Drought marches to the west
Angela Bowman, Staff Writer | Updated: 05/09/2013
Drought Monitor map, released on May 9, 2013.
Rain and snow over the past several weeks have helped beat the drought into remission across much of the Corn Belt, but as 48 percent of the country remains in moderate or worse drought, more states brace for another year of drought.
In the thirsty heartland, in particular, some states are split between improving and worsening drought.
According to the latest Drought Monitor report, 23 percent of Kansas and 9 percent of Oklahoma remains under exceptional drought. The spread of this drought in both states has been doused with welcomed rain and even been eliminated in some eastern counties.
In the western half of these states, however, the Drought Monitor tells a different story. Rain bypassed western Oklahoma and Kansas, leaving these areas in extreme or worse drought.
Further to the west and south, however, the Drought Monitor paints a grim picture. Intense drought is returning to Texas, New Mexico and Colorado as it creeps its way further to the west. Conditions in New Mexico in particular have declined dramatically for the last month. In early April 4 percent of the state was in exceptional drought – this week that number stands at 40 percent.
However, residents in these parched states have turned the pressure of drought into a resurgence of faith. The Associated Press reports that the tension from three year of hot, dry weather has pushed more people to turn to religion. From Christian preachers and Catholic priests to American Indiana Tribes, more and more are turning to fair because, as active church member pointed, “praying can’t hurt.”
The impending drought in the west has also prompted officials in Oregon, a state better known for its wet weather, to warn that irrigation will likely have to be shut off to many of the 200 farms and ranches in the upper Klamath Basin.
Statistics: Posted by yoda — Thu May 09, 2013 9:39 am
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Why did West, Texas, build homes and a school next to a ‘time bomb’?
The town of West, Texas, and the West Fertilizer Company grew and prospered together. But profit motives, a sense of civic trust and Catch-22 zoning laws failed to recognize the danger brought to light when the plant exploded this week with the force of a small nuclear bomb.
By Patrik Jonsson, Staff writer / April 20, 2013
Ron T. Ennis/The Fort Worth Star-Telegram/AP
Some residents of this small Texas town didn’t pay too much attention to an evening fire at the West Fertilizer Company, with some grilling hot dogs on a nice spring evening in a neighborhood just across the railroad tracks from the plant.
But others received panicked phone calls, including one that said: "Y’all need to get out of there – now!"
Minutes later, in the case of one resident who scrambled toward his truck, the plant blew up, killing at least 14 people – many of them first responders – injuring 200, and destroying some 80 homes. Residents stumbling around in the aftermath described a sickening war zone – houses afire, alarms shrieking, and neighbors bloodied and prone.
But what became striking to many Americans as the tragedy unfolded and the immense power of the blast came to be understood is why anyone allowed homes, a school and a nursing home to be built next to a plant that in large quantities stores derivatives of ammonia, one of the most explosive substances on the planet?
History certainly was no guide. After all, ammonia has been the key accelerant in some of the world’s largest industrial accidents, including an explosion that killed hundreds in Toulouse, France, in 2001, and a 1947 blast that killed nearly 600 people in Texas City, Texas. The bomb assembled and planted by Timothy McVeigh next to the Alfred P. Murrah Building in Oklahoma City in 1995 was fueled primarily by ammonium nitrate.
A 2008 report by the Center for American Progress called a Pasadena, Texas, fertilizer plant one of the most dangerous chemical plants in the country, since an accident there could make more than 3 million people vulnerable to a major gas release.
Against that backdrop, the question of why so close, at least in part, cuts to the heart of the civic pact of many American towns, both large and small, where industry and people forge a sort of mutualism that recognizes the symbiotic benefits of labor and profit, and fuels civic pride. After all, small towns from upstate New York to the Texas Panhandle have a similar motif, where a few industries, often near or in town, infuse economic vitality and give young people a reason to stay.
"There’s a close bond between employer and community and a level of acceptance that emerges over time, almost an assumption that, well, nothing has happened in the past, therefore everything should be okay," says Bob Bland, chairman of the Public Administration Department at the University of North Texas, in Denton. "[But] there’s also something more subtle … a social bond that occurs where the company, factory or plant to some extent defines the social fabric of the community. There’s a mutualism that goes beyond just the jobs the company creates."
In West’s case, the plant, owned by the local Adair family, was built in 1962 at the edge of a farming community settled in 1892 by emigrant Czechs. As the years went by, the town grew out, past, and around the plant, in a careful embrace underscored by a recognition among at least some in town that danger was ever-present.
One resident watching the fire said a plume of yellow smoke that suddenly erupted was a signal that the ammonium was about to go, an accurate prediction as it turned out. Meanwhile, the plant had been cited as late as 2010 for problems with ammonia venting and for the failure to have a complete emergency plan. Meanwhile, the US inspection protocol for such plants isn’t the most intensive, in part because states are primarily responsible for inspections: The US Occupational Health and Safety Administration, meanwhile, has inspected only six Texas fertilizer plants in the last five years.
An agency called the Pipeline and Hazardous Materials Safety Administration, however, did inspect and cite the West plant in 2011 for "not having a security plan." After the plant corrected the problems, a $10,100 fine was reduced to $5,250. Before that, the plant had received a $30 fine in 1985 in connection to how it stored anhydrous ammonia at the plant.
The federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is in the process of determining if there was foul play, but so far there’s no evidence of anything but an industrial accident.
Plant owner Donald Adair, who lives in West, lauded the community’s resilience and vowed to work with investigators to find the cause of the fire in a statement released Thursday.
"The selfless sacrifice of first responders who died trying to protect all of us is something I will never get over," he wrote. "I was devastated to learn that we lost one of our employees in the explosion. He bravely responded to the fire at the facility as a volunteer firefighter. I will never forget his bravery and his sacrifice, or that of his colleagues who rushed to the trouble."
In the aftermath, US Sen. Jon Cornyn (R) of Texas said the US may have to look at new regulations around the storage of ammonia products, and others called for stronger zoning laws that would mandate separating chemical storage sites and plants from people.
"[S]ometime soon, the state and federal governments will have to mandate a review of these decisions and others like them across rural America and take corrective action. We cannot have people living and going to school next to sub-nuclear ticking time bombs," writes Tod Robberson of the Dallas Morning News editorial board.
Paul Kucera lives close to the plant, but somehow his home was largely spared. Homes belonging to three other family members, however, were completely destroyed. But like most West residents, Kucera exhibited no animosity or anger toward the plant owner or town officials who allowed construction so close to an explosives storage site.
Instead, he saw the danger as a natural tradeoff of rural farming existence, where danger is always a factor amid killer tornadoes, whirring threshers, pipelines and gas storage facilities necessary to survive on America’s rural fringe. In the case of the West Fertilizer Plant, its very products boosted the fertility of both crops and the economy.
