Advent of One World Currency?

Money  embodies an indissoluble bond of both dreams and reality and the abstract distributor of hope; a concrete means of controlling the lives of human beings and nations: From King Croesus in the Near East; Alexander the Great´s a single monetary system implementation in Greece, Asia Minor, Syria, Egypt, Babylonia and beyond, which was well organised into three metals (gold, silver and bronze) with coins of identical weight and type for people who were very different from one another, unification of Roman territories´systematic, profound well-organised central power control issuing denarii, aurei and sestertia in every corner of the vast Empire (Europe, Asia and Africa); Constantine´s Byzantine gold coins and under the Carolingian Empire, the European continent relaunch of a high Medieval European “single currency”, as we would label it today: the silver denier.

However, things changed as the geographical discoveries of the 15th century, influx of a large amount of precious metals to Europe, the opening of new mines, and more rational, modern exploitation of ancient metal veins, would soon lead to the radical transformation of the social and political fabric of Europe, whose financial and market centers attempted by all means possible to withstand the weight of competition that was increasingly tougher to face. To counter the lack of coins, existing credit systems were refined. Soon, bills of exchange became a safer instrument for bankers and merchants of the time. 

The world had changed dramatically issuance of the ducats by Italian cities (Florins, Genoese and gold zecchino coins, the undisputed lords of international trade). Charles V, produced a French gold currency, the écu au soleil or “Sun above the crown” during his reign. Consequently, seven nations united in an agreement of sorts which led them to issue “scudo” coins whose weight and alloy were very similar: France, Spain, Genoa, Venice, Florence, Rome and Naples. In essence, this heralded the first single international currency of the modern age. 

More than two centuries later, France again gave birth to a new currency, the Franco-Lira, with a centesimal subdivision, that would radically alter the monetary systems of the countries across Europe. From 1861 on, the Lira (divided into 100 cents) became the single currency of a unified Italy. Just a few years later, at a memorable session held on 23rd December 1865 in Paris, Italy, France, Switzerland and Belgium (later joined by Greece) signed an agreement which foresaw the adoption of a single currency, based on gold and silver divisions, which could circulate freely in the signatory countries, known as the Latin Monetary Union. 

This was considered to be the first step towards simplifying means of payment, something which could be delayed no longer in a world that was bound increasingly by common economic and trade interests. 

In 1871, the Confederation of Germanic States adopted the gold standard for its own monetary system. In 1873, Denmark signed a monetary agreement with Sweden which would later include Norway (in 1875). In 1892, Austria and Hungary also adopted a gold-standard monetary system.

Nonetheless, this too was abandoned in the 1930’s and 1940’s by all signatory countries: France, Belgium, the Netherlands, Switzerland, Poland and Italy, known as the “gold bar” countries. 

What modern nation states required was a new platform for exchange that respected national sovereignty. For today’s Europe, this platform is the Euro. 

History seems to repeat itself.

During the G8 meeting, Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a ‘united future world currency.’ According to the Bloomberg news service

Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

Will the utopia of a universal currency become reality? Certainly, the world is much more accepting of this due to its regional cooperation. I still have not formed my opinion on this and while I can see its advantages economically, it also poses a big haul in how we conduct our financial systems. I am not sure if I want a supranatural currency, but I would seriously consider having other global reserve currencies other than the US dollar for global economic stability.

Banks Hinting Repayment of Bailouts

Some of the world’s biggest banks hinted they wanted to repay government money: JP Morgan, Goldman Sachs and Morgan Stanley were reported to have applied to refund up to $45bn of US government funds from the Troubled Asset Relief Program. I am crossing my fingers for them. Pay back as soon as possible so I can breathe normal as capitalist again. 

Added to that, reports that the US government’s eagerly awaited ’stress tests’ for banks suggested bank capital shortfalls might be less than previously expected also buoyed the sector. JPMorgan chief executive Jamie Dimon said at a shareholder meeting last month that the bank aimed to repay US government funds imminently after receiving guidelines from the government. Read more…

 

22 Reasons Why Obama will Raise US Taxes

For Americans looking for change, they are about to feel it, after they of course wake up from denial. Debt may actually be the reason for the American Dream demise:America’s debt now exceeds the $50 trillion GDP of all economies in the entire world!

