This excellent article in the US Spectator by Paul Wood is two weeks old. That probably means all the prices he quotes should by now have an extra zero at the end. The vividness of his portrayal of Lebanon as the magic stops working is unaffected, so read it anyway: “What happens when your currency collapses?”
An extract:
The government continues to insist that for imports of some vital goods — food, fuel and medicines — the lira is worth the fictional rate of 1,500 to the dollar. What this means is vast government subsidies to import these goods.
This has had some perverse effects. For a long time, you could fill up your car for about five bucks. The gas station would charge you, say, 60,000 lira, which was $40 at the official exchange rate, except your lira would have come from the black market at a fraction of that. As any economist will tell you, if you don’t ration by price, you ration by queuing, as in the Soviet Union. So there have been long lines at gas stations and now actual rationing, a quarter of a tank per customer — and that’s if you can find a gas station open at all. A side effect of the fuel shortage is that the internet is slowing to a crawl, sometimes breaking down altogether. The commonly accepted explanation is that there’s not enough diesel to run the power plant belonging to the national phone and internet company.
It’s the same with medicines. We’ve just bought a year’s course of treatment for our daughter’s nanny, who has breast cancer. We went to the hospital with 225 million lira in cash. It filled a small backpack. Those lira cost some $15,000 on the black market but they paid for $150,000 worth of medicines at the official exchange rate.
Lebanon is temporarily the cheapest place in the world to have cancer. People are coming here for treatment; subsidized medicines of all kinds are being smuggled abroad. A hypertension drug named Atacand has turned up for sale in Kinshasa, at $20 a box. It was bought in Lebanon for $2 a box. Atacand is therefore unobtainable here now. One report about this absurd situation quoted a Lebanese expat in Kinshasa who was buying the drug there to send back to his village at home.
The human will to self-deception is strong. There are some who will read this article and only take in one line: “Lebanon is temporarily the cheapest place in the world to have cancer.” There are some in Lebanon living through these events who will only take in one thought: “Isn’t it great how fuel, food and medicine are so cheap now!” They will not ask themselves why they are so hard to get, or why, as Mr Wood mentions elsewhere in the article, half of Lebanon’s doctors have left to work abroad.
You can deny economics but you can’t ignore the effects of denying economics.
From the article:
It’s getting very hard for normal people to buy a house here in the USA. Interest rates are comically low, the typical house payment works out to be substantially cheaper than rent for a comparable space, there are houses to buy . . .
But, in order to get mortgage financing, the qualification process has crept up and up and up. The typical applicant could easily afford the payments, but the loans are only given out to the uber-qualified.
Rationing of dollars by queue instead of by price keeps measured inflation low.
@bobby
FWIW, I think that the qualification thing is a small factor. Of course it could be different where you live, but I am actually in the process of buying a house right now, so have been studying the market. The problem is a huge supply issue. Houses sell three days after listing with the seller getting 27 offers (yeah, that is something that I actually watched.) Why is there a supply shortage? There are several reasons: one, houses aren’t being built any more because lumber is INSANELY expensive. A builder friend I know told me that 18 months ago a 2×4 cost $1.50, now it is more like $12.50. So you just can’t realistically build at that price. Another very significant reason, where I live anywhere, is that people are fleeing the cities. You might remember that I live about 30 miles west of Chicago. People are fleeing Chicago in droves. I’ll leave it as an exercise to the readeras to why that might be, though you might consider two factors — last weekend half of all the murders in the USA took place in Chicago, and the place is run by what any reasonable person would have to describe as a raving lunatic. It is quite a think for me to say that I long for the days of the Daley political machine.
And, of course, interest rates are crazy low right now, and since inflation is pretending to be low, but is really very high, then loans, which are essentially short selling the dollar, are a good economic plan.
It seems nuts to me that last year, when everyone was locked in their houses, and people were on the knife edge of losing their jobs, that the price of houses in the midwest went up about 5%, and they are about about 5% again this year already, and it is only July. However, one good side to what you mention is that the market is a bit less bubbly that it would be normally because the average home owner has a vastly higher equity in their home than in 2008, 15% on average if I remember right, as opposed to, what, like 0% in 2008. So I think the lack of Ninja loans is basically a good thing, even if they went to far. (Of course the problem is that the government runs everything, rather than just letting rates float, and be risk adjusted… because god forbid we charge some bum with no income and no job a higher rate of interest than a guy buying a house for less than his annual income.)
Fraser: I’m basing this on watching my kids’ generation try to become homeowners. I have three, 25 to 31, and they have friends and acquaintances, many with decent jobs, and none of them can qualify for a home mortgage. None. These are people with good credit histories, stable jobs with salaries that make them solidly young-middle-class, and the bankers all without fail shake their heads and tell them they’d need a good co-signer to even be close to qualifying. Twenty years ago, with the same relative incomes and credit, they’d all have had houses by now.
