The jetset life of Dutch Crown Prince Willem-Alexander and his spouse, Argentian-born Princess Máxima, is causing mounting irritation among Dutch politicians. Earlier this year, the queen's sister Princess Christina was discovered to be running a tax evasion fund on the Channel Islands, using the address of the queen's palace in The Hague. Add to that the mounting murmur in parliament about everyone having to accept salary cuts, except Queen Beatrix and her family, and the scene is set for a vigorous debate in the lower house. A debate about the tax-funded budget for the Royal Family has been scheduled for Thursday afternoon. Ministers are responsible The lower house has called Prime Minister Jan Peter Balkenende to the chamber to account for the luxury holiday villa which Prince Willem-Alexander is having built in Mozambique. The home is part of a holiday resort project for the wealthy, and the developer promised to let the poor local community benefit from it. Under the Netherlands' constitution, the cabinet is accountable for the behaviour of the royal family. The argument is that the royals are not in a position to defend themselves - that has to be done by their ministers. The Dutch royals may not be able to defend themselves, but they appear pretty good at avoiding political scrutiny, according to the venerable historian and royalty watcher, Jan Kikkert. He told BNR Radio, "it depends whether the house was purchased with public or private money. I think the latter." If the prince used the royal family's considerable private wealth for the scheme, the prime minister cannot be held responsible. But that is only part of the problem. "It also appears that the Crown Prince was quite slow in informing the minister about his building project," Mr Kikkert added.
The jetset life of Dutch Crown Prince Willem-Alexander and his spouse, Argentian-born Princess Máxima, is causing mounting irritation among Dutch politicians. Earlier this year, the queen's sister Princess Christina was discovered to be running a tax evasion fund on the Channel Islands, using the address of the queen's palace in The Hague. Add to that the mounting murmur in parliament about everyone having to accept salary cuts, except Queen Beatrix and her family, and the scene is set for a vigorous debate in the lower house. A debate about the tax-funded budget for the Royal Family has been scheduled for Thursday afternoon.
Ministers are responsible The lower house has called Prime Minister Jan Peter Balkenende to the chamber to account for the luxury holiday villa which Prince Willem-Alexander is having built in Mozambique. The home is part of a holiday resort project for the wealthy, and the developer promised to let the poor local community benefit from it.
Under the Netherlands' constitution, the cabinet is accountable for the behaviour of the royal family. The argument is that the royals are not in a position to defend themselves - that has to be done by their ministers. The Dutch royals may not be able to defend themselves, but they appear pretty good at avoiding political scrutiny, according to the venerable historian and royalty watcher, Jan Kikkert. He told BNR Radio, "it depends whether the house was purchased with public or private money. I think the latter." If the prince used the royal family's considerable private wealth for the scheme, the prime minister cannot be held responsible. But that is only part of the problem. "It also appears that the Crown Prince was quite slow in informing the minister about his building project," Mr Kikkert added.
Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China.The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China's decision to in effect re-peg the renminbi to the dollar since July last year.... After allowing the renminbi to appreciate by about 20 per against the US dollar from mid-2005, Beijing re-pegged its currency to the greenback when export growth contracted. The greenback hit one-year lows against a raft of regional currencies. The dollar index, which tracks its value against a basket of six main currencies, hit a 14-month low in afternoon trading in New York.
The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China's decision to in effect re-peg the renminbi to the dollar since July last year.... After allowing the renminbi to appreciate by about 20 per against the US dollar from mid-2005, Beijing re-pegged its currency to the greenback when export growth contracted.
The greenback hit one-year lows against a raft of regional currencies. The dollar index, which tracks its value against a basket of six main currencies, hit a 14-month low in afternoon trading in New York.
Despite the hue and cry that we must keep trade and capital flows open, I have long believed that they would be restricted as financial reforms moved forward. The Carmen Reinhart-Kenneth Rogoff work shows convincingly that periods of high international capital mobility are associated with frequent banking crises. They do not assert that the relationship is causal, but I suspect it is. Capital that can move easily across borders is by nature difficult to regulate. It would require a considerable sacrifice of national sovereignity to devise rules and organizations that could do an adequate job of supervision. So a high level of international investment flows means lawless or seriously underregulated financial firms and activities. And we have just seen that this lawlessness eventually exacts unacceptably high costs to the real economy.
