Bitcoin’s real-world problem: Virtual currency facing bank backlash in Canada

Financial Post

John Greenwood

Joseph David has overcome a lot of challenges since starting up Canada’s first Bitcoin exchange two years ago but his latest hurdle is proving tougher that all the others.

Terence Corcoran: Gold versus bitcoin

Over the last few days two of the pretenders to the world currency throne — bitcoin, the new high-profile digital currency, and gold, the centuries-old commodity currency — have fallen into a tailspin.

Virtex, based in Calgary, is an online market that matches Bitcoin buyers with sellers, with about $13-million of trades under its belt.

But earlier this month Royal Bank of Canada quietly informed Mr. David that it would no longer do business with his company.

“They shut down our account without any reason,” said Mr. David, an ebullient entrepreneur with a background in technology companies. “They just said we have the right to refuse service to whomever we wish.”

For whatever reason, many in Canada’s small but fast growing Bitcoin community are suddenly dealing with the same problem: The banks have decided they don’t like the cryptocurrency and they’re shutting down some of the accounts of businesses that deal in it.

They shut down our account without any reason

That the closing of conventional bank accounts could be a problem may sound counter-intuitive, since Bitcoin is supposed to be an alternative currency designed to operate outside of the conventional banking system. But in practice Bitcoin holders are constantly swapping back and forth into real dollars — partly because of volatile nature of the currency, which soared as high as $260 for a single Bitcoin after trading for years at less than $10, and partly because there’s not that much you can buy with it.

As a result, this latest move by the banks has thrown a monkey wrench into the nascent system.

“Only in Canada do you get a situation where a bank can shut down your account and you’re out of business,” said Melvin Ng, an engineering student at the University of Waterloo and the founder of what is likely the country’s newest bitcoin exchange, Cadbitcoin.

“Banks should certainly feel threatened by this new virtual currency, as Bitcoins will soon replace the need for banks to transfer money across borders,” Mr. Ng declared in a press release. “Bitcoin will revolutionize the banking industry, just like Bittorrent changed the video and music industry,” said Mr. Ng, comparing the currency to the super-fast and legally problematic peer-to-peer media downloading service.

A spokeswoman for RBC declined to comment on the matter, saying that the bank does not comment on individual clients.

Meanwhile the Canadian Bankers Association said it has no position since Bitcoin “is essentially an electronic currency that operates outside of the traditional national currency system.”

The Bank of Canada also has yet to take an official position, said Dale Alexander, a spokesman for the central bank. But in an emailed statement he went on to quote the Currency Act which defines legal tender as any bills or coins issued under the auspices of the Bank of Canada or the Royal Canadian Mint. The note also included a link to a European Central Bank study warning that virtual currencies such as Bitcoin are “inherently unstable,” “not regulated or closely supervised,” and “could have a negative impact on the reputation of central banks.”

As critics point out the currency has been extraordinarily volatile, with the value of a single Bitcoin ranging from less than $1 back in 2008 when it was first created to as much as $260 earlier this month. There have been several major corrections but each time it has recovered. That’s because enthusiasts refused to give up on the market, and the faithful will likely rush to buttress their virtual tender again if there’s another correction.

Bitcoin has no shortage of proponents.

“Bitcoin and similar electronic currencies have great advantages,” said Finn Poschmann, vice president of research at the C.D. Howe Institute. “First is that they are electronic — they can be easily exchanged, at low cost. Moreover, they can be exchanged among people and between people and businesses without the infrastructure associated with debit and credit cards, or wire transfers.”
Such currencies also come with “potentially great risks,” Mr. Poshmann cautions, adding that it is the job of regulators and monetary authorities to address those risks.

George Frey/Bloomberg

As critics point out the currency has been extraordinarily volatile, with the value of a single Bitcoin ranging from less than $1 back in 2008 when it was first created to as much as $260 earlier this month.

Bitcoin is only the latest in a string of virtual currencies, from the Linden Dollars used in the on-line game Second Life, to mobile phone air time units used as money by a large part of the population in Kenya and Tanzania.

The brainchild of a possibly fictitious Japanese software engineer, Bitcoin first emerged in 2009, just as the global financial system was being pushed to the brink. Unlike conventional money, it’s not controlled by any central bank or any other central authority and it exists only electronically. Instead it’s controlled by peer-to-peer software, like Bittorrent and other media file-sharing systems.

The whole thing is run by powerful computer systems owned by people called “miners.” They keep the ledgers, recording every transaction that takes place and as a reward, they get periodic payments of Bitcoin.

