- Kyle Bass Was Right: Texas To Create Own Bullion Depository, Repatriate $1 Billion Of Gold
Most investors have heard Kyle Bass' rather eloquent phrase, "buying gold is just buying a put against the idiocy of the political cycle. It's that simple." However, what few may remember was his warnings in 2011, suggesting the University of Texas Investment Management Co. take delivery of its gold – as opposed to trusting it in the 'safe' hands of COMEX massively levered paper warehouse. Now, as The Star Telegram reports, Texas is going one step further with State Rep. Giovanni Capriglione asking the Legislature to create a Texas Bullion Depository, where Texas could store its gold. The goal is to create a secure facility that would allow the state to bring home more than $1 billion in gold bars that are owned by UTIMCO and are now housed at HSBC in New York.
From 2011:
"The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board."
The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.
“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”
And now, as The Star Telegram reports, UTMICO would prefer a Texas depository than a New York one…
“We are not talking Fort Knox,” Capriglione said. “But when I first announced this, I got so many emails and phone calls from people literally all over the world who said they want to store their gold … in a Texas depository.
“People have this image of Texas as big and powerful … so for a lot of people, this is exactly where they would want to go with their gold.” And other precious metals.
House Bill 483 would let the Texas comptroller’s office establish the state’s first bullion depository at a location yet to be determined.
Capriglione’s changes to the bill must be approved by Monday, the last day of the 84th legislative session.
The goal is to create a secure facility that would allow the state to bring home more than $1 billion in gold bars that are owned by the University of Texas Investment Management Co. and are now housed at the Hong Kong and Shanghai Bank in New York.
“The depository would be an agency of the state located in the Office of the Comptroller, directed by an administrator appointed by the Comptroller with the advice and consent of the Governor, Lieutenant Governor and Senate,” according to a fiscal analysis of the bill.
The depository could also hold deposits of gold and other precious metals from financial institutions, cities, school districts, businesses, individuals and countries.
“This will allow for bullion to be deposited here, as well as any other investments that … any state agencies, businesses or individuals have,” Capriglione said.
Storage fees will be charged, perhaps generating revenue for the state. For instance, Texas pays about $1 million a year to store its gold in New York, Capriglione said.
A fiscal note attached to the bill states that the depository will have “an indeterminate fiscal impact” on the state, depending on the number of transactions and fees, but says it’s too early to determine the extent.
“It’s unusual,” said Cal Jillson, a political science professor at Southern Methodist University. “So far as I know, there are no states with bullion depositories.”
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Perhasps the fact that Texas doesn't trust New York suggests the unitedness of the states is starting to quake and surely "the idiocy of the political cycle" has only got worse…
"buying gold is just buying a put against the idiocy of the political cycle. It's that simple."
This is Capriglione’s second attempt to create the depository.
Two years ago, then-Gov. Rick Perry was on board, saying work was moving forward on “bringing gold that belongs to the state of Texas back into the state.”
“If we own it,” Perry has said, “I will suggest to you that that’s not someone else’s determination whether we can take possession of it back or not.”
In 2013, the Legislature ended before Capriglione could win approval of the bill.
Jillson said the bill’s sentiment is consistent with the anti-federal approach that conservative lawmakers have taken this year. “It’s in line with the idea that Texas is exceptional and needs to keep a distance from the federal government that respects individual states’ depositories,” he said.
Sounds like Texas – just like Austria, Germany, Russia, and China to name just four – no longer trusts the status quo.
- The Delusional World Of Imperial Washington
Submitted by Michael Klare via TomDispatch.com,
Think of this as a little imperial folly update — and here's the backstory.
In the years after invading Iraq and disbanding Saddam Hussein’s military, the U.S. sunk about $25 billion into “standing up” a new Iraqi army. By June 2014, however, that army, filled with at least 50,000 “ghost soldiers,” was only standing in the imaginations of its generals and perhaps Washington. When relatively small numbers of Islamic State (IS) militants swept into northern Iraq, it collapsed, abandoning four cities — including Mosul, the country’s second largest — and leaving behind enormous stores of U.S. weaponry, ranging from tanks and Humvees to artillery and rifles. In essence, the U.S. was now standing up its future enemy in a style to which it was unaccustomed and, unlike the imploded Iraqi military, the forces of the Islamic State proved quite capable of using that weaponry without a foreign trainer or adviser in sight.
In response, the Obama administration dispatched thousands of new advisers and trainers and began shipping in piles of new weaponry to re-equip the Iraqi army. It also filled Iraqi skies with U.S. planes armed with their own munitions to destroy, among other things, some of that captured U.S. weaponry. Then it set to work standing up a smaller version of the Iraqi army. Now, skip nearly a year ahead and on a somewhat lesser scale the whole process has just happened again. Less than two weeks ago, Islamic State militants took Ramadi, the capital of Anbar Province. Iraqi army units, including the elite American-trained Golden Division, broke and fled, leaving behind — you’ll undoubtedly be shocked to hear — yet another huge cache of weaponry and equipment, including tanks, more than 100 Humvees and other vehicles, artillery, and so on.
The Obama administration reacted in a thoroughly novel way: it immediately began shipping in new stocks of weaponry, starting with 1,000 antitank weapons, so that the reconstituted Iraqi military could take out future “massive suicide vehicle bombs” (some of which, assumedly, will be those captured vehicles from Ramadi). Meanwhile, American planes began roaming the skies over that city, trying to destroy some of the equipment IS militants had captured.
Notice anything repetitive in all this — other than another a bonanza for U.S. weapons makers? Logically, it would prove less expensive for the Obama administration to simply arm the Islamic State directly before sending in the air strikes. In any case, what a microcosm of U.S. imperial hubris and folly in the twenty-first century all this training and equipping of the Iraqi military has proved to be. Start with the post-invasion decision of the Bush administration to totally disband Saddam’s army and instantly eject hundreds of thousands of unemployed Sunni military men and a full officer corps into the chaos of the “new” Iraq and you have an instant formula for creating a Sunni resistance movement. Then, add in a little extra “training” at Camp Bucca, a U.S. military prison in Iraq, for key unemployed officers, and — Voilà! — you’ve helped set up the petri dish in which the leadership of the Islamic State movement will grow. Multiply such stunning tactical finesse many times over globally and, as TomDispatch regular Michael Klare makes clear today, you have what might be called the folly of the “sole superpower” writ large.
Delusionary Thinking in Washington
The Desperate Plight of a Declining Superpower
Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?
This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”
Imperial Overstretch Hits Washington
Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”
H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity — given few nations in history — to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”
For Bush, of course, “extending the peace” would turn out to mean invading Iraq and igniting a devastating regional conflagration that only continues to grow and spread to this day. Even after it began, he did not doubt — nor (despite the reputed wisdom offered by hindsight) does he today — that this was the price that had to be paid for the U.S. to retain its vaunted status as the world’s sole superpower.
The problem, as many mainstream observers now acknowledge, is that such a strategy aimed at perpetuating U.S. global supremacy at all costs was always destined to result in what Yale historian Paul Kennedy, in his classic book The Rise and Fall of the Great Powers, unforgettably termed “imperial overstretch.” As he presciently wrote in that 1987 study, it would arise from a situation in which “the sum total of the United States’ global interests and obligations is… far larger than the country’s power to defend all of them simultaneously.”
Indeed, Washington finds itself in exactly that dilemma today. What’s curious, however, is just how quickly such overstretch engulfed a country that, barely a decade ago, was being hailed as the planet’s first “hyperpower,” a status even more exalted than superpower. But that was before George W.’s miscalculation in Iraq and other missteps left the U.S. to face a war-ravaged Middle East with an exhausted military and a depleted treasury. At the same time, major and regional powers like China, India, Russia, Iran, Saudi Arabia, and Turkey have been building up their economic and military capabilities and, recognizing the weakness that accompanies imperial overstretch, are beginning to challenge U.S. dominance in many areas of the globe. The Obama administration has been trying, in one fashion or another, to respond in all of those areas — among them Ukraine, Syria, Iraq, Yemen, and the South China Sea — but without, it turns out, the capacity to prevail in any of them.
Nonetheless, despite a range of setbacks, no one in Washington’s power elite — Senators Rand Paul and Bernie Sanders being the exceptions that prove the rule — seems to have the slightest urge to abandon the role of sole superpower or even to back off it in any significant way. President Obama, who is clearly all too aware of the country’s strategic limitations, has been typical in his unwillingness to retreat from such a supremacist vision. “The United States is and remains the one indispensable nation,” he told graduating cadets at West Point in May 2014. “That has been true for the century past and it will be true for the century to come.”
How, then, to reconcile the reality of superpower overreach and decline with an unbending commitment to global supremacy?
The first of two approaches to this conundrum in Washington might be thought of as a high-wire circus act. It involves the constant juggling of America’s capabilities and commitments, with its limited resources (largely of a military nature) being rushed relatively fruitlessly from one place to another in response to unfolding crises, even as attempts are made to avoid yet more and deeper entanglements. This, in practice, has been the strategy pursued by the current administration. Call it the Obama Doctrine.
After concluding, for instance, that China had taken advantage of U.S. entanglement in Iraq and Afghanistan to advance its own strategic interests in Southeast Asia, Obama and his top advisers decided to downgrade the U.S. presence in the Middle East and free up resources for a more robust one in the western Pacific. Announcing this shift in 2011 — it would first be called a “pivot to Asia” and then a “rebalancing” there — the president made no secret of the juggling act involved.
“After a decade in which we fought two wars that cost us dearly, in blood and treasure, the United States is turning our attention to the vast potential of the Asia Pacific region,” he told members of the Australian Parliament that November. “As we end today’s wars, I have directed my national security team to make our presence and mission in the Asia Pacific a top priority. As a result, reductions in U.S. defense spending will not — I repeat, will not — come at the expense of the Asia Pacific.”
