Thursday, March 29, 2012

Here Comes Another Monkey: The PDIC


So, I heard the latest casualty of paper money system. The Export Bank, the famous Teodoro Borlongan's Urban Bank. But I am not here to tackle Export Bank. I am here to try to mumble some words about PDIC or the Philippine Deposit Insurance Corp.

Talking about things that is good for the public and the seriousness by which Philippine Deposit Insurance Corporation (PDIC) takes its job, it may seem I 
am out of sane character to mock PDIC. My mental faculties must be out of sync. Call me anything. But what would you expect from a man who took a whole dose of red pill?  

What is PDIC

PDIC is a government agency that serves mainly as an insurer of all deposits in all banks nationwide. The current maximum cover for every deposit account is PhP500,000.00. PDIC is under the Department of Finance. 

By law, PDIC simply guarantees that all depositors can get their money back even if a bank gets bankrupt. A bank closes down when it can no longer service all its liabilities. A hint that a bank may soon close is the dreadful bank run. Bank run literally means when clients “run to the bank” to pull all their monies out before the bank goes under. But because there is PDIC, a bank run is less likely to happen. People are at ease they deposits are covered by PDIC.

So, having in mind that PDIC is for the public good and it fulfills the mandated job with no joke, what a shame someone like me would still insinuate things that are unworthy to the perceived good image of the PDIC?

Why Deposit Insurance Exists

Bank runs during the USA Great Depression in 1930s were so prevalent because there was no deposit insurer in place.  In 1993, the USA Federal Government established the Federal Deposit Insurance Corporation (FDIC) and Federal Savings and Loan Insurance Corporation (FSLIC). The former is for commercial banks and the latter is for thrift banks. FDIC still operates now but FSLIC was terminated in 1989.

In a superficial sense, deposit insurance exists to prevent bank runs. This is not the true case. FSLIC did not prevent the bank runs in 1980’s. And in fact bank runs even brought the FSLIC to its knees and in 1989 it was declared dead because of insolvency. And all of its functions were transferred to FDIC.

In more accurate sense, deposit insurance exists only to protect the depositors. It strengthens the banking system, not necessarily by making bank-run-proof banks (which is of course impossible), but by making depositors much less weary of bank runs.

Where Insurance Fund Come From

As insurer, it collects premium from member banks. PDIC puts the collected premiums into a pool of fund it calls Deposit Insurance Fund (DIF). This is the rescue fund.

By the way, the term “member banks” is actually a redundant, not honest and inappropriate term to use. There are no “non-member” banks since it is mandatory to be a PDIC member before any bank is granted to operate. Thus, there must be no need to mention "member banks" since all banks are already under the PDIC.

Going back to DIF, it is interesting to note that DIF in extreme cases may not be enough. In the case of US FSLIC, it got a series of public money bailouts when its own fund was exhausted. DIF was proven to be  not crash-proof. Resorting to bail-out is the last remedy. But even this can fail too. That is why FSLIC was still terminated after a series of taxpayer bailouts. 

Why Banks Collapse ……so easily

A bank stays alive as long as the confidence of clients remains intact. However, only  one potentially damaging news or gossip can bring a bank down. Which brings me to the question: Why "sound banking" is ironically sensitive to gossips? And what is in there that makes banks vulnerable to bank runs and collapse so easily? What is in there that no matter how extent the "sound banking" PR campaign is, once public confidence starts to fade, a bank cripples to doom? The culprit: fractional reserve banking.

All banks today use fractional reserve banking. This means they don’t keep 100% of their clients’ deposit in their vaults. Banks only keep a smaller fraction of it (thus called fractional) and can lend out the other bigger fraction of it. The current rate of reserve requirement is 18%, as recently approved by the BSP. This means if you deposited P1000.00, your bank keeps P180.00 in their vault. The P820.00 is offered for lending. Assuming you are the only client your bank has, and for any reason you decided to pull- all your money out, your bank will be unable to give you your full money back since the only amount contained in their vault is P180.00.