One of the big advantages is that it’s resistant to the kind of tampering that happened in the aftermath of the financial crisis that saw central banks pumping out huge quantities of new money as a way to revive ailing banks. Critics charge that such moves will ultimately result in inflation, devaluing the holdings of countless individual savers.

Another advantage is that the cost of doing transactions is a lot less than, say, with a credit card where the issuer charges around 3% each time the card is swiped. Such fees are the lifeblood of the banking system but they are significantly reduced because Bitcoin purchases don’t require a middleman.

To get Bitcoin you need to go to an exchange like Mr. David’s Virtex, or maybe you will opt for Mt. Gox, the world’s biggest Bitcoin exchange. There you can use Canadian dollars to buy Bitcoin which is sent electronically and stored on your laptop hard drive.

And over the past few months, a lot of people have been doing that, rapidly driving up the value of Bitcoin. But as a true currency it’s got a ways to go as there’s not a lot of retailers that accept it, at least not yet.

But the supporters are a determined lot, and the lack of stuff to buy doesn’t appear to be a problem. Most appear happy to sit on their hoards until the value goes up and then swap back into dollars to lock in their gains. Owing to white-knuckle volatility, that strategy hasn’t worked for everyone but clearly some are doing very well by it.

Paul Chavady, a real estate agent in Saskatoon, said he began offering services in Bitcoin after getting calls from potential customers who want to buy some bricks and mortar for their virtual spoils.

Tomohiro Ohsumi/BloombergCritics say the rise of bitcoin is also being helped by secrecy.

“We were getting all these inquiries from people who made a lot of money in bitcoin and they were enquiring about buying a house,” said Mr. Chavady. “It’s something that’s picking up. “

So far support for Bitcoin has come from a small community of tech-savvy evangelists and hipsters, but it’s rapidly growing thanks to the sharp rise in value.

Mike Caldwell, a 35-year-old software developer from Utah, is part of the unusual breed of Bitcoin entrepreneurs.

Mr. Caldwell manufactures physical Bitcoins, churning out thousands of the gold-coloured tokens which he claims cannot be counterfeited due to his tamper-proof holographic technology. The notion of a physical manifestation of a virtual currency may seem a bit odd, but he claims demand is so high that he’s created 17,000 coins since launching the business a year and a half ago and he’s only taking on new customers by invitation.

Critics say the rise of Bitcoin is also being helped by secrecy. The fact that transactions are anonymous makes Bitcoin the perfect system for drug dealers and other criminals, they say. Indeed, that’s become one of the major arguments against the currency.

James Grant, owner of the Ottawa-based Bitcoin brokerage Canadian Bitcoins, scoffs at that. Transactions with physical cash are just as anonymous, he argues.

He too has had his bank account shut down and he’s furious about it. The bank “didn’t give us a reason, but I could see them being worried about money laundering. If they had asked, we have invoices and receipts [for all our transactions]. We could have given them all those things… I believe in Bitcoin for the long term.”

Bitcoin’s real-world problem: Virtual currency facing bank backlash in Canada

Currency Wars

economy

Miguel Aguirre

There is an interesting book published in 2011, Currency wars by James Rickards, with a shocking subtitle: “The making of the next global crisis”.  Lat week France president told in the European Parliament: “The Euro should not fluctuate according to the mood of the markets” If this is suppose to express a desire for an exchange rate intervention is yet to be seen but certainly there are two views inside the EU. The one expressed by François Hollande and the one supported by Germany that has long opposed any intervention on this issue affirming that eurozone´s top priority must be “strengthening competitiveness , rather than weakening the currency.

The relevant point delivered by Mr. Hollande is that “A monetary zone must have an exchange rate policy, if not it will be subjected to an exchange rate that does not reflect the real state of the economy”.  The euro area is expected to deliver another weak growth this year: around 0%, but the Euro appreciated during the last 12 months against the USD (0, 76 a year ago vs. 0, 74 this month, and a 4% rise this year).

Currency market is by definition an Over the Counter one, hence not regulated.  Should the ECB factor the strength of the Euro or should it take decisions as had been taken in Japan recently, weakening the exchange rate of the yen?

The world is yet to recover from the 2008 crisis and promote exports had been taken as a first priority politic for many countries worldwide.

In the globalized world we live today the main question for Europe is if this trade promotion policy can be taken without currency intervention.

Currency Wars

Basel finds double fiddling of bank ratios

ReutersVideo

Basel finds double fiddling of bank ratios

Who Really Owns the U.S. National Debt? [Preliminary FY2012 Edition]

politicalcalculations

Today, we're taking a preliminary look at just who owns all the debt issued by the U.S. federal government through 30 September 2012 - the end of the U.S. government's fiscal year. Our chart below visualizes what we found:

The information presented in our chart above is preliminary, as the U.S. Treasury typically revises its foreign entity debt ownership data in March of each year.