Maybe in my dotage I’m mis-classifying what a “good wage” is now, but i don’t think I’m that far off.
(And, yeah, I bought eight sheets of decent 3/4 plywood a few days ago and thought they were going to offer me financing on them – wow!$ – but houses are still going up around here. And the houses my kids aren’t getting aren’t priced outrageously even though new is so expensive to build right now – the prices are still only semi-astronomical. They just aren’t even allowed to bid on them.)
Interesting @bobby. you might have guessed that I am not between 25 and 31, and my kids aren’t of that age yet. Ultimately this situation is down to the government since Freddie and Fannie really set the conditions. Based on what my mortgage broker told me they sell nearly all their mortgages to these government agencies and they make all their money on service fees…. which is quite seriously crazy. We effectively have a socialist mortgage business in this country. Banks do carry really large mortgages since there is more money in them. However, I did used to write a lot of software in the banking industry, so I have some familiarity with the nooks and crannies of that business. Perhaps they have done this, but your kids may well have more success with small, local banks or credit unions. They can be a bit less of “the algorithm told me so”, so if they are looking it might be worth a try, especially if they can put 20% down.
I have a saying — when a democrat sees a problem they think of a regulation, when a republican sees a problem they think of a tax break, when a libertarian sees a problem they think of a business opportunity. I do wonder if, as the financial industry gets utterly moribund in the cesspool of Fannie, Freddie and FDIC deposit insurance, if there is an opportunity for a very different kind of banking detached from the federal chimera. If your kids and people like them, have the income and credit to get a mortgage then surely that is a market opportunity? Find some depositors and give them more than one nano percent interest, and maybe charge “the kids” a bit more than the Fed rate, and you have a great win win situation. Of course it is a nightmarish tangle of regulations, but most of that authority comes from genuflecting to the FDIC system. So, who knows?
Lebanon has the same absurd notion of an official exchange rate that Algeria had in the 1980s (and probably even today). ‘You can’t buck the market (forever)’‘.
Those with power care naught for the consequences, and probably tell themselves they are being good and helping the poor. This will end with ruin (has ended?). They might dollarise, or even adopt the Euro, take an IMF plan, some loans from ‘fools’ (who never lose theor own money) eager to pour away money, and start again, rinse and repeat, buy by then find the US $ has followed their £ down the toilet. The problem is that they need new, better ideas: sound money, respect for property, restraint and respect for others to be what rules their rulers, but so do we all, it is just the velocity that varies compared to us.
I do like to buy the odd Lebanese red, but it is always quite expensive, I find vines in the Bekaa Valley to be a gesture of defiance to Iran.
Lebanon today, so to the United Kingdom tomorrow. And we’re already in the advanced stages of ‘lirafication’.
The “debate” (such as it is) in mainstream monetary theory is between those who hold that the government should create money (from NOTHING) and give it to people, and those who hold that banks should create money (again – from NOTHING) and lend it to people.
Perhaps the “bankster” option is slightly more disgusting – but both options are utterly insane.
Lending should be from Real Savings of cash money – the actual sacrifice of consumption. And money should be something that people choose to value BEFORE and APART-FROM its use as money.
The modern world has rejected these principles of common sense (the Gods of the Copybook Headings – as Kipling might put it) and is, therefore, doomed.
Lebanon, or some similar mess, is the future of the West.
The irony is that Hezbollah (Iranian ally) actually physically defends the Bekaa valley wine producers from the likes of Al-Qaeda.
When I was a lad, Lebanese Red wasn’t a wine…
Roué le Jour: “When I was a lad, Lebanese Red wasn’t a wine…”
😀
Mr Ed.
I’ve been buying Lebanese reds for well over 30 years. My serious wine purchases also make a political point, on the Continent, in S. America, Transcaucasia, etc.
I sometimes wonder if any nation has tried demurrage money. I read about it years ago. It would be money that is backed by a metal (Gold/silver/platinum/whatever), but the notes based on weights of that metal would have a use-by date- they might be issued on January the first, but would lose a cent for each day after September the 23rd, so they would be worthless after the next January the first. People would thus have an incentive to use the money quickly. The principle was based on the idea that money to an economy was like blood in the body, except that individual blood cells don’t last forever, and get replaced, so shouldn’t notes?
So, sort of like the American system, but with pre-announced schedules?
I guess so, Bob. How is that working out?
How would saving work with time controlled money?
Savings are a powerful way to empower people, which is why so many hate the idea of allowing savings & constantly look for ways make it as hard as possible.
If you were to put the money in a bank, you and the bank would agree on how much you had put in, and on what date, and would need to give you the same value, or more with interest, when you want it. The bank might buy government bonds, and sell those to businesses for current money. This is all speculation, but it would be another way to keep money circulating, instead of the Keynesian solution of the government using bank money.