Paul B. Ferrell of Marketwatch laid down an updated list from what he did last year. We all know that whoever gets elected there is a massive debt that will be inherited from Bush. Obama adds another $1.84 Trillion with the current mortgages which is “four times Bush’s record deficit last year, with deficits over $500 billion annually for the next decade.”:

1. Federal budget deficits/debt

Federal debt is now $11.5 trillion. Add $1.4 trillion this year. That’s almost 100% of GDP.

2. Social Security unfunded debt

No longer a political “third rail,” we have no choice: We must raise taxes, or cut benefits.

3. Medicare unfunded obligations

Unfunded after 2016, $65 trillion by 2041, consuming 100% of tax revenues by 2075.

4. Health care insurance liabilities

Costs rising at double the inflation rate, 47 million uninsured. Obama plans universal coverage of this mega-$2.5 trillion business. Can we trust insurers sudden offer to help?

5. Military/defense budget costs

Budget $662 billion. Add veterans affairs, Afghan, Iraq: $1.45 trillion 55% of budget.

6. Homeland insecurity risks

Ports, chemical plants, borders at risk. Black Swans are lurking; with unpredictable mega-buck consequences.

7. Real estate/mortgage losses

Global real estate from $40 trillion to $70 trillion in 5 years. Total global wealth lost since 2007, $50 trillion. U.S. mortgages shot from $7 trillion to $14 trillion in 8 years, now down $6 trillion, with 20% of homes worth less than the mortgage.

8. Peak oil and energy alternatives

Oil’s soon declining. Extraction costs will exceed sale price. Nuclear energy cost: $75 trillion. Coal’s dirty. Wind, biofuels: costly.

9. Cap and trade

Taxing fossil-fuel emissions will increase energy costs. But it won’t change much. China won’t stop. So population grows, with demand and global warming.

Read more…

Obama Flipping Coin on US Economy

Recently, President Obama called for strict reform of international tax policies specifically directed towards corporations who have been accused of “shipping US jobs overseas” and curbing tax havens.

The U.S. itself is an Offshore Banking Center

Did you know that foreign investors now hold more than 55% of the publicly-held and-traded U.S. Treasury securities. Are you aware that foreigners investing in the United States earn tax free interest on bank CDs? These assets come to the U.S. for security, tax-free investment and privacy. 

Overseas wealth inflow now plays a critical role in the U.S. economy by bridging the gap between domestic supplies of capital and demand for it. In addition, any effort to share this information with other governments for their own tax purposes is illegal. It is true and by definition that fact makes the United States an offshore tax and banking haven. Isn´t this disingenious?

Highlights

Some of the highlights of Obama’s proposed international tax reform policy include:
•Raising corporate taxes by $210 billion to those companies earning a profit overseas
•Extracting more information from foreign banks on the U.S. customers
•Adding 800 more employees for the IRS to strictly focus on international tax enforcement

The response to this proposal remains to be seen. It is estimated the proposal will face considerable opposition in Congress; there has already been strict opposition from about 200 companies including Microsoft, General Electric and the U.S. Chamber of Commerce. 

According to Dr. Marty Regalia, Chief Economist at the US Chamber of Commerce, “Deferral has been mischaracterized as a “tax break” but is actually a vital mechanism providing relief for American businesses from double taxation. Regalia continues “Tax increases that hurt US companies’ global competitiveness hurts US workers here at home. A huge tax hike on US employers is not the way to stimulate our economy.” Furthermore:

“The United States is the only major industrialized country which double taxes the overseas earnings of our companies. Since other countries don’t subject their companies to double taxation, U.S. companies need deferral to stay competitive in the global marketplace.
 
“When you limit deferral, you limit the ability of U.S. companies to compete, you impede growth in the U.S. economy, and you cause the loss of jobs – both at the companies directly impacted and companies in their supply chains.

I am not advocating the outsourcing of US business to hurt American workers; however, in a global economy, large corporations must have an international presence to maintain a competitive edge in a capitalism-centered environment. 

As with every issue, there are two sides to this coin. At the end of the day, we pose a simple question: If U.S. companies’ taxes are raised by $210 billion, what is the likelihood they will move operations entirely to more favorable jurisdictions? As an entrepreneur and international company, I certainly will be thinking twice.

