Doug Casey on Taxes and Freedom
By Doug Casey
05/21/12The always-outspoken Doug Casey addresses a broader view of taxation and its costs to both individuals and society in general in this interview with Louis James.
Louis James: We get a lot of letters from readers who know about your international lifestyle and wonder about the tax advantages they assume it confers. Is this something you care to talk about?
Doug Casey: Yes; something wicked this way comes, indeed. But first, I have to say that as much as I can understand the guy who flew his airplane into an IRS building, as we once discussed, I do not encourage anyone to break the law. That’s not for ethical reasons — far from it — but strictly on practical grounds. The Taxman can and will come for you, no matter how great or small the amount of tax he expects to extract from you. The IRS can impound your assets, take your computers, freeze your accounts, and make life just about impossible for you, while you struggle to defend yourself against their claims and keep the rest of your life going. The number of IRS horror stories is beyond counting. As the state goes deeper into insolvency, its enforcement of tax laws will necessarily become more draconian. So you absolutely don’t want to become a target.
L: So… just bow down and lick the boots of our masters?
Doug: Of course not. People can and should do everything they can to pay as little in taxes as possible. This is an ethical imperative; we must starve the beast. It could even be seen as a patriotic duty — if one believes in such things — to deny revenue to the state any way possible, short of endangering yourself. Starving the beast may be the only way to force it back into its cage — we certainly can’t count on politicians to make the right choices — they’re minions of the state. They inevitably act to make it bigger and more powerful… The state, the media, teachers, pundits, corporations — the entire establishment, really — all emphasize the moral correctness of paying taxes. They call someone who doesn’t do so a “tax cheat.” As usual, they have things upside down.
Let’s start with a definition of “theft,” something I hold as immoral and destructive. Theft is to take someone’s property against his will, i.e., by force or fraud. There isn’t a clause in the definition that says, “unless the king or the state takes the property; then it’s no longer theft.” You have a right to defend yourself from theft, regardless of who the thief is or why he is stealing.
It’s much as if a mugger grabs you on the street. You have no moral obligation to give him your money. On the contrary, you have a moral obligation to deny him that money. Does it matter if the thief says he’s going to use it to feed himself? No. Does it matter if he says he’s going to feed a starving person he knows? No. Does it matter if he’s talked to other people in the neighborhood, and 51% of them think he should rob you to feed the starving guy? No. Does it matter if the thief sets himself up as the government? No. Now of course, this gets us into a discussion of the nature of government as an institution, which we’ve talked about before.
But my point here is that you can’t give the tax authorities the moral high ground. That’s important because decent people want to do the morally right thing. This is why sociopaths try to convince people that the wrong thing is the right thing.
If an armed mugger or a gang of muggers wanted my wallet on the street, would I give it to them? Yes, most likely, because I can’t stop them from taking it, and I don’t want them to kill me. But do they have a right to it? No. And every taxpayer should keep that analogy at the top of his mind.
L: I also believe that the initiation of the use of force (or fraud, which is a sort of indirect, disguised form of force) is unethical. It doesn’t matter what the reason for it might be nor how many people might approve of the action. But some people claim that taxation is really voluntary — the price one pays for living in society… and if I’m not mistaken, the US government says the federal income tax is voluntary.
Doug: [Snorts] That is a widely promoted lie. It’s propaganda to help statists claim the moral high ground, confuse the argument, and intimidate people who aren’t critical thinkers. Just try not volunteering to pay it and see what happens. Taxation is force alloyed with fraud — a nasty combination. It’s theft, pure and simple. Most people basically admit this when they call taxation a “necessary evil,” somehow mentally evading confrontation with the fact that they are giving sanction to evil. But I question whether there can be such a thing as a “necessary evil.” Can anything evil really be necessary? Can anything necessary really be evil?
Entirely apart from that, if people really wanted anything the state uses its taxes for, they would, should, and could pay for it in the marketplace. Services the state now provides would be offered by entrepreneurs making a profit. I understand, and am somewhat sympathetic, to the argument that a “night-watchman” state is acceptable; but since the state always has a monopoly of force, it inevitably grows like a cancer, to the extent that the parasite overwhelms and kills the host. That’s where we are today.
I think a spade should be called a spade, theft should be recognized for what it is, and evil should be opposed, regardless of the excuses and justifications given for it. Ends do not justify means — and evil means lead to evil ends, as we see in the bloated, corrupt, dangerous governments we have all over the world.
