Economics > UK on brink of economic collapse

 

Will it take a financial collapse to get Britain to make sensible decisions on migrants, Ukraine's proxy war, stupid military expenditures, and soaring debts?

UK teeters on economic collapse

– Telegraph

Soaring debt and borrowing costs are approaching levels that once forced London to seek an IMF rescue, according to a recent report

© Getty Images / Frédéric Soltan / Contributor

Britain is facing the prospect of a repeat of its crippling 1976 economic crash as soaring debt and borrowing costs raise doubts over Labour’s budget policies, leading economists have warned, according to a Telegraph report.

The crisis nearly fifty years ago saw a Labour government forced to seek an emergency loan from the International Monetary Fund (IMF) after deficits and inflation spun out of control. It became one of Britain’s worst postwar crises, with the bailout bringing deep spending cuts and Labour losing power a few years later.

Now Chancellor Rachel Reeves faces similar warnings, with forecasts showing a £50 billion ($68 billion) gap in the public finances and debt interest set to exceed £111 billion. Debt now exceeds 96% of GDP. At around £2.7 trillion, it is one of the heaviest burdens in the developed world. Government borrowing costs have surged, with yields on 30-year bonds climbing above 5.5%, higher than those of the US and Greece.

READ MORE: UK unveils bill to stop capital outflow

Jagjit Chadha, former head of the National Institute for Economic and Social Research, told the Telegraph the outlook was “as perilous as the period leading up to the IMF loan of 1976,” warning Britain could struggle to meet pensions and welfare payments.

Andrew Sentance, once a Bank of England policymaker, said Reeves was “on course to deliver a [former UK Chancellor Denis] Healey 1976-style crisis in late 2025 or 26,” accusing Labour of fueling inflation with higher taxes, borrowing, and spending.

The warnings come weeks before Reeves is due to present her first autumn budget, where she is expected to announce further tax rises to cover the shortfall – a move critics argue would deepen the downturn. The Labour government also faces deepening political and economic challenges, including declining support.

On Saturday, Reform UK leader Nigel Farage declared it was “the 1970s all over again,” while Conservative leader Kemi Badenoch described soaring borrowing costs as the price of Labour’s “economic mismanagement.”

London has pledged to raise military spending to 2.5% of GDP by 2027, aligning with NATO commitments. Britain remains one of Ukraine’s most ardent supporters, delivering billions in military and financial aid – further squeezing already stretched public finances.

And who knows how much they spend housing and supporting the extraordinary flow of migrants into the UK?

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Economics - IMF predictions for 2023 - They're not pretty

..

IMF downgrades global economy outlook for 2023

Measures made around the world to curb post-pandemic inflation will make 2023

'feel like a recession'

The Associated Press · 

Posted: Oct 11, 2022 12:32 PM ET

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., in this 2018 file photo. On Tuesday, the IMF downgraded its 2023 outlook for the world economy. (Yuri Gripas/Reuters)

The International Monetary Fund downgraded its 2023 outlook for the world economy, suggesting that next year "will feel like a recession" for many thanks to central bank reactions around the world.   

The lending agency of 190 countries said Tuesday morning that global economic growth would be a meagre 2.7 per cent in 2023, down from the 2.9 per cent they'd estimated in July. For comparison, the world economy grew by six per cent in 2021. The IMF cited Russia's war in Ukraine, chronic inflation pressures, punishing interest rates and the lingering consequences of the global pandemic.

"The worst is yet to come," said IMF chief economist Pierre-Olivier Gourinchas.

The 2023 growth estimate in Canada thus shrunk to 1.5, down three-tenths of a percentage point from the last estimate made in July. Canada's growth estimate for 2022, meanwhile, fell to 3.3 per cent from July's 3.4 per cent. 

The IMF left unchanged the modest 2022 global growth estimate of 3.2 per cent.

Economies stalling

Next year's growth estimate for the United States — Canada's largest trading partner — shrunk to just one per cent. Their economy is stalling, along with those of China and Europe, said Gourinchas. 

The 19-country Euro-bloc will grow only 0.5 per cent in 2023 as it reels from the Russian invasion of Ukraine and resulting energy prices, predicted the IMF. 

China, a co-founding member of the IMF, was predicted to see the sharpest contraction of 3.2 per cent this year and 4.4 per cent in the next, down from 8.1 per cent in 2021. Business disruptions caused by Beijing's Draconian zero-COVID policy and crack-down on excessive real estate lending will be to blame, said Gourinchas.

Each country is squaring up against the consequences of the 2020 COVID-19 pandemic, which brought the world economy to a halt and necessitated massive government spending and low borrowing rates. Those measures fuelled a surprisingly quick and quality recovery from the pandemic recession. It comes, however, at a high cost. 

