- Which Countries Have The Most Economic Complexity?
As Visual Capitalist's Jeff Desjardins notes, rvery country has an economy that is unique.
In some places, such as the United States or Germany, economies are able to produce many different goods and services that get exported around the world. These countries tend to house world-class businesses in sectors like financials, technology, consumer goods, and healthcare, with companies that produce highly specialized goods like automobiles, software, or pharmaceutical products. Ultimately, these are innovative economies that can roll with the punches, creating growth even when prospects are dim.
In other places, this level of sophistication is just not there. Innovation and knowledge are stunted or non-existent for most industries, and these countries may focus exclusively on one or two goods to pay the bills. Venezuela’s reliance on oil is an obvious example of this, but there are even many Western countries that miss the mark here as well.
MEASURING ECONOMIC COMPLEXITY
In 2009, a team at Harvard formalized a measure of economic complexity that compared nations based on the sophistication of their economies. Now known as the Economic Complexity Index (ECI), the exact measurement is complicated, but it essentially uses data on two main things to uncover the underlying level of economic complexity:
1. Economic Diversity
Measures how many different products a country can produce.2. Economic Ubiquity
Measures how many countries are able to make those products.In other words: if a country produces only a few goods, that economy is not very complex. Further, if a country produces many different products, but they are all simple ones that can be replicated elsewhere, the economy is still not complex. See full details on the project here.
RANKING THE MOST COMPLEX ECONOMIES
Here are the most complex economies in order, along with the changing rankings over time:
As you’ll notice, the most recent set of data is from 2015.
Topping the list are the economies of Japan (1st), Switzerland (2nd), Germany (3rd), and South Korea (4th). The United States sits in 9th place, and Canada is further down at 33rd.
Australia, which relies heavily on commodities, ranks notably low for Western countries in 73rd place, where it is sandwiched between Kazakhstan and the Dominican Republic.
MOVERS AND SHAKERS
The most recent iteration of the index also highlighted some movers and shakers over the last 10 year period:
In particular, the crisis in Venezuela has had an effect on economic complexity, eroding any sophistication that existed.
Meanwhile, Cuba’s economy is also in the decline in terms of sophistication – and with major exports including raw sugar (27%), rolled tobacco (15%), nickel (12%), oil (11%), hard liquor (7%), and crustaceans (4%), it’s not hard to see why.
On the opposite side of the spectrum, the Philippines is the biggest mover upwards, ascending 28 spots.
Some African countries are also moving fast up the rankings: Botswana, Malawi, Uganda, and Cameroon each jumped over 20 spots.
- The Death Of Free Speech Is Imminent: Government Begins Censorship Of Media Through Disingenuous Means
Authored by Mac Slavo via SHTFplan.com,
The death of free speech is imminent.
Anyone with access to a computer and the internet can see that the United States mainstream media is nothing more than a propaganda machine designed to brainwash the masses into a lemming-like agreement with the government.
And now, it’s oh-so-ironic that the same government that tells the media what to report on in order brainwash the public is seeking to quiet those who disagree and label them as “propaganda.” Some may call it fake news, others just want a different opinion rather than the left-leaning media hysteria we are accustomed to.
But now, media outlet RT (Russia Today), founded in Russia will have to register with the United States as “foreign media;” which will forever give it the inaccurate title of “propaganda.”
This doesn’t apply to merely the Russian version of the news outlet, but the American-run and operated site as well. According to The Hill, in a report on Monday, RT did not name the company that the Department of Justice (DOJ) has compelled to file paperwork under the Foreign Agents Registration Act, but blasted the edict as overreaching.
“The war the US establishment wages with our journalists is dedicated to all the starry-eyed idealists who still believe in freedom of speech. Those who invented it, have buried it,” Margarita Simonyan, RT’s editor-in-chief, said about the registration.
Media organizations have been exempted from the law, which is wide-ranging in its disclosure requirements and generally applies to political consultants and those working in lobbying or public relations.
It would be a felony if RT is found to have willfully failed to register as a foreign agent, however.
The registration would not stop the organization from operating, but requires regularly submitted paperwork that lists its sources of foreign government-tied revenue and the contacts it makes in the United States, and it would require any reporting to be labeled as being influenced or financed by the Russian government. –The Hill
RT has also contracted with Julian Assange, who runs WikiLeaks and is suspected of leaking internal emails from the Democratic National Committee, so the fact that they are being singled out with attempts to silence their reporting is not a big surprise to anyone with functioning neurons.
RT must be a threat to the political elites and the establishment, or they would be left alone while outlets like CNN brainwash and lie for profit to prop up the wealthy and powerful politicians they will stop at nothing to protect.
- Ron Paul: Here's The Truth About The War Between The Alt Right And Cultural Marxists
Despite recently being demonetized by YouTube, possibly for his anti-establishment views and slamming President Trump’s decision to increase troop levels in Afghanistan, former Texas Congressman Ron Paul is back with a video addressing the widening left-right political divide in the US – and the role that the “immoral use” of government force has played in fomenting the US’s present political crisis.
Claiming that the US is "witnessing a battle between authoritarian groups in America", the prominent libertarian and former politician says that the "Alt-Right" and Cultural Marxists are fighting to control a government that is bankrupt, doesn't follow the Constitution, and controls a foreign empire that is running on fumes. Ron Paul describes our dilemma.
“Most Americans agree the violent confrontation between the alt-right and the cultural Marxist is serious, dangerous and getting worse. Understanding economics, cultural differences and the acceptance of authoritarianism is required to find the answer to the crisis.
Rejecting a society based on personal liberty led to the conflict we are now witnessing: replacing authoritarianism with volunteerism must be our goal. The immoral use of government force caused this crisis and expanding it will only increase the hatred between the two sides.
Though there are leaders on both sides promoting violence, large numbers are attracted to the raging culture war for emotional reasons in response to the lies and the incitement by those whose ulterior motive is seeking power, wealth and promoting a dangerous new world order.”
The biggest problem that Paul sees is that neither the left or the right have made liberty – both economic and political – a priority. In fact, just the opposite is happening. Both the left and the right are moving in a more authoritarian direction.
Meanwhile, the left’s penchant for labeling all of their ideological opponents as Nazis and racists is helping to sow chaos and division, Paul says.
“One side has been labeled the alt-right, the other cultural Marxism. The right would like to reduce the debate to the differences between Communism and a populist government that emphasizes caring for Americans over foreigners. The Left would have us believe it's merely a conflict with supporters of racism and injustice and cultural Marxism. Neither side speaks of Liberty. The alt-right is made up of conservatives, populists, and pro white enthusiasts, but all are labeled Nazis and fascists by the left.”
“Some are just fed up with the false charges and the penalties toward whites by leftist racists and the extremism of political correctness. The vicious labeling of all those who are frustrated and who join with those who are angry as Nazis and racist is only for the purpose of creating chaos. The left demands that all Trump supporters fit into this category. This is the strategy for fomenting race riots and civil war. No doubt Trump makes himself vulnerable to these inaccurate and wild charges by his enemies. The left promotes cultural Marxism and class warfare yet there are fellow travelers who represent typical liberal activists progressives and white haters. Many on the Left generally despise any minority who chooses to be a conservative or libertarian.”
Leftists, Paul says, are far more cynical than their idealistic proclamations would suggest. White leftists only see minorities as important within the context of their votes, and are quick to treat minorities who identify as conservative or libertarian as traitors to the cause. Meanwhile, neither side understands how liberty leads to economic prosperity for the largest number of citizens.
