Abstract Steven Schwarzman, Chairman of the Blackstone Group, has just learned that an investment group associated with the government of China wants to buy the majority of Blackstone's leveraged IPO. As he considers how to respond to this offer, Schwarzman reviews the firm's proposed structure as a public entity and assesses how he might retain the delicate balance among stakeholders while still maintaining liquidity in the market. Keywords: Private Equity ; Financial Liquidity ; Initial Public Offering ; Investment ; Ownership Stake ; Business and Stakeholder Relations
According to the theory of Professor Lin Yi-fu, it is important for an economy to strictly follow the comparative advantage determined by the endowment of each stage of economic development, making full use of the market mechanism and the government intervention. Thus the speed of accumulation of capital, upgrade of endowment structure, upgrade of industrial structure and economic growth will reach the fastest. Upgrade of industrial structure is determined by capital accumulation and upgrade of endowment structure. To reflect the endowment structure, capital stock per capita is a significant indicator. Taiwan’s gold periods of economic growth have seen the promotion of capital stock per capita. It is this promotion that resulted in the upgrade of Taiwan’s industrial structure.
Guest Post: We Just Enjoyed the Last Christmas In America Submitted by Tyler Durden on 12/26/2014 17:00 -0500 ETC Federal Reserve Guest Post Reality Unemployment in Share 2 Submitted by Charles Hugh-Smith of OfTwoMinds blog , The end of rising wages = the end of mass affluence: we just enjoyed the Last Christmas in America (TLCIA). As unemployment topped 10%, the January 1975 cover of Ramparts magazine blared: The End of Affluence: The Last Christmas in America. (TLCIA) The government responded to the high unemployment, rampant inflation and rising budget deficits by manipulating data to mask the politically inconvenient realities of inflation, unemployment and deficits by playing with Social Security Trust Funds, inflation data, etc.--games it continues to play to cloak reality from the media-numbed public. The economic stagnation, despite various stock market rallies and false starts, essentially lasted 10 years, from 1973 to 1982. The malaise had a happy ending: huge new oil fields were discovered in Alaska, the North Sea, West Africa and elsewhere, ushering in a renewed era of cheap, abundant petroleum. President Reagan re-set Social Security for a generation and introduced a lower taxes, higher permanent deficits ideology that is now accepted as the only possible way to sustain the Status Quo: deficits don't matter, even when they reach the trillions, because our good friends the Gulf Oil Exporters and Asian exporters will buy all our debt forever and ever, keeping interest low forever and ever. (And if they drop the ball, then the Federal Reserve prints money and buys trillions of dollars of Treasury bonds. Sweet! We don't need any external buyers, just the Federal Reserve creating money out of thin air.) Then the U.S. created and launched two revolutionary technologies which both created new wealth around the globe: the personal computer (microprocessor and cheap RAM) and the Internet (TCP/IP, Ethernet, and the commercialization of Tim Berners-Lee's World Wide Web with free browsers) spawning the generation-long boom of the 1980s and 90s. Those "saves from stagnation" were one-offs; there will be no more supergiant energy finds, nor any equivalents of the Internet expansion cycle. When the wheels inevitably fell off the Internet/tech boom in 2000, the U.S. did not create a new engine of wealth: it opted instead for a devilishly insidious simulacrum of wealth: debt which rose at an exponential rate throughout the economy. Borrowed money and phony financial legerdemain (mortgage-backed securities, derivatives based on the MBS, etc. etc.) from 2000-2007 created what I have termed a "bogus prosperity": no actual new productive wealth was created, only a brief and self-liquidating bubble of debt-based housing and stock valuations. Compare the rate of GDP growth (another unreliable indicator, but all we have) with the astonishing rise in debt: Meanwhile, wages adjusted for inflation have stagnated for 15 years while asset prices for stores of value such as housing in desirable areas have skyrocketed in terms of median household income: Real household income has declined in the Bubble Era across the entire income spectrum: Here is real median household income and labor's share of the economy: both are in structural decline, and inflating asset bubbles has done nothing to reverse either trend. Why will Christmas 2014 be the last Christmas in America? It's simple: declining wages cannot support an ever-expanding mountain of debt. The Federal Reserve has played a game for six long years of lowering the cost of debt (i.e. the rate of interest borrowers must pay), which has enabled stagnating wages to support ever heavier debt loads. There is an endgame in sight to this financial trickery, a point of diminishing returns to lower interest rates: the Fed can't drop rates lower than 0%. Borrowers simply can't qualify for more debt, regardless of interest rates. The extreme fragility of an economy based on ever-expanding mountains of debt piled on declining incomes is apparent: if the Fed can't raise interest rates even a tiny quarter point without threatening to collapse the unstable pyramid of debt-based affluence/ consumption, what does that say about the fragility of the "growth" (supposedly running at a hot 5% annually) and "prosperity"? Claiming that a few hundred dollars in lower gasoline costs per household will enable a desert of declining income to bloom is the equivalent of claiming that an inch of rain in Death Valley will transform the desert into a lush tropical rain forest. Remember the lackluster Christmas of 2014 well; the endgame of expanding debt will play out as every endgame does: furious moves by central bankers will prolong checkmate but not transform the inevitable loss into a win. Media sound and fury are no substitute for rising real household wages and incomes. Average: 3.2 Your rating:None Average:3.2 (10votes)
Journal of Public Economics 66 (1997) 489–504 On the possibility of efficient private provision of public goods through government subsidies Georg Kirchsteiger*, Clemens Puppe Department of Economics, University of Vienna, Hohenstaufengasse 9, A-1010 Vienna, Austria Received 31 March 1996; accepted 21 February 1997 Abstract This paper investigates the possibility of implementing an efficient provision of a public good through distortionary tax-subsidy policies in a simple one-shot game of voluntary contributions. Within the class of all linear tax-subsidy policies two cases are distinguished. The first is where individual taxes only depend on the sum of all other individuals’ contributions. Although such policies may increase total supply of the public good, it is shown that the implementation of an efficient amount is not possible unless the government has complete information about individual characteristics. In the second case, where taxes depend on the distribution of contributions, the equilibrium supply of the public good is no longer unique. For any efficient interior solution there might also exist inefficient boundary solutions. Moreover, unlike the boundary solutions, the efficient interior solution is in general not stable. ó 1997 Elsevier Science S.A. Keywords: Public goods; Tax subsidy; Voluntary contributions JEL classification: H29; H40; H41 1. Introduction Voluntary contributions to a public good typically entail underprovision of that good. Many authors have therefore considered models in which a ‘government’ *Corresponding author. Tel.: 143 1 401032423; fax: 143 1 5321498; e-mail: georg.kirchsteiger@univie.ac.at 0047-2727/97/$17.00 ó 1997 Elsevier Science S.A. All rights reserved. PII S0047-2727(97)00029-7 490 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 subsidizes private contributions so as to increase the total supply of the public good. Usually, in these models, government’s subsidy payments are financed by appropriate taxation. While lump-sum transfers typically leave the equilibrium amount of the public good unchanged, distortionary tax-subsidy policies may 1 indeed increase total equilibrium supply of the public good. Given this possibility to influence aggregate supply of a public good, the question arises whether by choosing an appropriately designed tax-subsidy policy a government can implement an efficient amount of the public good. This is the problem addressed by the present paper. The analysis is restricted to the most natural case of linear tax-subsidy policies. Unfortunately, in this case our results are rather negative. Indeed, it is shown that either (i) the government needs to know individual preferences in order to implement an efficient allocation, or (ii) the contribution game admits a multiplicity of equilibria with not all of them corresponding to efficient allocations. Moreover, in the latter case, an efficient equilibrium is in general unstable. The framework for our analysis is the following general tax-subsidy scheme. Each agent’s own contribution is subsidized at some fixed individual subsidy rate. At the same time, each agent faces a tax that is a linear function of all other agents’ contributions to the public good. Subsidy payments and taxes are linked in such a way that the government’s budget is balanced for any possible distribution of individual contributions. In determining the level of her own contribution to the public good, each agent optimizes against all other agents, taking their decisions as given. Aggregate supply of the public good then results from the equilibrium level of individual contributions in this simultaneous one-shot game. Given this general model, two cases have to be distinguished. Firstly, it can be shown that within our framework the model suggested by Andreoni and Bergstrom (1996) corresponds to the case where each agent’s tax only depends on the sum of all other individuals’ contributions (and not on their distribution). In the following, we refer to this case as the case of individually uniform tax rates. In this case, each choice of subsidy rates induces a unique aggregate equilibrium supply of the public good which is increasing with the subsidy rates (see Andreoni and Bergstrom, 1996). Moreover, it is easy to determine subsidy rates that induce an efficient allocation provided that all individual contributions are positive in equilibrium. However, in this paper we prove that given such subsidy rates all individual contributions remain positive in 1Warr (1983) has shown that lump-sum transfers do not alter the equilibrium amount of the public good provided that the set of contributors does not change. Bergstrom et al. (1986) provide a general analysis of income redistributions. Warr’s neutrality result is confirmed in Bernheim (1986) who considers distortionary income taxes. For the possibility to influence aggregate supply of a public good through subsidies to voluntary contributions in a framework with ‘naive’ individuals who ignore the government’s budget constraint, see Roberts (1987), (1992) and Boadway et al. (1989). Non-neutrality of tax financed subsidies with rational individuals who take into account the government budget constraint has been established in the models of Andreoni and Bergstrom (1996) and Falkinger (1996). G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 491 equilibrium only if the resulting effective prices for the individuals are the Lindahl prices. This implies that in order to implement an efficient allocation the government must have complete information about individual preferences (or at least about the individuals’ demand for the public good). However, if a government does have complete information, there is of course no point in designing a complicated tax-subsidy policy. Indeed, in that case the government