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Thursday, 17 April 2014

They work for you... Not. Janet Yellen and the threat of inflation

The message could not be more vague. Yet, yesterday Janet Yellen offered some involuntary insight on what matters to the Fed: The US debt stock.

Reuters link

The only logical reason she would come out with statements such as "With inflation running at around 1 percent, at this point I think the risk is greater that we should be worried about inflation undershooting our goal and getting inflation back up to 2 percent" is that the Fed (as well as every other policymaker) knows that with low inflation they cannot continuing printing money without the stock of debt spiralling out of control even faster than it already is. 

It's the old-school theory of the "little bit of inflation which won't hurt". For the theory to work it requires job creation as well as wage increases. Neither of these things are happening. The US  - and de-facto the Western - middle class is dying a death. 

A middle class worker has much less purchasing power than they had in the 1970's. Yet the US government openly wants another housing bubble and prays this will somehow restart the ailing economy. It won't. Manufacturing and white collar jobs lost during the last 8-10 years are gone forever. When manufacturing returns, it's largely automated, with the only jobs created being low pay and low skill.
The only recovering we are seeing is the one of the debt stock and perhaps liquidity. Real value adding is now done either abroad or by computers. Wealth creation is largely gone and replaced by speculative wealth destruction, as in the diversion of resources from productive to speculative activities. 

Yellen knows this, but what can she do? No one in the US or anywhere else has the political will to explain how bad things really are, and what sacrifices must be made to return to sustainable economics. All you need to know is that they are looking at Japan as both an example of a deflationary secular stall and a path to restructuring (with Abe-nomics, good luck).


Tuesday, 18 March 2014

How Labour will miss the opportunity to promote a more sustainable economy

The mainstream UK press has been using words such as "property boom" and even "property bubble" to describe the insane state of the UK real estate ecosystem. When even the laziest journalists on the planets wake up, you better listen. It is clear to anyone with half a brain that what we are experiencing now is a bubble on top of a bubble, the mother of all speculation frenzies, the big one. Sealed bids are the norm, especially in London,  and "Ghost Gazumping" has entered the vocabulary of Gollum-greedy estate agents. Help To Buy, the Faustian policy probably cooked up by the Chancellor and the house builders cartel in drunken stupor, will continue - in some capacity - at least until 2020, diverting precious government resources (taxpayers' money) towards property speculation. The Tories - let's not call them the coalition, the Lib Dems gravitas is zero - are following the very path Labour had set under the Blair/Brown reign of economic terror, not only doing a 180 degrees turn on their principles, but turbocharging the very essence of the Labour nuclear carpet bombing of the UK economic infrastructure.

If Labour were clever (everything they say confirms they clearly aren't), they would play a blinder by advocating for lower house prices and promoting devolution in business start-ups. The electoral demographic landscape is changing, and the critical mass of the voters is shifting towards the younger generation, who are poor, underemployed, indebted and looking forward to a lifetime of debt-servicing until their parents need care. At that point,  things will get much worse for them. The wealth trapped in housing they expected to inherit - cometh the sad day of the boomer parents' passing - will have to be sacrificed much earlier to care for said parents in their old age. As things stand, current 30 and 40 somethings have a cat in hell's chance to be able to burden the costs of a parent in care. Forget about both.

Gideon (George Osborne) has been playing with fire and used some of Gordon Brown's best known tricks, such as giving people the illusion of wealth through debt and consequential fictitious GDP growth figures. It will be a bloodbath. Unfortunately none of the UK political parties (I include UKIP here) has the clout or the will to do anything about it.

Although it is true that every party is equally scared and tied to some special interest - boomers, nimbys, house builders, unions et-cetera - they are all ignoring a growing share of the potential voting population at their own peril. Given for granted that they are not, and will be not working in the Country's best interest.

Song of choice for this post: Entombed - Left Hand Path

Monday, 17 February 2014

Italy to treat all inbound money transfers as money laundering as it scavenges for more tax revenue

As an Italian, I share a certain DNA trait with my fellow countrymen living in the homeland or abroad. Being harassed by the state and presumed guilty until proven innocent on financial matters made us develop a certain type of cynicism, an ability to see through the populist actions the government (any government) undertakes to satisfy its legendary hunger for funds.

This trait normally helps me keep my blood pressure in check, although it is always frustrating to see the government systematically targeting the same demographics with ever so complicated taxation schemes, whilst the real tax dodgers get away with murder.

Amongst the general apathy, more radical measures are being deployed with the delicacy of an enraged rhino and the accuracy of a nuclear bomb.

Without going in too much detail, the Italian equivalent of the Inland Revenue uses a highly flawed statistical model to determine how much each taxpayer (I use this term very carefully) is supposed to spend according to its earnings.

