gain access to their networks. This might be just what it takes to turn your fledgling idea into a reality.

For those looking for a place to launch their startup with a solid community for support, Nairobi, Kenya, is nearly unmatched.

Here, the sense of community is simply remarkable. Successful Kenyan entrepreneurs are exceptionally passionate and willing to mentor the next generation of entrepreneurs.

As a result, there is a constant stream of events in Nairobi geared toward entrepreneurs or budding business leaders. Everywhere from students to top-level business leaders, the desire for personal and business development is fierce.

International and domestic capital and mentorship programs abound, as there is great interest in funding businesses that could potentially transform the whole continent. Mobile technology, agriculture, and infrastructure are some of the main focuses.

Seeing the country’s strong growth and potential, many individual Kenyans who have been raised and educated in top universities in the UK and US are now coming home, bringing knowledge, experience, capital, and global networks back with them.

Add to that the fact that Nairobi is one of the headquarters of the UN, and it’s clear why the city is home to such a vibrant international community. One with a lot of money at that.

Co-working spaces and startup incubators like 88MPH, Fablab, and iHub in Nairobi provide great communities for entrepreneurs who come from across the country and the world seeking to break into the massive, fledgling African market. They are working hard to establish Nairobi as the major tech hub of the region.

In 3 years of operation, 88MPH has invested nearly $2 million in startups, with a number of the businesses that have gone through their incubation programs already seeing wide use across the country.

One example being MDUNDO, a sort of Kenyan version of iTunes, which has been adapted to suit the predominance of mobile rather than computer browsing in the country.

As the country’s market is less developed, basic services like this can really take the country by storm.

This is no more apparent than the case of M-PESA, a mobile phone based money transfer and microfinance service. Launched in 2007, the service has already revolutionized business and every day transactions in the country.

Everybody and their grandmother uses it on a daily basis, and you can pay from anything from your groceries to your taxi instantly by mobile.

Though things are modernizing quickly, living in Nairobi can still have its challenges. Done right, however, and you can live particularly well. Very nice accommodation can be easily a quarter of what you can find in New York or California, and with fantastic, temperate weather all year long, you just can’t complain.

For the entrepreneur with a sense of adventure not only in business but in life, the proximity of Nairobi to incredible safaris and beautiful beaches just can’t be beat.

As the country is on a clear upward trajectory, the potential is absolutely huge. We’re not talking a few thousand downloads of your app, but changing the lives of millions across the continent.

In Kenya, you can truly dream big.

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October 14, 2014
Buenos Aires, Argentina

In the pantheon of utter political stupidity in our time, the competition is pretty fierce to see who ranks #1.

But I have to imagine that, even with so many rivals, Argentina’s Cristina Fernandez de Kirchner makes a pretty compelling argument to be the champion.

And though the productive class of Argentina is no stranger to being vilified by a populist government whose grasp on power rests on praising the dignity of poverty, Cristina has managed to take things to an entirely new level.

Exhibit A: Argentina’s new ‘supply law’, or Ley de Abastecimiento, due to take effect in December next year.

Under this new law, the government will have the honorable burden of defending consumers from greedy producers.

Companies are now prohibited from setting their prices too high, generating too much profit, or producing too little. 

And unlike the country’s astronomically high taxes (which at least have defined numbers and penalties), the new supply law doesn’t even say what is meant by too high, too many, or too little.

It simply reinforces the government’s unchecked power to arbitrarily audit, fine, shut down, and expropriate production of private companies.

Argentina’s government has already been maintaining “voluntary” price controls on over 400 consumer products for the past year, all in the name of combating the inflation that they themselves created.

And as any high school economics student can tell you, price controls create… SHORTAGES. Duh.

Needless to say, local production of these staple consumer products has dropped as a result of price controls. And given the pitiful state of the peso, they’re too expensive to import.

And anyone who can actually get their hands on these products—sugar, cooking oil, canned fruits, cleaning products, etc. often strolls across the land borders into Paraguay and Brazil where they are sold at competitive market prices.

Argentina’s new law of clamping down supply-side control echoes Venezuela’s 2011 “Fair Price and Cost Law”, which instead of reigning in inflation has reduced the Bolivarian state to the continent’s preeminent example of failure

Throngs of Venezuelans now line up around the block for days to buy single-ply toilet paper at a “fair” price. Argentina is not far behind.

This isn’t even about the country being “leftist” or “socialist”.

What has destroyed the country is not the high taxes or government waste (although that certainly doesn’t help). Argentina shoots itself in the foot by passing laws that call into question legal certainty and basic property rights.

All of this exacerbates unquantifiable country risk and the inability for businesses and individuals to plan ahead—in any environment.