L: That runs counter to the conventional wisdom, Doug. Evil or not, most people think taxation is part of the natural order of things, like rain or day and night. Death and taxes are seen as the two inevitable things in life, and you are a silly idealist — if not a dangerous madman — if you believe otherwise.
Doug: That saying about death and taxes is both evil and stupid; it’s a soul-destroying and mind-destroying perversion of reality. It’s evil, because it makes people reflexively accept the worst things in the world as permanent and inevitable. As for death, technology is actively advancing to vanquish it. Who knows how far medicine, biotech, and nanotech can delay the onset of death? And taxes are, at best, an artifact of a primitive feudal world; they’re actually no longer necessary in an advanced, free-market civilization.
People also once thought the world was flat, that bathing was unhealthy, and that there was such a thing as the divine right of kings. Many things “everyone knows” just aren’t so, and this is one of those. A government — for those “practical” people who think they need one — that stuck to the basic core functions of police and courts to defend people against force and fraud and a military to defend against invasion, would cost a tiny, tiny fraction of what today’s government costs, and that could be funded in any number of ways that essentially boil down to charging for services.
As it is now, the average US taxpayer probably works half of the year just to pay direct and indirect taxes. That doesn’t even count the cost of businesses destroyed by regulation and lives lost to slow approval of new treatments by regulators, or a million other ways governments burden, obstruct, and harass people.
Stay tuned for Part II of the interview, tomorrow…
Regards,
Doug Casey,
for The Daily Reckoning
May 22, 2012, 8:45 a.m. EDT
Greek banks expect recapitalization funds Friday
By MarketWatch FRANKFURT (MarketWatch) -- Greek banks expect to receive 18 billion euros ($23 billion) of recapitalization funds by Friday, news reports said Tuesday, citing Greek bank officials. The Hellenic Financial Stability Fund is scheduled to transfer the money to the country's largest banks as part of the bailout package provided by the European Union and International Monetary Fund. An unidentified bank official said the fund had informed banks the money will go into the system on Friday, according to Dow Jones Newswires.
To the Class of 2012
By Bill Bonner
05/21/12 Baltimore, Maryland – Down, down, down…
Day after day for the last 2 weeks…almost everything has been grinding down.
Stocks, oil, copper, bond yields… It looks as though the whole world economy is slowing down. China, India, America, Europe. All are slowing.
How much longer can this slow down continue?
A lot longer!
We should have some bounce in the markets this week. But beware. Our “Crash Alert” flag is up.
Meanwhile…
We spent the weekend in Charlottesville, VA…at the UVA graduation for our son, Henry.
The University of Virginia is probably the most handsome campus in America. Especially in May. It has a green central esplanade bordered by columned buildings in the Greco-Roman style. At one end is the famous Rotunda. Flowers and trees bloom everywhere.
We know of no other president who achieved anything equivalent. Some waged dubious wars. Some launched weasely social welfare programs. The best of them idled away their careers, shaking hands, making deals, and otherwise shuffling offstage leaving it no better or worse than it was when the curtain first went up. But Mr. Jefferson left an architectural monument that is breathtaking. He would be proud of it today.
It is too bad that the soliloquies of its 2012 commencement exercises came nowhere close to the grandeur of the setting itself. Instead, there was nothing more than the usual hollow, air-head do-goodism you associate with graduation speakers. One urges students to go out in the world and ‘make a difference.’ Another tells them to use their educations for some great public purpose. Another insists that they become the leaders of tomorrow. All declare that their years spent (there was no mention of the money) at UVA were a good investment…both formative and decisive…making them the determined, capable people that they have allegedly become.
Jefferson would roll his eyes.
Herewith, we offer an alternative graduation speech. An honest address to the class of 2012. One we will never be invited to give:
I see you before me. Arranged in alphabetical order. From Mr. Aaron from Alexandria to Mr. Zyman of Richmond. You are all suited up…wearing the ancient vêtements that have marked men of learning for hundreds of years. And in a few minutes you will move the tassels on your funny little hats from the right side to the left, indicating that you have been awarded a bachelor’s degree. This signifies that you have joined the few…the elite…the learned.
But how many of you really are learned? How many are imposters? How many are capable of writing a simple essay? How many can decline a Latin verb? How many have mastered calculus and quantum physics?
