Wednesday 18 April 2012

America v China.

Baltic Dry Index. 989 +14

LIR Gold Target by 2019: $30,000. Revised due to QE programs.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

J. K. Galbraith

While we await the weekend outcome of Europe’s beggars parade in Washington, desperately seeking other people’s cash to maintain the Club Med lifestyle, and tired of reporting just how few people actually pay tax in Italy and Greece, we turn today to America and China. We are in luck. Professor Eichengreen has just published in Caixin online, a masterful article comparing the two.

"Gold will be around, gold will be money when the dollar and the euro and the yuan and the ringgit are mere memories."

Richard Russell

By Barry Eichengreen 04.17.2012 17:48

Are the U.S. and China Trading Places?

Competing narratives over which country is on the rise obscure the facts on the GDP gap

By now, everyone has grown accustomed, if not physically weary, of articles extolling China's economic dynamism and rehearsing America's economic decline. While the United States is only now beginning to recover from the most serious recession in nearly 80 years, China skated through the global financial crisis essentially unscathed. Even if the growth of the Chinese economy now slows to 7.5 per cent, that will still be triple the rate of expansion of the United States, where growth in the wake of the crisis remains subdued. It will not be many years before China overtakes the U.S. in sheer economic size. And with this reversal of economic fortune will come a reversal of political fortune, as China assumes the leading role on the global geopolitical stage.

Yet one also hears hints of a very different narrative, in which the United States is poised to experience an economic resurgence and China is about to hit the wall. In this view, the Chinese model of export-led growth fueled by cheap labor has run its course. At home, there is pressure for the fruits of productivity growth to be shared more widely. Abroad, companies like Apple feel pressure to accede to improved pay and conditions in the Chinese factories where their products are assembled. China, as a result, is seeing its labor costs rise and export competitiveness decline. The trade deficit recorded in February is only the first of many, in this view.

----Currently, moreover, Chinese spending is depressed by weak property prices, which augur problems for state-linked construction companies, local governments and banks. China will be lucky to hit its 7.5 per cent growth target this year, the skeptics contend, and its growth rate will step down further after that, to as little as 3 per cent if über-bears like Peking University professor Michael Pettis are to be believed.

In the United States, meanwhile, there has been a string of four positive monthly employment reports. Even the somewhat disappointing early April employment growth report was above trend. The Bureau of Economic Analysis reported that gross domestic income grew by 4.4 per cent in the fourth quarter of 2012. Manufacturing production, in particular, has grown impressively, underscoring recent optimism about the "re-onshoring" of previously offshored manufacturing jobs.

American manufacturing, in other words, is back. U.S. companies have taken the Great Recession as an opportunity to streamline their operations and boost productivity.

----United States is the unquestioned world leader in the application of computing power and artificial intelligence to leading-edge consumer goods. Instead of a chicken in every pot, the U.S. now has an iPhone in every car. China has nothing remotely resembling America's dynamic start-up culture. Its role is as consumer of the products of U.S. ingenuity, not as developer – not now or anytime soon.

So is the era of Chinese ascendency and U.S. decline now over? To this contrarian view I would say: not so fast. Chinese growth may be slowing, but Beijing still has ample policy room for maneuver. It has plenty of policy levers to pull – from further reductions in reserve requirements for banks to further increases in infrastructure spending – to prevent its economy from slowing excessively. Labor costs may be rising on the coast, but there remains abundant cheap labor in the interior of the country. And slowly but steadily, Chinese producers are moving up-market into the production of more technologically sophisticated goods, from wind turbines to solar panels.

More

http://english.caixin.com/2012-04-17/100380933.html

But all in China is never quite what it seems. Below, China’s GDP gets a phantom boost from wind generated electricity that goes to waste. Empty cities and acres of unused shopping malls and vacant office buildings also add to China’s phantom GDP. China may have “plenty of levers to pull” but not all are connected to wealth creation, with many as per below, actually part of wealth destruction. If connected to the power grid later, that could change, but for now wealth diverted into a wind farm that doesn’t sell on the energy produced is a malinvestment.