has complete control over the state of the economy via much simpler tax policies, e.g. the government could take care of the supply of the public good and impose appropriate lump-sum taxes to cover its expenditures. In order to overcome this difficulty, one has to allow agents’ tax payments to depend on the distribution of the other agents’ contributions to the public good. Indeed, an example of a subsidy policy where the existence of an efficient interior solution is not the exception is the model recently suggested by Falkinger (1996). In this model, the population is divided into subgroups and each agent’s tax only depends on the contributions made by individuals belonging to the same subgroup. If, however, the agents’ tax payments depend on the distribution of the other individuals’ contributions other problems arise. Firstly, in that case the equilibrium amount of the public good is no longer uniquely determined. Specifically, we prove the following result. For any subsidy scheme where tax rates are not individually uniform there exist individual preferences and distributions of incomes such that besides an efficient interior solution there is also a non-efficient boundary solution where at least one individual contributes zero. Moreover, in contrast to the boundary solution the efficient interior solution is not stable in an appropriately defined sense. This result casts some serious doubt on the possibility to implement efficient allocations by linear tax-subsidy policies involving different tax rates for the other agents’ contributions. The plan of the paper is as follows. In Section 2 we present the general framework of our analysis and discuss its relation to the literature. Section 3 is devoted to the case of individually uniform taxation. In Section 4, we consider linear tax rules that are not individually uniform. Concluding remarks are offered in Section 5. 2. The model Consider an economy with n individuals, indexed by i51, . . . , n. Each i individual’s utility is given by a strictly quasi-concave utility function u (c ,G), i where c denotes i’s consumption of a private good and G the consumption of a i purely public good. Throughout, private consumption and the public good are assumed to be strictly normal goods at every level of wealth. Furthermore, we assume that each individual’s utility function is continuously differentiable. Each individual has an initial endowment of m units of the private good. For simplicity, i let the price of the private good be equal to 1. Hence, one may think of m as i 492 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 consumer i’s income. The public good is produced from private goods at a cost of one unit private good per unit of public good. The public good is supplied by voluntary contributions of the consumers. For each i, denote by g consumer i’s contribution to the public good. Furthermore, let i G :5o g denote the sum of the contributions of all agents different from i. A 2i j±i j common assumption in a model of private provision of a public good is that each individual takes the activities of all other agents as given for her own decision. Consequently, consumer i’s decision problem is i max u (c ,g 1G ) s.t. c , g i i 2i i i (2.1) c 1g 5m and g $0. i i i i A pair of n-tuples (c*, . . . , c*) and ( g*, . . . , g*) that solves (2.1) for all i is 1 n 1 n hence a Nash equilibrium of the corresponding contribution game played by the n individuals. It is well known that without any intervention an equilibrium of the game described so far entails underprovision of the public good. Many authors have therefore considered extensions of this model allowing for the possibility that a government subsidizes private contributions (see, among others, Andreoni (1988); Andreoni and Bergstrom (1996); Boadway et al. (1989); Brunner and Falkinger (1995); Falkinger (1996) and Roberts (1987), (1992)). In its most general form, such a government intervention may be described as follows. Each individual’s private contribution is subsidized at a rate s , where 0#s ,1. Hence, i i if i contributes g she receives a payment of s g . Government expenditure, in turn, i ii is financed by taxes where each agent’s tax payment depends on all other individuals’ contributions. In the present paper, we confine ourselves to the most natural case where each agent’s tax is a linear function of all other agents’ contributions. Denoting by t $0 agent i’s tax rate with respect to agent j’s ij 2 contribution, consumer i’s budget constraint may thus be written as c 1(12s )g 5m 2Ot g , (2.2) i i i i ij j j±i with the additional constraint that g $0. i Remark: the subsidy scheme described by (2.2) is the most general form of government subsidies through a change of relative prices when taxes are linear. Firstly, observe that there is no rationale to let individual i’s tax depend on other individuals’ private activities, i.e. their private consumption c . Clearly, individual j i’s tax may depend on her own private consumption c . However, any reasonable i form of such a dependence must be linear in c . Since all that matters are relative i prices, such a dependence is already incorporated in the s s. By a similar argument i 2Our analysis is completely general with respect to the distribution of income. Without loss of generality, we therefore neglect lump-sum transfers in our model. G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 493 one may also assume without loss of generality that agent i’s tax does not depend on her own contribution g to the public good. i Note that if agents optimize against each other according to (2.2) there is a problem of bankruptcy, since some configurations of strategies (i.e. choices of (c , i g )) may entail negative net-income for some consumers. In this case there would i be no well-defined payoff. Consequently, in analyzing the corresponding contribution ‘game’, we will assume throughout that in equilibrium individual contributions ( g*, . . . , g*) satisfy the following condition.3 1 n NB (No bankruptcy). For all i and i i 0,s ,1. Furthermore, for all i and all j, t 5s b, hence consumer i’s total tax i ij i burden is s bG . Rearranging individual i’s budget constraint yields i 2i c 1(12b )g 5m 2s bG. (2.4) i i i i Hence, each consumer’s contribution g is subsidized at a rate of b, and at the i same time the consumer is taxed for a fixed share s of total government i expenditure on subsidies. As a consequence, consumer i’s effective price for the public good is 12b1s b. Clearly, the government’s budget is balanced if and i only if o s 51. Notice that each individual is taxed for each unit of the public i i good provided by any other agent at a constant rate, i.e. each individual’s tax payment only depends on the sum of all other agents’ contributions. Hence, the Andreoni/Bergstrom model belongs to the class of subsidy schemes with individually uniform taxation. In this model, Andreoni and Bergstrom (1996) prove that for each b and any family s , . . . , s with 0,s ,1 and o ]]] is the absolute value of the marginal rate of i i -u (c ,G) /-c i substitution between the public good and private consumption. Summing up over all individuals thus gives n OMRSi 5n2b(n21). i51 Consequently, if all individual contributions are positive in equilibrium — an assumption which will be shown to be extremely restrictive — an efficient provision of the public good would require b51. Indeed, with b51 one obtains i 4 o MRS 51, the condition characterizing efficient allocations. Although also for i b51 there is a unique aggregate equilibrium supply of the public good, individual equilibrium contributions are no longer unique for that particular value of b (see 5 Section 3). Nevertheless, one may ask if by choosing b sufficiently close to 1 one can implement an amount of the public good arbitrarily close to an efficient amount as the result of a unique Nash equilibrium. This question is addressed in Section 3. Another special case of the subsidy scheme described by (2.2) and (2.3) is the model recently proposed by Falkinger (1996). In his model, the population is partitioned into subgroups and each individual is rewarded or penalized on the basis of the average contribution of the subgroup to which the individual belongs (cf. Section 4). Note that, since individual taxes only depend on the contributions made within the same subgroup, taxation is not individually uniform in that model. 3. Efficient allocations with individually uniform tax rates In this section, we investigate existence of efficient allocations for the case of individually uniform tax rates. Hence, assume that in (2.2) each individual i is taxed at a constant rate for each contribution made by another individual, i.e. assume that for all i and all j, t 5t for some t $0. The analysis is substantially ij i i simplified by the observation that any subsidy scheme of the form of (2.2) with that property can be rewritten as in (2.4). Hence, the Andreoni/Bergstrom model described by (2.4) exactly corresponds to the case of individually uniform taxation. Indeed, it can be shown that given the governments budget constraint (2.3) the assumption of individually uniform taxation implies that for all i, j, t 1s 5t 1s . Defining b:5t 1s and s :5t /b, the budget constraint (2.2) then i i j j i i i i 4By strict normality, private consumption and total supply of the public good are always positive in equilibrium. Hence, efficiency in equilibrium is always characterized by the standard Samuelson rule. 5This seems to be the reason why Andreoni and Bergstrom (1996) explicitly exclude the case b51 in their analysis. G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 495 6 easily transforms into (2.4). Also, it can be checked that o s 51. The case b#1 i i n corresponds to the case where o s #n21. Of course, this is the only case of j51 j interest, since with os .n21 one would obtain ‘overprovision’ of the public j good. Firstly, we analyze the case of interior equilibrium of the contribution game corresponding to (2.4). It has already been observed in the previous section that efficiency in an interior equilibrium requires b51. In order to characterize the equilibrium of contribution game for b51, consider the following closely related problem for individual i. i max u (c ,G) s.t. i ci,G (3.1) c 1s G5m and G$0. i i i The solution G˜ (m , s ) to this problem is individual i’s demand for the public i i i good provided that its price is s and that no other individual contributes to the i public good. Consequently, we refer to G˜ (m , s ) as individual i’s stand-alone i i i contribution. Now, compare (3.1) to individual i’s maximization problem given the subsidy scheme (2.4) for the value b51. i max u (c ,g 1G ) s.t. c , g i i 2i i i (3.2) c 1s G5m and g $0. i i i i Obviously, the only relevant difference to the problem (3.1) is the nonnegativity constraint. Denote by M the set of those individuals with maximal stand-alone contribution, i.e. M:5h j g 2] ( g 1g ),0J, i j k l i 2 j 4 k l where j belongs to the same subgroup, whereas k and l together form the other subgroup. Assuming that all individuals contribute a positive amount, the 9Note that this requires at least three consumers in the economy. Indeed, with only two individuals taxes are automatically individually uniform. G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 499 following equilibrium contributions can be derived, g*5g*55m /823m /8 and 1 2 I II g*5g*55m /823m /8. Consequently, there is an efficient interior solution if 3 4 II I and only if 3/5,m /m ,5/3. I II However, in addition to the efficient interior equilibrium there is a variety of inefficient boundary solutions. For instance, if 3/5,m /m ,4/3 there are two I II equilibria where exactly one individual from subgroup I contributes zero whereas all other agents make a positive contribution. Similarly, if 3/4,m /m ,5/3 there I II are two equilibria where exactly one individual from subgroup II contributes zero. Hence, whenever an efficient interior solution exists there are also inefficient boundary equilibria. In fact, it can be checked that there are further boundary equilibria in addition to those described. In any of these equilibria the nobankruptcy condition is satisfied, i.e. each agent’s private consumption is positive. Besides the multiplicity of equilibria in this example there is another problem of instability of the interior equilibrium. Indeed, as can be seen from Fig. 2, the reaction curves of two individuals belonging to the same subgroup intersect with Fig. 2. Non-uniqueness and instability of the interior solution. 