Living off the global taxpayer

As mentioned in one of my previous blog entries that the government largesse is visible in the domestic economy, it is even more perverse on the international scene.

In What I mean by hazardous government rhetoric I wrote about the perverse incentives that the government implements to keep people from leaving government, this next piece is just as amazing.

According to the Guardian:

“As an official of an international institution, Christine Lagarde’s salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes. […]

The same applies to nearly all United Nations employees – article 34 of the Vienna convention on diplomatic relations of 1961, which has been signed by 187 states, declares: "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal."

According to Lagarde's contract she is also entitled to a pay rise on 1 July every year during her five-year contract.”

That’s right. When you or me seeks employment, we are forced into progressive tax brackets, while the “elite” get away with a free lunch. The masses endure financial repression and a fall in living standards, but the IMF chief gets a get-out-of-tax free card.

People should also check out the other “privileges” these people have, straight from the UN website:

1. Rental subsidy if newly arrived at the duty station your rent represents too high proportion of the total remuneration.
2.Dependency allowances if you have an eligible dependent spouse and/or child
3.Under certain conditions an education grant if you have eligible children in school.
4.Travel and shipping expenses when you are moving from one duty station to another.
5. Assignment grant to assist you in meeting initial extraordinary costs when arriving at or relocating to a new duty station.
6. At some duty stations, a hardship allowance linked to living and working conditions is paid and where there are restrictions on bringing family members, a non-family hardship allowance is also paid.
7. Hazard pay and rest and recuperation break when you serve in locations where the conditions are particularly hazardous, stressful and difficult.

The last one and first one is just brilliant. I have only one thing to say: Dear Christine, take a hike and get a real job.

Silent debt monetization in Croatia

 

Every week, a new news headline comes out of the Croatian business press that our Finance Minister has successfully indebted the Croatian people by a smaller interest rate. Most of this funding is being done on a short term basis. The main problem however is that these treasury bill purchases are being financed in most part by the Croatian banking system.

The headline reads:

“Banking institutions and other investors have submitted offers worth HRK 2.583 billion and 57.4 million euros. Ultimately, the auction of treasury bills was entered in the value of 1.309 billion and 51 million euros.”

Since banks are battling with foreclosure issues and the inability of the masses to repay their loans tied to the Swiss Franc, it is somewhat surprising that they are flush with a surmountable amount of cash to absorb this kind of auction. Banks had an appetite for nearly double the amount they received signaling that a flight to safety is still intact. My question is: Where are the banks getting all these funds?

Maybe, its because that on April 4th 2012, the Croatian Central Bank lowered the reserve requirement from 15% to 13,5%.

The headline from two months ago goes as:

“Banks get a release of about 4.1 billion kuna, and more than 110 million in foreign exchange”.

Banks, flush with cash aren’t loaning to the business community; mostly to do with the fact that the private sector hasn’t yet deleveraged and the growing uncertainty of outstanding loans, unions contracts and a negative economic outlook.

So, the government is high fiving itself for managing its debt burden with printed money. We will just wait and see what happens when all this “shadow liquidity” hits a certain part of the economy and its perverse effects it will have on the capital structure of the economy.

It’s a shame that, unlike most Western European countries, we don’t have a yield curve that might show how the effects of expansionary monetary policy has on the economy.

A True “Austrian” Money Supply measure (TMS) would also help in seeking out where the next peak is going to be, and from historical data draw the time from peak to through to figure out when the cleansing of the system of malinvestments might occur.

If someone should teach finance and economics, it is definitely this guy–Kyle Bass of Hayman Capital

This short excerpt is from an interview with Kyle Bass of Hayman. For those who are uninformed, Mr. Bass made a billion during the subprime debacle (shorting subprime mortgages through his hedge fund) and is forecasting an even worst future down the rode.

Such elegance as an orator as well as someone well versed in the economics field is second to none. Below is the short interview followed by a Q&A video from AmeriCatalyst 2011. Watch and enjoy is all I can say.

