Information seekers face a problem. Common topics widely publicized and researched get hundreds or thousands of analysts of various types (professional, paid, volunteer, hobbyists), with different backgrounds, and thus come up with wide ranging analysis. Much of this analysis is severely biased, especially when commercial interests pay analysts to reach conclusions conducive to their business. This is most notable with the stock market, where analysts work for the same companies that hold positions in the stocks they are giving good ratings to. But this is not a terrible situation because other information is available, and so it's possible to compare analysis and filter biases, some of which are very obvious. For common topics, such as a natural disaster (Hurricane Sandy), a political election, or the financial crisis, there is an overwhelming amount of data and thus an overwhelming amount of analysis. Much of this is freely available on the internet, although there are niche companies that might charge for it, but in any event it is publicly available even if some is in paid form.
But what about 'non events' - things that supposedly never happened or don't exist. Or topics where data is sparse and widely misunderstood. Such as:
The problem with events that 'never happened' or where officials downplay, deny, or obfuscate the topic, leads researchers off the trail. Analysts, journalists, and others won't want to even discuss the topic for fear of losing their jobs or being branded with a negative connotation, thus reinforcing it's non existence. This also creates negative pressure on available data, as they won't want to host it on their websites or collect more data as it's 'a waste of time.' There's so much going on in the world today, and living in an age of near instant communication causes the need for people in the information business of all types to prioritize and focus.
Even in cases like the JFK conspiracy, even though many do not believe in the conspiracy, enough people consider the possibility that there was another version of events, that many have collected additional data and did scientific studies of the Zapruder film.
Let's take a look at the 3 above examples from 3 unrelated fields.
The Forex market is the most significant market in the world, in that it represents the global financial system as a whole (with the exception of a few small countries that do not participate). In some ways it determines the value of money itself, because a central bank can only create as much of it's OWN currency as it wants. That money can be used internally, but if there are not sufficient means to deploy it domestically, and they want to purchase foreign goods and services, they first need to enter the Forex market and exchange their money for foreign currency. Because of this, the United States since WWII has pursued a policy to force other nations to use the US Dollar, thus making Forex less relevant for monetary policy in the United States. Some great examples of this policy, Cuba has been an enemy of the US since Fidel Castro took power, but during that time, until 2004 the US Dollar was the most widely used currency on the island, being accepted for payment in shops and to conduct business. The largest example is the Petro Dollar, where the US has convinced oil producing nations to sell oil in US Dollars, and to reinvest some of that money into US markets. Today, Al-Waleed bin Talal is Citibank's largest single shareholder, and Saudi Arabia enjoys military protection from the US and spends the most on arms as a percentage of GDP (8.9%) than almost any other country on the planet, mostly from US arms dealers. Standing up to this policy usually follows with a troubled fate.
The US has an untold policy (but known in high circles) in the 3rd world (actually any non G8 country) "Use US Dollars or we bomb you." The most obvious recent example being Iraq, where in 2000 they decided to price oil in Euros, not US Dollars in retaliation for sanctions. Experts feel this is a large reason why Iran is the next significant US target. US hegemony is literally expressed in US Dollar hegemony. As Rothschild is quoted as saying:
"Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild
It is not needed to make this official policy because there is a correlation between the use of US Dollars and contracts with US Corporations, which is the lobby that pushes politicians. The bankers support the corporations same like they support the government, by supplying them with a near unlimited supply of money, so their agenda remains subtle but clearly there. If you look at any US intervention since WWII there is an obvious trail of local policies designed to go off the US Dollar system (whether it's a blatant switch to Euros or another currency, or the introduction of a socialist currency system such as seen in Chile with the introduction of Project CyberSyn).
Isn't it ridiculous how Senators accuse China of being a 'currency manipulator' when the Fed is creating money out of nothing, sending it to the Chinese, and they are sending products to the US? The US is trading worthless paper for products; they have effectively convinced the Chinese to send a bunch of manufactured goods to the US for nothing. To put icing on the cake, they reinvest their profits in US Treasuries! It's a better economic situation for the US than if the entire country of China was annexed. This goes to show you in the example of Forex how little is understood even by power brokers.
The origins of modern Forex since the Nixon shock remain a mystery. Few official accounts outline what went on at Camp David the weekend before Nixon announced the suspension of the gold window (Here's one). But we know the State Department and National Security Council were not invited, and we know George Schultz and Henry Kissinger were the leading voices of the shock plan. On the surface, it was simply a negating of obligations, so the commonly held view is simply that the US didn't feel obliged to fulfill the Bretton Woods agreement. But what if something else was going on? The facts are that both men are members of CFR and both have openly promoted the use of a Global "One World Currency." Both have been advisers to some of the world's largest corporations and several US Presidential administrations.
From an analytic perspective, Forex remains the largest market in the world and the only one that is completely unregulated. While Dodd-Frank and other regulations seem to have regulated Forex, all they really did was regulate retail Forex, in other words, they regulated the retail investor. Interbank Forex remains completely unregulated.
Another problem is that because there is no central exchange for Forex, data supplied about figures like volumes and profits are largely voluntary. The BIS does surveys of banks which are not only voluntary they are not audited. In other words it may be possible that there are private banks exchanging trillions per day on the Interbank Forex market and no one would ever know. By use of offshore banking jurisdictions it's theoretically possible there are some whale banks that no one even knows exist. As central banks create money out of nothing, they could theoretically transfer money into one of these banks via swap lines or other instruments (not necessarily direct M3) and it would be totally off the books. In an accounting sense on a central bank level, Forex is the largest legal money laundering operation that's ever existed. Once a central bank creates electronic currency and transfers it via Forex to another jurisdiction, possibly through multiple corresponding banks, it morphs from whatever instrument the central bank used into depository cash that can be spent in the real economy.
Forex is essentially a derivative in this context, however, there is a big difference between Forex and other derivatives. First, Forex is a cash market that is settled immediately (although due to a trading rule trades are settled after 2 days) but you have a profit or loss in foreign currency immediately upon closing your position. Second, every participant in the economy uses Forex and money, whereas most derivatives are used by only sophisticated institutions and corporations. The significance of the value of the US Dollar is felt by every American who uses US Dollars to purchase products, as is the same in other jurisdictions.
