Money And Change

At $21 Trillion, The National Debt Is Growing 36% Faster Than US Economy
Mon, 03/19/2018 - 20:40

Authored by Simon Black via SovereignMan.com,

Well, it happened again.

On Friday afternoon, the national debt of the United States hit another major milestone, soaring past $21 trillion for the first time ever.Clearly that is an enormous number… it’s actually larger than the size of the entire US economy, which is pretty incredible.

But what’s always been the more important story about America’s pile of debt is how rapidly it’s growing. For example, in the span of a SINGLE DAY, from Thursday to Friday, the national debt grew by $73 BILLION. In a day.To put that number in context, $73 billion is larger than the size of most major companies like General Motors, Ford, and Southwest Airlines.

And in the month of February alone, the national debt grew by an astounding $215 billion.
$215 billion is larger than the GDP of New Zealand. Greece. Oregon. More than twice the size of the GDP of New Mexico. Just in a single month.Most disturbingly, the national debt has grown by more than $1 TRILLION… just in the last SIX MONTHS.

I’m scratching my head right now wondering– where did they spend all that money? Was there a major economic crisis, wave of bank failures, or severe depression that required massive fiscal stimulus?

Nope. It was just business as usual.

Even better, the economy was supposedly doing totally awesome over the last six months.
And yet, even with all that positivity, the government still managed to rack up an extra trillion dollars in debt.

Amazing.

One important point to make is that debt growth is VASTLY outpacing GDP growth. And this is critical to understand.

Last year, for example, the US economy grew by 2.5% in ‘real’ terms, i.e. stripping out inflation.
Even if you include inflation in the calculation, the size of the US economy increased by 4.4%. Yet the national debt grew by 6%.

Now that might not seem like a big difference. But it is. On a proportional basis, the national debt expanded 36% faster than the US economy (even if you include inflation).
Over the course of several years, that effect compounds into something that’s quite nasty.
At the end of 2008, for example, the size of the US economy was $14.5 trillion. A decade later, the size of the economy is $19.7 trillion, 36% greater.

Yet over the past ten years, the national debt has grown from $9.4 trillion to over $21 trillion– a growth rate of 123%!

It’s really, really hard to pretend that this is good news.
But that doesn’t stop people from trying.

We’re constantly being told the same old nonsense that “the debt doesn’t matter” because we owe it to ourselves.

And, sure, it’s true that the US government owes a lot of this money to various institutions across America. Like Social Security. Or the US banking system. Or the Federal Reserve.
I find it difficult to see the good news here… as if it would somehow be beneficial to default on (and hence bankrupt) Social Security. Or the US banking system. Or the Federal Reserve.
Doing so would cause the most drastic financial cataclysm ever before seen in the United States.
So… yeah, the debt does matter.

Yet these major milestones are simply yawned off now, as if trillions of dollars in new debt is just par for the course. And that’s pretty sad.

Most people are in one of three camps when it comes to the debt.

#1: They ignore it altogether, and stick their heads in the sand (or up somewhere else).
#2: They acknowledge the debt, but tell themselves fairy tales that it doesn’t matter… or that the government is going to somehow ‘fix’ it. (which is ridiculous given that the government is the one causing the problem to begin with.)
#3: They view the situation rationally and understand that, maybe, just maybe, at some point in the future, there might possibly be some consequence to arise from the largest debt pile that has ever been accumulated in the history of the world… and they make sensible preparations just in case.

Peak Gold Has Arrived

Authored by Alex Deluce via GoldTelegraph.com,

Following the recent market crash, investors lost $5.2 trillion worldwide before the market managed to recover most of the losses. There are hints that certain bubbles are ready to burst as the worlds biggest hedge fund positions accordingly.

In addition to the stock market, the global gold supply is weakening, leaving investors anticipating higher prices. In 2017, the gold supply plummeted the most since any year since 2008. If the supply of gold is really plateauing, experts are predicting a 'peak gold' period.