Courtesy of ZeroHedge:

“On gold:

A guy sitting in an office in Dallas, Texas, making sweeping claims about the future of countries he’d hardly set foot in: how on earth could he know how a bunch of people he’d never met might behave? As he laid out his ideas I had an experience I’ve often had, while listening to people who seem perfectly certain about uncertain events. One part of me was swept away by his argument and began to worry the world was about to collapse; the other part suspected he might be nuts. “That’s great,” I said, but I was already thinking about the flight I needed to catch. “But even if you’re right, what can any normal person do about it?”

He stared at me as if he’d just seen an interesting sight: the world’s stupidest man.

“What do you tell your mother when she asks you where to put her money?” I asked.

“Guns and gold,” he said simply.

“Guns and gold,” I said. So he was nuts.

But not gold futures,” he said, paying no attention to my thoughts.

"You need physical gold.” He explained that when the next crisis struck, the gold futures market was likely to seize up, as there were more outstanding futures contracts than available gold. People who thought they owned gold would find they owned pieces of paper instead. He opened his desk drawer, hauled out a giant gold brick, and dropped it on the desk. “We’ve bought a lot of this stuff.” At this point, I was giggling nervously and glancing toward the door.
So many others were giggling along. They were giggling all the way as gold rose from $800 to $1900. Probably not giggling now...

On nickels:

He still owned stacks of gold and platinum bars that had roughly doubled in value, but he remained on the lookout for hard stores of wealth as a hedge against what he assumed was the coming debasement of fiat currency. Nickels, for instance.

“The value of the metal in a nickel is worth six point eight cents,” he said. “Did you know that?”

I didn’t.

“I just bought a million dollars’ worth of them,” he said, and then, perhaps sensing I couldn’t do the math: “twenty million nickels.”

“You bought twenty million nickels?”

“Uh-huh.”

“How do you buy twenty million nickels?”

“Actually, it’s very difficult,” he said, and then explained that he had to call his bank and talk them into ordering him twenty million nickels. The bank had finally done it, but the Federal Reserve had its own questions. “The Fed apparently called my guy at the bank,” he says. “They asked him, ‘Why do you want all these nickels?’ So he called me and asked, ‘Why do you want all these nickels?’ And I said, ‘I just like nickels.’”

He pulled out a photograph of his nickels and handed it to me. There they were, piled up on giant wooden pallets in a Brink’s vault in downtown Dallas.

“I’m telling you, in the next two years they’ll change the content of the nickel,” he said. “You really ought to call your bank and buy some now.”
And on how to prepare for what is coming and why it is coming:

We hopped into his Hummer, decorated with bumper stickers (God Bless Our Troops, Especially Our Snipers) and customized to maximize the amount of fun its owner could have in it: for instance, he could press a button and, James Bond–like, coat the road behind him in giant tacks. We roared out into the Texas hill country, where, with the fortune he’d made off the subprime crisis, Kyle Bass had purchased what amounted to a fort: a forty-thousand-square-foot ranch house on thousands of acres in the middle of nowhere, with its own water supply, and an arsenal of automatic weapons and sniper rifles and small explosives to equip a battalion. That night we tore around his property in the back of his U.S. Army jeep, firing the very latest-issue U.S. Army sniper rifles, equipped with infrared scopes, at the beavers that he felt were a menace to his waterways. “There are these explosives you can buy on the Internet,” he said, as we bounded over the yellow hills. “It’s a molecular reaction. FedEx will deliver hundreds of pounds of these things.” The few beavers that survived the initial night rifle assault would wake up to watch their dams being more or less vaporized.

“It doesn’t exactly sound like a fair fight,” I said.

“Beavers are rodents,” he said.

Whatever else he was doing, he was clearly having fun. He’d spent two and a half years watching the global financial system, and the people who ran it, confirm his dark view of them. It didn’t get him down. It thrilled him to have gotten his mind around seemingly incomprehensible events. “I’m not someone who is hell-bent on being negative his whole life,” he said. “I think this is something we need to go through. It’s atonement. It’s atonement for the sins of the past.”