North Korea Manufactures and Sells Meth to Chinese addicts to bring Hard Currency into the Country

Posted by PITHOCRATES - August 25th, 2013

Week in Review

Keynesian economists, and those on the left, think there is nothing wrong with printing money.  Because they don’t understand money.  What it truly is.  So what is money?  It’s a temporary storage of wealth.  It is not wealth.  Doctors make a lot of money because they have learned great skills.  Skills few people have.  And doctors are willing to exchange these skills for money.  The wealth is a doctor’s skills.  The money temporarily holds this wealth until the doctor finds something to trade that money for.  From someone else that has wealth.  Who created something of value the doctor is willing to trade for.

All money did was make this trading of valuable things easier.  So we could trade with anyone even if they don’t want anything we can make or do.  A doctor doesn’t have to find someone who wants their gallbladder removed who has a television set if the doctor wants a television set.  The doctor can just go to a store and buy one.  Because of money.  Making the exchange of goods and services far easier than in a barter system.

Those who think money is wealth and that we should just print it and hand it out to the people are missing one very important point.  If you did this no one would have to work.  Those on the left would applaud that.  But if no one worked there would be no valuable things to trade.  And if there are no valuable things to trade then your money is worthless.  For if there is nothing to buy what good is having money?

North Korea has a lot of money.  But their money is worthless.  Because they just print it.  While their economy contains no valuable things to trade.  Not a big problem in a closed economy.  And you make your people slaves.  But it’s a problem if you want to trade with the outside world for the luxury items the lucky few in the ruling elite enjoy.  For if you have no valuable things in your economy then you must trade for valuable things with hard currency.  Money that isn’t worthless paper.  So North Korea came up with a way to get hard currency (see How North Korea got itself hooked on meth by Max Fisher published 8/21/2013 on The Washington Post).

A new study published in the journal North Korea Review says that parts of North Korea are experiencing a crystal meth “epidemic,” with an “upsurge” of recreational meth use and accompanying addiction in the country’s northern provinces…

So how do people in North Korea, a country where markets are so tightly regulated that even video CDs can be considered dangerous contraband and where social controls are often beyond Orwellian, manage to get hold of meth..?

The problem actually goes back to the 1990s, when North Korea experienced a famine so devastating that virtually the entire world believed the country would collapse at any moment. But it didn’t, in part because Pyongyang finally decided to open up the world’s most closed economy just a small crack, by allowing a degree of black market trade across North Korea’s border with China. The idea was that the black market would bring in food, which it did, preventing North Korea’s implosion.

The black market trade into China has remained that little bit open ever since, either because Pyongyang authorities can’t close it now or because they see some trade as beneficial, probably both. Some provinces along the border have seen their economies liberalize a tiny, tiny bit — most notably North Hamgyung, which is named in the North Korea Review report as particularly blighted by meth addiction.

In the years after the border with China opened that little crack, two other things have happened that led to the current meth crisis. First, medicine ran out and the once-not-terrible health system collapsed — more on this later. Second, North Korea started manufacturing meth in big state-run labs. The country badly needs hard currency and has almost no legitimate international trade. But it was able to exploit the black market trade across the Chinese border by sending state-made meth into China and bringing back the money of Chinese addicts.

This is where things started to spin out of control for North Korea. The state-run meth factories and the cross-border black market trade started to mingle. And some of that meth ended up migrating back across the border and into North Korea, through the black market trade that brings in Chinese rice and DVDs and the like.

This is where the collapse of the North Korean health system becomes relevant. As Isaac Stone Fish reported in a great 2011 Newsweek story, many regular North Koreans started using meth to treat health problems. Real medicine is extremely scarce in the country. But meth is much more common, which means that the prices of medical drugs are artificially inflated, while the price of meth is artificially low. In a culture without much health education and lots of emphasis on traditional remedies, people were ready to believe that meth would do the trick for their medical problems, and many got addicted.

Poor Chinese.  First the British got them addicted to opium.  Then North Korea got them addicted to meth.  It appears the Chinese people are nothing but pawns in the game of international trade.

Back in the days of mercantile Britain trade was all about who collected the most hard currency.  Basically gold and silver in those days.  The British loved Chinese tea.  And were filling ships full of the stuff to bring it back to Britain.  The problem was that the Chinese didn’t want anything the British were selling.  So Chinese goods were flowing to Britain.  But no British goods were flowing to China.  And without having exports to offset imports Britain was forced to trade the only thing they had that China wanted.  Their hard currency.  Their silver.  So Chinese goods flowed out of china.  And Britain’s hard currency flowed out of Britain.  So China was accumulating piles of hard currency while Britain saw their piles diminish.  Which was the exact opposite mercantile Britain wanted.  So they did something about it.  Thanks to India.