By staff reporter Pu Jun 04.12.2012 19:36

Huge Waste of Wind-Generated Electricity in 2011, Research Finds

Industry insider blames disconnect between production facilities and grid companies for unused power

(Beijing) – An estimated 10 billion kilowatt hours of electricity generated from wind power across China went to waste in 2011, a non-governmental organization says.

The China Renewable Energy Society conducted the research on power plants that have wind stations in ten provinces and regions, including Inner Mongolia, Heilongjiang, Gansu, Hebei, Yunnan and five other regions. It released its research on April 6.

The CRES found that the wind farms in the 10 provinces and regions had 42 percent of the nation's total wind-generating capacity. However, 6 billion kilowatt hours in the 10 provinces and regions were not put on grids due to low demand from local areas and grid companies. The CRES did not explain how the other 4 billion kilowatt hours went to waste in other parts of China.

In Gansu Province, 25 percent of electricity from wind power never made it onto grids, the highest percentage of the 10 places surveyed. Inner Mongolia (23 percent) was second, followed by Jilin (21 percent).

An industry source who declined to be named said there were no economic incentives to motivate grid companies to use electricity generated from wind, and they were not building enough transmission lines to carry it.

Exacerbating the problem was the fact power plants were blindly developing wind farms. One senior executive from a state-owned power company said firms were racing each other to develop wind farms even though they know it would be difficult to put the electricity on grids. In 2011, Gansu Province had capacity to produce 266 percent more electricity from wind power than the year before.

More

http://english.caixin.com/2012-04-12/100379139.html

In other news, the IMF isn’t in party mood in Washington, ahead of the coming round of meetings. Stay long physical precious metals. While the IMF is only occasionally correct in its predictions and didn’t see the Great Recession in advance, they are probably right about Euroland’s bureaucrats ability to make the tragedy of the European Monetary Union worse.

There can be few fields of human endeavour in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

J. K. Galbraith

IMF lifts UK growth forecast but sees risk of global slump

The International Monetary Fund has raised its growth forecast for the UK this year but warned that the world remains at risk of collapsing into a slump that would rival the Great Depression.

Britain will grow by 0.8pc this year, the IMF said in its World Economic Outlook, drawing its prediction into line with the Treasury’s Office for Budget Responsibility.

The Bretton Woods institution’s forecast for the UK is now better than in January, when it was slashed to 0.6pc, but worse than September’s estimate of 1.6pc.

Its 2013 forecast was unchanged at 2pc.

The UK’s improved prospects reflected a sunnier outlook for the global economy as a whole.

The IMF said there had been a “reacceleration of activity” and that “high frequency indicators point to stronger growth”. It added: “Growth in the UK, where the financial sector was hit hard by the global crisis, will be weak in early 2012, before recovering.”

The IMF raised its forecasts almost across the board. The global economy is expected to grow by 3.5pc this year, up from its January prediction of 3.3pc, and 4.1pc in 2013, up from 4pc.

Even the eurozone’s prospects are better than three months ago, witht he contraction this year now expected to be 0.3pc rather than 0.5pc.

However, despite the strengthening recovery, the IMF stressed that “concerns linger ... various fundamental problems remain unresolved [and] .... recovery will remain vulnerable to several major downside risks”.

“The outlook for the global economy is slowly improving again but it still very fragile,” it said.

Among the more likely risks it listed were an escalation in the eurozone crisis, an oil price spike, and even a “fundamental slowing of growth rates in emerging economies”. If any were to materialise, they would know between one and two percentage points off global growth.

The biggest threat, though, came from a disorderly default in the eurozone, which would trigger a “full-blown panic in financial markets” and a potential euro break-up, and “the possibility that several adverse shocks could interact to produce a major slump reminiscent of the 1930s”.