Overall, U.S. entities own just 65.8% of all debt issued by the U.S. federal government. Ranking the major U.S. entities from low to high, we find that:

• The U.S. government's military retirement fund owns 2.4% of the national debt.
• The U.S. government's civilian employee retirement fund accounts for another 5.6% of the nation's debt.
• The U.S. Federal Reserve, thanks to its quantitative easing programs of recent years, has racked up holdings equal to 10.8% of the total U.S. national debt.
• The U.S. Social Security Trust Fund claims 16.7%.
• U.S. individuals and institutions, which includes regular Americans, banks, insurance companies and other government entities, own 30.4% of the nation's debt.

Meanwhile, foreign entities own 34.2% of all U.S. government-issued debt, with the following nations' individuals and institutions representing the five biggest holders of that debt, again ranked from low to high:

• United Kingdom: 0.9%
• Brazil: 1.6%
• "Oil Exporters", which includes Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait,Oman, Qatar, Saudi Arabia, Algeria, Gabon, Libya, Nigeria and the United Arab Emirates: 1.7%
• Japan: 7.0%
• China (including Hong Kong): 8.1%

All other nations hold approximately 15% of the U.S. outstanding national debt.

The Role of Quantitative Easing in Offsetting Foreign Ownership of the U.S. National Debt

The Federal Reserve's various quantitative easing programs of recent years, where the U.S. government-chartered central bank has purchased large quantities of U.S. government-issued debt in its attempts to keep the U.S. government's spending elevated and the U.S. economy stimulated by lowering long-term interest rates, are especially interesting in the degree to which they've succeeded in offsetting the share of the U.S. national debt owned by foreign interests.

Here, the Fed boosted its holdings of U.S. Treasury securities from a low of $474 billion on 18 March 2009 when it launched QE 1.0 to a peak of $1.684 trillion on 21 December 2011, which fell back to $1.676 trillion by 26 September 2012 - just before the end of the U.S. government's 2012 fiscal year.

The Fed also boosted its holdings of other federal agency debt securities from $48 billion on 18 March 2009 to a peak value of $169 billion on 10 March 2010, which has slowly declined to $83 billion as of 26 September 2012. All told, the Federal Reserve held an additional $1.21 trillion of the U.S. national debt compared to what it did before it began its quantitative easing programs.

As a result, the U.S. Federal Reserve has gone from holding 4.7% of all U.S. government-issued debt as of 18 March 2009 to holding 10.8% of it as of the end of the U.S. government's Fiscal Year 2012. During the peak of the program, the Federal Reserve crowded out almost every other purchaser of U.S. government-issued debt.

Assuming that other U.S. entities would have been unable to accumulate more of the U.S. national debt than they did during this period and that the U.S. government would have spent as much money as it did, if not for the Federal Reserve's quantitative easing programs, the share of the U.S. national debt held by foreign entities would have increased to 41.7%, with the bulk of the foreign acquisitions going to China.

As it stands, a little over 1 out of every 3 dollars borrowed by the U.S. federal government is now owned by foreign interests.

Data Sources

U.S. Federal Reserve. U.S. Treasury securities held by the Federal Reserve: All Maturities. Accessed 14 January 2013.

U.S. Federal Reserve. Federal agency debt securities held by the Federal Reserve: All Maturities. Accessed 14 January 2013.

U.S. Treasury. Major Foreign Holders of Treasury Securities. Accessed 14 January 2013.

Who Really Owns the U.S. National Debt? [Preliminary FY2012 Edition]

Venezuela: Fuga de capitales en los últimos 10 años sumó 144,9 millardos de dólares

lapatilla

lautopiaesposible.blogspot.com

El control de cambio vigente en Venezuela desde febrero de 2003 no ha impedido la fuga de capitales. En los últimos 10 años han salido del país 144,9 millardos de dólares, según cálculos de la firma Ecoanalítica basados en cifras oficiales, lo que equivale a cuatro veces y medio el monto de las actuales reservas internacionales del país.

Blanca Vera Azaf /El Nacional

El 5 de febrero de 2003 fue publicado en Gaceta Oficial el Convenio Cambiario N.° 1, con el que se impusieron limitaciones a la compra de dólares por parte de las empresas y las personas naturales. Tal medida se debió a la caída de la producción petrolera y de las exportaciones de crudo luego del paro petrolero entre finales de 2002 y principios de 2003, lo que erosionó las finanzas de la nación. El mercado se cerró a fin de evitar que salieran del país divisas para actividades que no fueran absolutamente necesarias.