Until 2008, capital colluded in maintaining the myth of prosperity, by providing the credit for excessive consumption. Capital supported the illusion of savings by pumping up equity valuations to ridiculous levels; and it supported the need to speculate, most notably in the housing market, by manufacturing savings that could not be earned. This support ended with a bang, and governments stepped in to prevent the deflation that would have brought poverty all too quickly.The first emergency step was to partially nationalise commercial banks, but government interference with capital allocation will not end there....A transaction tax on financial instruments is very likely. This will raise revenue for governments and make shareholders behave more like owners. Shareholder failure to police risky management activities was largely due to the very short holding periods for equities. A suitably high transaction tax would force investors to hold shares for much longer periods and to engage management to control risk....Capital controls are also more likely than investors believe. The recent G20 meeting has put the world on track for higher savings rates in the west and higher consumption rates in the emerging world. There is an inherent conflict between western governments' need for finance to sustain living standards and capital's need to seek out the greater growth opportunities in emerging markets. Whatever the long-term benefits in boosting returns on savings, the short-term political necessity of public financing is likely to necessitate slowing capital outflows.
The first emergency step was to partially nationalise commercial banks, but government interference with capital allocation will not end there....A transaction tax on financial instruments is very likely. This will raise revenue for governments and make shareholders behave more like owners. Shareholder failure to police risky management activities was largely due to the very short holding periods for equities. A suitably high transaction tax would force investors to hold shares for much longer periods and to engage management to control risk....Capital controls are also more likely than investors believe. The recent G20 meeting has put the world on track for higher savings rates in the west and higher consumption rates in the emerging world. There is an inherent conflict between western governments' need for finance to sustain living standards and capital's need to seek out the greater growth opportunities in emerging markets. Whatever the long-term benefits in boosting returns on savings, the short-term political necessity of public financing is likely to necessitate slowing capital outflows.
Unless there is a major change of direction among global economic and financial officialdom, we are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised. This would be the exact opposite of what makes sense: solvency is (or should be) a private good and liquidity is (or should be) a public good.
... we are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised.
In other words, everything is going according to plan. What are the dire consequences for the super wealthy? They're the only ones who matter. In the end, might makes right. Nothing has changed since the caveman.
The time is here for our nation to actually do something about the recent financial crisis -- that is, do something to prevent it from happening again. But instead, many people are finding it easier to pass the buck than to, say, regulate the financial sector effectively. The recent Group of 20 conference in Pittsburgh was replete with talk about "global imbalances," which means -- in the spirit of the "South Park" movie -- "blame China!" According to this story, the global financial crisis was caused by hardworking Chinese factory workers who committed the sin of over-saving, which created a glut of money that needed to be invested, conceptualized in a great episode of public radio's "This American Life" as the "giant pool of money." (Japan and the oil exporters also had large surpluses, but for political reasons, the finger generally gets pointed at China.)
The recent Group of 20 conference in Pittsburgh was replete with talk about "global imbalances," which means -- in the spirit of the "South Park" movie -- "blame China!"
According to this story, the global financial crisis was caused by hardworking Chinese factory workers who committed the sin of over-saving, which created a glut of money that needed to be invested, conceptualized in a great episode of public radio's "This American Life" as the "giant pool of money." (Japan and the oil exporters also had large surpluses, but for political reasons, the finger generally gets pointed at China.)
Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan). This was pervasive cultural capture or, to be blunter, mind control. But when the crisis broke it was not enough. Having powerful people generally on your side is not what you need when all hell breaks loose in financial markets. Official decisions will be made fast, under great pressure, and by a small group of people standing up in the Oval Office. If you run a big troubled bank, you need a man on the inside - someone who will take your calls late at night and rely on you for on the ground knowledge.... Goldman Sachs, JPMorgan, and Citigroup, we learn today, have such a person: Tim Geithner, Secretary of the Treasury.
This was pervasive cultural capture or, to be blunter, mind control. But when the crisis broke it was not enough. Having powerful people generally on your side is not what you need when all hell breaks loose in financial markets. Official decisions will be made fast, under great pressure, and by a small group of people standing up in the Oval Office.
If you run a big troubled bank, you need a man on the inside - someone who will take your calls late at night and rely on you for on the ground knowledge.... Goldman Sachs, JPMorgan, and Citigroup, we learn today, have such a person: Tim Geithner, Secretary of the Treasury.