In a large number of clientele, and for any reason that a large portion of them or all of them close all their accounts and demand all of their money back, the bank would collapse. The bank’s available cash or liquidity is very limited and very much incapable to meet all withdrawals. The ones who got their money first were already worry-less. When deposit vaults run empty, banks drops-out of business. Those who got the news late will get nothing.

Fractional reserve banking is the main reason why at times of mass withdrawals, banks can't service 100% all of their liabilities to their clients. In this sense fractional reserve banking is an unsound banking


Deposit insurance is a cunning strategy to perpetuate the corrupt system of fiat money  and fractional reserve banking - the root cause of almost all economic mess. It is to cheat the people to make them believe society operates in sound monetary system which in reality only ran by printing presses/electronic balance sheets behinds the hideous walls of every bank, which of course headed by the BSP no less.

PDIC, which is just a copy-cat of the USA FDIC, is just another assful monkey creation to plug the hole which is already there from the beginning - the fractional reserve banking. 

Monday, March 19, 2012

The Buddhist and Libertarian Connection


What do libertarians and Buddhist have in common?

My conversion to libertarian values was a smooth ride. But if there is a word that's more appropriate, I can't really call it as a conversion. I can't recall a time wherein I was following a different set of social values apart from what I already now know as libertarianism. I know I am already a libertarian since the beginning, only that knowing it as such came a little late.

As to the Buddha part, I am no Buddhist like the skinhead monks following a strict regimen. I am more of a free-style Buddhist. I used the term Buddhist for no other reason but to convey easily what kind of spirituality, if it is to be called as a kind, I have. People are familiar with the word "Buddha" or "Buddhist" that is why I found it beneficial to use it. It would me much more cumbersome to relate my message if I am going to use the terms like Advaita Vedanta, Self, Now-ness, etc. or perhaps the more mind-intriguing concept of Non-duality. So, for the sake of easy conversation, the title Libertarian Buddhist is adapted for me to use more often.

Why Am I Libertarian? 

My understanding is that all men are equal. Individual freedom or liberty makes it so. For if it is not, it would be a contradiction to my own intuition. The intuition of this self-owned freedom must also be existing in others. Self-ownership must be a common feeling among individuals. In freedom, everybody must be seen as equal. But self-ownership which entails the freedom to do whatever I pleases to do doesn't come without the inseparable pair of my personal responsibility. Since the sense of self-ownership is also the same with every person and out of this feeling arises the need of self-protection, therefore everybody must be accorded with respect as  the same as the respect I want others accord to me. No man, group or government shall violate my liberty instead everyone must move to protect this freedom.

There can only be either liberty for everybody or no liberty at all. Libertarians cherish the idea that every man has his own liberty, thus the name. Libertarians appreciates the morality of individual freedom.

Why Am I Buddhist?

I have been a spiritual seeker for several years. And I came to understand the essence of Golden Rule. At first Golden Rule may necessarily be fulfilled through an effort by having the self-restraint from doing untoward actions to others. I call it "through an effort" for it is indeed an effort to constantly remind the mind not to be reckless. But beyond making an effort there is an understanding. When that kind of understanding comes, the effort to constantly remind the self of Golden Rule is no longer necessary. Everything would be spontaneous. However, I will not expand this discussion on that respect.

Spiritual seekers, which I may call Buddhists for the sake of discussion, eventually come to the realization  that compassion and love is all there is. The understanding that everyone is part of everything will forever diminish the seemingly powerful motivation to advance one's own self-interest at the expense of others. Abiding as the wholeness itself will render each man as not existentially separate from anything. There is only one existence and it is called in popular term, Oneness.

Why Am I Libertarian Buddhist?

The connection between libertarians and Buddhists can never be simpler. Libertarian values are centered on individual freedom thus the aim is to use freedom to let everyone flourish towards self-perfection. But because this advancement of self-perfection and freedom must not come as such it may lay prejudice and destruction to the same freedom held by others, there must be an unfailing consciousness that such realization can only be maximized when and only when at the same time the inter-wind relationships with everything and everyone is well understood.  Also, while libertarians appreciates equality and freedom in moral perspective, Buddhist comes in terms of spiritual connections. The two can't be separated I believe. Thus, I am a libertarian Buddhist.

