Perspectives on the global economic changes

[panduranghari]

From the above,

[panduranghari]

This incredible loss of momentum for “official” gold imports was the result of concerted actions by the Reserve Bank of India and the Indian Government. While the “official” justification for those restrictions is the large Indian current account deficit, this argument makes little sense. According to government officials, Indian’s taste for gold and the corresponding imports worsens the country’s trade balance, worsens its current account deficit and puts downward pressure on their currency, the Rupee.

But, without going into too many details, the classification of gold as a “good” in the trade balance is at best misleading. Since gold is more of an investment vehicle and is not “consumable” per se, it should instead be accounted for in the capital account of the balance of payments instead of the current account. Indeed, Switzerland, which is a large net importer of gold, reports its trade balance “without precious metals, precious stones and gems as well as art and antiques” to reflect fact that those are “investments” rather than consumption goods.9 In this case, why should India be any different and report their trade data excluding gold? To us, all the fuss about gold imports by the Indian Government is a red herring.

He is saying exactly what the future economic paradigm will look like. Gold WILL be accounted in the capital account as they are already doing with Euro. India will have to do this too. While US will try every trick in the book to prevent this, the USD has to fall on its own sword. The internal acceptance of USD has to be brought into question for this to happen soon. In a way this game has been going on since 1945 but was sped up in 1982 when Volcker was forced to act on commotion at the conference in Belgrade. The advent of Euro has put the USD on the ventilator support.

No more surpluses and deficits to be carried over. Its all coming to settlement. The price of physical gold has to sky rocket only after the paper market is disconnected with falling comex gold prices.

He is also giving a timeline. 2 years supply left in ETF.

Indrashakti here we come.

[Austin]

Yuan sees lowest value since 2010, pushed by Central Bank ( RT )

China’s yuan tumbled the most in more two three years after the People's Bank of China (PBOC) lowered the currency, a move towards a free-floating yuan by 2015. The yuan fell 0.46 percent against the dollar in Shanghai, according to Chinese Foreign Exchange Trade System price data. The central bank reportedly wants an end to the currency’s steady appreciation to ward off speculators before a possible widening of the trading band. “The PBOC is engineering the yuan declines, which might mean the central bank wishes to change the perception of the one-way bet on yuan gains,” according to Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd, as quoted by Bloomberg.

[Neshant]

Nice way of burning all the speculators, but how long can they keep that up.

The Yuan is significantly undervalued and the world knows it.

[panduranghari]

Yuan sees lowest value since 2010, pushed by Central Bank ( RT )

China’s yuan tumbled the most in more two three years after the People's Bank of China (PBOC) lowered the currency, a move towards a free-floating yuan by 2015. The yuan fell 0.46 percent against the dollar in Shanghai, according to Chinese Foreign Exchange Trade System price data. The central bank reportedly wants an end to the currency’s steady appreciation to ward off speculators before a possible widening of the trading band. “The PBOC is engineering the yuan declines, which might mean the central bank wishes to change the perception of the one-way bet on yuan gains,” according to Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd, as quoted by Bloomberg.

I wrote in Ukraine thread, China wanted to devalue Yuan. And on cue it happened. I am surprised Rouble has not yet. China and Russia are going to turn the screws on for the west.

Fed wants to taper by the middle of the year. Taper? What Taper? 80% treasuries bought overseas. No disclosure of what is the nationality of these buyers.

[Austin]

The Rouble has already devalued by 7.5 % since beginning of Jan this year link

Even Khazak are devaluating their currency

[Austin]

I think free floating Yuan is another name for fully convertible Yuan is what they are trying to achieve by 2015. They would be the second currency in BRICS after Rouble if they managed to do that by 2015.

Also i suspect Yuan will appreciate if its free floating.

[Suraj]

I find it hard to believe China will remove all capital controls and enable full convertibility on the capital account, especially within the next year or two. There's a lot of capital that might choose to exit in such a situation. The attendant exchange rate volatility runs at odds with their 20-year long effort to maintain stable exchange rates to drive their export engine.

[Austin]

May be a question of Gains versus Pains where the Gains outweigh the pains

1 ) IF they make their currency full convertible then they have enough reserves of USD to back if up if they appreciates higher then Central Bank would like it to be.