We all know that a large wave of Baby Boomers in the US are approaching retirement. But what about the rest of the world? And what happens when those retirees need to spend out of savings? There is more than just a credit crisis and a government deficit crisis in our future. A rising level of retirees to workers is happening even as I write. And the US is not, for once, the center of the problem. As this week's writer of your Outside the Box Niels Jensen explains, we cannot all export our way out of the problem. There is a global adjustment that must happen and when it does, it will have serious consequences for all. My story begins with Franco Modigliani. In 1985 he was awarded the Nobel Memorial Prize in Economic Sciences for his life cycle hypothesis which (somewhat simplified) states that spending and savings patterns are predictable and largely a function of demographics. When you are in your 20s and 30s, savings are low as much of your income is spent on establishing a family, buying and furnishing your home, putting the children through education, etc. Then comes a phase, from your early to mid 40s until just before you reach retirement age, where your savings grow significantly. The outgoings are smaller during this phase of your life as the kids have left home, and you focus on accumulating wealth to pay for your retirement. Eventually, when you retire, your savings rate turns negative as you begin to live on your life savings1. Empirical evidence has since shown that this is generally true both for the individual and for society at large. Obviously, you don't win the Nobel Prize for pointing out something that can hardly be classified as original thinking, but Modigliani's claim to fame was to demonstrate the effect this pattern has on the general economy as the population ages. Let me introduce you to a chart constructed by fellow Dane Claus Vistesen who is an economist and active blogger. He has made a solid attempt to graphically illustrate the consequences of Modigliani's work (chart 1). The blue line represents the current account - it is in surplus when above the red line and in deficit when below. As you can see, when a country's population is relatively young, the country should (all other things being equal) run a current account deficit. As the population grows older, and the savings rate rises for the reasons described above, the deficit turns into a surplus until such time that the elderly begin to dominate the young at which point the surplus turns into a deficit yet again. Our export dependency Why is all this important? Well, take another look at chart 1, but focus on the purple line instead, which represents the country's export dependency. Translated into plain English, Modigliani's work implies that a country with an ageing population must grow its exports aggressively in order not to build up an unsustainably large current account deficit. Unfortunately, as you can see from the shape of the curve, it is not a linear function. The problem gets progressively worse as the population ages. Now, with most OECD countries fast approaching the danger zone where an uncomfortably large part of the population consists of old-age pensioners, how do we get out of this pickle? We can't all export our way out of the problem. Somebody needs to buy our products.
My story begins with Franco Modigliani. In 1985 he was awarded the Nobel Memorial Prize in Economic Sciences for his life cycle hypothesis which (somewhat simplified) states that spending and savings patterns are predictable and largely a function of demographics. When you are in your 20s and 30s, savings are low as much of your income is spent on establishing a family, buying and furnishing your home, putting the children through education, etc. Then comes a phase, from your early to mid 40s until just before you reach retirement age, where your savings grow significantly. The outgoings are smaller during this phase of your life as the kids have left home, and you focus on accumulating wealth to pay for your retirement. Eventually, when you retire, your savings rate turns negative as you begin to live on your life savings1. Empirical evidence has since shown that this is generally true both for the individual and for society at large. Obviously, you don't win the Nobel Prize for pointing out something that can hardly be classified as original thinking, but Modigliani's claim to fame was to demonstrate the effect this pattern has on the general economy as the population ages. Let me introduce you to a chart constructed by fellow Dane Claus Vistesen who is an economist and active blogger. He has made a solid attempt to graphically illustrate the consequences of Modigliani's work (chart 1). The blue line represents the current account - it is in surplus when above the red line and in deficit when below. As you can see, when a country's population is relatively young, the country should (all other things being equal) run a current account deficit. As the population grows older, and the savings rate rises for the reasons described above, the deficit turns into a surplus until such time that the elderly begin to dominate the young at which point the surplus turns into a deficit yet again. Our export dependency Why is all this important? Well, take another look at chart 1, but focus on the purple line instead, which represents the country's export dependency. Translated into plain English, Modigliani's work implies that a country with an ageing population must grow its exports aggressively in order not to build up an unsustainably large current account deficit. Unfortunately, as you can see from the shape of the curve, it is not a linear function. The problem gets progressively worse as the population ages. Now, with most OECD countries fast approaching the danger zone where an uncomfortably large part of the population consists of old-age pensioners, how do we get out of this pickle? We can't all export our way out of the problem. Somebody needs to buy our products.
Empirical evidence has since shown that this is generally true both for the individual and for society at large. Obviously, you don't win the Nobel Prize for pointing out something that can hardly be classified as original thinking, but Modigliani's claim to fame was to demonstrate the effect this pattern has on the general economy as the population ages. Let me introduce you to a chart constructed by fellow Dane Claus Vistesen who is an economist and active blogger. He has made a solid attempt to graphically illustrate the consequences of Modigliani's work (chart 1).
