06/19/2015 - Financial Repression Obfuscation: Measuring Inflation
Wall St For Main St interviews financial expert Ed Butowsky created the Chapwood Inflation Index to better accurately measure inflation in the U.S. compared to the Bureau of Labor Statistics’ Consumer Price Index (CPI) .. discussion on the problems with the CPI and why it no longer measures inflation accurately .. an example of obfuscation – one of the pillars of financial repression .. 29 minutes
06/16/2015 - Jordan Eliseo Talks: “Dire Straits – Money For Nothing, Debt For Free”
Special Guest: Jordan Eliseo – Chief Economist, ABC Bullion, Australia
FINANCIAL REPRESSION
“The subsidizing of debtors and the attempt to provide essentially a fake support for asset prices – while punishing savers and mis-allocating capital!”
“In Australia we have some of the highest debt levels in the world. Some people in Australia like Financial Repression because it is making it easier for them to pay off their mortgage (or at least afford their mortgage). The flip side is retirees, or people trying to live off fixed income and the like, are finding life very very difficult now because they have taken a very significant “pay cut” on the income which they were able to earn on the capital that they had been able to save throughout their working lives.”
WHAT’S DIFFERENT IN AUSTRALIA?
“Australia is effectively “catching down” to the rest of the world. – it is approximately four to five years behind western word.”
“Australia was incredibly fortunate the first time around to. We had a huge stimulus from China which lead to quite literally an unprecedented boom in capital investment in our mining sector. Trades stayed incredible strong because iron ore, coal prices and even gold was supported from a long time. Also because even at this point Australia has a a government debt level that is still quite manageable”.
“Imbalances have continued to build over this period and now that the mining boom is over, iron ore prices are closer to $60 dollars (not $160) and capital investment is drying up – we are finding we don’t have anything to re-balance to with private debt levels preventing any real pickup in consumer spending in any meaningful way!”
“Australia is about to enter a fairly serious “lull”‘
EXPECT DECLINING STANDARDS OF LIVING
The next phase in Australia that Jordan Eliseo expects “is where people begin to lose faith with Central Banks and start to more fully appreciate the complete lack of connection of what is going on in the real world / real economy and what is going on in asset / financial markets.”
“I think that when that happens financial markets have a lot of “catching down” to do!”
“The road that the government and central banks have led us down is actually a road that is going in the wrong direction! Standards of living are going to continue to decline as we go down that road and it is going to be a very difficult period for investors and individuals just trying to maintain their standard of living.”
WALL STREET IS DISCONNECTED FROM MAIN STREET!
“The end result of current economic policies have caused the disconnection (between Wall Street and Main Street). You can understand the emergency measures that were taken during the financial crisis but all it has done is fuel rampant asset speculation. We haven’t seen any meaningful growth in corporate capital investment or a rise in full time job creation (with a real living wage).”
“If you look at what is happening around the world we are seeing the prioritization of asset speculation over actual investment. It is impacting everyone from individuals, to CEOs, to Boards in making decisions around dividends / stock buybacks versus investing in their own operating businesses!”
“People in Australia on paper are more wealthy because their house price keeps going up, but they have less money to spend because the money they earn on their term deposit & savings continues to decline!”
… and much, much more in this 36 minute VIDEO interview on global macro issues …
06/15/2015 - Swiss Re Meeting: “Sounding the Alarm on Financial Repression”Swiss Re video highlights the recent meeting they held with experts voicing concerns about the ongoing use of unconventional policies .. financial repression is causing financial market distortions & poses a serious risk to financial stability .. These unconventional policies have pushed institutional investors into holding government debt. As a result they have less money available for productive investment, such as infrastructure projects .. “It means that there’s a global search for yield. That possibly leads to a misallocation of resources,” says Douglas Flint, Group Chairman of HSBC .. Jean-Claude Trichet, Chairman of the Group of Thirty affirms the risks.
