The most common form of arbitrage to remove the effect of taxation is to deal in the cash market, black market or free market. This includes smuggling and other dealings with contraband. Here, the cost of arbitrage may be very great as it can include the risk of government fines and imprisonment. There is also the corrosive moral degradation cost to one’s inner self and ability to think clearly. All value is subjective. If your inner subjective self is ill, you will find it very difficult to value the components of economic calculations properly. These factors are difficult to quantify and so we will not, for the most part, discuss how to profit from petty crime. It is however imperative that you understand the economics of major criminal activities.
The major banking interests, during the presidential election of 1912, financed both the Bull Moose Party, headed by Teddy Roosevelt seeking a third term, and the Democratic party. They financed the Bull Moose Party to split the vote of the Republican Party and so assure the election of Woodrow Wilson. Wilson had no significant prior political experience. He had been president of Princeton University. In return for the bankers’ support Wilson agreed to sign an act establishing the third USA private central bank, the Federal Reserve System.
For purposes of analysing this situation we will assume that in today’s money it cost the bankers $500,000,000 to finance the Bull Moose Party and $1,000,000,000 to finance the Democratic Party. Further we will assume that the bankers, up to the time of the 1912 election, had already spent $500,000,000 in pursuit of establishing their private central bank and that the value of their existing banks was $100,000,000,000. From the foregoing we may wonder why the banking interests were willing to spend $2,000,000,000. Here we can now apply the three laws of economics discussed earlier. All value is subjective. People prioritize their values. The only way to judge a person’s value scale is by observing what they do: buying and selling or not buying or selling.
Here the bankers paid $2b so we know that they valued what they got in return more than $2b. How much more? They got the monopoly right to issue the currency of the USA. They got the ability to create money out of thin air. They got the ability to prevent bank runs by issuing an unlimited amount of liability to themselves and anyone else they cared to. They became the real owners of America. For purposes of this example let us assume that is worth $10 trillion.
- In the above example, is there opportunity for speculative profit (OSP)?
- What is the free market price (FMP) of their banks?
- What is the government obstructed price (GOP) of their banks?
- What is the cost of arbitrage (COA)?
In this example the bankers did not buy or sell their banks. They increased the value of their banks by obtaining the monopoly powers that went with owning and controlling a private central bank.
Their OSP was the difference between the value of their banks with a monopoly power and the value without a monopoly power less the cost of getting the monopoly power.
GOP ($10t) less FMP ($100b) less COA ($2B) = SP ($9,898,000,000)
In this case they did not have to spend to buy the free market value of their banks. These they had from earlier investment. Incrementally they spent $2b to have a profit of whatever the value of a monopoly power added to their existing situation was. With the above assumptions the rate of return was 4,949 percent. This is extraordinary speculative profit when measured against the monetary cost of transforming a free market banking system into a monopoly banking system. However, the benefit accrued only to the owners and supporters of the new monopoly privileges. Everyone else paid and continues to pay.
Only one president has gone around the Federal Reserve System by issuing greenbacks directly from the treasury and he died 90 days later in Dallas, Texas. It is important to keep in mind who the real owners are. The USA dollar is approximately 65 percent of the world’s central bank reserves. The monopoly distortion of the free market caused by the obstructive power of the USA private central banking system is the largest single factor to consider in looking for speculative profits outside of tax policy and war. France and England had private central banks until shortly after WWII. It appears that the same groups continue to control most of the large western banks and government policy. The consequences of this restraint on trade are evident throughout the economies of the West and present many opportunities for speculative profits.
[box type=”info” style=”rounded” border=”full”]Excerpts from the Art of Speculation during Civil War – Sun Tzu Meets Jesse Livermore is a private manuscript copyrighted 2012 by Art Fixed.[/box]
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