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Wednesday, September 28, 2011

Source: Chinese official tells Clinton U.S. should reconsider Taiwan arms deal

China is continuing to speak out against a multibillion-dollar U.S. arms sale to Taiwan, with the Chinese foreign minister telling U.S. Secretary of State Hillary Clinton Monday that the Obama administration should reconsider the deal.

Chinese Foreign Minister Yang Jiechi met with Clinton in New York, where the United Nations General Assembly is in session, according to a senior State Department official who spoke on background.

Yang "was making very serious representations to Secretary Clinton, asked the Obama administration to reconsider this decision and indicated that it would harm the trust and confidence that was established between the two sides," the official said.


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PM Netanyahu's greetings for Rosh Hashana 5772

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Geithner’s plus-sized euro bailout is stealth QE3

Jon Markman

The plan, cooked up by U.S. Treasury Secretary Tim Geithner, is to persuade European leaders to vastly expand the size of the emergency bailout fund known as the EFSF, or European Financial Stability Facility. His proposal, and I’m not making this up, would use leverage -- i.e., borrowing -- to increase the size of the already borrowed money in the fund by up to 10x.

This is a little hard to believe, but it’s the truth. The funds from euro-zone countries in the EFSF have already been borrowed. And now the plan espoused by Geithner is to use that money as collateral to borrow as much as ten times more. The guy does not get enough credit for his evil genius.

Why would they do this? Well dial back your mental time machine to the fall of 2008, if you will. You will recall that before TARP there was a similar U.S. plan to bail out the financial system, but it was judged to be too risky. So now it looks as if Geithner, who was the head of the New York Federal Reserve Bank at the time, is conspiring with the International Monetary Fund and others of like mind to recreate that massive weapon of financial destruction to aim at the debt crisis in Europe.

If you close your eyes and meditate a moment on the concept, you can think of this extra-extra-large EFSF as a stealth quantitative easing platform, or better yet, a super-gigantic stimulus package that, despite its size, would actually be rather stealthy. Smart, huh?

They aren’t calling the EFSF a stimulus ploy, but you see if the money is actually deployed into the European banking system to fill in the cracks where Greek bonds used to be, then it would push money that did not previously exist into the world’s financial veins. The path from there is a little convoluted, but it should then work its way back to the United States as the Europeans buy boxes of Cocoa Puffs and bottles of Clorox, and maybe a Chevy or two.

They won’t say this of course. The cover story is that boosting the size of the EFSF would prevent national parliaments in France, Germany, Finland, Slovenia and other euro-zone countries from having to vote on an increase for the size of the bailout fund.

But the reality is that Geithner, Lagarde & Co. want to circumvent Congress and EU legislators by creating, essentially, a credit derivative hedge fund that would spray super-charged money on an arid European bankscape in hopes that something will grow.

The plan would at minimum recapitalize the region’s banks and provide for a Greek sovereign debt default that could allow for a 50% loss of capital by lenders.

Will it happen? In some ways it will not matter for awhile if it does not or not. Just the idea that it could happen may provide a buzz of hope and confidence. Like kids daydreaming about prom, the anticipation is so much better than the event. Late on Monday the Germans were uttering their usual guttural negative reaction to anything that the Americans propose, but my guess is that they will ultimately go along with it.

Now let me sidestep a moment outside of journalism and into the realm of conjecture for a hidden reason that the Germans and French may be working so hard to save the euro zone and Greece, which on the surface seems like bad bets.

Everyone knows that by backstopping Athens financiers, the government of Chancellor Angela Merkel has said that it is really saving German banks. But I am guessing that additionally the Germans and French do not want bankruptcy examiners to have a chance to sniff around the Greek balance sheets and find out what happened to all the missing billions.

To be sure, it’s possible that Greece simply squandered the money it borrowed. But what if there has been something like a Ponzi scheme afoot the past few years -- a Madoff-by-the-Mediterranean, if you will -- in which Greek government or banking officials have siphoned off the money and secreted it at European banks with the tacit agreement of their creditors?

I have no evidence for this. It is just a hunch based on the logic that sums this large with so little oversight provide overwhelming temptation, and on the fact that it does not make sense that the straight-laced French and Germans are working so hard to preserve the southern bacchanalia.