"That plant was part of our town and what happened is part of living in a farming town," Kucera says. "You accept a certain level of risk, just as people living in cities do."
But even if town planners in West (who do have a land use plan filed with the state) wanted to mandate a buffer around the West Fertilizer Company plant, they may not have been financially able to do so, suggests Mr. Bland at UNT.
Texas law, to be sure, gives local zoning authorities broad powers to set land use rules, but the US Supreme Court has also ruled that landowners can petition governments for remuneration if zoning decisions negative affect property values.
"So, in West, it would have made sense to zone [the land around the plant] as open space, but can a little town like West, never mind a big city like Atlanta, have the resources to pay landowners for their losses?" says Mr. Bland, at UNT.
Moreover, Bland says, zoning officials may have had to stand on their own if they wanted to mandate a buffer around the plant.
"Oftentimes the strongest opponents to zoning and land use control are local residents, who anticipate benefiting from investment in various types of land – it’s a no good deed goes unpunished kind of thing," he says. "All of that means it’s very difficult to put into place the sort of policies that will provide optimum level of protection, which in hindsight should have been done here."
Statistics: Posted by yoda — Sat Apr 20, 2013 10:32 am
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A Grim Day for a Small Town
Explosion at West Fertilizer Plant Registers as Magnitude 2.1 Earthquake
By ANN ZIMMERMAN, SHELLY BANJO and NATHAN KOPPEL
A massive explosion at a fertilizer plant here has left up to 15 people dead, a figure that may rise, said local police officials. More than 150 people have been treated for injuries. Miguel Bustillo has the latest.
Annotated Map of the Site
A massive explosion at a fertilizer plant at West Fertilizer Co. in the small north-central town of West, Texas, left between five and 15 people dead, a figure that is expected to rise.
Photos: Plant Explosion
WEST, Texas—This small town just off I-35, known in central Texas as a good place to pull off the highway for Czech pastries, spent Thursday coming to grips with a landscape of flattened homes and diminishing hopes that friends and neighbors will be found alive in the aftermath of a devastating explosion.
The blast Wednesday night at a fertilizer plant here has left more than a dozen dead, and 150 injured. It destroyed a school and 75 or so homes—damaging a sizable portion of a tightknit town of 2,800 with a Czech heritage that stretches back generations.
Firefighters conduct a search-and-rescue mission on Thursday at an apartment destroyed by the explosion at the West Fertilizer Co. plant in West, Texas, on Wednesday evening. The blast followed a fire at the facility.
The majority of the dead are believed to be first responders, who had raced to the scene to try to tame a fire at the plant, not knowing the mammoth blast was coming. The explosion had the force of a 2.1 magnitude earthquake, seismologists said.
Law-enforcement officials are still sifting through the rubble in search of survivors, but none are expected, said Tommy Muska, the town’s mayor. Mr. Muska, who lost his own home on Wednesday, is a volunteer firefighter himself—as well as an insurance agent in town.
"Our town is definitely hurting," he said. His office was flooded with insurance claims.
On Thursday, Texas Gov. Rick Perry said he asked the federal government for a disaster declaration to mobilize help for the town, about 80 miles south of Dallas. Gov. Perry said he had spoken with President Barack Obama, who was on his way to Boston for a memorial service for victims of Monday’s bombing at the Boston Marathon.
The incident began with a fire at the West Fertilizer Co., a small privately owned plant on the edge of town, around 6 p.m. Wednesday. Volunteer firefighters tried to extinguish the blaze. About two hours later, a thunderous explosion ripped through the plant, sending a column of smoke hundreds of feet into the air and damaging buildings in a five-block radius.
What’s the likely cause of the massive fireball responsible for up to 15 deaths in West, Texas? What is anhydrous ammonia and how is it made? WSJ’s Jason Bellini has "The Short Answer." Image: Erick Perez via Associated Press
Texas Fertilizer Plant Explosion Caught on Video
The slender town of West stretches only 20 blocks or so along the interstate. At its widest spot, it is about 10 blocks across.
The Bureau of Alcohol, Tobacco, Firearms and Explosives said it would send investigators to determine if the fire and explosion was "accidental or criminal," spokesman George Semonick said. The U.S. Chemical Safety Board said that it was sending a "large investigation team" to the scene. State officials have set up air monitoring nearby.
Sgt. William Patrick Swanton, a Waco police spokesman who is helping out the city’s smaller neighbor, said Thursday there is no indication the blast was anything other than an industrial accident. The Texas Department of Public Safety said it could take up to six months to determine the cause of the fire.
The worst ever industrial accident in the U.S. was also caused by an explosion of ammonium nitrate, as was possibly the case here, and also took place in Texas. In that blast, in 1947, some 581 people died aboard a ship docked near Texas City.
Dan Halyburton, a spokesman for the American Red Cross who toured West, described the damage around town as unlike anything he had seen before. "It wasn’t like a tornado or hurricane. It looked more like someone had taken a grinding wheel and just chewed up walls and roofs." When people return to their homes, he said, "It’s going to be really traumatic."
Among those killed was Captain Kenny Harris of the Dallas Fire-Rescue service. He lived in West and was trying to lend a hand at the time of the explosion, the service said.
Arthur Garland, owner of a West car-restoration business, said his sons played sports with Mr. Harris’s three boys, who were considered some of the best athletes in a town that centered on baseball.
Mr. Harris was about to retire, Mr. Garland said, and had bought a boat on which he had planned to spend a lot of time.
"This is a great community and I don’t have any doubt in my mind we will pull together," Mr. Garland said. "But we lost some good people."
Other confirmed dead included five West volunteer firefighters and four volunteer emergency medical technicians, according to the mayor.
"It makes me feel very sick," said Mr. Muska.
He said the local firefighters had never specifically prepared to battle a fertilizer-plant fire. "Every town in a rural area has one," he said. "It is a ticking time bomb that went off yesterday."
The former cotton-farming community has come through hard times before, but nothing like this, residents said. The community drew Czech immigrants, who kept their heritage alive through the generations with an annual festival and a bakery that specializes in traditional pastries. On Thursday, the Czech ambassador to the U.S. was on his way to West to offer support.
For decades, the fertilizer plant in West has been a local fixture. As the town grew, homes and schools were built in closer proximity. A park is right across the street.
"It was always just there. You never thought about it," said Brian Sykora, who was raised in West.
He had just finished mowing his lawn in the evening calm when, he said, he felt a sudden whoosh of force. He looked north, he said, "and saw a huge mushroom cloud" over near his parents’ house.
