The degradation in some countries is really Exploding!

Particularly in Latin America, reality is catching up with the "nice" socialist political dreams, and things are getting really bad:

http://www.zerohedge.com/news/2014-01-24/20-early-warning-signs-we-are-approaching-global-economic-meltdown

The biggest lesson is not what is happening (because it was expectable, and even inevitable, and the signs were clear to everyone paying attention).
The lesson here is that these things tend to start evolving slowly and then, suddenly, they degrade EXTREMELY fast.

Again Argentina (and Venezuela, and all our countries...)

I will keep this post short.
The idea is just to link a very recent mainstream news article with some generic info on the most recent Argentinean developments:

http://www.nytimes.com/2014/01/25/world/americas/argentina-eases-currency-controls-but-citizens-are-not-reassured.html?_r=0

I will just comment two specific points:

1.
Notice the blackouts.
They are a very strong sign of extreme economic unbalances, and of serious societal disaggregation.
They happen in every decaying county (in South America Venezuela and now Argentina - the most extreme socialist experiments in that zone - are excellent examples), and can be considered one of the worst consequences of failing societies/economies, since they tend to aggravate things even further, and prevent normal life and normal economic activities.
Just to illustrate, for some, having no electricity may be (or seem, at first...) just a limited inconvenience, although it gets worse when it lasts, or when it is recurring (frozen stuff gets ruined, it is impossible to use computers or TV, it is impossible to charge cell phones, etc.).
But if you use a wheelchair and really need an elevator to get out of (or back to) your 4th floor apartment, lack of electricity is more than a simple annoyance...
Also some crucial activities get seriously degraded. Just think of hospitals, supermarkets, schools, factories, etc..
2.
Note relatively exotic things failing, like (in the case described in the article) the possibility of simply using a plane to get out of those countries.
Lack of ordinary products in the stores is a lot more common: things like toilet paper, milk, medicines, whatever (the specific things missing tend to vary according to the details of each country internal production).
This kind of (more or less) random failings are the inevitable result of interventionist governments creating more and more unbalances, more and more arbitrary economic destructive rules, in the process of trying to solve the problems they already created.
It is the very ordinary situation of having some politicians totally disconnected from the realities ruining the economy, and then having those same politicians trying to solve the problems they themselves created - usually by applying even more extreme versions of the policies that created the original problems...

Expect these problems closer to home, later on, when countries that now seem rich, stable and in good working order (like Argentina seemed to be some years ago) follow similar paths (Argentina's path can be argued to be just slightly more socialist than most of Europe, the USA, etc.)...

Take care!

A funny (if disgusting) piece...

While some politicians are aware of the realities of life and even of the present "slow crash" of our civilization (see the previous post in this blog), others are in the exact opposite situation.

In last week´s economy supplement of the biggest and most influent Portuguese weekly newspaper ("Expresso", economy supplement, from 11 January 2014), I found a text that must join the top 10 list of the stupidest pieces of opinion I ever read.

I is titled "Mais austeridade, quem nos acode?" (in English "More austerity, who will save us?"), and with this title, I thought: This must be a fun one, lets read it.
Note:
"Austerity" is the dirty word that left propaganda uses to classify the limited efforts to slightly reduce state spending in the broke "troika assisted" European countries (and also in some pre-broke counties that are just being "assisted" by extremely lax QE policies of the central bankers). In Ireland, Greece, Portugal (and in smaller scale in Spain, Italy, etc.) populist/social-democrat governments, forced by lack of money to spend even more, have been trying to somewhat reign in spending.
The extreme left claims that compressing state spending from, lets say, 50% to about 47% of GDP - google "fauxsterity", or just look it up here...) is a deliberate policy pursued by the "neo-liberal" (the insult applied by the extreme left to the social-democrats) to punish the poor, out of pure meanness.

Back to the text in Expresso (see the illustration just below).