06/14/2015 - Financial Repression: The War on Cash will Accelerate in the next 6 Months
Greg Hunter interviews Gordon T Long .. “We have run out of runway, but never underestimate the ingenuity of a trapped politician and central bankers to come out with new policies and new ways to extend this. We are going to see some pretty violent volatility and corrections. We are going to be in there guaranteeing collateral because our issue is . . . there is a shortage of collateral. The Fed sucked all of the bonds out of the market. There is a shortage of them. So, we have a major liquidity problem. That’s the runway we are running out of, and flows are starting to slow dramatically. Now, that says it’s getting unstable, but that doesn’t mean the world is coming to an end. It does mean we are going to do something else, and one of those things is negative nominal rates and cashless society. That’s the reason why we are going to have a cashless society. You are going to see this (cashless society idea) accelerate in the next six months.” .. 30 minutes
06/13/2015 - Austrian School Economist Carl Menger: “Money Emerges from a Free Market Economy, Not From Government Decree” Dr. Joseph Salerno on The War on Cash
“The free market provides the prospect of an escape from the fiscal police state that seeks to stamp out the use of cash [financial repression] through either depreciation of central-bank-issued currency combined with unchanged currency denominations or direct legal limitation on the size of cash transactions. As Carl Menger, the founder of the Austrian School of economics, explained over 140 years ago, money emerges not by government decree but through a market process driven by the actions of individuals who are continually seeking a means to accomplish their goals through exchange most efficiently. Every so often history offers up another example that illustrates Menger’s point. The use of sheep, bottled water, and cigarettes as media of exchange in Iraqi rural villages after the U.S. invasion and collapse of the dinar is one recent example. Another example was Argentina after the collapse of the peso, when grain contracts priced in dollars were regularly exchanged for big-ticket items like automobiles, trucks, and farm equipment. In fact, Argentine farmers began hoarding grain in silos to substitute for holding cash balances in the form of depreciating pesos.”
– Dr. Joseph Salerno, The Mises Institute
06/13/2015 - The Lessons on Capital Controls from Argentina
Sovereign Man explains how Argentina’s government is bankrupt & has been implementing countless sets of controls including exchange price controls, media controls, exchange controls & capital controls [financial repression] .. “When governments find themselves in financial trouble because of the stupid decisions that they’ve made, their first response is to award themselves even more power to make even stupider decisions. And among the stupidest decisions that any government can make is imposing capital controls .. something that Argentina has in abundance.” .. these capital controls include prohibitions to leave the country with more than U.S.$10,000 in cash & significant paperwork & bureaucracy to wire funds out of the country .. also there is a 30% difference in the official exchange rate with the market exchange rate so that your wired funds leaving the country are effectively 30% less than you think .. “What happens with capital controls: you see a rapid decline in your standard of living as the government traps your savings in a bankrupt system .. It’s like lying on the ground with a blindfold on while the government builds a coffin all around you .. Little by little they fasten together all the sides, and then the top, nail by nail. Capital controls are like a coffin for your savings.”
06/13/2015 - The European Union is Rushing Legislation on Bank Bailins
Michael Snyder highlights what is happening in the European Union – they are rushing legislation (financial repression) for all European Union countries & threatening that if a country does not enact “bailin” legislation within the next 2 months, it will face legal action .. what is a bailin? – it’s when creditors like bank depositors or shareholders lose something to help bail out a bank, instead of the government bailing out the bank .. why 2 months? – because you have Greece ready to default & it could send contagion effects all across Europe .. “Greece will only be just the beginning. In the end, I expect major banks to fail all over Europe as we head into the greatest financial crisis that Europe has ever seen. Bank account holders all over the continent could end up having to take ‘haircuts’, and that would just make the coming deflationary cycle in Europe a lot worse. And I actually expect events in Europe to start accelerating greatly by the end of this calendar year. Apparently the top dogs in the European Union are also concerned about the immediate future, because they are rushing to get ‘bail-in’ legislation passed in every nation in the EU by the end of the summer.”
