FX Charts Reaching Turmoil Zone

King Dollar Becomes Emperor: Currency Valuation with Political Modifier

When I was in college my senior thesis was on economic freedom. I used the Fraser Institute Economic Freedom Index and looked through all the factors that go into the score to tease out what was important. Some of my sources were books such as DeSoto's Other Path (which also informs some of my thinking around blockchain). One thing I quickly found was signals were difficult to tease out because most developed nations were also politically free. China was a huge confounding data point because it was politically unfree, but moving towards economic freedom. Also, the index is subjective. China for example, doesn't have "hard" property rights, property rights are fairly well assumed in Chinese culture and the CCP largely reflects this tradition. Not to go down a rabbit hole, but I can both accept that Chinese property rights are very loosely held because I understand the CCP's power advantage in society, while at the same time recognizing that the economy functions as if this advantage will not be abused. Long story short, I was trying to look at economic development like a state and find what are the key components for prosperity?

If we assume a currency is to some degree a reflection of the entire economy and its economic freedom, then we should discount currencies of less free nations if the government's power stretches into economics and property rights. Singapore is the go to example of a nation with less poltiical freedom, but very high economic freedom. I'm going to leave off countries like the Peru described in DeSoto's book, that lack property rights because of poorly functioning law. I believe every nation is unique. A lack of freedom and prosperity can be cultural issues rather than political. The Amish don't allow technology after a certain date, yet they are free to leave and have property rights. Are the Amish as free as other Americans? My sense, informed in part by living in China for a long time and finding that much of what in the West was called communism is actually Chinese or Confucianism, is that the universalist approach of the West confuses culture, religion and politics. Most people freely choose to restrict freedom in some way. They elevate community, they believe in God, sacred things are priceless. The hyper-American view of individuality is not universalist, but particular. I think this all matters when looking at something like economic freedom, but throw that all aside. I want to focus on hard power. On goverment abuse of its political power.

One thing I've said about China's capital controls is that it devalues the yuan. Even though they are holding the line on the exchange rate, the yuan is worth less if it cannot be freely exchanged for foreign currency. That is to say, there is some theoretical value of the yuan and there is the price the government controls, and that theoretical prices goes down when something like capital controls are instituted outside of a crisis. I'm not arguing the theoretical price should be the market price, the market is always "wrong" for your personal valuation. My point is only that if we take all the components of what makes a currency valuable, and think blockchain here if you want, the ease of spending it and exchanging it is a component.

What is the value of the euro, pound, Australian dollar and so on if they are locking down their economies? If they can shut your business? If they can arrest you and place you in a detention camp? If some African country started doing this, the currency might well devalue, no? Assuming it wasn't a highly competent state like China that was engaged in some targeted persecution, a society-wide lockdown would obviously be a signal to sell the currency.

More granularly, what happens to economies that are locked down? The government takes on more debt to stimulate the economy and the central bank monetizes it. If we grade all the economies based on their lockdown policies and their central bank policies, which currencies are better and which are worse? The U.S. is a mixed bag, but if you can travel into the U.S., most of the South and West, the rural and Red states, have almost total freedom with respect to the pandemic. There is almost no mask wearing for example. The pandemic is over in these states.

What is going on in Australia is off the charts criminal. The state is behaving like a totalitarian dictator and everyone seems to think it's OK because the government was elected. Lifesite: Australian army hauls 38 citizens to quarantine facility over some positive COVID tests

Link: Northwest Territory detention camps open for business

So the exit question is, how would you value the Australia dollar if the government never relinquishes their power? Or what if Australia has permanently turned the totalitarian ratchet forward, such that they will eventually ease their economic controls, but they will not revert back to the pre-pandemic level. Is the Australian dollar worth more or less? Does it deserve a "permanent" haircut on the exchange rate with the U.S. dollar for as long as these conditions persist? If lockdowns create permanent economic damage via inflation, shouldn't lockdown countries see their currencies devalued?

Peak Baizuo

A man in New Zealand was offended by his license plate. It has the letters "NGR" in it. Of course, not being a racist, he immediately thinks of a racial slur.

The kicker: the guy's name is Jim Crow.