I will not try to translate the text, since it defends the usual: reigning in state spending is wrong, increasing spending is the right course to solve all the society's problems, and to generate the economic growth that is needed to service the state debt, etc..
It suffices to say that this text would put even Krugman to shame with its superficiality and disconnection with reality - and (because they function in a circular propaganda ring) it was promptly grabbed by the leftist minions that intend to attain power in Portugal in the next elections to justify another small attack on the present "austerity".

So, since the text was so particularly stupid, and since the author is identified by name but classified simply as "economist", I went to look up who he might be...
And BINGO!
He is nothing less the "secretary of state" (a junior minister, in Portugal) responsible by the state budget during the previous government (2005-2011).
That was the government that (following 35 years of uninterrupted public deficits, European Union warnings over excessive deficits and so on), overspent so much that market lending to Portugal ceased, forcing that same government into signing a fast agreement with the "troika" of last resource official lenders, the agreement that enforces the present "austerity" measures!

Even during his tenure in that government, the author of this text in "Expresso" was an especially funny representative of delirious Keynesianism.
Once, in an important public talk, he went as far as classifying his (and his government) policies as "Keynesianismo Iluminado" ("Enlightened Keynesianism"), in the best North Korean lingo...

Obviously, in more serious countries, or in more serious times, this funny specimen would be thrown in jail to rotten there, or worse. After all, his government and his policies bankrupted a country, and created lots of pain and sufferance to millions (from mere disrupted careers, marriages, etc., to occasional effective deaths due to necessary reduction of medical spending).
In Portugal?
He is now a consultant for the central bank ("Banco de Portugal"), and is seemingly well-regarded in the hare-brained Keynesian press of this funny, de-evolving, small country...

Some top politicians are aware of our civilizational decay

This post is important, but it does not need an introduction.

It is a link to a short news piece that shows that (even) some top politicians are aware of the present decay of our societies, and of its main reasons:
George Osborne issues 'reform or decline' warning to EU

Three short comments:
1.
I fully agree with the views expressed by Osborne in this subject. Also, there are other well known politicians that share the same views, like (for a single example) Ron Paul in the USA.
2.
It is obvious that this problem spreads outside Europe. Presently, the US is a very strong example of the same problem, but we could add just about any other country based on similar "western" approaches.
3.
The fact that some top politicians recognize the problem, and speak about it publicly, will not change the inevitable course of our societies, no more that a blog like mine.
During the final decline of any great previous civilization (the Roman Empire is the best studied case, but there are many other examples) many persons noticed the decline, spoke about it, fought against it, to no avail.
These civilizational decline processes are well studied, and there are great books about them.
Basically, we can only watch them happen, and navigate them the best we can, to reduce the pain at personal or familial levels...

Evolution in Argentina

Argentina is a wonderful example of how the inevitable evolution of democracies towards greater entitlements at the cost of those that for the time being remain productive (or, in more generic terms, socialism...) destroys countries and societies.
In Argentina's case, they call it "Peronism" - a populist, welfare-state, socialist approach that started 70 years ago and today, in a radicalized version, remains the main inspiration of the present socialist government.

What makes Argentina such wonderful example?
Mainly the fact that Argentina had everything to be one of the richest countries in the world.
A relatively homogenous and industrious population coming from a wide European basis, amazing natural resources, wide spaces allowing for cheap, large-scale agricultural production, etc..
In fact, between the beginning of the XX century and the start of peronism, around 1945, it really was one of the richest, most developed, and fastest growing countries in the world!
In short:
- By 1900 Argentina was the 8th richest country in the world (on a per-capita basis).
- By 1929 Argentina was the 4th richest country in the world (on a per-capita basis).
- By the end of WWII (1945) Argentina was arguably the richest large county in the world (!!!) in a per-capita basis (or the second, behind the USA, depending on the exact metrics used).
That was the moment Peronism hit the country. Argentina's downfall started, and was quite fast (we can measure it in a single lifetime, about 70 years).