I suspect they would want to keep it free floating within a corridor of USD/Euro like Russia does ......if it appreciates the corridor is raised higher if CB is not comfortable they intervene.

2 ) They have enough gold reserves to back it up ...not just the official ones but the one being routed through HK etc China has been the greatest buyer of gold in recent times and some figures floating around rates it at 4K T

3 ) Some country might have signalled china if they make Yuan convertible they will keep a portion of it as Reserve Currency and/or might trade with it instead of intermediate dollar route , China also has currency swap agreement with many countries.....and traders too might be willing to do that in large numbers then they do it now.


I see no reason why they shouldn't do that except to keep it artifically lower as they are doing it now for purely export reasons and which they know wont last for long.

[Suraj]

There's really no such thing as making their currency 'free floating within a corridor', which is called a dirty peg and is not a free float at all. They already do that ever since they liberalized their exchange rate about a decade ago so that it was permitted to move in a range. In fact RBI also tried to do that, before effectively giving up.

For a free float, the PBoC really does not play a role in exchange rate at all, short of defending the currency if there's a major crisis. The Ruble, Yen etc are all examples of currencies that are not free floating and as far as I know, never were. BOJ has always attempted to keep the Yen weak to keep the Japanese export engine competitive, and weakening the Yen remains central to Abenomics, so much so that <Y100/$ is seen as current Abenomics policies failing and needing greater stimulus.

From prior behavior, Chinese are very conservative when it comes to monetary policy moves, so I'll be quite surprised if they turn to full capital account convertibility. There's too much capital wishing to exit, and too much of an export system depending on exchange rate stability. A dirty peg is not any sort of full convertibility, but just more of the same with wider tolerance limits. Usually they make changes when its glaringly obvious they will benefit, not when there's a narrow tradeoff.

[Austin]

As long as you allow Full Convertibility of your currency without restrictions it called free floating ....how you achieve it is CB choice .....I doubt there is any currency in the world that works based on market forces every Central Bank intervenes one way or the other.

Even countries like Australia or Canada currency have full capital account convertibility AFAIK , see no reason why they should not and must not do it ......wheather its leads to more good or bad to their economy is something time will tell .but they have good means to keep that in check.

[Austin]

Why the Yuan’s Decline Matters

Here’s what happened:

China’s yuan has fallen steadily against the U.S. dollar in the past week. On Wednesday, The Wall Street Journal reported that it wasn’t market forces or traders behind the move, but that the Chinese central bank was deliberately pushing the currency lower. That a central bank would do this on purpose has caught some off-guard, especially since the yuan was long seen by investors as a currency that was only going up.

Why does this matter now? Why are they doing it?

Currently, the yuan trades within a tight range set by the central bank every day. But, short-term traders and increasing demand is almost constantly pushing the currency higher within that range. By denting the currency’s value on purpose, the central bank is trying to spook away these traders who will now have to worry about the possibility China does this again. With fewer “speculators” trading the yuan, China hopes to have an easier path to widen the yuan’s trading range further and, in the much longer term, make the yuan a free-floating currency that’s driven only by economic and market forces.

Why does China want to free its currency in the long term?

Having a freely traded currency opens up a wide door for the yuan to become much more prominent in trade and payments across the globe. Perhaps most importantly to China, a freely convertible currency also makes the yuan a more attractive option for other central banks’ stockpiles of cash, also known as their foreign exchange reserves. Currently the U.S. dollar dominates as the number-one reserve currency in the world—that’s why so many central banks hold U.S. government bonds even when the U.S. economy doesn’t look to rosy. China wants the yuan to challenge the dollar’s long-established role, and gradually freeing its currency is a critical step to get there.

Why else?

China is also trying to push its economy away from relying so much on exports and investment. It, instead, wants more of its growth to come from domestic demand. Making the yuan behave more like a market-driven currency fits into this broader plan.

[Suraj]

As long as you allow Full Convertibility of your currency without restrictions it called free floating ....how you achieve it is CB choice .....I doubt there is any currency in the world that works based on market forces every Central Bank intervenes one way or the other.