China, the world larger miner of gold, produced 453 tons of the metal in 2016. In 2017, China’s production fell by 9 percent. If production of gold continues to fall, a rise in global demand is a certainty. The demand will come from investors and centrals banks unwilling to rely on the dubious strength of the US dollar.

The Chinese are enjoying a boon economy, and the newly rich who can afford it are looking to buy physical gold in an effort to protect their wealth. China supplies its gold only domestically and does not export the metal. If China’s domestic gold supply is depleting, it will certain seek to buy gold elsewhere. Part of Chinese economic plan is to potentially reduce the global dominance of the dollar with the yuan.

The US dollar has dominated the global currency market for over 40 years. China, and Russia are actively increasing their gold reserves, which could lead to both economic and political uncertainties as more countries begin to dump US Treasuries. Both Russia and China are planning to use gold-backed currency as payment when trading with each other. This makes gold a critical commodity for both countries.

China might import gold to meet its own demand. But the available supply of gold is finite. During the past 15 years, global gold deposits have become depleted, and replacement deposits are becoming rarer each year.
 
World Gold Council Chairman Randall Oliphant has indicated that global gold production may have reached its peak. The time may come soon when the supply is not expected to meet the demand. The price of gold usually rises during times of economic slowdowns. How will the global financial market react when the supply of gold is running low and gold becomes an even rarer commodity?

China is not the only country producing less gold. South African and Australian gold deposits are showing signs of becoming depleted. The cost of exploring for new gold has become cost prohibitive and viable deposits are becoming more difficult to reach.

The potential of a worldwide shortage is good news for investors. Even as mines become exhausted, gold as a commodity will still exist. Gold differs from oil, which, once used up, is physically gone.

But gold mining and exploration will become more costly. For over 130 years, massive gold deposits were discovered in a number of countries. Gold has been easy to access and produce. During the late 20th century, some mines were producing as much as 50 million ounces of year a year. In the 21st century, mines producing 50 million or even 30 million ounces of gold no longer exist. Gold exploration is down to a few discoveries producing 15 million ounces annually.

The price of gold has fallen steadily since 2012. Mining companies are unable to fund new explorations. The time between gold discovery and active mining spans an average of seven years. This is a considerable time span between the exhaustion of old mines and the mining of new ones. And mining companies will find it difficult to bear the expense.

Once productive and seemingly endless gold deposits are depleting quickly. Forty percent of all the gold mined throughout history has come from the Witwatersrand Basin in South Africa. During the 1970s, an excess of 1,000 metric ton of gold was mined each year. In 2017, Witwatersrand Basin’s gold production fell 83 percent compared to 1970, down to 167.1 tons.

Until that happens, the supply of gold will remain low and the demand will rise. This means that in the near future, this could serve as a major catalyst moving forward.

From Switzerland To Singapore: The World's Top Tax Havens 

Thu, 03/15/2018 - 03:30

 Authored by Charles Benavidez via SafeHaven.com,

The UK-based Tax Justice Network’s new Financial Secrecy Index estimates that the ultra-wealthy are hiding up to $32 trillion in tax havens around the world, and while Switzerland gets the top spot on the new list, the U.S. is a not-so-distant second.

Not even major global scandals such as the Panama and Paradise papers have been able to slow the rise of the bigger and better tax havens, as global industry growth has billion-dollar asset owners looking for the ultimate haven to stow away gains.

These are the top 10 tax havens in 2018, according to FSI:

#1 Switzerland

Switzerland, a global leader in asset management cornering 28 percent of the market share, is holding an estimated $6.5 trillion, more than half of which comes from abroad.
The attraction is a low tax base coupled with a top-notch banking system.
Switzerland is the ‘grandfather’ of global tax havens, and the world leader in cross-border asset management.

As FSI notes: “…the Swiss will exchange information with rich countries if they have to, but will continue offering citizens of poorer countries the opportunity to evade their taxpaying responsibilities.”

