Plot holes

us and themIf a movie has a story that entertains us, we tend to forgive its plot holes. We may not even notice its plot holes. And we will defend the movie if someone points out its plot holes.

It is the same with historical accounts, and with economics. Bullshit that entertains us and appeals to our emotions becomes “factual,” even when it is obviously false, distorted, incomplete, or impossible.

For example, Hernán Cortés landed in Mexico, intent on conquering the Aztecs. History books say that Cortés met a native woman who became his interpreter. This sounds plausible at first, but it is a plot hole that needs explanation. Before Cortés landed, there had only been two brief Spanish expeditions to the beaches of Mexico. Therefore how could Cortés have met a native Indian woman who spoke Spanish? And yet, we forgive this plot hole, because we find the overall story interesting.

(In reality, when Cortés landed in Yucatan, the Mayan Indians managed to convey to him the idea that another Spaniard was already there, and nearby. When Cortés found this other Spaniard, his name was Aguilar, and he had previously been shipwrecked and taken captive by the Mayans. While a prisoner, Aguilar learned Yucatec Maya. Cortés took Aguilar as his translator, sailed up north around the Yucatan Peninsula, and arrived at the Mayan town of Potonchan on 22 March 1519.  When Cortés defeated the natives there, the natives gave Cortés a peace offering of food, gold, and twenty women. One of women, called Malanale, spoke Mayan, plus the Nahautl language of the Aztecs. Therefore Cortés spoke Spanish to Aguilar, who spoke Mayan to the girl, who spoke Nahuatl to the Aztecs. No big deal, but most history books fail to mention this, and most people don’t even notice the plot hole.)

During the American war of independence, France secretly supplied the rebel colonists with money, munitions, tents, and uniforms. Benjamin Franklin spent much time in France persuading King Louis XIV to commit to the American cause. However, what kind of money did the king send? The colonists could not spend French francs. Was it gold? Gold is not money. Gold is a commodity. Why did the king’s donation of money supposedly deplete the French treasury, if the French government could create limitless francs out of thin air? I’m sure I could find the answer if I dug, but this is a plot hole that most people overlook.

And then there is the official World War II narrative, which is so full of plot holes that it’s pathetic. (The “six million” fable is only one problem with the story.) And yet people ignore the plot holes, because they find the story entertaining. (“We saved the world from Hitler!”)

emperor's new clothesAll such stories have political elements. Social strata are maintained, in part, by the stories we tell each other. For example, if you point out the absurdities and plot holes in the official story about 9-11, you are dismissed as a “conspiracy theorist.”

If you question the “holocaust”™ story, you may be fired from your job. In Europe you will be sent to jail. That’s how politically charged our stories are.

fiction 01fiction 02fiction 03

schindler's listEconomists, historians and politicians all sling bullshit. That is, they tell fables. Most stories in economics are fiction, but the fiction becomes “fact” to the extent that it entertains us.

For instance, if I don’t like it that people (other than me) get government benefits, then I will believe that people (other than me) are “bankrupting” the U.S. government, even though I know that the U.S. government can never be bankrupted, since the government can create limitless money out of thin air. My story is full of contradictions and plot holes, and yet I cling to my story, because it entertains me. It justifies my hatred and selfishness.

It also justifies rich people’s enslavement of me, but I would rather remain a slave than quit believing in my fiction stories.

once upon a time

once upon a time2All societies are built on stories that are mostly bullshit. Human culture consists of narratives that reflect a culture’s values and beliefs. Our notion of “reality” and “common sense” is a product of the stories we tell each other. This is as true in economics as in any other field. Indeed, economics consists of politically charged fables.

I mention all this because I just saw a story that is full of plot holes…

story 01

First of all, the Saudi government creates infinite riyals out of thin air, so why would the Saudi government need to “tax foreign residents to raise cash”? Without further clarification, this story makes no sense.