If you think Argentina is an aberration, think again.

Just as Argentina used to be one of the richest places in the world and Buenos Aires competed with New York for the brightest and most talented minds on the planet, many Western countries are going down the same road.

They create absurd and confiscatory tax systems and regulations. They condemn companies who have a fiduciary responsibility to their shareholders – not governments – and follow THEIR OWN LAWS to legally minimize their tax obligations.

The seize, steal, kill and regulate every aspect of our private and economic lives. And they even have to resort to such comical measures as in Europe where they now count illegal activities such as spending on drugs and prostitutes as part of the GDP to maintain the illusion of economic growth.

All this uncertainty pushes people and businesses out the door. No one wants to deal with long-term stability issues when the next debt-ceiling debacle is always just around the corner, and when you have to look out for any number of three-letter agencies to reprimand you for doing business.

Argentina is a sign of things to come. Are you willing to wait for when your government decides that your profits are too high?

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October 13, 2014
Santiago, Chile

A man in a uniform dashes up to you with a badge pinned to his chest and says “that man over there is a thief! Quick, help me get him!” What do you do?

You would probably run and tackle the guy down, right?

To get to the rational part of your brain that tells you to hold on, since you don’t even know if the man in a uniform is actually a cop, or if the alleged thief actually did anything wrong, you have to first overcome a whole life of indoctrination telling you that when someone in a uniform tells you to do something, you do it.

Some are able to reach that rational part of their brains, but most are not.

Experiment after experiment has shown us the level of blind obedience that people have to anyone in a uniform—replacing any morality or common sense they might have had in order to comply.

Here in this video you can see some of the terrifying and silly things people do when instructed to do so by someone in a uniform. Mind you this isn’t even necessarily a person of authority, it’s merely someone dressed as one.

That’s what’s scary. Because people will willingly hurt other people for no other reason than the fact that someone appears to be an authority figure.

This kind of obedience is no accident. It starts off as an intentional process from childhood.

In school you were taught to sit down, shut up, and do whatever your teacher said.

The lesson from day number one was to take orders without thinking about them.

If you grew up in the United States, you likely started your day off with your hand over your heart proclaiming your fealty to your nation—whatever that was—and the piece of tri-colored cloth by which it was represented.

Before you could understand what any of the words in the Pledge of Allegiance meant, you knew them by heart.

That was exactly the point.

Which is why on October 12, 1892 the Pledge of Allegiance was made compulsory for all students in public schools.

Aiming to instill patriotism and obedience in children early on, Francis Bellamy, the socialist minister who penned the Pledge, made sure to keep it brief and with good cadence so it would be easily memorized.

Children across the nation recite it every morning:

“I pledge allegiance to the Flag of the United States of America, and to the Republic for which it stands, one Nation under God, indivisible, with liberty and justice for all.”

Even into adulthood, once you could begin to understand the meaning of the words you were saying, there was to be no room for debate.

“Liberty and justice for all”? Who could possibly claim to object to that? Which is exactly what Bellamy wanted.

But in reality, how many people even as adults actually think about what those words mean.

The original Pledge was accompanied by ‘the Bellamy salute’, which was dropped during WWII because the Nazis started using it (they copied the United States’ tactics to instill national pride and obedience).

The Nazi salute and the indoctrination of children? Yep, that was the US’s idea first.

Thus, the same blind obedience given to those in uniforms is also given to actions commanded under the name of the American flag.

Just the same, this can lead some to forget all morality and common sense to willingly harm other human beings, whether they be across the planet or within the country itself.

With enough indoctrination, all it takes is a piece of cloth and a few words.

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October 13, 2014
London, England

[Editor’s note: Tim Price is a London-based wealth manager and editor of Price Value International.]

“When sorrows come,” wrote Shakespeare, “they come not single spies, but in battalions.”

True. And Jeremy Warner for the Daily Telegraph identifies ten such sorrows in his ‘ten biggest threats to the global economy’:

1)  Geopolitical risk;

2)  The threat of oil and gas price spikes;

3)  A hard landing in China;

4)  Normalization of monetary policy in the Anglo-Saxon economies;

5)  Euro zone deflation;

6)  ‘Secular stagnation’;

7)  The size of the debt overhang;

8)  Complacent markets;

9) House price bubbles;

10) Ageing populations.

We’ll start with point #7: the size of the debt overhang.

Since this was never addressed in the immediate aftermath of the Global Financial Crisis, it’s hardly a surprise to see the poison of debt continue to drip onto all things financial.

ALL German government paper out to three years, for example, now offers a negative yield. Investors must pay rent to the German government in order to buy its debt.