Mr. Sykora and his wife leapt into their truck and drove toward the cloud. His parents and brother were standing in their front yard, unharmed, watching their neighborhood burn. The windows of their home had been blown out. Pieces of their ceiling had fallen. Nearby, the school was ablaze, its gym roof collapsed.
"It is just numbing," said Mr. Sykora.
Zak Covar, executive director of the Texas Commission on Environmental Quality, said the facility had been in West since 1962. In 2004, it was required to receive two air-emissions permits. "In 2004, they were supposed to come in and get reauthorized," Mr. Covar said. "They failed to do so, and I hate to speculate why."
In 2006, an odor complaint was received by the environmental-quality commission. When it investigated, the state learned that West Fertilizer hadn’t applied for the required permits, according to the commission. The issue was resolved when the facility applied for, and received, the permits. "The permit was the resolution," Mr. Covar said, and no fine was issued.
The difference between life and death came down to luck and timing, residents said. The mayor, Mr. Muska, was on his way to help his fellow volunteer firefighters, but wasn’t there yet when the plant exploded. His wife, Lisa, was planting flowers at church; she returned to find their house leveled.
Many residents displaced from their homes gathered in the pews at the West Church of Christ, trading escape stories and sharing details about the whereabouts of friends, family and neighbors.
"Cellphones don’t work so the only way to find out what happened to people is to ask folks around town," said Gary Parma, 50, who came to the church with his wife, Diane. The Parmas, who own Al’s Cleaners in West, were on the deck of their home when they suddenly saw the house of a neighbor two doors down go up in smoke. Clad in their polka-dot and plaid pajamas, the Parmas grabbed their dog, Boo, and fled. They said they don’t know whether their neighbors are alive or dead.
—Miguel Bustillo, Daniel Gilbert, Erica E. Phillips and Tamara Audi contributed to this article.
Write to Shelly Banjo at firstname.lastname@example.org, Ann Zimmerman at email@example.com and Miguel Bustillo at firstname.lastname@example.org
Statistics: Posted by DIGGER DAN — Fri Apr 19, 2013 5:35 am
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The legal battle between the federal government and the states over the legality of marijuana is returning to the news. Former DEA chiefs are calling on the Obama administration to crack down on the two states that recently approved referenda to legalize marijuana under state law, Colorado and Washington. Meanwhile, many other states are trying to legalize marijuana for medical purposes.
On that latter point, Cato will be screening the new film Code of the West next week. This film explores the political, legal, and cultural battles over medical marijuana in Montana. Watch local policymakers grapple with the myriad issues that arise when medical marijuana becomes legal under state law for certain patients. The film also tells the story of certain growers who try to establish businesses, only to find their establishments raided by federal law enforcement agents. Join us for this film screening and the policy discussion afterward.
Registration information can be found here.
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West Point, the U.S. Military Academy, is home to the Combating Terrorism Center (CTC) whose origins “are inextricably linked to the tragic events of 9/11 and West Point’s unwavering commitment to the future security and safety of our nation.” The Center has produced material on radical Islam and Al Qaeda but a recent report represents a radical departure.
Challengers from the Sidelines: Understanding America’s Far-Right deals with white supremacists, Aryan Nations, skinheads, the Ku Klux Klan and such. This dated and unoriginal work will be of little use to the military and law enforcement. Former Army intelligence officer Tim Tooman describes the report as “148 pages of beating a dead horse that never really had any life in the beginning.”
Author Arie Perliger has no background in the U.S. military but somehow became Director of Terrorism Studies at the CTC. He serves as assistant professor in West Point’s department of social sciences but his PhD is in political science. Perliger never explains why groups that promote National Socialism should be described as “far-right.” And readers will not learn that longtime Senator Robert Byrd, West Virginia Democrat once headed his local Klan chapter and objected to service in WWII because that would bring him into contact with “race mongrels.” But Perliger’s purpose is not historical understanding.
Members of the groups he describes, “espouse strong convictions regarding the federal government, believing it to be corrupt and tyrannical, with a natural tendency to intrude on individuals’ civil and constitutional rights. Finally, they support civil activism, individual freedoms, and self-government.”
That would be a fair profile of the American founders and many activists on the left and right. As journalist Mark Tapson noted, “that pretty much describes every conservative I know.” Perliger thus links those who value freedom and limited government with violent racists. The sub-text is clear.
Those Americans less than worshipful about ever-expanding intrusive government, and who value their constitutional rights, are dangerous subversives. This recalls Woody Allen’s 1971 film Bananas, in which Miss America testifies against Fielding Mellish, a product tester who supported a South American revolution.
“I think Mr. Mellish is a traitor to this country because his views are different from the views of the president and others of his kind,” Miss America says. “Differences of opinion should be tolerated, but not when they are too different. Then he becomes a subversive mother.”
In 2013, farce repeats itself as history.
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By Tad DeHaven
House freshman Allen West (R-FL) – a tea party and Fox News favorite – finally conceded defeat to his Democratic opponent on Tuesday. According to a Politico article, “The congressman’s unexpected loss left his advisers, donors and legion of tea party fans searching for answers.”
Here’s one answer: West’s hypocritical votes in favor of federal programs that inappropriately subsidize local concerns apparently didn’t buy him goodwill from voters. I’m referring to West’s votes earlier this year to save the Community Development Block Grant program and the Economic Development Administration, which I previously discussed:
On West’s congressional website, he states that “As your Congressman, I will curb out of control Government spending.” He also says that “we need to challenge the status quo in Washington and stop the floodgates of government spending” and that he will “carry the torch of conservative, small government principles with me to Washington.” West, however, voted to save the CDBG program and he also voted back in May to save the Economic Development Administration, which is another parochial slush fund. In April, he accused Democrats of being communists. That’s pretty rich given that he proceeded to vote to protect programs that engage in central planning.
Those who understand and appreciate the need for a return to the fiscal federalism of our constitutional roots should not mourn West’s electoral demise. Indeed, supporters of limited government need to start taking a deeper look at the politicians that they embrace.
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Prison of Debt Paralyzes West
By Cordt Schnibben
Be it the United States or the European Union, most Western countries are so highly indebted today that the markets have a greater say in their policies than the people. Why are democratic countries so pathetic when it comes to managing their money sustainably?
In the midst of this confusing crisis, which has already lasted more than five years, former German Chancellor Helmut Schmidt addressed the question of who had "gotten almost the entire world into so much trouble." The longer the search for answers lasted, the more disconcerting the questions arising from the answers became. Is it possible that we are not experiencing a crisis, but rather a transformation of our economic system that feels like an unending crisis, and that waiting for it to end is hopeless? Is it possible that we are waiting for the world to conform to our worldview once again, but that it would be smarter to adjust our worldview to conform to the world? Is it possible that financial markets will never become servants of the markets for goods again? Is it possible that Western countries can no longer get rid of their debt, because democracies can’t manage money? And is it possible that even Helmut Schmidt ought to be saying to himself: I too am responsible for getting the world into a fix?