You’ve heard about the group of men at the old English club. The waiter comes up and asks if they would like some hock. One of them cleverly says ‘hic, haec, hoc.’ So the waiter comes back with drinks for all of them except him. When he asks why, the waiter replies: ‘But sir, you declined the hock.’
How many of you got that joke?
I only ask the question because I am suspicious. Many college grads of today could hardly be called intellectuals. Many have hardly used their brains at all. Some have merely spent the last four years learning a few tricks and the latest jargon of a trade. Marketing, for example. Or journalism. Marketing evolves so fast that whatever you learn here will be mostly obsolete by the time you get a job. If you ever get a job. Besides, the important points could be picked up in a few weeks on the job anyway.
As to journalism, there are a few skills you need to know, which you could pick up in an afternoon; the rest is undifferentiated. You look. You ask questions. You think. And you tell the world what you come up with. No college necessary. In fact, college may hinder you. Instead of using your own eyes and your own brain, and developing your own way of looking at things, you spent your best years in class absorbing the claptrap du jour of the mainstream media.
Others among you have read popular novels or a few history books. You think you know something. Maybe you call yourself a historian. Or perhaps a literary critic. My advice is to keep that to yourself. You have paid a lot of money for something that millions of other people — just as smart as you are — do for a hobby or past-time. There’s not much real knowledge in either of those things…just opinions and ideas which are more vanity and entertainment than genuine learning.
Same thing for those who have spent years studying ‘politics’ or ‘economics.’ Drop the pretense that you know something. You don’t. All you have is a full plate of opinions…most of them preposterous…and most of them indigestible by a thoughtful person.
I don’t doubt that many of the courses offered here — to say nothing of the beer parties — are interesting and fun. But are they worth $160,000 and 4 years of your life? How about some of these titles that I got out of the Course Catalog for 2012: “Fantasy and Values” or “Black Women Authors” or the “Cinema of India” or “Feminist Theory in Anthropology,” or “Creole Narratives” or “Zen” or “Business Ethics”…?
As to that last one, when you get out in the real world, which unless you go to graduate school is happening as of tomorrow…you will find that it is very unlike the make-believe world at this university.
They say that by going to a university you open yourself up to a whole world of knowledge. Yes, perhaps you do gain easy access to a whole world of simplified knowledge and politically correct opinions. But you also cut yourself off from a larger world of real knowledge…the kind you get by doing and observing.
In your course on Business Ethics, for example, you are no-doubt exposed to a number of ideas and theories on the subject. You’d be better off learning it on the job. First, instead of paying someone to teach you, you would get paid for learning. Besides, you can get the ideas and information in the course materials by reading a few $29 books…or read them online for even less. That is true for almost all the coursework in the arts and social sciences. It is all available to you at much less expense. So, in a sense, you have been a sap to pay so much for it.
But you would do even better to combine your reading with real life experience. And in real life you would quickly discover that things are much more complex, much more nuanced, and much less clear than you thought. That’s true in business ethics as it is in everything else. As the Jewish philosopher Hillel explained, the core idea of the Torah, the Bible, the Sermon on the Mount, and business ethics is as simple as this: if you wouldn’t want someone to do it to you, don’t do it to someone else. The rest is detail. And the details depend on the situation, which you only encounter in its full complexity, when you are face to face with it. You don’t encounter it in a book…or in your lecture halls…or in your seminars on campus. So, the time you spend on campus actually prevents and delays you from coming to grips with the real problems you will face in real life…and thus retards your education.
So, you’ve spent — or your parents…or the taxpayers have spent — $150,000 on your education. And you’re retarded.
And now you enter the job market. And don’t think you’ll have an easy time of it. Because previous graduates of this university and others have applied the lessons they learned in school and made a god-awful mess of the economy. There are 14 million people without jobs. About one in 20 young people is jobless. You’re just another one. Frankly, I’m surprised the unemployment rate for young people isn’t higher…given how worthless most young people are.
Why so many unemployed? Because economics professors have taught 3 generations of economists that a command and control economy — to a point — will work. It won’t. But a command and control economy is good for economists and do-gooders, who get jobs commanding.
Economists convinced policymakers…who have their own corrupt reasons for wanting to twist up the economy — to control the price of labor…and prevent it from falling, using a variety of tools and subterfuges. By the way, a ‘subterfuge’ is defined in the dictionary as “an artifice or expedient used to evade a rule, escape a consequence, hide something, etc.”
