Corruption

French government study: cost would be over three times GDP. Financially, France would cease to exist as we know it

In August 2011, while undergoing cancer treatments that ultimately failed him, Venezuela’s President Hugo Chávez began withdrawing 160 tons of gold from U.S., European and Canadian banks. “It’s coming to the place it never should have left. ... The vaults of the central bank of Venezuela, not the bank of London or the bank of the United States. It’s our gold,” he said on national television as crowds cheered armored trucks carrying an initial bullion shipment to the central bank. The Caracas hoard would today be valued at around $9 billion, were it not for the fact that Venezuela has been selling it — about $550 million worth in the first eight months of 2012, according to the IMF. Did further sales follow over the past six months, with proceeds partly paying for the public largesse that helped fuel Chávez’s victorious up-from-the-sickbed presidential run? Thus, there is something less than $8.5 billion in untraceable gold bullion stashed in an extremely politicized city that’s simmering with grudges and dreams. Physical gold is modestly short of priceless to a criminal. What mala gente or dissident generals wouldn’t want some of Chávez’s rich legacy?

The Biggest Welfare Queens of All ...

President Cristina Fernandez has a stranglehold over what's left of the Argentine economy. Inflation is rampant, corruption is incorrigible, and freedom is waning. Price controls, media controls... they're all part of the same tired playbook that morally bankrupt politicians in financially bankrupt countries have routinely fallen back on for centuries. Fernandez's most insidious move has been to FORCE Argentines to hold the rapidly depreciating Argentine peso. She has restricted her people from changing pesos into other currencies, including gold, as well as created obstacles to move funds abroad. Many Argentines have reached their breaking points and are doing something about it - no more evidenced than by a local tour operator and rental car agency there has started accepting Bitcoins.

Given China’s rapid rise in all aspects of national power, as well as its reluctance to release specific details about many important aspects of its military spending, its annual budget announcement rightly attracts worldwide attention. Last week, China revealed its projected 2013 official defense budget: 720.2 billion yuan (roughly $US114 billion), a figure that continues a trend of nominal double-digit spending since 1989 (the lone exception: 2010). Although China’s limited transparency about specific defense budget line items matters, it shouldn’t distract observers from seeing the bigger picture concerning China’s military development: The People’s Liberation Army (PLA) increasingly has the resources, capabilities, and confidence to attempt to assert China’s interests on its contested periphery, particularly in the Near Seas (Yellow, East, and South China Seas). This development has the potential to seriously challenge the interests of the U.S., its allies, and other partners in the region, as well as access to and security of a vital portion of the global commons—waters and airspace that all nations rely on for prosperity, yet which none own. That’s why the PLA’s development matters so much to a Washington located halfway around the world.

The fiscal cliff is permanent and insurmountable. It stands at the edge of a $20 trillion abyss of deficits over the next decade. And this estimation is conservative, based on sober economic assumptions and the dug-in tax and spending positions of the two parties, both powerfully abetted by lobbies and special interests which fight for every paragraph of loophole ridden tax code and each line of a grossly bloated budget. Fiscal cliffs as far as the eye can see are the deeply troubling outcome of the Great Deformation. They are the result of capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy. Why we are mired in this virtually unsolvable problem is the reason I wrote this book. It originated in my being flabbergasted when the Republican White House in September 2008 proposed the $700 billion TARP bailout of Wall Street. When the courageous House Republicans who voted it down were forced to walk the plank a second time in betrayal of their principled stand, my sense of disbelief turned into a not-inconsiderable outrage. Likewise, I was shocked to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office, as if it were the M&A department of Goldman Sachs.

Since a government austerity plan intended to reduce the risk of a debt crisis and ensure the backing of the ECB took hold last year, Italy's economy has tumbled into one of worst recessions of any euro zone country, and as NY Times reports, among Italy’s estimated six  million companies, businesses of all sizes have been going belly up at the rate of 1,000 a day over the  last year, especially among the small and midsize companies that  represent the backbone of Italy's shrinking economy. With policy "paralysis" now more likely following the recent inconclusive elections, Ken Rogoff warns, "this underscores the likelihood of Italy having a Japan-like decade with phenomenally slow growth," and adds that this raises concerns over "the long-run stability of  growth in the euro zone over all."  Italy’s longstanding problems have grown worse in the last year as tax increases and spending cuts were pressed by Mr. Monti. 50% of small companies - ones with fewer than 50 workers, which constitute the vast majority of Italy’s economy and long provided much of its vitality, that are buckling as banks halt lending and taxes rise - unable to pay their employees on time. With the European Union standing as America's largest trading partner, problems that plague Europe's economy will be felt across the Atlantic.

