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.

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.

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. 

FULL STORY >>

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.

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 >>

Can crowdfunding promote entrepreneurship?

EconomistMagazine

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.
Continuar leyendo  Aqui >>

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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Tim Schafer on Kickstarter and the Future of Crowdfunding

ForaTv

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."

More >>

Also  Cybercrime in Canada said to be skyrocketing

Watchdog warns Canada governments of fiscal crunch

OTTAWA (Reuters) - The finances of Canada's federal government and its 10 provinces are unsustainable over the long term and they will need to either raise taxes or cut spending, in part because the population is aging, the country's budget watchdog said on Thursday.

"Fiscal sustainability requires that government debt cannot ultimately grow faster than the economy," Kevin Page, the parliamentary budget officer, said in a report that looked at likely trends over the next 75 years.

Page's team projected government debt relative to the size of the economy over the long term in the light of current spending and taxes as well as projected demographic and economic trends.

"(Our) debt-to-GDP projection indicates that the current federal and provincial-territorial fiscal structure is not sustainable over the long term," he wrote.

"Addressing this fiscal gap and restoring sustainability to public finances would require permanent policy actions of 2.7 percent of gross domestic product, either to raise taxes, reduce overall program spending, or some combination of both."

Page said slower labor force growth caused by an aging population would reduce annual average real gross domestic product growth from the 2.6 percent observed over the 1977-2010 period to 1.8 percent over the 2011-2086 period.

(Reporting by David Ljunggren; editing by Peter Galloway)

10 ways to stay broke forever

goldengirlfinance.ca

You have no savings or investments - and you haven't even thought about retirement! But hey, you have a new car, a beautiful new house and enough power suits to last you until you're 100 years old. Plus, if you still have plenty of available credit, who cares about the bottom line when life is this good?

It's a good question, and one that many people aren't forced to consider — until it's too late. Check out the top ways you can keep the charade going and stay broke!  Yes, BROKE! If you're lucky, you'll die before anyone notices...

1)     Finance everything

Live for the now. If you can get a loan or buy something on credit, do it. This should be easy; after all, your salary isn't nearly big enough to cover all your "needs."

2)     Pay the minimum — on everything

Take a look at your credit card statement. It should tell you how long it will take you to pay off the balance if you make the minimum payment. Shoot for a time frame that's longer than you can ever imagine living. That should do it. Now go have fun!

3)     Spend it all

Financial advisors tend to recommend that you "save up" for things you want. That's impractical if you want things right now — now isn't it?!

 More >

Paris Club invites Cuba to resume debt talks - Are you kidding me?

By Marc Frank

(Reuters) - Cuba's wealthiest creditors have decided to test President Raul Castro's pledge to improve the island's financial credibility by inviting his government to talks with the Paris Club about settling billions of dollars of outstanding debt, according to Western diplomats.

A letter recently sent to the Cuban central bank asked if the Communist-run country would like to explore the resumption of negotiations broken off a decade ago, the sources said.

"Cuba was discussed for the first time in many years at the Club's meeting on October 9 and 10, and it was decided to see if they were interested in talking," a European diplomat said.

"They have not formally replied, but have expressed some interest through the central bank," he added.

The Paris Club reported that Cuba owed its members $30.5 billion (19.0 billion pounds) at the close of 2010, but more than $20 billion of the debt was in old transferable Soviet rubles that Russia now claims but Cuba does not recognise.

According to its annual report, the Paris Club is an informal group of creditor governments composed of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, the United Kingdom and the United States.

Unlike the International Monetary Fund and World Bank, from which Cuba is excluded under to the longstanding U.S. trade embargo, the Paris Club does not issue multilateral loans.

Castro, who replaced his ailing brother Fidel as president in 2008, has drastically reined in imports, cut state payrolls and subsidies while insisting the government get its financial house in order.

Last week, Cuba's government gave Cubans the right to buy and sell their homes for the first time since the early days of the 1959 revolution -- a long-awaited reform that creates a real estate market and promises to put money in people's pockets.

The Communist Party and government this year approved a five-year economic plan that calls for efforts to "enhance Cuba's credibility in its international economic relations by strictly observing all the commitments that have been entered into."