I mention that because I know that half of you are functionally illiterate. MSNBC recently reported that:
More than 50 percent of students at four-year schools and more than 75 percent at two-year colleges lacked the skills to perform complex literacy tasks.
The results cut across three types of literacy: analyzing news stories and other prose, understanding documents and having math skills needed for checkbooks or restaurant tips.
But one of the subterfuges used by the feds that makes it so hard for you to get a job is student loans. They’ve lent out more than $1 trillion — some of it to you. Rather than work for lower wages, students borrow money at low teaser rates…and go to school. On average, you have about $20,000 worth of debt when you leave this university. And I’ll bet that a lot of you won’t pay up.
But I’ll give you some advice. String your lenders out as long as possible. Eventually, the same college-educated dimbulbs who perverted the employment market will destroy the dollar. Avoid paying your loan long enough and it will probably go away…
Of course, the outlook is not all bad. Some of you will find good jobs — those who have used your time wisely, by studying science and engineering. It’s only the rest of you who are screwed.
The feds keep the price of labor too high. Employers would have to pay you more than you are worth. So, they are reluctant to hire you.
Employers know damned well too that you’ve been retarded by your education. So, they’re leery of hiring you. Especially if they see you’ve taken a class in business ethics. They think you’ll stab them in the back the first chance you get.
And they’re probably right. Because you’ve been told to go forth and create a better world. I’ve seen the surveys. Two out of three of you want to work for non-profit organizations. Why is that? Because your whole weltanschauung…well, I mean, your worldview…has been corroded by your education. You think business is greedy…selfish…and stupid. But where they hell do you think non-profits get their money? Where does the government get its money? How can our society afford to let you waste so many years in college?
All of this money has to come from the productive sector of the economy.
You think you can do good by working for the government or a non-profit organization? Well, I’ve got news. You’ll be a parasite, just like the rest of them. A leech, sucking the life out of the real, productive economy. That’s another reason it’s so hard for you to find a job. The more people who fantasize about getting paid for doing good…for trying to make a better world…the worse the real world gets. Because that leaves fewer people actually doing the kind of real world work that makes the world richer and more prosperous…and better organized…safer and healthier.
So, forget about making the world a better place. Forget about leading anybody anywhere. Forget about thinking you know something. You don’t know enough to lead yourself, let alone anyone else. And most of what you think you know is worthless claptrap. Pseudo-knowledge, in other words.
Finally, don’t try to be a leader. The world doesn’t need any more leaders. It’s got too many already.
Instead, try to find a real job in the real world. Do it well. And mind your own business.
Thank you. And good luck.
Regards,
Bill Bonner
for The Daily Reckoning
Quake Hits Northern Italy: Worst Since 1300s
Sunday, May 20, 2012 1:36 PM
SANT'AGOSTINO DI FERRARA, Italy — A magnitude-6.0 earthquake shook several small towns in northeast Italy on Sunday, killing four people, knocking down a clock tower and other centuries-old buildings and causing millions in losses to the region that is best known for making Parmesan cheese.
The quake struck at 4:04 a.m., with its epicenter about 35 kilometers (22 miles) north of Bologna at a relatively shallow depth of 5 kilometers (3.2 miles), the U.S. Geological Survey said. Civil protection agency official Adriano Gumina described it as the worst quake to hit the region since the 1300s.
The four people killed were factory workers on the overnight shift when their buildings, in three separate locations, collapsed, agency chief Franco Gabrielli said, In addition, he said, two women died — apparently of heart attacks that may have been sparked by fear. Sky TG24 TV reported one of them was about 100 years old.
Gabrielli said dozens of people were injured.
Two of the dead were workers at a ceramics factory in the town of Sant'Agostino di Ferrara. Their cavernous building turned into a pile of rubble, leaving twisted metal supports jutting out at odd angles and the roof mangled.
"This is immense damage, but the worst part is we lost two people," fellow worker Stefano Zeni said. News reports said one of the dead had worked the shift of an ill colleague. Elsewhere in the town, another worker was found dead under factory rubble.
In the town of Ponte Rodoni di Bondeno, a worker also died as his factory collapsed, emergency workers told Italian news agencies.
Premier Mario Monti, in Chicago for the NATO summit, told reporters he was returning to Italy before the meeting ends because of the quake.
The quake struck in the farm region known for production of Parmigiano and Grana cheeses. Italy's farm lobby Coldiretti said that some 200,000 huge, round cheeses were damaged, causing a loss to producers of €50 million ($65 milion).