Then, of course, the new Islamic State launched its offensive in Iraq in June 2014 and the American-trained army there collapsed with the loss of four northern cities. Videoed beheadings of American hostages followed, along with a looming threat to the U.S.-backed regime in Baghdad. Once again, President Obama found himself pivoting — this time sending thousands of U.S. military advisers back to that country, putting American air power into its skies, and laying the groundwork for another major conflict there.
Meanwhile, Republican critics of the president, who claim he’s doing too little in a losing effort in Iraq (and Syria), have also taken him to task for not doing enough to implement the pivot to Asia. In reality, as his juggling act that satisfies no one continues in Iraq and the Pacific, he’s had a hard time finding the wherewithal to effectively confront Vladimir Putin in Ukraine, Bashar al-Assad in Syria, the Houthi rebels in Yemen, the various militias fighting for power in fragmenting Libya, and so on.
The Party of Utter Denialism
Clearly, in the face of multiplying threats, juggling has not proven to be a viable strategy. Sooner or later, the “balls” will simply go flying and the whole system will threaten to fall apart. But however risky juggling may prove, it is not nearly as dangerous as the other strategic response to superpower decline in Washington: utter denial.
For those who adhere to this outlook, it’s not America’s global stature that’s eroding, but its will — that is, its willingness to talk and act tough. If Washington were simply to speak more loudly, so this argument goes, and brandish bigger sticks, all these challenges would simply melt away. Of course, such an approach can only work if you’re prepared to back up your threats with actual force, or “hard power,” as some like to call it.
Among the most vocal of those touting this line is Senator John McCain, the chair of the Senate Armed Services Committee and a persistent critic of President Obama. “For five years, Americans have been told that ‘the tide of war is receding,’ that we can pull back from the world at little cost to our interests and values,” he typically wrote in March 2014 in a New York Times op-ed. “This has fed a perception that the United States is weak, and to people like Mr. Putin, weakness is provocative.” The only way to prevent aggressive behavior by Russia and other adversaries, he stated, is “to restore the credibility of the United States as a world leader.” This means, among other things, arming the Ukrainians and anti-Assad Syrians, bolstering the NATO presence in Eastern Europe, combating “the larger strategic challenge that Iran poses,” and playing a “more robust” role (think: more “boots” on more ground) in the war against ISIS.
Above all, of course, it means a willingness to employ military force. “When aggressive rulers or violent fanatics threaten our ideals, our interests, our allies, and us,” he declared last November, “what ultimately makes the difference… is the capability, credibility, and global reach of American hard power.”
A similar approach — in some cases even more bellicose — is being articulated by the bevy of Republican candidates now in the race for president, Rand Paul again excepted. At a recent “Freedom Summit” in the early primary state of South Carolina, the various contenders sought to out-hard-power each other. Florida Senator Marco Rubio was loudly cheered for promising to make the U.S. “the strongest military power in the world.” Wisconsin Governor Scott Walker received a standing ovation for pledging to further escalate the war on international terrorists: “I want a leader who is willing to take the fight to them before they take the fight to us.”
In this overheated environment, the 2016 presidential campaign is certain to be dominated by calls for increased military spending, a tougher stance toward Moscow and Beijing, and an expanded military presence in the Middle East. Whatever her personal views, Hillary Clinton, the presumed Democratic candidate, will be forced to demonstrate her backbone by embracing similar positions. In other words, whoever enters the Oval Office in January 2017 will be expected to wield a far bigger stick on a significantly less stable planet. As a result, despite the last decade and a half of interventionary disasters, we’re likely to see an even more interventionist foreign policy with an even greater impulse to use military force.
However initially gratifying such a stance is likely to prove for John McCain and the growing body of war hawks in Congress, it will undoubtedly prove disastrous in practice. Anyone who believes that the clock can now be turned back to 2002, when U.S. strength was at its zenith and the Iraq invasion had not yet depleted American wealth and vigor, is undoubtedly suffering from delusional thinking. China is far more powerful than it was 13 years ago, Russia has largely recovered from its post-Cold War slump, Iran has replaced the U.S. as the dominant foreign actor in Iraq, and other powers have acquired significantly greater freedom of action in an unsettled world. Under these circumstances, aggressive muscle-flexing in Washington is likely to result only in calamity or humiliation.
Time to Stop Pretending
Back, then, to our original question: What is a declining superpower supposed to do in the face of this predicament?
Anywhere but in Washington, the obvious answer would for it to stop pretending to be what it’s not. The first step in any 12-step imperial-overstretch recovery program would involve accepting the fact that American power is limited and global rule an impossible fantasy. Accepted as well would have to be this obvious reality: like it or not, the U.S. shares the planet with a coterie of other major powers — none as strong as we are, but none so weak as to be intimidated by the threat of U.S. military intervention. Having absorbed a more realistic assessment of American power, Washington would then have to focus on how exactly to cohabit with such powers — Russia, China, and Iran among them — and manage its differences with them without igniting yet more disastrous regional firestorms.
If strategic juggling and massive denial were not so embedded in the political life of this country’s “war capital,” this would not be an impossibly difficult strategy to pursue, as others have suggested. In 2010, for example, Christopher Layne of the George H.W. Bush School at Texas A&M argued in the American Conservative that the U.S. could no longer sustain its global superpower status and, “rather than having this adjustment forced upon it suddenly by a major crisis… should get ahead of the curve by shifting its position in a gradual, orderly fashion.” Layne and others have spelled out what this might entail: fewer military entanglements abroad, a diminishing urge to garrison the planet, reduced military spending, greater reliance on allies, more funds to use at home in rebuilding the crumbling infrastructure of a divided society, and a diminished military footprint in the Middle East.
But for any of this to happen, American policymakers would first have to abandon the pretense that the United States remains the sole global superpower — and that may be too bitter a pill for the present American psyche (and for the political aspirations of certain Republican candidates) to swallow. From such denialism, it’s already clear, will only come further ill-conceived military adventures abroad and, sooner or later, under far grimmer circumstances, an American reckoning with reality.
- China May Double Down On Debt Swap As ABS Issuance Stumbles
Chinese stocks jumped nearly 5% on Monday on disappointing macro data which betrayed a third consecutive monthly contraction in the manufacturing sector (remember, bad news is good news in a world hooked on central bank-dispensed monetary heroin). But a poor macro print wasn’t the only hint that more stimulus may be just around the corner, as Beijing is now reportedly set to double the local debt swap quota to CNY2 trillion.
Via Bloomberg:
China’s Ministry of Finance may set additional quota of 500b-1t yuan for local governments to swap debt into municipal bonds, according to people familiar with the matter.
Plan needs State Council approval, according to the people, who asked not to be identified because deliberations are private.
This should come as no surprise. As we’ve documented in excruciating detail, the country’s local governments are sitting on a pile of debt that amounts to around 35% of GDP. Visually, that looks like this…
That’s a problem because some of this debt was accumulated off balance sheet through LGFVs (an effort to skirt official restrictions on borrowing via shadow banking conduits) meaning in some cases yields are far higher (at roughly 7%) than they would have been otherwise. The idea is to swap this debt for muni bonds and save 300 or so bps, in what amounts to a giant refi effort. The program officially got off the ground midway through last month with Jiangsu province sold paper with maturities ranging from 3 to 10 years at yields between 2.94% and 3.41%.
The reason this program — and thus news of its expansion — serves as a catalyst for stock prices is that the PBoC allows the purchasing banks to pledge the muni bonds they buy as collateral for cash which can then be re-lent to the real economy. In other words, it amounts to a liquidity injection. China then went a step further and eased restrictions on local government funding via LGFVs (the same vehicles which got them into trouble in the first place), which effectively means that the pool of swappable debt is set to grow even larger than 35% of GDP and because any debt that’s swapped ends up creating an LTRO-eligible bond and thus a cash infusion to banks, what you end up with is a perpectual credit creation machine. This is on top of two RRR cuts YTD and three benchmark rate cuts in the last six months. In short: a lot of liquidity, which should be positive for China’s raucous equity mania.
However, something interesting is happening which harkens back to what we discussed in “China Has A Massive Debt Problem.” Recall that, in yet another effort to boost lending to the real economy, Beijing has eased restrictions on ABS issuance, the idea being that if banks can offload debt from their balance sheet, they will make still more loans. A ‘healthy’ (whatever that means in this context) securitization apparatus is essential to the entire idea of extend-and-pretend — just ask the 2006 US housing market.
What we’re seeing however, is a dramatic decline in ABS issuance YTD. Why? Well, because NPLs are on the rise and economic growth is declining swiftly, meaning bad loans are likely to increase going forward and as we outlined in “How China’s Banks Hide Trillions In Credit Risk,” the numbers are vastly understated. At the same time, the PBoC’s policy rate cuts combined with the local government debt swap effort (i.e. Chinese LTROs) mean banks don’t need to resort to ABS issuance to free up liquidity. Bloomberg has more:
Chinese lenders have cut offerings of asset-backed securities 45 percent to 43.4 billion yuan ($7 billion) this year, after a 15-fold jump in 2014, Bloomberg-compiled data show. They have reduced loans for four straight months, even as policy makers expanded the securitization quota by 500 billion yuan to free up space on their balance sheets for fresh lending.
The wariness contrasts with mounting support for asset-backed bonds among regulators, who reversed course in 2012 to allow sales they’d banned in 2009 after the products helped spark the global financial crisis. A jump in bad loans last quarter to the worst since 2008 amid the weakest economy in more than two decades has made banks hesitant to package their higher quality assets into debt securities.
“With more signs showing an economic slowdown, Chinese banks don’t want to lend more, so they don’t need to sell ABS to free up more room for lending,” said Ji Weijie, senior associate at Beijing-based China Securities Co. “Plus with rising bad loans, banks are reluctant to move good assets off their balance sheets”…
Another consequence of the combined 1.5 percentage point reduction in the reserve-requirement rate since November to 18.5 percent is that banks now have less need to sell ABS to free up space for lending.