Debt crisis: Japan pledges $60bn to boost IMF war chest

Japan has committed $60bn (£37bn) in new loans to the International Monetary Fund, becoming the first non-European nation to commit money to boost the fund's efforts to contain the eurozone debt crisis.

Finance Minister Jun Azumi said Japan hoped Tokyo's contribution, which will be formally announced at a meeting of the world's 20 most powerful economies in Washington later this week, will encourage other countries to follow suit.

"Following a series of eurozone's policy responses, it is important to strengthen IMF funding and pave the way for ensuring an end to the crisis not only for the euro zone but also for Japan and Asian countries," Azumi told a regular news conference after a cabinet meeting.

However, securing an agreement on new IMF funding at meetings this week of the institution and G20 financial leaders may be difficult.

The United States has insisted it will not be part of efforts to boost the IMF's funds by $600bn and other economies, including emerging powers China, Brazil and Russia have been holding out as well.

UK Chancellor George Osborne is expected to increase Britain's contribution by up to £10bn - the maximum he can pledge without a vote in parliament. However, Mr Osborne has stressed that the UK would only commit the money if there were "no new vehicles or funds specific to the eurozone".

The IMF, which acts as a lender of last resort for governments, said in January it would need $600bn in new resources to help "innocent bystanders" who might be affected by economic and financial spillovers from Europe.

"Start buying gold now, regardless of the price. By acting now, you will not have to react when it's too late. Too late will be when the majority of the public finally figures out what is happening to paper money and frantically tries to get aboard. Remember, if you're one of the ones holding paper in the end, you will have given away your products and services for nothing."

Robert Ringer

Britain faces £50bn more spending cuts and tax rises to cover elderly care, warns IMF

Britain faces another £50bn of spending cuts and tax rises to cover the costs of age-related care and put the national debt under control, the International Monetary Fund has warned.

A "second generation" of UK austerity measures, which the IMF suggested should be completed before 2030, would outstrip programmes in both Greece and Portugal. Only the US, Japan and Ireland are facing a larger adjustment among advanced economies.

To bring public debt down from 82.5pc to 60pc of GDP and pay for rising health and pension costs, the UK will need "a fiscal adjustment strategy" over the next 18 years equivalent to 11.3pc of national output, or roughly £170bn, according to IMF estimates. By comparison, the existing £123bn austerity programme is equivalent to 7.5pc of GDP.

Greece and Portugal, both of which have received bail-outs, will need austerity programmes amounting to 10.7pc and 8.1pc of GDP respectively.

----In its strongest language yet, it added that a disorderly default in the eurozone was likely to lead to a break-up of the 17-member currency region that "could aggravate economic stress to levels well above those after the Lehman collapse". It added that the economic effect of a break-up was impossible to quantify.

"An uneasy calm remains. One has the feeling that at any moment things could well get very bad again," IMF chief economist Olivier Blanchard said.

----The IMF also raised concerns about the UK's dangerous dependence on low interest rates to keep the deficit reduction on track. "For many advanced economies – including France, Italy, and the UK – only relatively small shocks to the [interest rate-growth differential] would be sufficient to prevent debt from stabilizing over the medium term," it said.

More

http://www.telegraph.co.uk/finance/economics/9210207/Britain-faces-50bn-more-spending-cuts-and-tax-rises-to-cover-elderly-care-warns-IMF.html

"Gold is not less but more rational than paper money. Money holds value so long as it is in limited supply; gold will always be in limited supply, and would require real resources to produce even from the sea; paper and printing ink are not in limited supply. The gold system is much closer to a modern automatic scientific control system than the crude and relatively unstable system of paper."

William Rees-Mogg

At the Comex silver depositories Tuesday final figures were: Registered 29.34 Moz, Eligible 110.78 Moz, Total 140.12 Moz.

Crook and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today. Easter and Christmas arrive on the same day for Germany tax cheats, says Der Spiegel. More on the making of modern serfdom Europe.