Another mysterious fact about the Forex market is that while it is the largest market, it's also the most concentrated. While retail Forex has been growing, most brokers and even most banks are just middlemen to several key players. About 90% of the entire global Forex volume is handled by 10 banks, and about 5% by another 2o-30 banks, and 5% by retail customers and brokers. The 10 banks essentially control the Forex market, under a veil of complete secrecy. The Forex market is essentially whatever these banks tell us it is. Most of what we know goes on by these banks in the Forex market has come from insider testimony, and surveys such as the BIS survey. The point here is that these 10 banks could literally agree and decide to fix all Forex rates and it would be legal, and no one could do anything about it. Sure, black markets would ensue like we are seeing in Argentina. But these banks have such a monopoly on international payments it would be difficult for these black markets to flourish.
Fortunately, the Forex market isn't very complicated. No matter what is going on behind the scenes, the Forex market trades within a certain limited numerical range and aside from large shifts (such as the creation of the Euro and China's plan to make the Yuan convertible) it's not difficult to analyze the market with GIGO (Garbage in Garbage out) approach. But it still remains the largest market in the world, the most significant market in the world, that we know the least about.
Unlike Forex, there is a large amount of data from governments and individuals around the world. Even US President Jimmy Carter filed a report that he witnessed a UFO. But the available public data is a fraction of a percent of the total, most being held by governments under security regulations. Many governments such as the UK have released files pertaining to the subject, but still keep many classified. Organizations such as the Disclosure Project have organized the testimony and release of files from high level, highly credentialed government and corporate witnesses. Much of the reports on ET/UFO info are uncorroborated or in some cases even hoaxes. So by focusing on extremely credible sources with all governments but most specifically the US DOD (Military/CIA) and experts from the Aerospace and Defense industries, the Disclosure Project brings credibility to the information. Many of the older witnesses have only come forward now that they are deep into their retirement because many signed non-disclosure and secrecy agreements that would have put them in violation, thus losing their pensions or being targets of smear campaigns or worse (there is a high tendency for witnesses to disappear or develop diseases shortly after coming forward).
What some of this information indicates not only provides smoking gun proof evidence, both in the form of testimony and documentation, it shows that world governments have not only known about the ET presence they have made contact and contracts with ET. One of the most interesting accounts comes from Philip Corso, highly decorated retired Army.
According to Corso, the reverse engineering of these artifacts indirectly led to the development of accelerated particle beam devices, fiber optics, lasers, integrated circuit chips and Kevlar material.
He goes on to describe in detail how the Military released this technology to major US corporations through research groups such as PARC and through R&D at major corporations in the fields of Aerospace, Defense, Technology, and other industries. This correlates with a 'jump' in research in many technology fields. For example, until the early 1950's computers were built using vacuum tubes, and most research was done on a theoretical basis. With the introduction of micro circuitry and the micro processor, computing power doubled every 18 months according to Moore's law, and gave rise to and entire industry eventually leading to mainframe use by large organizations and the PC revolution. Other technologies include Fiber Optics, Kevlar, "Beam Weapon" or "Death Ray" technology, Stealth technology, Weather Modification, and more. Scientists such as Nikola Tesla were working on advanced technology before this time, but the release and use by industry ironically coincides with reports of Military working with ET.
Further accounts state that Eisenhower had made a technology exchange deal with ETs secretly, only known to top Military brass which continues to this day. While this in itself is not well documented, witness testimony such as from Philip Corso corroborates with this. Also many Air Force personnel have reported seeing ETs in Military jump suits, and evidence found by hacker Gary McKinnon such as a list of Navy officers, some of which were listed as "non-terrestrial officers."
'I found a list of officers' names,' he claims, 'under the heading Non-Terrestrial Officers.' ...
'Yeah, I looked it up,' says Gary, 'and it's nowhere. It doesn't mean little green men. What I think it means is not earth-based. I found a list of fleet-to-fleet transfers, and a list of ship names. I looked them up. They weren't U.S. navy ships. What I saw made me believe they have some kind of spaceship, off-planet.'
If Aliens are actually involved in Earth politics, even on a basic level such as providing technology, this has profound implications on our current view of the world. History books would literally need to be rewritten taking into account such influences on Politics, the Economy, the Military, and Society. Some in the UFO community claim that a time will come when all will be disclosed. If that does happen, global society would endure a sudden paradigm shift, such as happened at major technological breakthroughs in history such as Special Relativity, and the industrial revolution.
Since the Fukushima nuclear disaster, reports indicate a growing radioactive cloud moving across the Pacific affecting North America, primarily the west coast. Unlike other types of research, anyone with a Geiger counter with minimal training can test for radiation. Some types of tests require special equipment, but basic Alpha/Gamma/Beta tests can be done using a Geiger counter available from retail outlets. First take a look at some of the data collected:
.. and so on
So why isn't this in the news? There was a scare after the event where residents of cities like San Francisco rushed out to buy potassium iodine pills, and after that the EPA and other government organization raised the levels of safe radiation creating a 'new normal' so that alerts would not be triggered (such processes are highly automated today). Also, several monitoring stations that monitor radiation in California were closed.
California is the 12th largest economy in the world with GDP comparable to Spain or Italy. The implications of radioactive produce coming from a state that produces a large percentage of the US food supply would be devastating. Ironically, California is a leading eco state with laws that don't exist in any other state protecting the environment and consumers. One would think Californians would be leading the information exchange about this topic, considering the lengths the state goes through to protect the environment such as a $1 Million fish ladder.
In this last case, the data is most clear, because it's impossible to deny readings of hundreds (and perhaps thousands) of radiation detection equipment. What's scary about this radiation case though, it will affect the health of people living on the west coast of North America as well as people who eat foods produced in that area.
This article is Socratic, not a hypothesis. By understanding the challenges facing information gathering and analysis of 'non events' or things that supposedly never happened or don't exist, we can begin to understand how to approach such areas where data is sparse or inconclusive. Also we must consider such non-events when considering analysis even when based on perfect information. In other words, if we are analyzing the food system we must consider the possible impact of the radiation in California which may take years or longer to have substantial evidence (as the effects of this radiation are very subtle). Or consider the announcement by the US government about the ET presence, how would that affect the stock market, and society? Of course there are many other topics, and worse for researchers, there are things that are complete unknown unknowns that can surface at any time. Before the industrial revolution, it was inconceivable to imagine that machines could do the work for us. Before the technological revolution, many things now commonly done by computers and gadgets were inconceivable.
