IRS Investigations: Using Regulations to Persecute Political Foes

I recently pointed out that arbitrary regulations, like electoral liquor ban in the Philippines, can be used to harass the political opposition. 

In the US, the tax agency the IRS will reportedly be investigated for allegedly employing the said maneuver.

According to John Samples at the Cato Blog

Last Friday, a spokeswoman for the Internal Revenue Service (IRS) admitted the agency had targeted various Tea Party and related groups during the 2010 election cycle. Later in the week, an Inspector General’s report will offer an initial look at the facts of this matter. At least two congressional committees also plan investigations. 

Many people recall that the Nixon administration used the IRS to harass political opponents. Surely the IG’s report and subsequent investigations will show whether the IRS has gotten back into the business of protecting an incumbent administration from its critics.

It is not too soon, however, to recall the the campaign finance reform lobby has been calling for a crackdown on political groups since the Citizens United decision. One possibility would be that the IRS gave in pressure from the reform lobby and went after the Tea Party groups.

Was there an intention to chill speech? The timing provokes doubts: the targeting began in the spring of 2010 just as the mid-term campaign season started and ended after the election when the harassment no longer has any rationale. The long delays of approving tax status certainly slowed down the wave coming toward Congress in 2010. 66 House members lost their seats in that election. Do any sitting members owe their offices to the IRS?

Attaining social “equality” must mean equality before the law via the rule of law rather than from arbitrary edicts which picks winners and losers that engenders unintended consequences.

A timely reminder from the great Austrian economist F. A. Hayek once wrote, (bold mine)

It is the rule of law, in the sense of the rule of formal law, the absence of legal privileges of particular people designated by authority, which safeguards that equality before the law which is the opposite of arbitrary government.

A necessary, and only apparently paradoxical, result of this is that formal equality before the law is in conflict, and in fact incompatible, with any activity of the government deliberately aiming at material or substantive equality of different people, and that any policy aiming directly at a substantive ideal of distributive justice must lead to the destruction of the rule of law. To produce the same result for different people, it is necessary to treat them differently. It cannot be denied that the rule of law produces economic inequality - all that can be claimed for it is that this inequality is not designed to affect particular people in a particular way.

It may even be said that for the rule of law to be effective it is more important that there should be a rule applied always without exceptions than what this rule is.... It does not matter whether we all drive on the left- or on the right-hand side of the road so long as we all do the same. The important thing is that the rule enables us to predict other people’s behavior correctly, and this requires that it should apply to all cases - even if in a particular instance we feel it to be unjust.

Wall Street Paper Gold Posts Record Short Position

The attack on gold by Paper money Wall Street gold persists at a relentless pace.

We find that speculator shorts are at record highs

Writes the Zero Hedge: (italics and bold original)

Premia for gold bars (physical over paper) rallied to their highest since late-2008 according to SocGen, even as 'professional' investors look to position the exact other way. The combined short positions of futures and options speculators in COMEX gold is now at a record high for the third week (having surged from 4.3 million ounces in late September to a a stunning 13.9 million ounces short now. At the same time, Gold ETFs have only seen one in-flow day in the last 34 days. It seems investors are well-and-truly on one side of this boat - even as price continues to buck the supposed structural weakness.

COMEX Gross Short positions...

ETF Holdings...

but price is now ignoring the flows (despite the protestations of some in the media)...

The Zero hedge earlier pointed to more signs of massive draining of inventory by JP Morgan at the Comex.

Finally the Zero Hedge quotes Society General’s research (bold original) 

Shortage of metal drives premium higher as customers told to wait for delivery

While many professional investors looked to exit the market, the opposite response in the physical market to this recent price fall has also been dramatic. The price drop ignited a buying frenzy in Asia and other parts of the world, leading to a shortage of gold bars and coins in Hong Kong, Singapore and Tokyo, and helped the metal stage a rebound. The sudden demand surge caught many traders off guard and sent premia for the yellow metal soaring….

While investment bar and coin premia has eased from the frantic highs, they remain at elevated levels in several markets, with robust demand surging at every retracement in price. Mints and refineries continue to struggle to deliver supply chain orders with up to a one-month wait for delivery. For now though, there appears to be a growing disconnect between paper and real gold.