Indian Sugar Industry Dilemma

One of our subsidiaries, MJS Commodities specializes in various cash commodities such as sugar. Our current Indian partners within the sugar and basmati rice categories have been struggling with too many fluctuating governmental regulations that the Indian leaders impose. It has been quite difficult to get any business done. Let me shed a little light of what has been going on. According to ISO reports, world sugar production is at 161.527 mln tonnes. The report shows three major supply features of 2008/09: Significant production shortfall in India, a further contraction of production in the EU and a continuing expansion of sugar output in Brazil. The combined effect of output reductions in the EU and India is expected to shave off a massive 7.084 mln tonnes from world sugar supply, despite record high growth in sugar output in Brazil. So far, a lowering in forecasted production in India (from 23.9 mln tonnes projected in August to the current projection of 19.55 mln tonnes) has been neatly matched by a practically identical increase in Brazil (from 33.22 mln tonnes to 37.54 mln tones). Meanwhile, global consumption is forecasted to grow at the rate of 2.19% to 165.801 mln tonnes, raw value. World production is now expected to be 4.274 mln tonnes lower than world consumption as against 3.626 mln tonnes projected in November. Consequently, the statistical outlook for the market till the end of the season in September 2009 remains constructive and supportive to world market values. The ISO puts world export availability for 2008/09 at 49.608 mln tonnes, raw value, as against 46.25 mln tonnes in the previous crop cycle. Smaller output in importing countries and in India, in particular, is expected to trigger additional import demand which is estimated to reach 49.621 mln tonnes, up 3.673 mln tonnes. Indian Sugar output in the current sugar year 2008-09 is likely to plummet substantially as compared with the output in the previous few years. Current year’s estimate is now placed at around 15.5 million tonnes, 42% below the output achieved in the previous year 2007-08 at 26.3 million tonnes. Such a sharp decline in sugar production by 11 million tonnes in one single year, is unprecedented. This has happened mainly because the farmers seem to have lost interest in sugarcane planting in recent past due to lack of orderly disposal thereof. Indian sugar industry suffers from too many interventions by the authorities. Such interventions, lead to wide variations in sugar production. Wide fluctuations in sugarcane and sugar production in Indian condition have become a normal feature, mainly due to man made action. For, as opposed to this, if one looks around, the trends in other sugar producing countries, year to year variations are much too small – say in the range of around 5%, mainly influenced by weather condition. Clearly, Government policies relating to sugarcane, sugar and other competing crops have led to such large variations in India, thereby undermining larger interest of all concerned with the sugar sector – sugarcane farmers, industry as well as the consumers. The most vital factors are those of sugarcane and sugar prices. The Government of India announces the support prices of various crops including sugarcane. On the other hand, policies are framed by the Government to ensure as low a price for sugar as possible, based on very rigid parameters of costing. A look at the compendium of publications brought out by the Indian Sugar Mills Association, would reflect that too many regulations have been created by the authorities to regulate the sugarcane and sugar prices. Clearly, the policies adopted by the Government have failed to ensure a reasonable balance in sugar situation. The most important facet is that of sugarcane pricing. Like other crops, the Government of India notifies the minimum price payable for sugarcane. Fixation of such Statutory Minimum Price for sugarcane is done by the Government of India, many a times overlooking the recommendations of the Commission for Agricultural Costs and Prices, commonly known as CACP. The CACP makes exhaustive study of different crops while making its recommendation to the Government for various crops including sugarcane. While in the past, Government has been generally following the recommendation of the CACP, in recent past this trend has changed. For the year 2008-09, the CACP revised its recommendation for Statutory Minimum Price of sugarcane to Rs. 125/- per qtl. linked to the basic recovery of 9%. The Government, however, rejected this recommendation. For the year 2009-10, the CACP yet again recommended the same price of Rs. 125 per qtl. linked to basic recovery of 9%. No doubt, the increase suggested in the statutory minimum cane price in one go is rather sharp. However, the most important point is that the Government has not yet taken any decision on this important matter. On the other hand, Government have substantially increased the minimum prices for wheat, rice and other food crops. Naturally, in the absence of an appropriate revision of Statutory Minimum Price, a large gap persists with alternate crops. Already, as stated, Indian sugar output has suffered tremendously; so much so that the carry forward stocks from the previous season will be almost fully exhausted during the current year itself, to meet the consumption demand which is commonly assessed at the previous year’s level of say 22/22.5 milllion tonnes. To reverse the negative trends, it is imperative that the Government of India without any further delay notify the Statutory Minimum Price for sugarcane. Closely connected with this issue is the Government’s recent decision to impose stock limit on the sugar trade, though temporarily for a period of four months. Such restrictions lead to artificial decline in sugar prices. We fear that if the inconsistent policies continue, India may have to depend on import invariably, whereas the Government’s declared objective has always been to promote exports. The Government needs to give a fresh look to the sugarcane and sugar sector without delay. If growing demand for sugar in India has to be met, a proper sugar policy has to be implemented. The first and foremost requirement appears to be the withdrawal of the obligation placed by the Government on the sugar industry to supply 10% of its output as levy sugar at prices far below the actual cost of production and the open market prices. The levy sugar is distributed through the Public Distribution System channel to the B.P.L. population. Thus, while the sugar industry is forced to supply levy sugar, there is hardly any realization among the public that the subsidy on levy sugar is funded by the industry and not by the Government, as it happens in all other cases. Sugar is the only exception. If the current policy continues, India may turn into a regular large scale importer of sugar in the long run notwithstanding the sugar industry’s capability to meet adequately the country’s requirement of sugar and generate surpluses for exports.