500 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 the ‘wrong’ slope. This implies instability of the interior equilibrium with respect to any dynamics where individuals adjust their contribution in direction of their best responses. The difficulties with non-uniform tax rates are by no means specific to the particular example just discussed. Specifically, one has the following result. Theorem 2: For any linear tax-subsidy scheme with property (4.1) there exist preference and income distributions such that besides the efficient interior equilibrium there is also an inefficient boundary equilibrium for the corresponding contribution game. Before we proceed to the proof of Theorem 2, we need the following preliminary result. Observe first that an efficient interior solution can only exist if subsidy rates satisfy n Os 5n21. (4.2) i i51 Let t˜ denote individual i’s average tax rate, i.e. ˉt :5o t /(n21). i ij±i ij Lemma 4.1: Suppose that subsidy rates satisfy (4.2). Either there exists an individual i whose average tax rate t is larger than her effective price 12s , 0 i 0 i 0 or, for all i, tˉ 512s . i i Proof : Assume by way of contradiction that, for all i, tˉ #12s with strict i i inequality for some i. Summing over i one would obtain n n OOt ,(n21)O(12s ). (4.3) ij i i51j±i i51 However, differentiating the government’s budget constraint (2.3) with respect to g yields s 5o t for all i. Using this and interchanging the order of i i j±i ji n summation in (4.3) one could conclude o s ,n21. However, this is in j51 j contradiction to (4.2). The following proof of Theorem 2 is based upon the case distinction described in Lemma 4.1. Firstly, assume that there is an individual i whose average tax rate 0 is larger than her effective price for the public good. Suppose that the valuation for the public good is sufficiently low for all individuals but i , and consider an 0 income distribution such that there is nevertheless an interior equilibrium in which all individuals contribute the same amount. Since i ’s average tax is higher than 0 her effective price, and since moreover, i ’s valuation for the public good is high 0 compared to the other agents, there is an additional (inefficient) boundary equilibrium in which only i supplies the public good. Next, consider the case 0 where average tax rate equals effective price for all individuals. Then, since taxation is not individually uniform, there must exist two individuals, i and j 0 0 such that i ’s tax rate for j ’s contribution is larger than i ’s effective price for the 0 0 0 public good. From this, the existence of an inefficient boundary equilibrium in G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 501 addition to the efficient interior equilibrium can be inferred by a similar argument as in the first case. Proof of Theorem 2 : Assume that all individuals are endowed with Cobb- Douglas type preferences ui(c , G)5caiG12ai. In this case, agent i’s (unrestricted) i i reaction function can be calculated as 12a 12a i i g 5]]m 2 ]] O S t 1a D g . (4.4) i 12s i 12s ij i j i j±i i Consider a family of ‘efficient’ subsidy rates s , . . . , s satisfying (4.2). We 1 n distinguish two cases according to Lemma 4.1. Case 1. There exists i such that tˉ .12s . Without loss of generality, 0 i 0 i 0 assume that i 51. Fix a ]m . 1 12s 1 1 On the other hand, since (1, 1, . . . , 1) is a solution one obtains, again by (4.4), 12a1 l t1j ]]m 511(12a ) O]]1a (n21). 12s 1 1 12s 1 1 j±1 1 Since by assumption tˉ .12s , it follows that g**.n. Now consider all 1 1 1 individuals different from 1. Since the vector (1, 1, . . . , 1) is an interior solution, l and since the a converge to 1 one obtains from (4.4) i l 12a i l ]]m ®n if l®`. i 12 s i Hence, since g**.n, agent i’s unrestricted reaction function becomes negative 1 for sufficiently large l provided that all agents j±1,i contribute zero. Conse- quently, i’s best response to g 5g** and g 50 for j±1,i is g**50 for 1 1 j i sufficiently large l. This shows that for large l, ( g**, 0, . . . , 0) is an additional 1 equilibrium. Observe that this equilibrium cannot be efficient. Indeed, at the 1 equilibrium allocation one has MRS 512s . However, all other individuals’ 1 unrestricted reaction function becomes strictly negative in equilibrium. Hence, 502 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 j MRS ,12s for j52, . . . , n. Together with (4.2) this immediately implies j inefficiency. Also observe that the no-bankruptcy constraint is satisfied in the boundary equilibrium. Case 2. Suppose now that for all i, tˉ 512s . Since the tax-subsidy scheme i i satisfies (4.1), there must exist i and j ±i such that t .12s . Without loss 0 0 0 i 0 j 0 i 0 of generality, assume that i 51 and j 52. The proof in this case is similar to the 0 0 proof in Case 1. Again, fix a so that in the end the no-bankruptcy condition is 1 satisfied for individual 1, and consider for each i52, . . . , n a strictly increasing l l sequence (a ) converging to 1. For each l, choose the distribution (m , . . . , i l ],1,]], . . . ,]]D is an interior equilibrium. By (4.4) this implies that n21 n21 n21 for all l ]m .2 and ]]m 52. 12s 1 12s 2 1 2 Furthermore, for each i53, . . . , n, l 12ai l ]]m ®2 if l®`. i 12 s i This implies by the same arguments as in Case 1 that, for sufficiently large l, an additional equilibrium is given by 12a1 l ( g**,g**, . . . ,g**)5S]]m ,0, . . . ,0D. 1 2 n 1 12 s1 Again, this equilibrium is inefficient and satisfies the no-bankruptcy constraint if l is large enough. The preferences constructed in the proof of Theorem 2 might seem rather extreme. Note, however, that this is due to the great generality of Theorem 2 since it applies to arbitrary linear tax-subsidy schemes satisfying (4.1). In specific examples — such as the one considered above — much less extreme preference distributions yield similar conclusions. Also note that the instability of the interior equilibrium uncovered in the example is a general phenomenon. Suppose, for instance, that individual preferences are of Cobb-Douglas type. By Lemma 4.1, if a tax-subsidy scheme is not individually uniform, there exist individuals i and j ±i such that t .12s . 0 0 0 i 0 j 0 i 0 If a is sufficiently close to 1 this implies that the reaction curves of individuals i j 0 0 and j intersect qualitatively as shown in Fig. 2. 0 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 503 5. Conclusion In this paper, we have argued that linear tax-subsidy policies in a simple one-shot, simultaneous move game of voluntary contributions to a public good are not an appropriate tool for implementing efficient allocations. In designing such a policy, the central planner (the ‘government’) faces a dilemma. Either the government chooses a policy where each individual’s tax only depends on the sum of all other individuals’ contributions, i.e. an individually uniform tax-subsidy scheme, or an incentive scheme where some individuals’ tax depends on the distribution of contributions. In the first case, an efficient interior equilibrium only exists if the government can implement the Lindahl prices through subsidy rates. However, this requires knowledge that the government is assumed not to have. It is worth noting that this problem can be solved in a different framework which has been suggested in the literature. Consider, for instance, the following two-stage game proposed by Danziger and Schnytzer (1991) (see also Althammer and Buchholz (1993); Varian (1994)). In the first stage individuals announce appropriate subsidy rates by which they will subsidize other agents’ contributions to a public good. Given these subsidy rates, individual contributions are then simultaneously determined in a second stage. In this two-stage game, it can be shown that the Lindahl subsidies indeed form the unique subgame perfect equilibrium. Given the difference in the informational structure of the two games, the difference in the results is of course not surprising. In both models, individual preferences are common knowledge to any potential contributor. Consequently, in the Danziger/Schnytzer game all players have complete information. On the other hand, in the model considered in the present paper subsidy rates are set by a central planner who has no information about individual preferences. Clearly, either of the two models implies extremely restrictive informational assumptions on the part of potential contributors. Taking these assumptions for granted, we believe that the model considered here has a priori much more practical appeal, in particular, if the number of agents is large. In the second case, when a subsidy policy is chosen where individuals tax payments depend on the distribution of the other agents’ contributions, it has been shown that uniqueness of the equilibrium is no longer guaranteed. Moreover, even if an efficient interior equilibrium exists, it is in general not stable, and typically there exist additional stable and inefficient boundary equilibria. Our overall conclusion, that linear tax-subsidy policies are not appropriate for implementing efficient allocations, bears some resemblance to negative results obtained in the very different framework of mechanism design models (see e.g. Green and Laffont (1979)). In our context, an interesting open question is whether the multiplicity of equilibria can be avoided by designing suitable non-linear taxation rules. On the other hand, it seems to us that the problem of instability would persist also under more complicated tax policies. 504 G. Kirchsteiger, C. Puppe / Journal of Public Economics 66 (1997) 489 –504 Acknowledgements We are grateful to Josef Falkinger, Konrad Podczeck and two anonymous referees for most valuable comments. References Althammer, W., Buchholz, W., 1993. Lindahl-equilibria as the outcome of a non-cooperative game. European Journal of Political Economy 9, 399–405. Andreoni, J., 1988. Privately provided public goods in a large economy: the limits of altruism. Journal of Public Economics 35, 57–73. Andreoni, J., Bergstrom, T., 1996. Do government subsidies increase the private supply of public goods. Public Choice 88, 295–338. Bernheim, D., 1986. On the voluntary and involuntary provision of public goods. American Economic Review 76, 789–793. Bergstrom, T., Blume, L.,Varian, H., 1986. On the private provision of public goods. Journal of Public Economics 29, 25–49. Boadway, R., Pestieau, P., Wildasin, D., 1989. Tax-transfer policies and the voluntary provision of public goods. Journal of Public Economics 39, 157–176. Brunner, J., Falkinger, J., 1995. Non-neutrality of Taxes and Subsidies for the Private Provision of Public Goods, Working Paper No. 9519. University of Linz. Danziger, L., Schnytzer, A., 1991. Implementing the Lindahl voluntary-exchange mechanism. European Journal of Political Economy 7, 55–64. Falkinger, J., 1996. Efficient private provision of public goods by rewarding deviations from average. Journal of Public Economics 62, 413–422. Green, J., Laffont, J.J., 1979. Incentives in Public Decision Making. North-Holland, Amsterdam. Roberts, R.D., 1987. Financing public goods. Journal of Political Economy 95, 420–437. Roberts, R.D., 1992. Government subsidies to private spending on public goods. Public Choice 74, 133–152. Varian, H., 1994. A solution to the problem of externalities when agents are well-informed. American Economic Review 84, 1278–1293. Warr, P., 1983. The private provision of a public good is independent of the distribution of income. Economics Letters 13, 207–211.