Many sound analysis which become part of the common understanding of how things work, over time, are subject to ruin by such unknown unknowns, or 'black swan events' as called by Nassim Taleb. TEPCO, the Japanese energy company who owned the Fukushima power plant, calculated a zero percent chance what actually happened in 2011. Nothing in statistics is ever 0% or 100% except for knowns such as 1=1 but even then when you consider tolerance or quantum mechanics 1 isn't always 1. After the event happened, in the past, the chances of it happening were actually 100% because it did happen. This analysis formed by TEPCO was created by leading mathematicians and nuclear scientists from a nation of supposed superior technical capabilities. It proves that when looking at the facts, one must consider 'non events' even if they have a low probability of impacting the conclusion.
Jul 22, 2013 - 06:27 PM GMT
Ever wonder what Bernanke is saying? Well, it boils down to this: at the same time that Jimmy Carter says the US doesn't have a functioning democracy, Ben Bernanke says the US doesn't have a functioning economy.
Unfortunately, people understand what Carter says, though they may not agree with him, but they do not understand what Bernanke says, and that has nothing to do with agreeing with him or not. Moe likely it has something to do with the illusionary oracle qualities once attributed to his predecessor Alan Greenspan, whenever no-one had a clue what he was saying. In reality, Ben Bernanke will turn out to be the biggest scourge on American society since the same Alan Greenspan, but that's not how he's seen; instead, just like Greenspan, he's idolized. What's wrong with this picture is that Bernanke's words and actions are interpreted in the press exclusively by people who live in the part of society that stands to profit from them, let's call it "the financial world". That they are but a very small part of society easily gets lost in translation.
Greenspan was and still is mostly regarded as a miracle worker of super-human intelligence, even though he ran the US straight into the recession/depression/crisis we've now been witnessing since about the day when Bernanke took over the Fed, February 1 2006. Greenspan set the American economy firmly on the road to ruin through his support of the Glass-Steagall repeal and various tax-cuts, as well as his insistence that the newly blossoming derivatives trade needed little or no regulation. Certainly in hindsight, it should be obvious that Alan Greenspan served the interests of Wall Street, not Main Street.
All Ben Bernanke has done since succeeding the Oracle is continue where the former left off. Not that you would know it from the picture the media paint of him. Or the president, for that matter. Just about everyone agrees that he saved the US from something like a Great Recession II. In reality, what Bernanke has done over the past 6.5 years is being a prominent player in aiding and abetting Wall Street banks in hiding their losses through the violation of accounting standards, declaring them Too-Big-To-Fail, and then handing them trillions of dollars in public funds, most recently through QE programs, thus enabling them, the very same banks that would no longer exist without public funds, to once again play the casinos and come up with near record profits and bonuses.
This is the great little scheme that is presented to you through the media as "saving the US economy". It has done no such thing. It has been, and still is, enormously harmful to the economy. But as long as you continue to believe that what's good for Wall Street is also good for Main Street, the trick will continue to be played on you; Ben Bernanke is giving free money (well, actually, credit) away to those whose interests he represents, the banks, and taking it from those he doesn't, you. What Bernanke has saved is bankers' bonuses, not the economy. And if there is a direct correlation between the two, it's not the one you're being tempted to think it is. Which is how you should interpret Bernanke's insistence before Congress on July 17 that "We're very focused on Main Street": it may be true, but not in the way he wants you to believe it is.
Here's how Bernanke said the US doesn't have a functioning economy: by choosing to continue QE, he would reveal how weak the US financial system is. He already has, obviously, first by starting up QE in the first place, and again by his recent backpedaling on the conditions for tapering. The worst wet dream of the big banks is that they wouldn't get their black jack chips for free anymore, and they manage to convince everyone that the real economy would go down if they can no longer play. Regardless of the details: if it needs free money, the financial system can't stand on its own two legs.
By choosing to halt QE, on the other hand, Bernanke would reveal how weak the financial system is just as much. The slight rise in available credit that has allowed Americans to add yet more debt towards home and automobile purchases, giving the economy a fleetingly rosy glow in the process, would be over in a heartbeat. The banks would sit on their QE free excess reserve giveaways parked at the Fed even more than they already do. And then use it as security for more leveraged high-risk wagers. That's where the money is, not in consumer loans. Don't worry, says Ben, we'll keep interest rates low for the foreseeable future. Hossanah, sings the entire choir. But interest rates for whom? Only the big banks, that's for whom. Rates on the street, not so much: he has no control over those.
Here's an example of Bernanke's effect on Main Street: debt has been rising, not falling, since debt plunged the markets into that deep dark pit. A graph I picked up here at Zero Hedge:
Is the new and additional debt at least put to good use for American society? The answer is a resounding "no". Just take a look at the diminishing productivity of debt in the US. Which, as is evident from these two graphs, will soon turn into negative territory, if it isn't already there.
Here's another example of how Bernanke is killing Main Street, courtesy of Chris Turner at Zero Hedge:
The good news behind the bottom 85% of close-to-retiree status Baby Boomers that participate in the “markets” via sub $50,000 retirement money is that at some point, the voters might actually get smart and get mad at how much money has been siphoned from them. Consult the chart below to see a historical relationship between total savings and amount of interest income earned on the savings.
Note that prior to 2001, as savings increased (blue line), interest income received increased (red line) proportionally. However, after 2001, the interest earned stopped increasing. The green line shows the effective interest paid on interest bearing accounts.
Scaling into the shaded area representing 1986 to present, the following chart depicts the actual Fed Funds rate determined by FOMC.
Let’s apply some thought experiments and make a couple calculations – what would happen if the FOMC were removed and the Fed Funds rate “floated?” Using average historical rates from the 1920’s for the 10 year note– the mean rate would sit around 5.82%. With a floating Fed Funds rate, banks would be competing for money and providing responsible savers with some interest income. Voila, a calculation is borne:
The final chart above makes a loud and clear statement toward the beneficiaries of the low interest rate environment.
"Very focused on Main Street" indeed. It's where (through QE) newly found and fangled bank profits come from. As per the very first - Change in Debt - graph, household debt has gone down (though that's largely due to falling real estate prices, in other words, a double edged coin), but so have savings. And not a little bit either. Americans lost $10.8 trillion. And counting.
So how does the Oracle 2.0 explain it all? From Bloomberg, July 10:
"Highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy," Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts.
The numbers don't add up to that. If it's what's needed for the economy, that economy is in very bad shape, and has been for a long time despite the same highly accommodative monetary policy. If the economy is the goal, it makes no sense to keep going or even double down. What Bernanke's saying he's aiming for is not what's needed for the economy, but for the financial system.
........ the minutes showed many Fed officials wanted to see more signs employment is improving before backing a trim to bond purchases known as quantitative easing.