“Too many on the left see minorities as only important when their votes can be corralled. From their viewpoint as minorities, well-being success must come only from benefiting from doctrines promoted by forced wealth redistribution by the liberal left it's all about control it's cynical racism.”
“The philosophic issues that divide us are what matters. Both sides accept the principle of government aggression as a proper tool of government. Neither side understands how true freedom leads to the prosperity that both sides pay lip service to. Neither side understands the shortcomings of deceptive, short-lived prosperity that comes with government deficits and monetary inflation which always ends badly, especially for the people who are supposed to be benefiting by government welfare spending. The ending of such a period of artificial wealth is now apparent and since it's not understood by either side of the current raging conflict, both are proposing different government solutions with sharp disagreements in the blame game.”
Both the left and the right claim to be the torchbearers of the American experiment. But neither side cares about what the Constitution says, Paul said. Furthermore, both sides banded together to support the Bush doctrine, a willingness to countenance foreign interventionism that persists across the modern political spectrum. Leftists and conservatives take advantage of superficial differences to divide people – the left via identity politics and the right via their racist views.
“Both sides claim patriotic loyalty and ownership of the American tradition. Neither group cares about what the Constitution says both sides support America's world Empire its militarism the military industrial complex and horribly dangerous Bush doctrine of pre-emptive war. Neither side condemns our aggression or foreign interventionism. There is extensive support by both for economic planning by government though in different degrees and for different purposes.”
“This means no complaints about protectionism, Federal Reserve power or subsidies to the special interest groups. For our bipartisan leaders, it is only who gets to distribute the loot that matters. Identity politics has taken over in forming alliances. This encourages lying, race preferences demagoguery and inciting hatred since the concept of Liberty is something that applies to individuals rather than special interest groups it is therefore rejected.”
“Liberty is not something that can be distributed according to the various groups that claim victimization and a right to other people's earnings. The tool used especially by the far left is extreme political correctness that regulates speech by claiming hateful motivation by anyone with whom they disagree. These charges are inevitably spread with a broad brush by a complicit media advocating both types of authoritarianism. Left and right purposely divide people by natural and acceptable differences. Pursuing the cause of Liberty unites all those who honestly seek peace and prosperity in distinction from those who resort to authoritarianism. Divisiveness will cause both sides to fail with their half-hearted efforts to force an escalation of violence and the destruction of the middle class.”
Unfortunately, neither the left or the right has expressed concern with the “deeply flawed” US monetary system, Paul said. The Federal Reserve has been allowed to debase the US dollar through the complicity of both left- and right-leaning politicians. And now, as Paul notes, the bills are all coming due.
“Neither side will face up to the economic reality of a deeply flawed economic system and the pending collapse of the American Empire. Sadly neither side complains about the danger of the Bush Doctrine of preemptive strikes and decisions being made to go to war without congressional approval, the dependency on deficit spending, and the monetary mischief of the Fed. The bills are now coming due and the political chatter associated with the current social strife serves to distract from the philosophical impurities from which we have been infected for many decades. The number of enemies that we have generated by our foreign policy is ignored and the problem made worse by our economic and military meddling around the world our inability to pay our bills and meet our unfunded liabilities will be the limiting factor.”
In short, the US’s economic and military meddling around the world have led to a reliance on unsustainable deficit spending. This, Paul contends, is the greatest threat facing American society – and neither side is talking about a solution.
His full video is below.
- How Rich Chinese Use Visa Fixers To Move To The U.S.
Authored by Peter Robison, Karen Weise, Wenxin Fan, and Yan Zhang via Bloomberg.com,
Have a spare $500,000 to invest in an economically distressed American area (that actually isn’t distressed at all)? China’s EB-5 fixers will help you every step of the way…
One summer Saturday in 2013, Vivian Ding took the stage in the grand ballroom of Shanghai’s Shangri-La Hotel to hold forth on a subject in which she was both an expert and an inspiration: emigrating to the U.S.
Tall, with a commanding presence, Ding is what you might get if Tony Robbins were a Chinese woman capable of both pumping up a cavernous ballroom and filling out an I-526, the Immigrant Petition by Alien Entrepreneur form. Standing next to a 6-foot-high pyramid draped in black velvet, she recounted her own move to America and described the prestigious U.S. high school her daughters attended, thanks to a program that lets immigrants invest in new commercial enterprises in exchange for permanent residency visas—green cards. The cloth was pulled to reveal a model of a Manhattan building: the glassy residences on the Hudson River now known as Via 57 West. Sign a contract that day to lend $500,000, help build a “landmark for mankind”—and take home a prize, Ding implored the audience. That day, the prize was an iPad mini.
Ellis Liu, a finance manager at a company that runs internet cafes, was in the audience. He didn’t sign up on the spot, but he couldn’t shake the idea. Shanghai had become so smoggy; his young son was constantly sneezing. A few months later, he paid $50,000 in fees to Ding’s company, Qiaowai, and got money from his father to make a $500,000 investment in another New York project, to bring Wi-Fi to the city’s subway system. Then he settled in for the four-year wait before, conditional visa in hand, he’d be able to begin job hunting in Los Angeles.
Some immigrants pile into rafts or fishing boats to get to America. Others try to slip past the cameras and sensors along the southern border. And many simply pay up via the EB-5 visa program, through which U.S. Citizenship and Immigration Services issues 10,000 conditional green cards annually. By investing $500,000 in areas deemed economically distressed, prospective immigrants can get temporary U.S. residence for themselves and their families. Anyone whose investment creates 10 jobs can apply to become a permanent resident.
When the program started, in 1990, Congress was squeamish about creating the impression that U.S. visas were for sale, so the law specifies that investors’ money must be at risk. The hope was that the program would jump-start development in moribund rural areas. But it languished unused for years, until developers in New York and other large cities figured out how to get just about any area to qualify as distressed, and the program took off. In recent years more than 90 percent of EB-5 investments have been in cities, and about three-quarters in real estate—often luxury residential properties in Manhattan. Most of the money comes from Chinese investors lined up by fixers such as Ding, who flood WeChat with advertisements and bring over American politicians to attach their names to projects, like Hollywood stars hawking whiskey in Japan.
Post-Brexit, mid-Trump, borders appear to be tightening, but China’s visa fixers still sell a world of limitless possibilities. They’ve turned some of the world’s most forbidding bureaucratic machinery into a kind of consumer good for China’s rising wealthy class. “No other country in the world comes anywhere near the Chinese market in terms of the network of agents,” says Philadelphia attorney Ron Klasko, who heads the American Immigration Lawyers Association’s EB-5 committee. At least 1,000 migration agents are registered in China, and industry participants say there are many more unofficial ones. “Some operate at an exceedingly high level,” Klasko says, “and some do not.”
Ding’s company, Qiaowai, inadvertently put the industry under additional scrutiny in May when it hosted an event at the Beijing Ritz-Carlton headlined by Nicole Meyer, the sister of Jared Kushner, President Trump’s son-in-law and a White House adviser. She was seeking investors for One Journal Square, a pair of apartment towers Kushner Cos. is building in Jersey City overlooking Manhattan. Meyer said the project “means a lot to me and my entire family.” At one point in the session, a photo of Trump was displayed on a giant screen. Qiaowai had published advertisements inviting investors to consider the “government-supported” development, which, it claimed, “in a real sense guarantees a permanent green card and the safety of the investment principal.”
Meyer’s remarks were immediately reported by international news agencies, and a Kushner Cos. spokesman apologized. Qiaowai pulled the advertisements. Federal prosecutors later sought emails and documents from Kushner Cos., which said it “did nothing improper” and is “cooperating with legal requests for information.” Kushner Cos.’ partner in One Journal Square, KABR Group, told CNN in August that the two companies were no longer seeking EB-5 financing for the project.