53% of American adults believe capitalism is better than socialism

According to Rasmussen Reports:

53% of American adults believe capitalism is better than socialism,

20% believe socialism is better,

and 27% are undecided.

It is interesting to compare the new results to an earlier survey in which 70% of Americans prefer a free-market economy. The fact that a “free-market economy” attracts substantially more support than “capitalism” may suggest some skepticism about whether capitalism in the United States today relies on free markets.

Other survey data supports that notion. Rather than seeing large corporations as committed to free markets, two-out-of-three Americans believe that big government and big business often work together in ways that hurt consumers and investors.

Fifteen percent (15%) of Americans say they prefer a government-managed economy, similar to the 20% support for socialism. Just 14% believe the federal government would do a better job running auto companies, and even fewer believe government would do a better job running financial firms.

Most Americans today hold views that can generally be defined as populist while only seven percent (7%) share the elitist views of the Political Class.

IMF Report May Forecast $4 Trillion in Toxic Debt Worldwide

The Times of London reported on Tuesday that the International Monetary Fund is considering increasing its forecast of the amount of distressed debt on financial firms’ balance sheets worldwide to $4 trillion:

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF’s new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.

IMF Factsheet: Where the IMF Gets Its Money

The International Monetary Fund, which will be provided with nearly $1 trillion in additional resources under last week’s Group of 20 agreement, has published a fact sheet on its website explaining its quota system, drawing rights and borrowing arrangements.

Governments on Protectionism: Hypocrisy at its best

Pascal Lamy, the director-general of the World Trade Organization, has been warning political leaders around the world to refrain from responding to the global finance crisis by enacting protectionist measures that will only cause trade flows to shrink even further. 

On Jan. 26, Mr. Lamy circulated to the WTO’s 153 member countries a confidential 114-page report that documented unsettling ongoing efforts by various countries to close their borders to imports. While the Europeans (with new farm subsidies for cheese and dairy products) and Americans (with various “Buy American” provisions in the $787 billion economic-stimulus package) were the focus of much of the criticism, the report also singled out such Asian protectionist offenders as India, Indonesia and South Korea. This month, Mr. Lamy sent another “restricted” report to WTO members, which provide further documentations of the spreading global economic nationalism.

Mr. Lamy’s Jan. 26 confidential report noted that “India raised tariffs on some steel products and issued notifications restricting imports of some steel products in November 2008.” And in South Korea the WTO report observed that tariffs will triple on crude-oil imports, to 3% from 1%. Meanwhile Indonesia has issued orders specifying that “only five ports and certain international airports are to serve as entry points for certain imports, such as electronics, garments, toys, footwear, and food and beverages,” Mr. Lamy’s confidential report observed.

Asian officials, like their counterparts in Europe and the United States, all seem to think that protectionism is an evil economic practice that the other guys give in to. When India recently slapped on import curbs to keep Chinese-made toys out of the hands of Indian children, Trade Minister Nath earnestly explained that the “public interest” was at stake, and expressed pain at the suggestion that India would resort to “protectionism.” As for India’s raising tariffs on steel—competition from China is the main target—Mr. Nath claimed that China deserved the increased duties because the Middle Kingdom isn’t a real market economy. Meanwhile, while the Chinese have vigorously protested India’s protectionism, they have also been busy with new subsidies and trade barriers to protect Chinese exporters, including domestic steel producers. The Indonesians are also making moves to protect their domestic steel companies, complaining that Indonesian consumers prefer foreign steel because it is made from more advanced technology and is cheaper. Such assertions might be laughable in respected economic circles, but the top trade officials are skilled in uttering them with straight faces.