The fear of course is that the very moment they ease bond purchases, stock markets plummet and, with a short lag, unemployment will start rising again. Any positive effect of QE on employment is not backed up by numbers, other than people believing the illusion that it makes the economy better. But that's a fleeting illusion which depends on both their belief and continuing QE. Take either of the two away and you're holding an empty bag.
Bernanke said the central bank is trying to communicate its plans for two different policy tools. With bond purchases, the Fed is "trying to achieve a substantial improvement in the outlook for the labor market in the context of price stability. We’ve made progress on that but we still have further to go," he said.
The Fed wields another policy tool with its benchmark interest rate, which it reduced to close to zero in December 2008. Officials have said they won’t consider raising the main interest rate until the unemployment rate falls to 6.5 percent, as long as long-term inflation expectations don’t exceed 2.5 percent.
We're approaching nonsense territory here. We've already seen that years of low interest rates and bond purchases have not raised the velocity of money in the US economy. For the US economy and labor market, QE has been a total and unmitigated disaster, and a hugely expensive one to boot. For the financial system, though, it's been an unbelievable behemoth of a windfall.
Sure, unemployment has fallen a little, because most people still believe that a higher stock market is positive for the economy. But if it rises only if and when promises are issued for more and continuing free giveaways for the banking sector, that can then remain in accounts with the Fed and not get into the real economy, then a higher stock market is perhaps a symptom of an increasingly sick economy, not a healing one. It's like banks announcing great profits, that directly reflect nothing but those same giveaways. A profit would seem to indicate something has been sold for more than was paid for it, because of added value. That is obviously not the case here. Without free credit, there would be no "profits" in the banking sector.
"It may well be sometime after we hit 6.5 percent before rates reach any significant level," Bernanke said. "So again, the overall message is accommodation."
Well, no. If and when only, at best, one in every 7 dollars in QE has any influence on the real economy at all (the estimate is 86% is in banks' reserve accounts with the Fed), then QE is a failed policy. From the perspective of the economy, at least. For the banking sector, it's an entirely different story. People keep on thinking that what is good for the banking sector is good for the economy as a whole, but the recent graphs prove that this is not true. That should be end of story for QE, but Bernanke's oracle talk apparently still is too convincing; the general optimism bias trumps reality. Bernanke claims he's accommodating the economy, but he's not, he accommodates Wall Street.
The 59-year-old Fed chief said the FOMC may opt to hold interest rates near zero even after unemployment reaches 6.5 percent due to the possibility of low inflation.
And, apparently, he'll keep on accomodating Wall Street, even if enough waitressing, greeting and flipping jobs that don't pay enough to feed yourself let alone your family, but still count towards official jobs numbers, can be created to lower the unemployment rate to 6.5%. Why? Deflation. Or as he euphemistically calls it: low inflation. Bernanke paves the way for endless QE (breaking his own former promises, but he's leaving anyway). Why endless QE? Because without it, the US banking sector AND economy would collapse in a heartbeat. That's what it means when markets rise as fast as they do just because Bearded Ben announced what he did. It means there are no other prospects for profits. Or that the banks don't have to go looking for other prospects as long as the free stuff keeps flowing in.
Now, whatever powers one may think they do have, it should be clear that Bernanke and the Fed have no control over : 1) Treasury yields and 2) Velocity of money. As for the first, Ambrose Evans-Pritchard has some numbers:
After weeks of utter confusion, the result of Fed taper talk is clear enough. Long-term borrowing rates are much higher across the world regardless whether the underlying economies are in any fit condition to absorb this shock. The rise in 10-year sovereign yields by basis points has been: Japan (25), Germany (35), France (62), UK (63), Norway (63), Australia (66), Korea (66), Spain (70), US (70), Italy (74), Poland (120), Mexico (122), Turkey (131), Brazil (135), and Indonesia (170).
As you can see, the emerging market bloc has suffered the worst hit, especially those countries caught when the tide went out with big current account deficits – the CADs as they are called in the trade. Basically, the whole world has just suffered a credit shock, even as the global economy weakens and the IMF downgrades its forecasts. What a mess.
A rate rise of 70 basis points or more is nothing short of catastrophic for Italy, Spain, Portugal, all in the grip of nominal GDP contraction, and all at risk of surging debt ratios as the denominator effect does its worst. The ECB must take action immediately to offset this "passive" tightening.
Can the US deal with higher yields on 10-year Treasuries? Well, better than Spain and Italy, obviously, but when yields are higher than real GDP (nominal+inflation, perhaps some 2.5% combined today), debt continues to rise. Yields are there already. Add a little deflation and what will the Fed do? QE on steroids probably, a.k.a. more debt. As Ambrose put it:
What struck me about Bernanke's testimony was his comment that the Fed would have to monitor the risk of "outright deflation" closely. "If needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time", he said.
The US will be the least worst horse in the glue factory, but only by the grace of Europe, Japan and China doing even worse. That will not save it from a combination of rising yields and falling inflation and GDP growth, however. And that is a lethal combination.
No risk of deflation, you think? Ben Bernanke does:
Some sources of declining inflation "are likely to be transitory" and expectations for future price increases "have generally remained stable," he said in his prepared remarks. At the same time, "very low inflation poses risks to economic performance - for example, by raising the real cost of capital investment - and increases the risk of outright deflation." [..]
[..] Bernanke said in his testimony the Fed could keep buying bonds for longer if "financial conditions - which have tightened recently - were judged to be insufficiently accommodative to allow us to attain our mandated objectives." Responding to a question, he said the policy makers have succeeded in reducing market volatility that has greeted the Fed’s discussion of tapering. "Markets are beginning to understand our message, and the volatility has obviously moderated," he said.
Well, no. Volatility fell because of the promise of more free money. And that's all she wrote.
Policy makers have tried to assure investors that the Fed will hold down the benchmark interest rate after ending bond buying.
Well, no again. Chances are very real that when the Fed ends its bond buying, yields will rise so fast the Fed will lose control of the benchmark rate.
As for No. 2 above, the Velocity of Money, here's once again my favorite graph so far this year. It's so important in understanding the American economy today, one can't repeat it often enough:
Everyone in America who doesn't work on Wall Street should be very worried when stock markets go up as soon as Ben Bernanke suggests more free credit is available for the world's biggest banks, because everyone who doesn't work on Wall Street will end up paying for it. Instead, everybody's celebrating it. Still, all it is, is a clear and simple sign that the markets are not well. At all.