06/13/2015 - Financial Repression on Americans: Gold-Backed Currencies Available Globally Except for U.S. Residents
John Rubino highlights the recent emergence of BitGold & its purchase ofGoldMoney .. points out this is not the first service or facility of using gold as a payment system – Peter Schiff’s Euro Pacific Bank already allows non-U.S. customers to buy gold and/or silver, store it for free at Australia’s Perth Mint & then use a debit card to spend it .. Rubino: “Not so long ago the U.S. was where innovations emerged before spreading to the rest of the world. But in the realm of sound money and individual financial freedom at least, this is now Siberia. Foreign banks won’t accept American customers because they’re terrified of IRS agents showing up on their doorsteps with subpoenas. And now gold-backed payment systems that are apparently legal everywhere else are closed to Americans. So we’ll have to watch the merger of sound money and modern technology from the sidelines. Outside the U.S., however, gold-backed currency has the feel of an idea whose time has come. And to repeat an assertion made in yesterday’s piece on BitGold, widespread acceptance of these payment systems might generate a positive feedback loop that sends gold much, much higher. So their success will benefit all owners of precious metals, not just the early account-holders.” .. it’s financial repression on Americans especially.
06/10/2015 - Jean Marie Eveillard Talks Financial Repression
Special Guest: Jean Marie Eveillard – Former Fund Manager & Legendary Investor
FINANCIAL REPRESSION
“One characteristic of Financial Repression is extremely low interest rates. That is what the Federal Reserve, ECB and Bank of Japan have done over the past few years in reaction to the financial crisis of 2008. They have in a sense manipulated interest rates by doing what they call Quantitative Easing, which is the purchasing by the central banks of a number of fixed income securities – in the process taking short term interest rates and long term yields down as much as possible. In doing so they are trying to encourage investors but it is of course detrimental to savers!!”
“In a way they are being pushed into equities … the authorities have created what I think is a bubble in stocks, bonds, high end real estate and art”
REGULATORY “RING FENCING”
“By forcing the banks to inflate their capital, the banks are being forced into buying sovereign securities!”.
This type of regulatory policy chicanery helps finance the growing government debt at the expense of savers, retirees and small business. Eventually sovereign economic growth is affected.
NEGATIVE UNINTENDED CONSEQUENCES
There are many unintended consequences and moral hazards of such policies. They lead to mal-investment, lack of price discovery and the mispricing of risk. Jean Marie Eveillard cites “economists have warned about potential mal-investment and today we are right there with the problem …. there is no ambiguity when they say they will do whatever it takes!”
“SAVE & INVESTMENT” VERSUS “LEND & SPEND”
“Today the emphasis of economists is to consume, versus save and invest!”
“Sustained cheap money increases supply much more than it does demand. We presently have over investment resulting in global over supply. This is not being matched by only moderate global demand based primarily on consumerism. This mismatch leads to a lack of pricing power, which eventually defeats policies of Quantitative Easing and ZIRP which were never intended by their academic architects to be sustained policies.” Gordon T Long
06/09/2015 - Jayant Bhandari – Hard Assets & Natural Resources: FRA “It’s an over supply problem!”
Special Guest: Jayant Bhandari – Global Mining Analyst, Anarcho Capital
“Economic Repression is a fact of the day everywhere in the world”
FINANCIAL REPRESSION
“There are two parts of the world in my opinion. One is the western developed civilization and the other is the non-western civilization. The western civilization was primarily based on reason and respect for the individual. This has considerably deteriorated over the last few decades. Increasingly the coming of the police state in particularly the USA. In the West-European part of the western civilization the regulatory controls have become particularly horrendous as well. The welfare system of these economies is deteriorating these societies now. Culturally the western civilizations are increasingly on a slippery slope.”