Tres vías han facilitado esta salida de divisas. Una de ellas, las emisiones de bono que ha hecho la República y Petróleos de Venezuela y que asciende a 60 millardos de dólares aproximadamente

Otra vía, las operaciones de permuta cuando aún existía el mercado de valores en Venezuela. A través de la compra de bonos las casas de bolsa y sociedades de corretaje liquidaban títulos valores a un tipo de cambio oficial, pero no fijo permitido por la ley. Sin embargo, a partir del año 2012 este tipo de operaciones quedó prohibido.

La fuga de capitales también se ha producido mediante la sobrefacturación que hacen algunas empresas importadoras a través de la Comisión de Administración de Divisas y el Sistema de Transacciones con Títulos en Moneda Extrajera, que funciona en el Banco Central de Venezuela. Tal mecanismo carece de legalidad porque significa un fraude a la República y que, según un estudio preliminar de Econalítica, representa 19,9% del total de importaciones al sector privado. En el caso de las importaciones públicas, que no están bajo supervisión de Cadivi ni del Sitme, esta cifra de sobrefacturación es mucho más alta.

Restricción. Para el diputado del PSUV, Ramón Lobo, el mantenimiento del control de cambio se justifica porque el Estado tiene la necesidad de contar con las divisas para orientar el desarrollo del país a fin de continuar adelantando el plan estratégico. “Los dólares son para importar bienes servicios y es el Gobierno el que debe dirigirlos de acuerdo con la prioridad y las áreas que se tienen previstas. Los gobiernos anteriores eran condescendientes con los empresarios. En 1983, durante el gobierno de Luis Herrera Campíns, ocurrió el famoso viernes negro y salieron del país más de 25 millardos de dólares ese año”.

El economista Asdrúbal Oliveros, de la firma Ecoanalítica, asegura que el control de cambio, implementado en un momento histórico, obedecía a la situación de Petróleos de Venezuela, que se encontraba muy vulnerable luego del paro petrolero.

“El problema es que la asignación de divisas se ha convertido en un mecanismo de control político para las empresas y las personas naturales. El control de cambio y la represión financiera le ha permitido al Gobierno financiar su déficit fiscal y gastar sin control y ese es uno de los incentivos por los cuales no lo levanta. El Gobierno se financia internamente con estos recursos”, puntualizó Oliveros.

De Cadivi al Sitme

En febrero de 2003 se ordena por decreto la creación de la Comisión de Administración de Divisas, pero no fue hasta finales de abril de ese año cuando la institución comenzó a otorgar divisas a las empresas y personas naturales.

El mercado de permuta operaba paralelamente como otra vía legal para la adquisición de divisas. Para entonces existían las operaciones con los llamados ADR que eran títulos de Cantv, que todavía era de capital privado y subastaba tales papeles en la Bolsa de Nueva York. A través de estos las empresas y las personas naturales podían obtener dólares.

Para el año 2004, con la llegada de las emisiones de bonos de la República y de Cantv, el mercado de valores comienza a tener una mayor preponderancia y aparece el llamado dólar permuta. En 2009 tenía prácticamente el mismo tamaño que Cadivi en cuanto a la adquisición de dólares. Esto comenzó a ser motivo de preocupación para el Gobierno.

En 2010 se declara ilegal el mercado de permuta y se ordena la ilegalización de las casas de bolsa y sociedades de corretaje. Asimismo, se ordena la creación del Sistema de Transacciones con Títulos en Moneda Extranjera a través de subastas de papeles en el Banco Central de Venezuela.

Venezuela: Fuga de capitales en los últimos 10 años sumó 144,9 millardos de dólares

Jon Stewart Fires Back At Paul Krugman: 'If Somebody Is Ruining Their Brand' With The Trillion Dollar Coin, It's You

Brett LoGiurato 

Daily Show host Jon Stewart fired back last night at economist Paul Krugman over the idea of minting a trillion-dollar coin to work around the debt ceiling. It continued a riff that was forged over the weekend when Krugman slammed Stewart for being "lazy" in satirizing the idea.

Stewart mocked Krugman as "the only creature more noble than a freshly felched unicorn" and "the rare gray-bearded urban laureate." He took issue with Krugman calling him "lazy" in a blog post over the weekend, joking that he was "banging it out four days a week, 22 minutes a day!"

Stewart then played a clip of Krugman saying Stewart was "ruining his brand" by not doing enough research and mocking the opposition.

"I'm pretty sure that is my brand," Stewart quipped.

Then he added this kicker: "If somebody is ruining their brand with a trillion dollar coin idea, I don't think it’s the non-economist."