ANZEIGEThe most romantic Hollywood movie about the financial crisis isn’t "Wall Street" or "Margin Call," but the 1995 film "Die Hard: With a Vengeance." In the film, an officer with the East German intelligence agency, the Stasi, steals the gold reserves of the Western world from the basement of the Federal Reserve Bank of New York and supposedly sinks them into the Hudson River. Bruce Willis hunts down the culprit and rescues the 550,000 bars of gold, which, until the early 1970s, were essentially the foundation on which confidence in all the currencies of the Western world was built.
Creating Money out of Thin Air
Until 1971, gold was the benchmark of the US dollar, with one ounce of pure gold corresponding to $35, and the dollar was the fixed benchmark of all Western currencies. But when the United States began to need more and more dollars for the Vietnam War, and the global economy grew so quickly that using gold as a benchmark became a constraint, countries abandoned the system of fixed exchange rates. A new phase of the global economy began, and two processes were set in motion: the liberation of the financial markets from limited money supplies, which was mostly beneficial; and the liberation of countries from limited revenues, which was mostly detrimental. This money bubble continued to inflate for four decades, as central banks were able to create money out of thin air, banks were able to provide seemingly unlimited credit, and consumers and governments were able to go into debt without restraint.
This continued until the biggest credit bubble in history began to burst: first in the United States, because banks had bundled the mortgages of millions of Americans, whose only asset was a house bought on credit, into worthless securities; then around the globe, because banks had foisted these securities onto customers in many countries; and, finally, when these banks began to totter, debt-ridden countries turned private debt into public debt until they too began to totter, and could only borrow money from banks at even higher interest rates than before.
At the moment, the world has only one approach to getting out of this labyrinth of debt: incurring trillions of even more debt.
What does all of this have to do with Bruce Willis and Helmut Schmidt? Willis rescued the world’s gold and, with it, the illusion of the good, old world. Schmidt, as Germany’s finance minister in the 1970s, set the debt spiral in motion and fueled the illusion in Germany that countries could go into debt, and that this was good for everyone.
When Schmidt’s predecessor, Karl Schiller, resigned from the government in protest over 4 billion deutsche marks in new debt, he said: "I am not willing to support a policy that creates the impression, to outsiders, that the government pursues the motto: After us comes the deluge."
Schmidt incurred 10 billion deutsche marks in new debt. Inspired by crisis economist John Maynard Keynes, the German government believed that economic stimulus programs would stimulate growth, but only under the condition that the debt was to be brought down again in better times.
This economic policy was known in Germany as "global regulation." As finance minister, and later as chancellor, Schmidt took advantage of the oil crisis to drive up the government deficit with economic stimulus programs. When Schmidt stepped down in 1982, annual government spending tripled in comparison to spending in 1970, reaching the equivalent of €126 billion ($161 billion), and the public debt increased fivefold, to €313 billion. By today, the combined debt of federal, state and local governments has climbed to more than €2 trillion.
A Human Debt Gene?
From today’s perspective — leaving aside all the effusive rhetoric about Europe — the introduction of the euro is nothing but the continuation of debt mania with more audacious methods. The euro countries took advantage of the favorable interest rates offered by the common currency to get into even more debt.
Can all of this be blamed on some sort of human debt gene? Is it wastefulness, stupidity or an error in the system? There are two views on how the government should use its budgets to influence the economy: the theory of demand, established by Keynes, advocates creating debt-financed government demand, which in turn generates private demand and produces government revenues. In other words, building a road provides construction workers with wages. They pay taxes, and they also use their wages to buy furniture, which in turn provides furniture makers with income, and so on.
The other view, supply-side economics, is based on the assumption that economic growth is determined by the underlying conditions for companies, whose investment activity depends on high earnings, low wages and low taxes. According to this theory, the government encourages growth through lower tax rates. In the last few decades, the frequent transitions of power in Western countries between politicians who support supply-side economics (conservatives, libertarians and now some center-left social democrats) and those who advocate Keynesian economics (social democrats) has driven up government debt. When some politicians came into power, they reduced government revenues, and when they were replaced by those of the opposite persuasion, spending went up. Some did both.
When the debts of companies and private households are added to the public debt, the sum of all debt has grown at twice the rate of economic output since 1985, and it is now three times the size of the gross world product. The developed economies apparently need credit-financed demand to continue to grow, and they need consumers, companies and governments that go into debt and put off the financing of their demand until some time in the future. Of its own accord, this economic system produces the compulsion to drive up the debt of public and private households.
Governments delegate power and creative force to the markets, in the hope of reaping growth and employment, thereby expanding the financial latitude of policymakers. Government budgets that were built on debt continued to create the illusion of power, until the markets exerted their power through interest.
Interest spending is now the third-largest item in Germany’s federal budget, and one in three German municipalities is no longer able to amortize its debt on its own steam. In the United States, the national debt has grown in the last four years from $10 trillion to more than $16 trillion, as more and more municipalities file for bankruptcy. In Greece, Spain and Italy, the bond markets now indirectly affect pensions, positions provided for in budgets and wages.
A country isn’t a business, even though there are politicians who like to treat their voters as if they were employees. Politics is the art of mediating between the political and economic markets, convincing parliaments and citizens that economic policy promotes their prosperity and the common good, and convincing markets and investors that nations cannot be managed in as profit-oriented a way as companies.
After four years of financial crisis, this balance between democracy and the market has been destroyed. On the one hand, governments’ massive intervention to rescue the banks and markets has only exacerbated the fundamental problem of legitimization that haunts governments in a democracy. The usual accusation is that the rich are protected while the poor are bled dry. Rarely has it been as roundly confirmed as during the first phase of the financial crisis, when homeowners deeply in debt lost the roof over their heads, while banks, which had gambled with their mortgages, remained in business thanks to taxpayer money.
In the second phase of the crisis, after countries were forced to borrow additional trillions to stabilize the financial markets, the governments’ dependency on the financial markets grew to such an extent that the conflict between the market and democracy is now being fought in the open: on the streets of Athens and Madrid, on German TV talk shows, at summit meetings and in election campaigns. The floodlights of democracy are now directed at the financial markets, which are really nothing but a silent web of billions of transactions a day. Every twitch is analyzed, feared, cheered or condemned, and the actions of politicians are judged by whether they benefit or harm the markets.