It also said in a statement that at least three barn roofs collapsed, trapping an unspecified number of pigs and milk cows inside.
Emilio Bianco, receptionist at Modena's Canalgrande hotel — housed in an ornate 18th-century palazzo — said the quake "was a strong one, and it lasted quite a long time." The hotel suffered no damage and the Modena province itself was spared, but guests spilled into the streets as soon as the quake hit, he said.
In Sant'Agostino. resident Alberto Fiorini said there was "pandemonium" during the night. "I took shelter under the bed and I prayed," he said.
Mohamed Atzerc, also from Sant'Agostino, said he had feared for the safety of his three small children.
"They were crying. A wardrobe collapsed in front of the door. The light went out and I thought that everything was collapsing on my children," who were unharmed, he said.
Many people were still awake at 4 a.m. and milling about town since stores and restaurants were open all night.
The epicenter was between the towns of Finale Emilia, San Felice sul Panaro and Sermide, but the quake was felt as far away as Tuscany and northern Alto Adige.
One woman on the outskirts of Finale Emilia told Sky her 5-year-old daughter was trapped on her bed by the bricks of a 14th-century tower that toppled onto their home.
Firefighters and other rescuers freed the child without a scratch after two hours. A supporting beam had protected her from falling rubble, rescuers and the mother said.
Nearly 12 hours after the quake, a sharp aftershock alarmed the residents of Sant'Agostino di Ferrara and knocked off part of a wall of city hall. The building already had been pummeled by the pre-dawn quake, which left a gaping hole on one side of it.
The same aftershock knocked down most of the clock tower in the town of Finale Emilia, injuring a firefighter and leaving only half the clock affixed. Sky TG24 showed the firefighter lying in the street near the rubble. The national geophysics institute assigned an initial magnitude of 5.1 to the aftershock.
The quake Sunday came as Italy was still reeling from Saturday's bombing that killed a 16-year-old girl at a school in the country's south.
Pope Benedict XVI, in his traditional Sunday appearance from his studio window overlooking St. Peter's Square, said he was "spiritually close" to those affected by the quake, and asked people to join him in prayers for the dead and injured.
The initial quake was followed around an hour later by a 5.1-magnitude temblor, USGS said. It was preceded by a magnitude-4.1 temblor.
In 2009, a temblor killed more than 300 people in the central Italy city of L'Aquila, where the historic center is still largely uninhabited and in ruins.
© 2012 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.
FT: JPMorgan Unit Holds $100 Billion of Risky Bonds
Friday, 18 May 2012 08:03 AM
The unit at the center of JPMorgan Chase & Co.'s recently revealed $2 billion trading loss has built up more than $100 billion in positions in asset-backed securities and structured products, the Financial Times said.
The newspaper said this portfolio comprises the "complex, risky bonds at the center of the financial crisis in 2008," but did not say whether any of the holdings are in unhedged positions.
It said the portfolio is separate from holdings in credit derivatives that led to the trading loss by JPMorgan's chief investment office, which has sparked much criticism of the largest U.S. bank and its chief executive, Jamie Dimon.
JPMorgan spokeswoman Kristin Lemkau declined immediate comment.
The chief investment office has been the biggest buyer of European mortgage-backed bonds and other complex debt securities such as collateralized loan obligations in all markets for three years, the newspaper said, citing more than a dozen senior traders and credit experts.
That office's "non-vanilla" portfolio has grown to more than $150 billion, the newspaper said, without citing sources or providing details of the holdings.
Earlier Thursday, JPMorgan said Dimon had agreed to testify before the Senate Banking Committee to discuss the trading loss. The testimony would follow hearings on implementing Wall Street reforms that are expected to end on June 6.
JPMorgan shares closed Thursday down $1.53, or 4.3 percent, at $33.93 on Thursday. Shares of the New York-based bank have fallen 16.7 percent in the five trading days since the loss was revealed.
© 2012 Thomson/Reuters. All rights reserved.
Very interesting documentary to get you thinking.....OUTSIDE the Box. Just Released April 5th 2012, it's brand new.... Enjoy!