The tensions between real physical gold and Wall Street gold have been intensifying. Wall Street keeps draining its gold inventories, but physical gold markets remain great robust.  One is about to give. We will see soon which gold market eventually will dominate.

UN’s FAO on World Hunger: Let them eat insects

Many nasty side effects of inflationism has not only been to reduce the quality of products and services (value deflation) as well as to promote fraud, for instance in food (rat meat, horse scandal) but has also prompted policymakers to desperately scamper for solutions based on absurd premises. 

From the BBC.com (hat tip Zero Hedge)

Eating more insects could help fight world hunger, according to a new UN report.

The report by the UN Food and Agriculture Organization says that eating insects could help boost nutrition and reduce pollution.

It notes than over 2 billion people worldwide already supplement their diet with insects.

However it admits that "consumer disgust" remains a large barrier in many Western countries.

Wasps, beetles and other insects are currently "underutilised" as food for people and livestock, the report says. Insect farming is "one of the many ways to address food and feed security".

Remember these multilateral institutions are taxpayer funded. This means that such bureaucracies have been benefiting from wealth transfers (taxpayers to bureaucrats) which should have been redirected instead to “hunger”.

Yet in order to sustain their privileges, they recommend bizarre elixirs instead of promoting real market based reforms. Such is an example of ‘social justice’ based on central planning.

The UN and her subsidiary the FAO should set an example.  UN-FAO leaders should require all their employees to have insects as part of their daily fare.

The last time a political leader allegedly declared sarcastically “let them cake”…such led to a bloody revolution.

Inflationary Boom: US IPOs Best Since 2007

IPOs function as a very useful sentiment indicator. When stock markets boom, IPOs tend to follow.

Referring to the US, a few weeks back, I wrote 

If US stocks continue with its record breaking streak, then we should also expect IPO activities to follow.

Nonetheless IPOs can also serve as beacon to important inflection points of stock markets.

Well here it is; IPOs have been ramping up as expected.

From the Marketwatch.com

U.S. companies are on track to raise the most money through initial public offerings since before the financial crisis, driven by the same thirst for risk among investors that has pushed the stock market to new highs.

Already this year, 64 U.S.-listed public offerings have raised $16.8 billion, according to Dealogic. In the same period in 2012, the biggest year in dollars since the financial crisis, 73 companies raised a total of $13.1 billion. Last week alone brought 11 U.S.-listed IPOs, making it the busiest week for such deals since December 2007.

A more robust IPO market is seen as a potential boon for the economy because it allows companies to raise money that can be used to reduce debt or invest in their businesses. Sellers of stock such as private-equity or venture-capital firms can trim or shed their current holdings, return money to their investors, such as pension funds, and turn their attention to new investments.

Behind this year’s pace is an ebbing of the wild price swings that had been a dominant feature of the stock market since the financial crisis, according to investors, companies and bankers. Instead, stocks have been on a steady grind higher. As markets reach new records, investors are taking chances on shares of new public companies.

IPOs again serve as sentiment indicators or as symptoms rather than THE cause. Expansionary risk appetite function as symptoms of the psychological “bandwagon” effect that are principally driven by price signals. 

On the other hand, current price signals have been heavily influenced by social policies. Thus social policies have produced a boom bust cycle that has been manifested in IPOs

Notice that US IPOs set a record, or boomed, prior to the technology or the dot.com bust. 

Following the bust, US markets went into a hibernation (or consolidation) phase for more than a decade and only broke out recently. The quasi-stock market boom during 2003-2007 only had a tepid response in the IPO market.

Today, milestone highs in US markets have rapidly been attracting companies to go public, and on the opposite end, for the yield chasers to finance them.

The mainstream sees “This time is different” or "Not a déjà vu" to justify the continuation of the IPO winning streak.

The USA today for instance declares that current levels are YET far off the 2000 highs, there are better fundamentals underpinning IPOs, today has a different marketplace where large institutional investors rather than the retail market have been the source of demand, current IPOs  have been subject to heavy discounting and less reliance on a single industry.