Limiting to 46 countries before 1990, scholars find that fiscal decentralization, measured by the subnational share of total government spending ( Davoodi Zou, 1998 ) , has negative relationships with economic growth in developing countries, the finding further confirmed in the case of china, with data from 28 provinces before 1992 ( Zhang Zou, 1998 ) . In contrast, using a similar sample of 52 countries between 1997 and 2001, limi ( 2005 ) finds positive and significant relationships between fiscal decentralization and economic growth, consistent with some other studies. Taking into the extent of the independent taxing powers enjoyed by subnational governments, a study of 19 OECD countries show no significant relationships at all.
"We were surprised to learn about the reference to Windows 8 in this notice," a company spokesperson said. "Microsoft has been working proactively... to ensure that our products and services meet all government procurement requirements." The Chinese embassy in the United States did not immediately provide comment. Considering the timing of the move, it doesn't seem to be a political response to the United States' decision to go after the Chinese military for hacking American companies. Related story: What Chinese hackers wanted The more likely reason, some suspect, is that China may be trying to avoid getting stuck with outdated Windows systems in the future. Windows operating systems are huge in China, and now that Microsoft has ended support for Windows XP , the Chinese government finds itself in a tough spot. Nearly three-quarters of Chinese PCs are running XP, according to NetMarketShare. That leaves tens of millions of computers there at risk of bugs and malware. See how FBI made global hacker bust This isn't the first time Microsoft faces challenges in China. The government's long-running ban on foreign gaming consoles has kept out Microsoft's Xbox ever since it launched in 2001. China lifted that ban late last year . Microsoft is also fighting an ongoing piracy battle in China. The company estimates 90% of Chinese PCs are running illegal copies of Windows software.
Bangkok (CNN) -- The Thai army declared martial law throughout the country Tuesday in a surprise move that an aide to the embattled Prime Minister said the government didn't know about beforehand. "They took this action unilaterally. The government is having a special meeting regarding this. We have to watch and see if the army chief honors his declaration of impartiality," the aide said, describing the situation as "half a coup d'etat." Lt. Gen. Nipat Thonglek told CNN the move was not a coup. "The Army aims to maintain peace, order and public safety for all groups and all parties," a ticker running on the army's television channel said. "People are urged not to panic, and can carry on their business as usual. Declaring martial law is not a coup d'etat." Martial law went into effect at 3 a.m. on Tuesday, the ticker said. All Thai TV stations are being guarded by the military, Thai public television announced, showing pictures of soldiers and armored vehicles taking positions outside broadcast facilities in the country's capital. Photos: Thai army declares martial law Thailand's economy threatened by turmoil Thai military threatens to quell protests Tensions escalate in Thailand Acting Thai PM: Govt. still in charge In a statement read on Thai television, the military declared that all of the country's radio and television stations must suspend their normal programs "when it is needed." The dramatic announcements come days after the head of the army issued a stern warning after political violence had surged in the country's capital. Political tensions have been running high in Thailand. Supporters and opponents of the country's government have staged mass protests in recent days, and earlier this month a top court removed caretaker Prime Minister Yingluck Shinawatra from office, along with nine cabinet ministers. It's too soon to tell whether the military's declaration of martial law will ease tensions or heighten them, analysts said. Thitinan Pongsudhirak, a political science professor, described the situation as "very volatile." "This is a precarious time now for the army," he said. "They have to be even-handed." If the military appears to be favoring one side, he said, violence could escalate rather than cool down. "If it's seen as favoring one side or the other side, then we could see more violence and turmoil against the military," he said. Paul Quaglia, director at Bangkok-based risk assessment firm PQA Associates, described the situation as "martial law light." "Right now the military has deployed troops around key intersections of the city. Traffic is a real mess here at the moment, but there's no violence," he said. "I think what the military is trying to do with this...is to convince protesters to go home. They're trying to dial down the tensions here as well as preempt several large rallies and strikes that were scheduled for later this week." But what happens next will depend on how protesters react, he said. "The military is taking a step by step, gentle approach to see if they can get things to improve," Quaglia said. "If not, they'll of course have to ratchet up their actions." Nipat said the precise restrictions of martial law were being worked out. The government's "red shirt" support base, many of whom hail from the country's rural north and northeast, view Yingluck's ouster as a "judicial coup" and have been protesting what they consider an unfair bias by many of the country's institutions against their side. Anti-government protesters are seeking a new government -- but not through elections, which the opposition Democrat Party has boycotted, arguing the alleged corruption of their political rivals makes widespread reform necessary before any meaningful vote can be held. Increased government efforts to improve security are a positive step, Quaglia said. "That being said, martial law will not solve the political problems that continue to haunt this country," he said. "The differences are stark, and I don't think the military can step in and by force fix the political issues." CNN's Kocha Olarn reported from Bangkok. CNN's Catherine E. Shoichet reported from Atlanta. CNN's John Vause, Saima Mohsin and Tim Hume contributed to this report.
Bangkok (CNN) -- Thousands of protesters have surrounded Bangkok's Government House seeking the removal of Thailand's embattled caretaker government, amid soaring political tensions in the wake of former prime minister Yingluck Shinawatra's ouster. The People's Democratic Reform Committee (PDRC), which has been protesting against the government since November, is pushing to replace the country's caretaker administration with an unelected interim government. Protest leader Suthep Thaugsuban took to the stage and told those gathered: "We will sleep here tonight, we will eat here. After lunch ... we will go to visit the Parliament House, because there is a meeting to select a new Speaker of the House today. "If the Speaker is a slave of Thaksin, there will be one treatment; if not, there will be another treatment for them." The PDRC has been seeking to rid Thai politics of the alleged influence of former prime minister Thaksin Shinawatra, Yingluck's telecommunications tycoon brother who was overthrown in a 2006 military coup and has since lived in self-imposed exile to avoid a corruption conviction. Lt. Gen. Paradon Patthanathabut, security adviser to the prime minister told CNN that the PDRC had mobilized supporters from the countryside to join the protests in the capital. "It is still difficult to estimate the crowd at this moment. But roughly, we think between 30,000-60,000 people might join today's rally." He said smaller groups of PDRC protesters were also gathering around Bangkok television stations. "We are monitoring (the situation) closely," he said, adding that 60,000 security forces were on standby. Despite the large crowds gathered, the scene at Government House was relaxed, with stalls being erected and free food and drink handed out. A minute's silence was held for those killed in the country's longstanding political conflict. 'Judicial coup' ? The march comes at the end of a week of political chaos in Thailand, which saw Yingluck removed from office by a top court Wednesday, in what her supporters see as a "judicial coup," and indicted by an anti-corruption body Thursday. Her supporters are planning their own mass rally to protest the decisions Saturday. Members of the National Anti-Corruption Committee unanimously decided to indict Yingluck for dereliction of duty over her government's controversial rice subsidy scheme, NACC member Wicha Mahakun told reporters in Bangkok Thursday. The Senate will now vote on whether to impeach her. Asked how the 46-year-old could be impeached when she had already been dismissed from the premiership, Wicha said the case still needed to be reviewed by the Senate, as Yingluck could be banned from holding political office for five years if impeached. Analysts had speculated that the commission might also indict Yingluck's replacement as caretaker prime minister, the deputy prime minister and commerce minister Niwatthamrong Boonsongpaisan, creating a political vacuum. But Wicha did not announce any measures against the new premier. An NACC committee was also considering whether to file criminal charges against Yingluck, but had not yet found sufficient evidence, he said. The rice subsidy program, introduced in 2011, pledged to pay farmers well above the market rate for their rice, but has run into financial problems. Critics say it has wasted large amounts of public funds trying to please rural voters, hurting exports and leaving the government with large stockpiles of rice it can't sell without losing money. Yingluck has previously said she was only in charge of developing policy around the scheme, not its day-to-day implementation, accusing the commission of unfair treatment. READ MORE: Yingluck denies corruption allegations over rice program 'Political freefall' Analysts warn the week's developments leave the country facing "political freefall" and the potential resumption of violent clashes. "The post-Yingluck polarization is likely to deepen and intensify," said Thitinan Pongsudhirak, political scientist at Chulalongkorn University. "We are now looking at a political freefall... Much worse looks likely in the near term, before we can hope for improved circumstances in the longer term." Officials confirmed Thursday a grenade had been thrown at the house of one of the Constitutional Court judges whose ruling forced Yingluck and nine cabinet ministers from office. Paradon told CNN nobody was hurt in the early morning attack on the home of judge Jumpot Kaimook. "It landed on his garage," he said. The court removed Yingluck, who was elected in 2011 and had been serving as caretaker prime minister until elections could be held, after finding her guilty of violating the country's constitution for reassigning a senior security official in 2011. The official was replaced by the then national police chief, whose role in turn was given to Priewpan Damapong, a relative of Yingluck. Damapong is the brother of Thaksin's ex-wife. 