A new survey from the Angus Reid Institute suggests the vast majority of Canadians are spending less as prices rise — and most say interest rate increases will negatively affect their finances.

Central banks are today dramatically raising interest rates to stem inflation risk and ease consumer supply chain pressure. Canada's central bank raised its short-term rate five times so far throughout 2022. This risks a sharp economic slowdown and recession. 

Likewise, higher borrowing rates in the United States have supported global investment in the country and raised the value of the U.S. dollar, thus making U.S. exports more expensive and heightening inflation pressures world wide.

An overly aggressive U.S. central bank could "drive the world economy into an unnecessarily harsh contraction," said Maurice Obstfeld, a former IMF chief economist who now teaches at the University of California, Berkeley. 

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‘NATO will be Soiling its Pants’: Ukrainian Tycoon Seen as Power Behind President calls for ‘New Warsaw Pact’ with Moscow

If you have been reading this blog for some time, you will know that I am no fan of NATO. I believe it should have gone down with the Berlin wall. I also believe they have contributed to more unrest than to peace in Europe. NATO is Deep State, and is entirely about selling weapons. 

Gorbachev's Glasnost was predicated on promises from NATO countries that they wouldn't attempt to enlist Russia's neighbours, like Ukraine. Then, America tossed that promise out the window, and became involved in the Maidan coup.

It's a dangerous idea, to cozy up to the bear, but it might be safer than trusting NATO.

Ihor Kolomoysky speaks at an energy conference in Kiev, September 2019 © Reuters / Valentyn Ogirenko

A tycoon who spent millions of dollars arming anti-Russian fighters in Ukraine has emerged from the shadows to blast the Europe he once idolized. The oligarch now sees alliance with Russia as the only option for his country.

Igor Kolomoysky, the oligarch seen by many as the shadow power behind Ukrainian President Volodymyr Zelensky, has changed his tune sharply from the days of the 2014 Maidan rebellion.

Back then he was an ally of pro-European President Petro Poroshenko, who even appointed him governor of the Dnepropetrovsk region. Once installed there, Kolomoysky placed a bounty on captured fighters from the self-proclaimed Donetsk and Lugansk republics, who fought against the new authorities in Kiev, and spent a reported $10 million per month fielding his own private militia, also funding ultranationalist volunteer units, like the neo-Nazi Azov Battalion.

“We’ll just have to kill them,” he said of the rebels at the time.

He now believes an alliance with Russia is the best bet for Kiev, he told the New York Times in an interview.

“They’re stronger anyway. We have to improve our relations,” he said. “People want peace, a good life, they don’t want to be at war. And you [America] are forcing us to be at war, and not even giving us the money for it,” he added, referring to reports that the International Monetary Fund is holding up an aid package to Ukraine until the government pursues money missing from Kolomoysky’s Privatbank - money Kolomoyasky is accused of embezzling.

“You all won’t take us,” the oligarch said of the EU and NATO. “There’s no use in wasting time on empty talk. Whereas Russia would love to bring us into a new Warsaw Pact.”

The IMF, he said, could easily be replaced by loans from Russia. “We’ll take $100 billion from the Russians. I think they’d love to give it to us today,” Kolomoisky said. “What’s the fastest way to resolve issues and restore the relationship? Only money.”

Progress towards EU and NATO membership, coveted by the government in Kiev, has been slow at best. Despite the signing of the Ukraine–European Union Association Agreement in 2017 (which the electorate rejected in the Netherlands), European Commission President Jean-Claude Juncker said at the time that it would take at least 20 years for Ukraine to become a full-fledged member state.

Kolomoysky’s referencing of the Cold War military alliance is likely to raise eyebrows in Washington, especially given his closeness to Ukraine’s new president Volodymyr Zelensky. Kolomoysky used to be Zelensky’s employer back when the president was a comedian, and is reported to have bankrolled his election campaign. In addition, Western leaders have expressed concern that the billionaire could play puppet-master to Zelensky, prompting the new leader to publicly declare that his wealthy backer would hold no sway over his administration.

Though Zelensky has maintained dialogue with European leaders on resolving the war in Ukraine, he has also held phone talks with Russian President Vladimir Putin on mending ties and simmering down the conflict.

US President Donald Trump has expressed hope that Zelensky and Putin can “get together and solve” their problems. However, for most lawmakers in Washington the prospect of a Moscow-Kiev pact is a no-go.

Of course! You can't sell kazillions of dollars worth of weapons to a country where peace breaks out.

Kolomoysky is undaunted by the prospects of a Democrat taking office next year and cracking down.

“If they get smart with us, we’ll go to Russia,” he told the Times. “Russian tanks will be stationed near Krakow and Warsaw. Your NATO will be soiling its pants and buying Pampers.”