India was part of the British Empire.  And she grew opium poppies.  Something some Chinese did want.  So the British used this opium demand to stop the flow of hard currency out of the empire.  And traded Indian opium for Chinese tea.  This solved the trade deficit problem.  But it created a lot of addicts in China.  The addiction problem got so bad that it spawned two wars.  The Opium Wars.  Which did not end well for China.  And things did not get better in the century or so that followed.  And now here is North Korea.  Turning Chinese into addicts to get hard currency out of China (and into North Korea).  Just like the British did.  Of course, North Korea is nothing like the mighty British Empire.  So one would believe that China is allowing this addiction problem to happen.  As it is probably a smaller price to pay than the refugee problem should North Korea collapse.  And they may like that North Korean buffer between them and South Korea.  Japan.  And the United States.

North Korea is everything the left would like to have in the United States.  Tightly regulated markets.  National health care.  No rich people accumulating private property.  Where they frown on profits.  The even put people before profits.  Just like liberals want to do.  There’s no talk radio.  No Rush Limbaugh.  No Fox News.  No free trade.  No low-cost imports to undermine union manufacturing.  No obesity.  Because there is no junk food.  And no 32 ounce sugary beverages.  And a government that can do what is right for the people without having to worry about a Tea Party challenger in the next primary election.  North Korea is liberal nirvana.  Yet life there is horrible and wretched.  Because it’s everything liberals want.  But nothing the people want.

Liberals want to keep expanding government.  To have more government intervention into the free market.  But where does it end?  How far do they want to take things towards North Korea before they say they have enough?  And why anyone should worry about this is because as horrible and wretched life is in North Korea, those in the ruling elite have it pretty darn good.  Because the people in charge of these regimes never suffer like the people outside of the ruling elite.  So the farther they move towards North Korea the less they have to worry about an election taking away their comfy life.  This is why we should worry about a government growing larger.  For throughout world history life like that in North Korea has been the norm.  While life like that in the United States has been the exception.  And the United States has only been around for 225 years (counting from the ratification of the U.S. Constitution).  A crazy new fad the entitled ruling elite (i.e., liberals) would like to do away with.  So they can rule like they did in the good old days.  Much like they do today in North Korea.  Where the supreme ruler, Kim Jong-un, has an obesity problem.  One of the few in North Korea that isn’t gripped with a gnawing hunger every minute of every day.  This is life in a country where the ruling elite hates capitalism.  And puts people before profits.  This liberal nirvana.  Those in power live well.  While everyone else suffers.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , ,

Deficits, Debt and Interest on the Debt 1988-2012

Posted by PITHOCRATES - March 26th, 2013

History 101

Congress printed so much Money that the Continental Dollar became Worthless

The American Revolutionary War lasted eight years.  And eight years of war ain’t cheap.  It took money to buy arms.  It took money to buy uniforms.  It took money to pay soldiers.  And paying for these for eight years required a lot of money.  Which the Americans didn’t have.  They were at war with Great Britain.  Who was their major trading partner.  And pretty much their only trading partner.  As the Americans were a British colony in the days of mercantilism.  Which meant the Americans sent raw materials to the mother country.  On British ships.  Through British ports.  Britain then transformed those raw materials into finished goods.  And exported them.  On British ships.  Through British ports.  Throughout the world.  And back to America.  Before the Revolution, that is.

Thankfully for the Americans there was a nation that hated the British.  And had been in a near perpetual state of war with them since about forever.  And they had just recently lost their North American territories to the British.  Which they wanted back.  So the French had other interests than American Independence.  But American Independence was a good opportunity to settle the score with their old nemesis.  And when the Americans defeated a British Army at Saratoga the French thought that just maybe the Americans could pull this off.  And if so they wanted to be in on the spoils of a British defeat.

So the French financed a large part of the American Revolutionary War.  But it wasn’t enough.  The Continental Army was poorly fed and poorly clothed.  Even leaving bloody footprints in the snow as the Continental Congress couldn’t put boots on their feet.  Nor could they pay them.  So they turned to printing money.  Unleashing a brutal inflation.  No one wanted the currency.  The inflation was so bad that it lost its value before they could spend it.  So no one wanted to accept the Continental paper dollar.  Giving rise to the expression ‘not worth a Continental’.  Everything had two prices.  A low price if you paid with hard currency (gold and silver coins).  And a very high price if you paid in Continental dollars.  They printed so much money that the money became worthless.  So the Continental Army just took what they needed from the people to keep their men from starving to death.  Leaving the people with an IOU.  That Congress would redeem one day.  Maybe.