Walter-Borjans has had his experts in the state finance ministry calculate the extent to which the planned amnesty would financially benefit the holders of offshore accounts. "The larger the amount of tax someone has avoided paying, the more he benefits from the arrangement," Walter-Borjans says. "This is unacceptable."

'Easter and Christmas on the Same Day'

Tax Deal Rewards Germans with Swiss Bank Accounts

By Sven Böll, Dietmar Hipp, Alexander Neubacher and Barbara Schmid 04/16/2012

Berlin wants to make life easier for German tax evaders. Under a new agreement, those who have hidden their assets in Switzerland can now make them legal while remaining anonymous. But some experts question whether the move is constitutional.

But the flood of voluntary declarations has dwindled to a trickle recently. Instead of first hearing the confessions of repentant tax evaders and then collecting their money, tax investigators are back to doing painstaking detective work, a circumstance that tax official Schmitz von Hülst attributes to the German government's current policies. Many tax evaders, he says, have coolly calculated that it's worth their while to see what happens in the next few weeks. Why confess when there is a growing chance that their problems could resolve themselves in the near future?

At issue is an amnesty for tax evaders, the final details of which German Finance Minister Wolfgang Schäuble, a member of the center-right Christian Democratic Union (CDU), and his Swiss counterpart, Eveline Widmer-Schlumpf, ironed out before the Easter holidays.

One Part of a Larger Treaty

Under the plan, German holders of offshore accounts in Switzerland are able to absolve themselves of all guilt by making a moderate partial payment. The Swiss bank issues its customer a confirmation and transfers the funds to the German treasury, and the tax evader remains anonymous. And should he ever receive a visit from German tax investigators in the future, all he has to do is present the confirmation from his bank -- and he's off the hook.

The German government is justifying the deal, which Finance Minister Schäuble calls a pragmatic solution. From his perspective, the sale of indulgences is merely an insignificant portion of an extensive and fundamentally advantageous treaty with Switzerland, which will both make tax evasion more difficult and increase the German government's revenues by many billions in the future.

"We have a solution for the future that will treat the deposits of German taxpayers in Swiss banks in exactly the same way they would be treated in German banks," says Schäuble. It's a bold claim.

----At the same time, however, the officially sanctioned money laundering that is set to take place in Zürich's banking district will benefit those who are not only affluent, but were also sufficiently unscrupulous to have secretly moved their potential contributions to the country's finances abroad.

"For those who have moved their illicit funds to an offshore account in Switzerland, the treaty is a godsend," says Berlin tax law expert Martin Wulf. His colleague Alexandra Mack, from Cologne, says that if the treaty goes into effect, "Easter and Christmas will come on the same day" for major tax evaders. And Thomas Eigenthaler, chairman of the German Tax Union, says that the agreement would essentially whitewash the crime of tax evasion.

Norbert Walter-Borjans (SPD), the finance minister of the western state of North Rhine-Westphalia, is also critical of the plan. His opinion of Finance Minister Schäuble is as poor as it is of Switzerland at the moment. And the recent Swiss decision to issue arrest warrants against three tax investigators from North Rhine-Westphalia for the purchase of CDs with information about tax evaders only makes him more resentful.

The tax treaty with Switzerland could bring hundreds of millions of euros to his state's tax coffers. But Walter-Borjans still rejects the plan, especially after having noticed during his appearances in the state election campaign that his position is popular with voters. He is now urging his counterparts in other states to vote against the project in the Bundesrat, the legislative body that represents the German states.

More

http://www.spiegel.de/international/germany/0%2c1518%2c827748%2c00.html

"We don't pay taxes. Only the little people pay taxes..."

Leona Helmsley. The Queen of Mean.

The monthly Coppock Indicators finished March:

DJIA: +97 Down. NASDAQ: +103 Down. SP500: +70 Down. All three indicators remain down but downward momentum is stalling.

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