If one would have used these argument prior to the peak in 2007, then IPO financiers would have been the greater fool.

The reality is that today’s stock markets have hardly been driven by fantastic fundamentals but by a mania—yield chasing frenzy driven by debt. Yes fundamentals have also been rendered opaque by zero bound rates and QEs.

Like all zeniths in the US stock markets, they all have been accompanied by ballooning Margin debt.

And while there are hardly any definite threshold levels for an inflection point, current levels of margin debt suggests that US equities markets have reached a very fragile state vulnerable to a meaningful downturn. (chart from Bloomberg)

Of course much will depend on actions by the US Federal Reserve when volatility emerges. Will the FED destroy the US dollar to send US equities to the sky?

People have frenetically been reaching out for yields such that the markets have been paying high yield or “junk bonds” at the closest spread ever to “risk free” US treasuries.

In using the Merrill Lynch High Yield (Junk) Master Index as gauge against US sovereign bonds, the Bespoke Invest observes that,

At a current level of 5.24%, investors have never been paid less to own high yield debt.  Yields are so low, in fact, that five years ago the yield on the 10-Year US Treasury was higher than the current yield on junk bonds.  In the chart, the red dots on the blue line represent periods going back to 2000 where the yield on the 10-year US Treasury was higher than the current yield on the High Yield Master Index.  With yields this low, high yield bonds are anything but high yielding.

Risk doesn’t seem to exist anymore. Markets have been jaded and has essentially lost its function as discounting mechanisms. Yield chasing have become the ultimate drivers.

Ah but…

Booming US stock markets are beginning to put pressure on interest rates. Yields from government bonds, particularly 1 year (UST1Y), 5 years (FVX), 10 years (TNX) and 30 years (TYX) have markedly risen. If such a trend should continue, then there will be pressure not only on margin debt on US stocks, but also on all forms of debt that have been used as leverage to finance such mania.

As a final thought, I pointed out of the increasing interdependency between US stock markets and the bond markets, where much of the buybacks and dividends that has driven the markets to record heights have been financed by the latter. This means that a bear market or even just a prolonged selling pressure in bonds will also affect the stock market. 

We are living interesting times indeed.

Doing the Same Thing and Expecting Different Results: 511 Interest Cuts and Sluggish Economic Growth

I pointed out that global policy rates are at the lowest level ever. This was even added with yesterday’s  surprise cuts from 6 nations conducted over 24 hours.

The following Bloomberg article says that even after South Korea’s actions yesterday, which marked the 511th rate cut since 2007, the global economy continues to struggle:

Global central bankers are poised to ease monetary policy even further after a wave of interest-rate cuts from India to Poland.

As Group of Seven finance chiefs gather in the U.K. today with monetary policy on their agenda, economists at Morgan Stanley and Credit Suisse Group AG are among those predicting policy makers will keep deploying stimulus amid weak global growth, slowing inflation and the need to thwart currency gains…

South Korea’s rate cut yesterday was the 511th reduction worldwide since June 2007, according to Bank of America Corp.’s tally, done before Vietnam and Sri Lanka today said they’re lowering their policy rates. While the liquidity has sent stock markets surging, it has yet to prove as effective in generating economic growth.

So far the main effects of all these cuts has been to boost asset prices. From the same article:

Equities are rallying amid the easy monetary policy. The Standard & Poor’s 500 Index (SPX) set a record level this week and the Dow Jones Industrial Average last week climbed to 15,000 for the first time. In Europe, stocks have also risen and even the yields on the 10-year notes of crisis-torn Greece have slipped below 10 percent.

511th cut has done little to the global economy:

Behind the stepped-up stimulus: Another swoon in the global economy barely five years after it fell into its deepest recession since World War II. A Citigroup Inc. gauge shows economic data in major economies began coming in below forecasts in the middle of March and the index is now near its weakest since last August.

Central bank actions have been filling in, in lieu of the government

Maxed-out budgets mean governments are also struggling to aid their economies, with those in Europe having to ease their austerity drive. U.S. Treasury Secretary Jacob J. Lew will tell the G-7 that nations should focus on spurring domestic demand, according to a Treasury official.