Stewart noted that he was a fan of Krugman.

Watch the full clip below:

The Daily Show with Jon Stewart >>

Read more: http://www.businessinsider.com/jon-stewart-vs-paul-krugman-trillion-dollar-coin-2013-1#ixzz2I3tywUHr

Jon Stewart Fires Back At Paul Krugman: 'If Somebody Is Ruining Their Brand' With The Trillion Dollar Coin, It's You

PAUL KRUGMAN: The Deficit Is Basically Solved [seriously...?]

are these guys playing around?

----------------------- 

Walter Hickey 

Many people think that fixing the deficit is a painful process that involves deep cuts to crucial programs. Some think the process is too hard, and it's not worth trying yet. 

That's not correct, according to a chart from from the Center on Budget and Policy Priorities' Richard Kogan showing just how far the United States has come in the past two years. 

We've talked before about how the painless and most effective solution to the deficit is additional growth in GDP.  As the recovery progresses and GDP rises, the government will get more revenue from increased productivity. We've also pointed out that — fundamentally — we don't have a spending problem.

CBPP

Paul Krugman made the point that the chart shows how far we've come on the deficit and how easy it will be to solve moving forward. 

Richard Kogan points out that the debt to GDP is very important indicator, and can't rise forever. "If it did," he says, "that would shrink the amount of national saving available for private investment, ultimately impairing productivity growth and, in turn, living standards."

In short, seeing what we're seeing is a good thing. 

The chart shows the stabilization of the debt to GDP ratio of the United States.

As late as 2011, the U.S. was bound for an unmitigated increase in debt to GDP ratio. Thanks to two bills, the deficit is close to coming under control:

• The Budget Control Act of 2011 (BCA), which came from the debt ceiling negotiations and mandates $1.2 trillion in cuts.
• The American Taxpayer Relief Act (ATRA), which was signed two weeks ago to avert the fiscal cliff and raised taxes on high earners. 

The red line on the bottom — which would stabilize the debt to GDP ratio — is what would come of an additional $1.4 trillion in government savings. Such savings could come in the form of either cuts or revenue raises, or a combination of both.

That's all it would take to permanently stabilize the debt to GDP ratio. Yes, the debt will continue to rise, but as long as it's rising at a slower, stable rate compared to GDP, the U.S. will be in an exceptional position moving forward. 

Krugman and Kogan's points are the same: The U.S. has come a very, very long way recently. In the past two years, the federal government has successfully cut the deficit, and is all things considered very close to stabilizing the debt. 

Here's the full CBPP article.

Read more: http://www.businessinsider.com/krugman-the-chart-that-proves-the-debt-problem-is-mostly-solved-2013-1#ixzz2HgWj8p8i

PAUL KRUGMAN: The Deficit Is Basically Solved [seriously...?]

Jon Stewart On 'Mint The Coin'

The idea of minting a trillion-dollar platinum coin to work around the debt ceiling has gained some credible support in what has been just more than a week since its renewed take-off.

Rep. Jerry Nadler supports the idea. Nobel Prize-winning economist Paul Krugman wrote his first print column today advocating the possibility if Republican members of Congress vote against raising the debt ceiling. Even the White House didn't flatly rule it out.

But don't count Daily Show host Jon Stewart among its supporters. He jabbed at the idea in a segment in his show on Thursday, comparing it to newly nominated Treasury Secretary Jack Lew's signature.

"I'm not an economist," Stewart said. "But if we're going to just make [stuff] up, I say go big or go home. How about a $20 trillion coin?" Or, he suggested, maybe a $1 "quillion" coin.

"We don’t need some trillion-dollar coin gimmick," Stewart said. "We need a way to get the world to take the U.S. dollar seriously again."

Then he presented Lew's signature. At least he thought the trillion-dollar coin wasn't as ridiculous as that.

"Hey, Lew, here’s a tip: stop signing all your checks on the tea cup ride at Disney World," Stewart said.

Here's the full clip, courtesy of Comedy Central:http://watch.thecomedynetwork.ca/the-daily-show-with-jon-stewart/full-episodes/the-daily-show-with-jon-stewart---january-10-2013/#clip841462

Read more: http://www.businessinsider.com/jon-stewart-trillion-dollar-platinum-coin-mint-jack-lew-signature-2013-1#ixzz2HgVEPNjy

Jon Stewart On 'Mint The Coin'

Republican senator rips Obama Treasury pick over 'false' statement on debt

President Obama plans to announce Thursday afternoon that he is nominating White House chief of staff Jack Lew to replace Treasury Secretary Tim Geithner, a White House official told Fox News.