Once again we see policy decisions working at cross-purposes in China, a key theme as the country marks a difficult transition from an investment-led economy to a consumption driven model. Boiled down to its simplest form: China is attempting deleverage and re-leverage at the same time.
Beijing has signaled a willingness to allow defaults (even, in some cases, by state-backed entities and indeed FT reported Monday evening that China’s Zhongao defaulted after banks refused to roll its debt) which, in combination with the local government refi effort, suggests the government realizes the need to deleverage an economy laboring under $28 trillion in debt.
On the other hand, reining in shadow banking has led to a collapse in credit creation…
Which means that when policy rates fail, the shadow banking machine must be reactivated, hence Beijing’s move to soften its stance on LGFVs.
Where all of this will end after the mutliple competing policy goals play out we don’t know, but as far as the local government refi effort is concerned, even if we assume that only the existing stock of local government debt is run through the program (i.e. that any extension of LGFV financing is not swapped for muni bonds), that leaves a total of CNY20 trillion that can be channeled towards new loans via LTROs.
- Ron Paul: "Ex-Im Bank Is Welfare For The 1%"
Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,
This month Congress will consider whether to renew the charter of the Export-Import Bank (Ex-Im Bank). Ex-Im Bank is a New Deal-era federal program that uses taxpayer funds to subsidize the exports of American businesses. Foreign businesses, including state-owned corporations, also benefit from Ex-Im Bank. One country that has benefited from $1.5 billion of Ex-Im Bank loans is Russia. Venezuela, Pakistan, and China have also benefited from Ex-Im Bank loans.
With Ex-Im Bank’s track record of supporting countries that supposedly represent a threat to the US, one might expect neoconservatives, hawkish liberals, and other supporters of foreign intervention to be leading the effort to kill Ex-Im Bank. Yet, in an act of hypocrisy remarkable even by DC standards, many hawkish politicians, journalists, and foreign policy experts oppose ending Ex-Im Bank.
This seeming contradiction may be explained by the fact that Ex-Im Bank’s primary beneficiaries include some of America’s biggest and most politically powerful corporations. Many of Ex-Im Bank’s beneficiaries are also part of the industrial half of the military-industrial complex. These corporations are also major funders of think tanks and publications promoting an interventionist foreign policy.
Ex-Im Bank apologists claim that the bank primarily benefits small business. A look at the facts tells a different story. For example, in fiscal year 2014, 70 percent of the loans guaranteed by Ex-Im Bank’s largest program went to Caterpillar, which is hardly a small business.
Boeing, which is also no one’s idea of a small business, is the leading recipient of Ex-Im Bank aid. In fiscal year 2014 alone, Ex-Im Bank devoted 40 percent of its budget — $8.1 billion — to projects aiding Boeing. No wonder Ex-Im Bank is often called “Boeing’s bank.”
Taking money from working Americans, small businesses, and entrepreneurs to subsidize the exports of large corporations is the most indefensible form of redistribution. Yet many who criticize welfare for the poor on moral and constitutional grounds do not raise any objections to welfare for the rich.
Ex-Im Bank’s supporters claim that ending Ex-Im Bank would deprive Americans of all the jobs and economic growth created by the recipients of Ex-Im Bank aid. This claim is a version of the economic fallacy of that which is not seen. The products exported and the people employed by businesses benefiting from Ex-Im Bank are visible to all. But what is not seen are the products that would have been manufactured, the businesses that would have been started, and the jobs that would have been created had the funds given to Ex-Im Bank been left in the hands of consumers.
Another flawed justification for Ex-Im Bank is that it funds projects that could not attract private sector funding. This is true, but it is actually an argument for shutting down Ex-Im Bank. By funding projects that cannot obtain funding from private investors, Ex-Im Bank causes an inefficient allocation of scarce resources. These inefficiencies distort the market and reduce the average American's standard of living.
Some Ex-Im Bank supporters claim that Ex-Im Bank promotes free trade. Like all other defenses of Ex-Im Bank, this claim is rooted in economic fallacy. True free trade involves the peaceful, voluntary exchange of goods across borders — not forcing taxpayers to subsidize the exports of politically powerful companies.
Ex-Im Bank distorts the market and reduces the average American's standard of living in order to increase the power of government and enrich politically powerful corporations. Congress should resist pressure from the crony capitalist lobby and allow Ex-Im Bank's charter to expire at the end of the month. Shutting down Ex-Im Bank would improve our economy and benefit most Americans. It is time to kick Boeing and all other corporate welfare queens off the dole.
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- Hacked Emails Expose George Soros As Ukraine Puppet-Master
Just days after George Soros warned that World War 3 was imminent unless Washington backed down to China on IMF currency basket inclusion, the hacker collective CyberBerkut has exposed the billionaire as the real puppet-master behind the scenes in Ukraine. In 3 stunning documents, allegedly hacked from email correspondence between the hedge fund manager and Ukraine President Poroshenko, Soros lays out “A short and medium term comprehensive strategy for the new Ukraine,” expresses his confidence that the US should provide Ukraine with lethal military assistance, “with same level of sophistication in defense weapons to match the level of opposing force,” and finally explained Poroshenko’s “first priority must be to regain control of financial markets,” which he assures the President could be helped by The Fed adding “I am ready to call Jack Lew of the US Treasury to sound him out about the swap agreement.”
The hacking group CyberBerkut claims it has penetrated Ukraine’s presidential administration website and obtained correspondence between Soros and Ukraine’s President Petro Poroshenko. It has subsequently posted all the intercepted pdfs on line at the following location. More details as RT earlier reported:
The hacktivists have published three files online, which include a draft of “A short and medium term comprehensive strategy for the new Ukraine” by Soros (dated March 12, 2015); an undated paper on military assistance to Kiev; and the billionaire’s letter to Poroshenko and Ukraine’s Prime Minister Arseny Yatsenyuk, dated December 23, 2014.
According to the leaked documents, Soros supports Barack Obama’s stance on Ukraine, but believes that the US should do even more.
He is confident that the US should provide Ukraine with lethal military assistance, “with same level of sophistication in defense weapons to match the level of opposing force.”
“In poker terms, the US will ‘meet, but not raise,” the 84-year-old businessman explained, supposedly signing one of the letters as “a self-appointed advocate of the new Ukraine.”
The Western backers want Kiev to “restore the fighting capacity of Ukraine without violating the Minsk agreement,” Soros wrote.
Among other things, the leaked documents claim that the Ukrainian authorities were also asked to “restore some semblance of currency stability and functioning banking system” and “maintain unity among the various branches of government” in order to receive assistance from foreign allies.
Soros believes that it’s up to the EU to support Kiev with financial aid, stressing that “Europe must reach a new framework agreement that will allow the European Commission to allocate up to $1 billion annually to Ukraine.”
As for the current state of economy, the billionaire wrote that former Chilean finance minister, Andres Velasco, after visiting Ukraine on his request, returned with “a dire view of financial situation.”
“The new Ukraine is literally on the verge of collapse” due to the national bank’s lack of hard currency reserves, Soros warned Poroshenko.
The correspondence shows that the billionaire has been in constant touch with the authorities in Kiev and consulting them.
Digging into the details of the documents, we find one intriguing snippet:
As you know, I asked Andrés Velasco, a prominent economist who was Chile’s very successful minister of finance from 2006-2010 to visit Kyiv where he met the Prime Minister; the President was in Warsaw at the time. Velasco came back with a dire view of the financial situation. The National Bank of Ukraine has practically no hard currency reserves. That means that the hryvnia has no anchor. If a panic occurred and the currency collapsed as it did in Russia, the National Bank could not stabilize the exchange rate even if only temporarily as Russia did by injecting $90 billion.
Your first priority must be to regain control over the financial markets—bank deposits and exchange rates. Unless you do, you will have no way to embark on deeper reforms. I believe the situation could be stabilized by getting the European Council to make a commitment in principle that they will pull together the new $15 billion package that the IMF requires in order to release the next tranche of its original package at the end of January 2015. Based on that commitment the Federal Reserve could be asked to extend a $15 billion three months swap arrangement with the National Bank of Ukraine. That would reassure the markets and avoid a panic.
…
I am ready to call Jack Lew of the US Treasury to sound him out about the swap agreement.
One wonders what other matters of national importance involve George Soros getting on the line with the US Treasury Secretary to arrange virtually unlimited funds courtesy of the US Federal Reserve just to promote one person’s ulterior agenda?
And just like that, conspiracy Theory becomes Conspiracy Fact once again.
The full documents are below:
Ironically, the first document laying out the “short and medium-term comprehensive strategy for new Ukraine” and signed by George Soros, “a self-appointed advocate of the New Ukraine”, was ironically created by Tamiko Bolton, the 40 year old who became Soros’ third wife several years ago.
The next letter, one directly sent by Soros to Ukraine’s president Poroshenko and prime minister Yatseniuk, comes courtesy of a pdf created by Douglas York, Soros’ personal assistant.
Priority To Fix Financial Markets
Finally, a letter (authored by Yasin Yaqubie of the International Crisis Group based on its pdf metadata properties), which lobbies the US “to do more.”
Ukraine Letter to Potus – Lethal Aid
To sum up: Soros is basically lobbying on behalf of Ukraine, pushing for cash and guns, to oppose Putin in every way possible.
If genuine, and based on their meta data, they appear to be just that, these lettes show how Soros is trying to weasel around the Minsk agreements (for instance, how to train Ukrainian soldiers without having a visible NATO presence in Ukraine). The documents link up Nuland with Soros, and clears up who is truly pulling the strings of the US State Department.
Finally, while the documents don’t mention what Soros has in store for Ukraine, one can use their imagination.