Some observations:

Central bankers don’t seem to understand that in economics there is such a thing called the law of diminishing returns.

Central bankers have been pushing for the same debt based consumption growth model even when most of the world has now been satiated with debt.

Central bankers from most countries appear to have synchronized their actions. In short everyone seems as doing the same thing or singing the same tune.

Central bank policies serially blow asset bubbles. 

Price distortions in the real economy from central bank policies and from other financial repression measures as well as other interventions reduce incentives for productive activities. 

On the other hand, central bank’s cheap money AND guarantees (explicit and implicit) on the financial markets encourage rampant speculations, thus driving up unsustainable bubbles.

So money shifts to speculation on financial markets rather than on investments. Thus the parallel universe: booming financial markets amidst near stagnant economies.

Yet bubbles from zero bound rates will reduce savings and capital accumulation. Such diminishing growth will impel for more easing.

This means that central banks will keep pushing zero bound rates and asset buying programs to the limits.

Central bankers have come to believe that a new order exists. The new paradigm: Sustained credit and money expansion under today’s modern central banking will have little effects on price inflation. So there are no limits for inflationism. Because of this policymaking nirvana, they have even hailed as Superheroes and demigods by media.

Central banks don’t realize of the micro effects of their policies, particularly that each bursting of the bubble shrinks the real economy and makes them vulnerable to price inflation. The coming crisis will likely reveal more signs of this.

So central bank policies will keep inflating on more asset bubbles that will become systemically bigger until the system cracks.

Central banking bureaucracy have assumed political supremacy over the elected governments through the intensification of monetization of government debts.

As Chicago University John Cochrane aptly notes: (italics original)

Modern financial systems are fine. Modern political systems have abandoned rule of law in favor of a monarchic rule by discretion of appointed bureaucrats. That is incompatible with any financial system.

Since actions of governments of crisis stricken nations have partly been shackled from too much debt, the next phase will not only be central bank easing but will soon include direct confiscation of savings (pensions and depositors).

Media doesn’t seem to recognize that all these signify as doing the same thing over and over again and expecting different results.

The lesson from the above: People believe in insanity and in lies.

Election Promises are Mostly About Spending Other People’s Money

To all the voters out there. Be reminded that there is nothing called as a “free lunch”. Every scarce resources expended or consumed will have to be worked and paid for. What always seems free, someone will have to shoulder the cost.

Elections have mostly been predicated on promises, particularly noble sounding promises backed by the spending of other people’s money.

It’s important for the public to know and understand of the behavioral difference of how money is spent.

The distinguished free market economist Milton Friedman explains in the following video

Yet the easiest thing to do is to spend other’s peoples money. That's the expertise of political agents. But there will always be a price paid for this.

The following quote from the legendary investor Jim Rogers on the Fed’s policies embodies such dynamic:

If You Give Me A Trillion Dollars I'll Show You A Good Time

War on 3D Printed Guns: US Government Censors 3D Blueprints

Here is what I earlier wrote

With the proliferation of 3D printed guns, the next step governments will likely take is to regulate 3D.

As predicted, the US government forced a takedown of 3D gun blueprints

From the Forbes:

The battle for control of dangerous digital shapes may have just begun.

On Thursday, Defense Distributed founder Cody Wilson received a letter from the State Department Office of Defense Trade Controls Compliance demanding that he take down the online blueprints for the 3D-printable “Liberator” handgun that his group released Monday, along with nine other 3D-printable firearms components hosted on the group’s website Defcad.org. The government says it wants to review the files for compliance with arms export control laws known as the International Traffic in Arms Regulations, or ITAR. By uploading the weapons files to the Internet and allowing them to be downloaded abroad, the letter implies Wilson’s high-tech gun group may have violated those export controls.