This has implications. And much of the rest of Warner’s ‘threats’ are inextricably linked to this debt overhang.

Point #8: Complacent markets? Check. (Though stocks have lost a lot of their nerve…)

Point #9: House price bubbles? Check. Since the monetary policy response to having too much debt in the system has been to slash rates and keep them at multi-century lows, it’s hardly a surprise to see property prices in a bubble. Again.

Point #5: Euro zone deflation? Check. This is less of a threat to solvent consumers, but deadly for indebted governments.

Point #4: Pending normalization of monetary policy in the UK and US? Check.

This threatens the integrity of the credit markets. And it’s worth asking whether central banks could possibly afford to let interest rates rise and risk bankrupting their governments.

We saw one particularly eye-catching chart last week, via Grant Williams, comparing the leverage ratios of major US financial institutions over recent years (shown below).

The Fed’s leverage ratio (total assets to capital) now stands at just under 80x. That compares with Lehman Brothers’ leverage ratio, just before it went bankrupt, of just under 30x.

Sometimes a picture really does paint a thousand words.

And this, again, brings us back to the defining problem of our time: too much debt in the system.

In a recent interview with Jim Grant, Sprott Global questioned the famed interest rate observer about the likely outlook for bonds. Grant responds:

“I’m not sure what a bear market would look like, but I think that it would be characterized at first by a lot of people rushing through a very narrow gate. ”

Grant was also asked if it was possible for the Fed to lose control of the bond market:

“Absolutely, it could. The Fed does not control events for the most part. Events certainly will end up controlling the Fed. To answer your question – yeah. I think the Fed can and will lose control of the bond market.”

As we have written on innumerable prior occasions, we wholeheartedly agree. What will drive pretty much all asset markets over the near, medium and longer term is almost entirely down to how credit markets behave.

The fundamentals (again, take one look at the chart) are utterly shocking, as are the implications.

And let us not confuse the prognosis by arguing over the diagnosis.

As Professor Antal Fekete writes in his Monetary Economics 101: The real bills doctrine of Adam Smith–

“Hyperinflation and hyper-deflation are just two different forms of the same phenomenon: credit collapse. Arguing which of the two forms will dominate is futile: it blurs the focus of inquiry and frustrates efforts to avoid disaster.”

Tim Price’s monthly Price Value International investment service is designed to provide safe investment advice and education, as well as actionable recommendations as to where investors can deploy their capital without taking an unnecessary amount of risk in an environment of corrupt central bank and government policies.

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October 10, 2014
Santiago, Chile

I just got off a two-hour conference call with the board of directors of our agricultural investment company.

I’m fortunate that our board is comprised of some incredibly smart people, including a senior executive at one of the largest sovereign wealth funds in the world, another investment banking executive, private wealth manager, etc.

These are very intelligent people who understand both finance and agriculture.

Our conversation this morning turned to exchange rates, and we discussed the future of the US dollar.

Bear in mind that we all hold a rather dim view of the dollar’s long-term fundamentals. That is, after all, why we pooled funds to trade paper currency for high quality productive farmland.

But over the coming months, our consensus was that the US dollar is in a favorable position when ranked against other major fiat currencies. I’ll explain why:

There are only a handful of currencies in the world that can handle huge institutional inflows and outflows.

A fund manager moving $100 billion, for example, can’t park that money in the Costa Rican colon, or the Tanzanian shilling.

It would be impossible. That amount of money would practically swallow the entire money supply and wreck havoc on the local economy.

The only currencies right now that are globally liquid and can really handle such massive flows are the US dollar, the euro, and the yen.

The yen is the worst off; the Japanese government is in absolutely abysmal condition spending upwards of 25% of its central government tax revenue just to pay interest on the debt. And the situation gets worse by the day.

In Europe, many interest rates are now in negative territory. If you purchase a short-term German government bond, for example, you have to PAY THEM for the privilege of loaning them your money. It’s nuts.

By comparison, even though the US government’s financial position is absolutely atrocious, the dollar is the least ugly of the three.

To wit, institutional investors have been selling yen and euros in favor of US dollar assets. And we’ve seen this play out via the steady strengthening of the USD exchange rate for those currencies.

The euro, for example, was at $1.39 just five months ago. It hit $1.25 last week—a 10% drop in just five months.

This is a result of institutional money flows. The dollar is being viewed, despite its deep, fundamental problems, as the safe haven currency. And institutions are buying.

Now, while this outlook will likely persist over the coming months, the long-term outlook for the dollar remains clear. And China’s renminbi is a big part of that.

The international use of the renminbi rises with each passing month.