- Here's What Happens When Your City Is Cut To Junk
We’ve spent quite a bit of time recently discussing the fiscal crises facing many state and local governments across the US. There are quite a few explanations for the deteriorating financial situation ranging from falling oil prices to outright fiscal mismanagement.
One persistent theme is grossly underfunded pension liabilities. The most dramatic example of this problem is Chicago, whose debt was cut to junk by Moody’s after an Illinois State Supreme Court decision struck down a pension reform bid, complicating Mayor Rahm Emanuel’s efforts to push through similar legislation in Chicago where, as we’ve shown, the budget gap is set to triple over three years thanks to rising pension liabilities.
The Moody’s downgrade triggered some $2 billion in accelerated payment rights for creditors and also complicated Emanuel’s efforts to refinance $900 million in floating rate notes and pay down $200 million in related swaps. This underscores how a ratings agency downgrade can quickly cause a chain reaction that is self-feeding and can further imperil already beleaguered city finances. Citi has more on the “ratings agency feedback loop”:
Via Citi:
How does a downgrade create a feedback loop?
Payment induced liquidity shock
For many issuers’ credit contracts, a drop to a speculative grade rating acts as a payments trigger. For instance, the issuer may have commercial paper programs and line of credit agreements as a part of its short term borrowing program and a rating downgrade could qualify as an event of default for these borrowing arrangements. This enables the banks to declare all outstanding obligations as immediately due and payable.
A rating downgrade could also force accelerated repayment schedules and penalty bank bond rates on swap contracts and variable-rate debt agreements.
Thus, as a result of the rating action, an issuer could face increased liquidity risk at an unfortunate time when it is working to navigate its way out of a fiscal crisis.
Knock-on rating downgrade risk
In some instances, rating agencies may disagree on an issuer’s creditworthiness which could result in a split level rating for a prolonged period. But a drastic rating action by one main rating agency (either Moody’s or S&P) which knocks the issuer’s debt to below investment grade could force the other rating agencies to follow with a similar downgrade. While the other rating agencies might feel that underlying credit fundamentals of the issuer do not merit a sub-investment grade rating, their rating action could be dictated by negative implications due to the liquidity pressures posed by the first downgrade to junk status. Recently, S&P downgraded a credit as a result of Moody’s rating action that stated that its rating action reflected its view that the issuer’s efforts “are challenged by short-term interference” that prevents a solid and credible approach to resolving their fiscal problems.
Shrinking buyer base
Many investors have mandates to buy investment grade debt only and a fall to speculative grade status could cause existing investors to liquidate the holdings of the fallen credit and shrink the universe of buyers.
Rising issuance costs
In many cases the issuer may have been working diligently to reduce its exposure to bank credit risks in the event of a ratings deterioration (for e.g. shifting its variable-rate GOs and sales tax paper to a fixed rate by tapping its short-term paper program then converting it into long-term debt) but the unfortunate timing of the downgrade will make this task much more challenging as a shrunken buyer base for an entity’s debt, quite naturally, translates into a higher cost of debt.
A higher cost of debt exacerbates liquidity problems and thus the feedback loop could continue to gain traction.
To demonstrate just how pervasive the underfunded pension problem truly is, consider the following map:
* * *
We suppose it’s only a matter of time before a wave of officials go the extend-and-pretend ponzi route by issuing pension obligation bonds to paper over holes while doing nothing to solve the underlying problem ensuring that the cost to taxpayers will eventually be even larger than it would have been in the first place.
- FaKe ReFoRM…
- It Cost US Taxpayers At Least $250,000 To Repatriate A Bicycle-Challenged John Kerry
The somewhat farcical journey home from Europe for Secretary of State John Kerry continues. As we noted previously, after breaking his leg on an arbidged Tour de France'-esque accident in which he hit a curb, he was flown to Geneva in a helicopter where he was "stable and never lost consciousness," which makes sense (unless as many have suggested his brain lies considerably lower in his body than most humans).
But then the escapade got beyond unreal as The White House sent a massive "specially-equipped" C-17 airplane (used to carrying over 100 combat troops and equipment into battle) to fly him to Boston for surgery.
We assume he is covered by Obamacare, since the cost of this rescue mission – assuming roughly 10 hours flight-time – is at least $250,000… and all to avoid an Iran deadline no one expects to meet…
As The Washington Post reports,
Secretary of State John F. Kerry, who broke his leg in a bicycling accident near Geneva Sunday, left for home Monday aboard a specially outfitted U.S. military aircraft.
The C-17 transport plane, dispatched from the U.S. base in Ramstein, Germany, was “staffed by additional military medical personnel in keeping with standard practice,” Kerry spokesman John Kirby said.
Kerry, 71, is en route to Boston, where he will be admitted to Massachusetts General Hospital under the care of Dennis Burke, the surgeon who operated on him for a previous hip replacement on the same leg.
He broke his right femur, near the site of the replaced hip joint, when he hit a curb with his bicycle wheel and fell at the beginning of a ride near the French town of Scionzier, about 30 miles from Geneva. He was flown by medical helicopter to a Geneva hospital, where he stayed until his medical evacuation.
He is scheduled to arrive in Boston on Monday evening.
Initial plans to fly Kerry aboard a commercial medical evacuation aircraft late Sunday were cancelled after physicians decided that he should remain in Geneva for further evaluation.
There was no indication of whether further surgery will be required.
So that's good then… though at a cost of at least $24,000 per hour, we have 2 quick questions:
1) Given the cost-conscious White House could they not have found a more comfortable (or cheaper) option – Warren Buffett's private jet? and
2) It's a broken femur!… not a brain aneurism, or heart malfunction, or any manner of considerably more complex health problems that might have required an arsenal of medical equipment to ensure survival
And for those cynics who see this as a timely 'accident' to avoid the looming Iran deadline, The White House has this to say…
While Kerry’s recovery period is unknown, State Department officials insisted that he will not be prevented from participating in the ongoing nuclear negotiations with Iran, which are closing in on a deadline at the end of the month.
“The secretary is absolutely committed to moving with the negotiations, to proceeding with them on the exact same timetable as before his accident," State Department spokeswoman Mari Harf said today. "[It's] critical to stress that he is committed to doing so in the same time frame.”
So rest assured – if there any missed deadlines, it is not because Iran is 'dealing' with Russia for new nuclaer facilities or trying to slow-play America, it's just Kerry's recovery
- Japan's Pension System Hacked; 1.25 Million Identification Numbers, Birth Dates, Addresses Compromised
There’s been quite a bit of talk recently about “cyberthreats” to the US. Back in April, Defense Secretary Ash Carter unveiled a new US strategy designed to combat a list of supposed “cyberadversaries” which include (of course) China, Iran, Russia, and North Korea. The Pentagon suggested that Washington may use “offensive” cyberattacks if necessary to “disrupt an adversary’s military related networks or infrastructure so that the U.S. military can protect U.S. interests in an area of operations.”
As it turns out, the US did just that five years ago when Homeland Security tried to deploy a computer virus against North Korea’s nuclear program, an effort which ultimately failed due to, as Reuters puts it, “the extreme isolation of [Pyongyang’s] communications systems.”
More recently, the US implicated Chinese hacker spies in a scheme purportedly designed to steal US military secrets from Penn State’s engineering department and “Russain crime syndicates” were blamed for an IRS breach.
As far as Washington’s allies are concerned, Japan is onboard with PM Shinzo Abe and President Obama striking a cybersecurity alliance when Abe visited the capital in April. In a speech to Congress, Abe had the following to say about Chinese hacking: “[We cannot] simply allow free riders on intellectual property.”
In the latest cyber drama, we learned on Sunday that Japan Pension Service staff computers were hacked and 1.25 million cases of personal data were compromised in the process. Reuters has the story:
Japan’s pension system has been hacked and more than a million cases of personal data leaked, authorities said on Monday, in an embarrassment that revived memories of a scandal that helped topple Prime Minister Shinzo Abe in his first term in office.
Japan Pension Service staff computers were improperly accessed by an external email virus, leading to the leak of some 1.25 million cases of personal data, the system’s president, Toichiro Mizushima, told a hastily called news conference.
He apologized for the leak, which he said involved combinations of names, identification numbers, birth dates and addresses.
For some, the incident brings back bad memories:
Public outrage over botched record-keeping that left millions of pension premium payments unaccounted for was a major factor in a devastating defeat suffered by Abe’s Liberal Democratic Party in a 2007 election for parliament’s upper house.
And a bit more color from The Japan Times:
The data were leaked when agency employees opened an attached file in their email containing a virus.
Japan Pension Service President Toichiro Mizushima apologized for the leak and said affected people will be given new pension ID numbers.
“We feel an extremely grave responsibility over this,” Mizushima told a hastily arranged news conference.
“We will make the utmost efforts not to cause trouble to our customers”..
Mizushima said the fund reported the attacks to the Metropolitan Police Department on May 19. He refused to elaborate on the type of computer virus or whether the attacks came from within Japan or abroad, citing the ongoing police investigation.
Of the 1.25 million cases, some 52,000 involved the theft of pension IDs, names, birth dates and addresses, while another 1.17 million involved the leak of just pension IDs, names and birth dates. In the remaining 31,000 cases, just pension IDs and names were stolen.
We will now await the official announcement wherein Japanese officials will say that their investigation suggests the attack originated in China. Stay tuned.
- NSA 'Reform' Explained (In 1 Cartoon)
- May Consumer Spending Has Biggest Annual Drop Since Great Financial Crisis, Gallup Survey Finds
It may not have the clout of the official monthly Dept of Commerce Retail Sales report not due out for two more weeks, but in retrospect considering how many credibility issues with seasonal adjustments government data has had in recent months, the Gallup Consumer Spending report may have become far more realistic than official government data.