'Polarization to intensify' Observers say Yingluck's dismissal and indictment has heightened the risk of clashes between opposing camps, and made near-term compromise solutions unlikely. Analyst Paul Quaglia, director at PQA Associates, a Bangkok-based risk assessment firm, said the court's removal of an elected prime minister on what he described as "fairly weak" grounds was viewed by the government's supporters as a case of politically motivated judicial overreach. "They consider it a way to usurp democratic elections," he said. Yingluck is the third Thaksin-linked prime minister to be dismissed by the Constitutional Court, which also dissolved Thaksin's Thai Rak Thai political party in 2007, raising suspicions among government supporters that the institution was biased against them. Thitinan said the appointment as caretaker prime minister of Niwatthamrong, seen as closely affiliated to Yingluck and her brother, was poor judgment, especially when another deputy prime minister, Pongthep Thepkanchana, would have been a more acceptable compromise candidate. "He lacks the stature and networks to see through an interim caretaker administration," he said. "Nevertheless, no matter who comes in as the new caretaker, the tensions will mount." Widening divide Thailand's widening political divide pits anti-government, predominantly urban "yellow shirt" protesters against the pro-government, mainly rural and working class "red shirts." The yellow shirts, drawn mainly from Bangkok's middle class, royalist establishment, allege that Yingluck is her brother's puppet and seek to rid Thai politics of her family's influence. Led by the PDRC, they began their protests in November, outraged by her government's botched attempt to pass an amnesty bill that would have paved the way for the return of Thaksin to the political fray in earnest. Parliament was then dissolved in December ahead of a snap February general election that was disrupted by anti-government protesters, and subsequently ruled invalid by the Constitutional Court. The yellow shirts are seeking a new government -- but not through elections, which the opposition Democrat Party has boycotted, arguing the alleged corruption of their political rivals makes widespread reform necessary before any meaningful vote can be held. "They claim the Thaksin clan as they call (it) is corrupt and has dominated the country's politics, and the only way forward is to remove the Thaksin influence from politics and not have elections," said Quaglia. Suthep, a former deputy prime minister for the Democrat Party, has instead called for power to be transferred to an unelected "people's council." But Quaglia said the opposition's real motivation for avoiding elections was clear. "The Democrat Party say 'No, we can't have elections,' because they know they will lose those elections." In contrast, the red shirt supporters of Yingluck and her brother, many of whom hail from the north and northeast of the country, accuse the court of bias against their side. PDRC spokesman Akanat Phrompan told CNN his movement did not recognize the legitimacy of the caretaker government. "Currently there is no government to govern this country, so we must find a way to appoint a new government." 'Breaking point' Meanwhile, the red shirts are planning their own rally in Bangkok Saturday to protest what Quaglia said they saw as "a judicial coup." In the wake of the court's ruling Wednesday, supporters at the red shirts' Bangkok headquarters were defiant. "This is the breaking point now, everything is leading up to the breaking point," Kanthira Ketawandee, a Bangkok piano teacher and Yingluck supporter told CNN. "I would say Yingluck has died (in) her duty for democracy." Thida Thavornset, a red shirt leader urged supporters to join Saturday's rally. "We won't give up until we win." Elections are scheduled for July 20, but Thitinan said he believed it was "unlikely" that a vote would proceed in the wake of recent developments. "The PDRC appears intent on pressing on for an appointment government of its preference, which can only galvanize red shirt protests," he said. "A showdown is looming." READ: Thai PM Yingluck Shinawatra dismissed from office by court
The classic theory of federalism suggests that local governments, when granted with more autonomy and resources, will be able to make better decision and improve social wellbeing. The arguments are rooted in two beliefs. First, as Hayek (1945) points up, local governments generally are endowed with information advantage over the national government in knowing the nature and changes of social tastes and preferences. Thus, through sorting and matching the resources with locally indigenous preferences, more social benefits can be delivered (i.e. throughhigher demand efficiency). Second, the federalism allows governance experiments in the localities and by design promotes inter-jurisdictional competition and mutual learning. Presumably, the competition and learning helps the local governments to make decisions for desirable social outcomes. The classic theory of federalism has been greeted with mixed empirical evidence in the developing countries. The parameters of fiscal governance vary significantly and the residents often fail to vote with their feet due to residence restrictions and social imperatives. Therefore, the positive outcomes presumably derived from the federalism arrangements may find hard to be substantiated or not uncommonly, go sour in the opposite direction. The second generation of federalism abandons the assumption that governments are benevolent, but focuses on their different incentives to perform. Students contend that federalism is likely to cause mixed kinds of outcomescontingent on how local incentives are structured. It is likely that local governments, when granted with more authorities and resources, may choose to maximize certain kinds of benefits over others, whichmay be linked to some unpleasant social outcomes. Empirical evidence exists in this regard. For instance, a higher level of fiscal decentralization in chinaseem conducive toslower economic development due to its unique stage of economic development. The essential question to ask is in what social dimensions, do fiscal decentralization creates what kinds of social outcomes?
Donetsk, Ukraine (CNN) -- Masked men with metal rods and Molotov cocktails prowl the Russian flag-draped balcony, surveying the crowds below. Stacks of tires topped with ribbons of razor wire line a makeshift barricade around the main entrance. Two days after smashing their way in, hundreds of protesters have transformed this government building in the industrial city of Donetsk, eastern Ukraine, into the self-declared "People's Republic of Donetsk." From the clumsily erected bulwarks to the lack of a leader or concrete plan, the scenes are similar to the pro-European rallies in Kiev's Maidan Square in recent months, with one major difference: Many of these protesters say they want to join Russia and have called for a referendum on secession from Ukraine to be held by May 11. The protesters who let us into the building are eager to show they are here entirely peacefully, but it is clear they are prepared for a fight. Doors have been locked and stairwells blocked at the top of the building to prevent the Ukrainian military from storming in from above. They've smashed the pavement outside the building to use as stones. A makeshift hospital and temporary cafe have been constructed, and locals are keeping the men and women inside stocked up on food and medical supplies. Ukraine warns Russia: Don't invade Brawl erupts in Ukrainian parliament Pro-Russia rallies escalating in Ukraine What is Russia's endgame in Ukraine? Some of the protesters inside the building are happy to see us; others seem ready to attack us with their bats at a moment's notice. Some are aggressively anti-American. One of the older men asks us why Americans are sticking their nose into Ukrainian affairs. Russia warns of civil war if Ukraine uses force to quell eastern revolts One man tells us that he's from the Eastern Front, a new local group, and that help is on the way. He says there are 6,000 members of his group who stand ready to "protect the fatherland." Others are hopeful that a vote to secede from Ukraine can be held sooner than protesters announced Monday. When the power went out Monday night, many inside believed Ukraine's special forces were coming to retake the building. But the Ukrainian military is nowhere to be seen, and the mood of the protesters is growing ever more defiant. Donetsk is the hometown of ousted Ukrainian President Viktor Yanukovych, whose pro-Russian government was toppled in a popular revolt in February. Nobody knows for sure what role, if any, Russia is playing in this latest bout of unrest in Ukraine. Acting Ukrainian President Oleksandr Turchynov blames "separatist groups coordinated by Russian special services" for the revolts in eastern Ukraine, which he said echoed events leading to the Russian annexation of Crimea three weeks ago. Since then, Russia has amassed thousands of troops on its border with eastern Ukraine. And Russia's Foreign Ministry said reports that protesters are facing a crackdown by Ukrainian authorities are of particular concern. "We are calling for the immediate cessation of any military preparations, which could lead to civil war," it said in a statement on its official website. Protesters say that local complaints, not Moscow, are driving anti-government sentiments here in Donetsk. One man, who calls himself Andre, says that Ukraine's ongoing political crisis has hit his wages and that he can no longer afford to feed his family. He tells me that he has simply had enough. Ukrainian officials say they won't storm the building for now. But the acting President says those who have seized buildings will be treated as "terrorists" and prosecuted with the full force of the law. In the meantime, protesters say they will continue to fortify their makeshift fortress in Donetsk, and their tiny pocket of grievances and whims, despite its size, seems to now be on the front line of a massive struggle for the future of Ukraine.
http://www.paulcraigroberts.org/2014/01/17/hows-whys-gold-price-manipulation/ Paul Craig Roberts and Dave Kranzler. The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them “too big to fail.” Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks’ balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis. The Fed’s policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar’s exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold. The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply. The primary venue of the Fed’s manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system. In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger–in terms of total dollar value of trading–London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as “bullion banks” (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a “paper gold” exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market. The Fed’s gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded – equal to more than 10% of the day’s entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts. This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. “Uncovered” means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as “naked short selling.” The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed‘s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers. The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of “quiet” time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active. A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23 hour trading day (there’s one hour when gold futures stop trading altogether). Over 4900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a 2-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn’t the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold. All together, in 6 minutes during an eight hour period, a total amount of 37.6 tonnes (a “tonne” is a metric ton–about 10% more weight than a US ”ton”) of gold future contracts were sold. The contracts sold during these 6 minutes accounted for 10% of the total volume during that 23 hours period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these 6 minutes was a multiple of the amount of physical gold available to Comex for delivery. The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market: http://wallstreetonparade.com/2013/12/why-didn’t-the-stock-market-sell-off-on-the-fed’s-taper-announcement/ ) While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last 2 years, during gold’s price decline from a high of $1900 in September 2011. The attack on gold’s price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods: - 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour; - 6:00 p.m. Sunday evening NY time when Globex opens for the week; - 2:30 a.m. NY time, when Shanghai Gold Exchange closes - 4:00 a.m. NY time, just after the morning gold “fix” on the London gold market (LBMA); 2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed – it’s an illiquid Globex-only session and the rest of the world is still closed. In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London’s LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these “physical gold drops” are used carefully and selectively