And there are plenty of obstacles to it getting done. Late Monday, the head of the constitutional court in Germany, Andreas Vosskuhle, blasted the efforts to push the country toward a new debt solution by stating that no fiscal powers may be surrendered to Europe without a new constitution and a popular referendum. The comment was believed to complicate plans to boost the EFSF to 2 trillion euros, as any suggestion that Merkel is conspiring with the EU elite to circumvent the Bundestag is political poison.

According to a report in U.K. newspaper The Telegraph, the top German judge told a Frankfurt newspaper: “There is little leeway left for giving up core powers to the EU. If one wants to go beyond this limit -- which might be politically legitimate and desirable -- then Germany must give itself a new constitution. A referendum would be necessary. This cannot be done without the people.”

In short, the super-sized EFSF is not a done deal. But if it is accomplished, it could be a whopper that would make the fairy tales seem unimaginative, and set the stage for a robust fourth quarter rally.

Of course, piling debt on debt to pay for debt collateralized with debt is inherently unstable, however, so don’t get too comfortable because the bill will come due.

Jon Markman is a money manager and investment adviser in Seattle. For more ideas like these, try a two-week trial to Markman’s daily investment newsletter, Strategic Advantage , published in partnership with MarketWatch, his daily trading newsletter,Trader’s Advantage , or his e-mini futures timing letter, Gemini 252 . His Twitter feed is @jdmarkman.

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US Has More Serious Problems Than Europe: Jim Rogers

Global markets have been whipsawed in recent weeks as uncertainty over Europe's debt situation persisted. But renowned investor Jim Rogers says the U.S. economy has more serious problems than Europe.

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Jim Rogers says he's more worried about the U.S. debt situation than he is about Europe.

"Europe has a few bad, bankrupt states, so does America. We've got Illinois which is bigger than Greece, we've got California, we've got New York, you know those are pretty big states that have serious economic problems. We have pension plans in America that are terribly under water," Rogers told CNBC on Tuesday.
According to Rogers, the U.S. has deeper structural problems than Europe as well as higher debt levels.
"Europe's got some bad problems but the entity as a whole is not nearly as deep in debt as the U.S. They don't have a huge balance of trade deficit, like we do," Rogers said.
Investors have been worried about the lack of a unified response from Europe. Leaders in the single currency group have been accused of being behind the curve and not getting to grips with the crisis even as stock markets have swooned. But Rogers believes that America, despite having a single fiscal policy, is actually worse off in terms of its debt situation.
Rogers reiterated his previous calls to allow Greece to go bankrupt, and lauded the German taxpayers’ resistance to bail out the debt-laden country.
"I wouldn't want to bail out the Greeks either if I were the Germans or the Dutch or the Finns or the Austrians. I wouldn't either and that brings more discipline to bear than what happens in the U.S. where just everybody runs amok," he added.
Rogers said the introduction of Euro bonds would be a bad move because it would give European politicians greater freedom to spend and he said plans to leverage up the European Financial Stability Facility (EFSF) would be a bad idea.
"It's just going to make the eventual collapse even worse, because they're not dealing with the problems," he said. "The solution for too much debt is not more debt - although that's what they seem to think it is."
Rogers said he would buy more euros if policymakers began to force "substantial" haircuts on debts of all the peripheral European countries, although he admitted that would require partial nationalization of the banking system. Reports
"If they did that, that would be very exciting," he said. "The realization would set in that you cannot just spend money you don't have. Then banks wouldn't lend money to people who keep phony book-keeping. Then you wouldn't have wild deficit spending throughout Europe."
"Then, at that point, the euro would probably be a sound currency. If they really did something like that I would have to buy a lot of euros," he added.
Despite his bearishness towards the U.S. economy, Rogers said he continued to hold onto dollars, which he bought earlier this year, when investors were extremely bearish on the currency. He said he might buy more if the situation in Europe worsened, driving more people towards the safety of the greenback


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Bad options worsen for non-resident U.S. citizens targeted by the IRS Read more: http://www.vancouversun.com/options+worsen+resident+citizens+targeted/5466178/story.html#ixzz1ZGX1FCs1

American citizens living in Canada are at risk of huge penalties from the IRS.