The fact that Argentina's recent history is so interesting and could teach so much (if people were ready to learn from the mistakes of the others) means there is a vast literature about this subject, from books (a good example: "Argentina: An Economic Chronicle. How One of the Richest Countries in the World Lost Its Wealth") to a vast number of online articles.
A Google search with the 3 words "Argentina" "economic" "downfall" finds about half a million entries (!!!), and good articles about the subject can easily be counted in thousands!
Some examples:
- Argentina's collapse - A decline without parallel

- How to Destroy a Rich Country

- What Happened to Argentina?

(But, really, there are literally thousands of articles about it - although, obviously, some are better than others.)

 

Anyway, the funniest part of the story is the full blown economic destruction of the country in the last 15 years, at the capable hands of the Kirshner couple (first Nestor, then Cristina).

Cristina, in particular, seems bent on terminal destruction of the country, at a level close to Chavez/Maduro in Venezuela, Ceausescu in Romania, or Mugabe in Zimbabwe.

  

Anyway, in Argentina things keep evolving in line with what could be expected.

State spending grows to fulfil the populist promises that (still) win elections; economy gets worse and worse; tax collection get more and more insufficient to cover state spending; state "regulation” (including administrative price fixing, export limitations, extreme currency controls, etc.) increases, to try to prevent reality from happening; the only "solution" is printing more and more fiat money, ending in hyperinflation, ruin, and chaos...

Following regularly the news of these countries is very interesting. At present there are several cases of extreme socialist approaches in Latin America, but I particularly like to follow the evolution of Venezuela and Argentina.
What is happening there is a good lesson to prepare us all for the future of our own countries, and of our civilization in general.

 

In this spirit, here are a couple of recent articles about the new, improved, Price Controls 2.0 in Argentina:

 - Argentina to Tighten Food Price Controls as Inflation Quickens

 - Argentine peso at new lows as food price controls take effect

 

 

 

 

 

 

"Tax amnesty" initiatives and public deficit in Portugal

A short post about a specific Portuguese subject: The very recent "tax pardon" that made so many happy national headlines (I will link a single example, but I'm sure all my Portuguese friends saw many others), since it surpassed expectations.

Some quick specific points:

The overall amount of taxes paid under this most recent "tax amnesty" was 1253 million euros, well above the 700 millions that the government had expected.

Those 1253 million  will lower the Portuguese 2013 public deficit by about 0.7% of the GDP. This in turn will allow the government to attain (and even beat!) the 2013 public deficit of 5.5% of the GDP that was accepted by the troika (the financial rescue group that integrates the IMF, the ECB and the EU itself).

Of course, those 5.5%, were a recent upward revision of an already upward revised prediction of 4.5%, from a year ago. But what does that matter? Everybody is happy, since it seems that the most recent official deficit target will be beaten.

Now, for the reason of this post:
This was not a real tax amnesty (the direct translation of the Portuguese expression is more colorful: "fiscal pardon", since the original is "perdão fiscal").
This was just a time window during which the families and companies that had to pay tax debts (mostly already identified and in the process of being collected), could pay those debts with a reduction of the fines and interest that would ordinarily be applicable.
As such, this merely anticipated (to the last 2 months of 2013) the collection of tax debts that would normally be collected (with some additional fines and interest, now forfeited) during the next few months.
At most, this scheme may have collected a very limited proportion of debts from entities that some months from now could have gone bankrupt, and end up not paying those debts. But that proportion was certainly not relevant, since companies going bankrupt in short order probably would not have now the funds to pay the debts upfront and, anyway, the Portuguese bankruptcy laws place the State (specifically, the tax and "social contribution" authorities) at the top of liquidation precedence.

So, in short, this scheme just anticipated already expected tax collection, and just saved the last revision of the 2013 deficit at the cost of worse forward deficits!


Note:
To contrast this with a real tax amnesty (or "fiscal pardon"), in Portugal, we don't need to go back many years... The last one was in 2012!

