marți, 18 martie 2014

Announcing Moz Local: Simultaneous Listing Management on All Major Aggregators for $49/Year

Announcing Moz Local: Simultaneous Listing Management on All Major Aggregators for $49/Year


Announcing Moz Local: Simultaneous Listing Management on All Major Aggregators for $49/Year

Posted: 18 Mar 2014 01:19 AM PDT

Posted by David-Mihm

One of the many things that appealed to me about joining forces with Moz 18 months ago was the empathy that every Mozzer has for business owners and marketers trying to keep up with the frenetic pace of change in local search. Although it's generally thought of as less competitive than a lot of other disciplines (like news, video, or e-commerce SEO), the prerequisite set of tasks for success in local search continues to grow.

In the shift from desktop to mobile, local search is fragmenting more than ever, and business listings are an increasingly critical foundation. NAP consistency (establishing a canonical Name, Address, and Phone Number for your business location) is one of the top local search ranking factors every year. Establishing a consistent NAP is vital to ranking in local results. All the link building and social media in the world won't help a business if Google can't trust its information, and customers can't reach it.

Whether you're a small agency trying to serve dozens of mom-and-pops on a limited budget, or a large brand manager tasked with managing listings for hundreds of stores, the time it takes to ensure the accuracy and visibility of business information is overwhelming. Let alone the time it takes to correct errors, align categories, deal with PIN or postcard verifications, or add missing listings. And it's often prohibitively expensive.

So as we thought about how to evolve GetListed's original product, we decided to start by helping solve the fundamental pain point of local search: ensuring accurate, consistent business listing information on the most important sites on the web.

What does Moz Local do?

For a high-level overview, check out this video:

Our goal is to make Moz Local the most efficient option for location management, with an easy-to-use interface and an affordable price point.

In a nutshell, Moz Local allows you to upload a spreadsheet of all of your locations, which we then standardize and distribute to all five major U.S. data aggregators:

  • Infogroup
  • Neustar Localeze
  • Acxiom
  • Factual
  • Foursquare

and three important local directories:

  • Superpages
  • eLocal
  • Best of the Web Local

for $49/year per location.

After submitting your locations, we provide you with full reporting about the status of each listing (with links to those listings live on the web, where available). We'll also surface possible duplicate listings we discover across the ecosystem, provide you with the fastest path to correcting or closing those duplicates, and notify you of any unauthorized changes to your NAP that we come across in our local web crawl.

To dive into the product, visit Moz.com/local and download our CSV template. If you currently manage your locations at Google Places, though, you can get a head start by simply uploading that spreadsheet to Moz Local (we accept all the same field names and categories). Full documentation for the product is available here, and FAQs and a deeper description of how the product works are here.

Key features

Upgraded Listing Details page (free to all Moz Community members)

The original single-location lookup functionality from GetListed is still available at moz.com/local/searchâ€"and you can also access these Listing Details from your Moz Local dashboard. As part of the Moz Local changeover, we've upgraded it with a much snazzier results page and a quicker visual indication of how a business is doing and where you should focus your efforts.

Category Research Tool (free to all Moz Community members)

One of my persistent headaches back when I was a full-time local search consultant was performing category searches for slight wording variations as I was submitting listings across every single local search site.

With that in mind, we designed the Moz Local Category Research Tool to be a huge time- and energy-saver. Start typing the keywords or industry your business is in, and we'll start refining the list of categories right before your eyes. Selecting a category will then show you how it maps to different search engines or directories when we publish your listing.

If there's a more specific category on a particular search engine that you'd rather submit for a given listing, simply add it to the Category Overrides field in your CSV spreadsheet.

Duplicate listing notifications

As I mentioned above, we provide reporting on possible duplicate listings in the ecosystem, and where possible, we present you a direct path to closing them. Right now you'll see a relatively tight set of possible duplicates, but going forward you'll see a wider possible set to help you clean up old addresses, changed business names, or unwanted tracking phone numbers.

Expanded Learning Center (free to all Moz Community members)

Huge thanks to Miriam Ellis for her assistance in compiling, updating, and editing this greatly expanded version of the GetListed Learning Center. We now offer 41 pages full of local marketing background and best practices. The top pages from the original Learning Center like the local search glossary, marketing priority questionnaire, and the local search ecosystems are all still available.

Features we're already working on

We've already gotten some terrific feedback from our Customer Advisory Board and other customers during a private beta period, and the product we're releasing today is much better as a result. Going forward, we're anxious to hear from the Moz community what feature areas you'd like to see us expand into.

Features currently on our list include:

  • allowing for the editing of single locations in-app

  • building custom-branded and emailed reports

  • showing individual listing progress over time

  • adding additional search engine and data partners
    (if you're interested in a data partnership with Moz, please email Ryan Watson!)

I have a feeling it will be a common request, but at this point Moz Local only supports U.S. business locations. International versions of this product aren't in our near-term roadmap for development.

Thanks all around

There are a lot of people to thank, with such a big product releaseâ€"it has definitely been a team effort:

  • the entire Local Engineering and Inbound Engineering teams here at Moz

  • the Marketing and Community teams, especially my "point person" for coordinating those efforts, Elizabeth Crouch

  • the Executive Team for giving us the leeway and the budget to build this product

  • Josh Mortenson, Elijah Tiegs, and Elizabeth Crouch for our video

  • Jackie Immel and Courtney Davis for their help in coordinating our beta period

  • our beta testers for their participation and patience!

  • the data aggregators and directories who have partnered with us

  • the users of GetListed who have given us so much great feedback over the years

I'm sure that's leaving dozens, if not hundreds of people outâ€"but I'm truly grateful for the support of everyone in the local search community over the years. As with many software endeavors, it's taken us a little longer to get here than we'd hoped, but we also hope that you in the Moz community think it was worth the wait!

The formal press release announcing Moz Local can be found here.


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A Startling Case Study of Manual Penalties and Negative SEO

Posted: 17 Mar 2014 03:53 AM PDT

Posted by YonDotan

This January, I was at a talk at SMX Israel by John Mueller â€" Google’s Webmaster Trends Analyst â€" about how to recover from a manual penalty. The session’s moderator opened the talk by asking the hundreds of people seated in the room to raise their hands if they had ever been affected by or had a client that was affected by a manual penalty. Nearly the entire room raised their hands â€" myself included.

Setting the Plot

I am the head of SEO at yellowHEAD, an online marketing agency. One of our clients, whom we are very lucky to have, is a company called Ginger Software. Ginger has a set of context-sensitive grammar and spell check tools that can be integrated with e-mails, browsers, Microsoft Office, and more. When we began working with Ginger, they were in a great state from an SEO perspective. I won’t get into traffic specifics, but their site has an Alexa ranking of around 7,000.

Ginger was getting traffic from thousands of different keywords. They had links from news portals, review websites, forums, social bookmarks â€" all part of a really great backlink profile. Ginger could be in a whole separate case study about the benefits of a content strategy. They have put months of work into online tools, sections about spelling mistakes, grammar rules, and more. These things have attracted great traffic and links from around the world.

The Plot Thickens

Given the above, you can imagine our surprise when one day in my inbox I found the dreaded notice from Google that gingersoftware.com had a site-wide manual penalty for unnatural inbound links. We quickly set up a call and went through the tooth-rattling ordeal of explaining to our client that they weren’t even ranked for their brand name. Organic traffic dropped by a whopping 94% - and that for a website that gets 66% of its traffic from Google-based organic search.

I’m not going to highlight where they got the penalty … because I think you can tell.

Full Disclosure

Before we go on any further with this case study, I should come clean. In the years of my working in SEO, I have shamelessly bought links, posted crappy blog and forum comments, and run programs that automatically build thousands of spam links. I have bought expired domains, created blog networks, and have ranked affiliate sites with every manner of blackhat technique.

With that off my chest â€" I will say with as clean a conscience as possible, we did absolutely nothing of the sort for Ginger. While everyone at yellowHEAD has experience with all manners of SEO tactics, in our work as an agency we work with big brands, the presence of which we are categorically not willing to risk. Ginger is a true example of a site that has ranked well because of an extensive and well-thought out content strategy; a strategy driven by creating valuable content for users. When analyzing Ginger’s backlinks, we were amazed to see the kinds of links that had been created because of this strategy. Take, for example, this forum link on the Texas Fishing Forums.

I was positive that this link would be a spam forum comment or something of the sort. Turns out that it’s a page on a fishing forum about Zebra Mussels. Someone got confused and called them Zebra Muscles; a veteran user corrected them by linking to Ginger’s page about muscle vs mussel.

The Plot Thickens… More.

As we dug deeper into Ginger’s backlinks, we quickly began to find the problem. Ginger had recently accrued a large number of extremely spammy links. Bear with me for a little bit because these links require some explanation. GingerSoftware.com was being linked to from random pages on dozens of different websites in clearly spun articles about pornography, pharmaceuticals, gambling, and more. These pages were linking to random marginal articles on Ginger’s website like this page always using the same few keywords â€" “occurred,” “subsequently,” and a few other similar words. The only thing these words had in common was that Ginger was ranked in the top three for them in Google.

I had to blur most of the text from this page, as it was inappropriate.

Now, needless to say, even if we were trying to rank Ginger’s site let’s call it ‘unconventionally,’ we wouldn't have done it to unimportant pages that were already ranking in the top three from articles about pornography.

Now here’s where it gets REALLY interesting

Further investigation into these pages found the same exact articles on dozens of other websites, all linking to different websites using exactly the same keywords. For example:

Link to Wiktionary.org

Link to TheFreeDictionary.com

Link to Thesaurus.com

So â€" What the $#@!%!#$^ are these links?!

As I mentioned in my disclosure previously â€" I am no newcomer to link spam, so I happen to know a bit about what these links are. These articles were, first and foremost, not created by us or by anyone else at Ginger. They were also not posted with Ginger Software or any of the other websites linked to in those articles in mind. These articles were posted by spammers using programs which automatically build links (my guess is GSA Search Engine Ranker) in order to rank websites. Each one of these articles linked to some spam website (think something like the-best-diet-pills-green-coffee-beans-are-awesome . info or some nonsense like that) in addition to linking to Ginger.

These programs find places on the internet where they can automatically post articles with links. As a way to ‘trick’ Google into thinking the links are natural, they also include links to other big websites in good neighborhoods. Common targets for these kinds of links include Wikipedia, BBC, CNN, and other such websites.

Ginger was not the victim of negative SEO, but was simply caught in the crossfire of some spammers trying to promote their own websites.

We Had Doubts

Once we found these links, we honed our search to find all of them. We were able to do this using Ahrefs, which is a fantastic tool for any sort of link analysis. We organized all of the links to Ginger by anchor text and went after all of the ones with the aforementioned keywords. We removed as many of these links as possible, disavowed the rest, and filed for reconsideration as described above.

As confident as we were on the face of it all â€" we had serious doubts. We knew how important it was for Ginger’s business to get over this penalty as quickly as possible and didn't want to get anything wrong. We couldn't find any other “bad links” besides these ones but we kept thinking to ourselves “there’s no way that Google completely slapped a website due to some spam links to these random pages.” There had to be more to it than that!

Ginger themselves handled this situation incredibly. Where they could have yelled and gotten angry, instead they said, in a sentence “Ok â€" let’s fix this. How do we help?” With Ginger’s help, we mobilized dozens of people inside their company, trained them on finding bad links, manually reviewed over 40,000 links, contacted all domains which had spam links on them, disavowed everything we couldn't get to, and submitted the request for reconsideration on December 17th, only five days after the site got penalized. The extreme sense of urgency behind this came both because of the importance of organic traffic for Ginger Software, and because the upcoming Christmas and New Year’s holidays. We knew that everyone going on vacation would significantly increase the amount of time it took to have the reconsideration request reviewed. You can find a very long and detailed explanation of the process we used to clean up Ginger's links here.

Despite the speed with which we were able to submit the request, it took nearly a month to hear back from Google. On January 15th, we received a message in Google Webmaster Tools that the penalty had been revoked. We, and the staff at Ginger, were ecstatic and spent the next few days glued to our ranking trackers and to Google Analytics to see what would happen. Rankings and traffic quickly began to rise and, as of the writing of this article, traffic is at about 82% of pre-penalty levels.

Lo and Behold â€" Rankings!

The (Very) Unofficial Response from Google

Getting over the manual penalty, in some ways, was almost as surprising as getting it. The fact that all we did was remove and disavow the negative SEO links and the penalty was removed indicates that, indeed, the penalty may have been caused entirely by those links.

At the manual penalty session of SMX, towards the end of the talk, I crept slowly towards the front of the room and as soon as the talk was over, as unexpectedly as a manual penalty, I pounced to the front of the speakers’ podium to talk to John Mueller before everyone else. I explained to him (in a much shorter version than this article) the situation with Ginger and asked if they were aware of this at Google and what they plan to do about it.

John responded with something along the lines of the following:

“You mean like when somebody creates spam links but also links to Wikipedia? … We have seen it happen before. Sometimes we can tell but sometimes it’s a little bit harder… but [if] you get a manual penalty from it you will know about it so you can just disavow the links.”

I have to say, I was pretty surprised with that response. While it wasn't exactly an admission of guilt, it wasn't a denial either. He basically said yes, it can happen but if it happens you will get a manual penalty, so you’ll know about it!

So What Does It All Mean?

One wonders if Google understands the impact a manual penalty can have on a business and if they truly accept the responsibility that comes along with handing out these kinds of punishments. Ginger, as a company, relies on search traffic as their main method of user acquisition and they are not unique in that sense. There are a few important takeaways here.

1.) CHECK YOUR BACKLINKS

No matter who you are â€" big or small, this is crucial. This kind of thing can happen, seemingly, to anyone. We have instated a weekly backlink scan for Ginger Software in which we look through all of their new links from Webmaster Tools, AHREFS, and Majestic SEO. If we find any more spam links (which we still are finding), we try to remove them and add them to the disavow list. Time consuming? Yes. Critical? Yes.

2.) Negative SEO is Alive and Real

It has been my thinking for a long time that links should not be able to hurt your website. At the most, a link should be discounted if it is considered bad. The current system is dangerous and too easy to game. With Ginger, it was obvious (to us at least) that these links were no doing of their own. The links were in absurd places of the lowest quality and linked to low-benefit unimportant pages of Ginger’s website. If this was actually a negative SEO attack, imagine how easy it would be to make it look like it was the company’s doing.

3.) Google is making themselves look REALLY bad.

The action that Google took in this case was far too drastic. The site didn’t receive a partial penalty, but rather a full-blown sitewide penalty. According to the keyword planner, for the top four branded terms for Ginger, there are 23,300 searches per month. In this case that became 23,300 searches per month where people could not find exactly what they were looking for.

Google has an amazing amount of work on their hands staying ahead of the spammers of the world, but they have also become the foundation of the business models of companies worldwide. To quote from FDR and Spiderman (who can argue with that???), “with great power comes great responsibility.” We can only hope that Google will heed these words and, in the meantime, we will be happy with the fact that Ginger are back up and running.


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10 Free Google tools that everyone should use

10 Free Google tools that everyone should use

Link to White Noise

10 Free Google tools that everyone should use

Posted: 18 Mar 2014 01:30 AM PDT

Whether you define yourself as an online marketer, an SEO or a content marketer, our industry often has a love/hate relationship with Google. However, no matter how you personally regard the big G, there are a selection of free tools they provide with potentially helpful data. Using these can really help pump-up your digital marketing efforts.

Back in 2009 the ever-informative Tad Chef took a look for us at the most helpful tools out there. Unfortunately, Google has a habit of retiring many of its tools, or starting to charge for them (Google Shopping anyone?), so it was high time for an update.

So, here’s our revised list of ten free Google tools you should consider; You’ll know many, no doubt regularly use a few, but, in this industry, there’s always something new to try.

1. Google Webmaster Tools

If you only make use of one tool from this list, Google Webmaster Tools is the plum choice. Just as the logo uses a spanner, making use of Webmaster Tools is akin to giving your site a regular service; use it to keep everything running smoothly, and spot bigger issues quickly.

Find out if your site has a manual penalty, identify crawling issues and broken links, see how many pages are indexed, download links, test your robots.txt file or structured data, and plenty more, all for free. It’s a peek into how Google regards elements of your site.

Oh, and while you’re at it, check out Bing Webmaster Tools as well – as Sam points out, there’s lots to be gained from this free tool as well!

2. Google Analytics

Ok, we all know about the frustration of (not provided) keyword data, taking away some of our most helpful analysis. But, there’s still a HUGE advantage is having analytics data for your site in order to analyse content, user experience, the success of campaigns and more. In fact, if you’re not using analytics in your digital marketing, you’re behind the competition, no matter what.

Google Analytics remains a popular, and constantly evolving tool, though there is increasing competition from alternatives such as Clicky, Open Web Analytics, WebTrends, Omniture and more. Want some extra help? Check out the Solutions Gallery for great ways to slice your data, and the URL builder to add custom tracking to your links.

3. Google Adwords Keyword Planner

Another tool that’s been through significant, and often much-lamented, change in the last year, the Adwords Keyword Planner remains the de-facto source for many when it comes to ascertaining keyword volumes (though don’t rely on it for exact numbers), even if other tools are used for generating seed lists.

It feels that the new Planner is much more PPC focussed than the Keyword Tool it superseded, and the suggested keywords are often so broad as to be useless initially. However, there are ways to still use the Keyword Planner to get excellent data – this article by Dan Shure is a superb place to start.

4. Google Trends

And whilst we are on the topic of keywords and topics for your website, Google Trends is still a great tool for comparing traffic for different search terms, including historic, geographic and related terms (in Google’s mind) data. Understanding if a term is a rising or falling element of your topic’s vocabulary is highly valuable for creating enticing content, and available for free!

There’s extra data within the Google Zeitgeist section, detailing 2013′s most popular searches. Also worth checking out is the Hot Trends list, to see the most popular searches right now, perfect inspiration for timely content.

5. Google Consumer Surveys

We all know that understanding our audience is key to making a great website that serves their needs. Whilst surveys can cost a lot of money, Google’s Consumer Surveys have a free option for measuring site satisfaction – you can’t deviate from the four default questions without paying, but you can still get valuable data on how users perceive your site and their experience of it. This can be especially helpful when testing a new site design or content category.

6. PageSpeed Insights

Back in 2010 Google announced that site speed had become a signal in their search ranking algorithms. Subsequent studies have also shown that site speed does have an effect on your site’s visibility.

Fortunately, there is a way to create a list of suggestions for your client or development team without having to be an expert coder (though that never hurts). Google’s PageSpeed Tools includes a PageSpeed Insights broswer extension for Chrome and Firefox (as an extension to Firebug), and an in-browser version that offers even further detail. Either option will give you some actionable data to get your site literally up to speed.

7. Content Experiments

What was known as Google’s Website Optimizer has evolved into Google Analytics Content Experiments. As the name suggests, it now lives within Google Analytics rather than as a stand-alone product, but still offers an excellent, and free, way to test, measure and optimise your site.

Content Experiments ties in with the goals you have created in Google Analytics, and lets you show several different variations of a page to users. This means you can test layouts, headlines, content, colours and more to find the optimum layout. As conversion rate optimisation becomes a more common part of the digital marketing landscape, this is a great way to dip your toes in the water before making an investment in an agency or ine of the range of potent user testing tools, all while getting actionable results.

8. Google Places for Business

Want another free method for extra search visibility that’s been shown to generate traffic? Get yourself a local listings result by using Google’s Local facilities, Places for Business and Google+ Local. Multiple tools? Well, yes, somewhat confusingly, there’s two different ways to claim a local presence.

Essentially, your Google Places listing gives you control over the information that is shown in Google’s Maps, which local results make use of. Google+ Business pages look similar, but allow you to engage with other local businesses, post news and so on.

Which one should you go for first? Google Places for Business – as this article by local search expert David Mihm points out, it has a superior interface, and it controls the listing that appears in Google Maps, and thus most relevant search results. The differences between the two, and how to combine them are detailed by Amanda DiSilvestro. To get you going here are some excellent reads on getting started with Places for Business and local search ranking factors.

9. Google Alerts

Ah, good old Google Alerts. Whilst it’s reliability has been called into question in recent times, there’s no doubt this still holds an important place in many online marketer and content creator’s hearts.

Using Google Alerts you can keep an eye on a topic of your choice with regular updates from Google themselves on the latest index updates. Common uses include finding non-linking citations of your brand, or to keep an eye on the latest news on a topic or company of interest.

Ross Hudgens shows some of the inventive ways to use the service here. A great function of Google Alerts is the option to it as an RSS feed, perfect for keeping tabs on multiple alerts and combining with other sources. While Google Reader has sadly departed, there are plenty of other RSS readers out there that can do a great job in its place.

Whilst on the topic, there are some good alternatives to Google Alerts for monitoring brand mentions, such as Moz’s Fresh Web Explorer and the appropriately named Mention (which has a free option).

10. Tag Manager

One of the most common frustrations for digital marketing efforts can be the delay caused by waiting in a queue for development time. Google’s Tag Manager gets round this neatly, letting you update many of the most common site tags without having to ask for dev support.

This is a more advanced tool, but the benefits can be great. Once the code is installed on the site, a decent array of common marketing tags can be edited without a further code update. There’s support for URL, referrer and event based tags, custom macros and more, plus a debug console. There’s also planned further integration with third party tools to even more flexibility, and it’s possible to use tags from tools such as Optimizely now.

Wrap-up

So, that’s it – ten tools you can use for free from Google, from keyword research to on-page optimisation and content creation. While Google’s attitude to online marketers is increasingly questioned, there’s still plenty we can do with these free pieces of kit.

What are your favourite tools from Google? And what interesting uses do you make of them? Have we missed out a real gem? Let us know in the comments!

The post 10 Free Google tools that everyone should use appeared first on White Noise.

Seth's Blog : Happy wowday

 

Happy wowday

Halloween gives you permission to dress up. April Fool's, a chance to play a prank.

What if there was one day of the year where you had permission to do things that made people say, "wow."

Acts of generosity or bravery or insight...

What if you focused and practiced and got your nerve up and leaned way over the edge, just one day of the year? If you could get out of your comfort zone for a few hours in a way that benefitted and delighted people you care about, what would that look and feel like?

Today might be your wowday.

Or tomorrow.

Up to you.

       

 

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luni, 17 martie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Men Will be Boys: Tit for Tat; Honor is the Paramount Concern; Honor for Honor

Posted: 17 Mar 2014 06:52 PM PDT

Ohh.. Ahhh.. Oh ... Obama trumped up his response to the Russia takeover of Crimea with actions and threats of further actions.

The New York Times posted Obama's Statement on New Sanctions Against Russia.

I will spare you the sap of Obama's address. But interested parties can see US sanction fact sheet here: Ukraine-Related Sanctions.

Are Sanctions Enough?

Fox News asks Is it enough? Obama imposes sanctions on Russian officials over Crimea.
Faced with calls for a swift and stern reaction to Russia's threatened annexation of Crimea, President Obama wielded his executive pen Monday morning, slapping seven in Vladimir Putin's inner circle -- but not the Russian president himself -- with sanctions freezing their U.S. assets.

But almost immediately, some criticized Obama's response as not being enough to change Putin's course.

"The crisis in Ukraine calls for a far more significant response from the United States. Today's Executive Order could be an important part of that response, but sanctioning only seven Russian officials is wholly inadequate at this stage," Sen. John McCain, R-Ariz., said in a statement.

McCain also took to Twitter to urge military aid for Ukraine. "Incredibly Pres Obama's stmt didn't mention military assistance to #Ukraine, a sovereign nation that's been invaded by #Russia," he wrote.
Whenever you are looking for war-mongering sap, rest assured McCain is the number one place to look. Short of launching an all-out military attack on Russia, nothing could appease McCain.

Russian Deputy PM Laughs at Obama's Sanctions

In response to sanctions a Russian Deputy PM Laughs at Obama's Sanctions.
Russia's deputy prime minister laughed off President Obama's sanction against him today  asking "Comrade @BarackObama" if "some prankster" came up with the list.

The Obama administration hit 11 Russian and Ukrainian officials with sanctions today as punishment for Russia's support of Crimea's referendum. Among them: aides to President Vladimir Putin, a top government official, senior lawmakers, Crimean officials, the ousted president of Ukraine, and a Ukrainian politician and businessman allegedly tied to violence against protesters in Kiev.

Rogozin, a friend of actor Steven Seagal,  took to Twitter to tweak Obama, tweeting  he thinks "some prankster" came up with the sanctions list

In a later tweet addressed to "Comrade @BarackObama," he asked, "what should do those who have neither accounts nor property abroad? Or U didn't think about it?"

Another Russian on the sanctions list, Vladislav Surkov, also seemed unconcerned.

Surkov, a top Putin ideologue often called the Kremlin's grey cardinal, reportedly told a Russian newspaper, "It's a big honor for me. I don't have accounts abroad. The only things that interest me in the U.S. are Tupac Shakur, Allen Ginsberg, and Jackson Pollock. I don't need a visa to access their work. I lose nothing."
Honor for Honor

This is a rare case of US-Russia "honor for honor". Not only is Vladislav Surkov honored, so is senator John McCain.

McCain Honored

Please consider the Daily Beast report Russia Will Sanction U.S. Senators
Putin is set to respond to Obama's sanctions of Russian officials with his own list. Several U.S. Senators and officials will be banned from visiting Russia, including Sen. Dick Durbin.

Putin is expected to release his retaliation list as early as Tuesday and while the final list is still being crafted, it will include top Obama administration officials and high profile U.S. senators, in an effort to roughly mirror the U.S. sanctions against Russian officials and lawmakers, according to diplomatic sources. At the top of the list in Congress is Senate Majority Whip Dick Durbin, who recently co-authored a resolution criticizing Russia's invasion of Crimea.

Durbin's inclusion on Putin's list would mirror Obama's naming of Valentina Matvienko, the head of the upper chamber of the Russian Duma. Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell are not expected to be on the Russian sanctions list.

UPDATE: Durbin told The Daily Beast in a statement Monday: "My Lithuanian-born mother would be proud her son made Vladimir Putin's American enemies list."

Sen. John McCain, who traveled to Kiev last weekend to meet with Ukrainian leaders, told The Daily Beast that he expects to be on the list and is happy about it.

"You think I'm not going to be on it?" McCain said. "I would be honored to be on that list."
There you have it. McCain is honored and so is Vladislav Surkov.

Will Sanction Stupidity End Now?

Will the stupidity end with "honor for honor"?

Let's hope so, but I doubt it. McCain and his war-mongering consortium will pressure Obama for more sanctions. If Obama obliges, Russia will respond "tit for tat".

Freeze Russian assets in the US and Russia will freeze US assets in Russia. Hmmm. What country do you think will fare worse in that trade?

But what if Russia cuts off Europe's supply of natural gas?

Men Will be Boys

Clearly we cannot concern ourselves with such things as a European gas shutoff. After all, it's Europe at risk, not the US. More importantly, we all know "honor is the paramount concern".

The saying goes "boys will be boys". I propose "men will be boys".

It's a matter of honor.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Pettis Proposes Savings Glut and Income Inequality are Source of Global Imbalances; Mish vs. Pettis: I Respectfully Disagree

Posted: 17 Mar 2014 12:52 PM PDT

Michael Pettis at China Financial Markets taught me much of what I know about global trade. I am very appreciative. I tend to agree with most of his views.

I recommended his book "Great Rebalancing", and still do.

In a recent email, however, Pettis revives the "Global Savings Glut" thesis and I strongly disagree. This is a somewhat lengthy discussion, but an extremely important one.

"Income Inequality" is a front-page topic so let's take a close look.

From Pettis ...
Reviving the "Underconsumption" School

In the current issue of the newsletter I have decided largely to ignore current events and will try to dig deeper into the model I use to understand the sources of global imbalances, and how they have driven much of what has happened around the world in the past decade. This model rests on an understanding of how distortions in the savings rates of different countries have driven the great trade and balance-sheet distortions with which we are wrestling today, just as they have in most previous global crises, including those of the 1870s, the 1930s, and the 1970s. Rising income inequality is key to understanding this model.

Much of what I am going to argue is not new, and is merely a revival of the old "underconsumption" debate. Before jumping into the argument I want to start by quoting the remarkable former Fed Chairman (1932-48) Marriner Eccles, who may well have been the most subtle economist of the 20th Century, from his memoir, Beckoning Frontiers (1966):

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth – not of existing wealth, but of wealth as it is currently produced – to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations.

But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.


The key point here is that all other things being equal, rising income inequality forces up the savings rate. The reason for this is pretty well understood: rich people consume a smaller share of their income than do the poor. The consequence of income inequality, Eccles argued, is an imbalance between the current supply of and current demand for goods and services, and this imbalance can only be resolved by a surge in credit or, as I will show later, by rising unemployment.
Mish: Despite the obvious casino-like structure of global equity and bond markets, the poker game analogy is an extremely poor one.

From the wheel to the telegraph to the phone it took fewer and fewer people to produce the same amount of output. Today, a single farmer can produce as much wheat as 200 farmers at the turn of the century.

Unlike a group of guys playing a winner-take-all poker game, the global economy does not have a fixed number of chips. Because of increasing productivity and technology improvements, the number of chips increases every year.

That initial error in conjunction with equating debt to savings, cascades into a series of miscalculations by Pettis.

Pettis continues.
Rising income inequality reduces demand. It does so in two ways. First, it directly forces down the consumption share of GDP, and second, it reduces productive investment by reducing, as Eccles says, "the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants."

But – and here is where I will presume to add something new to the historical debate about income inequality and underconsumption – there is another very important form of rising income inequality that also forces up the savings rate in a very similar way, and this has been especially important in the past two decades. A declining household share of GDP has the same net impact as rising income inequality.

We have seen this especially in places like Germany and China during the past decade. In both countries policies were implemented which, in order to spur growth and, with it, employment, effectively transferred income from households to producers of GDP.

The main form of this transfer, in the case of Germany, was an agreement around fifteen years ago to restrain wage growth. By keeping wage growth lower than productivity and GDP growth, unit labor costs declined in Germany and German workers became more "competitive" in the international markets. This forced up the German savings rate and converted Germany's current account from large deficits in the 1990s to the largest surpluses in the world.
Mish: Is the problem lack of wage growth, or something else?

I suggest "something else". For starters, the Euro was structurally flawed (and still is) One cannot blame Germany for that.

What about competition in general?

Rising productivity by definition means more goods produced with fewer people. What does basic economics tell us about an increase of goods with constant demand?

The answer of course is prices should fall. Did they? Nope. Central banks in particular, and the Fed in general strive for 2% annualized inflation. In practice, and until recently, central banks allowed inflation to overshoot that target.

Worse yet, central banks also ignored asset bubbles, especially housing prices that were not directly accounted for in the CPI.
In the case of China there were also restraints on wage growth relative to productivity growth – not so much a policy choice, I would argue, but a consequence of the huge number of underemployed rural workers in China – but there were at least two other very important transfers. First, China has had an undervalued currency ever since 1994, which acts as a spur to growth in the tradable goods sector by effectively taxing foreign imports (and notice, by the way, that something similar happens in Germany, which also has an "undervalued" euro in relationship to the "overvalued" euro of countries like Spain, Italy and France). This reduces the real value of household income as a share of GDP.

Second, and most importantly, interest rates in China have been severely repressed during much of this century, perhaps by as much as five to ten percentage points or more. This has acted as a huge transfer from net savers, who are the household sector for the most part, to net borrowers, who consist mainly of manufacturers, infrastructure developers, real estate developers, state-owned enterprises, and government entities.

In both cases, and this is true of other countries, especially if they have large state sectors, one of the consequences of these hidden transfers is that GDP, which is the total production of goods and services, rose faster than household income for many years, meaning that households retained a smaller and smaller share of the total amount of goods and services they produced. Of course as the total share of GDP they retained contracted, it is not a surprise that they also consumed an ever-declining share of GDP.
Mish: I agree with Pettis regarding the huge transfer of wealth from savers to borrowers. However, I suggest the transfer is a direct result of central bank inflation policies, not a result of a savings glut.
The squeezing of the household sector

Even if German or Chinese households kept their savings rates steady (i.e. they consumed and saved the same share of their income as before), their consumption as a share of GDP had to decline in line with the household income share of GDP. Most consumption is household consumption, and so as household consumption declines as a share of GDP, total consumption also tends to decline as a share of GDP, which is just another way of saying that total savings rise as a share of GDP.

This is a point that is often missed. Rising income inequality can have the same impact on savings and consumption as a rising state or business share of GDP.
Mish: Here is the key point Pettis and others miss: "inflation is theft".

By holding down interests rates, while massively increasing the money supply, central banks fostered malinvestments and stock market speculation, then bailed out the banks. Those actions effectively robbed savers of their money.

To equate "theft by inflation" to a global savings glut is an enormous error.
In any closed economy, savings is always equal to investment. This simple truth, which is true by definition, has very powerful implications.

Let us assume now that something has happened that caused a transfer of wealth in our economy from the poor to the rich, or that caused the household share of income to drop. This transfer of wealth must have an impact on both total savings and total consumption.

At first the impact might seem obvious. Total consumption will decline and total savings will rise. But it is not that obvious. In order to maintain the balance expressed in the two equations, mainly the requirement that savings is always exactly equal to investment, something else must happen. There are only two possible things that can maintain the [savings=investment] balance:

1. Investment must rise in line with the increase in savings.
2. Savings in fact do not rise, which implies that any increase in savings caused by the transfer of wealth was matched by some other event that caused an equivalent reduction in savings.

Let's take the first condition. Will investment rise? There are, again to be terribly obvious, only three ways investment can rise.

1.    There can be an increase in productive investment.
2.    Unproductive investment can rise in the form of unwanted inventories.
3.    Other forms of unproductive investment can rise.

What causes investment to rise?

Let's consider each of these three in turn before we consider our second possibility, that savings in fact do not rise.

1. There can be an increase in productive investment.

This is obviously the best-case scenario. Because the increase in investment is productive, over time total goods and services will grow, and, presumably, households will be able to increase their consumption in the future.

How likely is this to be happening in the current environment? It is probably not very likely. It is hard to believe that in rich countries, like the US, there are a lot of productive investments that are neglected simply because there is an insufficient amount of savings to fund them.

I am not saying that every productive investment in the US has already been made, but just that if there are productive investments that remain unfunded, it isn't because of insufficient savings. It might be because of political gridlock, high levels of uncertainty, or something else.

2. Unproductive investment can rise in the form of unwanted inventories.

This, as I understand it, is the process Keynes eventually described after his famous 1930 debate with Ralph Hawtrey. The process is quite easy to explain. As income inequality rises, total consumption tends to decline.

Of course manufacturers are unwilling to pile up infinite inventory levels so this process must eventually stop. Rising inventory levels, in other words, can only be a temporary counterbalance to rising income inequality.

3. Other forms of unproductive investment can rise.

The third way for investment to rise is if the additional savings are used to fund other forms of unproductive investment. Perhaps the tendency for savings to rise without an equivalent increase in productive investment forces down interest rates, with suddenly-cheap capital leading to speculative behavior.

[paraphrased paragraph] Vast tracts of empty apartment buildings, spectacular but mostly empty airports, railroad lines, super highways and other infrastructure, and increases in manufacturing capacity even in industries that experienced overcapacity all seem profitable because of the expectation that asset prices would continue to rise.

Needless to say this seems to have been a pretty good description of recent investments in places as far apart as Arizona housing tracts, Dublin apartments, extravagant but unused Spanish airports, Chinese ghost cities, or Chinese solar manufacturers. We have seen a lot of this before the global crisis of 2007-08, and the seemingly obvious conclusion it that the tendency to increase the savings rate beyond the productive needs of the economy was balanced at least in part by a surge in speculative and unproductive investments.
Mish: I am in agreement regarding the description of malinvestments that Pettis mentioned.

To that I will add that the pool of real savings was transferred from savers to banks and other speculators. When the bubble burst, the banks were bailed out at the expense of savers.
As far as I can work out there are really only three logical ways a transfer of wealth is consistent with no change in the total savings and consumption shares of GDP.

1. The wealthy or the state consume as much as ordinary households.
2. Ordinary households increase their consumption rate and reduce their savings rate.
3. Unemployment rises.

That number 2 is what happened in the United States and peripheral Europe, is one of those brutally obvious points that so many commentators and economists have failed to grasp. I think the mechanism is fairly easy to understand and has already been much discussed, for example well over 100 years ago by John Hobson who showed how rising income inequality can cause both higher savings and lower opportunities for productive investment. The difference, he argued, poured into speculative stock, bond and real estate markets or was exported abroad to finance foreign demand for home products.

As money poured into stock, bond and real estate markets, either at home or abroad, it caused these markets to soar, making everyone feel richer. The consequence was that although ordinary households saw their share of total GDP decline, rising asset prices nonetheless made them feel wealthier, and encouraged them to maintain or increase their consumption.

Higher savings generated by the rich or the state, in other words, were matched by lower savings (or rising debt, which is the same thing) among ordinary households. Of course this can only be sustained if asset prices rise forever, but assets are locked into a circular process in which rising asset prices cause rising demand and rising demand justifies higher asset prices.

It takes rising debt to combine the two processes, so it is only a question of time before we reach debt capacity constraints, in which the system has to reverse itself, which it did in the developed word as a consequence of the 2007-08 crisis. This process, in other words, is the default reaction to a forced increase in the savings rate in one part of the economy, but it is not sustainable because it requires a permanent rise in consumer debt.
Mish: I certainly agree it's only a "question of time" before we reach debt capacity constraints.  And it's equally clear that ordinary households are dis-saving.

Interestingly, the lower the interest rate, the longer the imbalance can continue before it all blows sky high again (which by the way explains the desire of the Fed to artificially suppress interest rates).

My disagreement with Pettis stems from his belief the wealthy are over-saving. Up next is the crux of the debate as well as another fatal flaw in the arguments presented by Pettis.
If the savings rate in one part of the economy rises, without an equivalent rise in investment the only way for the economy to balance is for savings elsewhere to decline, and this can happen either in the form of a (usually credit-backed) consumption binge, or in the form of rising unemployment. The first is unsustainable.

Once we understand this it is pretty easy to explain much of what has happened in the global economy over the past decade or two. As an aside, it may seem strange to many to think that excess savings is not a good thing.

We are used to thinking of thrift as good for us, and even more thrift as better, and this belief is embedded with so much moral certainty that we react with repugnance to anyone who suggests otherwise. But excess thrift is a much more serious problem than insufficient thrift.
Mish: Let me react with moral certainty and repugnance of the preceding paragraph.

On March 10, Bloomberg reported Debt Exceeds $100 Trillion as Governments Binge.

The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates. The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion, according to the Bank for International Settlements and data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S. economy.

To depict $100 trillion in debt ($30 trillion of it since mid-2007) as "savings glut" is preposterous. I will present a detailed explanation why after one more clip from Pettis.

Pettis concludes ...
Either the world has to embark on a surge in productive investment, or we need to reduce the income share of the state and of the rich, or we must accept that unemployment will stay high for many more years.

The first is possible, but with so much excess manufacturing capacity and excess infrastructure in many parts of the world, and with significant debt constraints, we need to be very careful about how we do this. Certainly countries like the United States, India and Brazil lack infrastructure, but they do so largely because of political constraints, and it is unreasonable to assume that any of these countries will soon embark on an infrastructure-building boom.

Even if they do, the amount of excess savings is likely to be huge, and without a significant redistribution of income to the middle classes and the poor, it is hard to see how we can avoid high global unemployment for many more years. Because trade war is the form in which countries assign global unemployment, I would expect trade relations to continue to be very difficult over the next few years, as countries with high unemployment and low savings intervene in trade, thus forcing the savings back into countries with excess savings.

So what are the policy implications? Clearly Europe, the US, China, Japan, and the rest of the world must take steps to reduce income inequality. Just as clearly countries like China and Germany must take steps to force up the household income share of GDP (in fact polices aimed at doing this are at the heart of the Third Plenum reform proposals in China). Because it will be almost impossible to do these quickly, as a stopgap countries with productive investment opportunities must seize the initiative in a global New Deal to keep demand high as the structural distortions that force up the global savings rate are worked out.

But redistributing income downwards is easier said than done in a globalized world, especially one in which countries are competing to drive down wages.

In a globalized world, it is much safer to "beggar down" the global economy than to raise domestic demand, and so I expect that there will continue to be downward pressure on international trade.

Until we understand this do not expect the global crisis to end anytime soon, except perhaps temporarily with a new surge in credit-fueled consumption in the US (which will cause the trade deficit to worsen) and more wasted investment in China (which, because it is financed with cheap debt, which comes at the expense of the household sector, may simply increase investment at the expense of consumption). These will only make the underlying imbalances worse. To do better we must revive the old underconsumption debate and learn again how policy distortions can force up the savings rate to dangerous levels, and we may have temporarily to reverse the course of globalization.

I will again quote Mariner Eccles, from his 1933 testimony to Congress, in which he was himself quoting with approval an unidentified economist, probably William Trufant Foster. In his testimony he said:

"It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they cannot save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying.

It is for the interests of the well-to-do, to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit.
"
Mish: Once again I react with moral certainty and repugnance of the preceding two paragraphs.

In his arguments, not all of which are shown above, Pettis painstakenly and with great precision outlined a number of accounting identities (e.g. savings = investment) that step-by-step seem to indicate he is correct.

Interestingly, I agree with all of his accounting identities in isolation.

So how can Pettis be so wrong?  To understand where Pettis misses the mark, we have to focus on an even more basic accounting question regarding the nature of savings.

What is Saving?

Accounting Identity: Savings = Production Minus Consumption

This is a fundamental economic law: You cannot consume what you don't produce. Sure, for periods of time you can consume that which is saved, but you cannot eat three loaves of bread if only two were ever produced.

Saving by definition, is what remains after consumption. Is not more production a good thing? Of course it is. Increased production lowers costs and raises standards of living (at least it should, in the absence of central bank and government intervention).

Money and Savings

It is impractical for the baker to save loaves of bread for next year he does not want today. Perhaps he wants a pair of shoes instead of extra bread. But finding a shoemaker who wants bread is a problem. Perhaps the shoemaker wants apples, not bread.

Money came into existence for precisely this reason. And where gold has been available, gold has always been used as money. It is scarce, stable, divisible, malleable, and pretty. Gold cannot be conjured into existence; it has to be mined.

Dollars vs. Gold

In contrast to gold, trillions and trillions of dollars have been fabricated out of thin air.

Pettis makes an assumption that those dollars represent "savings".  Let me ask Pettis a simple question: What was produced?

The answer of course is nothing. And if nothing was produced, nothing can possibly be saved!

The hoard of "savings" that Pettis wants to distribute is not really "savings" at all but rather money-substitutes fabricated for the sole benefit of already wealthy asset-holders at the expense of everyone else.

Mauldin Misses the Boat as Well

John Mauldin has written a series of articles recently on the subject of income inequality. In his latest Thoughts From the Frontline on Inequality and Opportunity Mauldin states ...

If we want to do something about income inequality, perhaps we should think about the data that shows the remarkable correlation between education, educational opportunity, and income. ... the causes of income inequality are more difficult to come by than are the simple correlation analyses presented in many academic and political policy papers offered by various advocates in support of their personal policy choices (both conservative and liberal).

I suggest to both Pettis and Mauldin that it is useless to complain about income inequality unless one also complains about the cause of it.

The cause is not "difficult to come by" as Mauldin states. Nor is the cause an excess of savings. Here are some of the real causes.

Causes of Income Inequality

  • Central banks set interest rates by decree causing boom-bust cycles of increasing amplitude over time
  • Governments guarantee the pensions of public union workers at the expense of everyone else
  • Minimum wage laws encourage the use of hardware and software robots
  • Central banks have inflation targets higher than can be sustained by current debt levels
  • Governments sponsor war-mongering activities that are capital destructive
  • Prevailing wage laws ensure workers on government contracts are overpaid relative to everyone else
  • Corrupt politicians take campaign contributions in return for sponsoring extremely bad ideas

None of the above remotely has anything to do with a "savings glut". There was no "savings glut" in 1933 and there sure isn't one today.

Ironically, it was the explosion of debt, not the lack of savings that fueled the Great Depression and the Global Financial crisis. Margin debt and speculation soared in the late 1920s and is at an all-time high again now.