The attempt by countries to bolster the faltering financial system has in fact increased their dependency on the financial markets to such an extent that their policies are now shaped by two sovereigns: the people and creditors. Creditors and investors demand debt reduction and the prospect of growth, while the people, who want work and prosperity, are noticing that their politicians are now paying more attention to creditors. The power of the street is no match for the power of interest. As a result, the financial crisis has turned into a crisis of democracy, one that can become much more existential than any financial crisis.
The one sovereign stalks the other, while the pressure of the markets contends with the pressure of the street. In Europe, in particular, this has become an unequal battle. Since Jan. 14, 2009, when Standard & Poor’s downgraded Greek government bonds, the markets have determined the direction and pace of European integration. They want bigger and bigger bailout funds, they want to safeguard their claims, they want a European Central Bank that buys up government bonds indefinitely, they want slashed government budgets, they want labor market reforms like the ones in Germany, they want wage cuts such as those in Germany and, at the same time, they want these incapacitated countries mired in recession to offer the prospect of healthy growth.
And this is happening in a Europe in which the sovereign nations don’t truly know how much Europe they really want. The people who govern Europe don’t know either, which puts them at the mercy of the markets. They have no common model for Europe, and they suspend the most basic democratic ground rules to remain capable of acting. They have to use tricks and bend agreements to prevent the euro from breaking apart.
The gulf between those who govern and those who are governed, a problem in any democracy, is complicated in Europe by the mistrust between Europeans and bodies that seek to tame the crisis in their name.
The actions of governments also generate mistrust. The German government, in particular, has more confidence in the markets than in the governments of Europe’s crisis-ridden countries, and it finds the power of interest rates more convincing than promises of reform. Mistrust also stems from the relationship between governments and their voters, so much so that it’s become common to delay important decisions until after elections and to keep them out of campaigns. There isn’t much confidence in the economic judgment of the people. If lawmakers can hardly understand which bailout funds they are voting for, how many billions they are pushing in which direction, how great the risk of inflation is, what terms like target, derivative, leverage and securitization mean, how much can citizens be expected to comprehend? A citizen who hopes to understand the underlying problems of the euro crisis would, at the very least, have to read the business sections of major German newspapers like the Süddeutsche Zeitung or the Frankfurter Allgemeine Zeitung every day. Watching one talk show a week isn’t enough.
Even Good Debt Needs to Be Serviced
The democratic decision-making process reaches its limits in this fundamental crisis, but even in the decades when debt was being accumulated, it was clear that democracies have a troubled relationship with money.
There was always justification for new debt. The catchphrases included things like more jobs, better education and social equality, and the next election was always around the corner. Debt was justified at the communal level to expand bus service or build playgrounds, at the state level to hire more teachers or build bypasses and, at the federal level, to buy tanks and fund economic stimulus programs.
There is good debt and bad debt, but even good debt needs to be serviced constantly. A closer look at which countries acquire and pay off debt, and to what degree, reveals unsettling correlations: The more often governments change and the more pluralistic they are, the faster the debt increases and the more difficult it becomes to pay if off. The more democracy, the looser the money. The only place money gets even looser is in dictatorships.
To hold an administration responsible for the debts of its predecessors, there are debt limits in democracies. In Helmut Schmidt’s day, for example, there was a provision in the German constitution stipulating that total debt could not exceed total investment. In Europe, the provisions of the Maastricht Treaty, which is aimed at ensuring the stability of the common currency, limit the amount of debt a government can accumulate to no more than 60 percent of gross domestic product.
Debt Limits Have Never Worked
So far, such debt limits have never worked in any country. Under new laws in Germany, the federal government, starting in 2016, will only be allowed to incur new debt amounting to 0.35 percent of GDP. The euro countries have agreed to a similar rule, but it can only take effect if all national parliaments agree.
In some countries, there are already sparks of resistance against the limitation of new debt. The Italian government refuses to implement austerity measures demanded by the ECB and to approve a clause stipulating automatic spending cuts. After mass protests, the Portuguese government reversed cuts that had already been announced. Spain will fall short of an agreed deficit target of 6.3 percent, with its deficit actually predicted to come in at 7.4 percent. Euro-zone countries are in fact not allowed to incur new debt of more than 3 percent of GDP.
What makes those hoping to clean up budgets in the crisis-ridden countries skeptical is the downward spiral triggered by such drastic budget cuts, structural reforms and wage reductions. Private and public demand is sinking while the economy shrinks, leading to higher unemployment, less government revenue and higher debt. In Spain, after four austerity packages, the unemployment rate has increased from 8 percent in early 2007 to 25.8 percent today, while the country’s debt ratio has doubled. In Portugal, unemployment has gone up by close to 100 percent in four years, with the debt ratio increasing from 72 to 114 percent. In Greece, after budget cuts amounting to more than 10 percent of the country’s total economic output, unemployment has almost tripled and the debt ratio has risen from 113 to 160 percent.
These horrific numbers are not just driving people into the streets, but are also creating conflicts between politicians and economists. There it is again, the old dispute between the supporters of supply-side and Keynesian economics. Only when budgets have been balanced, taxes are low and wages are brought down can growth return, says the one side; those who cut public and private demand so radically are driving countries into recession and driving debts up instead of down, says the other. Average growth in Europe has declined continuously and was only 1.4 percent in 2011, while the economy is expected to shrink this year.
For many debt-ridden countries, growth is one of four possibilities to reduce debt. Balancing budgets through cuts and tax increases is another. The third option is a debt haircut, which means declaring bankruptcy and no longer servicing at least a portion of debts. The fourth path is inflation, that is, allowing the debt to melt away on the quiet at the expense of savers and consumers. But three to four percent inflation can hardly be justified politically in Germany, although the prospects are better in the United States and other countries. For this reason, and in response to German pressure, European countries are now trying out tough austerity programs.
Because governments are in disagreement, bodies are taking their place that are turning into ersatz governments: the central banks.
The ECB’s decision to buy up unlimited amounts of the sovereign debt of European countries is a replacement for political solutions for which there are currently no majorities in the governments and parliaments of euro-zone countries. The decision by the American Federal Reserve Bank to inject hundreds of billions of dollars into the markets again to stimulate economic growth results for the inability of Democrats and Republicans to agree on a compromise between limiting debt and economic stimulus programs. Printing money — or betting hundreds of billions once again — is the last desperate response on both sides of the Atlantic.
What began four years ago with the bursting of a credit bubble in the mortgage market is being combated with more and more new debt in the trillions, thereby inflating the next, even bigger credit bubble.
The fresh trillions circle the world in the search for yield, but only a small part of the money flows into the real economy, where investments in new production plants produce lower returns. Instead, the trillions slosh back and forth, from one financial market to another, from the foreign currency market to the commodities market, and from the gold market to the stock market and back again.