The plan also said the rescheduling of Cuba's foreign debts must be expedited and that "flexible restructuring strategies for debt repayment" must be put in place as soon as is practical.

OBSERVERS CAUTIOUS

The Bank for International Settlements reported banks in 43 countries held $5.76 billion in Cuban deposits as of March of this year, compared with $4.285 billion at the close of 2009 and $2.849 billion at the close of 2008.

Cuba last reported its foreign debt in 2007 at $17.8 billion, but most analysts agree it now exceeds $21 billion, or close to 50 percent of gross domestic product and 30 percent more than annual foreign exchange revenues.

The central bank reported more than half the debt was classified as inactive, dating back to when the country defaulted in the late 1980s, while the remainder was active debt piled up after the demise of the Soviet Union, Cuba's former benefactor.

In recent years, China has become the country's largest creditor with local experts estimating the amount owed at around $5 billion.

Cuba over the last year restructured its debt with China and has been pursuing similar bilateral agreements with various other creditors, diplomats said.

"Talks can only be a good thing," said Stuart Culverhouse, chief economist of Frontier Market Investment Banking at the London-based Exotix. "Although Cuba has pursued bilateral deals, there have been no substantive negotiations with the Paris Club for ten years. So it would signal some progress."

"But I'd be cautious in concluding that it means some sort of rapprochement on the debt is imminent," he added.

Western diplomats appeared divided between those who expressed cautious optimism that something would come out of the initiative and those who were skeptical it would go anywhere.

Talks between the Paris Club and Cuba were indefinitely put on hold in 2001 after nearly two years of discussions. During the talks, the United States agreed not to participate.

The negotiations had marked Cuba's first sitdown with creditors to negotiate multilaterally since the late 1980s when it defaulted.

Along with restructuring terms, Cuba's 20-billion convertible ruble debt to the former Soviet Union was considered another major obstacle to any multilateral accord.

Though Cuba and Russia have since agreed to put the old debt aside and work to rebuild their economic relations, it remains on the books.

"We proposed an accord similar to those with other middle-level developing countries, but the Cubans wanted something special and unheard of. We were miles apart," a European diplomat, who had followed the negotiations closely, said at the time.

El Dpto del Tesoro se "entera" con 20 anos de retraso del lavado de dinero en financieras internacionales en Cuba

Las autoridades estadounidenses han iniciado una investigación penal sobre la actividad del grupo bancario holandés ING en Estados Unidos, por la sospecha de que tiene relaciones comerciales con Cuba, Irán y Siria, contraviniendo las sanciones que les impone Washington, informó EFE.

Lo sorprendente no es eso, sino que desde principios de la decada de los 90 el ING Bank contada con una oficina representativa en La Habana [5ta. Ave. No. 6407 esq. a 66, Miramar] dedicada a realizar cualquier tipo de operacion financiera que incluye leasing, loans, factoring, descuentos de letras, etc. Para ello empleaba la fachada del NETHERLANDS CARIBBEAN BANK N.V.

El Netherlands Caribbean Bank es socio del grupo financiero cubano Nueva Banca, cuya empresa matriz es el Grupo ACEMEX, el cual es a su vez una subsidiaria de RAFIN S.A. [Raul y Fidel Finanzas]. No es casual entonces, que el personal cubano que fundo y opero el NCB por muchos anos, estuviera constituido por especialistas cubanos que bajo las ordenes del "retirado" ex presidente del Banco Central de Cuba Francisco Soberon operaran el  Havana International Bank Ltd en Londres y el cual se encuentra activo en estos momentos [20 Ironmonger Lane, London, EC2V 8LR, United Kingdom]. 

Y eso no lo sabia el Departamento del Tesoro de los EEUU???

Chinese Local Debt Might Be $540B More Than Estimated: Moody's

HUFFINGTONPOST.COM 

China's local government debt burden may be 3.5 trillion yuan ($540 billion) larger than auditors estimated, putting banks on the hook for deeper losses that could threaten their credit ratings, Moody's said on Tuesday.