What the story fails to disclose is that the Saudis have burned through their foreign currency cash reserves, and they are desperate to obtain more foreign currency so they can buy imports of food and so on. Foreigners working in Saudi Arabia want to be paid in foreign currencies (or be able to convert their riyals into foreign currencies) so they can send some of their salaries back home to Bangladesh or the Philippines or wherever. By “taxing” them, the Saudi government recovers some of the foreign currency that Saudi companies pay to foreign workers.

Liquidity worries have also surfaced, as late last month Saudi Arabia indicated that it was considering paying contractors with government issued bonds – read: IOUs.

If this means Saudi contractors, then it is nonsense, since the Saudi government has no shortage of riyals. If, however, it means foreign contractors, or foreign workers, then this will never fly, since non-Saudis won’t accept riyals for their work, nor will they accept bonds denominated in riyals. It was probably announced to prepare foreign workers to be paid less. (“If you don’t submit to lower pay, then you will have to take bonds as payment!”)

And then we get this plot hole…

Saudi debt

This is a plot hole because it doesn’t explain what the “pubic debt” is. If it’s in foreign currency, then it is significant. But if it is in Saudi riyals, then it merely represents riyals that investors have deposited in the Saudi central bank, in which case it’s a good thing.

Against that backdrop, although oil has rebounded off the recent lows, budgets are still light and in an attempt to help raise revenues in the short term (and transition away from dependency on oil in the longer term), the government is weighing an income tax on expat workers.

More plot holes. They mean revenues in foreign currency, but they don’t explain this.

Deputy Crown Prince Mohammed bin Salman has already taken steps to reduce spending, recently cutting fuel and utility subsidies and has proposed reducing the public sector wage bill. The kingdom is also joining other members of the six-nation Gulf Cooperation Council in imposing value-added taxation starting from 2018.

This is austerity, and it will be disastrous for the economies of Saudi Arabia and the Gulf oil sheikhdoms. Why raise taxes in the local currency if local governments can create their own currencies out of thin air?

Bahrain: Bahraini dinar
Kuwait: Kuwaiti dinar
Oman: Oman Rial
Qatar: Qatari Rial
Saudi Arabia: Saudi riyal
United Arab Emirates: UAE dirham

“Deepening the taxation base will be an important step in increasing non-oil revenue, which will likely start with a VAT first, but the discussion of income tax is notable. Introducing the income tax could support efforts to create more jobs for nationals, but if it’s not done in coordination with the other GCC countries then it will also reduce the competitiveness of Saudi Arabia to attract labor,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

As you can see, the Saudis and the Gulf oil sheikhdoms have caught the austerity bug. They claim that in order to create more jobs for Saudi nationals, so that Saudi nationals can have more money, the government must first take away Saudi nationals’ money via taxation. For example, they want to introduce an income tax. But wait…now we get this…

There are nine million foreigners living and working in Saudi Arabia said Mufrej Al-Haqbani, the country’s labor minister, and Finance Minister Assaf said that there are no plans to tax Saudi nationals.

So they are going to tax Saudi nationals, but not tax them. Plot holes galore.

Next comes this…

Whatever the outcome, it is clear that as Saudi Arabia continues to keep oil production at current levels, hoping to continue to force higher cost producers out of business. However something will need to be done in the short term in order to solve the debt levels being used to fund the budget.

Nonsense. The Saudis have cut back on oil production in order to create scarcity, which has caused oil prices to start rising again. The Saudis had no choice in this, since they must import everything except oil, and they have used up all their foreign currency. They had no money to buy imports. And indeed, oil is now up to $50 per barrel, and it keeps rising.


Regarding “debt levels being used to fund the budget,” this exposes one of the most common plot holes in economics stories, namely their failure to clarify to mention whether debt, revenue, and spending is in the local currency, or in foreign currency. This failure is intentional. Its purpose is to make you think that monetarily sovereign governments cannot create their own currency.  Once you believe this lie, you will believe that there is “no money” for social programs that help average people.