The blue line represents the current account - it is in surplus when above the red line and in deficit when below. As you can see, when a country's population is relatively young, the country should (all other things being equal) run a current account deficit. As the population grows older, and the savings rate rises for the reasons described above, the deficit turns into a surplus until such time that the elderly begin to dominate the young at which point the surplus turns into a deficit yet again. Our export dependency
Why is all this important? Well, take another look at chart 1, but focus on the purple line instead, which represents the country's export dependency. Translated into plain English, Modigliani's work implies that a country with an ageing population must grow its exports aggressively in order not to build up an unsustainably large current account deficit. Unfortunately, as you can see from the shape of the curve, it is not a linear function. The problem gets progressively worse as the population ages.
Now, with most OECD countries fast approaching the danger zone where an uncomfortably large part of the population consists of old-age pensioners, how do we get out of this pickle? We can't all export our way out of the problem. Somebody needs to buy our products.
The only way out, if we want to maintain economic growth, is for the younger and more dynamic emerging economies to become net importers. This will require a sea change in policy, and attitude, in those countries. Most importantly, it will require the exchange rate cheating to stop once and for all. There is no alternative, unless you are prepared to accept negative GDP growth year-in year-out. And that is no fun.
A great growth story like China will always attract plenty of capital but, in the case of China, you can actually argue that too much capital has been attracted. As I was taught at university, economic growth loses its momentum if capital spending outgrows labour because of the diminishing return on capital. BCA has illustrated this graphically (chart 5), and it is obvious that China is attracting too much capital for its own good. You want to invest where capital is scarce, not plentiful.
Given the foregoing, it would appear that the seemingly Herculean effort to wrest control of nations from the grasp of cabals of corporate pirates must first succeed, be followed by effective international rules that prevent, or at least inhibit, currency manipulation by all countries and then be capped by agreement to direct capital and exports to areas that can best use it for development. Sorta like doing well by doing good. Unfortunately, this is highly counter-intuitive to the Masters of the Universe, so it may be necessary that they have previously been securely locked away in Davy Jones' Locker, or some functional equivalent. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
With Gold reaching new heights in dollar terms, I think this is an appropriate time to post an article on the subject circa 1967 by none other than the famed former Chairman of the Federal Reserve Alan Greenspan. In this article Greenspan, a former Goldbug, waxes eloquent on the role of Gold in our society, although it is debatable whether he can be classified as a "former" Goldbug. I, for one, think he's still a Goldbug. This is what he said in a recent speech at an investment conference in New York - "What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment". and Rising prices of precious metals and other commodities are "an indication of a very early stage of an endeavor to move away from paper currencies". Questions have been raised by some commenters on ZH recently whether Greenspan did what he did on purpose. Reading the article below and considering the fact that he is a devotee of Ayn Rand (who by the way was at his side when he was sworn in as chairman of the Council of Economic Advisers in 1974), it's pretty hard to argue that Greenspan did not know what he was doing. Of course, some might say what a horrible way to bring about change but the fact remains that Greenspan did not do anything that would not have happened otherwise - he just accelerated the process by giving the corrupt bankers (who control everything, including the Fed) enough rope to hang themselves. Also, in my humble opinion, human beings do not change until pushed to desperation. The beauty of this is that the people are not only becoming more aware about our financial system and heretofore obscure subjects such as monetary policy but are themselves demanding change - things like abolition of the fed, return to sound money, etc. Do you think any of this would have happened if everyone was fat and happy using the corrupt Fed-controlled fiat money system? I think not. This is a more sustainable way of changing things - i.e. from the grassroots level - as opposed to somebody at the top dictating what needs to be done, which almost always ends in failure. Indeed, the best protection against criminal organizations such as the Federal Reserve taking over our society is vigilant and informed citizens. Read this and figure out for yourselves whether this is someone who hates Gold or does not understand it. Greenspan might indeed be John Galt - the man who stopped the motor of the world.
"What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment".
and
Rising prices of precious metals and other commodities are "an indication of a very early stage of an endeavor to move away from paper currencies".
Questions have been raised by some commenters on ZH recently whether Greenspan did what he did on purpose. Reading the article below and considering the fact that he is a devotee of Ayn Rand (who by the way was at his side when he was sworn in as chairman of the Council of Economic Advisers in 1974), it's pretty hard to argue that Greenspan did not know what he was doing. Of course, some might say what a horrible way to bring about change but the fact remains that Greenspan did not do anything that would not have happened otherwise - he just accelerated the process by giving the corrupt bankers (who control everything, including the Fed) enough rope to hang themselves. Also, in my humble opinion, human beings do not change until pushed to desperation. The beauty of this is that the people are not only becoming more aware about our financial system and heretofore obscure subjects such as monetary policy but are themselves demanding change - things like abolition of the fed, return to sound money, etc. Do you think any of this would have happened if everyone was fat and happy using the corrupt Fed-controlled fiat money system? I think not. This is a more sustainable way of changing things - i.e. from the grassroots level - as opposed to somebody at the top dictating what needs to be done, which almost always ends in failure. Indeed, the best protection against criminal organizations such as the Federal Reserve taking over our society is vigilant and informed citizens. Read this and figure out for yourselves whether this is someone who hates Gold or does not understand it. Greenspan might indeed be John Galt - the man who stopped the motor of the world.