The Percentage of Tax Receipts going to Pay the Interest on the Debt has fallen as the Federal Debt Rose

Today hard currency is a thing of the past.  It’s pure un-backed paper these days.  This paper money has no intrinsic value.  And you can’t exchange it for gold or silver that does.  But you sure can print it.  Well, the government can.  And they do.  They borrow and print money like there’s no tomorrow.  Allowing them to spend money they don’t have easier than ever before.  And it’s not just for feeding and clothing our soldiers.  But just about everything under the sun.  Causing the federal debt to soar.

Think of the growing federal debt like a credit card with a growing balance.  And these balances grow fast because each month they charge you interest on your past purchases.  And on your past interest charges.  Which is why if you let that credit card balance get too high it’ll grow beyond your ability to pay it off.  A lot of people who do find themselves filing a personal bankruptcy.  Because the interest charges just balloon their monthly payment.  With the interest in their credit cards consuming an ever larger portion of their paycheck.  As should the interest on the federal debt consume an ever larger portion of federal tax receipts.

Debt and Interest as Percentage of Receipts

(Sources: A History of Debt In The United States; Interest Expense on the Debt Outstanding; Historical Amount of Revenue by Source)

Interestingly, the percentage of federal tax receipts going to pay the interest on the debt has in general fallen as the federal debt rose.  Odd.  The more debt one has the greater the interest one pays.  That’s how it works on our credit cards.  When the debt was approximately $6.2 trillion in 1991 the percentage of total tax receipts going to pay the interest on the debt was 27.1%.  But when the debt soared to $16.1 trillion in 2012 the percentage of tax receipts going to the interest on the debt fell to 15%.  The federal debt grew to be 2.6 times what it was in 1991.  Yet it appears we are paying less interest in 2012 than in 1991.  Something doesn’t seem right.

Interest Rates will Rise as the Purchasing Power of the Dollar Falls, Raising Prices and the Cost of Borrowing

A couple of things could explain this.  And the first thing that comes to mind is tax revenue.  The reason why interest on the debt as a percentage of tax receipts has fallen while the federal debt grew is, perhaps, that tax revenues grew even greater.  So even though interest on the debt could be soaring along with the soaring federal debt the government could be awash in tax revenue.  And if the number you’re dividing by is larger than the number you’re dividing into it than you get a smaller percentage.  Simple arithmetic.  The driver of the federal debt is the annual deficits.  So let’s compare interest on the debt to the deficit.  To see if the interest on the debt rises with the deficit.

Interest on the Debt and the Deficit

(Sources: Interest Expense on the Debt Outstanding; Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2017)

And it doesn’t.  In fact, the interest on the debt almost held constant when the deficit plunged into a surplus.  And when the deficit soared to a record high.  It seems like there was some other factor involved here.  Something actually keeping the interest on the debt down.  Even when the deficit soared after 2007.  What could do this?  Well, there is only one other thing to look at.  Interest rates.

Interest on the Debt the Deficit 10 Year Treasury

(Sources: Interest Expense on the Debt Outstanding; Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2017; Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis)

And we have our answer.  Interest on the debt has not kept pace with the debt because of bad monetary policy.  Keynesian economic policies introduced permanent inflation into the economy.  The Keynesians in government kept interest rates artificially low to stimulate economic activity.  Those low interest rates stimulated so much economic activity in the Nineties that it created a dot-com bubble.  And when it burst it created a painful recession in the early 2000s.  Also, President Clinton’s Policy Statement on Discrimination in Lending lowered lending standards in the Nineties setting the stage for a great housing bubble that burst into the subprime mortgage crisis in 2007.  And the Great Recession.

The Keynesians have been increasing the money supply (i.e., printing money) in a desperate attempt to pull the economy out of recession.  Which is why the market yield on a 10-year treasury has fallen as the deficit soared in the early 2000s.  And fell even more as the deficit soared even further after 2007.  With the yield falling to as low as 1.8% in 2012.  Even though the demand for so much borrowing should have raised interest rates.  Which would have happened had the government not been increasing the money supply.

And this is why interest on the debt as a percentage of receipts has fallen.  Despite record debt.  Some may look at this and think it’s a good thing.  As it lets the government borrow more money.  So they can give us more stuff.  But printing money causes inflation.  Which has been kept at bay for now thanks in large part to the Eurozone sovereign debt crisis.  As investors everywhere are desperate to find a safe harbor for their money during these uncertain times.  But that won’t last forever.  Eventually those interest rates will rise as the purchasing power of the dollar falls.  Raising prices.  And the cost of borrowing.  A lot.  Because of that record debt.  And when they start selling new treasuries at higher interest rates than the ones they’re replacing a very large portion of our tax receipts will go to pay the interest on the debt.  Just like when people charge too much on their credit cards.  Pushing the country closer to bankruptcy.  Just like people with overextended credit cards.  And like countries in the Eurozone.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , ,