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Today we continue with a money theme. If you, dear reader recall, we provided information about the financial performance of the Vatican yesterday. (see here)

And just as a reminder, in 2015…

  • The Holy See generated a loss of €12.4m v. a loss of €25.6m for 2014.
  • On the side of the Vatican City State, (Museums, etc.) the gain was smaller than in 2014, namely €59.9m in 2015 v. €63.5m in 2014. (Those fickle crowds!)
  • So the consolidated net income for The Vatican was €47.5m for 2015 v. a €37.9m gain for the preceding year. 

What also needs to be mentioned is that there appear to be one off sources of income for 2015. These were described as a “sum of 50 million euros from the Institute for the Works of Religion” and a gain in the income of the Holy See from “unspecified “investments.”

While I am still waiting for a source document to comment further, a couple of comments that can be made at this time. One is this: if the income for 2015 was netted for the two extraordinary income statement events (€50.0 from Vatican Bank + income from “unspecified “investments.”) , we would no doubt see a loss on the consolidated financial statements€47.5m – €50.0m+ = – €2.5m+).

One further comment, please also keep in mind that the Jubilee Year of FrancisMercy began in the last month of 2015. This would mean that the revenue from those pilgrimage numbers should be seen in the 2016 figures for the Vatican City State, in their 2016 financial statements. Once we see these, it will give us confirmation about the “success” of this event.

And now to Charles Hugh Smith’s post about a very similar, and I dare say timely topic. That topic is captured very succinctly in the title of the post, namely When Money Is “Free,” Discipline Evaporates; When Discipline Evaporates, Decisions Are Disastrous. 

What we actually see in the FrancisVatican is a cabal of people who do not “appreciate” the source of their funding. This has allowed these individuals to “game the system” without any thought of where that funding came from. This “system gaming” is appearing to have caught up with them. The two extraordinary income statement events could be an indication of just this. Further indication could be the situation that recently transpired with the “Sovereign” Order of Malta.

Furthermore, this could also be the cause behind the extremely shrill tone of the Francis “magisterium” of late. Nothing like a financial crisis to get the old South American populist blood boiling, maybe? But I digress…

These latter extraordinary events, like the first two also have a strong money component.  For that story, we go over to the National Catholic Register and Edward Pentin. In a story that appeared originally in the German newspaper Bild, the following is the lede:

Germany’s mass-selling Bild newspaper has reported that the Grand Chancellor of the Order of Malta, Baron Albrecht Freiherr von Boeselager, accepted a 30 million Swiss franc donation ($31 million) on behalf of the Order from what Bild calls “a dubious trust” in Geneva. Boeselager denies any wrongdoing.

Now it is too early to tell whether the above mentioned extraordinary income statement events, along with the fact that the disclosure of the Consolidated Financial Statements for The Vatican for 2015 were delayed by 8 months had anything to do with the very rapid “takeover” of the said Order and Francis’ mood deteriorating, but I am sure we will be hearing much about this in the not too distant future.

If for no other reason that this here

In the mean time, some general information about what happens when a “society” loses its discipline due to “free money”…


When Money Is “Free,” Discipline Evaporates; When Discipline Evaporates, Decisions Are Disastrous

March 17, 2017

The only possible output of a system lacking any discipline is self-destruction.

Whatever is free is squandered. When water is free, it’s freely wasted. When electricity is free, there’s no motivation to use it wisely.

The same principle holds true for money. If money is free, or nearly free, there is no motivation to invest it wisely, or consider the opportunity costs of spending it versus investing it or preserving it as savings.

Money that can be borrowed for next to nothing is essentially “free” because the costs of interest are negligible. Money that can be borrowed in virtually unlimited quantities is also “free,” as whatever funds are squandered or lost to malinvestment can be easily replaced with more borrowed money.

Nothing enduringly productive can be built without discipline and a steady focus on the bottom line of production costs, revenues, overhead expenses and opportunity costs, i.e. what else could have been done with this capital and labor?

These dynamics are scale-invariant, meaning they apply to individuals and households as well as to companies, institutions and nation-states.

Thus we see the same poor results in trust-funders whose income is “free” (pouring in monthly whether the individual was productive or not) and national governments that can simply borrow another trillion dollars (or $10 trillion, hey why not?) when they’ve squandered all the tax revenues.

We intuitively grasp the necessity of discipline to corral impulses and desires that are self-destructive in the longer term. Eating chocolate cake and ice cream might appeal to our immediate cravings, but longer term the consequences of unbridled consumption of this kind of sweets are dire.

We also grasp the role discipline plays in learning difficult subjects/tasks and in accomplishing long-term, often arduous projects.

If there is any commonality to genius, it is a prodigious work ethic based on a highly disciplined schedule of daily productive effort.

All of which leads us to ask: what precisely have we accomplished by borrowing and blowing $9 trillion in additional national debt over the past eight years?With interest rates near-zero and the credit line of the nation essentially unlimited–recall that the central bank created $3.5 trillion of money out of thin air and used much of it to buy federal bonds–there was no need for any difficult choices or trade-offs–that is, discipline.

The trillions could be borrowed from future taxpayers painlessly, and squandered on propping up unaffordable entitlements and programs that were each immune to discipline.

So a pharmaceutical company raises the cost of a pinworm medication from $3 to $600. When money can be borrowed in endless quantities for “free,” there’s no need to ask if this predatory piracy is justified or necessary for the good of the nation; just borrow another trillion to pay for Medicare and Medicaid costs that are largely skims, scams, fraud or unproductive paper-shuffling.

As long as the money spigot is “free,” there’s no need to ask why the F-35 fighter aircraft is four times as costly as the aircraft it replaces.

As long as the money is “free,” why should any politico risk telling a National Security agency such as the CIA “no more money for your agency until you can account for the tens of billions you’re spending on gosh knows what.”

Lowering interest rates to near-zero has reduced the need for fiscal-political discipline to near-zero. Politicos of all stripes are only too willing to borrow trillions from future generations–why not borrow and blow the money now to assure my re-election, and let future taxpayers figure out what to do about the crushing burden of debt we’re leaving them?

High interest rates were basically the only mechanism of discipline imposed on short-term, free-spending politicos. Once the cost of interest was reduced to signal noise, politicos were freed of the burdens of discipline: of having to reckon the burdens of future interest, of opportunity costs, of trade-offs and the difference between productive investments and cronyist pork-barrel spending on marginal (but highly profitable) “infrastructure.”

How disciplined will your gambling be in the casino when all your losses are covered by future taxpayers? Why hold back from risky gambles when any losses will be paid by others? Go head and gamble wildly–any lucky wins will be yours to keep, and all the losses will be covered by nameless others.

This is how “free money” leads to disastrous decisions. With the need for discipline eliminated, there’s no motivation not to gamble wildly, fund every special interest group’s demand, and grease the palms of every insider, every crony and every oligarch.

This is how a great nation will self-destruct. The only possible output of a system lacking any discipline is self-destruction.

And to leave off this post on a bright side, see here.