New Zealnd Herald: Car owner wants offensive number plate taken out of circulation

A Hawke's Bay man is calling for an offensive number plate to be removed from circulation after he found one on his new car.

Earlier this year, James Crow and his family needed a new plate for a recently purchased car, and went along to collect it.

They were shocked when they found the first three letters on the number plate were "NGR".

Chinese Tax Authorities Join Hunt for $21 Trillion in Overseas Assets

The top story in the finance section on Tuesday morning is about the Chinese government's hunt for hidden assets (and unpaid taxes) overseas. The article mentions Australia and New Zealand freezing accounts from customers who don't identify if they are foreign taxpayers. It goes on to say many of the frozen accounts belong to Chinese residents, warns that more account freezes are coming and that in September, the Australian and New Zealand governments will begin sharing information with China's tax department.

iFeng: CRS+反避税条款实施：澳洲、新西兰的大批华人账户已被封

"The poor cut meat and pay taxes, and the rich have tax avoidance" has long been criticized. However, from now on, the tax haven that hides the wealth of the rich may no longer exist.

Since this month, China has exchanged CRS (Overseas Financial Accounts Common Declaring Guidelines) information with other countries for the first time. The Chinese tax authorities will grasp the personal overseas income. Once they are listed as high-risk taxpayers, they face a huge review of the source of funds. It is also necessary to pay a large amount of personal income tax.

In addition, the revised personal income tax law for the first time to establish anti-tax avoidance provisions will give the Chinese tax authorities a strong legal basis. In short, China’s crackdown on the international tax haven is officially open, and the invisible rich will have nowhere to go.

A large number of Chinese accounts in Australia and New Zealand have been sealed.

As early as more than a month ago, foreign media released major news. New Zealand and Australia's major commercial banks froze thousands of accounts and asked whether the account holders belonged to foreign taxpayers, including a large number of Chinese residents.

Referring to this news from July: Kiwi banks freeze hundreds of accounts, figure likely to stretch into thousands

New Zealand banks are set to freeze thousands of accounts for people who have yet to respond to requests to confirm whether they are foreign taxpayers.

Under new legislation, financial institutions must find out whether their customers are tax residents of other countries and report the details of those who are to the Inland Revenue by June 30 each year, starting this year.

Back to the iFeng story:

A spokesperson for Australian state-owned Kiwibank said the bank sent letters to about 3,000 customers at the end of May and gave customers a 14-day period to supplement their overseas tax status information.

ANZ, Australia's largest bank, said it had frozen about 200 customers' accounts in a week and will continue to freeze accounts every week, as required by tax laws. Westpac and BNZ also did the same.

In fact, as early as the beginning of June, New Zealand media released news, if you do not provide foreign tax information, Bank of New Zealand will freeze your account. From July 1st, the bank has not yet completed the overseas arrears in accordance with the regulations of the bank, and all accounts are frozen. No one can be an exception. Of course, the funds in the frozen account will remain in the account, but the customer will not be able to access it.

At present, the banks of Australia and New Zealand have frozen thousands of accounts, and the scope will continue to expand.

It is worth mentioning that China, Australia and New Zealand are all on the list of information exchanged for the first time in September this year. Basic information about all non-Australian residents who open an account in Australia, such as name, ID number, address, birthday, account number, account balance, and major transactions that occur each year, as well as bank deposit accounts, escrow accounts, insurance contracts, etc. Information will be shared by the tax bureaus of China and Australia.

Migration to New Zealand Drives Homes Prices

An in-depth look at where migrants are coming from. It turns out most are returnees from Australia, along with Australians moving to New Zealand and immigrants from the United Kingdom.
FT Alphaville: Could immigration controls be the solution to New Zealand’s frothy housing market?

Australia’s commodity bust can explain the entire decline in departures from New Zealand, which in turn explains about half of the change in net migration over the past few years. In addition to discouraging new arrivals from the east side of the Tasman Sea, the bust motivated many Kiwis who had previously migrated to Australia to return home while encouraging many Australians to move to New Zealand in much larger numbers:

Lots more at the link.

If this is really a story about New Zealand returnees it looks a bit like Ireland in the 1990s, when the country swung from generations of emigration to neutral in the early 1990s and then to net immigration in the mid 1990s. The housing market boomed.