The incident was a gift for the significant number of congressional members who’ve grown to despise the EB-5 program. Some can’t get over the idea that it smacks of selling citizenship. Others say the program is dirty and point to a series of scams that have defrauded foreign investors and put U.S. citizens in jail. Still others say the program has enriched middlemen and a few big-city developers while doing almost nothing for the parts of the country it was designed to help. Republican Senator Charles Grassley of Iowa—a state that hasn’t seen an EB-5 project since 2010, according to the Iowa Economic Development Authority—is perhaps the most vocal and vehement critic. He’s asked the Department of Homeland Security, which oversees immigration to the U.S., to investigate “potentially fraudulent statements and misrepresentations” made by Qiaowai in promoting the Kushner buildings.
Chinese agents have heard this all before. “An agent said to me once, ‘You know, we make a lot of money every time you cry wolf,’ ” recalls Robert Whyte, a Los Angeles banker who advises U.S. developers on EB-5 compliance. “They go out there and sell ‘This is your last opportunity!’ knowing full well it’s not.”
Mickey Rowley was running the Greater Philadelphia Hotel Association when Pennsylvania Governor Ed Rendell named him, in 2003, deputy secretary for tourism, film, and economic development marketing. A few years into his tenure, someone asked him to look into using EB-5 funding to attract film production to the state. After all, moviemaking, like condo construction, creates jobs. His colleagues shrugged when he told them he was headed to China to round up $60 million from immigrant investors. “They were like, ‘Go get ’em, sport,’ ” he recalls.
He had the commitments in 12 days. EB-5 loans were eventually used to make the Russell Crowe thriller The Next Three Days and the slasher flick My Bloody Valentine 3D, among others, in Pittsburgh. And Rowley—suddenly regarded as a China expert—returned a half-dozen times to raise money for projects across the state.
What made it so easy, Rowley says, were the agents. They waited in his hotel lobby each morning. They stood at attention until he took his seat at dinner. And during meals, he says, “no one takes food off the Lazy Susan until I take food off the Lazy Susan. These agents really suck up to you.” They would offer him a car and driver, restaurant reservations, invitations to karaoke. “I never paid for anything,” Rowley says. “I was never alone. I was handled right up to the hotel lobby.”
He also came to understand the extent to which the agents traded in proximity to power—sometimes physically. One agent sublet space in Pennsylvania’s trade office in Shanghai to impress clients. At presentations, Rowley spoke in English as an agent translated. It could be awkward. Standing before an audience in Wuhan, wearing a tie with a map of Pittsburgh on it, he tried to connect by saying he felt at home because rivers flowed through both cities. But what he’d meant as a little flourish died as the agent held up his own tie, pointed to it, and told the audience something like, “This guy’s tie has a map of Pittsburgh.” As Rowley gave more speeches, he noticed that people listened intently when the governor’s name came up. So he made it part of his talks. “I always made casual mention of a conversation when ‘I was just speaking to our governor the other day about Chinese investment,’ ” he says.
Agents sometimes exploited the language barrier. Rowley remembers one having a long and animated discussion in Chinese with an audience member. Others jumped in. A Chinese-speaking American told him afterward that the agent had reassured the audience member he didn’t need to worry that he’d been in the Communist Party. Someone told the agent she was mistaken. The U.S. generally denies visas to current and former party members.
With EB-5 loans, developers pay interest rates of 4 percent to 8 percent a year, compared with commercial alternatives of 10 percent to 18 percent. The developers latched onto the program during the Great Recession and now count on it for a big part of their financing; the value of all EB-5 loans jumped from $240 million in 2007 to $4.4 billion in 2015, according to financial adviser Brandlin & Associates.
Agents make money on both sides of the deal. In addition to a fee of about $50,000 paid by each investor, they claim as much as half of the interest payments made by the developer. Middlemen in the U.S., who bundle EB-5 investments for developers, get most of the rest. The immigrant investor typically gets 0.5 percent or less.
But many aren’t interested in their rate of return. They want the visa—and a project that’s sure to succeed. If it fails, there’s a chance they’ll lose both their principal and their shot at a green card. Agents who can quickly deliver investors likely to get initial approval from U.S. immigration can get a bigger piece of the interest payments from developers, Klasko says. And agents connected to good projects can charge investors more. “China is nothing if not a capitalist society—it’s all negotiated,” he says.
The pay quickly adds up, particularly for large companies such as Qiaowai, which says it has 600 employees in 15 Chinese cities. Last year the U.S. received about 11,000 immigration petitions from Chinese investors, and Qiaowai claims it accounts for a third of the EB-5 market in China. If each of those approximately 3,700 petitioners who were Qiaowai clients paid a typical $50,000 fee, Ding’s company made something like $185 million, not including interest payments. Qiaowai and Ding didn’t respond to multiple requests for comment for this article.
Ding places her personal American success story at the center of Qiaowai’s marketing, sometimes inviting her twin daughters, who went to the same prep school in Dallas as George W. Bush’s twins, to join her on stage. The company has posted photos on social media of Ding at Trump’s inauguration and at a post-inaugural party called the Liberty Ball.
Agents are responsible for finding the hook that will make each project appeal to Chinese investors. Often, it’s an American politician or celebrity. “They completely trust the American government,” Rowley says, “despite the fact they don’t trust their own government.” Last year former New York Mayor Rudy Giuliani spoke in Beijing and Shanghai at Qiaowai seminars for Maefield Development’s renovation of a Times Square theatre. Giuliani, who was billed as “the father of the Times Square revival,” gave short speeches on the strength of the New York economy.
In 2013, Qiaowai helped raise $50 million in EB-5 loans for a Jersey City tower known as Trump Bay Street, built by Kushner Cos. It was a fallow moment for the family brand. “Nobody knew who Kushner was, and we felt Trump was a funny character,” recalls Lily Wang, a former Qiaowai manager who now runs the competing Guanyi Investment Consulting Group. “He was no Buffett, and leveraging on him could not be convincing.” Qiaowai instead promoted the project’s proximity to Manhattan. A video put viewers behind the wheel of a car driving through Jersey City as Woke Up This Morning, the theme song from The Sopranos, played. It was still a difficult sell; Wang says it took Qiaowai a year to find 100 investors for the Trump-Kushner project.
In June, a month after Qiaowai held the event in Beijing featuring Nicole Meyer and the big photo of Trump, people crowded into the grand ballroom in Shanghai’s Four Seasons Hotel for another Qiaowai seminar. Two massive TV screens looped a video profile of Ding and shorter stories about successful immigrants. “These are all true stories,” Song Ying, a sales manager, told the crowd. Qiaowai hadn’t had an easy start with the EB-5 program, she confided. Early clients doubted they’d get their $500,000 back. When the first of them did, Song recalled, they threw a party.
This day, Song was announcing the company’s newest project (its 88th, according to the company website), a Criterion Group development on the Astoria waterfront in Queens, N.Y. Even though congressional critics were calling for an investigation of Qiaowai’s claims at the Kushner event, Song repeated the pitch. “Choose Qiaowai,” she told attendees, “you will get what you want. Guaranteed.”
At the seminar’s next session, a tax expert highlighted an important benefit of emigrating to the U.S.: The country hasn’t signed on to an automated international information exchange, designed to reduce tax evasion, that China had just joined. “The Chinese government won’t know how much money you have in the U.S.,” he said to a room of investors, some of whom rose to snap photos of his slide presentation.