Because these trillions are not reaching the real economy, the risk of inflation is currently smaller than Germany’s central bank, the Bundesbank, and its president would have us believe. But every saver and everyone with a life insurance policy pays for the central bank’s low interest-rate policy with low interest rates. When central banks keep interest rates close to zero for long periods of time, which they have done for years, they disadvantage ordinary savers and favor major investors, gamblers and banks, which can borrow at low rates and invest the money elsewhere at a profit.
Blaming the Banks
Who and what has gotten the world into such trouble, and how can it extricate itself again? Not surprisingly, former Chancellor Schmidt blames investment bankers, the managers and bankers who flooded the world with worthless securities and long speculated on the sovereign debt of crisis-ridden countries, and who hedged their risks, which were much too high, with far too little capital and therefore had to be rescued with taxpayer money. Banks are still the focus of all problems in the financial markets. They still have to be supplied with money, and they still pose a threat to the system.
And those who allowed them to become so powerful are all those politicians and governments that gave the financial markets so much freedom, often socialized the risks, incurred too much government debt, and allowed the municipalities, states and countries to become so irresponsible. "The market" is not some group of experts, nor is it the last resort of collective reason. It is an orgy of irrationality, arbitrariness, waste and egoism. "Democracy" is not some event involving citizens, or some celebration of altruism and far-sightedness, but rather the attempt to bundle diverging interests into decisions in a way that’s as peaceful as possible.
Together, the market and democracy are what we like to call "the system." The system has driven and enticed bankers and politicians to get the world into trouble, or least one could argue that if they too weren’t part of the system. And we could sweep it away if we had a better one.
Instead, we are left with an undisguised view of the system. One of the side effects of the crisis is that all ideological shells have been incinerated. Truths about the rationality of markets and the symbiosis of market and democracy have gone up in flames.
The Problems of Modern Capitalism
The European depression is only prelude, with the Japanese disaster waiting in the wings. The country’s debt-to-GDP ratio is 230 percent, and the government is dependent on the opposition approving the issue of new government bonds. Lurking behind it all is the American abyss, the debt drama of the next few months, the showdown and duel between Democrats and Republicans over which party can blame the other one for a national bankruptcy.
And then, finally, we have a clear view of the three biggest problems in finance-driven, democratically constituted capitalism: First, how can a debt-ridden economy grow if a large part of demand in the past was based on debt, which is now to be reduced?
The second major problem of modern capitalism is this: How can the unleashed financial markets be reined in again, and how should the G-20 countries come up with joint rules for major banks, which are their financiers and creditors, and for markets, which punish and reward these countries through interest? How much freedom do financial markets need to serve the global economy as a lubricant, and what limits do they need so that banks, shadow banks and hedge funds do not become a threat to the system?
Third, how do governments mediate between the power of the two sovereigns, how do they reestablish the primacy of citizens over creditors, and how does democracy function in debt-ridden countries? How can politicians react without burdening countries with more debt, and how can they reduce that debt? In fact, how can they even govern anymore in this prison of debt? In the past, future revenues were mortgaged, in municipalities, states and the federal government. This now makes it difficult to structure the present and the future. Today only about 20 percent of the federal budget is truly politically available, as compared with 40 percent when Schmidt was still in office.
It is always only at first glance that the world is stuck in a debt crisis, a financial crisis and a euro crisis. In fact, it is in the midst of a massive transformation process, a deep-seated change to our critical and debt-ridden system, which is suited to making us poor and destroying our prosperity, social security and democracy, and in the midst of an upheaval taking place behind the backs of those in charge.
A great bet is underway, a poker game with stakes in the trillions, between those who are buying time with central bank money and believe that they can continue as before, and the others, who are afraid of the biggest credit bubble in history and are searching for ways out of capitalism based on borrowed money.
Translated from the German by Christopher Sultan
Statistics: Posted by yoda — Sat Nov 17, 2012 11:41 am
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By Daniel J. Mitchell
During the dark ages, nations like China were relatively advanced while Europeans were living in squalid huts.
But that began to change several hundred years ago. Europe experienced the enlightenment and industrial revolution while the empires of Asia languished.
What accounts for this dramatic shift?
I’m not going to pretend there’s a single explanation, but part of the answer is that Europe benefited from decentralization and jurisdictional competition. More specifically, governments were forced to adopt better policies because labor and capital had significant ability to cross borders in search of less oppression.
I’m certainly a big fan of making governments compete with each other, but even I didn’t realize how jurisdictional rivalry gave us modernity.
But you don’t have to believe me. This topic was discussed by Professor Roland Vaubel at last week’s Mont Pelerin Society meeting. Here are some excerpts from one of Professor Vaubel’s papers on the topic.
…competition among the public institutions of different countries can benefit from an international competitive order which preserves peace and prevents governments from colluding with each other at the expense of third parties, notably their citizens.
This post will have lots of additional excerpts, but if you’re not as excited by the issue as I am, just take a moment to review this table from Vaubel’s paper (click it for a larger image). You will see that the intellectual history of this issue is enormous, and the common theme is that big, centralized states hinder development.
Remember that this table merely looks at the classical thinkers on the issue. The paper also includes modern thinkers, some of who are quoted below. And I also have a postscript that shows how many Nobel Prize-winning economists see jurisdictional competition as a tool for restraining excessive government.
But let’s see what insights we can find from the great thinkers of history, starting with this passage from Charles Montesquieu that Vaubel cites in his paper.
In Europe, the natural divisions form many medium-sized states in which the government of laws is not incompatible with the maintenance of the state; on the other hand, they are so favourable to this that without laws this state falls into decadence and becomes inferior to all the others. This is what has formed a genius for liberty, which makes it very difficult to subjugate each part and to put it under a foreign force other than by laws and by what is useful to its commerce… princes have had to govern themselves more wisely than they themselves would have thought, for it turned out that great acts of authority were so clumsy that experience itself has made known that only goodness of government brings prosperity.
In other words, the mobility of capital among jurisdictions limits government interference.
The father of economics, Adam Smith, made a very similar point. Here’s a passage from the Wealth of Nations that Vaubel includes in his paper.
The … proprietor of stock is properly a citizen of the world and is not necessarily attached to any particular country. He would be apt to abandon the country in which he is exposed to a vexatious inquisition in order to be assessed a burdensome tax and would remove his stock to some country where he could either carry on his business or enjoy his fortune at ease. A tax that tended to drive away stock from a particular country would so far tend to dry up every source of revenue both to the sovereign and society … The nations, accordingly, who have attempted to tax the revenue arising from stock, instead of any severe inquisition … have been obliged to content themselves with some very loose and, therefore, more or less arbitrary estimation. The abuses which sometimes creep into the local and provincial administration of a local or provincial revenue, however enormous so ever they may appear, are in reality, however, almost always very trifling in comparison with those which commonly take place in the administration and expenditure of the revenue of a great empire.