Though described by Putin as a “swindler” and “one of a kind chancer,” Kolomoysky is certain that Kiev will drift towards Russia. 

“I’m describing, objectively, what I’m seeing and where things are heading,” he said.

Women Taking Over the EU - 2 of The Most Powerful Women in the World

European Commission elects Ursula von der Leyen

first female president

By Danielle Haynes

German Defense Minister Ursula von der Leyen is a member of the center-right European People's Party. File Photo by Ron Sachs/UPI | License Photo

(UPI) -- The European Commission on Tuesday elected Ursula von der Leyen, of Germany, to be the first woman to lead the bloc in its 61-year history.

Von der Leyen replaces outgoing President Jean-Claude Juncker, whose five-year term comes to an end in October. The German defense minister earned 383 votes, nine more than the absolute majority required.

The European Commission is the executive branch of the European Union.

Van der Leyen has been heavily criticised for the significant deterioration of the German military. She was nominated by Frau Merkel. One wonders if it was a joke?

Nigel Farage was horrified at her election, calling her fanatical, communist, and devoted to centralization of power in the EU.

Christine Lagarde resigns from International Monetary Fund

To Lead European Central Bank

By Danielle Haynes

Christine Lagarde will take on her new duties with the European Central Bank in November. File Photo by Kevin Dietsch/UPI | License Photo

(UPI) -- International Monetary Fund Managing Director Christine Lagarde submitted her resignation Tuesday to take on a new role as president of the European Central Bank.

The French economist replaces outgoing ECB President Mario Daghi, who completes his eight-year term in October.

Legarde seems to have done a credible job leading the IMF. She has been listed in the top 5 most powerful women in the world for at least 5  years now. It will be interesting to see if she can work with Van der Leyen.

German Economy Heads for Worst Growth in Six Years

By Arne Delfs, Bloomberg

The German economy is turning into Europe’s underperformer, with the government now predicting 2019 will see the weakest expansion in six years.

Amid slowing global momentum and concerns over Brexit and trade disputes, the economy ministry on Wednesday cut its estimate to 0.5 percent, half the pace previously forecast. It’s the latest in a series of downward revisions from a 2.1 percent projection a year ago. Growth for next year is seen at 1.5 percent.

German Pain

Europe’s biggest economy is heading for its worst year since 2013

While there’s been a small improvement in business confidence, manufacturing in Germany remains mired in a deep slump. Based on European Commission forecasts for the rest of the euro area, the government’s latest prediction would leave Germany as the region’s worst performer this year, bar Italy, which is stagnating.

What Bloomberg’s Economists Say

“We think the risks to these forecasts are skewed to the downside. That’s because, just as the worst of the storm seemed to have passed, fresh gloom has now appeared on the horizon. The manufacturing PMI plummeted in March -- to levels not seen since the euro-area’s sovereign debt crisis -- and factory orders plunged in February as well.”

--Jamie Murray, Chief European Economist

Click here to view the research

The International Monetary Fund last week cut its global growth outlook on indications higher tariffs are weighing on trade. Economy Minister Peter Altmaier said in an emailed statement that the “current weak phase in Germany’s economy must be a wake-up call.”

Not a Good Look

Germany’s economy is on track for a bad year

The extent of the slowdown has prompted appeals for Germany to use its financial cushion to boost spending. Altmaier said Germany is investing into infrastructure, education and research at record levels.

The chancellor’s spokesman, Steffen Seibert, earlier this week denied the need for a package of measures to boost growth.

IMF Scales Back 2019 Global Economic Forecast Again

Conditions similar to just before the Great Recession of 2009

By Clyde Hughes

Chinese shoppers explore the "imported" section of a supermarket Tuesday in Beijing, China. The U.S.-China trade conflict was a major factor in the IMF again downgrading its global economic growth forecast. Photo by Stephen Shaver/UPI | License Photo

UPI -- For the second time this year, the International Monetary Fund on Tuesday downgraded the economic outlook for 2019 -- warning of a slowing global economy and urging leaders to be careful in what it called a "delicate moment."

The body's updated forecast calls for 3.3 percent growth this year -- down from 3.5 percent in January. The projection is the same as it was in 2009, just prior to the Great Recession.

IMF chief economist Gita Gopinath said ahead of the World Economic Outlook in Washington, D.C., indicators show slowing momentum for the global economy.

"The global expansion continues to weaken," she said in a statement. "For 70 percent of the global economy, we are projecting weaker growth for 2019 relative to 2018. We expect a recovery in 2020. However, we do see significant downside risks."

The IMF previously downgraded the 2019 outlook in January, noting particularly the trade conflict between the United States and China. The World Trade Organization downgraded its growth forecast last week. Tuesday's was the IMF's third downgrade in six months.

Gopinath pointed to uncertainty surrounding U.S.-China trade as a significant factor.