The families, some with toddlers, spilled from the ballroom into a foyer. There, more experts stood by to answer prospective investors’ questions on housing, education, and other aspects of resettlement. Jannie Zhang, a business development officer from the China offices of Standard Chartered Plc, was there to advise on perhaps the most important concern: getting money out of the country. China allows its citizens to move only $50,000 abroad each year, far below the minimum EB-5 investment of $500,000. To get around this, investors often line up friends and family, or even pay strangers, to wire money overseas, a process known as “ant moving.”
China monitors transfers from multiple sources into a single overseas account. Zhang told people that transferring money out of mainland China into multiple overseas accounts, instead of just one, should be enough to avoid the government’s attention. She said investors could open an account at one of the bank’s branches in China for 500,000 yuan ($76,500) and get additional accounts in Hong Kong or Singapore. From there, the money could be routed freely to the U.S. “This is a service that we are not allowed to promote proactively,” Zhang said. “But we can answer questions.”
Not every agent can afford Qiaowai’s trappings at the Four Seasons. Two smaller operations set up shop in smaller conference rooms next door, and in the lobby, a man approached every person leaving the hotel who carried one of Qiaowai’s gray tote bags. “Do you need immigration service?” he asked. “Take my card.”
In 2009, as Chinese investors were flocking to EB-5, Larry Wang, founder of Well Trend United Consulting, a large immigration agency based in Beijing, joined a nationally televised debate about the program. Some participants argued that it was unfair to China—just a way for the U.S. to squeeze money out of the country during the Great Recession. Wang, an EB-5 supporter, countered that the program was good so long as agents brought solid projects to their customers. Thinking back on that debate today, he says, he wishes he’d been more critical. “It’s getting too popular in China,” he says. “Are most Chinese clients knowledgeable enough? Are most agents good enough, capable enough to handle the situations? I don’t think so.” Wang learned the hard way about the risk that clients will be swept up in fraud. In 2010, Well Trend found four investors to supply $500,000 apiece in EB-5 funding for a factory that a Beverly Hills businessman was proposing to build in Moberly, Mo., 130 miles east of Kansas City. The facility was meant to produce Sweet-O, an artificial sugar substitute developed by a company called Mamtek. The city of Moberly sold $39 million in bonds to help fund the project.
A year later, Mamtek was broke. The businessman, Bruce Cole, was charged with theft and fraud after it emerged that he’d used the money to avoid foreclosure on his California home. He pleaded guilty and was sentenced in 2014 to seven years in prison. The city defaulted on its bonds, and investors lost their money. Wang says he personally repaid his clients $2.5 million to cover their lost investment and other fees.
In 2013 the U.S. Securities and Exchange Commission issued an alert warning investors to avoid companies that guarantee returns or visas or that claim to be supported by the U.S. government. But frauds big and small continue to haunt the program. In Seattle, a Tibetan monk-turned-developer was recently sentenced to four years in federal prison for misusing money he raised from more than 280 Chinese investors. Another developer misused $200 million in EB-5 money raised from 731 investors to build a biotech center in rural Vermont, according to the SEC. The commission also says it’s stopped some scams in progress, including one in which a man raised about $160 million from more than 290 Chinese nationals for the “World’s First Zero Carbon Emission Platinum LEED certified” hotel in Chicago, then never even went so far as to apply for building permits. The investors got $147 million of their money back—and those who were still interested had no choice but to start the process over again.
The U.S. hit its annual quota of 10,000 EB-5 visas for the first time in 2014. Eighty-five percent of them went to Chinese nationals. The quota system stipulates that no country’s citizens can claim more than 7 percent of the total EB-5 visas in a year, as long as any other country wants them. But demand from outside China is small—though it’s growing—so in practice, citizens of every other country go directly to the front of the line and Chinese investors hoover up whatever’s left. The most visas ever claimed by a country other than China was 903, by South Korea in 2009.
Just before Trump took office, Homeland Security proposed rules that would raise the minimum investment for an EB-5 visa to $1.35 million and tighten the qualifications for distressed areas. The Trump administration hasn’t yet made clear whether the rules will go into effect.
Congress, for its part, continues to scrutinize the program. Primarily because of opposition by Grassley, Democratic Senator Dianne Feinstein of California, and a few others, EB-5 has been surviving on short-term extensions for the past two years. Feinstein wants to kill the program entirely.
But that appears to be a minority view. Most politicians find it hard to turn down any program that promises economic development, and even some of those who take a hard line on immigration can stomach EB-5. In July, Senator Ted Cruz spoke in San Francisco at the EB-5 & Investment Immigration Convention. The Texas Republican told attendees that EB-5 creates jobs at zero taxpayer expense. The program also meshes with the priorities Trump set in his immigration proposal to curtail family preferences while maintaining those based on skills or wealth. Trump and his son-in-law, of course, have benefited from the program themselves through the Jersey City project. Kushner says he’s recused himself from any administration decisions on EB-5.
It may be that the only losers in this system are the prospective immigrants. Over the past four years, 13 percent of EB-5 loans failed to perform, more than twice the rate of commercial mortgage-backed securities, according to Mark Elletson, managing director at Brandlin & Associates. Lance Jurich, a Los Angeles bankruptcy attorney, says he’s been hearing lately from more EB-5 investors, and they’re often in a tough spot, because their loans are typically junior to others in bankruptcy proceedings. In addition to getting their principal back, Jurich’s EB-5 clients want help proving their money created jobs while the project was still viable, so they can maintain their immigration status. “When you’re representing a financial institution like a bank, the loan officers don’t get deported if the project fails,” Jurich says.
Basic math is also working against aspiring immigrants. The number of visas available to Chinese nationals is falling—to about 7,500 in 2016—as more people from other countries apply for the program. There are now so many pending applications from China that the U.S. government estimates a Chinese investor filing now may have to wait 10 years from the time he forks over his $500,000 to when he gets approval to move to the U.S. Liu, who paid his money in late 2013, didn’t get an interview with a U.S. visa officer until this May. He flew to Guangzhou, where a visa officer at a U.S. field office, seemingly without a glance at the files Qiaowai had prepared for him, granted him, his wife, and their son conditional visas good for two years.
In September, Liu plans to visit Los Angeles and see Disneyland with his family. Then he’ll start looking for a job in the area. He’s trying not to share his unease about the uncertainty of the visa process. “I’m actually quite worried,” he says. “But I leave the pressure to myself.”
As the backlog in the U.S. builds, Chinese agents see a new kind of opportunity: They’re trying to sell clients on destinations where investor visas are easier to obtain. At the seminar in June, Qiaowai’s Song suggested investors check out Malta, which is part of the European Union. It’s pricey, but fast. And there are other options. Whyte, the consultant, isn’t convinced of the potential. “The agents say to me, ‘My clients are also considering Australia,’ ” he says. “And I say, ‘Let them go to Australia. Go ahead!’ They want to come to America.”
- Muddy Waters' Carson Block Sues Equifax For $500,000
Disgraced credit-monitoring company Equifax, which has seen its stock drop by nearly 40% since disclosing what will likely be remembered as one of the most damaging data breaches in US history, eliciting dozens of class-action lawsuits, calls for investigations by at least one state attorney general, and requests from multiple Congressional committees for more information about the exact timeline of when Equifax learned about the hack, and when it was disclosed – because somewhere between those two events, several of the company’s executives, including its CFO, cashed out of some $2 million in stock and options.
In the latest humiliating blow to a company that failed at its only job – safeguarding Americans’ sensitive personal and financial data – famed short-seller Carson Block has announced that he has decided to sue the company over its “abysmal” handling of the hack.