Jacques Turgot (Bastiat was not the only great French economist) looked at the new nation of the United States and saw the benefits of jurisdictional competition.
The asylum which (the American people) opens to the oppressed of all nations must console the earth. The ease with which it will now be possible to take advantage of this situation, and thus to escape from the consequences of a bad government, will oblige the European governments to be just and enlightened
And Immanuel Kant observed.
…civil liberty cannot now be easily assailed without inflicting such damage as will be felt in all trades and industries and especially in commerce; and this would entail a diminution of the powers of the state in external relations. This liberty, moreover, gradually advances further. But if the citizen is hindered in seeking his prosperity in any way suitable to himself that is consistent with the liberty of others, the activity of business is checked generally; and thereby the powers of the whole state are again weakened.
Kant expanded on this notion in another publication.
…peace is created and guaranteed by an equilibrium of forces and a most vigorous rivalry. Thus, nature wisely separates the nations.
Professor Vaubel remarked that, “In other words, Kant prefers interjurisdictional anarchy to centralised despotism.”
Lord Acton also noted the dangers of centralization.
…the distribution of power among several states is the best check on democracy. By multiplying centres of government and discussion it promotes the diffusion of political knowledge and the maintenance of healthy and independent opinion. It is the protectorate of minorities and the consecration of self-government. …It is bad to be oppressed by a minority but it is worse to be oppressed by a majority.
Max Weber wrote.
The competitive struggle (among the European nation states) created the largest opportunities for modern western capitalism. The separate states had to compete for mobile capital, which dictated to them the conditions under which it would assist them to power.
Weber’s comments are significant from a terminological perspective. As Vaubel noted in his paper, “This is the first time that we find the economic term “competition” rather than jealousy (Hume) or rivalry (Kant) or emulation (Gibbon) in this literature.”
From Eric Jones.
…how did Europeans escape crippling exploitation by their rulers? … The rulers of the relatively small European states learned that by supplying the services of order and adjudication they could attract and retain the most and best-paying constituents …European kings were never as absolute as they wished. The power dispersed among the great proprietors was a check on them, as was the rising power of the market.
Harold Berman of Harvard wrote.
In the Western legal tradition diverse jurisdictions and diverse legal systems coexist and compete within the same community. … The pluralism of Western law was a source of legal sophistication and of legal growth. It was also a source of freedom.
Brian Tierny noted that rivalry between church and state also helped advance liberty.
In the Middle Ages there was never just one hierarchy of government exercising absolute authority but always two – church and state to use the language of a later age – often contending with one another, each limiting the other’s power” (1995, p. 66). “Since, in the conflicts between church and state, each side always sought to limit the power of the other, the situation encouraged theories of resistance to tyranny and constitutional limitations on government.
Here are some additional quotes from more modern academics, all taken directly from Professor Vaubel’s paper.
- “In the West, the absence of an empire removed the crucial bureaucratic block on the development of market forces; merchants persecuted in one place could always go with their capital elsewhere” (John A. Hall 1985, p. 102).
- “The paradox is that competition between states, economic and political rivalry, and international tension are the best guarantees of continuing progress … The very tension which presents the greatest threat to our survival assures that, if we survive at all, some states, in order to compete better, will be obliged to encourage intellectual freedom and progress” (Daniel Chirot 1986, p. 296).
- “Competition among the political leaders of the newly emerging nation states … was an important factor in overcoming the inherited distaste of the rural military aristocracy for the new merchant class. Had the merchants been dealing with a political monopoly, they might not have been able to purchase the required freedom of action at a price compatible with the development of trade” (Nathan Rosenberg, L.E. Birdzell 1986, pp. 136ff.).
- “The political and social consequences of this decentralized, largely unsupervised growth of commerce … and markets were of the greatest significance. In the first place, there was no way in which such economic developments could be fully suppressed … There existed no uniform authority in Europe which could effectively halt this or that commercial development; no central government whose change in priorities could cause the rise and fall of a particular industry; no systematic and universal plundering of businessmen and entrepreneurs by tax gatherers … In Europe there were always some princes and local lords willing to tolerate merchants and their ways even when others plundered and expelled them” (Paul Kennedy 1987, pp. 19f.).
- “The availability of alternative nation states for production meant that labour expelled from one nation could find other nations in which to locate, and the possibilities opened for capital mobility could operate as a deterrent to widespread political confiscations” (Stanley L. Engerman 1988, p. 14).
- “Western technological creativity rested on two foundations: a materialistic pragmatism based on the belief that the manipulation of nature in the service of economic welfare was acceptable, indeed, commendable behavior, and the continuous competition between political units for political and economic hegemony” (Joel Mokyr 1990, p. 302).
- “The various European societies complemented one another, and their internal competition gave (Europe) a dynamism that China lacked” (Mokyr 2003, p. 18).
- “Ironically, then, Europe’s great good fortune lay in the fall of Rome and the weakness and division that ensued … The Roman dream of unity, authority, and order (the pax Romana) remained, indeed has persisted to the present. After all, one has usually seen fragmentation as a great misfortune, as a recipe for conflict … And yet, … fragmentation was the strongest brake on wilful, oppressive behaviour. Political rivalry and the right of exit made all the difference” ( David S. Landes 1998, pp. 37f.).
For those interested in the topic, Vaubel’s entire paper is worth reading. But if you don’t have time, just remember that national sovereignty should be celebrated. Not because national governments are good, but because competition between governments is the best protector of liberty and civilization.
I favor tax competition, financial privacy, and fiscal sovereignty because these institutions lead to better tax policy. But Vaubel teaches us that promotion of better tax policy is just the tip of the iceberg.
P.S. Since this post is designed to show the intellectual case for jurisdictional rivalry, here are some quotes from a number of Nobel Prize-winning economists.
Competition among communities offers not obstacles but opportunities to various communities to choose the type and scale of government functions they wish.
…competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations.
…tax competition among separate units…is an objective to be sought in its own right.
Competition among national governments in the public services they provide and in the taxes they impose is every bit as productive as competition among individuals or enterprises in the goods and services they offer for sale and the prices at which they offer them.
With apologies to Adam Smith, it’s fair to say that politicians of like mind seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise taxes. This is why international bureaucracies should not be allowed to create tax cartels, which benefit governments at the expense of the people.
[I]t’s kind of a shame that there seems to be developing a kind of tendency for Western Europe to envelope Eastern Europe and require of Eastern Europe that they adopt the same economic institutions and regulations and everything. …We want to have some role models… If all these countries to the East are brought in and homogenized with the Western European members then that opportunity will be lost.
