Golden Triangle Drug Traffic Arbitrage?

Tyler Durden camera_lumina at
Wed Mar 23 12:08:43 PST 2005

Hey...I never said May was an idiot. In fact, quite the opposite. His issues 
with race and violence, I feel, don't emanate from stupidity by any means, 
but are rather codifications of some kind of issues into his thinking. Get 
him away from "human matters" and on the technical level he was normally 
very sharp.


>All commodities that exist outside of government regulation have prices
>that are functions of supply and demand.  Heroin is no different than
>any other commodity in that regard.  The notion that heroin has no cost
>of material is especially absurd.  Do you think they can just conjure
>it up out of thin air?  Nonsense.  Heroin, like any other commodity,
>has significant costs to create, and those are what controls its supply.

OK, I'm punting here, and I'm not an economist. BUT, my assumption is that 
the costs of production of heroin is far below it's actual street value. 
Indeed, this is why many 3rd world economies produce such drugs.

>If the yuan is actually cheaper than it should be because of being
>pegged to the dollar, there's a much easier way to take advantage of the
>arbitrage opportunity: simply buy goods in China and sell them in America.

Yes, that's precisely what the drug trade does.

>And guess what, thousands of Chinese export companies do just that,
>making money off the economic downhill slide that China has erected
>spanning the Pacific.  This effectively forces Chinese workers to be
>paid less than they are worth, decreasing their savings and acting as
>an economic stimulus for China as a whole.

Well, of course. What I'm driving at, however, is that a pegged yuan (or any 
currency) will have inevitable and unintended local consequences.

For instance, let's say a Chinese consumer wants to purchase US goods in 
China. Obviously, such goods will be extremely expensive. However, with a 
pegged rate, the price for such goods will no longer reflect the true 
differential in the price of (for instance) labor in the US and China. In 
other words, goods are more expensive then they have to be, due to an 
artificial "barrier" created by the pegged dollar:Yuan rate, and exporting 
legitimate goods becomes a very expensive way to buy those goods. More than 
this, the value of a local "yuan" (or what have you) is not what it could be 
if you (as an individual, not a nation) had direct access to foregin capital 
at a rate that truly reflects the differential in costs, efficiency, etc...

So what do you do? You export blackmarket goods for prices that reflect some 
sort of "reality". In addition, it probably allows local producers of other 
non-black-market items (some of which may not be exportable) to have access 
to foreign capital at the true going value, via various economic 
relationships with drug creators, etc....

Come to  think of it "arbitrage" is not the best term.

Of course, the actual growers and even exporters of heroin are completely 
unaware that their livelihoods are the result of macroeconomic conditions.

Just a thought, could be wrong, but I see nothing in the response above to 
indicate I'm extremely off base. It's nominally "Cypherpunk" in that it 
poses the question of whether central control is actually responsible for 
the some aspects of the drug trade.


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