And here’s the kicker: He doesn’t even have an open short position against the company. In other words: There’s no profit motive here. Block – like millions of Americans – is just really, really pissed.
Here’s the Financial Times:
“Veteran short-seller Carson Block has launched a private lawsuit against Equifax, accusing the credit-reporting company of an “abysmal” handling of one of the worst cyber security incidents in history. Equifax said on September 7 that its systems were breached by criminals in a raid that went on for more than two months — an admission that has prompted a flood of regulatory inquiries, dozens of private lawsuits and a more than one-third collapse in the company’s share price. The data of up to 143m Americans was compromised, the company said, along with up to 400,000 people in the UK.
One of those was Mr Block, whose suit filed on Friday accuses Equifax of negligence in failing to safeguard and protect his personal identifying information from criminals, as well as a failure to disclose the breach in a timely fashion.”
Apparently, Block has learned that his personal information was compromised in the hack because he’s suing for personal damages. He has also accused the company of failing to disclose the breach in a timely fashion. The company’s CEO, Rick Smith, who is expected to deliver Congressional testimony early next month, has said that the company at first believed the hack was relatively minor."
According to the FT, the famed short sellers is seeking $500,000 in damages, a paltry sum considering Muddy Waters reportedly produced double-digit returns last year.
“Mr Block’s firm, Muddy Waters, has no short position that would benefit from a fall in the stock. In the suit, filed in the Northern District of California, San Francisco division, he seeks damages of at least $500,000 for the “stress, nuisance and annoyance” of dealing with issues stemming from the breach.
The suit notes that Equifax’s business revolves around being a “secure storehouse” for data and providing a clear financial profile of consumers that lenders and other businesses can rely on. According to its own description, Equifax organises, assimilates and analyses data on more than 820m consumers and more than 91m businesses worldwide.
Equifax could not be reached for comment at the time of publication.”
As the FT explains, hackers gained access to the company’s systems by exploiting a vulnerability in Apache Struts, a popular open-source framework for developing web applications in the Java programming language. On Friday, Equifax said that it had patched the hole on July 30, one day after it had detected strange activity on its servers. But cybersecurity experts note that the fix had been available since March, when the Apache Foundation put out an update which had been widely disseminated in tech circles. In short, the company’s cybersecurity experts committed an unforced error by neglecting to invest the meager resources required to patch the fix.
Amid the firestorm of controversy that has engulfed the company in the aftermath of the hacking disclosure, Equifax has actively tried to cover up the fact that Susan Mauldin, Equifax’s chief information security officer, and the person who was responsible for keeping the highly confidential and secret information of over 100 million Americans, has zero security or technology credentials…in fact, she was a music major at the University of Georgia.
Smith, Mauldin and nine other executives are named in Block’s lawsuit. Mauldin, Equifax said, would retire immediately from the company on Friday, along with David Webb, chief information officer.
According to the suit, Equifax should’ve been more careful following two big breaches in 2016. In one of those, 430,000 names and other vital pieces of information were lost as a result of the company using “alarmingly poor” security for the generation of PINs from the last four digits of a social-security number and the four-digit year of birth.
Of course, with North Dakota Democrat Heidi Heitkamp calling for a criminal investigation into securities fraud, Block’s lawsuit for a meager half a million is probably the least of the company’s worries…
- "Lies, Lies, & OMFG More Lies!"
Authored by Jim Quinn via The Burning Platform blog,
“There are three types of lies — lies, damn lies, and statistics.” – Benjamin Disraeli
Every month the government apparatchiks at the Bureau of Lies and Scams (BLS) dutifully announces inflation is still running below 2%. Janet Yellen then gives a speech where she notes her concern inflation is too low and she needs to keep interest rates near zero to save humanity from the scourge of too low inflation. I don’t know how I could survive without 2% inflation reducing my purchasing power.
This week they reported year over year inflation of 1.9%. Just right to keep Janet from raising rates and keeping the stock market on track for new record highs. According to our beloved bureaucrats, after they have sliced, diced, massaged and manipulated the data, you’ve experienced annual inflation of 2.1% since 2000. If you believe that, I’ve got a great real estate deal for you in North Korea on the border with South Korea.
“Lies sound like facts to those who’ve been conditioned to mis-recognize the truth.” ? DaShanne Stokes
Ignore that silly Shiller PE ratio far surpassing 1929 and 2007 levels. Ignore every historically accurate valuation method showing the stock market 70% to 129% overvalued. Wall Street shysters like Jamie Dimon, faux financial analysts, corporate media talking heads and even Donald Trump tell you this time is different. Tax cuts, amnesty for illegals, more wars, and eliminating the debt ceiling will surely spur massive economic growth. Trillion dollar deficits are always bullish. Making America Great with More Debt should drive the stock market to 30,000 in no time.
All is well. Real median household income just surpassed the level achieved in 1999. Think about that for a second. It took seventeen years for the average American family to get back to a household income of $59,000. The $59,000 of household income in 2017 doesn’t quite go as far as it did in 1999, with even BLS manipulated inflation showing an 87% increase in medical costs, 80% increase in energy costs, 51% increase in food costs, 53% increase in housing costs, and a 115% increase in college education. And of course the BLS changed their methodology, boosting household income by $1,700 in 2013. So, in reality it is still below 1999 levels.
When you consider 50% of all households make less than $59,000, have not benefited one iota from the Fed/Wall Street debt engineered stock bull market, have less than $1,000 in savings, and less than $50,000 of retirement savings, you realize your Deep State masters must propagandize economic data and manipulate inflation and unemployment figures to keep the masses confused, deluded, and misinformed. The Big Lie is their strategy of choice.
The lies built into the politically motivated CPI figure are designed to screw senior citizens, bond investors, and average hard working Americans who depend upon annual salary increases to keep their heads above water. Corporations are able to point to the low levels of CPI as the reason they don’t need to provide higher salary increases. The government can get away with providing little or no Social Security increases to senior citizens by purposely under-reporting inflation based upon academic theories put forth by captured Ivy League pinheads paid off by the Deep State.
The chart below provides the government reported cumulative increases in key categories since 2000. Not only does the government purposely under-report the increases in these costs, they also purposely under-weight the significance of particular categories in order to reduce the reported level of inflation. Some of these categories show significant increases, but they are far lower than what average Americans are actually experiencing in the real world.
One of the outrageous examples of how the government uses academic gibberish about product improvements to drastically under-report CPI is how they report new vehicle inflation. The average price of a new car in 2000 was $22,000. Today, the average price is $34,500. That’s a 57% increase. The BLS bullshit artists have the gall to report new vehicle inflation of a whopping 2% since 2000.
They have “adjusted” away 55% of the actual increase by saying airbags and other unnecessary technological baubles improved automobiles to such an extent, prices didn’t really go up. What a fucking joke. Having your ass warmed with the push of a button didn’t put the extra $12,500 in your bank account to pay for that car. And new vehicles account for 3.6% of the CPI calculation, while health insurance accounts for 1% of the weighting. Yeah, that reflects reality.
Another outrageous example of under-reporting inflation is in the highest weighted category of housing. It is supposed to reflect the cost of rent and home ownership. The owners equivalent rent calculation is purposely opaque in order to suppress the true cost increase. Median home prices were $165,000 in 2000 and are currently $317,000, a 92% increase. The average rent of $475 in 2000 has risen to $910 today, also a 92% increase. So it makes total sense for the BLS drones to report a 53% increase in housing since 2000. I’m sure their academic model adjusted the true increase downward by 39% due to some obscure algorithm created by a Princeton economics professor.