and at times when the intended effect on the market will be most effective. The primary purpose for short-selling futures contracts on Comex is to protect the dollar’s value from the growing supply of dollars created by the Fed’s policy of Quantitative Easing. The Fed’s use of gold leasing to supply gold to the market in order to reduce the rate of rise in the gold price has drained the Fed’s gold holdings and is creating a shortage in physical gold. Historically most big buyers would leave their gold for safe-keeping in the vaults of the Fed, Bank of England or private bullion banks rather than incur the cost of moving gold to local depositories. However, large purchasers of gold, such as China, now require actual delivery of the gold they buy. Demands for gold delivery have forced the use of extraordinary and apparently illegal tactics in order to obtain physical gold to settle futures contracts that demand delivery and to be able to deliver bullion purchased on the London market (LBMA). Gold for delivery is obtained from opaque Central Bank gold leasing transactions, from “borrowing” client gold held by the bullion banks like JP Morgan in their LBMA custodial vaults, and by looting the gold trusts, such as GLD, of their gold holdings by purchasing large blocks of shares and redeeming the shares for gold. Central Bank gold leasing occurs when Central Banks take physical gold they hold in custody and lease it to bullion banks. The banks sell the gold on the London physical gold market. The gold leasing transaction makes available physical gold that can be delivered to buyers in quantities that would not be available at existing prices. The use of gold leasing to manipulate the price of gold became a prevalent practice in the 1990′s. While Central Banks admit to engaging in gold lease transactions, they do not admit to its purpose, which is to moderate rises in the price of gold, although Fed Chairman Alan Greenspan did admit during Congressional testimony on derivatives in 1998 that “Central banks stand ready to lease gold in increasing quantities should the price rise.” Another method of obtaining bullion for sale or delivery is known as “rehypothecation.” Rehypothecation occurs when a bank or brokerage firm “borrows” client assets being held in custody by banks. Technically, bank/brokerage firm clients sign an agreement when they open an account in which the assets in the account might be pledged for loans, like margin loans. But the banks then take pledged assets and use them for their own purpose rather than the client’s. This is rehypothecation. Although Central Banks fully disclose the practice of leasing gold, banks/brokers do not publicly disclose the details of their rehypothecation activities. Over the course of the 13-year gold bull market, gold leasing and rehypothecation operations have largely depleted most of the gold in the vaults of the Federal Reserve, Bank of England, European Central Bank and private bullion banks such as JPMorganChase. The depletion of vault gold became a problem when Venezuela was the first country to repatriate all of its gold being held by foreign Central Banks, primarily the Fed and the BOE. Venezuela’s request was provoked by rumors circulating the market that gold was being leased and hypothecated in increasing quantities. About a year later, Germany made a similar request. The Fed refused to honor Germany’s request and, instead, negotiated a seven year timeline in which it would ship back 300 of Germany’s 1500 tonnes. This made it apparent that the Fed did not have the gold it was supposed to be holding for Germany. Why does the Fed need seven years in which to return 20 percent of Germany’s gold? The answer is that the Fed does not have the gold in its vault to deliver. In 2011 it took four months to return Venezuela’s 160 tonnes of gold. Obviously, the gold was not readily at hand and had to be borrowed, perhaps from unsuspecting private owners who mistakenly believe that their gold is held in trust. Western central banks have pushed fractional gold reserve banking to the point that they haven’t enough reserves to cover withdrawals. Fractional reserve banking originated when medieval goldsmiths learned that owners of gold stored in their vault seldom withdrew the gold. Instead, those who had gold on deposit circulated paper claims to gold. This allowed goldsmiths to lend gold that they did not have by issuing paper receipts. This is what the Fed has done. The Fed has created paper claims to gold that does not exist in physical form and sold these claims in mass quantities in order to drive down the gold price. The paper claims to gold are a large multiple of the amount of actual gold available for delivery. The Reserve Bank of India reports that the ratio of paper claims to gold exceed the amount of gold available for delivery by 93:1. Fractional reserve systems break down when too many depositors or holders of paper claims present them for delivery. Breakdown is occurring in the Fed’s fractional bullion operation. In the last few years the Asian markets–specifically and especially the Chinese–are demanding actual physical delivery of the bullion they buy. This has created a sense of urgency among the Fed, Treasury and the bullion banks to utilize any means possible to flush out as many weak holders of gold as possible with orchestrated price declines in order to acquire physical gold that can be delivered to Asian buyers. The $650 decline in the price of gold since it hit $1900 in September 2011 is the result of a manipulative effort designed both to protect the dollar from Quantitative Easing and to free up enough gold to satisfy Asian demands for delivery of gold purchases. Around the time of the substantial drop in gold’s price in April, 2013, the Bank of England’s public records showed a 1300 tonne decline in the amount of gold being held in the BOE bullion vaults. This is a fact that has not been denied or reasonably explained by BOE officials despite several published inquiries. This is gold that was being held in custody but not owned by the Bank of England. The truth is that the 1300 tonnes is gold that was required to satisfy delivery demands from the large Asian buyers. It is one thing for the Fed or BOE to sell, lease or rehypothecate gold out of their vault that is being safe-kept knowing the entitled owner likely won’t ask for it anytime soon, but it is another thing altogether to default on a gold delivery to Asians demanding delivery. Default on delivery of purchased gold would terminate the Federal Reserve’s ability to manipulate the gold price. The entire world would realize that the demand for gold greatly exceeds the supply, and the price of gold would explode upwards. The Federal Reserve would lose control and would have to abandon Quantitative Easing. Otherwise, the exchange value of the US dollar would collapse, bringing to an end US financial hegemony over the world. Last April, the major takedown in the gold price began with Goldman Sachs issuing a “technical analysis” report with an $850 price target (gold was around $1650 at that time). Goldman Sachs also broadcast to every major brokerage firm and hedge fund in New York that gold was going to drop hard in price and urged brokers to get their clients out of all physical gold holdings and/or shares in physical gold trusts like GLD or CEF. GLD and CEF are trusts that purchase physical gold/silver bullion and issue shares that represent claims on the bullion holdings. The shares are marketed as investments in gold, but represent claims that can only be redeemed in very large blocks of shares, such as 100,000, and perhaps only by bullion banks. GLD is the largest gold ETF (exchange traded firm), but not the only one. The purpose of Goldman Sachs’ announcement was to spur gold sales that would magnify the price effect of the short-selling of futures contracts. Heavy selling of futures contracts drove down the gold price and forced sales of GLD and other ETF shares, which were bought up by the bullion banks and redeemed for gold. At the beginning of 2013, GLD held 1350 tonnes of gold. By April 12th, when the heavy intervention operation began, GLD held 1,154 tonnes. After the series of successive raids in April, the removal of gold from GLD accelerated and currently there are 793 tonnes left in the trust. In a little more than one year, more than 41% of the gold bars held by GLD were removed – most of that after the mid-April intervention operation. In addition, the Bank of England made its gold available for purchase by the bullion banks in order to add to the ability to deliver gold to Asian purchasers. The financial media, which is used to discredit gold as a safe haven from the printing of fiat currencies, claims that the decline in GLD’s physical gold is an indication that the public is rejecting gold as an investment. In fact, the manipulation of the gold price downward is being done systematically in order to coerce holders of GLD to unload their shares. This enables the bullion banks to accumulate the amount of shares required to redeem gold from the GLD Trust and ship that gold to Asia in order to meet the enormous delivery demands. For example, in the event described above on January 6th, 14% of GLD’s total volume for the day traded in a 1-minute period starting at 10:14 a.m. The total volume on the day for GLD was almost 35% higher than the average trading volume in GLD over the previous ten trading days. Before 2013, the amount of gold in the GLD vault was one of the largest stockpiles of gold in the world. The swift decline in GLD’s gold inventory is the most glaring indicator of the growing shortage of physical gold supply that can be delivered to the Asian market and other large physical gold buyers. The more the price of gold is driven down in the Western paper gold market, the higher the demand for physical bullion in Asian markets. In addition, several smaller physical gold ETFs have experienced substantial gold withdrawals. Including the more than 100 tonnes of gold that has disappeared from the Comex vaults in the last year, well over 1,000 tonnes of gold has been removed from the various ETFs and bank custodial vaults in the last year. Furthermore, there is no telling how much gold that is kept in bullion bank private vaults on behalf of wealthy investors has been rehypothecated. All of this gold was removed in order to avoid defaulting on delivery demands being imposed by Asian commercial, investment and sovereign gold buyers. The Federal Reserve seems to be trapped. The Fed is creating approximately 1,000 billion new US dollars annually in order to support the prices of debt related derivatives on the books of the few banks that have been declared to be “to big to fail” and in order to finance the large federal budget deficit that is now too large to be financed by the recycling of Chinese and OPEC trade surpluses into US Treasury debt. The problem with Quantitative Easing is that the annual creation of an enormous supply of new dollars is raising questions among American and foreign holders of vast amounts of US dollar-denominated financial instruments. They see their dollar holdings being diluted by the creation of new dollars that are not the result of an increase in wealth or GDP and for which there is no demand. Quantitative Easing is a threat to the dollar’s exchange value. The Federal Reserve, fearful that the falling value of the dollar in terms of gold would spread into the currency markets and depreciate the dollar, decided to employ more extreme methods of gold price manipulation. When gold hit $1,900, the Federal Reserve panicked. The manipulation of the gold price became more intense. It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet. Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE. What we are witnessing is our central bank pulling out all stops on integrity and lawfulness in order to serve a small handful of banks that financial deregulation allowed to become “too big to fail” at the expense of our economy and our currency. When the Fed runs out of gold to borrow, to rehypothecate, and to loot from ETFs, the Fed will have to abandon QE or the US dollar will collapse and with it Washington’s power to exercise hegemony over the world. Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.