“The non Western civilizations have adopted the consumerism and wealth creating mechanism of the western civilizations, but I am not sure they have really adopted these things properly! Democracy has not done well in these countries. As a result consumerism is making these countries very unstable. The only countries I feel relatively positive about right now are China and some of the smaller countries like Singapore, Hong Kong, Mauritius – these countries are doing very well.”
HARD ASSETS & NATURAL RESOURCES
The problem is with the investors who have over-funded mining. They shouldn’t have ramped up mining as much as has been done!
‘The places to invest are places like Canada, Scandinavia, Australia and parts of South America. You need consistency in the political climate. You want the stability for people to invest billions of dollars in these countries.”
“I don’t think global demand has fallen. If you look at Iron Ore the world is using three times more Iron Ore. The world requires three times more Iron Ore than it used to 10-15 years ago. What is changed is that we have started to supply more commodities than the world demand is there for it. The problem is with the investors who have overfunded mining. They shouldn’t have ramped up mining as much as has been done!
PERVASIVE GLOBAL OVER-REGULATION
“Global western economies are stagnating and this is a direct result of over regulating business in those countries.”
“Businesses are suffocating in the west now. There is pretty much zero growth. You need to understand the off balance sheet liabilities these businesses have, and continue to increase. They have benefited from technological evolution and the low hanging fruit over the last twenty years.” This has now changed.
The US$ shows that though the US is deteriorating according to Jayant Bhandari “it is deteriorating slower than the rest of the world!”
“Economic repression is a fact of the day everywhere in the world”
Where growth is happening it is because of increasing consumerism and this is not good for the future because growth should be happening as a result of the increase in supply of products – which would mean we should be saving more – which would mean we should be producing more than we are consuming!”
INCREASINGLY BULLISH ABOUT GOLD
“I have never been too bullish about gold but increasingly I am very bullish about gold. The reason is a lot of people misunderstand why Indians buy gold. The reason Indians and Chinese buy so much gold is that for example in India the yield on investment is negative. It pays them to invest in something that gives them positive real yield. In my view India is going to increase its consumption of gold and the Chinese will keep doing it.”
“Once the US$ becomes too over-valued people will begin putting their money in precious metals!”
…. and much more in the video interview. Listen to the whole interview.
06/09/2015 - Financial Repression Tutorial: It’s about Macro Prudential Policies to Control and Reduce Government Debt
Financial Sense’s Cris Sheridan interviews Gordon T Long* on financial repression .. Gord explains how financial repression is not about conspiracy theories, nor is there some official government policy for financial repression .. it’s happening from macro prudential government policies focused on reducing & controlling government debt .. click on the above chart to enlarge – in the middle you will see the 4 pillars of financial repression – negative interest rates, inflation, ring-fencing regulations & obfuscation .. “Financial repression uses a combination of inflation and government control of interest rates in an environment of capital controls to confiscate the purchasing power of much of the nation’s private savings.” .. discussion on how to protect your investments in such an environment .. 43 minutes podcast .. courtesy thanks to Financial Sense for making this available
“Financial repression is not a conspiracy theory, it is rather a collective set of macroprudential policies focused on controlling and reducing excessive government debt through 4 pillars – negative interest rates, inflation, ring-fencing regulations and obfuscation – to effectively transfer purchasing power from private savings.” – The Financial Repression Authority
06/09/2015 - Mark Thornton on The True Meaning of Financial Repression
Financial Survival Network interviews Mises Institute’s Mark Thornton .. Thornton writes: “With politicians and central bankers seemingly gone mad with their obsession for money printing and ultra low interest rates, it is nice to know that academic economists have a term (i.e., financial repression) for the policies that have created our current economic conditions.” .. the term financial repression dates back to 1973 when 2 Stanford University economists – Edward Shaw & Ronald McKinnon .. identifies 2 major macroprudential policies of financial repression in use – ZIRP or zero interest rate policy of central banks to keep interest rates & lending rates at or near 0 – this makes the interest rate on government debt low .. & the second is QE or quantitative easing is the central bank policy of buying up government debt from banks – this increased demand increases the price of government bonds & reduces the interest rates on those bonds .. Take a look at the frescoes Mark refers to in his article and see if you recognize a parallel to modern America: The Allegory of Good and Bad Government .. 20 minutes
06/07/2015 - Puru Saxena Talks Financial Repression
Special Guest: Puru Saxena – Founder & CEO, Puru Saxena Wealth Management
FINANCIAL REPRESSION
“We have been through a huge financial crisis in 2008 which brought the world’s banking system to it knees. The US housing market was on it knees. It was the worst recession, if not depression that the US faced in a long time. It affected all the global markets. So rightly or wrongly –wrongly in my view – the central banks decided to bailout everyone in site by keeping interest rates near zero and launching Quantitative Easing programs (which is essentially bond buying or asset swapping) which is printing new money and buying toxic bonds from the banks and thereby cleaning up the banks balance sheets – making sure the banking system survives.”