A interesting non-partisan analysis of Draghi (which means dragon) and Grillo (which means cricket) to discuss what is happening in Italy and the euro area more generally.  

First it was a sudden bout of tightening following a series of record liquidity withdrawing repos, then it was two disappointing PMIs, then it was a warning that China's property market is (as usual) overheating and major curbs were being implemented, then it was China's "state of the union" address in which the country trimmed substantially its outlook for the remainder of the year, predicting well below trendline economic growth, inflation and credit expansion, then we got an absolute collapse in Chinese imports indicating the domestic economy had gone into a state of if not shock then outright stasis, and finally overnight we got an update on China's retail sales and industrial output which both had their weakest combined start to a year since the global recession in 2009, leading Bloomberg to title its summary article, "China’s Economic Data Show Weakest Start Since 2009", and further adding that the data is now "adding to signs of a moderating rebound in the world’s second-biggest economy." Luckily, in the new batshit normal, who needs the fastest growing marginal economy: the weight of the growing world can obviously be dumped on the shoulders of the savings-less, part-time working US consumer, accountable for 70% of US GDP, and thus about 20% of the global economy. What can possibly go wrong?

Consensus suggests India is a basket case while China is recovering. We think both views are incorrect and therein lies opportunities for contrarian investors.

Inequality has many sources, but political and technological dynamics are key factors. Few commentators dare wonder if the entire model of distributing output via wages is broken. Those few who do dare wonder if there simply won't be enough paid work to go around have a conventional solution: the Central State should tax the remaining wage earners (and everyone's unearned income) and pay everyone without a job a guaranteed annual income. In the State-dominated consumerist economy, this is the only possible conceptual solution, because it gives the State more power and distributes enough income to keep the consumer-based economy well-greased. Is there no other model?

The Great Disconnect not only continues but worsens. We go back to the Great Singularity which is that the tide is still in as caused by the world’s central banks who have flooded the globe with little blue and green pieces of paper. When I was growing up there was a maxim that, “Money doesn’t grow on trees.” Now, by God, there are Money Trees in Washington and Frankfurt. It is a miracle of nature and something to behold. Even the price of gold, the alternative currency, is now manipulated by the central banks as they sell into any rally and control the Relative Value part of the equation. The inmates are now in charge of the asylum.

It is no secret that one of the main reasons why Italy's former PM, and resurgent soon to be member of government, Silvio Berlusconi, is so adamant to be in parliament, is simply to obtain the immunity he would need to stay out of prison as a result of countless lawsuits which he has valiantly fought, and lost. As of this morning, a rather convenient time for sure just as Italy is preparing to create a coalition government, Silvio has one more lawsuit he will need to appeal, and evade in Parliament, following news that he was convicted in a 2006 wiretapping scandal, and will have to serve a one year prison sentence. Will he serve even one day? Of course not - the appeals process alone will take at least several years, and when that runs out, well, the 76 year old Silvio is a billionaire, and will have ample opportunity to spend his money to buy himself enough freedom to last him until the end of his life.

During the Great Depression, there were countless suicides. People jumping out of buildings because they lost everything and could not face a future that was destitute. The photographs of such scenes will live forever. The same is taking place throughout Southern Europe today and it is a cry for fiscal responsibility upon government. In Italy, just since the start of the year, 23 entrepreneurs have committed suicide. Politicians are responsible for these economic declines.

The most unsurprising news of the day has just hit, and while we have already had some 20+ rumors on this issue previously, this time it is official:

Venezuela's Hugo Chavez has died, says VP Maduro
Chavez who ruled Venezuela since 1999, died from cancer at the age of 58
Venezuela's army chiefs pledge to support President Nicolas Maduro after Hugo Chavez's death
Special deployment of armed forces announced in Venezuela after death of Hugo Chavez

Time to celebrate Hugo's memory with some more currency devaluation? It is unclear if Goldman's record profits on Venezuela exposure (see How The Glorious Socialist Revolution Generated A 681% Return For Goldman Sachs) are about to snap back with a vengeance.