Friday, March 16, 2012

Just Leave Socialism to Ants Alone


I have yet to find a capitalist ant, a self-proclaimed socialist ant, an ant bureaucrat, or an ant buddha. 

In the sacred unwritten book of Ant's Socialism, the following passage can be found: "For all kinds of ants, the following edict is to be seen as spontaneous: No individual ant or group of ants must utilize, monopolize, or limit in themselves any means of food production in all for the purpose of profit. All activity must be solely for the purpose of fulfilling each colony's survival demands and all of the ants' daily needs."

Humans are really dumbfounded how to achieve that. The ants already did it. I am baffled what kind of social theory might the ants have used to reach their current state of antly affairs. Humans must be envious of the ants, don't you think? Poor intelligent humans.

The Essence of Socialism

Being true to what socialism really means, and I mean the purest form of it, my tongue carries no bud of distaste to it. It is the pro-capitalism fanatics, those with insufficient and dishonest understanding of what they are fighting against, who are the ones who bring bad color to supposedly stain-proof socialism.  Why did I say insufficient and dishonest? Because as opposed to the popular idea that if it is government then it entails socialism. It is not. USSR, though labeled Socialist did not fail because of socialism. It failed because of the stupid and anti-ant idea that  government is the only way to achieve the goal. USSR failed because it tried to utilize the very same strategy which was warned not to be used - the monopoly of control or Government. Socialism can't fail. It's the machinery employed, thought to be the way to achieve the goal, that eventually breaks down.

The rationally ill-equipped capitalism subscribers are not  the only party to blame why socialism seems to be a bad idea. The substantial portion of fault must be put unto the people who were so excited at bringing in the anticipated euphoria of communal harmony as envisioned to be attained through socialism. 

Contrary to popular belief of Marx diehard followers that it was Marx who had ignited socialism to take-off, I suspect Marx himself must be the number one to blame why socialism reached it very much opposed status today. He tried to rush everything, didn't he? What he did is to entice the proletariat, or the working class, to rise in arms against the bourgeois, the middle class and wealthy, by saying they were exploited by the latter and it is the right of the workers, the alleged creators of wealth, to take back what they made believed they own. As a result, those  laborers, who of course majority of them lacked the wisdom Marx might have, can only manage to carry on up to the point of having a trigger-happy mentality. So everyone ended-up choking each other while hypocritically thinking it was all for equality and freedom. 

Ants versus Humans

So what separated the ants from humans? What is the distinctive quality ants have or might not have why they attained the spontaneous order of their society? In comparison, what do humans have and might not have that makes it difficult, if not impossible, to emulate the ants?

I came to see the reason, I believe. But it is a rather partially disinteresting thought. But on the other side, if really sought to attain, would be the key to the promises of socialism. And it is the "elimination of the intellect". Sounds so uninteresting. But wait. Be careful not to impress upon self that such intellect be erased in the literal sense by subjecting each human to some kind of genetic manipulation, a surgery, or anything that could render the intellect incapable of creative activities. 

Wednesday, March 14, 2012

Death to Labor Theory of Prices, err....Value


Marx and the Labor Theory of Value

Death to Karl Marx. Well, just couldn't happen anymore. Mr. Marx has been dead for so long. But the socialism doctrines he espoused are well and alive today. One thing in particular is the Labor Theory of Value (LTV).

Labor Theory of Value, as opposed to Subjective Theory of Value, tells that the value of any commodity depends only on the amount of effort or labor employed in the production or preparation of the commodity. Of course, the amount and cost of raw materials and machinery is accounted as necessary contributor to the value of the commodity produced. This doesn't contradict Marx theory at all since the raw materials and the machinery must have undergone through some prior labor, the same nature of labor he was talking in the theory itself. In this sense, the labor done is to be taken as the sole contributor to the value of the commodity produced. At least this how Marx tried to explain it. 