Medical care advancing by 87% since 2000 sounds substantial, but that only equates to annual inflation of 3.5%. I’d love to find anyone in this country who has only seen their medical costs rise by 3.5% per year. The blatantly shameful falsification of medical inflation is evident to anyone living through the current Obamacare nightmare. According to these BLS prevaricators, health insurance has only risen by 21% since the passage of the Obamacare abortion bill. That lie is beyond comprehension as anyone living in the real world has likely experienced insurance premium increases exceeding 100% since 2009.
I work for the largest employer in Philadelphia, with the most leverage in negotiating insurance premiums with the health insurance complex. I also have tracked my expenditures by category since the 1990’s with Quicken. I know exactly what my medical costs and health insurance costs were in 2009 and what they are today. Let’s do a reality check on the BLS inflation figures of 26% for medical services and 21% for health insurance premiums.
Back in 2009 we had no individual or family deductibles, no co-pays for lab work, and low co-pays for doctor visits. Today, with $1,500 individual deductibles and co-pays 70% higher, our annual medical expenses are 140% higher than they were in 2009, with one less person in the house. That’s slightly more than the BLS fraudulent figure of 26%. Our annual health insurance premiums aren’t 21% higher than 2009. They are 90% higher. And I work for an employer that has negotiating leverage. Many Americans are experiencing 200% to 400% increases. This is the real world, not some excel spreadsheet model world created by academics, politicians and bureaucrats.
Could the BLS be as incompetent in capturing medical inflation as they appear or are they massively under-reporting the true inflation and the weighting for the average American family on purpose? I would contend it is purposeful and directed by those in power as a last ditch effort to keep the masses from revolting and hanging them from the nearest lamppost. The Federal Reserve and their Deep State co-conspirators must massively understate true inflation because reporting the truth would require interest rates to be raised, Social Security payments to be increased, and wages to be elevated – blowing a gaping hole in the federal budget and initiating a stock, bond and housing market collapse.
Those in power know their decades of propaganda and social engineering in public schools have dumbed down the masses to such an extent not one in ten could even tell you what CPI stands for, let alone how it is measured. Any critical thinking intelligent person aware of their daily costs knows their true annual inflation rate isn’t 1.9%. It exceeds 5% and has exceeded 5% since 2000.
Anyone reading and understanding this article is a dangerous man to the government. We know they are dishonest, insane and intolerable. Our job is to spread discontent until a tipping point is reached. I don’t think we are too far away.
“The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.” ? H.L. Mencken
- Pension Storm Coming: "This Will Become One Of The Most Heated Battles Of My Lifetime"
By John Mauldin from Mauldin economics
This time is different are the four most dangerous words any economist or money manager can utter. We learn new things and invent new technologies. Players come and go. But in the big picture, this time is usually not fundamentally different, because fallible humans are still in charge. (Ken Rogoff and Carmen Reinhart wrote an important book called This Time Is Different on the 260-odd times that governments have defaulted on their debts; and on each occasion, up until the moment of collapse, investors kept telling themselves “This time is different.” It never was.)
Nevertheless, I uttered those four words in last week’s letter. I stand by them, too. In the next 20 years, we’re going to see changes that humanity has never seen before, and in some cases never even imagined, and we’re going to have to change. I truly believe this. We have unleashed economic and technological forces we can observe but not entirely control.
I will defend this bold claim at greater length in my forthcoming book, The Age of Transformation.
Today we will zero in on one of those forces, which last week I called “the bubble in government promises,” which I think is arguably the biggest bubble in human history. Elected officials at all levels have promised workers they will receive pension benefits without taking the hard steps necessary to deliver on those promises. This situation will end badly and hurt many people. Unfortunately, massive snafus like this rarely hurt the politicians who made those overly optimistic promises, often years ago.
Earlier this year I called the pension mess “The Crisis We Can’t Muddle Through.” Reflecting since then, I think I was too optimistic. Simply waiting for the floodwaters to drop down to muddle-through depth won’t be enough. We face an entire new ocean, deeper and wider than we can ever cross unaided.
Storms from Nowhere?
This year marks the first time on record that two Category 4 hurricanes have struck the US mainland in the same year. Worse, Harvey and Irma landed directly on some of our most valuable and vulnerable coastal areas. So now, in addition to all the problems that existed a month ago, the US economy has to absorb cleanup and rebuilding costs for large parts of Texas and Florida, as well as our Puerto Rico and US Virgin Islands territories.
Now then, people who live in coastal areas know full well that hurricanes happen – they know the risk, just not which hurricane season might launch a devastating storm in their direction. In a note to me about Harvey, fellow Rice University graduate Gary Haubold (1980) noted just how flawed the city’s assumptions actually were regarding what constitutes adequate preparedness. He cited this excerpt from a recent Los Angeles Times article:
The storm was unprecedented, but the city has been deceiving itself for decades about its vulnerability to flooding, said Robert Bea, a member of the National Academy of Engineering and UC Berkeley emeritus civil engineering professor who has studied hurricane risks along the Gulf Coast.
The city’s flood system is supposed to protect the public from a 100-year storm, but Bea calls that “a 100-year lie” because it is based on a rainfall total of 13 inches in 24 hours.
“That has happened more than eight times in the last 27 years,” Bea said. “It is wrong on two counts. It isn’t accurate about the past risk and it doesn’t reflect what will happen in the next 100 years.” (Source)
Anybody who lives in Houston can tell you that 13 inches in 24 hours is not all that unusual. But how do Robert Bea’s points apply to today’s topic, public pensions? Both pension plan shortfalls and hurricanes are known risks for which state and local governments must prepare. And in both instances, too much optimism and too little preparation ultimately have devastating results.
Admittedly, public pension liabilities don’t come out of nowhere the way hurricanes seem to – we know exactly where they will strike. In many cases, we know approximately when they’ll strike, too. Yet we still let our elected officials make impossible-to-fulfill promises on our behalf. The rest of us are not so different from those who built beach homes and didn’t buy hurricane or storm surge insurance. We just face a different kind of storm.
Worse, we let our government officials use predictions about future returns that are every bit as unrealistic as calling a 13-inch rain in Houston a 100-year event. And while some of us have called pension officials out, they just keep telling lies – and probably will until we reach the breaking point.
Puerto Rico is a good example. The Commonwealth was already in deep debt before Irma blew in – $123 billion worth of it. There’s simply no way the island can repay such a massive debt. Creditors can fight in the courts, but in the end you can’t squeeze money out of plantains or pineapples. Not enough money, anyway. Now add Irma damages, and the creditors have even less hope of recovering their principal, let alone interest.
Puerto Rico is presently in a new form of bankruptcy that Congress authorized last year. Court proceedings will probably drag on for years, but the final outcome isn’t in doubt. Creditors will get some scraps – at best perhaps $0.30 on the dollar, my sources say – and then move on. We’re going to find out how strong those credit insurance guarantees really are.
“That’s just Puerto Rico,” you may say if you’re a US citizen in one of the 50 states. Be very careful. Your state is probably not so much better off. In 10 years, your state may well be in the same place where Puerto Rico is now. I’d say the odds are better than even.
Are your elected leaders doing anything about this huge issue, or even talking about it? Probably not.
As it stands now, states can’t declare bankruptcy in federal courts. Letting them do so would raises thorny constitutional issues. So maybe we’ll have to call it something else, but it’s going to end the same way. Your state’s public-sector retirees will not get what they were promised, and they won’t take the outcome kindly.
Blood from Turnips
Public sector bankruptcy, up to and including state-level bankruptcy, is fundamentally different from corporate bankruptcy in ways that many people haven’t considered. The pension crisis will likely expose those differences as deadly to creditors and retirees.