Americans should demand that Bernanke discuss how he intends to speed up the velocity of money. This should be his no. 1 priority, because without it there will be no recovery, but he doesn't even mention it.
Wall Street banks post huge profits again, and pay huge bonuses. Does that mean they're healthy? No, it doesn't. It only means that they can use excess reserves provided by Bernanke's QE to increase high-risk wagers. Take away QE and then you'll see how healthy they are. And it goes, of course, one step further: Banks can (and will if there's a profit in it) take the advantages provided by the QE excess reserves and use them to bet against exactly what Bernanke purports to aspire to for the real economy. And he'll play innocent, like he never could have seen that coming.
I'm not saying that Bernanke wouldn't like to help out Main Street as well, I'm just saying that it's not his priority, and that he'll gladly help out Wall Street at the cost of Main Street. And will gladly lie about it too.
Ben Bernanke has spent 6 years and change dragging America deeper into the debt swamp, and just about everyone thinks he's brilliant. He must be quite the magician indeed. But as Chris Turner says above: The good news [..] is that at some point, the voters might actually get smart and get mad at how much money has been siphoned from them.
By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)
Jul 22, 2013 - 06:45 PM GMT
Ben O'Neill writes: Since the details of the NSA programs became publicly known a short time ago, already there are signs of market pressures being brought to bear to curtail the actions of the agency and its partner companies. There are early signs of emerging boycotts of US-based internet and telecommunications companies, and customer migration to firms operating outside the United States. One observer has even suggested that the next desirable IT feature will be for host companies operating outside the US to advertise that they are “not subject to US law” and this suggestion is gaining traction among IT commentators.
According to one commentator, “The biggest concern right now is that if US firms lose their credibility, people in other countries might look to take their business elsewhere. Government officials have been desperately trying to cover their tracks at home, insisting that PRISM is about spying on foreigners and not US citizens, but how does the rest of the world feel about this?”
This illustrates one of the outstanding features of decentralization in the political sphere, and the ability of decentralized structures to combat government despotism. By engaging in mass surveillance of foreigners through US companies, the US government has now put the entire telecommunications and computing industry of the US economy at a competitive disadvantage against any other country willing to impose stronger privacy standards on its own security agencies. Moreover, the emerging losses to the credibility and customer base in the US telecommunications and computing industry will have a flow-on effect in all other countries—it signals the negative economic consequences that come from using this industry for the purposes of mass surveillance of the public. Competition between different governments creates disincentives for unwarranted surveillance by punishing the industries of countries which do not adequately satisfy the privacy requirements of consumers.
Note that the positive effects of political decentralization do not hinge on the existence of any other country acting as a bastion of freedom against the tyranny of outside governments. The foregoing competitive principles apply even when all governments are repressive in nature, since a decentralized structure still imposes incentives to be less repressive than the other guy — to compete for the same customers. Hence, the foregoing observations should not be taken to require that privacy and property rights are any better respected by governments outside the United States. In fact, many foreign governments are far worse than the US government in terms of their privacy laws, though their lesser technical capabilities deprive them of the capacity to be as intrusive. Other governments have the same contempt for privacy evident in the functioning of the US government, and many allied powers have actively cooperated with the activities of the NSA, making them partly responsible for the mass surveillance operations in question.
The present consumer trend away from the US telecommunications market should give us hope that market forces can provide a constraint on the power of governments. In view of this valuable market pressure it is imperative that people resist attempts by their governments to centralize control of the internet, either in their own hands, or in the hands of multinational bodies such as the United Nations. Even taking account of the external influence of the US government, and taking account of the mischievous dealings of other governments around the world, the presence of any degree of competitive decentralization — even among different countries operating in an unofficial US empire — imposes incentives for constraints on political power that are absent within the confines of a single political polity. If US telecommunication and internet companies lose business to rivals in Europe as a result of the recent surveillance revelations then this will send a message to political powers around the world, telling them that greater respect for privacy leads to a greater share of the telecommunications market.
Decentralization of political control of the internet is a valuable pursuit, but it is not enough on its own. Wherever governments exist they will see the communications occurring in their territory as a valuable source of information to pursue their political goals and entrench their power over their subjects. As a part of this effort governments will also seek to prohibit technologies and practices that could stifle their attempts to surveil the public.
There are many possible technical and legal avenues that could protect privacy on the internet from the predations of governments. Greater use of personal encryption could protect the content of messages and phone calls, so long as people are not punished for the use of this technology. Technologies or practices to scramble or delete information on the path of communications in the telecommunications network could also assist to protect the public against collection of its “metadata.” Consumer patronage of telecommunications companies operating outside the United States could make it more difficult for any single government agency to “own the internet.” And most importantly, a vigilant public, aware of the dangers of creeping statism, could demand that governments act according to the rules of a civilized society, where searches and seizures of information requires probable cause.
As is often the case in political affairs, we have here a situation where governments reach their tentacles into the lives of the people under their control, and it is market forces from citizens and consumers which oppose and constrain this process. The market imposes a civilizing process on society and the State imposes a de-civilizing process. In regards to the relationship between privacy and civilization, Ayn Rand put things best:
Civilization is the progress toward a society of privacy. The savage’s whole existence is public, ruled by the laws of his tribe. Civilization is the process of setting man free from men.
Ben O'Neill is a lecturer in statistics at the University of New South Wales (ADFA) in Canberra, Australia. He has formerly practiced as a lawyer and as a political adviser in Canberra. He is a Templeton Fellow at the Independent Institute, where he won first prize in the 2009 Sir John Templeton Fellowship essay contest. Send him mail. See Ben O'Neill's article archives.
© 2013 Copyright Ben O'Neill - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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HM Revenue & Customs: Who is liable for Corporation Tax Official UK Revenue Dept.
LLP pays no tax like US S-Corp
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 (in Great Britain) and theLimited Liability Partnerships Act (Northern Ireland) 2002 in Northern Ireland. A UK limited liability partnership is a corporate body - that is to say, it has a continuing legal existence independent of its members, as compared to aPartnership which may (in England and Wales, does not) have a legal existence dependent upon its membership.
A UK LLP's members have a collective ("Joint") responsibility, to the extent that they may agree in an "LLP agreement", but no individual ("several") responsibility for each other's actions. As with a limited company or acorporation, members in an LLP cannot, in the absence of fraud or wrongful trading, lose more than they invest.