An apple drops from its tree. According to LTV, the apple only starts to accumulate value the moment an apple-picker walks to it and picks it up. Picking up an apple contains an effort or labor thus adding a value to it. Based on LTV, same thing is true for all commodities produced.

Which brings me to the question: If the value of commodity only depends on the labor that produced or prepared it, where does labor gets its value from? Marx also answered it. Labor must be treated like any other commodity produced. Meaning, labor did not exists on its own. It has undergone some accumulation of value like the effort to learn, practice and its maintenance. Marx called it the value of labor. So, the value of a commodity depends on the value of the labor, a labor which was also dependent on past efforts to acquire it. In Marx's term, the value of labor is to be appropriately called the value of laboring power. "The value of labouring power is determined by the value of the necessaries required to produce, develop, maintain, and perpetuate the labouring power" was the exact word of Marx.

I want to re-state Labor Theory of Value in this way: The value of commodity depends on the value of the labor or the value of the laboring power, a value which is necessarily dependent to the past value of efforts to come-up with such laboring skill.

Aha! There it goes. Something is amiss with LTV, isn't it? I think that is the big problem for LTV. If we keep digging further, with the goal to locate the root from where all value of goods could originate, it will take us to the forever beginning of all things Perhaps as primitive as the time when the snake labored his way to the garden and enticed Eve to eat the forbidden fruit. Or maybe infinitely earlier than anything.

Tuesday, March 13, 2012

My Child Answers the Difference Between Value and Price


The original feeling I had was that any attempt to explain the distinction between the concepts of Value and Price to any people is a wasteful thing to do, no more than just a regurgitation of what's already obvious, isn't it? Come on. People must not be that utterly ridiculous to ever ask what's the difference between Value and Price. But, I somehow convinced myself that I was wrong on my original impression. Some people, and disgustingly not so few, specially in a land of so much socialists who still idolize Karl Marx and his Labor Theory of Price Value, think Value and Price are just the same.

They are not. So what's the difference? Ask a child.

My 3-year old daughter, as all other children,  don't know anything about prices. But my little girl must have caused  a slight headache to her mom when she's on tantrum when her mom refused to buy her favorite doll. She really like to have the doll no matter what. My question is: What's in the doll that made my daughter cry for it? Certainly, there is something. And also, what's in the doll that made my wife refused to buy it? Certainly, there is something too. What are they?

Definition of Value and Price

Price is the sum of money a sum offered for the capture of a criminal dead or alive. Well, I mean to joke. That is true but it is not the kind of definition to use in front of a hard-core, often irrational socialist. We need a definition in economic context.

Saturday, March 10, 2012

What is the Real (Idiotic) Definition of Inflation?


Perhaps there is no other effective government strategy to keep people from realizing the truth other than twisting the real definition of inflation.

The current definition of inflation so prevalent today is: rise in prices of goods and services (as caused by some economic factors, like money supply).

Interestingly, that's not the original definition. For a long time since the earliest definition of inflation, it was well accepted that the meaning is the increase in money supply, which results to rise in commodity prices and decrease in the purchasing power of money.

Monday, March 5, 2012

The "Monkeyness" of Bangko Sentral ng Pilipinas Inflation Targets


Big questions  for the moment are: Why do they make inflation target? What is it for?

This post has one job to accomplish: to show that the Inflation Target set by the Bangko Sentral ng Pilipinas is one hell of a big con act. Meaning, a big trick, a fraud, and a swindle. Inflation target is just another way to blur people's attention as to what is the real culprit why prices of goods constantly increase at the first place.

From the BSP website, here is what they say:
Inflation Target – level of inflation which the BSP aims to achieve over a given period under the inflation targeting framework. The government’s inflation target is an annual target, currently expressed in terms of a point target (with a tolerance interval of ± 1 percentage point) and is set jointly by the BSP and the government through an inter-agency body, the Development Budget Coordination Committee (DBCC), although the responsibility of, and accountability in, achieving the target rests primarily on the BSP.