“In the process they have held interest rates at zero for a long long time, not only in the US, Europe and a lot of other countries in the developed world, which is penalizing the savers to the benefit of the borrowers and debtors. They are especially hurting people at retirement or close to retirement because suddenly their passive income which they had worked so hard to accumulate all their life disappears!“
“It is essentially a transfer of wealth from savers to the borrowers and debtors.”
“This has managed to stabilize the system temporarily but is really not good for society!”
UNINTENDED CONSEQUENCES
“The problem is everyone has become accustomed to being bailed out! Now there is no such thing as a bankruptcy! Everyone knows (especially the banks), if they make mistakes someone will bail them out either the central banks or the government. It has increased risk taking.
“It has increased risk taking.“
“I never felt QE was capable of increasing business activity because this is not really a supply side problem but a demand side problem. You have households all over the world already choking on debt. The last thing they want to do is borrow more money even if you drop rates to zero or give them money to borrow, they just are not going to do it!
A DEMAND PROBLEM
“When people ask why QE hasn’t caused inflation or hyperinflation, the answer is simple: households in the west were in no position to borrow money at even zero interest rates. The aggregate demand for new debt or credit was simply not there. By swapping assets the central banks have managed to cleanup the banking system but they have not been able to ignite the risk appetite at the household level”.
“We have a Demand problem, NOT a Supply Side problem!”
This is a global problem! “Even in Hong Kong, 2 years ago it was teaming with mainline Chinese tourists which now are simply not coming. Retail sales in Hong Kong have fallen significantly. Spending is hurting as the middle class has been obliterated! The rich have become richer as assets have increased and savers have been penalized. This policy of QE and Financial Repression has really helped the elite of the world – who have had access to financial leveraging.”
LOW GROWTH ECONOMIC ENVIRONMENT
The core problem to Puru Saxena is:
“Historically we have seen, whenever an economy passes through an extremely slow growth, sluggish environment where there is a lack of aggregate demand and you have deflationary pressures, long term interest rates have always gone down. The tendency of long-term interest rates is to drift lower in this environment. Long-term interest rates are normally set by the rate of economic activity as well as the real rate of inflation. At the moment we don’t really have much inflation or at least forces on inflation anywhere in the developed world and economic activity is zero or even negative!”
Long-term interest rates are price appropriately for the current economic activity!
There is much, much more in this 31 minute macroeconomic view of the world and the investment opportunities it presents.
06/06/2015 - Financial Repression Risk: Bank Bailins Are Coming!
Financial Repression Risk:
Bank Bailins Are Coming!
GoldCore update on bank bail-in financial repression developments .
The European Commission has ordered 11 EU countries to enact the Bank Recovery and Resolution Directive (BRRD) within two months or be hauled before the EU Court of Justice – The countries are Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France & Italy .. the idea of bank bail-ins is to so that governments do not have to bailout banks again on the next financial crisis.