I am not debating what full convertibility is, just skeptical if the Chinese will do it. You can have a generally free floating currency without full convertibility, by letting the exchange rate reflect demand supply, and completely eliminate any sterilization.

Full convertibility, with all the lack of financial regulation or elimination of capital controls, on the other hand, is something I question any developing nation would or should do. It was the lack of capital exit controls that crippled Thailand and SoKo, the two most affected countries in the 1998 Asian crisis. RBI, during that era, is credited with defining capital and current account convertibility separately, as opposed to the previous general idea of convertibility that encompassed both current and capital accounts.

Chinese imperatives for full convertibility should be argued solely in terms of what it provides to them, and not in terms of some other country, especially not a developed commodity export driven economy like Canada or Australia; China - or India - is not either developed or commodity-export driven.

Full convertibility also means a foreign entity should have legal freedom to liquidate assets in China, and exit with that capital in a currency of their choice as and when they desire to. This isn't merely a monetary or even central bank issue - there are significant legal issues related to purchase and sale of assets, bankruptcy law and labor retrenchment law, among other things, that will affect any sort of implementation of full capital account convertibility by China.

The Chinese seek reserve currency status for the CNY. To an extent it already is one, to the extent that its trading partners are willing to settle trade in Yuan instead of USD. Even the Rupee has limited reserve currency status because we transact in it for oil trade with at least Iran. It used to have even greater status during the days of the gulf Rupee.

[Austin]

The Chinese Central Bank would have weighed in the pro and cons of making the move to full convertibility if they really plan to do so. If there is legal hurdle as you mentioned then that would need to be also taken care off.

They certainly have all the tools available at their disposal to make Yuan fully convertable , the timing is something they can choose to.

I think it would be good for the Chinese Economy and the world if they make this move and then gradually occupy the niche as reserve currency . Most certainly the hardworking Chinese people deserve their own rightful place for making the nation what it is today.

On the Iran issue I read Iran later refused to accept Rupee as payment when the new Government came to power.

[Suraj]

No, the settlement of the Iran oil trade in Rupees has been going on until late last year at least. It's the recent multiparty agreement with Iran that may end it, because of the end of sanctions. Here's an article from Dec 2013:
UCO Bank looks to life after Iran sanctions windfall

Sanctions were first imposed on Iran at the beginning of 2012, and tightened in February when the United States asked oil buyers to stop transferring payments to Tehran.

India has cut back sharply on purchases of Iranian oil in order to qualify for a waiver from U.S. sanctions, but has remained a major importer under an arrangement in which Indian buyers pay for Iranian crude in part by depositing rupees at UCO Bank.

The rupees are used to pay Indian exporters to Iran against letters of credit opened by Iranian private banks.

It's a good opportunity to further increase the role of the Rupee, by expanding exports to Iran and giving them a reason to continue to transact significant amounts of trade with us using the Rupee.

[Austin]

Good for us , Hope this continues after sanctions end.

Yuan can become dominant world reserve currency – survey

[panduranghari]

^ how? It does not resolve the Triffins Dilemma. Isn't that the main problem with USD.

[svinayak]

Good for us , Hope this continues after sanctions end.

Yuan can become dominant world reserve currency – survey

To perpetuate 250-300 years of global trading domination (defacto world domination) they are working on creating a proxy global currency. After the Sterling use for more than 150 years and dollar as a currency for 70 years now they need to invent a proxy global currency.

[svinayak]

^ how? It does not resolve the Triffins Dilemma. Isn't that the main problem with USD.

They will try to use the proxy to get relief from the dilemma. PRC may not be even aware of its economy being used as a proxy for the extending the global trading order for the last 250 years.


British Pound did not have the Triffins Dilemma since it had large colonies to create surplus money in pounds outside Britain.
PRC/yuan is being designed in similar manner.

[Austin]

This is for panduranghari

Gold Price "Manipulated For A Decade", Repeatedly Slammed Lower, Bloomberg Reports

[TSJones]

Not the LBMA!! How could they?