Monetarily sovereign governments whose currency is not widely accepted can borrow foreign currency by selling sovereign bonds, or by selling state assets. However, regarding their local budgets in their own currencies, they do not use “debt levels” to “fund their budgets.”

The Zero Hedge blog rarely gets anything right.


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6 Responses to Plot holes

  1. coolslim says:

    Speaking of plot holes in the WW2 narrative, there is also the curious donation of 500 tons (!) of tetraethyl lead to Germany from the Ethyl Export Corporation, of the United States.

    Tetraethyl lead is an anti-knocking agent, it prevents engines from exploding, without it, WW2 would not have been possible.

    Page 144 of this document contains evidence of this:

    Of course, we are supposed to believe that such critical aid was all a coincidence and not at all indicative of the war being rigged!

    There is also a theory that the entire war was fake and there was no combat at all!

    Look at this picture from the ‘London Blitz’, how is it possible for a bomb to destroy the roof and yet leave the bookcases intact?

    Or what about this bus? How could a bomb destroy the road, and yet leave the bus more or less undamaged? Was the bus driven into the hole?

    good video on it:


  2. Danny says:

    Creating money out of thin air = a tax.

    It’s worst than taxes because people are at least aware of them. Creating money out of thin air does the same, except that its a forced tax anf nobody knows its happening.

    Stop ignoring facts Elizabeth.


    • coolslim says:

      So if creating money out of thin air is a tax, how are you supposed to get an economy going?

      It’s a good thing the founding fathers of America didn’t take your view. Imagine if George Washington had sat around saying ‘Well we can’t create money out of thin air, doing so would be a tax!’


  3. coolslim says:

    Speaking of WW2, how about this or a plot hole.

    Before the outbreak of the war Germany received 500 tons of tetraethyl lead from the Ethyl Export Corporation, of the United States.

    Tetraethyl lead is an anti-knocking agent, it essentially prevents combustion engines from exploding, so it’s quite important to say the least.

    It’s mentioned here on page 144

    Of course we are expected to believe that this aid was all by accident and not in any way evidence that the war was rigged!

    There is also a theory that the war was completely fake, and nobody died.

    The London blitz for example, involves some odd pictures.

    How could a bomb destroy the roof, but not the bookcases?

    How could a bomb destroy the road but not damage the bus?

    Was the bus driven into the hole? Is it even possible for bombs to make that kind of indentation?

    There is a good video about this here:


    • Narco-Capitalist says:

      I’m all confused now. What was WWII fought for then? Did Hitler kill any Jews? Did Hitler actually believe that Germanic people were superior? Did FDR let Pearl Harbor happen?


  4. coolslim says:

    WW2 was a psy op designed to drum up support for a one world government.

    Did Hitler kill any Jews?
    I don’t know, but I am sceptical of the death toll. I don’t believe anyone was killed in gas chambers. I’ve seen pictures of the bodies at concentration camps and the lack of any evidence of flies or decomposition is quite striking. They could be dummies for all we know.

    Did Hitler actually believe that Germanic people were superior?
    Hitler was a puppet. And yes he did spread the idea of Germanic people being superior, but I don’t think this is particularly noteworthy, nationalism was very commonplace in those days.

    Did FDR let Pearl Harbor happen?
    Two main theories here, the first is that yes he did allow Pearl Harbor to happen, the second is that Pearl Harbor was fake.

    With regards to the first theory there is circumstantial evidence suggesting FDR knew such as his ordering all ships to avoid the North Pacific sea (this is where the Japanese fleet was).

    There have been tacit admissions that he knew also:

    This footage of Pearl Harbour practically reeks of Hollywood fakery:

    At 0:11 we have a model plane, 0:14 and 0:32 show submerged explosives being detonated and 1:05 is a miniature building being destroyed.

    The whole thing looks like a joke!


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