Say a corporation goes bankrupt. A court will take all its assets and decide how to divvy them up. The assets are easy to identify: buildings, land, intellectual property, cash, etc. The parties may argue over their value, but everyone knows what the assets are. They won’t walk away.
Not so in a public bankruptcy. The primary asset of a city, county, or state is future tax revenue from households and businesses within its boundaries. The taxpayers can walk away. Even without moving, they can bypass sales taxes by shopping elsewhere. If property taxes are too high, they can sell and move. When they take a loss on the sale, the new owner will have established a property value that yields the city far less revenue than it used to receive.
Cities and states don’t have the ability to shed their pension liabilities. They are stuck with them, even as population and property values change.
We may soon see an example of this in Houston. Here in Texas, our property taxes are very high because we have no income tax. Your tax is a percentage of your home’s taxable value. So people argue to appraisal boards that their homes are falling apart and not worth anything like the appraised value. (Then they argue the opposite when it’s time to sell the home.)
About 200 entities in Harris County can charge taxes. That includes governments from Houston to Baytown to Hedwig Village, plus 20 independent school districts.
There’s a hospital district, port authority, several college districts, the flood control district, a multitude of utility districts, and the Harris County Department of Education. Some homes may fall within 10 or more jurisdictions.
What about those thousands of flooded homes in and around Houston; how much are they worth? Right now, I’d say their value is zero in many cases. Maybe they will have some value if it’s possible to rebuild, but at the very least they ought to receive a sharp discount from the tax collector this year.
Considering how many destroyed or unlivable properties there are all over South Texas, I suspect cities and counties will lose billions in revenue even as their expenses rise. That’s a small version of what I expect as city and state pension systems all over the US finally face reality.
Here in Dallas I pay about 2.7% in property taxes. When I bought my home over four years ago, I checked our local pension and was told we were 100% funded. I even mentioned in my letter that I was rather surprised. Turns out they lied. Now, realistic assessments suggest they will have to double the municipal tax rate (yes, I said double) to be able to fund fire and police pension funds. Not a terribly popular thing to do. At some point, look for taxpayers to desert the most-indebted cities and states. Then what? I don’t know. Every solution I can imagine is ugly.
Promises from Air
Most public pension plans are not fully funded. Earlier this year in “Disappearing Pensions” I shared this chart from my good friend Danielle DiMartino Booth:
Total unfunded liabilities in state and local pensions have roughly quintupled in the last decade. You read that right – not doubled, tripled or quadrupled: quintupled. That’s nice when it happens on a slot machine, not so nice when it’s money you owe.
You will also notice in the chart that much of that change happened in 2008. Why was that? That’s when the Fed took interest rates down to nearly zero, meaning it suddenly took more cash to fund future payments. Also, some strapped localities conserved cash by promising public workers more generous pension benefits in lieu of pay raises.
According to a 2014 Pew study, only 15 states follow policies that have funded at least 100% of their pension needs. And that estimate is based on the aggressive assumptions of pension funds that they will get their predicted rate of returns (the “discount rate”).
Kentucky, for instance, has unfunded pension liabilities of $40 billion or more. This month the state budget director notified local governments that pension costs could jump 50-60% next year. That’s due to a proposed reduction in the system’s assumed rate of return from 7.5% to 6.25% – a step in the right direction but not nearly enough.
Think about this as an investor. Do you know a way to guarantee yourself even 6.25% average annual returns for the next 10–20 years? Of you don’t. Yes, some strategies have a good shot at doing it, but there’s no guarantee.
And if you believe Jeremy Grantham’s seven-year forecasts (I do: His 2009 growth forecast was spot on), then those pension funds have very little hope of getting their average 7% predicted rate of return, at least for the next seven years.
Now, here is the truth about pension liabilities. Let’s assume you have $1 billion in funding today. If you assume a 7% compound return – about the average for most pension funds – then that means in 30 years that $1 million will have grown to $8 billion (approximately). Now, what if it’s a 4% return? Using the Rule of 72, the $1 billion grows to around $3.5 billion, or less than half the future assets in 30 years if you assume 7%.
Remember that every dollar that is not funded today means that somewhere between four dollars and eight dollars will not be there in 30 years when somebody who is on a pension is expecting to get it. Worse, without proper funding, as the fund starts going negative, the funding ratio actually gets worse, sending it into a death spiral. The only way to bring it out of the spiral is with huge cuts to other needed services or with massive tax cuts to pension benefits.
The State of Kentucky’s unusually frank report regarding the state’s public pension liability sums up that state’s plight in one chart:
The news for Kentucky retirees is quite dire, especially considering what returns on investments are realistically likely to be. But there’s a make or break point somewhere. What if pension plans must either hit that 6% average annual return for 2018–2028 or declare bankruptcy and lose it all?
That’s a much greater problem, and it’s a rough equivalent of what state pension trustees have to do. Failing to generate the target returns doesn’t reduce the liability. It just means taxpayers must make up the difference.
But wait, it gets worse. The graph we showed earlier stated that unfunded pension liabilities for state and local governments was $2 trillion. But that assumes an average 7% compound return. What if we assume 4% compound returns? Now the admitted unfunded pension liability is $4 trillion. But what if we have a recession and the stock market goes down by the past average of more than 40%? Now you have an unfunded liability in the range of $7–8 trillion.
We throw the words a trillion dollars around, not realizing how much that actually is. Combined state and local revenues for the US total around $2.6 trillion. Following the next recession (whenever that is), the unfunded pension liabilities for state and local governments will be roughly three times the revenue they are collecting today, and that’s before a recession reduces their revenues. Can you see the taxpayer stuck between a rock and a hard place? Two immovable objects meeting? The math just doesn’t work.
Pension trustees don’t face personal liability. They’re literally playing with someone else’s money. Some try very hard to be realistic and cautious. Others don’t. But even the most diligent can’t control when the next recession comes, or when the stock market will crash, leaving a gaping hole in their assets while liabilities keep right on rising.
I have had meetings with trustees of various government pensions. Many of them want to assume a more realistic discount rate, but the politicians in their state literally refuse to allow them to assume a reasonable discount rate, because owning up to reality would require them to increase their current pension funding dramatically. So they kick the can down the road.
Intentionally or not, state and local officials all over the US made pension promises that future officials can’t possibly keep. Many will be out of office when the bill comes due, protected from liability by sovereign immunity.
We are starting to see cities filing for bankruptcy. That small ripple will be a tsunami within 7–10 years.
But wait, it gets still worse. (Do you see a trend here?) Many state and local governments have actually 100% funded their pension plans. Some states and local governments have even overfunded them – assuming they get their projected returns. What that really means is that the unfunded liabilities are more concentrated, and they show up in unlikely places. You think Texas is doing well? Look at some of our cities and weep. Look, too, at other seemingly semi-prosperous cities all over the country. Do you think the suburbs of Dallas will want to see their taxes increased to help out the city? If you do, I may have a bridge to sell you – unless you would rather have oceanfront properties in Arizona.
This issue is going to set neighbor against neighbor and retirees against taxpayers. It will become one of the most heated battles of my lifetime. It will make the Trump-Clinton campaigns look like a school kids’ tiddlywinks smackdown.
I was heavily involved in politics at both the national and local levels in the 80s and 90s and much of the 2000s. Trust me, local politics is far nastier and more vicious. And there is nothing more local than police and firefighters and teachers seeing their pensions cut because the money isn’t there. Tax increases of up to 100% are going to become commonplace. But even these new revenues won’t be enough… because we will be acting with too little, too late.