"We've seen an improvement with respect to trade talks between the U.S. and China," she said. "However, we are concerned that the trade tensions could escalate and it could show up in other sectors like the auto sector, which could be very damaging for global growth."

The IMF said last month, in its most recent outlook update, Britain leaving the European Union without an agreement could further upset growth, along with persistently weak economic data and prolonged fiscal uncertainty and elevated yields in Italy.

British Prime Minister Theresa May will meet Wednesday with European Union leaders to ask for another deadline extension. Britain now faces an April 12 deadline to leave the alliance, with or without a deal. May said Sunday she hopes cross-party talks will lead to a compromise in Parliament and an approved agreement.

No mention of Boeing's woes; I suspect that is of concern.

Widespread Economic Slowdown Across Europe with Italy Heading to ‘Zero Growth’

vittorio emanuele monument rome © pexels.com

Eurozone’s third-largest economy, Italy, can’t afford fiscal expansion at a time when its economic growth is heading to zero, Economy Minister Giovanni Tria said. He ruled out any possible changes to the government’s budget.

Italy’s central bank and the International Monetary Fund both estimated the country’s economy would expand by 0.6 percent this year. The European Commission’s forecast was more pessimistic, at just 0.2 percent. It said Italy was facing excessive economic imbalances and the policies of its government were making matters worse, posing a threat to Eurozone partners.

“We face a widespread slowdown in growth across Europe, and in Italy we are headed for zero” growth, Tria said at a conference in Florence. “Certainly we don’t have the room for expansionary measures,” he added.

Rome targets a fiscal deficit of 2.04 percent of gross domestic product this year, while analysts say the figure may be higher. In the fourth quarter of 2018, Italy plunged into technical recession as the economy contracted. At the moment, public debt sits at €2.3 trillion (US$2.6 trillion), or 131 percent of Italy’s GDP, which is way above the 60 percent EU ceiling.

According to Tria, Italian manufacturing exports suffered as a consequence of the slowing German economy. Europe’s leading economy, Germany, is struggling due to significantly weaker demand for its exports.

Italy’s Eurosceptic coalition government of the 5-Star Movement and the League parties lowered the deficit target after a protracted tussle with the European Commission. Rome has been clashing with Brussels over its big-spending budget in the past few months.

Last Thursday, Claudio Borghi, a leading member of the League party, said the Italian government could steeply raise the deficit next year to avoid hiking value-added tax.

European Commission President Jean-Claude Junker on Monday mocked the country’s government coalition. Junker said Brussels had “foreseen” that Italy’s economic growth would not be as outstanding as announced, and that he “isn’t sure” the country will crawl out of the financial crisis it plunged into more than 10 years ago.

One wonders how much American sanctions are affecting Germany's exports? Perhaps it is time for the rest of the world to stop supporting the myriad sanctions with which America is bullying the rest of the world, most of which are for American economic gain, not political reasons.

Canada is suffering from the loss of billions of dollars in the canola market to China because we arrested Huawei's CFO for violating an American sanction. IMHO that was a huge mistake that should never have happened. 

The rest of the world needs to tell President Trump that American sanctions are America's problem, not a global problem. 

Ex-Credit Suisse Bankers Arrested on US Charges Over $2bn Fraud Scheme

Corruption is Everywhere - but in a Swiss Bank? Say it ain't so!

The Credit Suisse logo in Geneva © Reuters / Denis Balibouse

Three former bankers of the second-largest bank in Switzerland, Credit Suisse Group AG, were arrested in London over an alleged connection to a $2bn Mozambique fraud scheme, according to US justice authorities cited by media.

The three suspects – former managing directors Andrew Pears and Surjan Singh, as well as the vice president in the global financing unit, Detelina Subeva – were charged with conspiring to violate US anti-bribery law, money laundering, and securities fraud in an indictment issued in a federal court in Brooklyn, New York, Reuters reported.

The three men were released on bail after their arrest in the British capital on Thursday but may face extradition to the US.

The bank itself was spared of the charges and says it was kept in the dark by its own staff.

“The indictment alleges that the former employees worked to defeat the bank’s internal controls, acted out of a motive of personal profit, and sought to hide these activities from the bank,” Credit Suisse said in a statement.

The arrests of the three former Credit Suisse employees came less than a week after the former finance minister of Mozambique was arrested in South Africa as part of the same case. Manuel Chang is now fighting extradition to the US. A fifth suspect was also arrested earlier this week.

Between 2013 and 2016, Credit Suisse and other banks arranged $2 billion loans for Mozambique state-owned companies. The loans were initially aimed at maritime projects and coastline protection in one of the poorest countries in the world, but instead were plundered, with at least $200 million diverted for bribes and kickbacks. The companies created to operate planned maritime projects were a cover for the suspects to enrich themselves.