Institutions, central banks, large corporations, and even governments are beginning to use the renminbi more and more. They’re holding it as an official reserve, and they’re even cutting oil deals in renminbi.

We’re seeing commodities contracts traded, priced, and settled in renminbi. And renminbi trading hubs are being rapidly established in Western financial centers, notably London and Zurich.

Plus, the Chinese government is gradually loosening the renminbi’s restrictions, allowing convertibility on a global scale. Bottom line, they WANT the renminbi to be a global currency.

This will provide a critical fourth option for institutional capital flows.

And while China is saturated with challenges on multiple fronts, the renminbi’s fundamentals are far more attractive when stacked against the dollar, euro, and yen.

Over the coming years, we can expect more and more institutional capital flows into the renminbi.

But for now, at least until another looming US government shutdown spooks investors, we can expect the dollar to reign.

It’s a sad statement of the global financial system when a country that has accumulated more debt than any other nation in the history of the world appears to be the ‘least bad’ choice.

That said, there are options.

The Hong Kong dollar is currently pegged to the US dollar at a rate of 7.80 HKD per US dollar and trades within a very narrow band.

This means that if the US dollar maintains its strength, or if it appreciates further, the Hong Kong dollar will strengthen along with it.

But if the US dollar were to devalue sharply… or experience a sudden, terminal decline, the Hong Kong Monetary Authority could de-peg the Hong Kong dollar.

In this way, your downside risk is protected, yet you maintain your upside potential in case the dollar improves further. And you practically eliminate exchange rate fluctuation in the meantime.

Of the available options, the Hong Kong dollar is a strong choice to consider.

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October 9, 2014
Santiago, Chile

The Bank of Korea — South Korea’s central bank — released data that says South Korean domestic deposits have reached 16.19 billion Chinese renminbi in July this year, which is a 55-fold increase from the same period last year when renminbi deposits accounted for only 290 million.

According to data from South Korean banks, the proportion of foreign currency deposits held in renminbi was 0.4% at the end of 2012. That number reached 13.7% at the end of last year, while at the end of July this year the renminbi accounted for 25.9% of all foreign currency deposits in South Korea.

That’s an incredible, exponential increase.

Since Korean interest rates continue to be low and follow closely those of most Western countries, Koreans realize that if they continue to hold their money in bank accounts denominated in won, their savings are steadily and surreptitiously being diminished by inflation that’s higher then their paltry returns.

With a lack of good investment opportunities in a zero-interest rate environment and with frothy equity markets, Koreans are at least diversifying their currency exposure, with domestic capital rapidly flowing into renminbi deposits that yield much higher at around 3.25% per year.

Coupled with the continued strength of the renminbi, the attractiveness of diversifying their capital in foreign currencies, and the renminbi in particular, is clearly a firm trend among Koreans.

This is a well known scenario. Just as Europeans from countries with weaker currencies and economic prospects used to safeguard their savings by holding them in Deutschmarks and Swiss franks, we see the same trend happening today.

Individuals, companies and even governments are diversifying their currency exposure — mostly on the account of the US dollar. Renminbi denominated bonds are now being issued by businesses all over the world– heck, even McDonald’s issued a renminbi bond.

And now the UK will become the first country in the world other than China to issue renminbi denominated government debt. In fact, just this morning the UK Treasury announced that it hired Bank of China, HSBC and Standard Chartered to arrange the sale, with the bond issuance likely happening next Monday.

This follows last week’s announcement from the People’s Bank of China that renminbi and euro are now directly tradable, without the need to use the US dollar as a conduit.

The signs are clearly all there. Everyone realizes that the present system is on its way out and are taking appropriate measures. The Germans, the French, the Brits, the Canadians, the Koreans…

Don’t you think it’s time to step up and do something about it too?

The situation today looks a lot like one big game of musical chairs. Investors and “hot money” desperately looking for yield in a zero interest rate environment are pushing prices of practically all assets sky high and diversifying into markets and currencies with brighter prospects.

Make sure that you’re not the one left stranded when the music stops.

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October 8, 2014
Santiago, Chile

In 1863, the United States of America was in the midst of a devastating civil war.

Thousands of people had just lost their lives at Gettysburg, and Sherman was preparing for his march to the sea, laying waste to Atlanta in the process.

New York City was embroiled in the most violent riots in its history.

The southern economy was in shambles with the prices of staple food items skyrocketing, and citizens of the Union were stuck paying income taxes for the first time ever.

Much of the country had still not recovered from the Panic of 1857. And just when it seemed that things couldn’t be any more chaotic, the President would be assassinated soon.

All in all, it seemed that the whole world was on fire. This was United States in the 1860s.