In relation to tax, however, a UK LLP is similar to a partnership, namely, it is tax-transparent, that is to say it pays no UK corporation tax or capital gains tax. Instead, LLP income and/or gains are distributed gross to partners as self-employed persons, rather than as PAYE employees. It is a unique entity in its synthesis of collective and individual rights and responsibilities and its flexibility — there is in fact no requirement for the LLP agreement even to be in writing because simple partnership-based regulations apply by way of default provisions.
Guide to UK Tax for foreign investors
The Isle of Man and Jersey have hit back at accusations that they facilitate tax evasion and avoidance ahead of next week's G8 summit.
The offshore jurisdictions, frequently described as tax havens, suggest recent pressure from world leaders is politically motivated.
They also argue that they are more open about their tax regimes than they are given credit for.
G8 leaders will hold their latest summit in Northern Ireland on Monday.
Ways of combating aggressive tax avoidance and mass tax evasion are expected to be high on the agenda of leaders including UK Prime Minister David Cameron, US President Barack Obama and Germany's Chancellor Angela Merkel.
Up to now the focus of the world's media has been on big countries pointing their fingers at small islands - accusing them of helping big corporations and wealthy individuals avoid paying tax.
But now the leaders of some of those offshore financial centres suggest that the world's largest economies should get their own tax house in order first.
"Politicians love scapegoats," said the Isle of Man's Chief Minister Allan Bell. "And the G8 agenda is being politically driven because there's always someone else to point a finger at."
We just want a level playing field when it comes to tax transparency”
Allan BellIsle of Man Chief Minister
There is no universally accepted definition of a tax haven, but international bodies cite low tax rates and secretive financial systems as the major characteristics.
Most companies pay no corporation tax in the Isle of Man, but the island has recently signed tax information sharing agreements with the UK, US and European countries.
Mr Bell said that when it comes to tracing who actually owns some of the world's more secretive bank accounts, the Isle of Man is a decade ahead of other larger countries especially the UK and the US.
He also accused President Obama of double standards, given that the US federal government has no direct control over the tax policies of individual states.
That is especially relevant when it comes to the tiny US state of Delaware which has only 900,000 citizens but over a million registered companies - most of which are "brass plate" entities controlled by very private entities or individuals.
"We just want a level playing field when it comes to tax transparency," said Mr Bell.
"It's totally selfish from the USA because they want to track down their own tax evaders overseas, without looking at Delaware."
The channel island of Jersey also charges zero corporation tax for foreign-owned companies.
The company disclosed the investigation in a filing with US financial regulators. It was alleged that the company recorded sales of more than £7.6bn in Britain over the past three years without paying corporation tax.
Amazon does not disclose how much tax it pays in Britain.
However, its main UK subsidiary, Amazon.co.uk, is regarded as a "service company" rather than a retailer.
That means that the British company provides services to a parent company based in Luxembourg, where the tax rate is lower, the Guardian said.
HM Revenues & Customs declined to comment on whether it was examining Amazon. The report added that the investigation could be a routine audit.
The UK is home to a larger number of multinationals than might otherwise be expected based on the size of the UK economy alone. This is through a fortuitous mix of history, the pre-eminence of the London financial markets, investments in infrastructure and a stable regulatory environment. These UK headquartered multinationals may generate huge revenues from their worldwide operations but have only small or sometimes no UK based operating activities.
It is important to understand that the headline sales number (sometimes also referred to as turnover or gross revenues) is not equivalent to net profits or net income, as this figure does not take into account all the business expenses incurred to generate those sales revenues. Taxable profits are gross sales or revenues, less business expenses, plus or minus any adjustments required or permitted by the tax law (see Concept 9). In the case of a UK permanent establishment of an overseas company, the profits are based on amounts attributable to that business activity in the UK.
Where a UK company has established a business presence in another country (either as a subsidiary or as a branch/ permanent establishment) then, subject to certain exceptions, the taxable profits of those companies earned in other countries will not generally be subject to UK taxation (see Concept 6).
Britain’s largest water company has been accused of “ripping off the taxpayer” after it emerged it paid no corporation tax last year despite making profits over half a billion pounds.
Thames Water put up customer bills by 6.7 per cent, awarded its chief executive a £274,000 bonus and made profits of £549 million on a turn-over of £1.8bn.
But it succeeded in cutting its tax bill to zero and was handed a £5m credit from the Treasury by writing off investments in infrastructure against the amount it was due to pay the Government.
The company’s accounts also show it paid £328.2 million interest on “intercompany loans” via a Cayman Islands funding vehicle to pay external bondholders such as pension funds.
While legal, the head of industry regulator Ofwat warned that the large profits and complex tax arrangements of some water companies were “morally questionable”.
HM Revenue and Customs should "fully investigate" Google after information from whistleblowers "undermined" the firm's defence of its tax arrangements, a committee of MPs has said.
Google says that advertising sales take place in low-tax Ireland, not the UK.
But the Public Accounts Committee (PAC) said it had been told by ex-employees of the tech giant that UK-based staff are engaged in selling.
The company generated $18bn (£11.5bn) in revenue from the UK between 2006 and 2011 and paid just $16m (£10m) in UK corporate taxes in the same period.
Companies pay corporation tax on their profits, not their sales. But the current debate revolves around the apparent ability of multinationals to move their profits from country to country with little obvious relationship to where the sales are generated.
Proof that the NEW WORLD ORDER has been planned by the elite. Robert Welch, Founder of The John Birch Society, predicted today's problems with uncanny accuracy back in 1958 and prescribed solutions in 1974 that are very similar to Ron Paul's positions today. This is proof that there are plans in place by the elite to systemically disassemble US sovereignty. I wonder who those elite are.
Who of the famous people in Russia's modern history said the phrase: "I wanted the best, but it turned out as always"? There is quite a list of names that comes up in this connection, although it is associated with only one man - the Minister of Finance of the USSR, Valentin Pavlov, who once upon a time intended to stabilize currency in the country.
Many details of that story have been forgotten, although one should always keep such events in mind not to step on a rake again.
The formal reason for the currency reform was the fight against counterfeit rubles, which were allegedly brought to the USSR from abroad to undermine the Soviet economy. As a matter of fact, the cause for the collapse of the economy of the world's first-ever country of workers and peasants was much more prosaic: a low level of labor productivity in the USSR. When the Reagan administration managed to agree with Saudi Arabia to derail global oil prices, the situation became very bad. The production of money was growing, but it was not backed with the industrial production of essential commodities. In short, guns and tanks were produced in excess, but ordinary butter was hard to find.