06/05/2015 - Financial Repression Risk: Bank-based Safety Deposit Boxes
International Man’s Jeff Thomas writes about the increasing level of legislation that controls what individuals are allowed to do with their own wealth – financial repression .. “Many people who see the writing on the wall are doing whatever they can to exit the banking system as much as possible, in spite of the fact that the banking system is essential to most types of economic transactions.” .. Thomas sees a move towards electronic money, away from physical cash .. “After this is completed, confiscations will occur. Again, these will be implemented by the banks. But in order to maximize the amount that will be taken, it will be necessary to force people out of other forms of wealth storage and into bank deposits.” .. Thomas highlights the potential effects on bank-based safety deposit boxes – governments & the banking sector will likely try to herd the wealth from safety deposit boxes into bank deposits to make it easier to do bailins .. “Banks are now a time bomb for depositors. Wealth storage in safe deposit boxes looks to become a thing of the past.” .. Thomas advises non-bank wealth-storage facilities for storing precious metals.
06/04/2015 - Deutsche Bank: The Federal Reserve is Embracing Financial Repression
Deutsche Bank now says that the Federal Reserve has been, through their monetary policies, destroying the capital markets & the economy .. “We think the Fed is obliged to talk up the economy because if they were brutally honest, the economy .. could quickly evaporate .. At issue is whether or not the Fed in particular but the market in general has properly understood the nature of the economic problem. The more we dig into this, the more we are afraid that they do not. So aside from a data revision tsunami, we would suggest that the Fed has outlooked not just horribly wrong, but completely misunderstood .. the idea that the economy is ‘ready’ for a removal of accommodation.” .. Deutsche Bank thinks the Federal Reserve is embracing financial repression rather than the “uncertainty of asset price deflation and a debt default cycle.”
06/01/2015 - Jim Rogers Talks Financial Repression
Special Guest: Jim Rogers – Investor, Bestselling Author & Financial Commentator
“Financial Repression can mean many things but basically in a nutshell it is a lack of free market finance and human activity, where the government thinks it is smarter than we are!”
“History has shown many times that we are smarter than governments, politicians and the bureaucrats – but they don’t like to give up power. When they make mistakes they blame it on us and try and make us pay for it! When they see a problem arise their first instinct is to try and suppress the public and markets. They try and do things they think will make things better, but of course it doesn’t, and only makes things worse!”
GOVERNMENT CONTROLS & REGULATIONS
“When problems arise they put on exchange controls which is a time honored tradition of politicians and bureaucrats to correct mistakes they have made. We will have exchange controls in the US again – no question. We already have exchange controls to some extent such as FATCA and other things to make it more and more difficult for Americans to do anything as far as finances are concerned. They will put on trade controls, tariffs quotas – they will come up with all sorts of things.”
Politicians don’t know what they are doing. History proves many times that politicians make things worse instead of better because what they do since they don’t know anything themselves, they ask the bureaucrats how they can save themselves. The bureaucrats rush in and say “this is the way you save yourself”. “It isn’t your fault, it is the markets fault and those evil speculators and the people! They then come up with regulations and controls. They don’t know what they are doing!”
Regarding ZIRP, Operation Twist and three rounds of Quantitative Easing, Jim Rogers predicts:
“We are going to have to pay a horrible price for yet another mistake made by the bureaucrats”
WHAT SHOULD INVESTORS BE THINKING ABOUT?
THE CERTAINTY OF ECONOMIC SLOWDOWN
“History shows in the US we have had economic slowdowns every four to seven years since the beginning of the republic. We are going to have them again no matter what people tell you. If someone tells you we will never have another economic slowdown – please put your money in your pocket and head as far away as you can!”
“It is going to be much, much worse than 2008. There is higher debt everywhere than previously!”
“We have never had history all the central banks printing such vast amounts of money at the same time! There is a hugh ocean of liquidity floating around out there!”