[panduranghari]

This is for panduranghari

Gold Price "Manipulated For A Decade", Repeatedly Slammed Lower, Bloomberg Reports

Thank you for that. I do follow Dan Norcini, Bill Murphy of Lemetroploe Cafe, Bron Sucheki of Perth mint, Antal Fekete of ASE in print. They have been talking about gold price suppression since 1990's.

There is too much noise in the market.

4 things I look out every day for:
GOFO rates- if negative, gold price going up.
Is gold going into backwardation indicated via COMEx and LBMA trading volumes- gold price going up.
Gold-oil ratio has to rise from average of 1:20i.e. 1 oz gold buys 20 barrels of oil. The powers can only put so much downward pressure on gold price. Ultimately, oil will force them to relinquish their control over gold.
GLD puke indicator- a term coined by Lance Lewis- where every time their is a drop in price of gold, the GLD exchange trading fund always reduces its inventory of gold. Buying physical gold around this time gives you the best price.

Svinayak ji

But seriously tell me how will Triffins dilemma be resolved by Yuan becoming global currency? How can Yuan become a proxy for a proxy?

[svinayak]

Svinayak ji

But seriously tell me how will Triffins dilemma be resolved by Yuan becoming global currency? How can Yuan become a proxy for a proxy?

When the demand in the international market for trading currency gradually switches to yuan from earlier dollar the dollar demand outside US will reduce. Basically Dollar as a conduit for global trade will reduce and dollar will be used only for trade with continental US.
Oil may delink from dollar and yuan may be the currency for oil trade. The concept of one reserve currency will become diluted.

The country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, and thus cause a trade deficit.

But yuan has problem.
PRC is a bluff and so is yuan.

[Austin]

Yuan to be seen as trading currency or reserve currency is mostly dependent on Chinas trading base , if the base is large and the economy is strong backed by other things like gold reserve and growing economy then countries might switch to using Yuan.

At the end of the day US just prints Money and its Debt to GDP ratio far exceeds its output . technically US does not have a GDP its in debt .....but still the world uses USD thats because of its trading base.

Military power holds little value in the game.

[Austin]

The Guardian

This is no recovery, this is a bubble – and it will burst Ha-Joon Chang

Stock market bubbles of historic proportions are developing in the US and UK markets. With policymakers unwilling to introduce tough regulation, we're heading for trouble

According to the stock market, the UK economy is in a boom. Not just any old boom, but a historic one. On 28 October 2013, the FTSE 100 index hit 6,734, breaching the level achieved at the height of the economic boom before the 2008 global financial crisis (that was 6,730, recorded in October 2007).

Since then, it has had ups and downs, but on 21 February 2014 the FTSE 100 climbed to a new height of 6,838. At this rate, it may soon surpass the highest ever level reached since the index began in 1984 – that was 6,930, recorded in December 1999, during the heady days of the dotcom bubble.

The current levels of share prices are extraordinary considering the UK economy has not yet recovered the ground lost since the 2008 crash; per capita income in the UK today is still lower than it was in 2007. And let us not forget that share prices back in 2007 were themselves definitely in bubble territory of the first order.

The situation is even more worrying in the US. In March 2013, the Standard & Poor 500 stock market index reached the highest ever level, surpassing the 2007 peak (which was higher than the peak during the dotcom boom), despite the fact that the country's per capita income had not yet recovered to its 2007 level. Since then, the index has risen about 20%, although the US per capita income has not increased even by 2% during the same period. This is definitely the biggest stock market bubble in modern history.

Even more extraordinary than the inflated prices is that, unlike in the two previous share price booms, no one is offering a plausible narrative explaining why the evidently unsustainable levels of share prices are actually justified.

During the dotcom bubble, the predominant view was that the new information technology was about to completely revolutionise our economies for good. Given this, it was argued, stock markets would keep rising (possibly forever) and reach unprecedented levels. The title of the book, Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market, published in the autumn of 1999 when the Dow Jones index was not even 10,000, very well sums up the spirit of the time.

Similarly, in the runup to the 2008 crisis, inflated asset prices were justified in terms of the supposed progresses in financial innovation and in the techniques of economic policy.