Under these conditions, Mr. Pavlov decided to stabilize the currency circulation in the Soviet Union by removing a part of money from workers to thus solve (partially) the problem of shortage of goods on the commodity market of the USSR. Moreover, on 14 January 1991, shortly before the start of the reform, Pavlov was promoted and became the Prime Minister of the Soviet Union.
Thus, the desire of the administration of the country to reform the financial and political system was officially enshrined at the highest level.
On January 22, 1991, Soviet President Mikhail Gorbachev signed the decree about the withdrawal of 50- and 100-ruble notes issued in 1961." The exchange of those notes was to be accompanied by a number of strong restrictions.
The period of exchange was a very short one - only three days, from 23 to 25 January, that is, from Wednesday to Friday. Secondly, not more than 1,000 rubles per person could be exchanged, whereas the exchange of other bills was considered in special commissions before the end of March 1991.
All in all, 51.5 billion rubles from 133 billion cash paper money was subject to the exchange, or about 39 percent of cash assets. The amount of cash available for withdrawal at the Savings Bank of the USSR (Sberbank) was restricted as well - people could debit not more than 500 rubles from their accounts.
To conduct the reform, new 50 and 100 ruble notes were issued in 1991. The notes from 1991 in denominations of 1, 3, 5, 10, 200, 500 and 1000 rubles were issued soon afterwards. Old notes of 1, 3, 5, 10 and 25 rubles from 1961, and all Soviet coins continued to circulate along with the new ones, issued in 1991.
However, "it was smooth on paper, but they forgot about the ravines that they had to cross." As a result, the government's plans were realized only in part. The confiscatory procedure allowed to withdraw 14 billion rubles in cash from circulation (approximately 10.5 percent of the total mass, or slightly less than 17.1 percent of the planned withdrawal of 81.5 billion). The surprise effect of the reform was supposed to help in the struggle against speculation, unearned income, counterfeiting, smuggling and corruption. In practice, though, the main consequence of the reform was the loss of people's confidence in their government.
The international image of the USSR suffered too, a lot. For example, there were hundreds of thousands of shuttle traders, who were conducting trade with China at that time, and the Chinese were always happy to accept Soviet 50-100-ruble notes as payment. It is clear that the Chinese could not exchange their capitals in this way in three days just. They lost a lot of money because of the reform. The buses, on which shuttle traders would come, would be papered from top to bottom with paper money. Needless to say that all prices on Chinese goods immediately rose for Soviet buyers. The attitude to Soviet shuttle traders in Poland and other countries was similar.
Having realized the grand failure of his reform, Pavlov pronounced his famous phrase. However unpopular "shock" reforms in the Soviet Union continued under his leadership. On April 2 (just as unexpectedly), new prices were set in the country; they were about three times higher than the old prices. The inflation rate made up 12-35 percent a month.
Afterwards, there was a coup in August 1991. Pavlov took part in it - he was one of its organizers. Here is what General Valentin Varennikov wrote on this subject: "On August 18 overnight, the country's leadership, given Gorbachev's position, was forced to create the National Emergency Committee. This type of government agencies could be created by two figures: either the President of the USSR or the chairman of the Cabinet of Ministers of the USSR. The head of the Cabinet of Ministers, Pavlov, claimed responsibility, set up a committee and became one of its members."
He became a member of the committee, but he never became an active member of it.
According to the certificate from the Central Clinical Hospital of the Cabinet of Ministers of the USSR, No.200703/218 from August 19, 1991, Mr. Pavlov was diagnosed with alcohol poisoning in the morning of August 19. The next day, on August 20, he was hospitalized in the Central Clinical Hospital with "hypertensive crisis".
On August 29, the former prime minister was transferred to Sailor's Silence Prison (Matrosskaya Tishina), where all other members of the Emergency Committee were already staying. Pavlov was subsequently released from prison and pardoned in February 1994 by the State Duma of the first convocation. Afterwards, he served as the president of Chasprombanka for one year. He left the post on August 31, 1995. Interestingly, the bank's license was revoked on 13 February 1996.
In 1996 - 1997 years, he worked as an advisor at Promstroibank, then worked as a member of a number of economic institutions. Afterwards, he suffered a heart attack, then a stroke, and on March 30, 2003, Valentin Pavlov died. He was buried at the Pyatnitskoye cemetery in Moscow, next to his late relatives.
As for Pavlov's reforms, many politicians and historians agree that they completely undermined people's confidence in the Soviet government. Those notorious reforms showed a significant influence on the course of subsequent events in the country. Pavlov's reforms are considered to be one of the main reasons for the growth of political separatism in 1991 among the leaders of the Soviet republics. They led to the strengthening of centrifugal feelings between them, which ultimately led to the collapse of the Soviet Union.
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
WE ALWAYS BELIEVE THE IMF
Yet another 'leaked report' this time tells us something we have suspected for a long time – not only concerning the IMF's underhand “plausible denial” way of communicating bad news. The story starts with an internal IMF report called 'confidential' which was 'leaked to a Wall St Journal contributor'. This is now standard practice for the IMF, growing rapidly, and easy to trace back to its handling, or mishandling of European bailouts starting with Greece. One example is this report http://online.wsj.com...? where the IMF 'concedes it made mistakes'. Original leakage of this report generated a mini-crisis among EU27 finance ministers, including harsh words from Economics Commissioner Olli Rehn.
The basic cause of dispute is always traceable to two things: the IMF's bad habit of overestimating economic 'recovery', and who pays what for the next or present bailout?
The present leaked report is technical and concerns seemingly-complex fiscal matters, but soon gets to the meat. This time the IMF starts with it's own economists' recognition they made a terrible mistake with their forecasts of the Greek economy 'bouncing back' . They forecast that forced reduction in Greek deficits would lead to 'only' a 5.5% reduction in the size of the Greek economy. But rather soon they were horrified to discover this was a preposterous claim and had to admit that Greek GDP has already suffered – the right word – a contraction of close to 18%.
Ergo, Greece will need more money as its economy contracts further and faster, as its skilled persons and its young people flee the country – told by the government to do so.
MUCH MORE DRAMATIC IMPLICATIONS FOR THE US
Daniel Amerman writing in 'Financialsense' 11 July points out that the latest IMF leak is not only damagingly truthful, or truthfully damaging about Europe's economic meltdown, but is at least as damaging for the USA. In fact more so.
As the IMF report says, not exactly in these words, since late 2008 a substantial chunk of the US economy has become "artificial". Another term we could use is “virtualized”. In brief, as the leaked report says, the USA's private sector basically imploded and has not recovered to this day.