The loans were partly concealed from international donors and creditors, including the International Monetary Fund. After they were disclosed in 2016, international aid was withdrawn, sending the nation into crisis. The state-owned companies missed more than $700 million in loan payments after defaulting in 2016 and 2017, according to the indictment.

A similar case has recently been brought against Wall Street giant Goldman Sachs. In December, Malaysia filed criminal charges against the US bank and two of its key bankers over its role in the multi-billion dollar scandal with 1MDB state fund. Kuala Lumpur wants $7.5 billion in reparations from Goldman Sachs, which it claims covered up the looting of the fund.

General Strike Brings Argentina to a Halt

The theory is that Argentina is on strike because of the economy, but that's the excuse, not the reason. I predicted a national revolt in Argentina more than a week ago after their World Cup tie with Iceland. I told a friend that if they lost to Croatia, which they did - 3 nil, there would be a national revolt in Argentina. Messi, it's all your fault!

By Danielle Haynes

Dozens of militants from left parties and social organizations demonstrate at the Obelisk Square during the general strike in Buenos Aires, Argentina, on Monday. Photo by David Fernandez/EPA-EFE

UPI -- A general strike in Argentina brought transportation, schools and other services to a halt Monday as major workers' unions protested a $50 billion International Monetary Fund loan.

Trains, buses and the underground rail system stopped and there was no air or maritime transportation nationwide, affecting at least 15 million in the capital of Buenos Aires alone.

President Mauricio Macri said he made the decision to take the IMF loan in order to avoid an economic crisis.

In addition to rejecting the IMF agreement, the General Confederation of Workers protested Macri's general economic policies and called for a 30 percent pay increase. It was the third general strike against the president.

The General Confederation of Workers had warned the government it would hold a general strike if Macri didn't veto a law to roll back water, electricity and gas tariffs to November prices.

"The strike does not contribute to anything," Macri said. "Our economy will start growing again, but for that we need to sit round the table and decide what each one of us has to do," he added.

Union representatives said they'd be willing to negotiate with the government.

"There is a new opportunity and I hope the government has understood what today's strike means," said Carlos Acuña, a leader of the General Confederation of Workers.

IMF: Venezuela Inflation Will Increase 13,000% This Year

By Allen Cone 

UPI -- Venezuela's inflation will soar 13,000 percent this year, though other Latin American countries have much better economic prospects, the International Monetary Fund said in a revised forecast Thursday.

The increase -- 130 times greater than last year -- is more than five times the inflation previously projected by IMF.

Of course, this means the Bolivar is rapidly becoming worthless. In 2008, Venezuela issued new Bolivars - Bolivares Fuertes which was worth 1000 of the original Bolivars. Rampant inflation made it necessary, and will probably make it necessary again.

Last year, price increases were 2,400 percent -- the biggest in the world.

The IMF wrote in the report that the rise is "fueled by monetary financing of large fiscal deficits and the loss of confidence in the nation's currency."

President Nicolas Maduro's government has attempted to control inflation by refusing to loosen foreign-exchange controls and price caps that have increased the short supply of all sorts of products, including food to medicine.

Also, Venezuela's real gross domestic product is projected to fall by about 15 percent for a cumulative GDP decline of almost 50 percent since 2013. The growth forecast for 2019 is a 15 percent decline and 6 percent drop in 2019.

"This trend is the result of significant micro-level distortions and macroeconomic imbalances compounded by the collapse in oil exports -- initially from the sharp fall in oil prices in mid-2014 and, more recently, from the collapse in domestic oil production," the IMF said in the report.

The United States last month sanctioned Venezuela government and military officials accused of having associations with corruption and repression. The Treasury Department said "corruption and repression" has continued to grow under Maduro's regime.

The IMF revised its projections of other nations in Latin America with the GDP predicted to increase 1.9 percent in 2018 and 2.6 in 2019 after it was 1.3 percent last year.

Other Latin Americans in Central America and parts of the Caribbean will benefit from stronger U.S. growth, the report said. And South America's economy has increased due to the end of recessions in Brazil and Argentina, as well as higher prices for the raw materials to export, according to the report.

"Recent trends in the world economy and financial markets are good news for Latin America," Alejandro Werner, head of the IMF's Western Hemisphere department wrote in the report. "Global growth and trade are on an upswing, and we expect the momentum to continue in 2018. Stronger commodity prices have also helped the region rebound."

The IMF specifically was high on Ecuador after coming off its recession because of higher oil prices and greater acceptance to financial markets. IMF boosted its 2018 GDP outlook to 2.2 percent from 0.6 percent.

And the IMF cited Chile's growth prospects because of continued improvement in copper prices and business sentiment -- 2.2 percent in 2018.