One has to marvel at the logic, if not the audacity. South Korea, with an annual per capita GDP of about $27,000 (compared to $1,500 for Bangladesh) is asking the WTO to pretend that Korea is basically a basket case. Mr. Lamy’s retort to this is not a matter of public record, but presumably the WTO head is aware that Korea is a member of the Organization for Economic Co-Operation and Development, along with other rich countries like France, Germany and the United States.

But then Japan is also asking that its uncompetitive rice farmers be treated as poor-country peasants in the Doha negotiations. In Tokyo, the definition of a free trader is anyone who would dare to be brave enough to suggest that the proper level for Japanese tariffs on imported rice should be “only” 400% and not twice that.

Another thing that Japan and Korea, along with many others, agree upon is that the “Buy American” provisions that are in U.S. President Barack Obama’s stimulus package are outrageous protectionism. Again, the hypocrisy-meter should be hitting the high decibels at this point. If Washington’s autarkic practices are deplorable, what about their Japanese and Korean copycats? Both Asian nations have also carved out special exemptions in the WTO to restrict foreigners from their governments’ major construction projects—big-ticket items including water, electricity, airports and urban transport. There is also a threshold of $22 million below which the Japanese and Koreans have the right to bar foreigners from contracts altogether. Meanwhile, other countries such as China that are now busy issuing press releases blasting the Buy American laws haven’t even been willing to sign on to the WTO’s government-procurement agreement at all—ensuring that in their own construction projects, it’s quite often a “Buy Chinese” business where foreigners are not welcome.

If there is any country where officials should recognize the vital importance of their assuming leadership by their own sound economic example, that would be the U.S., which is still the strongest economy in the world. But in Washington, the current wave of economic nationalism threatens to become a tsunami. From a free-trade perspective, the atmosphere in Rep. Nancy Pelosi’s House of Representatives is positively poisonous. Consider one “economic idea” that the venerable Rep. Charles Rangel, who chairs the powerful Ways and Means Committee with jurisdiction over trade and taxes, has come up with. Mr. Rangel is pushing a bill called the Trade Enforcement Act of 2009. “America’s trading partners don’t always live up to the commitments they make in trade agreements with the United States—and the Bush administration too often failed to insist that they do,” Mr. Rangel explained when he introduced the legislation. The measure would create an Office of Congressional Trade Enforcer, which would “investigate barriers to U.S. exports, develop complaints against foreign countries,” and pressure the Office of the U.S. Trade Representative (an arm of the White House) “to file cases” against the foreign cheaters—singling out China as a high priority for the suspicious U.S. congressional sleuths.

And while on the subject of American-style protectionism that makes no economic sense, consider the political position that the new occupant of the White House has put himself in. During last year’s presidential campaign, Barack Obama took out a radio advertisement in Milwaukee, Wisconsin, home of the iconic Harley-Davidson motorcycles, in which the Democratic candidate ridiculed Republican rival John McCain for refusing to say that there ought to be Buy American laws for motorcycles. Sounds good, especially to economically illiterate American voters. But how far would President Obama get if he hopped on one of those famous Fat Boys that didn’t have its Japanese-sourced carburetor in it? Or the tires, brakes, wheels, or the electronics that Harley-Davidson buys at the best prices and highest qualities it can find, whether domestic or foreign? Not to mention that Harley-Davidson makes significant profits from selling its Hogs around the world. Harley executives declined to be interviewed for their feelings on what would happen to their company if, say, the Chinese and Japanese refused to buy American motorcycles, in a tit-for-tat response to a Buy American favor for Harley. But they surely understand that Mr. Obama’s helpful economic advice would be ruinous.

When such absurdities are (painfully) pointed out to them, most trade officials, whether they are in Washington, New Delhi or Jakarta, say that their current protectionist moves are politically necessary and designed to do only “temporary” limited economic harm to global trade flows. The bad old days of 1930s-style rampant global protectionism, they contend, will never come back. But even if that turns out to be true, what’s going on now is very dangerous. In his January report to WTO members, Mr. Lamy cited a recent study that pointed to what would happen if all countries increased their applied tariffs to their highest legally permitted rates. If that happened, the report observed, “the average global rate of duty would double and the value of global trade would be cut by about 8%” That ought to frighten everyone.