In which case all hope of a Q2 GDP rebound abandon, ye who read this: after a strong April, in which the average consumer reported a daily spend of $91, $3 higher than a year prior, and the highest spending month since before the great financial crisis…
… in May things quickly deteriorated, with average daily spending in April and May unchanged at $91, despite a consistent jump the just concluded month of May in recent years, and despite the substantial jump in gas prices, which in May 2008 led to a $28 jump in average spending, and $10 in 2014.
Worse, on an apples to apples, year-over-year basis, average spending in May of 2015 was $7 less than 2014, and nearly identical to 2013, when the US unemployment rate was nearly 3% higher, and the economy was supposedly sputtering badly enough for the Fed to launch QE3.
Finally, as the chart below shows, this was the biggest month of May consumer spending drop in nominal dollar terms since the 2008 financial crisis.
This is what Gallup does to calculate average spending:
Gallup’s daily spending measure asks Americans to estimate
the total amount they spent “yesterday” in restaurants, gas stations,
stores or online — not counting home, vehicle or other major purchases,
or normal monthly bills — to provide an indication of Americans’
discretionary spending. The May 2015 average is based on Gallup Daily
tracking interviews with more than 15,000 U.S. adults.What it found is that last May’s spending level has largely gone unmatched since, except in
December 2014, when spending also averaged $98. However, Americans
typically spend more in December because of holiday shopping. Still, the
latest monthly figure is higher than what Americans spent each May from
2009 through 2013. By contrast, Americans spent an average of $114 in
May 2008 — prior to the global financial meltdown later that year that
both deepened and prolonged the U.S. recession that started in late
2007.But the punchline is that while the long awaited, and now long forgotten “gas savings” from the drop in crude, which in california is rapidly approaching an unchanged Y/Y print, never materialized in a jump in actual spending as today’s latest disappointing consumer spending data confirms, now that gas prices are rising consumer are retrenching even more!
Quote Gallup:
The stagnation in Americans’ spending may be related to gas prices, which continued to rise last month — though they are expected to plateau and eventually dip as the year progresses. Confidence in the economy also dipped, with lower weekly measures in May than in April. Gallup has found that Americans’ perceptions of the economy are related to gas prices, and what they pay at the pump certainly influences how much they spend overall and how much they have left for discretionary purchases after they take care of the basics. If gas prices do stabilize, this may enable Americans to spend more on other things.
While Gallup’s historical spending averages have generally been higher in the spring and summer months than in the winter, spending usually dips or stays flat in June compared with May. With consumer spending the major driver of U.S. economic growth, healthier spending in June could help keep the economy on a strong track toward recovery after a disappointing first quarter that saw the economy shrink.
Or, should May’s weaker than expected trend persist into June, then one can forget all about a second quarter GDP rebound. In fact, while Q1 GDP was saved to the tune of 2% from a surge of inventory accumulation, in Q2 this won’t repeat, and in the meantime, personal spending is starting off quite poorly and on the wrong foot. Should there be a comparable Y/Y decline in spending in June as well, it is virtually assured that Q2 GDP will also be negative.
Which would mean that the US has officially entered recession just as the Fed is timing its first rate hike in one trading generation.
- GYPSY AuSTeRiTY…
.
- China Responds: "Expiration Of The Patriot Act Is Not The End Of Washington's Intrusive Spying"
Writing in the Politburo-owned mouthpiece The Global Times, China responds to the 'expiry' of The Patriot Act…
Expiry of Patriot Act is not end of Washington’s intrusive spying
Some provisions of the USA Patriot Act, the foundation of the massive US foreign and domestic wiretapping program and other controversial intelligence-collection operations, are set to expire on June 1, if they are not renewed. Although the House passed the renewed bill, the Senate failed to do so on May 23, leaving those controversial provisions with a pressing deadline for expiration. Without them, some intelligence operations currently carried out by the National Security Agency (NSA) and other intelligence agencies will be illegal. It seems to be a big deal for the US intelligence community and all those affected.
After 9/11, the post-traumatic urge pushed forward the most profound intelligence reforms in decades, and as a result, intelligence budgets were raised, intelligence organizations and structures aligned, and laws enacted. The USA Patriot Act has generated a great deal of controversy since its enactment. Supporters defend it by saying that the act provides a legal basis for many effective intelligence operations against terrorists. Opponents argue that the act violates fundamental constitutional principles, for it allows investigators obtain "any tangible things (including books, records, papers, documents and other items)," as long as the records are sought "in connection" with a terror investigation, which may put citizens' privacy in jeopardy.
The question is, it has been more than a decade after the first enactment of the Patriot Act, and it has undergone several extensions, why block it now?
First, after the extensive expansion in the first several years post 9/11, people started to wonder about the real effectiveness of the US intelligence reform. The annual published intelligence budget of US was over $50 billion for many years and that amount was larger than most countries' total defense budgets.
But the results were neither conclusive nor transparent, stirring public doubts. In as early as 2009, the National Intelligence Strategy of the US implied that the golden time for intelligence expansion may have passed, and they need to adjust to an era of austerity. Now it seems that legislators would like to move a step further, holding them more accountable, and putting a short leash on them.
Second, in recent years, US intelligence operations have faced many accusations. With sources such as WikiLeaks, and especially Edward Snowden, the former NSA contractor, leaking a lot US wiretapping stories to the public, the fear of the US intelligence community becoming a "rogue elephant" is on the rise, and calls for stronger intelligence oversight have strengthened. Some of the US foreign partners or even allies are subject to US surveillance, which they expressed anger about, and the trust between them has been seriously undermined.
US domestic public opinion was also affected. When phones are tapped, and personal information is no longer personal, people's nerves get stirred. US intelligence has often had a negative image at home, the most infamous incident being the Watergate scandal, in which then president Richard Nixon used multiple intelligence services to illegally spy on his political adversaries and was impeached as a result.
US authorities need to take serious actions to show some sincerity, and to prove that they are not bad guys. Perhaps letting one of the most controversial intelligence-related acts expire is an acceptable solution.
It is only one more year from the next US presidential election. Rand Paul, a presidential candidate playing a role in blocking the act from extension, may win the favor of the US public since the act is already a notorious one.
Nevertheless, the Patriot Act is just the tip of the iceberg. There are many laws, regulations and policies that make sure the US intelligence community functions well enough to achieve its own purposes. Even if the act really expires after June 1, the US foreign intelligence operations will remain intact. Its assets are still out there, and its guiding principles remain the same. In that case, we may expect to hear more tales of US spying in the future.
- John Nash's Equilibrium Concept In Game Theory (Simplified)
Submitted by Robert Murphy via Mises Canada,
With the tragic deaths (in a taxi accident) of John Nash and his wife, people have been explaining Nash’s contributions to the general public.
The single best piece I’ve seen so far is this one by John Cassidy. However, even Cassidy’s piece doesn’t really make clear exactly how Nash’s famous equilibrium concept works. I’ll give some simple examples in the present post so that the layperson can understand just what Nash accomplished in his celebrated 27-page doctoral dissertation. (Be sure to look at his bibliography on the last page.)
I have seen many commentators tell their readers that John Nash developed the theory of non-cooperative games, in (alleged) contrast to the work on cooperative games by John von Neumann and Oskar Morgenstern. However, it’s a bit misleading to talk in this way. It’s certainly true that von Neumann and Morgenstern (henceforth vNM) did a lot of work on cooperative games (which involve coalitions of players where the players in a coalition can make “joint” moves). But vNM also did pioneering work on non-cooperative games–games where there are no coalitions and every player chooses his own strategy to serve his own payoff. However, vNM only studied the special case of 2-person, zero-sum games. (A zero-sum game is one in which one player’s gain is exactly counterbalanced by the other player’s loss.) This actually covers a lot of what people have in mind when they think of a “game,” including chess, checkers, and card games (if only two people are playing).
The central result from the work of vNM was the minimax theorem. The full details are here, but the intuition is: In a finite two-person zero-sum game, there is a value V for the game such that one player can guarantee himself a payoff of at least V while the other player can limit his losses to V. The name comes from the fact that each player thinks, “Given what I do, what will the other guy do to maximize his payoff in response? Now, having computed my opponent’s best-response for every strategy I might pick, I want to pick my own strategy to minimize that value.” Since we are dealing with a zero-sum game, each player does best for himself by minimizing the other guy’s payoff.
This was a pretty neat result. However, even though plenty of games–especially the ones we have in mind with the term “game”–are two-person zero-sum, there are many strategic interactions where this is not the case. This is where John Nash came in. He invented a solution concept that would work for the entire class of non-cooperative games–meaning those with n players and where the game could be negative-sum, zero-sum, or positive-sum. Then he showed the broad conditions under which his equilibrium would exist. (In other words, it would not have been as impressive or useful if Nash had defined an equilibrium concept for these games, if it rarely existed for a particular n-person positive-sum game.)
For every game we analyze in this framework, we need to specify the set of players, the set of pure strategies available to each player, and finally the payoff function which takes a profile of actual strategies from each player as the input and spits out the payoffs to each player in that scenario. (One of the mathematical complexities is that players are allowed to choose mixed strategies, in which they assign probabilities to their set of pure strategies. So technically, the payoff function for the game as a whole maps from every possible combination of each player’s mixed strategies onto the list of payoffs for each player in that particular outcome.) Now that I’ve given the framework, we can illustrate it with some simple games.
One popular game is the so-called Battle of the Sexes. The story is that a husband and wife have to go either to an event the husband prefers (let’s say it’s an action movie) or an event the wife prefers (let’s say it’s a romantic comedy). But, the catch is that each person would rather watch the movie with his or her spouse, than be alone, and this consideration trumps the choice of the movie. We can (start to) model this story in game theoretic form like this:
- Set of players = {Husband, Wife}
- Husband’s set of pure strategies = {Action, RomCom}
- Wife’s set of pure strategies = {Action, RomCom}
Rather than formally define a payoff function, it’s easier to construct a matrix showing the payoffs to our players from the four possible combinations of their pure strategies, like this (where the husband’s payoff is the first number in each cell and the wife’s payoff comes after the comma):
Let’s make some observations about the above game. First, it’s isn’t a zero-sum game, so the minimax result doesn’t work. In other words, the husband wouldn’t want to approach this situation with the goal of harming the other person as much as possible.