This is the core problem. Our political system gives some people incentives to make unrealistic promises while also absolving them of liability for doing so. It also places the costs of those must-break promises on innocent parties, i.e. the retirees who did their jobs and rightly expect the compensation they were told they would receive.
So at its heart the pension crisis is really not a financial problem. It’s a moral and ethical problem of making and breaking promises that profoundly impact people’s lives. Our culture puts a high value on integrity: doing what you said you would do.
We take a job because the compensation package includes x, y and z. Then someone says no, we can’t give you z, so quit and go elsewhere.
The pension problem is going to get worse as more and more retirees get stuck with broken promises, and as taxpayers get handed higher and higher bills. These are irreconcilable demands in many cases. It’s not possible to keep contradictory promises.
What’s the endgame? I think much of the US will end up like Puerto Rico. But the hardship map will be more random than you can possibly imagine. Some sort of authority – whether bankruptcy courts or something else – will have to seize pension assets and figure out who gets hurt and how much. Some courts in some states will require taxes to go up. But courts don’t have taxing authority, so they can only require cities to pay, but with what money and from whom?
In many states we literally don’t have the laws and courts in place with authority to deal with this. And just try passing a law that allows for states or cities to file bankruptcy in order to get out of their pension obligations.
The struggle will get ugly, and innocent people on both sides will be hurt. We hear stories about retired police chiefs and teachers with lifetime six-digit pensions and so on. Those aberrations (if you look at the national salary picture) are a problem, but the more distressing cases are the firefighters, teachers, police officers, or humble civil servants who served the public for decades, never making much money but looking forward to a somewhat comfortable retirement. How do you tell these people that they can’t have a livable pension? We will see many human tragedies.
On the other side will be homeowners and small business owners, already struggling in a changing economy and then being told their taxes will double. This may actually happen in Dallas; and if it does, we won’t be alone for long.
The website Pension Tsunami posts scores of articles, written all across America, about pension problems. We find out today that in places like New York and Chicago and Cook County, pension funds have more retirees collecting than workers paying into the fund. There are more retired cops in New York and Chicago than there are working cops. And the numbers of retirees just keep growing. On an individual basis, it is smart for the Chicago police officer to retire as early possible, locking in benefits, go on to another job that offers more retirement benefits, and round out a career by working at least three years at a private job that qualifies the officer for Social Security. Many police and fire pensions are based on the last three years of income; so in the last three years before they retire, these diligent public servants work enormous amounts of overtime, increasing their annual pay and thus their final pension payouts.
As I’ve said, this is the crisis we can’t muddle through. While the federal government (and I realize this is economic heresy) can print money if it has to, state and local governments can’t print. They actually have to tax to pay their bills. It’s the law. It’s also an arrangement with real potential to cause political and social upheaval that Americans have not seen in decades. The storm is only beginning. Think Hurricane Harvey on steroids, but all over America. Of all the intractable economic problems I see in the future (and I have a vivid imagination), this is the most daunting.
- Beijing Start-Up Now Offers Sex Dolls For Rent
It's official: China's sharing economy has reached its peak.
After shared workout pods, stools luxury cars, and, of course, bicycles, Shanghaist reports that a Beijing-based startup now has come up with a "mesmerizingly grotesque" idea: what if people could rent sex dolls through an app and return them after a period of time so that other silicone slammers could take advantage of the very same product?
And no, sadly this is not a joke.
The Chinese app, which is called Ta Qu, or "Touch" in English, was launched in 2015 as a platform for discussing issues about sex and sexuality. Over the past two years, it has pivoted or "(d)evolved" into a sex doll sharing app, which is now being tested in Beijing. The Global Times reports that daily rentals cost 298 yuan, or less than $50, while users of the app can rent dolls for a week for the price of 1,298 yuan, after making an 8,000 yuan deposit.
The dolls then get delivered right to the user's doorstep.
According to the Chinese outlet, there are currently five models to choose from: "Greek bikini model," "US Wonder Woman," "Korean housewife," "Russian teenager" and "Hong Kong car race cheerleader." Users can customize the dolls to their liking by picking out hair and eye color, as well as their outfits.
Here is what $50 per day rents you:
For those asking the obvious question, the company states that it also has hygiene on its mind, as explained by their official policy.
"The dolls' lower parts are changed for every customer," reads the app. "Please remove the lower parts before returning. After the lower parts are cleaned, the doll can be used repeatedly."
The sex rental-sharing app is currently trying to make a name for itself in China's booming adult toy market. On Weibo, where the company has more than 300,000 followers, it announced it would be giving out 20,000 free condoms as a way of promotion. It has also established several "pop-up" locations in Beijing to inform residents about their services, while even allowing people to pose for photos with their dolls while riding on the city's subway.
Hoping to capitalize on China's infamous gender imbalance, as well as its online gaming culture which breeds hordes of lonely young men, it remains to be seen whether Ta Qu will actually be able to translate the sharing economy model to sex dolls. But hey, at least it's a better idea than shared umbrellas.
- China Orders No Market Turbulence Ahead Of Party Congress
The most important event in China in five years is about to take place, and Beijing isn’t taking any chances.
Ahead of the Communist Party’s twice-a-decade congress – an event so massive that according to Bloomberg “nothing escapes its pull” – which is slated to start on October 18 in Beijing, regulators have made it clear to the nation’s top brokers, bankers and financiers that they don’t want to see any major turbulence in markets.
In a repeat of the fiasco that followed the bursting of China’s equity bubble in the summer of 2015 when Beijing effectively nationalized the stock market, and went so far as to throw prominent hedge fund managers and assorted “speculators” in prison, the China Securities Regulatory Commission has ordered local brokerages to “mitigate risks” and ensure stable markets before and during the Communist Party’s leadership congress next month, according to Bloomberg. Additionally, to leave virtually nothing to chance – and to have ready scapegoats in case someone does in fact sell – the CSRC also banned brokerage bosses from taking holidays or leaving the country from Oct. 11 until the congress ends.
Brokerage bosses were told to avoid travel of any kind from Oct. 11 until the congress ends, including business trips.
Luckily for them, China’s national day holidays are coming up in the first week of October. Local markets will be shut for an entire week, providing plenty of time to recharge for the congress.
Since the congress, which is expected to replace about half of China’s top leadership, is of paramount importance to President Xi Jinping who will use it as a foundation to cement his influence into the next decade, nothing is allowed to spoil the optics of supreme control at this critical moment.
And while China routinely takes steps to reduce market swings during key political gatherings, the travel ban on brokerage chiefs illustrates how seriously regulators are taking next month’s meeting, according to Bloomberg.
Still, the news will hardly come as a surprise to most market participants, and explains why Chinese markets have already rallied significantly this year amid expectations of government support, while equity volatility has tumbled to the lowest level in over 2 decades. The Shanghai Composite Index touched a 20-month high on Tuesday, while the yuan has strengthened 6.4% against the dollar this year.
In addition to the travel ban, China’s regulator told brokerages and futures companies to check for risks in their liquidity, operations and financial health, effectively warning that it does not want to see any selling. The regulator also ordered firms to assess their information system security and credit risks and report their findings before October, Bloomberg’s sources added.
Of course, with so much focus on how effective China will be at keeping its equity markets growing at a steady, controlled pace and avoiding turbulence ahead of the critical summit, anyone hoping to make a political statement against the Xi regime – whether domestically or offshore – could do so simply by causing even a modest market correction sometime in mid-October, especially since even the smallest spike in volatility could lead to a panicked selloff in light of such an unexpected move.
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