It was argued that financial innovation – manifested in the alphabet soup of derivatives and structured financial assets, such as MBS, CDO, and CDS – had vastly improved the ability of financial markets to "price" risk correctly, eliminating the possibility of irrational bubbles. On this belief, at the height of the US housing market bubble in 2005, both Alan Greenspan (the then chairman of the Federal Reserve Board) and Ben Bernanke (the then chairman of the Council of Economic Advisers to the President and later Greenspan's successor) publicly denied the existence of a housing market bubble – perhaps except for some "froth" in a few localities, according to Greenspan.

At the same time, better economic theory – and thus better techniques of economic policy – was argued to have allowed policymakers to iron out those few wrinkles that markets themselves cannot eliminate. Robert Lucas, the leading free-market economist and winner of the 1995 Nobel prize in economics, proudly declared in 2003 that "the problem of depression prevention has been solved". In 2004, Ben Bernanke (yes, it's him again) argued that, probably thanks to better theory of monetary policy, the world had entered the era of "great moderation", in which the volatility of prices and outputs is minimised.

This time around, no one is offering a new narrative justifying the new bubbles because, well, there isn't any plausible story. Those stories that are generated to encourage the share price to climb to the next level have been decidedly unambitious in scale and ephemeral in nature: higher-than-expected growth rates or number of new jobs created; brighter-than-expected outlook in Japan, China, or wherever; the arrival of the "super-dove" Janet Yellen as the new chair of the Fed; or, indeed, anything else that may suggest the world is not going to end tomorrow.

Few stock market investors really believe in these stories. Most investors know that current levels of share prices are unsustainable; it is said that George Soros has already started betting against the US stock market. They are aware that share prices are high mainly because of the huge amount of money sloshing around thanks to quantitative easing (QE), not because of the strength of the underlying real economy. This is why they react so nervously to any slight sign that QE may be wound down on a significant scale.

However, stock market investors pretend to believe – or even have to pretend to believe – in those feeble and ephemeral stories because they need those stories to justify (to themselves and their clients) staying in the stock market, given the low returns everywhere else.

The result, unfortunately, is that stock market bubbles of historic proportion are developing in the US and the UK, the two most important stock markets in the world, threatening to create yet another financial crash. One obvious way of dealing with these bubbles is to take the excessive liquidity that is inflating them out of the system through a combination of tighter monetary policy and better financial regulation against stock market speculation (such as a ban on shorting or restrictions on high-frequency trading). Of course, the danger here is that these policies may prick the bubble and create a mess.

In the longer run, however, the best way to deal with these bubbles is to revive the real economy; after all, "bubble" is a relative concept and even a very high price can be justified if it is based on a strong economy. This will require a more sustainable increase in consumption based on rising wages rather than debts, greater productive investments that will expand the economy's ability to produce, and the introduction of financial regulation that will make banks lend more to productive enterprises than to consumers. Unfortunately, these are exactly the things that the current policymakers in the US and the UK don't want to do.

We are heading for trouble.

[panduranghari]

The same people who caused 2008 crash will cause another crash.

In case you have forgotten who they were, here is a reminder.

[Austin]

IF the stock market again slides down like it happened in 2008 crisis .... in US and UK .......will the Fed and ECB can print it out and bail them out like they did in 2008 ?

[Austin]

Q&A: David A. Stockman says tax the rich and hogtie the Fed

The common perception is that the Wall Street bailout and subsequent federal monetary policy were necessary to save the nation from financial collapse and another Great Depression. You argue that’s bogus. Why?

The 2008 bailouts were based on a grotesque urban legend that we were faced with Great Depression 2.0. None of that was true. I lay the details out in my book. The resulting spree of massive lunatic money printing since then, in my view, is a monetary time bomb that will trigger the third thundering collapse of the 21st century. The meltdown going around was almost entirely in the canyons of Wall Street. The gamblers running the last remaining casinos, otherwise known as investment banks, had hit the wall because they were funding massive multitrillion-dollar balance sheets loaded with toxic securities. It would have finished and burned out in the canyons of Wall Street.

You argue that the response of the Federal Reserve, to hold down interest rates and engage in so-called quantitative easing, will cause more harm to the economy in the long run than it cured in the short run.