… and much more
06/01/2015 - Thorsten Polleit PhD – The Natural Interest Rate
Special Guest: Thorsten Polleit PhD – Polleit & Riechert Investment Management
Some economists have been arguing that the “equilibrium real interest rate” (that is the “natural interest rate” or the “originary interest rate”) has become negative, as a “secular stagnation” has allegedly caused a “savings glut.” The idea is that savings exceed investment, and that a negative real interest rate is required for bringing savings in line with investment. From the viewpoint of the Austrian school, the notion of a “negative equilibrium real interest rate” doesn’t make sense at all.
The market interest rate is the outcome of the supply of and demand for savings in the market place. It can be observed, for instance, in the deposit, bond, or loan market for different maturities and credit qualities. The originary interest rate is a category of human action, saying that acting man values goods available at present more highly than goods available in the future. In other words: Future goods trade at a price discount relative to present goods. For instance, 1 US$ available today is preferred over 1 US$ available in one year’s time.
If 1 US$ to be received in one year’s time is valued at, say, 0.909 US$, the originary rate of interest is 10 percent. (1 US$ divided by 0.909 minus 1 gives you 0.10, or 10 percent, for that matter.) 10 percent is here the originary interest rate (disregarding any other premia).
The originary interest rate is expressive of a value differential, which results from so-called time-preference. The term time-preference denotes that acting man prefers an earlier satisfaction of wants over a later satisfaction of wants. Time-preference is always and everywhere positive, and so is the originary interest rate. This is, first and foremost, what common sense would tell us.
The notion that time-preference and the originary interest rate could be zero, does not only sound absurd, it is also a logical impossibility: Positive time-preference and a positive originary interest rate are logically implied in the irrefutably true “axiom of human action.”
Human action is purposive behavior, implying the use of means to achieve ends. Action requires time (it is impossible to think otherwise). Thus, time is an indispensable and scarce means for achieving ends. As such, it must be economized, which necessarily implies that an earlier satisfaction of wants is preferred over a later satisfaction of wants.
For (praxeo-)logical reasons, therefore, time preference and the originary interest rate cannot fall to zero, let alone become negative. The implications of a negative originary interest rate cannot even be conceived by the human mind: A zero originary interest rate already implies no action ever into eternity.
Should a central bank really succeed in making all market interest rates negative in real terms, savings and investment would come to a shrieking halt: as time preference and the originary interest rate are always positive, “capitalistic saving” — the accumulation of goods designed for improving the production process — would come to an end.
Capital consumption would ensue, throwing mankind back into poverty. It would be the end of the market economy.
For some reason, those who argue that the originary interest rate has become negative seem to overlook that the originary interest rate is a phenomena which is not confined to credit markets. It pervades all markets in which present goods are exchanged for future goods. For instance, the originary interest rate prevails at each stage of the economy’s time-consuming roundabout production. The originary interest rate also exists in the stock market, where investors exchange present money against a claim on future money (that is a firm’s dividend payment).
If they wanted to be consistent, the believers in a negative originary interest rate would have to call for a policy that does not only make interest rates negative in real terms in the credit market, but also in the markets for, say, stocks and housing.
However, a policy that advocates destroying firms’ values and peoples’ housing wealth wouldn’t be taken too kindly by the public at large; and those economists recommending it couldn’t expect being cheered.
The consequence of a policy of a negative real market interest rate should have become obvious by now:
It is an actually perfidious policy for debasing the real value of outstanding debt; and it is a recipe for wreaking havoc on the economy.
05/31/2015 - Mark Nestmann on US Foreign Investment Taxation
Special Guest: Mark Nestmann – Lawyer, International Taxation Law
After establishing a noted career in international investment, Mark Nestmann left the US for three years to study for his “Master of Law” (LL.M.) degree in international tax law at the Vienna University School of Economics and Business Administration in Vienna, Austria. This is an indication of the seriousness and rigor with which Mark tackles issues in International Taxation for his high net worth clients. He shared his views with the FINANCIAL REPRESSION AUTHORITY in this exclusive interview.