From the editor's preface to a re-publication in Gilded Opinion of Alan Greenspan's essay, Gold and Economic Freedom:
[Editor's note - It may surprise more than a few gold devotees to learn they have an ideological friend in none other than Federal Reserve Board chairman Alan Greenspan. Starting in the 1950s, in fact, Greenspan was a stalwart member of Ayn Rand's intellectual inner circle. A self-designated "objectivist", Rand preached a strongly libertarian view, applying it to politics and economics, as well as to religion and popular culture. Under her influence, Greenspan wrote for the first issue of what was to become the widely-circulated Objectivist Newsletter. When Gerald Ford appointed him to the Council of Economic Advisors, Greenspan invited Rand to his swearing-in ceremony. He even attended her funeral in 1982. In 1967, Rand published her non-fiction book, Capitalism, the Unknown Ideal. In it, she included Gold and Economic Freedom, the essay by Alan Greenspan which appears below. Drawing heavily from Murray Rothbard's much longer The Mystery of Banking, Greenspan argues persuasively in favor of a gold standard and against the concept of a central bank. Can this be the same Alan Greenspan who today chairs the most important central bank of them all? Again, you might be surprised. R.W. Bradford writes in Liberty magazine that, as Fed chairman, "Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of 'playing with fire, or indeed throwing gasoline on the fire,' and asked him whether he favored a similar provision in the Fed's authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed 'should cease to function unless affirmatively continued?' 'That is correct, sir,' Greenspan responded." Bradford continues, "The Senator could scarcely believe his ears. 'Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?' Greenspan responded, 'I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'" -- Editor, The Gilded Opinion ]
In 1967, Rand published her non-fiction book, Capitalism, the Unknown Ideal. In it, she included Gold and Economic Freedom, the essay by Alan Greenspan which appears below. Drawing heavily from Murray Rothbard's much longer The Mystery of Banking, Greenspan argues persuasively in favor of a gold standard and against the concept of a central bank.
Can this be the same Alan Greenspan who today chairs the most important central bank of them all? Again, you might be surprised. R.W. Bradford writes in Liberty magazine that, as Fed chairman, "Greenspan (once) recommended to a Senate committee that all economic regulations should have fixed lifespans. Senator Paul Sarbanes (D-Md.) accused him of 'playing with fire, or indeed throwing gasoline on the fire,' and asked him whether he favored a similar provision in the Fed's authorization. Greenspan coolly answered that he did. Do you actually mean, demanded the senator, that the Fed 'should cease to function unless affirmatively continued?' 'That is correct, sir,' Greenspan responded."
Bradford continues, "The Senator could scarcely believe his ears. 'Now my next question is, is it your intention that the report of this hearing should be that Greenspan recommends a return to the gold standard?' Greenspan responded, 'I've been recommending that for years, there's nothing new about that. It would probably mean there is only one vote in the Federal Open Market Committee for that, but it is mine.'" -- Editor, The Gilded Opinion ]
Many on Zero Hedge, Gordon Gecko and commentators, appear to believe a return to a gold standard is what is needed. Regardless, this puts Greenspan's actions and beliefs in an interesting context. It would appear that he believed that the very existence of the organization he led for decades was the result of bad policy. One does not have to be a goldbug or advocate a return to the gold standard to agree with that.
See also Greenspan Shrugged by MICHAEL KINSLEY in the NYT Sunday Book Review As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Every thing receives a Value from its use, and the Value is raised, according to its Quality, Quantity and Demand
The problem with gold is that you can't live in it; heat your house or run your car with it; or post Diary comments with it.
Location, energy and knowledge all have a generic use value which in my view allows them to be "monetised" into currency which is more or less fungible. And of course a currency is neither credit, nor a unit of measure or Value Standard.
To me - whatever the currency used in exchange transactions - the most logical value standard for transactions is a fixed unit of energy, and moreover, in an amount to which we may relate our everyday experience. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
All true, and equally true of paper money, corporate stocks and bonds, credit default swaps, and any of the other financial fictions we run our world on. Now where are we going and what's with the handbasket?