Addressing the estimate by China's state auditor that its local governments have chalked up 10.7 trillion yuan of debt, Moody's said it found more potential loans after accounting for discrepencies in figures given by various Chinese authorities.

"The potential scale of the problem loans at Chinese banks may be closer to its stress case than its base case," Moody's said in a statement.

Read more...

Chinese banks: What the U.S. financial industry can learn from them.

By Howard Davies

Money being counted at the Industrial and Commercial Bank of China LimitedThe Chinese financial system's evolution in recent years has been extraordinary. In 2002, all of China's major banks were awash in bad loans, which in some cases amounted to more than 10 percent of the total balance sheet. None of the major banks met international standards for capital adequacy. Few financiers in London or New York could have named any Chinese bank other than Bank of China, which was often wrongly thought to be the central bank. And to suggest that the United States Federal Reserve, or the United Kingdom's Financial Services Authority, might have anything to learn from China's financial authorities would have been thought absurd.

 Read more...

The best budgeting software for 2011

• YNAB

• Quicken

• Mint

• Budget Tracker

• DSBudget

Read More...

Financial Terrorism/ Alex Jones

Is #Crowdfunding the Next Big Financing Thing?

Read more HERE...

Las reglas de Warren Buffett

Warren Buffett Hubo una entrevista de una hora en CNBC con Warren Buffett, la segunda persona más rica del mundo, quien donó $31 mil millones de dólares para caridad. He aquí algunos aspectos muy interesantes de su vida: 1.- Compró su primera acción a los 11 años y se lamenta de haber empezado demasiado tarde! 2.- Compró una pequeña granja a los 14 años con sus ahorros provenientes de repartir periódicos. 3.- Todavía vive en la misma pequeña casa de 3 cuartos en Omaha que compró luego de casarse hace 50 años. Él dice que tiene todo lo que necesita en esa casa. Su casa no tiene ningún muro o reja. 4.- Él maneja su propio carro a todas partes y no anda con chofer o guardaespaldas. 5.- Nunca viaja en jet privado, a pesar de ser el dueño de la compañía de jets privados más grande del mundo. 6.- Su compañía, Berkshire Hathaway, es dueña de 63 compañías. Él le escribe sólo una carta cada año a los CEOs de estas compañías, dándole las metas para el año. Nunca convoca a reuniones o los llama regularmente. Él le ha dado dos reglas a sus CEOs: • Regla número 1: No perder nada del dinero de sus accionistas. • Regla número 2: No olvidar la regla número 1. 7.- Él no socializa con la gente de la alta sociedad. Su pasatiempo cuando llega a casa es prepararse palomitas de maíz y ver televisión. 8.- Bill Gates, el hombre más rico del mundo, lo conoció apenas hace 5 años. Bill Gates pensó que no tenía nada en común con Warren Buffett. Por esto, programó la reunión para que durara únicamente media hora. Pero cuando Gates lo conoció, la reunión duró diez horas y Bill Gates se volvió un devoto de Warren Buffett. 9.- Warren Buffet no anda con celular ni tiene una computadora en su escritorio. 10.- Su consejo para la gente joven: Aléjese de las tarjetas de crédito e invierta en usted.   RECUERDE: A. El dinero no crea al hombre, sino que fue el hombre el que creó el dinero B. La vida es tan simple como usted la haga. C. No haga lo que los otros digan. Escúchelos, pero haga lo que lo hace sentir mejor. D. No se vaya por las marcas. Póngase aquellas cosas en las que se sienta cómodo. E. No gaste su dinero en cosas innecesarias. Gaste en aquellos que de verdad lo necesitan. F. Después de todo, es su vida. ¿Para qué darle la oportunidad a otros de manejársela? G. Si el dinero no sirve para compartirlo con los demás, entonces ¿para que sirve? AYUDE AUNQUE NO PUEDA HACERLO; SIEMPRE HABRÁ BENDICIÓN PARA AQUELLOS QUE SABEN COMPARTIR.   H. No gaste el dinero que no tiene. El Credito, Prestamos, etc. fueron inventados por la sociedad de consumo. I. Antes de comprar algo, piense: ¿Que me pasará si no lo compro? Si la respuesta es 'Nada', no lo compre; porque no lo necesita.