U.S. Treasury now openly 'cooking the books' to fudge debt numbers in desperate move before collapse Friday, August 02, 2013 by: J. D. Heyes Learn more: http://www.naturalnews.com/041457_US_Treasury_national_debt_creative_accounting.html#ixzz2fuBqjzO7 (NaturalNews) On the surface, it appears as though the federal government is finally making progress on the national debt. But in reality, when you apply some common sense and a little logic, it becomes obvious that what is really going on is no small amount of creative math. In case you didn't know it, the "official" national debt has been the same for more than 70 days. How is that possible, considering the national debt climbs about a million dollars a minute ? According to CNSNews.com , which has analyzed the ongoing U.S. Treasury debt data, the federal debt has been stuck at exactly $16,699,396,000,000.00 for more 70 days, as of July 29. That's about $25 million below the congressionally authorized legal limit of $16,699,421,095,673.60: The portion of the federal debt subject to the legal limit set by Congress first hit $16,699,396,000,000.00 at the close of business on May 17. At the close of every business day since then, it has also been $16,699,396,000,000.00, according to the official accounting published by the Treasury Department. We should exceed the debt limit in the next 25 minutes, but... Mind you, if the debt had increased by a penny more at any time during that period, it would have exceeded the statutory limit and would have become a violation of the law. Treasury says that hasn't happened, however - despite the fact that, as of this writing, USDebtClock.org has the nation's debt at well above that statutory limit (in excess of $16.884 trillion). There's more. "Even though the government's official accounting of the debt has not budged for 70 days, the Treasury has continued to sell bills, notes and bonds at a value that exceeds the value of the bills, notes and bonds it was redeeming," CNS News reported. Indeed, according to the Daily Treasury Statement for May 17, the department, by then, had redeemed $4,776,995,000,000.00 since the start of the fiscal year, Oct. 1, 2012. As of that date, Treasury had already sold off $5,354,508,000.000.00 in new bills, bonds and notes so far. "That represented a net increase in publicly circulating U.S. government debt instruments of $577,513,000,000.00 for the fiscal year," CNS News said. In addition: As of July 26, according to the latest Treasury statement, the Treasury had already redeemed approximately $6,128,368,000,000.00 in bills, notes and bonds during this fiscal year. But, at the same time, according to the statement, the Treasury had sold an additional $6,759,148,000,000.00 bills, note and bonds - for a net increase of $630,780,000,000.00 for the year. That means the value of U.S. Treasury debt instruments in public circulation has risen by $53.267 billion since May 17, though Treasury says the debt had not budged a single penny over the same time. How is that possible? How can the value of extant U.S. Treasury securities climb by more than $53 billion over 70 days when the government's debt, which is subject to legal limitations, remained the same? Not a peep from Congress or the White House on Treasury's creative math "On May 17, the day the debt began its long stay at $16,699,396,000,000.00, Treasury Secretary Lew sent a letter to House Speaker John Boehner," CNS News reported. "In the letter, Lew said the Treasury would begin implementing what he called 'the standard set of extraordinary measures' that allows the Treasury to continue to borrow and spend money even after it has hit the legal debt limit." Meanwhile, the real national debt continues to skyrocket - even as lawmakers pretend to be "gearing up" for "another debt ceiling fight" this fall. Incredibly, this report from Business Insider said, "Analysts don't expect that the nation's debt limit will need to be raised before mid-October or mid-November, but House Republicans and the White House are already trading familiar words about the process." Apparently the mainstream media, along with members of Congress and the White House, are fine with permitting this creative use of math at the Treasury Department to artificially hold down the nation's debt until lawmakers are "ready" to discuss it - sometime after the summer recess. Sources: http://cnsnews.com https://fms.treas.gov http://www.usdebtclock.org https://www.fms.treas.gov Learn more: http://www.naturalnews.com/041457_US_Treasury_national_debt_creative_accounting.html#ixzz2fuC7pa2F
40 Years Of 'The Unbearable Heaviness Of Being' An American Taxpayer Submitted by Tyler Durden on 08/08/2013 15:19 -0400 When federal spending grows faster than American's paychecks, the burden of government on taxpayers becomes greater. Over the past four decades, Americans' earnings have risen only 24%; while spending by the government has risen 288%, which begs the question - where did it all go? (h/t @FLA_MATT ) Average: 4.90909 Your rating: None Average: 4.9 ( 11 votes) !-- -- Tweet !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - !-- -- » Login or register to post comments 11760 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Why Volume Matters - The UnBearable Lightness Of Bear Market Rallies The Unbearable Lightness Of The Stock Rally The Unbearable 'Factual' Lightness Of The Chinese Economy Charting The Un-BEAR-able Lightness Of Equity Analyst Credibility Taibbi: "Goldman Raped The Taxpayer, And Raped Their Clients"
Is Stability In Japanese Bonds Signalling Gold's Next Leg Higher? Submitted by Tyler Durden on 04/30/2013 19:39 -0400 Bond Mean Reversion Volatility While intraday ranges on Japanese government bonds (JGB) remain relatively high to the last ten years average volatility, the market has begun to deal better with the unprecedented flows from the BoJ day after day. This in turn has compressed the hedges in JGBs (implied volatility has fallen). This has occurred for two reasons: first, Japanese banks (after front-running the BoJ to all-time record low yields) have likely reduced duration (and thus the need for more protection); and second, the initial fear fear has worn off (as we see again and again in volatility flares) and with it the need for preemptive collateral satisfying asset liquidations. As we noted here , there is a very explicit link between the volatility (or risk) associated with one of the world's lowest yield and supposedly risk-free sovereign bond complexes and the need for liquidity (or cash over gold or commodities) . The last two weeks has seen JGB bond vol drop and gold rally as the correlation (which appears to have strong causal links) continues; and suggests notably more upside for Gold (especially as CoT data shows net longs remain extremely low). In short: screaming JGB vol (among other things) pushed gold much lower. How much higher will it pull it back now as the mean reversion reasserts itself? Chart: Bloomberg Average: 5 Your rating: None Average: 5 ( 3 votes)
Guest Post: Why The Government Is Desperately Trying To Inflate A New Housing Bubble Submitted by Tyler Durden on 03/25/2013 14:30 -0400 Bond Case-Shiller ETC Fail Fannie Mae Federal Reserve Freddie Mac Germany Gross Domestic Product Guest Post Home Equity Housing Bubble Housing Prices Insurance Companies Reality Sovereign Debt Student Loans Subprime Mortgages Too Big To Fail Submitted by Charles Hugh-Smith of OfTwoMinds blog , The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning. If we want to understand why the U.S. government is doing its best to inflate another housing bubble, we must start with the Devil's Pact partnership of the government and the "too big to fail" banks. Simply put, the TBTF banks would not exist without the Federal Reserve and Federal government bailouts, subsidies and protection from transparent marked-to-market pricing of the banks' collateral and risk. The basis if this partnership is simple: the banks' enormous profits and financial power have enabled them to capture the regulatory machinery of the government (the Central State) and the political machinery controlled by its elected officials. To understand the true meaning of the housing bubble, we need to understand how banks reap outsized profits. In classic capitalism, banks earn profits by maximizing the allocation of capital. In practical terms, this means lending money to low-risk, high-growth, high profit-margin enterprises, and avoiding lending to high-risk, low-margin enterprises. In the industrial era, banks reaped profits by funding large, centralized industrial corporations. In the post-industrial economy, banks began skimming huge profits from credit cards and other consumer loans. Mortgages remained a low-risk, low-yield business that operated more like a utility than an investment bank. When domestic opportunities for profit shriveled in the stagflationary 1970s, U.S. banks went international , loaning billions of dollars to South American nations at high rates of interest. The money-center banks assumed that sovereign debt (i.e. loans to governments) were low-risk. These loans generated enormous profits for the banks, until the unthinkable happened: the debtor-nations defaulted on their sovereign debt. The Federal government and the Federal Reserve had to step in and save the banks from the consequences of their faulty risk assessment and rapacious pursuit of high-risk, high-yield profits. By the 1990s, the new knowledge economy corporations had little need for bank credit. Technology companies generated so much cash, they either didn't need bank loans or if they chose to borrow money, they did so via the corporate bond market. Having already tapped almost every qualified borrower with a mortgage, auto loan or credit card, the big U.S. banks had once again run out of highly profitable markets to exploit. The government and Fed-created housing bubble handed the big banks a new market to exploit: high-yield mortgages to marginally qualified buyers guaranteed by Federal agencies (Fannie Mae, Freddie Mac, FHA, VA, etc.), i.e. subprime mortgages. Federal agencies loosened lending standards so those who by prudent risk-management would not qualify for mortgages were now able to borrow vast sums with little or no money down, and the Fed pushed interest and mortgage rates down to lows not seen in generations in the wake of the dot-com bust of 2000. For PR purposes, this vast expansion of bank lending was sold as a high-minded extension of the "ownership society" (i.e. homeownership) to those households who had previously been denied the opportunity to become debt-serfs due to unfairly tight lending standards. In reality, the entire "ownership society" campaign masked the true intent, which was to open new and unexploited territory for the big U.S. banks to plunder. Even better (from the bankers' point of view), loosened regulations and oversight enabled banks to carve up mortgages into tranches that were then bundled into mortgage-backed securities (MBS) that could be peddled worldwide as "safe" investments for pension funds, townships, insurance companies, etc. The housing bubble enabled big banks to skim tens of billions of dollars in profits from originating mortgages to marginal buyers and securitizing mortgages into MBS. This is the heart of what I call the Neocolonial Model of Financialization : rather than make risky sovereign-debt loans to international borrowers, the big U.S. banks came home and exploited the low-risk domestic housing/mortgage market. When the bubble burst, as all speculative bubbles eventually do, the banks were rendered insolvent: their collateral (the mortgaged housing) had lost much of its value, and mortgages that had been sold as essentially risk-free were revealed as defaults waiting to happen. The Fed and Federal government immediately stepped in to save their treasured partner, the parasitic banking sector, from righteously earned destruction. The bailouts, guarantees and backstops totaled about $23 trillion, roughly 150% of the entire American Gross Domestic Product (GDP), and roughly twice the 2008 value of all U.S. residential mortgages (almost $12 trillion). The housing index has yet to decline to an inflation-adjusted pre-bubble level: valuations are still higher than they were before the bubble. To enable the TBTF banks to once again skim billions in profits, the Federal government and Federal Reserve immediately began trying to reflate the housing bubble. Tax credits were lavished to new home buyers, mortgaged rates were driven even lower, and the Fed began buying $1+ trillion of private mortgages. The first tax-credit frenzy faded once the credits expired, but the Fed's zero-interest-rate policy (ZIRP) gave investors no choice but to put their money in risky assets: stocks, high-risk corporate bonds or residential housing. As we can see in this year-over-year percentage chart of the Case-Shiller Index, these policies have sparked another spike up in housing prices (restricting inventory played a key role in this, of course). As a result, the housing bubble is alive and well in markets such as Los Angeles: If you have any doubts that the banking sector dearly loved the housing bubble, take a look at this chart and note that mortgage debt more than tripled during the bubble . For context on the enormity of that $8.2 trillion expansion of mortgage debt: that $8.2 trillion is three times the 2005 GDP of Europe's largest economy, Germany. (The GDP of Germany in 2005 was $2.7 trillion.) Thanks to writeoffs and writedowns, mortgage debt has declined in recent years, but we need to remember that