Quoting (in Portuguese) from one of many possible sources:

Regime Especial de Regularização Tributária (RERT III) - O RERT III é um regime excecional de regularização tributária, previsto na Lei do Orçamento do Estado de 2012 e regulamentado pela Portaria n.º 17-A/2012, de 19/01 para declaração de elementos patrimoniais não localizados em Portugal em 31/12/2010, cujos rendimentos correspondentes não tenham sido declarados à Autoridade Tributária, à semelhança do que sucedeu aquando do "Orçamento retificativo" de 2005 (RERT I) e da Lei do Orçamento de Estado para 2010 (RERT II).

Beneficiários: Pessoas singulares e pessoas coletivas que possuam elementos patrimoniais que não se encontravam em território português em 31/12/2010, e que consistam em depósitos, certificados de depósitos, partes de capital, valores mobiliários e outros instrumentos financeiros, incluindo apólices de seguros do ramo «Vida» ligados a fundos de investimento de capitalização do ramo «Vida».
 

This example includes a real amnesty in terms of forgiving past possible unpaid taxes, and no fines, nor criminal charges for those that followed the amnesty rules, and declared and paid a specified proportion of previously undeclared assets detained abroad (7.5%, in RERT III).
As such, in this case, an initial "declaration" fee was collected (a fee that otherwise would not be collected) and significant assets entered the taxation system, to pay ordinary taxes going forward (taxes that otherwise would not be collected in the future, since they will result from assets that without this amnesty would remain unknown by the tax authorities).

This second example, from 2012 (and note, from the citation above, that it followed similar amnesties in 2010 and 2015...), represents something that may be unfair for those previously paying all the legislated taxes, but that effectively adds both immediate and future tax income to the State.

The 2013 "fiscal pardon" merely anticipates tax income, at the cost of reduced tax income in the (near) future.
It was very successful, but it was merely another contortion to achieve a (short-term) delay in the final recognition of a dismal fact:  The Portuguese political rulers are not able to implement real deficit reduction.  In fact, they don't even desire that to happen, since they can't bear the thought of a reduction in the dimension and strength of the State.  All their efforts are focused on disguising the country realities, so that the Troika (now) and the markets (hopefully soon) will go on lending for a little while longer...

Bank evolution in Europe, with some focus on Portugal

Hi!
First post here!
Not that it is particularly important or inspiring, it is simply the first.
This one is related to the banking crisis that is slowly unfolding in some European countries, although disguised as well as possible (since every stakeholder has a lot to gain from trying to make things look good, instead of bad...).
Like many of the posts that will follow, it is based/inspired on something I read elsewhere.
In this case, the source is this article by John Mauldin, an author I appreciate very much.

Two points that deserve special attention on Mauldin's article are:

1) This chart, that illustrates the recent evolution of national debt owned by the banks of some key European countries:

 

This chart shows absolute values. As such, those values must be interpreted according to each countries' dimension.
The critical evolution of the Spanish and Italian cases is clear.
Portugal's evolution is also interesting. The country is being assisted by official international lenders (the "troika", that includes the IMF, the ECB, and the EU itself), because commercial lending to Portugal basically ended in 2011 (due to well justified concerns about the sustainability of the country's debt). During 2012 and 2013 Portugal was able to obtain some very limited funds in commercial syndicated debt placements. It seems clear that the source of those funds was almost purely internal...
The situation of the Portuguese banks is even funnier because most of the larger Portuguese banks are receiving support (funds that can be counted as part of their Tier 1 capital) from the Portuguese state, at the same time that they are lending growing amounts to that same state. All will be well until all goes burst. And when it happens it will be mutual assured destruction.
Will there still be (new?) official lenders of last resource to save the future national debacle? In face of much greater problems than hose of 2011 will the IMF decide to increase its lending, after the present round of financial support? Will The EU/Germany step in for a (further) rescue? Doubtful.

That leads us into:

2) This gem, found (ok, it was not really deeply hidden) and cited by Mauldin in the above linked article:

 

Carefully read, this is interesting in itself. But, to fully appreciate it, one needs contextual information about the evolution of non-performing debts in the "eurozone periphery" (a reality that the banking sector has been successful in disguising).
Here, again, Portugal seems to be a good example.
I will discuss it in future posts.