Keep reading on foxnews >>

Republican senator rips Obama Treasury pick over 'false' statement on debt

MoveOn.org nominates Paul Krugman for Treasury Secretary

theblaze

The progressive activist group MoveOn.org is partnering with Hollywood actor/Hugo Chavez superfan Danny Glover in a petition drive urging the president to nominate New York Times‘ Keynesian economist and Obama enthusiast, Paul Krugman. So far, their petition has netted over 197,000 suckers… er, I mean signatories.

“We urge you to nominate Paul Krugman for Treasury Secretary,” the petition states. “Krugman will protect Social Security and Medicare from benefit cuts, promote policies to create jobs, and help defeat the austerity dogma in Washington and around the world.”

Krugman, a fellow Nobel Prize winner and poster child of modern liberalism, would handily complement Obama’s progressive policies.  He’s also a big Obama apologist & Bush-blamer — aces for a liberal litmus test.

“It’s terribly unfair that [President Obama is] being judged on the failure of the economy,” Krugman has explained, “to respond to policies that had been largely dictated by a hostile Congress.”

MoveOn.org nominates Paul Krugman for Treasury Secretary

Chilling Economic Report Terrifies CEOs

The Blaze/ Jonathon M. Seidl 

gm-digest.blogspot.com

“This Chilling Economic Report Is Getting Passed Around By CEOs.”

That’s the headline greeting readers on the site Business Insider Christmas morning. The report from the Boston Consulting Group (BCG) is titled, “Ending the Era of Ponzi Finance: Ten Steps Developed Economies Must Take.”

“The biggest [Ponzi scheme] … is still ongoing: the Ponzi scheme of the developed economies,” the report says near the beginning. “It is not simply that the developed world has borrowed significantly from future wealth to fund today’s consumption, leading to huge burdens for the next generation. It has also reduced the potential for future economic growth, making it more difficult for the next generation to deal with this legacy.”

That’s heavy. And it only gets more heavy from there. So we’ve decided to distill it down to the best takeaways from the report and the write-up on Business Insider since the BCG requires you to sign up to read it (it’s free, but still we thought some of you might not want to). Think of it as a little dose of salt to go with your Christmas dinner (sometimes salt is good, sometimes it’s bad — and from our reading of the suggestions the report offers, there’s both cases):

1. “The West was not going to find its way to the right economic path with a little tweaking at the edges, the CEO said. What is needed is a wholesale overhaul of the economic system to tackle record levels of public and private debt.” — from Business Insider

2. A summary of the report’s findings:

Mr Stelter and his colleagues do offer some solutions. First, there has to be an acknowledgement that some debts will never be repaid and should be restructured. Holders of the debt, be they countries or companies, should be allowed to default, whatever the short-term pain of such a process.
In social policy, retirement ages will have to increase. People will have to work harder, for longer and should be encouraged to do so by changes in benefit levels that do little – at their present level – to reward work at the margin.
The size of the state should be radically reduced and immigration encouraged. Competition in labour markets through supply-side reforms should be pursued.
Where governments can proactively act – by backing modern infrastructure – they should. High-growth economies are built on modern railways, airports, roads and energy supplies. Allowing potholes to develop in your local roads is a symptom of a wider malaise and cash-rich corporates should be pushed, through tax incentives, to invest their money in developed as well as emerging economies. Energy efficiency – to save money, not the planet – should be promoted.

– from Business Insider

3. And now some specifics, such as what the report says will need to be done with taxes on the wealthy (emphasis added):

The critical starting point is to accept the fact that many of today’s debts will never be repaid and to embrace debt restructuring and defaults. Current policies, designed to avoid that outcome, only postpone the ultimate resolution of the crisis and will result in even bigger losses down the road. Better to move quickly and act now, despite the likelihood of considerable near-term pain.
All stakeholders will have to contribute to the necessary cleanup. Creditors and holders of financial assets will have to accept losses. Taxpayers will have to accept higher taxes—with a special burden on the wealthy, because unless politicians begin to address the unequal distribution of income and wealth, they will not have the credibility to implement other painful measures needed to get the developed world back on track. As difficult as that will be, especially for those who have been prudent and saved for retirement, the sooner the developed economies bite the bullet, the sooner everyone will be able to repair their personal balance sheets before they retire. Otherwise, we risk experiencing a lost decade—or more—in which the fundamental underlying problems are not resolved and the value of current savings continually erodes.