When you put the money market rate at zero and keep it there for what is now six years running, you are causing vast mispricing throughout the financial system. Assets everywhere are overvalued. They are being funded on overnight zero leverage, exactly what brought us to the last crisis in 2008. We’re heading for an even more calamitous breakdown down the road.

You’ve called for a massive new tax or levy, equal to 30 percent of wealth on the richest people in this country. That’s a far cry from the Reagan-era trickle-down economics that you famously rejected. What would such a levy accomplish, and why do you think it’s needed now?

We need to couple it with a thoroughgoing reform of our fiscal constitution. We need to have a balanced budget constitutional amendment. If we don’t put some handcuffs on the politicians, they will bankrupt the country sooner or later. If you get rid of the phony Congressional Budget Office forecast of the next 10 years, you will see that we are heading for $30 trillion-$35 trillion national debt. It would take the system down. It would bankrupt the country. We need to stop the buildup of this debt any further and actually pay it down.

My proposal was a one-time wealth tax on the top 5 percent or so in order to pay down this massive federal debt. Couple it with the abolition of the corporate income and capital gains tax so that in the future, current producers and entrepreneurs and risk-takers will have an incentive to restart this badly damaged economy.

You’ve also advocated for a value-added or consumption tax that would spread out taxation more widely. Why would that not be harmful in a country where the economy’s health is so tightly tied to consumption?

Once you become addicted to something, you are either going to stay addicted and end up meeting your demise or you are going to end up going through a painful therapy and cure to overcome your addiction. Everyone’s spending every dime they can earn and every additional dime they can borrow. We desperately need much higher productivity and investment in order to compensate for our very high wage cost and cost of living. We therefore need to curtail consumption, change the basic equation so people are required to save, especially as the baby boom (retirement) continues to gather momentum.

You cannot think this economy will continue to work 10 years from now with 20 million more retirees, with all of the entitlements that need to be paid, if we don’t have a downshift in consumption. That will cause the economy to go through a period of slow growth or even recession. But we’ve been having a party for 30 years. We’ve been living beyond our means. The longer we wait to face up to the facts and the longer the politicians lie to the public and say you just need to go out to the mall and buy some more junk you don’t need, the greater is going to be the eventual day of reckoning.

You’ve written that a “golden era of fiscal rectitude” ended with Lyndon Johnson’s “guns and butter” policies and Richard Nixon’s decision that the U.S. would no longer convert dollars to gold. Are you advocating a return to the gold standard? Wouldn’t that exacerbate the economic difficulties you see us facing now?

What I’m saying is, liberate interest rates. Hogtie the Fed. Get them out of the government bond market completely. If we retain a Federal Reserve, put an anchor and handcuffs on them in the form of some external standard. Gold worked well historically.

Zero interest rates, quantitative easing, the wealth effect, arguing that by attempting to levitate stock prices and encouraging people to get out of savings accounts and into so-called risk assets — that’s a euphemism that mom and pop and grandma should be buying some junk bond funds or some high-risk stock. That’s dangerous. It’s inappropriate. It won’t work, and it’s the greatest gift to the 1 percent in this society. It totally crushes savings. It is destroying savers on fixed incomes.

[Austin]

Federal Reserve likely to keep trimming asset purchases - Yellen

The US central bank is likely to keep trimming asset purchases, even as data is being monitored to determine if recent weakness in the economy is temporary, Federal Reserve Chair Janet Yellen has said. “Unseasonably cold weather has played some role,” she told the Senate Banking Committee. Yellen rehashed some of her earlier statements that the Fed intends to reduce asset purchases at a measured pace, adding that that the bond-buying program was likely to end in the fall. Yellen hinted the Fed will continue to taper at $10 billion per month.

[Neshant]

Bernanke under oath to Congress said he would not monetize the debt back in 2009. He went ahead and did just that. I will never believe a word the Federal Reserve says when it claims to be tapering on bond purchases or scaling back on monetary printing. Regardless of what they claim, they will be rigging the markets behind the scenes.

It means we will not see a collapse in the stock market. Rather the collapse will occur in some arena where they do not fully control and cannot rig.

[Austin]

^^ Neshant , can the Fed bail the banks out this time should we have a collapse this time ? Or Should there be another way to do it ?