if pre-bubble growth trends in population and housing valuations had remained in place, total mortgage debt in the U.S. would be around $5 trillion, not $10 trillion. The $1 trillion writedown in mortgage debt is just the start; we only need to write down another $5 trillion to get back to a non-bubble level of debt. Meanwhile, total consumer debt has barely budged. In other words, that $1 trillion reduction in mortgage debt has been offset with rising student loans, auto loans and other consumer debt. The total debt load on U.S. households remains at bubble levels, more than twice the debt owed in 2000. Population growth since 2000 accounts for 9.7% of this additional debt, meaning that if debt had risen at pre-bubble rates, total debt would be around $6.5 trillion rather than $13 trillion. Recall that adjusted income for most households has declined sharply since 2000. So the Fed's zero-interest rate policy is simply a holding action that enables over-indebted households to keep making their debt payments to the banks. Many people claim the Federal government and Federal Reserve are trying to inflate a new housing bubble to trigger a new "wealth effect," i.e. people seeing their home equity rising once again will feel encouraged to borrow and blow money like they did in 2001-2008. But if we look at current income (down) and debt levels (still high), there is little hope for a renewed wealth effect from housing. That leaves us with this conclusion: The Federal government and Federal Reserve are trying to inflate another housing bubble to save the "too big to fail" banks from a richly deserved day of reckoning. To read more on this subject: The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012) Average: 4.694445 Your rating: None Average: 4.7 ( 36 votes) Tweet Login or register to post comments 16514 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: It's Always The Best Time To Buy Guest Post: All Is Well Guest Post: Apparitions In The Fog Guest Post: Extend And Pretend Is Wall Street's Friend Excelsia's Cliff Draughn Goes In Search Of Your Sleeping Point
How The Super-Rich Avoid Paying Taxes Submitted by Tyler Durden on 02/15/2013 20:23 -0500 If you're one of the 1% of Americans who control over 40% of the country's wealth, life is full of choices. Among them - how best to keep all that money away from the government? The U.S. economic system offers no shortage of loopholes allowing the ultra-rich to shortchange Uncle Sam. The following infographic explains how exactly do the super rich hide that much money from the government every year? Source: TopAccountingDegrees.org Average: 5 Your rating: None Average: 5 ( 2 votes) Tweet Login or register to post comments 2123 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Super Rich Indians Abandon Super Cars En Masse To Avoid Arrest In Massive Smuggling And Tax Fraud Crack Down Guest Post: Should The Rich Pay More Taxes? The Millionaire Man Exodus: What Obama Can Learn From The UK's "Tax The Rich" Plan Buffett Goes To Britain: Clegg Calls For 'One-Off' Tax On Super Rich Why 'Tax The Rich' Doesn't Solve Anything: It's The Math, Stupid
Will LGIVs Be The 'Straw' To Break China's Credit-Fueled Growth 'Back'? Submitted by Tyler Durden on 11/23/2012 19:55 -0500 Barclays Bond China We presented a detailed look into China's credit bubble earlier this week and why serial-extrapolators may well have to adjust their strategy calls sooner rather than later; but the more we look around in the detritus of China's non-centrally-issued datasets, the more concerned we become. To wit, the major issuance of local government investment vehicles (LGIVs) in the last few months to stabilize growth amid falling fiscal revenue growth . The unintended consequence of PBoC-sponsored debt restructurings (as Barclays notes, rolling over debt via the issuance of new products or buyouts by asset management companies) is creating a false sense of security for these instruments, reinforcing the belief of an 'implicit government guarantee' . We tend to agree with Barclays when they conclude that the underestimation of the credit risks in both the trust loans and bond markets could induce excessive risk-taking - and warrants extremely close monitoring. Average: 4.714285 Your rating: None Average: 4.7 ( 7 votes) Tweet Login or register to post comments 3481 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Frontrunning: October 10 Barclays Wins Euromoney's Best Global Debt, Best Investment Bank, And Best Global Flow House Of The Year Awards West vs East Banker Pay Comparison: JPM's Jamie Dimon: $23,000,000; ICBC's Jiang Jianqing: $308,000 Frontrunning: October 25 Faber: "Middle East Will Go Up In Flames" ... "Have To Be In Precious Metals And Equities"
USA, Inc. - Part 2: If America Were A Corporation, It Would Be Broke-er Submitted by Tyler Durden on 11/01/2012 21:12 -0400 Fail Ira Sohn When Mary Meeker, formerly of pre-IPO bubble analyst fame, released her "USA, Inc." presentation last year, which assayed the US government as if it were a corporation, her conclusion was simple: the country is broke , and can not continue along the path it is on now. Fast forward to today, when the US debt balance is over $1 trillion higher, and the next edition of Mary Meeker's presentation which she released at last week's Ira Sohn conference. Her conclusion: the US is now broke-er than ever. The summary bullets of the must read cover to cover 50 page presentation. America is losing its edge - some of this is inevitable as other countries improve their competitiveness, some of this is self inflicted. Financial strength is vital to competitiveness – it’s core to a healthy economy, job creation, vibrant education / culture and military leadership. Positive cash flow and a strong balance sheet are key to financial strength – bottom line, it’s bad to spend more than one brings in, as America is doing. In effect, as each day passes – with our rising losses and debt load – we rob just a little bit more from the future. America does not need to lose its edge, it needs conviction and leadership to move its ‘business model’ in the right direction – we are all in this together, we need to understand and acknowledge our problems and agree to move forward with collective inspiration and sacrifice. American tax dollars fund our government – we all need to understand where our taxes go and decide if we believe our hard-earned dollars are put to their highest-and-best use. The politicians we elect decide where our money goes. As everyone who has worked in finance knows, the first page of every presentation is the Sources and Uses table. USA, Inc., has one two. We fail to see, however, who in their right mind would consider this a sane investment. To be sure, the full name of the corporation should be Welfare USA, Inc. as can be seen below from the consolidated Healthcare spending for the US in context... And the percent of households paying taxes vs those receiving government benefits. Houston: we have inversion! Full hair-raising presentation below: Average: 3.625 Your rating: None Average: 3.6 ( 8 votes) Tweet Login or register to post comments 7464 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Pick Your Debt Poison Guest Post: Are Corporations People? Chart Of The Day: Americans At Or Below 125% Of The Poverty Level ABRaHaM LiNCoLN... Guest Post: What Democracy?
What 40 Years Of Gold Confiscation By The US Government Looks Like Submitted by Tyler Durden on 08/21/2012 19:05 -0400 Exchange Traded Fund Federal Reserve Ford Gerald Ford None The chart below, which is a time series showing the total " Gold Held by the US Treasury and the Federal Reserve " (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the " forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States " order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as USD devaluation) from its citizens was legalized. The actual April 5, 1933 order, which in the coming years will make a repeat appearance with absolute certainty, is below. What was the point of Executive Order 6102? It was two fold. First, in order to make the confiscation legitimate, the US government required the delivery of all gold coin, bullion, and certificates to be concluded by May 1, 1933 in exchange for $20.67/ounce. Several months later, the new, official gold exchange price (which however was merely the government's bid as nobody could actually buy gold at this price) became $35.00, which remained until 1971 when the last trace of the dollar's pseudo convertibility into gold was wiped out by Nixon. In effect, what FDR did was to devalue the USD by 70% overnight . Second, not only did the government remove the incentive for ordinary citizens to hold gold by establishing price and criminal controls over possession, it also changed the rules in the middle of the game allowing it to build up a massive gold hoard of over 8000 tons today which is maintained at Fort Knox, and is, to the best of our knowledge, unauditable by any mere mortal. Critically, it made the US government the sole source and monopoly agent of gold purchases, using reserve fiat currency it could print with impunity, beginning in 1933 and continuing through 1974 when the limitation on gold ownership was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93-373, which went into effect December 31, 1974. In summary, the US government, which is now the largest official holder of physical gold in the world, had 40 years of uncontested zero cost gold accumulation in which it could build a gold inventory that was second to none. As for the process the government had in place to deal with those who refused to voluntarily hand over their gold quietly, curiously there was only one case of prosecution, which however should make it very clear that holding gold in "authorized" bank safes is about the dumbest thing one can do the next time the US government decides to devalue the dollar, and change the rules. The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold. Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, and Campbell's gold was confiscated. The fact that the custodial bank of the 5000 ounces of gold is the bank that would subsequently become JPMorgan is not lost on us. Finally, to those who have some gold ETF certificates in a brokerage account, which by law are the possession by DTCC's Cede Co. - a bank owned institution - we wish the best of luck to anyone hoping to preserve of even recover any of the invested wealth in such instruments. And remember: when in doubt, recall Bernanke's immortal words: " gold is not money. " Average: 4.92857 Your rating: None Average: 4.9 ( 14 votes) Tweet Login or register to post comments 4093 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Romney Ratifies Ryan; Proscribes Pawlenty And Portman Guest Post: Paul Ryan's Budget THe NeW OBJeCTiViSM... The Fed On Gold Price Manipulation Alan Simpson Confirms Reality: "All The Things You Love Will Not Come To Pass"
The chart below shows that banks have written off $218 billion of credit card debt since 2008. It also shows outstanding revolving debt falling from $1.01 trillion to $819 billion, a $191 billion decrease. For the math challenged, like any Wall Street shill paraded on CNBC, this means consumers have added $27 billion of credit card debt since 2008. Does that sound like deleveraging? Households have also taken on $300 billion of additional student loan debt since 2008, buying into the government sponsored scam to keep the unemployment rate lower by offering the false hope of jobs with useless on-line degrees from the University of Phoenix. Does that sound like deleveraging? Consumer Credit Card Debt and Charge-off Data (in Billions): Outstanding Revolving Consumer Debt Outstanding Credit Card Debt Qrtly Credit Card Charge-Off Rate Qrtly Credit Card Charge-Off in Dollars Q1 2012 $819.4 $803.0 4.37% $8.8 2011 $864.9 $847.6 Q4 2011 $864.9 $847.6 4.53% $9.6 Q3 2011 $826.2 $809.7 5.63% $11.4 Q2 2011 $819.2 $802.8 5.58% $11.2 Q1 2011 $810.7 $794.4 6.96% $13.8 2010 $857.4 $840.2 $77.9 Q4 2010 $857.4 $840.2 7.70% $16.2 Q3 2010 $836.0 $819.2 8.55% $17.5 Q2 2010 $847.5 $830.5 10.97% $22.8 Q1 2010 $860.3 $843.1 10.16% $21.4 2009 $921.9 $903.4 $85.6 Q4 2009 $921.9 $903.4 10.12% $22.8 Q3 2009 $922.2 $903.7 10.1% $22.8 Q2 2009 $933.1 $914.4 9.77% $22.3 Q1 2009 $946.1 $927.2 7.62% $17.7 Q4 2008 $1,010.3 $990.1 (Source: CardHub.com, Federal Reserve) They only people with the courage to tell it like it is are skeptics and outcasts from polite society inhabited by the power elite – people like Ron Paul , Michael Burry , and deceased critical thinkers like Frank Zappa and George Carlin . In one of his final appearances, Carlin brutally lashed out with a torrent of truth, only spoken by courageous people not worried about the consequences of their blunt honesty: “Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear. They’ve got you by the balls. They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting ****ed by a system that threw them overboard 30 ****ing years ago. They don’t want that, you know what they want? They want obedient workers, obedient workers. People who are just smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly *****tier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. The table is tilted folks, the game is rigged. Nobody seems to notice, nobody seems to care. Good honest hard working people, white collar, blue collar, it doesn’t matter what color shirt you have on. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.” : Source: Economix Blog
标签: GOVERNMENT经管大学堂：名校名师名课
京公网安备 11010802022788号
论坛法律顾问：王进律师
知识产权保护声明
免责及隐私声明
