It was a very big weekend for information leaks that many in the world of policy making did not wish to have spread across the globe. The noted economist Arthur Okun posited that there was a trade-off between equality and inefficiency when it came to providing a social safety net for those suffering from the capriciousness of a capitalist system. In an effort to minimize the economic dislocations of a market economy, the redistribution of wealth through transfers was compared to a leaky bucket in which not all the money would make it to the intended recipients. Okun also posited that in an effort for some amelioration of the pain of economic dislocation taxes on the most successful actors would result in an effort to avoid any wealth confiscation through progressive taxation: “High tax rates are followed by attempts of ingenious men to beat them as surely as snow is followed by little boys on sleds.” (Library of Economics and Liberty)
It seems that what has been to International Consortium of Investigative Journalists (ICIJ) from Panamanian company Mossack Fonseca–also dubbed the Panama Papers–is more than mere ingenuousness to avoid but possible outright fraud and theft that would make a Nigerian Oil Minister blush. Make no mistake about it this is the Davos Crowd at its most nefarious. The leaks could have major political repercussions for it seems that British Prime Minister David Cameron is named as a stasher of cash and it won’t be perceived in a positive way by the British commoner voting on Brexit. Again, there are rules of law for the elite and another set for those struggling to deal with the ill-effects of globalization. I am left to ponder if the object of the Panama leak was the Clinton Foundation because as the names are disseminated it will be difficult to believe that the tentacles of President Clinton’s fundraising have not reached the highest sources of the global money laundering.
The second weekend leak was from Wikileaks and was directed at the Machiavellian ways of the Lagarde IMF. I have written a lot over the last three years how it was a mistake for the IMF to involve itself in the Greek bailout for Europe was a wealthy enough entity to resolve its own issues of sovereign solvency. Greece needed a pay-day loan and the IMF had pockets full of liquidity even as it pushed the U.S. Congress for even more funds. The issue was always a Greek restructuring of its debts or massive losses for German, French, Italian and Spanish banks that had gorged on Greek bonds that were deemed a zero risk-weighted asset.
When the TROIKA used IMF funds to avoid a restructuring, the EU banks offloaded their Greek notes to the Greek National Bank and the ECB. The huge pool of bonds owned by the ECB and the GNB means that European taxpayers are on the hook if the IMF refuses to remain in the Troika and forces a massive debt restructuring, which is why the German Parliament has consistently stated that if the IMF is not involved then Greece will have to default. The IMF plays the bad cop for the TROIKA, something Germany didn’t want to do for the bad image it created by the persistent demand for greater budget austerity for Greek pensioners.
It appears the IMF will use the BREXIT vote to try to get its money back from Greece. The IMF will force a massive debt restructuring in which European Union citizens are forced to absorb losses on Greek sovereign debt. IMF DIRECTOR Lagarde is assuring the EU that the IMF was not planning such a Machiavellian solution but I will remind readers that Ms. Lagarde was previously an international lawyer at a well-established Chicago law firm, which may have done business in Panama. Oh, what a tangled web we weave, when we practice to deceive.
***Postpartum blues from the labor report: It was a solid jobs number on Friday as the worker participation rate improved, bringing more employees to the job market and pushed the overall unemployment rate to 5%. The rise in average hourly earnings was better than consensus forecasts. Many thought that the DOLLAR would rally on any type of positive jobs data but it seems that the market is more focused on Yellen’s dovish speech March 29. If the FED will not be raising rates regardless of the data then we are now Yellen dependent. The market’s sentiment will be found in the yield curves, which OUGHT to steepen if the FED is deemed to be desirous of remaining ultra-cautious because of global headwinds.
BUT THE CURVES ARE SENDING MIXED SIGNALS AS THE 2/10 flattened today while the 5/30 STEEPENED, rising above its 200-day moving average of 138.03 basis points. The DOLLAR also remained soft against the developed market currencies, adding further confusion to those leaning on the data dependent argument. Again, Boston Fed President Rosengren raised the possibility of the FED preempting market sentiment and raising rates more aggressively than the market presently anticipates. This was counter to Yellen’s speech. While the SPOOS broke, the dollar rallied and GOLD broke. The action was short-lived reflecting the diminishing impact of those outside the FOMC Governors. The markets are becoming deaf to the apparent ranting of lunatics. We need more leaks.
The markets are trying to weigh Yellen’s desire to run hotter for longer in terms of potential inflation versus some investors demanding the FED not wait too long to raise rates and fall too far behind the curve. USUALLY the 2/10 would be a barometer of market sentiment but I am considering that the ECB’S 80 billion euros a month of asset purchases is heavily impacted the U.S. 10-year. The compression of European sovereign rates is forcing global pension funds and insurance to buy U.S. 10-years even as the DOLLAR is not performing well. This is a relationship to watch as it can have a greater impact on the 5/30 curve as speculators are selling that which the central bank in Europe is not buying. This is a time to THINK before DO.
Tags: Brexit, Christine Lagarde, Dollar, ECB, Fed, Germany, Greece, IMF, Janet Yellen, Panama Papers, Troika, Wikileaks
April 4, 2016 at 9:24 pm |
The Panama Papers are extremely interesting. Especially with over 400 named Americans soon to surface. Little difference between the drug dealers and politicians.
As for Ms. Lagarde, I don’t believe the Bettencourt affair has been resolved where she was in cahoots with Sarkosky and payoffs.. And she is still under investigation for the Tapie bankruptcy affair. That one is really odious.
I will give Janet credit for at least not being morally bankrupt like the others. Confused, altruistic, in over head yes. What she doesn’t realize is her policies generate greater wealth for the scofflaws.