Only by confusing the expansion of credit and money printed out of thin air with savings, can one propose a "savings glut" thesis.

Realistically, debt does not equal savings and credit is not the same as money. To suggest, as Pettis does, that "excess thrift is a much more serious problem than insufficient thrift" is ridiculous.

"Excess Thrift" Implies Two Falsehoods

  1. Someone can identify "excess" thrift.
  2. Increased standards of living are bad.

Why does it imply the latter? The answer stems from the identity: Savings = Production Minus Consumption.

In the absence of central bank and government manipulation, excess production will not last long. Goods will spoil or prices will fall. Malinvestment does not happen to any significant degree because unproductive businesses quickly fail. Competition ensures growth of supply and growth of jobs.

In a free market society, real (inflation adjusted) wages would rise, even if nominal wages didn't. And that is precisely why the minimum wage debate is so wrongly focused.

Falling prices and rising production raises standards of living. More people than ever before can consume goods because prices drop. When people get more for their money, standards of living rise. Then, what's left is saved. That savings is money available for future investments.

There is no such thing as excess saving. It only appears that way when the Fed (central banks in general) distort price signals causing, speculation, rising asset prices, and malinvestment in unproductive assets.

Mish Model on Cause of Income Inequality

  • Central banks print money out of thin air. To the extent there is productive use of the money, those with first access to it are the beneficiaries. Who has first access to money? Banks and the already wealthy of course. 
  • By the time those low on the totem pole get access to credit, loans are nothing more than a debt trap. The collapse of the housing bubble is proof enough.
  • When bubbles burst, banks are bailed out at the expense of true middle class savers. This is a transfer of wealth from the low and middle class to those holding the assets.
  • When there is little productive use for the money (as in right now) money goes into speculative assets. The price of stocks rise. CEOs get paid in stocks, options, and salary on the basis of share prices.
  • Central banks inflate money and hold down interest rates robbing savers of money. 
  • The wealthy accumulate trillions of dollars, but it's not a "savings glut" per se. There was no corresponding production.
One Astonishingly Bad Idea

Other factors enter the equation, notably transfers from ordinary taxpayers to public union pensioners. Also, bad ideas brought about by corrupt politicians on the take influences the picture, but central banks and fractional reserve lending, not wealthy hoarders are at the root of the problem.

Much of this originates from one astonishingly bad idea, that falling prices are a bad thing. Note that increased production should lead to falling prices and rising standards of living.

But central banks are hell-bent on preventing price deflation. To do that, they increase money supply. The money has no productive use. So it goes into speculation, bailouts, and malinvestments. Prices don't fall as they should. This punishes savers for the benefit of asset holders. Stock prices soar, and CEOs pay themselves massive amounts of stock options, a form of shareholder dilution.

Countrywide Financial CEO Angelo Mozilo cashed out $1 billion in stock options over the years while driving the company into the ground. Does that really constitute a "savings glut" or is it something more like Fed-sponsored fraudulent conveyance of wealth?

For further discussion of the one "astonishingly bad idea" that is a fundamental driver of income inequality, please see Monetarism, Abenomics, QE, and Minimum Wage Proposals: One Bad Idea Leads to Another, and Another

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Missing the Boat on Bitcoin Ownership; Theoretical Question Regarding Bitcoin Theft

Posted: 17 Mar 2014 09:15 AM PDT

I recently came across a pair of articles that make a case that bitcoins are not money but property. OK so what?

Bob Lawless on Credit Slips discusses an alleged problem in Is UCC Article 9 the Achilles Heel of Bitcoin?

Yves Smith at Naked Capitalism commented on the above. Yves' take: Is UCC Article 9 Going to Kill the Use of Bitcoin by US Businesses?

Yves states ...

Here is the layperson recap. If anyone takes Bitcoins from a business that has a blanket lien (and you as someone dealing with that business won't know the state of their finances) and that business gets in trouble, the bank can go after any current holder of Bitcoins that have passed through that business' accounts. This is not the case with money because Bitcoin is considered to be property under the UCC, not money. As the post stresses, "money". ... Bitcoin is property, and when you exchange the property of a business (its goods, like its doughnuts or other inventory for sale) for other property, like your Bitcoins, the next person who takes the Bitcoins (now regarded as property of the bakery) has any blanket liens of the bakery attach to those Bitcoins.

Fundamental Error in Logic

I believe Yves and Lawless made a fundamental error in logic. Once the bakery transfers those bitcoins to another person or corporation, the bitcoins are no longer property of the bakery. I do not believe any court of law would accept an argument the bakery has any rights to bitcoins it used to make purchases.

And if the bakery has no right to those bitcoins then it is illogical to propose lien holders on the bakery have any right to them.

I had an email  exchange with  Pater Tenebrarum at Acting Man over this issue. Pater writes, and I agree ...

"Legally it should not matter whether the bakery pays a supplier with money or enters into a 'barter' arrangement (by paying with bitcoin). It is a payment either way. Moreover, the bakery could also first sell the bitcoin for money. Then it has delivered goods and accepted bitcoin in a 'barter' transaction for them, and the bitcoin have taken the place of their stock of salable goods.

If we regard bitcoin legally as non-money, then the bakery is now not only a bakery, but has a bitcoin trading operation on the side. Only if it shifts bitcoins out illegally (e.g. after declaring bankruptcy, or shortly before, in an obvious attempt to fraudulently deprive creditors of attachable assets) will there be any further consequences."

Theoretical Question Regarding Theft

A far more interesting question does arise over theft.

Consider stolen cars or paintings.

If you buy a stolen car or painting. You have to return it. If you buy from a dealer, you can hold the dealer responsible. If you buy a stolen car or painting from someone who vanishes, you are out the money and the painting or the car.

With that in mind, suppose someone stole your bitcoins from Mt.Gox or elsewhere. Unlike the bakery example above, those bitcoins are still your legitimate property.

In the case of Mt.Gox, let's assume stolen coins. Let's also assume the thieves cashed out for untraceable US dollars.

The next person who bought the bitcoins, bought stolen property. If one can determine the location of the stolen bitcoins, then lawsuits, and lots of them (over the rightful ownership) will be  coming.

Theoretically, if each bitcoin (and fraction thereof) had a unique number ID (and I believe it would have been possible to have set bitcoin up this way), then they could be traced.  But if the bitcoin-blockchain was traceable in such a manner now, it would have already been done.

If governments ever do go to digital currencies, I strongly suspect every cent will be traceable to someone at all times.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com