Mexico's GDP is predict to grow 2.3 percent in 2018 and 3.0 percent in 2019 on the strength of higher growth in the United States, now pegged higher at 2.7 percent in 2018 and 2.5 percent in 2019.

Keiser: Deutsche Bank ‘Technically Insolvent’, Running a ‘Ponzi Scheme’

Oh dear, here we go again

© Luke MacGregor / Reuters

Max Keiser hit out against Deutsche Bank in the latest episode of his RT program Keiser Report, saying the bank was “technically insolvent” despite assurances from German Finance Minister Wolfgang Schaeuble that he had “no concerns” over his country’s biggest bank.

Deutsche Bank shares are down 40 percent since the beginning of the year, falling below their price at the time of the 2008 financial crisis. The bank suffered record losses of €6.8 billion in 2015.

With a balance sheet now eclipsing JP Morgan’s, Keiser warned that the bank will sooner or later have to admit to insolvency and say “we need either a huge bailout or we gotta close up shop.”

However, German Finance Minister Wolfgang Schaeuble dismissed concerns over Germany’s biggest lender, telling Bloomberg he was not worried about its future.

Deutsche Bank CEO John Cryan also played down the concerns in a published letter to staff on February 9, describing the bank as “absolutely rock-solid” and “strong”.

“On Monday, we took advantage of this strength to reassure the market of our capacity and commitment to pay coupons to investors who hold our Additional Tier 1 capital,” Cryan wrote. “This type of instrument has been the subject of recent market concern. The market also expressed some concern about the adequacy of our legal provisions but I don’t share that concern. We will almost certainly have to add to our legal provisions this year but this is already accounted for in our financial plan.”

The bank’s contingent convertible (CoCo) bonds also plunged in value this year. CoCo bonds are designed to be converted to equity when the bank gets into trouble. They have no maturity date and come with no promise to investors that they will get their money back.

Coupon payments on the bond are contingent on the bank’s ability to keep its capital above certain thresholds. If the bank does not make a coupon payment, investors cannot call for a default.

Deutsche Bank said last week that they would likely be able to make its coupon payment for 2016, after telling investors last month that it couldn’t make its 2015 payments.

Keiser described the move as a ponzi scheme saying, “You can’t just miss coupon payments. It’s called insolvency.”

Super Rich Hide $21 Trillion Offshore, Study Says

Frederick E. Allen, Leadership Editor of Forbes.

Grand Cayman (left)
It's isn't beaches like this that draw the extremely wealthy to the Cayman Islands. (Photo credit: toddwickersty)

A new report finds that around the world the extremely wealthy have accumulated at least $21 trillion in secretive offshore accounts. That’s a sum equal to the gross domestic products of the United States and Japan added together. 

The number may sound unbelievable, but the study was conducted by James Henry, former chief economist at the consultancy McKinsey, an expert on tax havens and offshoring. It was commissioned by Tax Justice Network, a British activist group.

According to an early report on the study in The Guardian, Henry’s research shows that at least £13tn [$21 trillion] – perhaps up to £20tn [$31 trillion] – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy“. According to Henry’s research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn [$6.2 trillion] in 2010, a sharp rise from £1.5tn five years earlier.

The report’s analysis, based on data from many sources including the Bank of International Settlements and the International Monetary Fund, indicates that enough money has left some developing countries since the 1970s to pay off all their debts to the rest of the world. “The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments,” the report says. Money has especially flowed out of oil producing states. Some $700 billion has left Russia since the 1990s: $305 billion has flowed out of Saudi Arabia since the 1970s, and about the same amount from Nigeria.

Henry calculates that some 92,000 people, a thousandth of a percent of the world’s population, control $9.8 trillion, and that if all the $21 trillion that has been off-shored earned 3% a year and were taxed at 30%, it would raise $188 billion in revenues, more than rich countries spend on aid to the developing world every year.

The rich in the USA pay on average about 15% taxes, much less than middle-class workers. That 15%, however, is based on reported income which does not include money filtered to off-shore tax havens. Consequently, many of the rich are actually paying less than a 15% tax rate, and perhaps much less.

These are the same people who wine and cry at the thought of paying their fair share of taxes - which can never happen as long as they are hiding money off-shore. But they don't even want to pay their share of taxes on income that they actually report. All the while they begrudge the poor a few crumbs from the table, calling them all sorts of names. 

Maybe Berni Madoff was right - he's just an ordinary businessman.

Goldman Sachs' "Now You See It, Now You Don't", Recession

Despite being “too big to fail”, America’s “most important bank” Goldman Sachs may have done so this week, at least for a few minutes, when it possibly tipped off a new economic recession.

A graphic in the “Markets do not ‘Take it Easy’ to start the year” report posted online showed the US in a recession according to Goldman’s Current Activity Indicator.