This, in theory, should highlight if someone spends above their means. The principle is that of "if you've done nothing wrong, you have nothing to fear". Very much 1984. In practice, it's a means to an end to justify sticking fines on anyone on "presumption of guilt".  You spend more than the state thinks you should, here's a fine. The marketing campaign behind it is based on a mythical war against tax evasion, which has been the No.1 excuse used to explain the  failure to manage the economy properly  by the last 20 governments or so.

Recently, we heard about double taxation for expatriates (a bit like the USA, except we don't have a federal government and Italy just plans a double whammy "because they can"), more wealth taxes, more fuel taxes, more regional taxes, more provincial taxes, more council taxes, more rubbish taxes, you get the picture.

Yet, the most resoundingly asinine measure ever cooked up by the jobsworths ru(i)ning Italy's finances in Rome is a flat rate 20% levy on all overseas inbound money transfers into Italian bank accounts. See this Zerohedge article , commenting on a piece on Italy's Il Sole 24 Ore. link

Of course, if you go through the pain of certifying all transfers (no matter how small, no matter for what) and have a bank clerk assessing your claim under the government's watchful eye, you might get your money back within one year.

Naturally, the justification for this monumentally stupid idea is to target tax evasion and money laundering. Imagine Walter White quaking in his pants reading this.

In reality, what the government is planning to do is to short-term fund its cash flow by having people lending them 20% of their money for up to a year, obtain more data for their statistical model for spending patterns and of course, the icing on the cake, grab more cash to finance its failed enterprise.

In any other context, this would be classed as extortion.

Nevertheless, before scores of Italian expatriates finally decide to give up their Italian passports -  the temptation is insanely high - they can always give their granny in Italy a foreign debit card.

Soundtrack for this piece: Biohazard - Modern Democracy

Thursday, 13 October 2011

Rents are too expensive, according to Shelter. And STILL they cannot make the most basic correlation

One of the "hot" topics in the news this morning was the Shelter report on unaffordable rent. See BBC story
Despite stating the bleeding obvious - rents are too expensive for  "hard working families" - nobody dares mentioning the big white elephant in the room again: housing costs.

The general direction of the comments is correct, but it is as if there is a collective conspiracy in the media which prevents from mentioning high house prices as a BAD thing, and instead focus on the opposite:

  1. Rents are too high? Lets' cut red tape for landlords. Wonderful! As if speculators need any more help.
  2. People can't afford rent? It's because the nasty tories cut housing benefits. Nothing to do with housing benefits ending in the pockets of speculative landlords and rising up prices in the first place, of course. 
  3. Not enough houses around for rent? Let's build more. Great! That's what the government should do. Except, they are inviting the big builders to the party and only "some" - we are not allowed to know how many exactly - of the 100,000 houses which will be built between now and 2015 will be assigned to social housing or rental schemes. A tiny drop in the ocean. I guess you can't displease the NIMBYs. 
Some 38% of the people interviewed claimed they have to buy less food in order to pay the rent.

And instead of using the freshly-printed money to create adequate social housing, the government (and the Bank of England, of course) decide to give it to the banks. 


Tuesday, 28 June 2011

Greece defaults, but let's just call it something else

FT's Martin Wolf this time made me spit my coffee by explaining that Greece is not "technically" defaulting, but needs substantial help now, especially with paying for real goods and services. He seemed to suggest that buying time was the only option other than letting Greece go straight into depression. As for what to do after the (very expensive) time bought runs out? Nothing. Just the usual tripe about improving the internal economy and setting up themselves for growth. Which everyone knows it's not going to happen. 80% of the Greek people want to default now. Let them have it.

The reality is that no one is really interested in the Greek people. That much is clear. After all, the public sector workers there are enjoying pharaonic salaries, early retirement, perks and very little work to do. Why would they want to change? Economic illiteracy is rife in Wall Street, so no surprise it's the same in Athens.

The finger is on the pulse of the banks - German and French for that matter - which are the holders of the gigantic Greek debt and are not able to sell it to anyone, let alone willing to roll it over without guarantees from the EU-IMF.

Martin Wolf is right on one thing. No one will buy new Greek bonds. Their interest is higher than a very expensive credit card. So the only choice is to perform some "Burden Sharing", which means that the entire circus - that is private banks, pension funds, governments and some private holders - are (forgive my graphic description) having each other by the balls, in circle. In that case, no one can really squeeze.

This means that, de-facto, the debt will be rolled over with the hope that Mr. Papandreu and his team can modernise Greece and align its public sector with the best-run in Europe. This means, for Greek people, to accept German ways of running the public thing and a seismic cultural shift. It looks like the Greek PM has only days  to achieve that.

Will he succeed? The markets think otherwise.