– from the BCG report

4. However, it also suggest raising the retirement age (backlash against which has been severe in Europe) while also suggesting more “managed” healthcare (emphasis added):

• Raise the retirement age. As unpopular as this measure will be, it is the most important lever to reduce future costs. In an era of shrinking workforces, the math simply doesn’t work. The sooner the public knows what to expect, the sooner it will be able to plan for this scenario. Seen in this light, recent political initiatives toward earlier retirement, as we are currently witnessing in France, are extremely counterproductive.
• Reduce social-insurance payments. Even with a higher retirement age, it will be necessary, at least in some developed countries, to also reduce future payouts. Again, the sooner the public has a clear picture of what the changes will be and when, the sooner it can begin to prepare for them.
• Manage health care systems for greater efficiency. In many countries, especially the U.S., health care is the primary driver of increased government spending. But higher spending on health care is not necessarily a sign of better health outcomes. Although the U.S. spends 17.6 percent of GDP on health care, U.S. life expectancy is between 1.7 and 3 years less than it is in the U.K. (which spends only 9.6 percent of GDP on health care) and in France and Germany (which spend 11.6 percent). The health care systems of the developed countries—and not just the U.S.—offer huge potential for more efficiency with no loss in effectiveness. (See “Health Reform Should Focus on Outcomes, Not Costs,” BCG article, October 2012.)

– from the BCG report

5. But wait, there’s another set of conservative-style suggestions (emphasis added):

• Increase the efficiency of the social-welfare system. The administrative costs of welfare systems is an area ripe for rationalization. One change to consider is replacing traditional means testing, which can very quickly become highly bureaucratic and resource intensive, with a guaranteed minimum income. An idea supported in the past by liberals such as Martin Luther King Jr. and John Kenneth Galbraith, but also by conservatives such as Friedrich Hayek, Richard Nixon, and Milton Friedman, a guaranteed minimum income has the advantage of eliminating most procedures for means testing and freeing up resources traditionally used in the allocation and distribution of money.
• Free up the public-sector workforce. It is also important to reduce the number of public employees as a percentage of the overall population. In a period when labor will become increasingly scarce, it is critical that as many people as possible actually generate GDP (rather than merely consuming and redistributing it). This is not to say that public-service employees do not contribute to the overall welfare of society. But in a world of scarcity, the tradeoffs become more visible. And government inefficiencies are significant, especially in European countries.
• Implement structural reforms. Besides reforming social-welfare and retirement systems, it is important to maximize the economic potential of the economy. Therefore efforts to increase competition, by abolishing rules that block new entrants, and to increase the flexibility of labor markets need to be implemented fast. According to a study by the IMF, the growth potential of economies in Western Europe could be increased by 4.5 percent over five years through the adoption of such measures.

– from the BCG report

6. Here are the rest of the suggestions:

• Develop smart immigration policy
• Invest in education
• Reinvest in the asset base
• Increase raw-material efficiency
• Cooperate on a global basis
• Launch the next Kondratiev wave

– from the BCG report

7. “There needs to be a radical rethink of the way the West organises itself. Many of the ideas of Mr Stelter and his team are the right ones, although the tax burden being what it is in the UK, many would find it hard to stomach the thought of more tax rises that the BCG report recommends. At some point the relationship between taxed income and willingness to innovate turns negative.

“I would suggest the UK is very near that point.”

– from Business Insider

So there you have it. Having read that, you are now up to speed on the “chilling” report circulating among financial top brass. But if you want to dive more into it, we suggest reading the full report. There are other nuggets in there, and it will also help the numbering (​I thought there were only supposed to be 10 suggestions?)make sense.

Chilling Economic Report Terrifies CEOs

Money and Banking Without the State

independentinstitute

Original talk given on July 31, 2012. Ivan Pongracic speaks at the Independent Institute's "The Challenge of Liberty" 2012 College Summer Seminar on "Money and Banking Without the State." Ivan is the William E. Hibbs/Ludwig von Mises Professor of Economics at Hillsdale College, where he has been teaching since 2000.

Money and Banking Without the State

New York Stock Exchange operator sold

This Just In

Intercontinental Exchange will buy NYSE Euronext, the operator of the venerable New York Stock Exchange as well as some leading European exchanges, in an $8.2 billion cash and stock deal, the companies announced Thursday. 

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New York Stock Exchange operator sold

Monetary policy according to David Einhorn

EconomistMagazine

David Einhorn of Greenlight Capital discusses the negative effects of low interest rates at The Economist's Buttonwood Gathering on October 25th 2012.

Monetary policy according to David Einhorn

Study: Huge, Unreported Amounts of Money Are Being Shifted out of China

Xi Jinping (center) and Li Keqiang (right) will become, respectively, the president and premier of China (AP)

The Blaze/ Becket Adams

BEIJING (TheBlaze/AP) — Chinese investors evaded government controls to move more than $600 billion out of their country last year and the outflow is increasing, fueling economic and political risks as communist leaders prepare for a handover of power, a Washington-based monitoring group says.