The question to be answered is what is a Panamanian law firm Mossack-Fonsecca doing with offices in Wyoming? Perhaps their biggest customer was former President Dick Cheney of Wyoming????
Just speculating, and sure hope he is sleeping well tonight.
April 5, 2016 at 9:27 am |
Frank–the common denominator in Mossack-Fonseca US locations is a combination of friendly State incorporation policies (particularly Nevada) and zero income tax. Cheney, whatever one might think of him, is a Wyoming native. As for nefarious Davos type tax avoiding personalities inhabiting Wyoming, look to the Jackson Hole Valley. My guess is very few newcomers are anything more than novice horsemen.
April 5, 2016 at 2:18 am |
The Panama papers prove my point – the joint highest paid person in any large company (alongside probably the CEO) should be ‘Head of Digital/Computer security’.
Most companies these days are as insecure as an open prison and most will be paying the head of digital security about $100k-$300k. They are worth 5-10 times more. Look at the damage that can be caused? Millions in lost revenue and millions in damages to reputation.
If anyone reading is looking to do offshore business, one question to ask the firm is how much the head of digital security is paid and even his/her background. Then work out if the firm is worth doing business with. That’s a great litmus test.
The CEOs of the world haven’t worked out yet just how critical digital security is. They will in time.
Having said all of that, if security is generally so weak the NSA/GCHQ and all the others know EVERYTHING. Right now their computers are hoovering up everything whether that be your 8 year old daughter’s chat logs or your lawyers/accountants databases. And that always leads me to ask one question – why is there still a mob? Why are the drug cartels not smashed? If they know everything putting a stop would be relatively easy, especially in US Federal court (about the same chance of beating the rap as in one of Stalin’s trials)? Could it be that ‘they’ don’t want them to stop? Could money/power as usual be the clue?
April 6, 2016 at 6:52 am |
I suspect “the mob” we fondly remember from movies has been put out of business by bigger entities with political connections. In the present system we wrongly call capitalism, everything becomes an oligopoly and ultimately a monopoly. Some capitalism!
April 5, 2016 at 2:29 am |
The Capitalist markets through much of history since Adam Smith have dealt with excesses by self-correcting. While this has led to occasional panics, these were resolved within a relatively short period of time and were followed by normally functioning markets. The panic of 1907 led 6 years later to the creation of the Federal Reserve. As time went on, the Fed had felt that their interference in markets could smooth out the cyclicality that was experienced. Since 1987 the Fed has seen its role increasing beyond its stated mandates, with the creation of the President’s Working Group on Financial Markets, where Greenspan had a major role. He was succeeded by Bernanke and now Yellin playing an escalating role, leading to the present where markets no longer are totally free. Taxpayers bailed out the Too Big to Fail banks 7 years ago with none of the leading protagonists of the housing bust getting any punishment. The role of the credit markets, equity valuations and precious metals had always played major roles in giving the investor telltale signs, both technically and fundamentally. Now you have the Central Banks totally involved with interventions distorting their proper roles. Lord Acton once again is proven right in his dictum of absolute power corrupting absolutely, and the Panama Papers is only the latest of this manifestation. Smiths Invisible Hand has been usurped by the financial elites as they pick the pockets of the naïve taxpayers and market participants. The negative consequences for our society and economic structure will be of major proportions.
Will Bernie Sanders be too old to run in 2020?
April 5, 2016 at 2:44 am |
Populism and Panama Papers are in tune with contemporary sentiment: the fundamental disconnect between global elites and the rest, for whom taxes are as certain as death. Benjamin Franklin
April 5, 2016 at 10:48 am |
Atlanta FED GDP growth in 4th Q was 0.4%, woo-hoo let’s party like it’s 2007!
April 5, 2016 at 12:39 pm |
Yra,
Wonderful weave of Panama and Okun; leaky buckets indeed! Perhaps (not so) ironic, is the reminder that Okun also takes credit for the “misery index”, that lovely sum of inflation + unemployment that we all used to curse back in the “bad old days”. Now with full-throttle central banks, no growth to show for it, and inflation everywhere BUT the way it is measured “officially”, I look forward to the recycled use of the word “stagflation”.
As Apple says about iPhone 6S, “Inventing the Future: Everything Old is New Again”
God bless us everyone, We’re a broken people living under loaded gun. (“The Catalyst”, by Linkin Park)
April 5, 2016 at 2:31 pm |
SEE response below
April 5, 2016 at 2:30 pm |
Prof Waspi—the initial rumblings of stagflation is y exact reason for dusting off Inequality and Efficiency—I know the modelers are crying STAGFLATION but I am in Yellen’s NEHRU camp
April 6, 2016 at 8:02 pm |
Yra-Bveing in the NEHRU camp which is data dependent, don’t you ever feel like Charlie Brown when Lucy (Janet) pulls the football away again when the data points are reached?
April 5, 2016 at 4:31 pm |
The hawks are relentless, seems they want/need a cleansing.
April 5, 2016 at 8:01 pm |
It seems some heavy construction firms are rolling over, must’ve gotten ahead of themselves.
April 6, 2016 at 1:03 pm |
chicken–these are giant companies and the recent run was so fast it needs to consolidate
April 7, 2016 at 10:06 am
What’s likely to happen when/if the debt clock skips a beat, I guess we see a huge dip and that’s when Congress agrees to divert some money from defense contractors making stuff nobody ever sees toward infrastructure that’s been neglected.
We have some beautiful drones to handle the mess we created in the ME, meanwhile stuff we really need has been on “hold”.
Thus shouldn’t it be about time for another reshuffling of fortunes led by chaos and confusion?
April 6, 2016 at 1:06 pm |
Moonshot for the Yen, amazing.