“Until the Department provides Defense Distributed with final [commodity jurisdiction] determinations, Defense Distributed should treat the above technical data as ITAR-controlled,” reads the letter, referring to a list of ten CAD files hosted on Defcad that include the 3D-printable gun, silencers, sights and other pieces. “This means that all data should be removed from public acces immediately. Defense Distributed should review the remainder of the data made public on its website to determine whether any other data may be similarly controlled and proceed according to ITAR requirements.”

Unfortunately for the US government, the markets have already anticipated such a move. There has been more than 100,000 downloads of the blueprint prior to the takedown.

Again from the same article:

Wilson, a law student at the University of Texas in Austin, says that Defense Distributed will in fact take down its files until the State Department has completed its review. “We have to comply,” he says. “All such data should be removed from public access, the letter says. That might be an impossible standard. But we’ll do our part to remove it from our servers.”

As Wilson hints, that doesn’t mean the government has successfully censored the 3D-printable gun. While Defense Distributed says it will take down the gun’s printable file from Defcad.org, its downloads–100,000 in just the first two days the file was online–were actually being served by Mega, the New Zealand-based storage service created by ex-hacker entrepreneur Kim Dotcom, an outspoken U.S. government critic. It’s not clear whether the file will be taken off Mega’s servers, where it may remain available for download. The blueprint for the gun and other Defense Distributed firearm components have also been uploaded several times to the Pirate Bay, the censorship-resistant filesharing site.

So the US government will have to extend its censorship to cover New Zealand based Mega and Pirate Bay.

But since the technology is already out, this will find various ways to spread. Thus the US government will have their hands full in instituting controls.

The cat and mouse chase between marketplace and regulators on the 3D technology has began.

Mao’s Grand Daughter’s Great Leap to Wealth

Mao Zedong’s grand daughter Kong Dongmei has acquired massive wealth in part by selling Grand Dad’s communism

From the Telegraph:

The granddaughter of Mao Zedong has been ranked on a list of China’s richest people, with a personal wealth of £525million.

Kong Dongmei, 41, has been accused of hypocrisy after placing 242nd on the list alongside her husband - quite a feat in a country with a population of nearly 1.4billion.

Ms Kong, the daughter of Li Min, Mao's only surviving child with his third wife He Zizhen, is believed to have made part of her fortune from selling publications about her famous grandfather.

Ms Kong married insurance company boss Chen Dongsheng, in 2011 after a 15-year extramarital affair, according to Chinese financial magazine New Fortune which published the rich list.

After obtaining a masters degree at U.S. University of Pennsylvania, Kong returned to China and opened up her own bookstore in Beijing in 2001, set up to promote ‘New Red Culture’.

Wealth, and perhaps political clout, also translates to special privileges. From the same article:

Kong and her husband is also said to have three children, a son and two daughters, a violation of China’s one-child policy.

Kong's inclusion on the rich list triggered hot debate on Weibo - China's version of Twitter, with some accusing her of betraying her grandfather's status as the ‘great teacher of proletariat revolution’.

‘The offspring of Chairman Mao, who led us to eradicate private ownership, married a capitalist and violated the family planning policy to give birth to three illegal children,’ wrote Luo Chongmin, a government adviser in southwest China.

China has implemented the one-child policy for many urban residents for over 30 years, although there have been recent suggestions that the rules may be loosened.

‘Did Kong Dongmei ... pay any fines after being a mistress for more than 10 years and giving birth to three kids?’ asked another user with the online handle Virtual Liangshao.

But others argued that the millions were actually her husband's, who made his fortune before they were married.

Well Mao's Grand daughter's "great leap forward' to wealth epitomizes the universal essence of politics: "do what I say, but not as I do". Smoke and mirrors.

Why I Will Not Vote; Liquor Ban and No Stock Market Commentary

I will not participate or risk my life and limb or spend scarce time, effort, and resources in the selection process of so-called political leaders, undergirded by a political system that legitimizes the systematic picking of people’s pockets and the progressive curtailment of liberty through organized institutional violence under the guise of the ‘social justice’ sham

I will also not partake on the delusion where individuals have been programmed to believe that they are primarily members of the collective, which the individual is subordinate to, and that people have control over such leaders. In reality, such elections serve no more than a spectator sport or the race to bottom to manipulate the electorate with freedom constricting, “free lunches” tomfoolery themes in order to justify their assumption to office. This quasi mob rule (either by majority or plurality) selection process, of course, serves as the foundation to the system’s legitimacy.