The study by Global Financial Integrity gives backing to anecdotal signs of huge, unreported movements of Chinese money out of the country. Experts say the outflows are driven by public frustration with a banking system that subsidizes state companies at the expense of savers and by businesses profiting from loopholes in the government’s pervasive economic controls.

Chinese companies are widely believed to move money abroad both to invest and to “round trip” back into the country disguised as foreign investment to win tax breaks and other incentives. Chinese families move money abroad to gain a better return than they can from state banks that pay low deposit rates.

Last year’s outflow was part of a $3.8 trillion flood of capital that left China over 11 years, Global Financial Integrity said. It said the amount rose from $172.6 billion in 2000 to $602.9 billion in 2011.

The group said it was unclear how much of the money came from corruption or other crimes but it said the illicit outflow could aggravate economic and political strains by aiding tax evasion and widening China’s sensitive wealth gap. 

The study “raises serious questions about the stability of the Chinese economy,” the group said in a statement.

“The social, political, and economic order is not sustainable in the long-run given such massive illicit outflows,” said Dev Kar, the group’s chief economist and a co-author of the report, in the statement.

Global Financial Integrity, a program of the Center for International Policy, studies illegal cross-border flows of money and promotes measures to stop them.

Some analysts have suggested the outflows reflect a loss of faith by China’s financial elite in the communist government but others say much of the money is sent back into the country disguised as foreign investment.  More on The Blaze >>

Study: Huge, Unreported Amounts of Money Are Being Shifted out of China

Can crowdfunding promote entrepreneurship?

EconomistMagazine

Can crowdfunding promote entrepreneurship?

Misteriosa caída de fondos cubanos en el extranjero

Nuevo Herald/ Juan O. Tamayo

Los activos de los bancos cubanos depositados en instituciones financieras extranjeras, que forman parte de un sistema internacional de informes, mostraron una sorprendente caída de $1,550 millones, o 24 por ciento, en sólo los tres últimos meses del año pasado.

“Es altamente inusual que esos depósitos disminuyan tanto, especialmente porque Cuba había estado incrementando su liquidez hasta entonces”, declaró Luis R. Luis, ex economista de la Organización de Estados Americanos que informó inicialmente de la caída.
Un reporte del Banco de Acuerdos Internacionales (Bank for International Settlements) fechado el 4 de junio mostró que los depósitos del banco de Cuba en los bancos centrales y centros financieros del BIS, que cuenta con 43 miembros, se desplomaron de $5,650 millones a finales de septiembre a $4,100 millones a finales de diciembre.
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Misteriosa caída de fondos cubanos en el extranjero

Former Texas tycoon gets 110 years in prison for role in $7 billion swindle

Visit msnbc.com for breaking news, world news, and news about the economy

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Former Texas tycoon gets 110 years in prison for role in $7 billion swindle

Tim Schafer on Kickstarter and the Future of Crowdfunding

ForaTv

Tim Schafer on Kickstarter and the Future of Crowdfunding

Canada's credit cards exposed as 'perverse' system

By Julian Beltrame, The Canadian Press

OTTAWA - Canada's credit card system is a 'perverse' place where shoppers who pay with cash or debit subsidize purchases made with credit cards, the Competition Bureau argued Tuesday in its opening salvo against Visa and MasterCard.

That's because merchants pay high fees for accepting credit cards and those costs are passed on to all consumers, the bureau's lead counsel Kent Thomson said in his opening statement to a tribunal hearing whether credit card companies are engaging in anti-competitive behaviour.

Presenting the case for the Competition Bureau, Thomson argued that the restrictive contracts put in place by Visa and MasterCard allow the two credit card companies — which represent 92 per cent of the market — to essentially dictate terms to merchants.

The much-awaited case before a tribunal heading by Justice Michael Phelan of the Federal Court of Canada involves high stakes.

As Thomson pointed out, Visa and MasterCard charged merchants about $5 billion in fees for the privilege of accepting payments by customers using the cards, charges that merchants recoup through higher consumer prices.

Those fees, which range from 1.5 to 3.0 per cent on purchases, are among the highest in the world, he said, about twice the rate credit card firms charge merchants in Australia, New Zealand and many parts of Europe.

"Most Canadians are unaware of the high cost of fees" that are part and parcel of credit card usage, he said. "And these are not borne by merchants alone, they are reflected in higher prices paid by customers."

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Also  Cybercrime in Canada said to be skyrocketing

Canada's credit cards exposed as 'perverse' system