And had you been born at this time amid so much chaos, death, and pessimism, most people would have thought your future prospects would be pretty dim.

But that’s not what happened. Instead, that would have been an incredible time to be born.

Rather than floundering in its rubble, the United States became the wealthiest and most powerful country in the world in the fifty years that followed.

Indeed, the latter part of the 19th century was an extraordinary time to be alive.

Economic freedom abounded in the US. There was no insane government regulation. No income tax. No gun-toting agents ready to kick in your door, shut down your lemonade stand, tell you what to put in your body, or arrest you for collecting rainwater.

Personal responsibility was valued. Everyone accepted that there was danger in the world. And it wasn’t up to the government to ‘protect’ people from every last one of them.

Yet despite so much ‘danger’, this was one of the greatest periods of wealth creation in history, simply because people were free to make things happen.

People were free to enter, compete, and make choices in the market. Their freedom and property rights were protected by a clear rule of law.

However, just 50-years later, this positive trajectory was cut short with the establishment of the Federal Reserve.

It was a remarkable turn of events.

In 1863 the Emancipation Proclamation freed the slaves. Five decades later the Federal Reserve Act placed an entire population under the control of a banking cartel.

The 100 years that followed through today have simply been about tightening the chains and leading the country down a path of gradual decline.

At first, the decline was subtle. The US remained prosperous and relatively free throughout the twentieth century.

According to the newest Frasier Institute’s Economic Freedom of the World Index (released yesterday), the US ranked as one of the world’s freest economies from 1980 through 2000.

Since then the decline has hastened.

The US dramatically slipped to 9th in 2005 and its decline has continued ever since, to the point where the United States is now rated less economically free than Jordan.

This is no accident.

The mushroom cloud expansion of regulation has stifled small business and innovation.

Even more significantly, property rights and respect for rule of law that once defined the country have eroded.

From an alarming increase in government seizure of private property under the guise of eminent domain, to blatant disregard for the property rights of bondholders during bailouts, the US has plunged to #36 in the world in respecting property rights.

The decline of economic freedom in the US has destroyed opportunities, growth, and wealth creation along with it.

Is this as bad as Argentina, Equatorial Guinea, or Venezuela? No. But it’s not about where you’re at. It’s about where you’re going. And the trajectory is clearly negative.

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October 7, 2014
Santiago, Chile

Now that European Union countries are required by law to keep tabs on illegal activities as part of their economic indicators, we decided to look at some select European countries more closely.

The new accounting rules mandated by the EU’s statistics office, Eurostat, include revenue from illegal activities related to drugs trafficking, prostitution and cigarette smuggling.

Of course, there’s no actual reliable data to measure these illegal activities, so it’s all guesswork. But hey, whatever floats your boat—or boosts your GDP.

For example, to figure out how prostitution contributed to the country’s economy, Spain’s national statistics agency counted the number of “known prostitutes” working in the country and consulted sex clubs to calculate how much they earned.

Known prostitutes? Do they have a Facebook group?

And how about if these “known prostitutes” move around the borderless Schengen area? Their contribution to GDP is probably counted several times then.

So, using these scientific methods Spain’s statistics agency announced that illicit activities accounted for 0.87% of GDP.

(Perhaps this is one of the reasons why a whopping 547,890 people left Spain last year, most of them to Latin America, according to the national statistics agency.)

This compares similarly to the UK where Britons, according to its own statistics agency, spent 12.3 billion pounds on drugs and prostitutes in 2013, or 0.79% of GDP.

That’s more than they spent on beer and wine, which only amounted to 11 billion pounds.

And you probably thought Britons were heavy drinkers. Turns out they enjoy hookers and blow even more.

On the more uptight and conservative spectrum of Europeans, Slovenian households spent 200 million euros last year on prostitutes and drugs, or 0.33% of Slovenia’s GDP.

Curiously enough, Slovenia’s Finance Minister just announced today that the country’s budget deficit will be 200 million euros higher than previously thought. Coincidence? I don’t think so.

On the more libertine extreme, in Germany estimates suggest that prostitution and drugs amounted to as much as $91 billion in 2013—or an incredible 2.5% of the total economy.

This is the sign of the times. Governments are so desperate to maintain the illusion of growth that they’re turning to desperate, comical measures.

Across the entire continent, Eurostat estimates that gross EU GDP is larger by 2.4% if all illegal activities (not just prostitution and drugs) are accounted for.

Funny thing, they also report that total real GDP growth in 2013 (the year they started counting illegal activities) was just 0.1%.

In other words, illegal activities are now the difference between economic growth and economic recession in Europe.

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