May 18, 2012 -------------------------------------------------------------------------------- 20,000 Global Listeners Toll Free Hotline - Q&A: 1-800-507-6531 -------------------------------------------------------------------------------- Featured Guests: President / CEO of Northern Gold Mining, Martin Shefsky & Arch Crawford Show Host: Chris Waltzek GoldSeek.com Radio 5/18/12 http://radio.goldseek.com/-------------------------------------------------------------------------------- Show Highlights : Headline news & the Market Weatherman Report. Spotlight Stock Picks. Host Chris Waltzek & Bob Chapman, The International Forecaster discussion and answer listener's questions. -------------------------------------------------------------------------------- GUEST BIOS: Arch Crawford Stockmarket Cycles Arch Crawford cut his technical analysis teeth as first assistant to top Wall Street technician Robert Farrell at Merrill Lynch in the early 1960s. In 1977, following Arch’s extensive research into astrophysical phenomenon, astrology and its correlation to market performance, he edited and published the premiere issue of Crawford Perspectives market timing newsletter. Today, nearly 30 years later, Crawford Perspectives continues to bring readers one of the most highly regarded and consistently accurate market timing newsletters available. -------------------------------------------------------------------------------- Martin Shefsky - CEO / President Northern Gold Mining Martin R. Shefsky, President and Chief Executive Officer B.A. Political Science and Psychology, Pepperdine University, Malibu, California. Over twenty years management experience with existing and startup companies in Canada and the United States. Founder and director 1997 to 2005 of Regis Resources Inc., Buckhorn, Ontario. Background in development, sales, and marketing. Experience in wide spectrum of commercial ventures including exploration of natural resources, financial consulting, stock trading, and portfolio management.
Fed May Prefer Another Twist to Adding Assets By Joshua Zumbrun - May 18, 2012 3:42 PM PT Federal Reserve policy makers may find another round of Operation Twist is preferable to an outright asset-purchase program if the economy shows further signs of weakness or risks increase. Chairman Ben S. Bernanke on April 25 said he was prepared to take further action to aid the economy if necessary, even as he signaled that he didn’t see an immediate need to add stimulus with inflation near the Fed’s goal and unemployment falling. The minutes from the Fed’s April meeting showed several policy makers said additional action could be necessary if the recovery slips. “If there were scope to do another twist of some type it would be prudent to consider it, especially in the scenario where things are worse and the Fed feels like it needs to move,” said Nathan Sheets, Global Head of International Economics at Citigroup Inc. in New York. Until August, Sheets was the Fed’s top international economist. Economists such as Sheets and Credit Suisse Securities’ Dana Saporta say the Fed’s $400 billion program to extend the maturity of bonds has been just as effective as earlier programs to expand its balance sheet, known as quantitative easing. That may make another version of the maturity extension, which is dubbed Operation Twist and is set to expire in June, preferable because it doesn’t risk the same political backlash. “From a purely economic standpoint it doesn’t matter that much” which option the Fed chooses, Sheets said. “From a public-relations standpoint it might have consequences.” Government Debt With Operation Twist, the Fed has sought to lower borrowing costs through purchases of longer-term government debt. Those purchases were offset by sales of shorter-term debt, keeping the total size of the Fed’s balance sheet unchanged. The sales didn’t raise short-term yields because the Fed has pledged to keep interest rates near zero at least through late 2014. By contrast, the Fed’s two rounds of large-scale asset purchases expanded its balance sheet by a total of $2.3 trillion. The second round, amounting to $600 billion and announced in November 2010, sparked the harshest political backlash against the Fed in three decades. Sarah Palin, the 2008 vice-presidential candidate, called the program a “dangerous experiment in printing $600 billion out of thin air” in a letter to the Wall Street Journal. Republicans, including House Speaker John Boehner of Ohio, sent Bernanke a letter saying it risked accelerating inflation, weakening the dollar and fueling asset bubbles. Consumer Prices Consumer prices as measured by the personal consumption expenditures index, the gauge preferred by the Fed, rose 2.1 percent in March from a year earlier, close to the central bank’s 2 percent inflation goal. “The Fed has already shown itself to be sensitive to political criticism by choosing to do Operation Twist,” which didn’t provoke the same type of backlash, said Saporta, U.S. economist at Credit Suisse in New York. Stocks and bond yields have slid since the central bank’s most recent meeting on April 24-25 amid renewed fears that Europe’s debt crisis is worsening and as data pointed to economic weakness in the U.S. American employers added 115,000 jobs in April, the fewest in six months, according to a Labor Department report released the week after the Fed meeting. Adding to Europe’s woes, figures released today by the Bank of Spain showed that bad loans as a proportion