And it’s more secretive than the No 2 tax haven…

#2 The Unites States of America

The U.S. is on a tear on the competition for the top tax haven spot, rising for the third time in five years, and now capturing the number two slot. In 2015, the U.S. was in third place, and in 2013, it was in sixth.

Between 2015 and 2018, U.S. market share of global offshore financial services rose 14 percent, from 19.6 percent to 22.3 percent
.
Delaware, Nevada and Wyoming are the most aggressive tax havens, often described as ‘captured states’.

When it comes specifically to offshore financial services, then, the U.S. now has the largest market share, rivalled only by the City of London, according to FSI, which notes that foreign country elites use the U.S. “as a bolt-hole for looted wealth”.

The baggage is piling up. Take the Delaware tax haven, for instance. It’s housing a company in “good standing” that is used for trafficking children for sex but can’t be shut down because it doesn’t have a physical presence in the state, according to Quartz.

#3 Cayman Islands

Third place go to this overseas territory of the United Kingdom, holding $1.4 trillion in assets managed through 200 banks. With more than 95,000 companies registered, this country is the world leader in terms of hosting investment funds.
 
It’s a lot more “upmarket” today than it used to be in its heyday as a hotspot for drug smuggling and money-laundering. Now it deals with some of the world’s biggest banks, corporations and hedge funds.

On the FSI secrecy index, it ranks a 71, right between Switzerland and the U.S.

#4 Hong Kong

While one of the newer tax haven’s—it’s already hit fourth place and is managing some $2.1 trillion in assets (as of the close of 2015), along with $470 billion in private banking assets. It helps that it’s home to the third-largest stock exchange in Asia.

And when it comes to ultra-high-net-worth individuals, Hong Kong leads the pack, with 15.3 per 100,000 households.

The attraction is that companies incorporated in Hong Kong pay tax only on profits sourced in Hong Kong and the tax rate is currently at 16.5 percent. So in all likelihood, they’re paying zero taxes.  

In terms of secrecy, it ranks 71 alongside Cayman.

#5 Singapore

This country is the favorite offshore center servicing Southeast Asia (as opposed to Hong Kong, which caters to China and North Asia).

As of the end of 2015, Singapore was estimated to be holding $1.8 trillion in assets under management, 80 percent of which originated outside of the country.

It has a secrecy ranking of 67.

#6 Luxembourg

This is a tiny state in the European Union that packs a massive tax haven punch. Despite its size, it is said to control 12 percent of the global market share for offshore financial services. The FSI estimates that its 143 banks are managing assets of around $800 billion.
Luxembourg has a secrecy ranking of 58.

#7 Germany

Major tax loopholes and lax enforcement have bumped Germany to number seven on the FSI’s list, despite being one of the world’s biggest economies and not intentionally focusing on global financial services. It corners about 5 percent of market share in the sector, and ranks 59 in terms of secrecy. 

#8 Taiwan
This is the first year Taiwan has made the Top 10 list, bumping off Lebanon, which now sits in 8th place.

Beijing’s “One China” policy is largely responsible for Taiwan’s ascendancy on the tax haven scene because it managed to fly under everyone’s radar, not participating in International Monetary Fund (IMF) statistics thanks to Chinese pressure.

And no one’s entirely sure how much offshore money is flowing through here.

#9 United Arab Emirate of Dubai

Dubai, servicing massive regional oil wealth, gets the highest secrecy rating of them all, at 84. Its offshore facilities are exceedingly complex and offers a low-tax environment and lax enforcement.

It’s also recently been the target of an EU tax haven blacklist.

#10 Guernsey

This small tax haven jurisdiction in the English Channel has risen seven places on the list since 2015, and accounts  for 0.5 percent of the global trade in offshore financial services. Essentially, this is nothing more than a ‘captured state’ with a high secrecy rating of 72.