Such pretentious virtues can already be seen via the election liquor ban regulation. The edict logically implies that election violence is a direct result of alcoholic intoxication rather than of mainly impassioned electoral competition (among the other many but trivial or coincidental factors). The ban essentially lumps two different variables into one, which is a logical absurdity. Electoral violence will happen with or without alcohol.

The Supreme Court struck down the administration’s extension of such ban. Yet such arbitrary regulations reveals of the priorities of those in power that gives preference to the political—the coercive picking of the pocket of Juan to give or transfer some of Juan’s money to Pedro, as the chosen political leaders keep the rest of the booty for themselves—rather than to the socio-economic system. More signs why today’s economic boom has been a paper tiger.

Of course, every arbitrary rule has beneficiaries. Aside from politicians, the tourism industry is exempted from such prohibition, thus the ban signifies an implicit subsidy to the latter. So there will be a boom in tourism and tourism related establishments at the expense of the sari-sari stores, carinderias, bars, and etc.., where the latter group will theoretically bear the brunt in terms of lost incomes. See how arbitrary rules promote inequality? Under the whims of political agents, those politically blessed get the benefits while the rest are left stuck in a rut. That’s “social justice” for you.

On the other hand, affected consumers, like me, will be displeased as prohibition takes away our satisfactions, and most importantly, limits our freedom of choice.

Also the people who will patronize prohibition exempted tourist and tourist related establishments are most likely the well off. So the “haves” can publicly swill on alcohol while the “non-haves” cannot. Thus prohibition statutes essentially discriminate against the lower segments of the society, which ironically and duplicitously, such supposed “virtuous” institutions proclaim to protect.

Worst, repressive prohibition fiats are imposed on us by people who pretend to know what is best for us. In reality, political paternalism represents a charade which has been used as an excuse to pick on our pockets and expand political control over our actions. As an old saw goes, the road to hell is paved with good intentions.

But the good thing is that because the domestic posse (dictionary.com: a body or force armed with legal authority) will be concentrating much of their efforts in the monitoring of electoral grounds or voting precincts, this means the prohibition will likely be infringed upon or would generally be toothless, but with exceptions. 

As an aside, this doesn’t mean that banned establishments will be serving alcohol but rather transactions will be done underground.

The exclusion is that the liquor ban policies can be or will be used selectively as strong-arm or harassment tactic against political foes.

This can also be used by authorities as pretext to mulct on the hapless consumer which is a source of corruption

In other words, such skewed, unfair and immoral legal restrictions, aside from heated political competition, incentivize electoral violence regardless of the presence of alcohol.

All these reveals how arbitrary statutes debauch on society’s moral fiber. These are things the public does not see and which the political class and media will not tell you. Economics function as a fundamental pillar of ethics.

In view of the senselessness of “feel good” politics, I will take this opportunity to spend precious moments with my family this extended weekend. Thus I will not be publishing my weekly stock market commentary and may limit my blogging activities

And if you want to know more on why I wouldn’t vote, my favorite iconoclast comedian the late George Carlin explains two reasons which I share…

Thank you for your patronage.

Have a great and safe weekend

Yours in truth and in liberty

Benson

The government consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can't get and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time is made good by looting A to satisfy B. In other words, government is a broker in pillage, and every election is sort of an advance auction sale of stolen goods.  

-- H. L. Mencken

(1880-1956) American Journalist, Editor, Essayist, Linguist, Lexicographer, and Critic

Quote of the Day: Economics as Foundation of Ethics

Morality is not equivalent to advocating feel-good courses of action when something bad happens. Sure, we can and should be beneficent. It is good to help fire victims. But it is a good thing in the long run to understand economics. As Jean-Baptiste Say said: A good book on economics should be the first volume of a treatise on ethics.