[Austin]

The U.S. wants to reduce the budget deficit to 1.6% of GDP in ten years ( RIA )

U.S. administration expects to reduce its budget deficit to 1.6% of GDP by 2024, according to the White House budget office.

The draft federal budget for the next fiscal year (October 2014 - October 2015), the Administration submits to Congress on Tuesday. His priorities are declared investments in innovation, research, infrastructure and education

U.S. federal budget deficit for the current fiscal year (October 2013 - October 2014) is 744 billion dollars, or 4.4% of GDP.

As noted in the budget management of budget priorities for the next financial year and reduced the tax burden on the middle class, while getting rid of "tax loopholes" for wealthy citizens, increasing the availability of pre-school and vocational education.

The draft budget provides funding for high-tech centers - 45 such institutions is planned to establish industrial innovation in the coming decade. In addition, it is proposed to start funding (302 billion dollars over four years) for the modernization of the transport infrastructure.

The Administration has also confirmed its intention to work with Congress to raise the federal minimum wage employees to 10.1 dollars per hour with the current level of $ 7.25 per hour.

[panduranghari]

^^ Neshant , can the Fed bail the banks out this time should we have a collapse this time ? Or Should there be another way to do it ?

Its a incomplete question to ask. The complete question, if I would phrase it would be; Considering Fed bailed out private banks last time, what is better this time that will prevent the FeD from bailing out the banks like they did in 2008?

You very well know the answer to this question.

The global central banks have made lots of changes to stem the liquidity demand. What happened in 1930's and in 2007 with Northern Rock in UK, is very unlikely.

Everybody will receive money they demand with definite capital restrictions. The only thing you need to figure out I how close to the printer you are to ensure the value of the high denomination you receive still has the same purchasing power at the time it was issued.

Understand this statement about the most common misconception about hyperinflation. What most people believe is that massive printing of base money (new cash) leads to hyperinflation. No, it's the other way around. Hyperinflation leads to the massive printing of base money (new cash).

Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

An image I have put up in the past.


Fed has liabilities, our daily banks have liabilities. The 2 liabilities are different. The liability of fed is to provide liquidity ergo print cash. The common bank cannot print cash, hence it's liability is to find the cash (M1, M2). The Fed has kept liquidity option open for the bullion banks on the high street, so they will provide cash on demand. But when cash reaches the common mans hands, it's value reduces as more cash comes into circulation. This forces the fed to print higher denomination notes which are theoretically of higher value( fiat currency is legal tender by decree remember). This game goes on and on and eventually in Zimbabwe and in Weimar Germany, they had to choose a different indicium to compare their currency with.

In Weimar Republic, they used gold mark.



In Zimbabwe they used, US dollar.

[Austin]

Ok Sounds good , So you think the Fed is printing money because HyperInflation has set in and printing is just a way to keep it under control for now ?

Also they say that when inflation sets in when Fed Bonds stops printing , that is the time when investor will start selling the bonds and this will lead to the bubble bursting

[svinayak]

http://www.ft.com
Migrants set up one in seven UK companies, study reveals
By Jonathan Moules, Enterprise Correspondent

A general view of the London city skyline©AFP
Migrant entrepreneurs have created one in every seven UK companies, according to the first comprehensive analysis of official data about founder origins.
Almost half a million people from 155 countries have launched UK businesses that are currently trading with at least £1m in revenue, according to research by DueDil, a research company, and Centre for Entrepreneurs (CFE), a think-tank.
Together they are responsible for creating 14 per cent of British jobs.
Damian Kimmelman, the founder and chief executive of DueDil, noted that immigration was one of the UK’s most emotive topics and that opinions were rarely informed by evidence.

The research proves “that migrant entrepreneurs are hyper-productive, net contributors to the UK economy,” he said.
“History tells us that the most productive states always encourage intellectual and technological ferment; that’s what we’re seeing in Britain right now, and we must celebrate it.”