…international competition provided a powerful incentive for other countries to adapt their institutional structures to provide equal incentives for economic growth and the spread of the ‘industrial revolution.’
…while it has always been characteristic of those favouring an increase in governmental powers to support maximum concentration of powers, those mainly concerned with individual liberty have generally advocated decentralisation.
[Tax competition] is a very good thing. …Competition in all forms of government policy is important. That is really the great strength of globalization …tending to force change on the part of the countries that have higher tax and also regulatory and other policies than some of the more innovative countries. …The way to get revenue is doing all you can to encourage growth and wealth creation and then that gives you more income to tax at the lower rate down the road.
In other words, it’s not just me making these arguments.
View full post on Cato @ Liberty
The west has just become a giant banana republic
Simon Black on AUGUST 16, 2012
August 16, 2012
Wikileaks founder Julian Assange has made an admirable habit of enraging western governments over the last few years, particularly the United States.
Most notably, his release of classified diplomatic documents in 2010 proved ruthlessly embarrassing, shining a spotlight on the absurd,
petty little world of international relations.
Ever since, the US government has done everything it can to stop him. Short of assassination. They shut down his website, but mirror sites instantly popped up. They sought legal action, but their efforts have been impeded by the bureaucratic deftness of his attorneys. They froze his bank accounts… but donations have poured in from all over the world.
Along the way, Uncle Sam co-opted a number of allied nations to set aside their principles for the sake of US interests–
Switzerland rolled over immediately and shuttered Assange’s bank accounts.
Australia (his home country) has remained conspicuously silent on the matter, raising not a single word of protest in his defense. One high ranking Aussie politician even publicly suggested that Assange should be killed.
Sweden has happily played along, trumping up dubious allegations about Assange and issuing an international arrest warrant.
And now there’s the UK, where Assange has been based. The British government located and arrested him, yet after his legal team was able to secure bail and delay extradition, Assange sought refuge at the Ecuadoran embassy in London. He’s been living there for two months in violation of his bail.
Assange knows that, if extradited to Sweden, he’ll be shipped off to face the death penalty in the US… so the stakes are clearly high. He even petitioned Ecuador’s president Rafael Correa for political asylum, and just hours ago, Correa agreed.
Swarms of British police have now descended on the Ecuadoran embassy in London. This, on the heels of the British Foreign Ministry issuing a warning letter to Ecuador’s government threatening to “take actions in order to arrest Mr. Assange in the current premises of the [Ecuadoran] embassy.”
Such a move would be appalling, to say the least.
Embassies are hallowed sovereign ground, not to be trespassed. Ever. This is the most sacrosanct, fundamental, inviolable principle of international relations, explicitly codified in both the Vienna Convention on Diplomatic Relations (1961) and the Vienna Convention on
Consular Relations (1963).
Article 27 of the latter, for example, states that “the receiving State [the UK in this case] shall, even in case of armed conflict, respect and protect the consular premises, together with the property of the consular post and the consular archives.”
International law seems pretty obvious here. Yet British police stand ready to storm the embassy, arrest Assange, and tear down decades of diplomatic precedent.
In a way this is almost poetic. Assange is the man who exposed western diplomacy for the fraud that it is. That he would be sent to his death by an egregious violation of its most fundamental principle seems strangely appropriate.
Regardless, the whole affair is perhaps the foulest example that western governments will ignore their own laws, or selectively apply them, whenever they see fit.
Legal precedent means nothing. Rule of law means nothing. Free speech means nothing. Their own treaties mean nothing. It’s unbelievable. Anyone in the west who honestly thinks he’s still living in a free society is either a fool or completely out of touch.
If that seems too radical an idea, consider that ECUADOR is now the only nation which stands to defend freedom and human rights against an assault from the United States, the United Kingdom, and their spineless allies.
The west has just become a giant banana republic. Have you hit your breaking point yet? If not now… when?
Statistics: Posted by yoda — Thu Aug 16, 2012 10:07 am
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The world’s gold is moving from West to East
Tim Staermose on JULY 30, 2012
Did you know that, according to Capgemini and the Royal Bank of Canada’s latest World Wealth Report, there are now more millionaires in Asia than North America…?
An estimated 3.37 million individuals in the Asia-Pacific region have a liquid net worth of over US$1 million. That compares to 3.35 million in North America.
The same trend is evident in the gold market.
While the current world hubs for gold trading and storage are London, Zurich, and New York, stores of physical metal are also beginning to migrate east. Gold storage facilities are springing up all over Asia like mushrooms after a summer rain.
Back in 2009, the Hong Kong Airport Authority set up the first secure gold storage facility inside the confines of the Hong Kong Airport.
This September, Malca-Amit, the Tel Aviv-based diamonds and precious metals company is opening a second state of the art facility at the airport, which will have capacity for 1,000 metric tons of gold.
That compares to the 4,582 tons that the US government claims is in Fort Knox, and the record 2,414 million tons that the world’s exchange traded gold funds collectively held – mostly in London– as of July 5th.
Malca-Amit also has a facility in Singapore’s Freeport complex, and the company is planning a third Asian precious metals storage facility in Shanghai in the near future.
Speaking of Singapore, Simon has written before that the government there recently announced a series of incentive measures aimed at grabbing as much as 15% of the world’s physical gold trade within 5 to 10 years.
Among the measures, the Singapore government will exempt investment-grade gold, silver and platinum from the local goods and services taxes (similar to VAT or sales tax), beginning October 1, 2012.
ViaMat, one of the world’s most well-known secure logistics companies, is also doing heavy business in Singapore and Hong Kong. ViaMat, in fact, is the security partner for such groups like GoldMoney.com and HardAssetsAlliance.net which offer turnkey gold storage solutions.
Private individuals can contract directly with ViaMat, though their fees can be quite steep… so this may not make sense unless/until your holdings exceed several hundred ounces.
For private investors with smaller holdings, a place like The Storage in Hong Kong is a great option, especially considering how inexpensive it is to buy gold in Hong Kong.
Simon and I have both written before that premiums on gold coins in Hong Kong can run as little as 0.15% above spot—you can see this for yourself at places like Hang Seng Bank and the Bank of China, both located on Des Voeux Road.
One of the great advantages of Hong Kong as a place to buy, sell and store gold is that there are no taxes or duties on imports or exports of precious metals. There is no local sales tax either.
Moreover, the market for precious metals is deep and active, and no one bats an eyelid if you walk into the bank and drop a wad of cash to exchange for gold bullion.
Contrast this with places like the United States where cash transactions are increasingly being viewed with major suspicion, and the government is trying to recruit everyone from bankers to coin dealers into being unpaid spies.
Until next time,
Statistics: Posted by yoda — Mon Jul 30, 2012 10:59 am
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