This is from New York University’s Associate Professor of Economics Dr. Mario Rizzo discussing Hayek and the Bangladesh fire at the ThinkMarkets Blog

In Remembrance of Friedrich von Hayek’s 114th Birthday

This is really a belated commemoration: the great Austrian economist Friedrich von Hayek’s 114th birthday was yesterday May 8th!

Graphics from Tumblr on Friedrich von Hayek

Quote from the Road to Serfdom

More Central Banks Cut Interest Rate over the Last 24 Hours

Wow. Over the last 24 hours, since my last post, 6 central banks slashed interest rates which brings global policy rates to a new record low.

From the Central Bank News:

Global Monetary Policy Rates (GMPR) tumbled by 350 basis points in 24 hours as the central banks of Kenya, Australia, Belarus, Poland and Georgia cut key rates.

Following is the Global Interest Rate Monitor (GIRM) compiled by Central Bank News. The table shows the current average Global Monetary Policy Rate, total rate cuts year-to-date by the 90 central banks followed by Central Bank News plus total rate cuts for 2012 and 2011.

Has all these just been coincidences? 90 central banks cutting rates this first semester doesn't seem so. Surging stock markets and a risk ON environment suggest that everything is fine. But global central bankers seem as getting more and more anxious. Perhaps signs of growing desperation? Why?

Flying Cars are Now a Reality

Step aside Marty Mcfly**, flying cars are now a reality.

**fictional character from the Back to the Future Trilogy

From the Daily Mail (including Photos) (hat tip lewrockwell.com)

The first flying cars are set to go on sale to the public as early as 2015.

Terrafugia has announced its Transition design, which is part sedan, part private jet with two seats, four wheels and wings that fold up so it can be driven like a car, will be on sale in less than two years.

The Massachusetts-based firm has also unveiled plans for a TF-X model that will be small enough to fit in a garage, and won't need a runway to take off.

Pls read the rest here

One thing leads to another. The flying car technology will mean more variants. Not only are these products of the marketplace, they are signify the deepening transition to the information age.

Americans Are Ditching Citizenship in Record Numbers

While many aspire to become US citizens, most don’t realize that the gradualist transition of the US into a banana republic via the deepening of financial repression policies (via intensifying inflationism, taxations, various controls, mandates and etc…), the growing police state and the unwieldy welfare-warfare state has been prompting for a growing number of wealthy Americans to flee their land of birth. 

More have been joining the bandwagon personified by celebrity Tina Turner’s abandonment of what seems as a scuttling of the  former “land of the free” ship

From the Fortune Magazine:

Americans are ditching their U.S. passports in record numbers, a sign of growing frustration with a system that taxes U.S. citizens on their global wealth whether they live in Montana or Mongolia.

The latest bold-faced names to relinquish their U.S. citizenship include Mahmood Karzai, a brother of Hamid Karzai, the president of Afghanistan, according to federal data released Wednesday. Also on the list, published quarterly by the Internal Revenue Service, is Isabel Getty, the daughter of jet-setting socialite Pia Getty and Getty oil heir Christopher Getty.

In total, more than 670 U.S. passport holders gave up their citizenship -- and with it, their U.S. tax bills -- in the first three months of this year. That is the most in any quarter since the I.R.S. began publishing figures in 1998. And it is nearly three-quarters of the total number for all of 2012, a year in which the wealthy songwriter-socialite Denise Rich (christened "Lady Gatsby" by Yachtingmagazine) and Facebook co-founder Eduardo Saverin joined more than 932 other Americans in tossing their passports.

If the recent quarter's pace continues, 2013 will become a landmark year for saying goodbye to America, tax-wise.

Given the prohibitive costs from the exit tax which used to be an obstacle for emigration, the record number of Americans renouncing their citizenship means that the cost of residency has grown much bigger than the costs of the exit.

With productive capital fleeing, what remains in the US will be the political parasites. All these signifies as ominous signs for the US political economy, US financial markets and the US dollar standard. Again these are the side-effects of incumbent political trend as expressed via policies.

Bankers Warn US Federal Reserve of Bubbles in Farmlands and Student Loans, More Signs of US Asset Bubbles

Aside from record high stock markets underpinned by exploding net margin debt, there are many side-effects from the Fed’s bubble blowing policies.