Both IMF and national government statistics have either lied about, or miscalculated the economic impact of “fiscal tightening” or the reduction of government spending – or projected reduction as in the case of the US and most other OECD countries. The merest glance at the absurdly manipulated financial markets of today will show their present all-time highs obviously do not relate to the shrunken, downsized and dysfunctional real economy on which these markets squat. Since 2008, the “damage containment” operated in the US, Europe, Japan and other countries, which propels financial markets to literally uncharted highs, is dependent on running unsustainable government deficits.
None of these governments have the ability to pay down their snowballing debt, under ordinary circumstances. The Catch 22 is they have to pay it back.
As this present 'leaked IMF report' rather clearly says, the constant growth of government control and siphoning of national economic wealth in the USA, exactly as elsewhere, a process that has grown for decades but has exploded since 2008, has created an unrecognizable economy. The IMF's economists used the poetic word “transformed”. More particularly for the US economy, long-gone are the days when the US could lecture to Europeans and Japanese about “bloated government”, pointing out that in 2007 the share of Federal and State government spending in the US was only about 35% of GDP.
Something happened at the height of the financial crisis of 2008. The USA's private economy imploded by $1.3 trillion-per-year according to IMF economists. The crash was so intense it was at least as large as the 1929-31 sequence relative to GDP. However, US government statistics disguise (or lie about) the event to this day. They claim a $300 billion contraction, ironed out by bailouts and QE and nice speeches by Obama, terminating at latest in June 2009.
The accounting trick, or fake statistics – take your pick – was the $1 trillion increase in government spending. Per year.
From the previous 35%/65% split of government/private enterprise activity and spending in GDP, in 2007, the US leapt to a 43%/57% split. According to the IMF that remains the situation since 2009. This makes it obligatory to “re-interpret” the US economy and the claimed post-2009 recovery. This has more than a few implications for what happens next – as the leaked IMF report suggest and hints in its own coded language.
FISCAL FEEDBACK LOOP OR RATCHET
What happened in Greece in fact happened everywhere, from 2008. The only difference was the scale and the speed with which “fiscal feedback” operated, negatively, on the real economy.
The situation is extreme in Greece as a bookshelf of IMF reports, leaked or not, will show. As a direct consequence the so-called “austerity trap” was sure and certain to trigger – although the IMF actually had the gall to pretend this was not sure and certain. Also, Greece already had an oversized and over-fattened government sector, meaning the economic damage associated with reducing government spending - while increasing income and VA taxes - was so great that it could only swallow the enhanced revenues that were expected. The economy could only implode.
The IMF for its own reasons, including ideological, blithely imagined that when all the beneficiaries of government spending, including large numbers of “grey zone” semi-governmental and part-state enterprises and activities lost their income, they would somehow not stop spending and to an extent would go on paying taxes. The economists believed the contraction would be on a roughly one-for-one basis, that a 1% cut in government spending, for a country where say 50% of GDP is government spending, will only cause an 0.5% reduction in total spending. They did not include “multipliers”, that is positive feedback – intensifying the cause of the slowdown.
Overall, as shown dramatically in Greece, reduced employment further shrinks the economy causing more unemployment, less tax payments and bigger government deficits -- a perfect “reverse multiplier” to the claimed Keynesian-type multiplier where increased government spending is manna from heaven. The Greek economy contracted three times faster than the IMF's economists thought it would. Unemployment spiraled. Future growth can only be weak in a long-term crippled economy.
Daniel Amerman is a professional accountant, therefore able to closely analyze, and contradict the basic excuse used by US political deciders since 2008. The excuse is also used by the IMF. It pretends or claims that “before and after” conditions and performance of the economy are symmetrical – or remediable – by reducing government deficits and “restoring the economy” to its previous status. This can be summarized as calling the fiscal multiplier 1, meaning that in the US case, if government spending was reduced as a percentage of GDP to the pre-2008 level, there would only be a proportionate reduction of the size of GDP and a proportionate increase in unemployment rates.
There would not be a “Greek type implosion” due to multipliers. Amerman contests this “benign” or delusionary belief.
He argues that if the United States government were in fact to abandon its "artificial" economy and return to spending only its revenues, mostly from taxes, the much-higher-than-1 real fiscal multiplier would trigger. By his calculations of what would happen, in an event which could be forced on the US, not politically decided because it is “politically impossible”, there could easily be an 8% to 10% contraction of US GDP. Unemployment would at minimum soar to 25%.
UNREAL ECONOMIC FUTURE
The fiscal multiplier under any hypothesis is far above 1. That is, economies of the developed world which have had a sometimes-insidious but always permanent real growth of the government sector as a part of GDP – for decades – will be exposed to “unexpectedly sharp” economic contraction anytime they try to backtrack on government spending. Calling the multiplier a “ratchet” is more accurate because a decrease in government spending will have an unsymmetrical and stronger depressive effect, than the growth effect a same-percentage increase in government spending will have. Putting this yet another way, the economy becomes addicted to government spending – based on borrowing – and cannot adapt to the withdrawal pain, if state spending is cut.
Denying this “inconvenient truth” is the game of the IMF and the political and economic deciders of all the developed countries. This is another reason we are in uncharted waters.
At least as important, as Amerman also says, the coming forced reduction of government spending will truly be The Great Experiment. As we know, there is plenty of talk about reducing government spending – but when it actually happens as in Greece it produces dramatic and scary results. Greece is now truly in 1930s-style Great Depression territory, but uncharted because of the way it was thrown into economic meltdown. We literally do not know what will happen next, because so much of the economy is “virtualized”. We do not know if the “before situation” can be restored.
We can however use real world data from Greece, like the IMF's economists. This data underlines one important, possibly the most important point - that the Greek economy has been “transformed”, to use IMF jargon, but not for the better. For several months now, it is clear that its economy is in a type of void, where the role of government spending, at one and the same time, has to stop and cannot stop.
Amerman says exactly the same would happen to the US, or will happen to the US if it has to cut quickly. Basically, the only difference between Greece and the US is the second country is 30 times bigger. The probable fiscal multiplier-ratchet, in the US, is the same as the Greek one. Brave talk about QE Tapering is almost certainly talk – and not on the menu at all in Europe – because it firstly finances US government debt, long before any other claimed Keynesian miracles also produced by QE. Amerman concludes with a suggestion that the US might “limp through”, without collapse when (or if) government spending is reined in, but above all we are in uncharted waters, because a huge part of the economy is now “virtual”.
By Andrew McKillop
Contact: [email protected]
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
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