Involving: China’s self-imposed revolution, Cypriot ATMs that will continue to shoot blanks until Thursday, the different between a depositors’ tax and inflation, and the Venezuelan government engages in nonsensical road rage.

Good morning

The headlines:

  1. China takes the next step.

    Link: “a self-imposed revolution”

    Freshly appointed Premier Li Keqiang has said that China is taking the next step in her master plan to open up her markets.

    The reason that I’m highlighting this: China is often held up as the poster-child of government-intervention communism. But when you read books on the Chinese economic development (I strongly recommend “Maonomics” by Loretta Napoleoni), there is a strong case for the liberalisation of China having been something that the Party has been pursuing since Den Xiaoping took over in the late 1980s.

    But rather than an IMF-imposed ice-bath of neoliberal policies, the Chinese have done it gradually. The migration limits between rural and urban areas were lifted; then the “capitalist” zones were created; then foreign investment started in a highly regulated way; and so on.

    It’s just interesting to see it being acknowledged by the Party leadership itself.

  2. Oh Cyprus.

    Link: the bank holiday continues.

    Frozen bank accounts and ATM queues. It sounds so Third World!

    And the EU isn’t budging: it’s insisting on the Cypriot government raising €5.8 billion from the depositor’s tax in exchange for €10 billion in bailout package.

    Does it not seem remarkably unfair that the savers are being taxed for the sins of the borrowers? But then again – the complaint is only there because it’s so blatant and/or instant. There is no difference between a once-off depositors’ tax of 9.9% and an annual inflation rate of 9.9% caused by quantitative easing – both of those are taxes on cash balances.

    Even if that quantitative easing inflationary effect is delayed by a global demand that’s willing to soak up the extra liquidity.

  3. A complementary foreign exchange system.

    Link: Venezuela.

    Venezuela has an inflation rate of 22.8%*, an official exchange rate of 6.3 bolivars to the dollar, and a black market exchange rate of 23.5 bolivars to the dollar.

    What is this saying? It’s saying that those bank depositors are trying to evade the 22.8% depositor tax on their bolivar accounts by buying United States dollars.

    Fortunately, <insert sarcasm here> the government is announcing a new “complementary” foreign exchange system “to defeat the parallel dollar” – with no real explanation as to how. They’re also introducing new price controls**.

    A quote from Mr Maduro (the bus driver, now driving Venezuela):

    “There is a corrupt right wing and a parasitic bourgeoisie betting on a destabilisation of the economy; they’re behind the parallel dollar.”

    Yes. Or, to paraphrase: the people trying to avoid a bus that’s being driven out of control…

    *A annual tax on bolivar depositors of 22.8%!

    **For those that try to pass on the 22.8% inflation tax to their customers.

That’s all for now.

Have a good day.