“Although EM assets remain in the cross-hairs – and the outlook there remains tenuous in spots – growth concerns have impacted the market’s view of US and European growth as well, pushing our market-based measure of US growth risk to new post GFC lows,” the report read.

GFC = Global Financial Crash


Shortly after the financial watchdog website Zero Hedge tweeted their response, Goldman Sachs posted an altered graphic, moving the dark blue line from zero to closer to two.

CAI = Current Activity Indicator

So if Goldman Sachs changed the chart, there’s no recession, right?

Well, that’s where we get into a gray area.

Economist Paul Samuelson once said “the stock market has predicted nine out of the last five recessions”, according to the Washington Post, which asked “Is the stock market telling us we’re headed for a recession?” on Wednesday.

Andrew Levin, a Dartmouth professor and former adviser to Federal Reserve Chair Janet Yellen, pointed out in this document posted Monday that the “jobs boom doesn't look like it will last” and “industrial production is falling as fast as it does when there's historically been a recession”, according to the Washington Post.

Art Cashin, Director of Floor Operations at UBS, told CNBC Tuesday: "If corporations start to pull back and say 'I don't want to advance anything; I don't want to hire anybody,' we could slide into a recession."

Former Treasury Secretary Larry Summers, who’s been spinning through the revolving door between Washington and Wall Street since the Clinton administration, wrote in the Financial Times earlier this month that “markets understood the gravity of the 2008 crisis well before the Federal Reserve” and cited a report by The Economist which found the International Monetary Fund (IMF) failed to recognize any of the 220 recessions in major countries in the April before the recession started.

Last week, portfolio strategist Michael Pento wrote in his CNBC commentary ominously titled “A recession worse than 2008 is coming”: “The unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don't expect them to warn of the impending global recession and market mayhem. But a recession has occurred in the US about every five years, on average, since the end of WWII; and it has been seven years since the last one - we are overdue.”

Goldman Sachs has long been criticized, but rarely punished, for its role in the global financial crash, aka GFC.

As portrayed in the new Oscar-nominated film “The Big Short,” the $40 billion company sold investments they knew to be "crap" and "junk," and took out insurance policies against them.

“Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis”, Michigan Democrat Carl Levin from the Senate Permanent Subcommittee on Investigations said.

Despite multiple revelations published by the Subcommittee, the Obama administration announced it was ending the investigation into Goldman Sachs for its manipulation of the sub-prime mortgage market in 2012.

Ironically, Republican presidential candidate and Texas Senator Ted Cruz loves nothing more than telling Republicans how Obama brought the country to its knees, failing to mention that his wife is a managing director for Goldman Sachs and regional head of the bank’s Houston office.

The government has been able to squeeze a few bob out of Goldman Sachs. Last week, it settled a joint lawsuit for $5 billion, specifically for Goldman Sachs’ role in selling mortgage-backed securities between 2005 and 2007.

It reached a $1.2 billion settlement with the Federal Housing Finance Agency in 2014 and in 2010, Goldman Sachs paid $550 million to the Securities Exchange Commission.

In all cases, the settlements allowed them to avoid prosecution or jail time.

Big Step for Chinese in Plan to Make Yuan World's Dominant Currency

Chinese yuan to become a global reserve currency

© Kacper Pempel / Reuters

The International Monetary Fund (IMF) gave the yuan a vote of confidence on Monday by including the Chinese currency in its Special Drawing Rights (SDR) uniting the US dollar, euro, British pound and the Japanese yen.

Adding the yuan as a reserve currency will allow central banks to buy more of the Chinese currency, and boost investment in the Chinese stock market. According to Standard Chartered bank, within five years market players will invest at least $1 trillion in Chinese assets.

America Could Become a Third-World Country Overnight

The historic decision has come after years of negotiations between Beijing and the IMF. The main obstacle was China’s monetary policy, which has kept the yuan artificially low to boost domestic exports.

Beijing had to initiate a whole raft of reforms to secure admission, including easier access to Chinese money markets for foreigners, more frequent bond issues, and longer trading hours for the yuan.

The list of currencies in the basket hasn’t been updated by the IMF since 2000, when the euro superseded the franc and deutschmark.

The main opponents of including the yuan as reserve currency have been Japan and the US. According to Eswar Prasad, a professor at Cornell University and former head of the IMF's China Division, the two countries are unlikely to thwart the deal this time. "I think it will be very difficult for the IMF, especially given all that China has done this year, to deny China the prize it really wants," he told Reuters in October.

Beijing devalued the yuan in August in a shock move to respond to slowing growth. That decision was praised by IMF Chief Christine Lagarde, who said the Chinese currency became more market-oriented. However, the yuan is still tightly controlled by the People’s Bank of China, the country’s central bank.