of total lending at the nation’s banks jumped to 8.37 percent in March, the highest since August 1994. Treasury Yields The Standard & Poor’s 500 Index fell for a sixth straight day, declining 0.7 percent to 1,295.22 at the close of trading in New York. The index has fallen 6.9 percent since the Fed meeting. The yield on the 10-year Treasury note was 1.72 percent, near the lowest on record, compared with 1.98 percent on April 25. One obstacle to repeating Twist: the Fed has less short- term debt to sell, and there’s less long-term debt left in the market to buy. The Fed could solve that problem by concentrating both sales and purchases in even longer maturities, Saporta said. In the existing program, the Fed has sold securities with less than three years remaining. The central bank would have more assets to sell if it extended its sales to securities with four or even five remaining years. The central bank’s balance sheet still has $547.7 billion of Treasuries maturing in one to five years, as of May 16. Less Effective Antulio Bomfim, a former Fed economist, said any new version of Operation Twist would be less effective. “They would have to sell assets of longer maturities than they are selling now, which would diminish the effect,” said Bomfim, a Washington-based senior managing director at Macroeconomic Advisers LLC. Any new program of asset purchases will be limited by the size of available long-term securities in the market, said Drew Matus, senior U.S. economist for UBS AG in Stamford, Connecticut. For example, the Fed owns $310.2 billion of Treasuries with more than 10 years, compared with a total market of about $1 trillion. An additional round of purchases could push Fed ownership up to 50 percent of those maturities, potentially reducing the liquidity and functioning of the market, he said. A survey of 21 primary dealers by the Federal Reserve Bank of New York in April showed that the financial institutions that deal directly with the Fed see another round of quantitative easing as more likely than a new version of Operation Twist. Odds of Easing Respondents assigned a 20 percent probability that the central bank would further increase the duration of its portfolio within one year, and 25 percent probability of such action within two years. Respondents gave quantitative easing a 45 percent chance of occurring in the next two years. A Bloomberg Global Poll of investors, analysts and traders who are Bloomberg subscribers conducted on May 8 showed that more than three in five respondents expected the Fed to take more action to aid the economy after “Operation Twist” expires in June. About two in five respondents anticipated the Fed will adopt a similar strategy to Twist. About one in five said it will embark on a third round of large-scale asset purchases. Policy makers have said allowing Operation Twist to lapse wouldn’t amount to less accommodative monetary conditions. “There should be relatively minimal effects on interest rates” when the program ends, Bernanke said in his April 25 press conference. “Of course, we’ll continue to monitor the situation,” he said. “And if we believe that financial conditions for whatever reason are inconsistent with our macroeconomic objectives, then we will act to fix that.” To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
Jim Rogers: Buy Gold, Silver Before ‘More Turmoil’ Jolts the Globe
Friday, 18 May 2012 09:02 AM
By Forrest Jones
Roiling capital markets aren't going to calm any time soon so investors would be better off putting their money in hard assets like gold, silver and agricultural commodities, says international investor Jim Rogers.
Greece is teetering on the brink of default, while the debt crisis appears to be spreading to Spain, as evidenced by a Moody's decision to cut ratings on 16 banks there.
"The world's got serious problems facing it, I don't particularly like saying it, but it's true," Rogers tells CNBC.com.
"Unfortunately there will be more debt and currency turmoil to come."
Greece goes to the polls on June 17 to elect a new parliament, and many worry voters will elect enough leftist and other fringe politicians who favor ditching austerity measures in exchange for bailout money, which could precipitate the country's exit from the eurozone.
The euro has taken a pounding on European uncertainty lately and will continue to do so.
"I hope the euro survives, I think it will survive in some shape and form," Rogers says, adding he's avoiding equities right now.
"I own real assets because if the world economy gets better I'll make money because of shortages and if things get worse they'll print more money," Rogers says, referring to loose monetary policies designed to spur growth amid downturns, which push up commodities prices as a side effect.
Greeks pulled the euro equivalent of close to $1 billion out of the country's banks on one day alone recently, as worried depositors stock up on euros fearing the country will ditch the currency and revert to the drachma, which would be much weaker.
Continued withdrawals will bruise an already beleaguered financial system, experts say.
"If you have significant deposit withdrawals, that's difficult for any institution to overcome no matter the macroeconomic factors. Of course that's not even taking into account everything going on in Greece," says Kris Niswander, associate director of European financial institutions for SNL Financial, according to CNNMoney.
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