The research, which was based on filings at Companies House, found that entrepreneurial activity among the migrant community was nearly double that of UK-born individuals: 17.2 per cent had launched their own businesses, compared with 10.4 per cent of those born here. They are also, on average, eight years younger than indigenous entrepreneurs at 44.3 years old, compared to 52.1.
This is despite the extra challenges they face, including access to finance and cultural and language barriers, the reports authors said.
Mr Kimmelman said his experience of moving to the UK as a founder had been very positive. “Building a business in London is expensive but I got my work visa in two days.”

One of the main attractions for Mr Kimmelman was local skills. He said he was particularly impressed by the quality of graduates from the universities in Southampton, Oxford and Cambridge.
Another US-born but now UK-based founder is Gerry Ford, chairman and group chief executive of the Caffè Nero coffee chain, who emigrated from California to study for a PhD at Oxford.

“There is much more to do to improve the environment to encourage individuals to start and to [expand] businesses, but the UK is still one of the easiest places in Europe from which to operate,” Mr Ford said.
Public attitudes to migrant entrepreneurs are complex, according to the CFE.

A YouGov poll it commissioned found that, while two-thirds agreed with the statement “there are too many immigrants in Britain”, 44 per cent felt that migrant entrepreneurs made a positive contribution to the UK. This compared with 11 per cent who believed migrant entrepreneurs had a negative impact.
The largest group of foreign-born founders in the UK are Irish, followed by Indians. Germans are in third place, the research found, ahead of American and Chinese entrepreneurs, in fourth and fifth. Poland is the sixth-biggest supplier of migrant founders, ahead of France, Italy and Pakistan.
Although a lower proportion of female migrants starts businesses than UK-born women, those coming from Thailand, the Philippines and Vietnam do outnumber their male counterparts.
London benefits disproportionately from overseas entrepreneurs, with 20 times the number of migrant-led businesses of Birmingham, the second most popular location.
The capital’s suburban neighbourhoods of Twickenham, Harrow, Ilford and Kingston upon Thames are all among the top 10 spots for migrant entrepreneurs, the research found.
Together with those in central London, they account for 220,637 businesses, equivalent to almost half of all UK businesses founded by immigrants.

[panduranghari]

Ok Sounds good , So you think the Fed is printing money because HyperInflation has set in and printing is just a way to keep it under control for now ?

Also they say that when inflation sets in when Fed Bonds stops printing , that is the time when investor will start selling the bonds and this will lead to the bubble bursting

I don't know.

I will never know, until I see it. All the above is just a theory I gave deduced after reading a few blogs. I don't claim to be the original thought behind it, but that is my understanding of what happened in Zimbabwe, Argentina and perhaps in Weimar Germany.

We are living in different time and the only thing different, as far as I see it, is not 1 or 2 currency is at risk but the entire financial system.

When the matrix disappears, the reality will be revealed.

[Austin]

Indeed we are living in interesting times and uncharted territory .

I think one good indication that the Economy is in bubble is the prices of Oil keeps rising steadily without rhyme or reason to back up .......IIRC it happened in 2008 when Oil Prices reached almost $150 per barrel for Brent till the bubble blew up and reached $60

I dont know if the current trend still applies but that would be one good indicator of shape of things to come which is the way how the oil prices move ( exception being unexpected crisis like Syria or Ukraine where geo-political reason infulences prices )

[Austin]

Some Economic Aspect of Ukraine EU Deal

http://rt.com/shows/keiser-report/episo ... eiser-082/

Max Keiser and Stacy Herbert discuss an EU membership market on which the more than 50 percent Euroskeptic populations of France, Spain, Greece and UK can dump their membership burdens on to those in Ukraine and beyond who want it. They also discuss the ‘sick joke’ that is home ownership in Troika occupied Greece. In the second half, Max interviews Dmitry Orlov of cluborlov.blogspot.com about his opinions on Ukraine and about the failed EU trade deal that led to the crisis and what the future holds for the economy.

[panduranghari]

I think prior to the problem becoming reflected in oil, there will be a clearly delineated 2 tier market in gold- one physical gold and second paper gold market. The COMEX gold may fall to 200$/oz but no one will be able to buy any physical gold at that price.

Oil might take some time to catch up. Hey but whaddayaknow.

[Austin]

Gives a good idea on the Economics of Shale Oil

Shale oil may not be the magic pill for U.S. energy independence