The yuan will not officially become a reserve currency until September 2016.

Americans Losing Control of World Monetary System

UK support for China-backed Asia bank prompts US concern

The Asian Infrastructure Investment Bank agreement was signed in October
by 21 countries, including China

The US has expressed concern over the UK's bid to become a founding member of a Chinese-backed development bank.

The UK is the first big Western economy to apply for membership of the Asian Infrastructure Investment Bank (AIIB).

The US has raised questions over the bank's commitment to international standards on governance.
"There will be times when we take a different approach," a spokesperson for Prime Minister David Cameron said about the rare rebuke from the US.

The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.

The UK insisted it would demand the bank adhere to strict banking and oversight procedures.
"We think that it's in the UK's national interest," said Mr Cameron's spokesperson.

'Not normal'
Pippa Malmgren, a former economic advisor to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise.

"It's not normal for the United States to be publicly scolding the British," she said, adding that the US's focus on domestic affairs at the moment could have led to the oversight.

Chinese construction site

However, Mr Cameron's spokesperson said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.

In a statement announcing the UK's intention to join the bank, Mr Osborne said that joining the AIIB at the founding stage would create "an unrivaled opportunity for the UK and Asia to invest and grow together".

The hope is that investment in the bank will give British companies an opportunity to invest in the world's fastest growing markets.

But the US sees the Chinese effort as a ploy to dilute US control of the banking system, and has persuaded regional allies such as Australia, South Korea and Japan to stay out of the bank.

This is, indeed, another nail in the coffin of American control of the world monetary system. I fully expect the AIIB to use the Chinese Yuan as its base currency thereby further weakening the American dollar as the base of the world economy. Having a major western economy sign-on to that is of very great concern to Americans, as it should be.

In response to the move, US National Security Council spokesman Patrick Ventrell said: "We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks."

"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards," he added.

Analysis: Linda Yueh, BBC chief business correspondent

It's a tricky task to align oneself with both China and the US. The Americans are apparently unhappy with the UK, while China has welcomed the British application.

It may be a pragmatic move, but it's hard not to offend one side or another.

I suspect this will be the first of many decisions to be taken by countries such as the UK to position themselves between the new economic superpower and the existing one.

The trick will be to come away with economic advantage at minimal political cost. We'll find out if this one will pay off for the UK.

'No consultation'
Some 21 nations came together last year to sign a memorandum for the bank's establishment, including Singapore, India and Thailand.

But in November last year, Australia's Prime Minister Tony Abbott offered lukewarm support to the AIIB and said its actions must be transparent.

US President Barack Obama, who met Mr Abbott on the sidelines of a Beijing summit last year, agreed the bank had to be transparent, accountable and truly multilateral.

"Those are the same rules by which the World Bank or IMF (International Monetary Fund) or Asian Development Bank or any other international institution needs to abide by," Mr Obama said at the time.

The Financial Times (FT) newspaper reported on Thursday that US officials had complained about the British move.

The report cited an unnamed senior US administration official as saying the British decision was taken after "virtually no consultation with the US".

"We are wary about a trend toward constant accommodation of China," the newspaper quoted the US official as saying.

However, in response to the UK announcement, World Bank president Jim Yong Kim told a news conference he supported the goals of the AIIB.

"From the perspective simply of the need for more infrastructure spending, there's no doubt that from our perspective, we welcome the entry of the Asian Infrastructure Investment Bank," he said.

Offence

The founding member countries of the AIIB have agreed the basic parameters that would determine the capital structure of the new bank would be relative gross domestic product.

Banking experts have estimated that, if taken at face value, this would give China a 67% shareholding in the new bank.

That's significantly different than the Asia Development Bank, which has a similar structure to the World Bank and has been in existence 1966. There, the majority stakes are controlled by Japan and the US.

Tony Abbott poses with Chinese President Xi Jinping at the
Apec summit banquet in Beijing - 10 November 2014

Speaking in Beijing last year, Mr Abbott said Australia would only sign up to "a genuinely multilateral body"

When asked if Britain would seek assurances before it signed on as a member that no one country would be able to unilaterally control the AIIB, economist David Kuo told the BBC that the UK "wouldn't have a great deal of say in the matter".

"He who pays the piper calls the tune," he said. "The UK could try and negotiate a power to veto projects but it is unlikely to get it," Mr Kuo, who is from investment advisers The Motley Fool, said.

The UK was caught between the US on the West and China in the East, he added.

"It hopes that it can exert force from within, rather than put pressure from the outside - but [the UK] is only one voice in a crowd of many."

With regard to the competition the AIIB would give the ADB or World Bank, Mr Kuo said there were plenty of infrastructure projects in Asia that needed funding.

"The existing sources of money can't do everything. So every little helps."