FOREIGN ACCOUNT TAX COMPLIANCE ACT – FATCA
Passed in 2010 and hidden as part of a “Military Pensions Act”, no one fully understood what it meant or paid much attention to it.
“The Foreign Account Tax Compliance Act, is one of the most arrogant and one-sided laws ever passed by Congress. The idea behind FATCA, which Congress enacted in 2010, is simple: Demand that other countries enforce America’s imperialistic tax laws. And do so by the confiscation of foreign assets, if necessary.” – Why FATCA Is a Train Wreck Waiting to Happen – Mark Nestmann
“What is happening is foreign financial institutions (which is defined very broadly in the act) under the law are required to identify their US clients and force their US clients to self identify and turn over information to the IRS.”
“If the banks or countries don’t comply then 30% of their US source income (and in some case 30% of source gross sales revenues) of things like stocks, bonds, CDs etc are withheld – this is a pretty big number! The only way banks can avoid the 30% withholding tax is to essentially act as unpaid IRS informants.”
“Not surprisingly, FATCA and numerous other laws that require FFIs to enforce US money laundering, anti-terrorism, and securities regulations have led most of these institutions to fire their US clients. Perhaps one in 10 – and possibly fewer – non-US banks still permit US citizens or permanent residents to open accounts. That leaves little choice for Americans but to deal only with banks that have agreed to toe the IRS line.” – Why FATCA Is a Train Wreck Waiting to Happen – Mark Nestmann
“Non US persons investing in the US are also effected by FATCA. If their foreign bank don’t comply their US investment is whacked 30% as well – It isn’t just Americas who should care about this but basically everyone in the world!”
This is not a good time to have unreported financial accounts in countries that have already signed FATCA agreements with the US, or are about to. If you’re in this situation, you might want to seriously consider retaining a tax attorney to enroll you in the IRS’s latest Offshore Voluntary Disclosure Program.
PASSIVE FOREIGN INVESTMENT COMPANY – PFIC
“PFIC is another aspect of Financial Repression and aspect of regulatory restrictions on investment choices.”
“If you have an investment vehicle registered outside the US the IRS will consider it a PFIC. As an example of the way this tax is very unfavorable is that unless an offshore Mutual Fund qualifies as a US Mutual Fund when you sell it (or deemed to sell it) you have to file not only a return on the income by also a “throwback” interest charge for EVERY YEAR you held the fund. Additionally the tax rate is computed at the highest marginal rate in that year!”
“What happens is that people who held offshore mutual funds for a long period of time windup losing every penny of income in that fund because it is paid out in taxes and interest penalties.”
… there is much, much more in this 26 minute video interview covering:
05/30/2015 - Macroprudential Policy Driving the Financial Markets
Citigroup note confirms macroprudential policy (financial repression) is driving the the financial markets: “If there were any lingering doubt, this week’s gyrations demonstrate neatly that it is central bank liquidity, not fundamentals, driving markets. It is the flow, not the anticipated stock, of QE which counts .. Central bank policy pronouncements are almost the exclusive driver of market movements at the moment, not fundamentals .. with central bank liquidity the ultimate source of all market movements, investors are forced to shun fundamentals and instead hang on the central banks’ every word. At some point, of course, the risk is that the taps are turned off: recent speeches from Yellen, Draghi and others do demonstrate an increasing unease with market behaviour, and an increased emphasis on financial stability and the need for structural reforms. But with the underlying economy still weak, and vulnerable to a sharp sell-off in markets, we fear they will find that mangling, once started, is hard to stop. Particularly when they remain at least partly in denial as to the extent of it.”
The Financial Repression Authority (FRA) educates investors, funds and retirees on the adverse risks resulting from good-intentioned macroprudential central bank policies, government fiscal policies and financial regulations focused on controlling excessive government debt, attempting to stimulate economic growth, and minimizing the potential for financial and economic crises. FRA provides consulting services, lead generation services and retirement solutions.
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