However, the situation is strategic, in the sense that the payoff to each person depends not just on the strategy that person chooses, but also on the strategy the other person chooses. This is what makes game theory different from more conventional settings in economic theory. For example, in mainstream textbook micro, the consumer has a “given” budget and takes market prices as “given,” and then maximizes utility according to those constraints. The consumer doesn’t have to “get into the head” of the producer and worry about whether the producer will change prices/output based on the consumer’s buying decision.
Anyway, back to our “battle of the sexes” game above. Even though the game is positive-sum, there is still the “battle” element because the husband would prefer they both choose the action movie. That yields the best outcome possible for him (a payoff of 3) but only a 2 for the wife. The wife, in contrast, would prefer they both go to the romantic comedy, because she gets a 3 in that outcome (and 3 > 2). Yet to reiterate, they both prefer the other’s company, rather than seeing the preferred movie in isolation (i.e. 2 > 1). And of course, the worst possible outcome–where each gets a payoff of 0–occurs if for some crazy reason the husband watches the romantic comedy (by himself) while the wife watches the action movie (by herself).
In this game, there are two Nash equilibria in pure strategies. In other words, if we (right now, for simplicity) are only allowing the husband and wife to pick either of their two available pure strategies, then there are only two combinations that form a Nash equilibrium. Specifically, the strategy profiles of (Action Movie, Action Movie) and (RomCom, RomCom) both constitute Nash equilibria.
Formally, a Nash equilibrium is defined as a profile of strategies (possibly mixed) in which each player’s chosen strategy constitutes a best-response, given every other player’s chosen strategy in the particular profile.
We can test our two stipulated profiles to see that they are indeed Nash equilibria. First let’s test (Action Movie, Action Movie). If the husband picks “Action Movie” as his strategy, then the wife’s available payoffs are either a 2 (if she also plays “Action Movie”) or a 1 (if she plays “RomCom”). Since 2>1, the wife would want to play “Action Movie” given that her husband is playing “Action Movie.” So that checks. Now for the husband: Given that his wife is playing “Action Movie,” he can get a payoff of either 3 or 0. Since 3>0, he also does better by playing “Action Movie” than “RomCom,” given that his wife is playing “Action Movie.” So that checks. We just proved that (Action Movie, Action Movie) is a Nash equilibrium.
We’ll go quicker for the other stipulated Nash equilibrium of (RomCom, RomCom): If the husband picks “RomCom,” then the wife’s best response is “RomCom” because 3>0. So that checks. And if the wife picks “RomCom,” then the husband’s best response is “RomCom” because 2>1. So that checks, and since we’ve verified that each player is best responding to the other strategies in the profile of (RomCom, RomCom), the whole thing is a Nash equilibrium.
Now for one last example, to show the robustness of Nash’s contribution. There are some games where there is no Nash equilibrium in pure strategies. For example, consider this classic game:
Note that in this game, there is no Nash equilibrium in pure strategies. If Joe plays “Rock,” then Mary’s best response is “Paper.” But if Mary is playing “Paper,” Joe wouldn’t want to play “Rock.” (He would do better playing “Scissors.”) And so on, for the nine possible combinations of pure strategies.
Although there’s no Nash equilibrium in pure strategies, there exists one in mixed strategies. In other words, if we allow Joe and Mary to assign probabilities to each of their pure strategies, then we can find a Nash equilibrium in that broader profile. To cut to the chase, if each player randomly picks each of his or her pure strategies one-third of the time, then we have a Nash equilibrium in those two mixed strategies.
Let’s check our stipulated result. Given that Joe is equally mixing over “Rock,” “Paper,” and “Scissors,” Mary is actually indifferent between her three pure strategies. No matter which of the pure strategies she picks, the mathematical expectation of her payoff is 0. For example, if she picks “Paper” with 100% probability, then 1/3 of the time Joe plays “Rock” and Mary gets 1, 1/3 of the time Joe plays “Paper” and Mary gets 0, and 1/3 of the time Joe plays “Scissors” and Mary gets -1. So her expected payoff before she sees Joe’s actual play is (1/3 x 1) + (1/3 x 0) + (1/3 x [-1]) = (1/3) – (1/3) = 0. We could do a similar calculation for Mary playing “Rock” and “Scissors” against Joe’s stipulated mixed strategy of 1/3 weight on each of his pure strategies.
Therefore, since Mary gets an expected payoff of 0 by playing any of her pure strategies against Joe’s even mixture, any of them constitutes a “best response,” and moreover any linear weighting of them is also a best response. In particular, Mary would be perfectly happy to mix 1/3 on each of her strategies against Joe’s stipulated strategy, because that too would give her an expected payoff of 0 and she can’t do any better than that. (I’m skipping the step of actually doing the math to show that mixing over pure strategies that have the same expected payoff, gives the same expected payoff. But I’m hoping it’s intuitive to the reader that if Mary gets 0 from playing any of her pure strategies, then if she assigns probabilities to two or three of them, she also gets an expected payoff of 0.)
Thus far we’ve just done half of the work to check that our stipulated mixed strategy profile is indeed a Nash equilibrium. Specifically, we just verified that if Joe is mixing equally over his pure strategies, then Mary is content to mix equally over her pure strategies in response. It remains to do the opposite, namely, to verify that Joe is content to mix equally over his pure strategies, given that Mary is doing so. But since this game is perfectly symmetric, I hope the reader can see that we don’t have any more work; we would just be doing the mirror image of our above calculations.
To bring things full circle, and to avoid confusion, I should mention that von Neumann and Morgenstern’s framework could handle our Rock, Paper, Scissors game, since it is a two-person zero-sum game. Specifically, the value V of the game is 0. If Joe mixes equally over his pure strategies, then he can minimize Mary’s expected payoff from her best response to 0, and Joe can limit his expected losses to 0. (The reason I chose a two-person zero-sum game to illustrate a mixed strategy Nash equilibrium is that I wanted to keep things as simple as possible.)
Now that we’ve seen what a Nash equilibrium in mixed strategies looks like, I can relate Nash’s central result in his 27-page dissertation: Using a “fixed point theorem” from mathematics, Nash showed the general conditions under which we can prove that there exists at least one Nash equilibrium for a game. (Of course, Nash didn’t call his solution concept a “Nash equilibrium” in his dissertation, he called it an “equilibrium point.” The label “Nash equilibrium” came later from others.)
Oh, one last thing. Now that we know what Nash did at Princeton, can you appreciate how absurd the relevant scenes from the Ron Howard movie were?
When the movie’s Nash (played by Russell Crowe) tells his friends that they need to stop picking their approach to the ladies in terms of narrow self-interest, and instead figure out what the group as a whole needs to do in order to promote the interest of the group, that is arguably the exact opposite of the analysis in the real Nash’s doctoral dissertation. Indeed, if we analyzed the strategic environment of the bar in the way the movie Nash does so, the real Nash would say, “If all the guys could agree to ignore the pretty blonde woman and focus on her plainer friends, all the guys would be happier than if they each focused on the pretty blonde. But, that outcome doesn’t constitute a Nash equilibrium, so alas, we can’t expect it to work. If the rest of us focused on the plainer friends, we would each have an incentive to deviate and go after the pretty blonde. Ah, the limits of rational, self-interested behavior.”
(I hope the reader will forgive the possibly sexist overtones of the preceding paragraph, but it’s how Ron Howard chose to convey Nash’s insights to the world. I am playing the hand I was dealt.)
John Nash provided economists with a powerful framework for analyzing strategic interactions. If you want to see how economists took his neat result and applied it in settings where it leads to absurdity, read my articles here and here.
- From The Keynesian Archives: Who Said In 2010 That "Europe Is An Economic Success"
Paul Krugman says a lot of funny things.
Indeed, if one is predisposed to being cynical about the 7-year bout of Keynesian madness that has infected DM central banks in the post crisis world, virtually everything Paul Krugman says is funny.
But some caution is warranted because while Krugman may be an endless source of entertainment for anyone who has even a shred of respect for sound money policies, he is also — as we pointed out when the Nobel prize winner took his economic insanity on a field trip to its natural habitat in Japan last year — there are two words that should strike fear in the hearts of any rational-thinking citizen of the world, and those two words are “Paul Krugman.”
At no time in history is the above more apparent than now, with seemingly the entire world on its way to becoming Japan because at the end of the day, everyone’s answer to why central planning hasn’t delivered on its lofty promises is simply this: not enough Keynes.
Having thus set the stage, we bring you this classic Krugman throwback quote from 2010:
“The real lesson from Europe is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works.”
Shortly thereafter, that “economic success” would turn into an unmitigated nightmare both from an economic and political perspective, with the entire periphery losing bond market access in mid-2012 due to the perception of fiscal irresponsibility, an event which was promptly followed up by a Keynesian rhetorical haymaker from Mario Draghi that temporarily stemmed the crisis but wasn’t enough to bring the EU economy back to life and so finally, the ECB went (nearly) full-Kuroda in March, all just to celebrate the fact that “hey, at least inflation isn’t negative anymore” and at least now, only Greece is on its way out because, ironically, it has “too much debt.”
Certainly doesn’t look like “success” to us, although, as Krugman reminds us, you have to look past math when you’re evaluating economic outcomes:
“Actually, Europe’s economic success should be obvious even without statistics.”