Bankers themselves are now warning the US Federal Reserve of asset bubbles evident in farmland and in student loans

From Bloomberg:

A Federal Reserve (TREFTOTL) panel of bankers warned policy makers in February that record stimulus was pushing financial institutions to take on more credit risk and creating a “bubble” in the price of U.S. farmland.

“The margin pressures that the low-rate environment has put on financial institutions, coupled with dramatically increased compliance and other infrastructure costs, have caused many to seek higher returns by accepting greater interest-rate or credit risk,” the bankers said on Feb. 8, following a Federal Open Market Committee meeting on Jan. 29-30.

the farmland bubble chart courtesy of the Zero Hedge

More on the farmland bubble

The panel also said in February that farmland valuations posed an asset-price bubble caused by unusually low interest rates, echoing concerns expressed by Kansas City Fed President Esther George.

“Agricultural land prices are veering further from what makes sense,” according to minutes of the council’s Feb. 8 gathering. “Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”

The Fed pledged to hold the benchmark interest rate at zero until the unemployment rate falls to 6.5 percent, as long as inflation expectations don’t exceed 2.5 percent. The U.S. central bank has also engaged in three rounds of bond purchases, known as quantitative easing.

Data compiled by the regional Fed banks have documented a rapid run-up in farmland prices, particularly across the Midwest’s Corn Belt. The Kansas City Fed said irrigated cropland in its district rose 30 percent during 2012, while the Chicago Fed reported a 16 percent increase.

The panel of bankers is appointed by regional Fed banks and dates to the founding of the central bank in 1913. Bloomberg obtained minutes from the quarterly meetings from May 2011 until February.

Student loan bubble chart from the Zero Hedge

Now the student loan bubble

At a meeting in February 2012, the council said “growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis.”

Student lending shares features of the housing crisis including “significant growth of subsidized lending in pursuit of a social good,” in this case higher education instead of expanded home ownership, the council said.

Bubbles have been ballooning in many areas.

Corporate bonds has likewise been exploding.

From another Bloomberg article:

Sales of bonds from the U.S. to Europe and Asia exceeded 2012’s pace after offerings surged this month to at least $318 billion, compared with $205.3 billion in the similar period last year, Bloomberg data show. Issuance lagged last year’s pace during the first quarter, falling 7.6 percent behind a record $1.174 trillion in the first three months of 2012.

A lot of these bond issuance have been used as vehicles to buyback on stocks in response to tax policies and the cheap money environment that has led to the record levels.

This is why both the US bond markets and stock markets are becoming intertwined.

And more signs of the tightening relationship between stock market and bonds: the bond fund hybrids

From the Wall Street Journal

The number of bond funds that own stocks has surged to its highest point in at least 18 years, another sign that typically conservative investors are taking bigger risks to boost returns.

Regulators generally allow funds to hold a mix of assets, but the scale of bond funds' shift into stocks is unusual, fund experts said, and could expose investors to unexpected losses.

In all, 352 mutual funds that are classified by Morningstar Inc. as bond funds held stocks as of their last reporting date, up from 312 at the end of 2012 and 283 in the first quarter of 2012, according to the investment-research firm.

The rush into stocks illustrates the dilemma bond investors face. The bond market has rallied for much of the last 30 years, and yields, which move in the opposite direction of prices, stand near record lows.

Tightening interdependence of stocks and bonds makes both asset classes equally vulnerable to market shocks.

The deepening of inflationary boom has led credit swaps falling into 5 year lows which are signs of increasing complacency.

Collateralized debt obligations (CDOs) “bad boys of the financial crisis of 2008” according to the Wharton Knowledge, have also been making coming back.

There are many more signs of bubbles being blown. So it would be naïve or downright silly to suggest or proclaim that there has been “no-side effects” from Fed Policies.

Remember inflationary booms leads to deflationary bust. And a bust will likely spur the US Federal Reserve to double or more the $85 billion a month in bond purchases which may expand to include other assets. 

All these means two things: more bubbles or a currency collapse.