And because we couldn’t resist, here’s why things have gone from bad to worse in Greece over the past month:
Tomorrow I will be meeting with the Nobel Prize-winning economist @NYTimeskrugman #Greece
— Alexis Tsipras (@tsipras_eu) April 17, 2015
- Carl Icahn Is "Extremely Worried" About Stocks, Warns "It's Not If, But When It Will Happen"
"This market has a lot to be concerned about," warns Carl Icahn in an interview with FOX Business Network's Trish Regan, slamming Fed policy, "by keeping interest rates this low you are creating bubbles that you don’t even know about." While mainstream media pundits are instantly feverish over every bullish AAPL word the aging activist has to say (or tweet), it seems that when it comes to facing facts and reality of the broad market, few, if any, are willing to share his thoughts as he concludes, "it’s not just a question of it could be the beginning… It’s not will it happen. It’s when it will happen."
Interview via FOX Business Network…
Watch the latest video at video.foxbusiness.com
On the markets:
“I say you have to look at things simplistically, if you’re really making a lot of money and you hold it and you’re a successful investor you try to reduce to simplicity. And if you look at it simply this market has a lot to be concerned about and people say well ’07 they said nobody was concerned. People knew that the housing bubble was there. They knew it was a great worry and everybody ignored it… I’m not telling you this market is going to crash, going to go down next week, next month, even next year, but you have to be extremely concerned with what’s going on. I mean consumers really aren’t spending – by keeping interest rates this low you are creating bubbles that you don’t even know about. And I do think that sooner or later the Fed can’t just keep this market up by itself.”
On whether he thinks this is the beginning of something problematic in the markets:
“I say it’s not just a question of it could be the beginning… It’s not will it happen. It’s when it will happen unless interest rate bubble is I think holding it up and I think the Fed has to be congratulated for what they did to save this economy in ’08. There is no question that the Fed did hold it up there, but I think now the time has come to stop the medicine and I think it will happen. It will stop.”
- From Money To Psychology, Japan Reveals The Basis Of Economic Policy Corruption
Submitted by Jeffrey Snider via Alhambra Investment Partners,
At some point in the middle of the last century, economics of money shifted to economics of psychology. When Milton Friedman wrote his 1963 book, A Monetary History, it was an effort that uncovered the role of money in the collapse of the Great Depression as he and his co-author, Anna Schwartz, saw it. Whether or not it was a full explanation, it wasn’t, it became widely adopted as the model for central bank behavior. At its heart, however, it was a treatise about the role of currency and liquidity.
It was still largely faithful to the Bagehot paradigm of central banks as agents of elasticity, with some modification about the terms at which that would be available. It is, however, nothing like what central banks around the world do today, even though outwardly there is a rough resemblance.
Almost as soon as A Monetary History was published there was a shift underway in more general economic theory about taking what was believed the next step – from monetary management to economic management. The impulse in that direction was not new, but the academy about its possibilities was. In 1958, AW Phillips in the UK put together an empirical analysis of a seeming durable correlation between inflation and employment. That was expanded in 1960 by Paul Samuelson and Robert Solow in the United States that posited the Phillips Curve, as it came to be known, as the means to exploit economic factors to introduce greater management and command.
Samuelson, in particular, was immediately welcomed into the Kennedy and then Johnson administrations as an advisor on the subject of that “exploitable Phillips Curve.” What we got out of it was the Great Inflation, a 15-year period of nearly unrelenting disaster that wasn’t just limited to economic malaise, it destroyed the last vestiges of the dollar and introduced the world to credit-based money in the eurodollar standard – the “dollar.”
Coming to terms with the Great Inflation was perfectly reasonable with a reasonable outlook free of determined bias for absolute control and command. Milton Friedman himself played a central role in discrediting the Phillips Curve, but that still left monetary theory short of the ancient Platonic ideal of the central banker as Philosopher King, if only in a limited capacity for creating and nurturing the “optimal” economic results. Despite the Great Inflation, economists did not turn away from trying to attain utopian command ideas, they only set about finding the “right” ones.
Robert Lucas was heavily invested in exactly that, as the allure of “general equilibrium” was so tantalizing to potential economic theory. It meant, as we know all too well now, that, if correct, there was some range of regression equations that could be assembled and constituted such that perfect predictability was possible. That is the idea of general equilibrium in the first place, to be able to model the utterly complex and heretofore mystifying nature of the true economy.
The world into which relatively primitive econometrics worked was centered around the idea of a “general equilibrium.” This was nothing new, as economists since the time of Malthus, Mill and Simon Newcomb believed that there was a method of quantifying any and all economic function. The equations would, as the name general equilibrium implies, have to balance. The central debate ranged around how price changes were set and modified especially owning to monetary and time variables.
What Lucas did, in his famous 1972 paper Expectations and the Neutrality of Money, was to assume generalized equilibrium from the very start. Departing from a regime of “adaptive expectations” Lucas asserted “rational expectations.” What that meant was neutralizing the equations of price expectations so that the difference between actual and expected prices is thus set to zero. In that sense, price behavior could then be adapted under a general equilibrium format, and the whole set of Freidman/Phelps “natural unemployment rate” econometrics would balance (I am simplifying here intentionally).
The generation of economists that undertook Lucas’ rational expectations assumptions saw its promise limited to the mathematical world of econometrics. The generation thereafter, including Ben Bernanke, sought to exploit it not unlike Samuelson and Solow’s attempt with Phillip’s scholarship. Rational expectations become the centerpoint of economic theory, and it has led the “discipline” in very strange directions.
The problem, as with quantum physics, is that “rational expectations” is not a real world phenomenon and certainly not directly relatable or transferable. It sounds as if it may be consistent with our experience of economic reality, as setting the differential of actual and expected prices to zero represents something like total market efficiency. It means that “market” prices are always correct and therefore econometric models need not concern themselves about initial equilibriums – they are always just assumed to be in that state. Inside the math, market prices are thus presupposed to always be market-clearing, and thus not subject to stochastic tests.
Even though the assumption of “rational expectations” is one in which there really appears to be no real-world counterpart, it dominates the centrality of all economic assumptions. Furthermore, like most economic and monetary paradigms, it is unfalsifiable. By adopting “rational expectations” at the start, any statistical tests are thus contained within the paradigm that all “market” prices are true and “correct.” That is a dangerous proposition when real world economic and financial parameters are supposed to flow solely from what is simply a means by which to find a solution within a system of stochastic equations describing only general equilibrium.
Because of this one mathematical property designed only to “save” general equilibrium largely from its own very real limitations, rational expectations has been taken as a real phenomenon to be abused in monetary policy, and thus economic command. If prices are always rational, then the influence of prices will be the same. Monetary policy left money behind and become strictly a tool for influencing behavior – from money and currency to nothing but psychology and the equivalent of happy pills (placebos at that).
We see the results of this shift all around us, especially where economists and “experts” are always so upbeat no matter how ludicrous and isolated such an attitude may be. And then there are the asset prices, going higher and higher to “stimulate” some “wealth effect” of not actual income but, again, happiness over not the direction of the true economy but of what its makers want of your perceptions of it all. It is taken as self-revealing now that even recessions are not much more than “irrational pessimism.”
The lack of recovery everywhere QE is being tried is not actually surprising to anyone but those still believing that rational expectations is anything but a mathematical shortcut. That is true in the US but most especially Japan, where even the mighty QQE has failed to live up to its “unquestionable” power and has thus become to engender very dangerous doubts – unhappy feelings that are the dread of all central bankers under the rational expectations paradigm:
While analysts expect consumption to pick up in coming months, lingering weakness will keep policymakers under pressure to underpin a fragile economic recovery.
“It’s a pretty gloomy number … Consumption may take longer than expected to pick up,” said Taro Saito, director of economic research at NLI Research Institute.
“The mood is good but wages haven’t risen much yet. It might take until around summer for consumption to clearly rebound.”
Reading that economist’s summary would lead you to think that it really is nothing but psychology at work. It is, after all, fully consistent with the stated purpose of QQE to begin with.
Households spent less on leisure and dining out even as the jobless rate fell to a 18-year low, underscoring the challenge of eradicating the sticky “deflationary mindset” that has beset Japan for nearly two decades.
If you think that Japan, or the US for that matter, is suffering from an insufficiency of happiness, a quarter-century funk of nothing but a “deflationary mindset”, then QQE seems a consistent course (never mind the nine prior attempts). If, however, you look at Japan as suffering just madness emanating from monetary policy that is the equivalent of pop psychology, the malaise starts to make perfect sense. The Japanese must be the happiest recipients of impoverishment ever conceived, and the results show. The greatest trick about rational expectations is that it seems so plausible because confidence is a good part of the real economy, but hollow appeals to unrelated factors are not in any way the same as “animal spirits.”
Last month was a difficult comparison because of the April 2014 tax change which pulled forward spending activity into March 2014, and thus the base of the year-over-year comparison was off. So it was expected that household spending would rise in April, with average expectations for +2.8%. Instead, spending declined yet once more, as economists missed their prediction by an enormous 4.1%. The problem with being reliant on illusions is that you can’t spend them; the Japanese, for all the ultra-low unemployment rate jubilee, have very little actual income. Even more recently, real DPI has ticked up but more as a matter of lower CPI and tax comparisons.
Instead, in what matters most, real wages have shown absolutely no tendency toward everything that was expected. When starting QQE more than two years ago, it was fully intended that by now real wages would not just be rising but rising steadily and robustly. Japanese workers have suffered the opposite.
The reason for that is the very way in which the unemployment rate is misleadingly “happy”, connecting wages to what really looks like a still-gathering recession. In the past few months, when this post-tax recovery was supposed to materialize, Japanese businesses have been degrading their labor force, shifting a huge proportion at the margins out of full-time and into part-time. The Japanese still don’t do mass layoffs, instead they just cut hours strenuously while maintaining the “happy” unemployment rate.
I find it very revealing that this remaking of marginal labor utilization is largest in the wholesale and retail trade segments, further confirming the decimation of internal Japanese economics (in the truest sense, not the mathematical theories that dominate). The Japanese people are clearing buying less “stuff” meaning that those who sell stuff are requiring much less of workers in 2015. That is how recessions are made, in that they become self-feeding trends of reduced “demand” and then reduced labor utilization leading to further cuts in income and then demand again.
The problem for econometrics and rational expectations is that any scientific endeavor, and economics very much fancies itself as that, is governed by observation rather than academic stylings even of the most elegant and sophisticated math. Clear observation, now two full years into the emotional bastardization, rejects all conclusions and intentions of the orthodox theories right down to their base foundation. Yet, as noted by the quoted economist above, it will never be falsified by anything other than counter-emotion; rational expectations is so irrational in its persistence because it is no longer even a scientific-like pursuit but a full-blown ideology of religious fervor. No matter how back Japan gets, orthodox economists still say that recovery is later in the year, or next year, or just around some unspecified corner. And it never is; maybe not all prices, especially those highly managed and cajoled, are market-clearing?
The Japanese economy, to any clear mind, took a huge turn for the worst under Abenomics yet its practitioners are still, somehow, given the final word on judging its performance, meaning that the mainstream still, somehow, subscribes to the religion.
Spending by Japanese households slumped unexpectedly in April and consumer inflation came in roughly flat, casting doubt on the central bank’s view that a steady economic recovery will help move inflation toward its ambitious 2 percent target. [emphasis added]
By all scientific observation, there was nothing unexpected about the “gloom” in April.
- Greece Abandons "Red Lines" As Troika Meets In Berlin To Craft "Deal"
We’ve been saying for months that the troika’s ultimate goal in negotiations with Greek PM Alexis Tsipras is to use financial leverage to force Syriza into abandoning its campaign mandate, thus sending a strong message to the EU periphery’s other ascendant socialists that threatening to disprove the idea of ‘euro indissolubility’ is not a viable bargaining strategy when it comes to extracting austerity concessions from creditors.
Over the past several days the political situation has come to a head with Tsipras expressing his extreme displeasure at the troika’s “coordinated leaks” and unwillingness to give even an inch on what the PM calls “absurd” demands.
Meanwhile, Syriza has splintered with the far-left faction demanding a return to the drachma and a default to the IMF. We’ve contended that Tsipras will not be willing to go that route and risk an economic meltdown that would likely see him lose power altogether. The more likely scenario, we have argued, is that Tsipras caves to the troika, compromises on the government’s ‘red lines’ (pension reform being the most critical) and risks a government reshuffle on the way to a third program, thus averting a euro exit and keeping Greece from descending into a drachma death spiral, even as the “solution” effectively strips the Greek people of their right to choose how they want to be governed — a tragically absurd outcome in what is the birthplace of democracy.
Sure enough, it appears as though this is precisely what will unfold over the coming weeks as Tsipras has now indicated he is willing to compromise on pension reform. Reuters has more:
Greek Prime Minister Alexis Tsipras is ready to discuss pension reforms in negotiations with international creditors over a cash-for-reforms deal, German newspaper Die Welt reported on Monday.
Labour and pension reforms are believed to be among the big sticking points with Athens.
Die Welt cited participants in the negotiations as saying the prime minister had signalled he was ready to discuss pension cuts and a higher retirement age.
The Greeks has not yet submitted a concrete proposal, the paper added in a preview of an article to run in its Tuesday print edition.
And with that it will be missioned accomplished for the troika. The Greeks will remain debt serfs, Germany will have made its point and sent a strong message to the rest of the EU periphery, and the IMF… well, that’s still up in the air because Christine Lagarde has made it abundantly clear that the Fund does not wish to participate in perpetuating this ponzi any further unless Greece’s EU debtors agree to a writedown of their Greek bonds. Largarde and Draghi reportedly met with Merkel and Hollande in Berlin today, perhaps sensing that the charade is finally coming to an end.
Via Reuters again:
The chiefs of the European Central Bank and the International Monetary Funded headed to Berlin for talks late on Monday with the leaders of France and Germany on how to proceed with Greek debt negotiations.
EU officials said ECB chief Mario Draghi and Christine Lagarde of the IMF were joining the German and French leaders, and the president of the European Commission, with the aim of reaching a joint position on how to negotiate with Greece.
The unexpected development came after Greek Prime Minister Alexis Tsipras fired a broadside at international creditors that officials said bore little resemblance to his private talks with EU leaders.
Once again, here’s a flowchart which diagrams what comes next:
* * *
For those interested to know what these “absurd” demands from the troika are, we bring you the following from KeepTalkingGreece who has the story:
Creditors command and demand, Greece is willing but … some red lines cannot be set aside. Apart from that, creditors’ commands are anything but logical as their demands could be only described as crazy. Furthermore the creditors seem divided as to what they demand from Greece with the logical consequence that the negotiations talks have ended into a deadlock.
According to Greek media reports,
While the European Commissions wants austerity measures worth 4-5 billion euro for the second half of 2015 and the 2016, the International Monetary Fund raises the lot to 7 billion euro for 2016. The all-inclusive austerity package should include among others €2.7 billion cuts in pensions.
The Pensions Chapter is one of the thorns among the negotiation partners, and Greece would love to postpone it for after the provisional agreement with the creditors, call them: Institutions.
While it is not clear whether it is the IMF or the EC or both, it comes down to the command that
“Pensions should not be higher of 53% of the salary due to the financial situation of the social security funds.”
Pension for a civil servant (director, 37 years of work) should come down to €900 from €1,386 today after the pension cuts during the austerity years.
Pension for private sector – IKA insurer (37 years of work, 11,000 IKA stamps) and salary €2,300 should come down to €1,250 from €1,452 today after the austerity cuts. (examples* via here)
Of course, with the PSI in March 2012, Greece’s social security funds suffered a huge slap in their deposits in Greek bonds.
According to the Bank of Greece report of 2012, social security funds were holding Greek bonds with nominal value €18.7 billion euro. The PSI gave them a new look with a nice hair cut of 53.5%. Guess, how many billions euros were left behind.
If one adds the loss of contributions due to high unemployment, part-time jobs, uninsured jobs and the disappearance of full time jobs in the last 3-4 years, the estimations concerning the money available at the Greek social insurance funds are … priceless!
Another thorn in the negotiations is the Value Added Tax rates.
Creditors reportedly want Value Added Tax hikes in the utility bills, electricity and water charged with 23% V.A.T. from 13% now.
Do I hear you say that the austerity recipe imposed to Greece is wrong? You’re totally right.
But creditors insist on it and then wonder why the soufflé dramatically sinks once it comes out of the oven in Brussels.
*examples: the pensions issue is a huge labyrinth as full or reduced (early retirement) pension calculation depends on several criteria in addition to the 37 years +11,000 IKA-stamps scheme. There is no average and therefore there can be no average cuts.
Before the crisis, pension was 80% of the salary of the last 5 work years. Now it has come down to 60% of either last salary after the salary & wages sharp cuts or of the best salary. And creditors want it down to 53%! Go figure…
What is fact is that pensions in private sector sank at 26% in the last 3 years.
- The Commerce Department Will Throw You In Jail For Not Filling Out This Survey
Submitted by Simon Black of Sovereign Man
The Commerce Department will throw you in jail for not filling out this survey
Chances are that you’ve never heard of the International Investment and Trade in Services Survey Act that was originally passed nearly 40 years ago.
And chances are you didn’t catch the November 20, 2014 edition of the ‘Federal Register’, the US government’s daily opus of new rules and regulations that ran 331 pages that day.
So, chances are, you have no idea that the Department of Commerce might just want to throw you in jail right now. I’ll explain.
Back in 1976, Congress decided that they needed more information on US companies’ international trade activities.
So they passed a law requiring the Department of Commerce to survey the biggest businesses in America to find out more about what they were doing abroad.
These days, the survey is conducted every five years. And like most surveys it’s a bunch of useless bureaucratic drivel that only wastes the time of the poor souls who have to fill it out.
Now it’s something that can get you thrown in jail.
Late last year the Commerce Department quietly published a new ‘rule’ in the Federal Register requiring every American with certain investments abroad to fill out their survey, regardless of whether or not they were notified.
In other words, you’re just supposed to know that you have to fill out this form.
And if you don’t, the penalties are severe.
For the first time ever the government is imposing both civil and CRIMINAL penalties for non-compliance.
The fine for not filling out the survey (known as BE-10) ranges from $2,500 all the way to $25,000.
And if they think you intentionally didn’t file, you “may be imprisoned for not more than one year.”
Either way, even if you had no earthly idea and had never heard of this survey, they reserve the right to seek “injunctive relief commanding such person to comply.”
So if you don’t fill out the form, they’ll get a judge to order you to comply.
This really borders on insanity.
The federal government of the United States of America… the Land of the Free… is willing to clog up the court system to either force people to fill out a survey, or to prosecute them for not doing so.
Forget about rapists, murderers, and thieves. The government’s priority is to imprison people who don’t fill out surveys.
What’s really amazing is that your elected representatives in Congress weren’t the ones to enact these absurd criminal penalties.
The Department of Commerce’s Bureau of Economic Analysis (BEA) did this all on its own. They simply created a new ‘rule’, then buried it under hundreds of pages of other regulations.
And even though Congress never even sees them, and no reasonable person has ever heard of them, these rules have the same weight and effect as the law.
So much for representative democracy.
Two important questions come to mind:
- How many other rules that carry criminal penalties might we be breaking at this very moment without even realizing it?
- Just who the hell do these people think they are?
Regardless of whether or not the penalties are ever exacted is irrelevant.
It’s disgusting to even be threatened with such atrocity, simply because some bureaucratic functionary needs to justify his/her position.
It’s a clear sign that in today’s system, the government doesn’t exist to serve the people. They think the people exist to support the government.
Abraham Lincoln once told a war-torn nation that a government of the people, by the people, for the people, shall not perish from this earth.
Tragically, Lincoln was totally wrong. Because this is what freedom has become in America.
Have you reached your breaking point yet?
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