Before a so-called amnesty expired on Sept. 9, the options were bleak for hundreds of thousands of “U.S. persons” living in Canada — mostly American or dual citizens, plus some others with immigration green cards or part-time U.S. homes — who hadn’t filed regular tax returns or asset declarations to the IRS.

Now the choices left for those who let the deadline slip by are even worse.

The issue isn’t unpaid taxes. The people I’m writing about do not, and most of them never have, owed the American government a penny in income tax.

The issue is penalties — huge when the “amnesty” was in effect, and much larger now that it has ended — for failing to file pieces of paper with the Internal Revenue Service bureaucrats.

Some of those affected knew they were supposed to file but, after years of filling in returns showing no taxes owing, they stopped because they saw no point.

And many didn’t know the IRS imposed on them a requirement to file. Some didn’t even know the IRS could do such a thing to them because they had no idea they were considered U.S. citizens.

Some were born in the States, or in Canada to one or more U.S. citizens, and never looked into their dual nationality. Some presumed — with good cause at the time — that they severed their U.S. connection when they embraced Canadian citizenship in the 1950s, ’60s, ’70s or early ’80s.

And probably they did, at least until the mid-1980s when a U.S. Supreme Court decision restored their citizenship — without their consent, and even without their knowledge.

Now, says Ron MacDonald, a cross-border tax expert at Deloitte’s Vancouver office, not only have the probable penalties increased several times over, but non-compliant filers could also face the possibility of criminal prosecution, even jail.

Not only are the options both limited and unpalatable, he told me in an interview, but nobody knows how — or how fast or how aggressively — the IRS will act.

On one hand, the U.S. tax collection agency is reported to be acutely short-staffed, and it may not have the resources to pursue most of the many, many thousands of non-compliant non-resident “U.S. persons.”

On the other hand, the American government is desperately short of revenue, and the American media are treating the issue as one involving tax-dodging criminals, which means public sympathy for the law-abiding majority is in short supply. As well, the IRS is known for playing hardball, and is far more prone than the Canada Revenue Agency to prosecute and jail people who fall afoul of its rules.

MacDonald’s colleague, Jyothi Rao, said her firm’s clients in Vancouver were all referred to tax lawyers as well as the Deloitte advisers they consulted, and she estimated that about half decided not to proceed with filing.

MacDonald said the combined fees for Deloitte and lawyer’s services could hit $100,000 or more, but it was the prospect of the penalties — up to 20 per cent of the money people have accumulated in a variety of accounts and investments — that influenced most who decided to take no more action.

Non-compliant filers can still make voluntary disclosures, he said, but the prospect that the penalty might be reduced to five per cent is no longer on the table.

Or — and these are not strategies he recommends as he has no basis to predict a probable outcome — non-compliant Canadian residents could simply start filing going forward and wait to see if the IRS comes back at them for previous years’ filings and penalties. Or they could continue to do nothing, particularly if they can avoid ever again going to the U.S.

Neither MacDonald nor Rao nor I have ever heard of people being stopped at the border for non-compliance with tax-filing rules.

But, “It wouldn’t surprise me if at some point they integrate the systems,” MacDonald said. “You’ll drive up to your friendly border guard and he’ll pull up your name and it’ll come up as a delinquent filer. And that’ll be it. And you won’t have the option of going back into Canada at that point — you’ll be arrested and thrown in jail.”

A final option might be for U.S. citizens to formally renounce their citizenship, though one sticky rule may make this impractical for people who’ve accumulated many assets — and a correspondingly large liability for non-compliance penalties — over the years.

Read more: http://www.vancouversun.com/options+worsen+resident+citizens+targeted/5466178/story.html#ixzz1ZGXE5BDi

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Goldman Sachs rules the world: UK trader

A financial trader in London caused a storm of outrage by suggesting that world leaders cannot do anything to prevent a global market collapse, saying that investment bank Goldman Sachs ruled the world.

Alessio Rastani's comments on BBC Television on Monday have gone viral, viewed by more than 360,000 people, but they fit so closely to the stereotype of a heartless banker that rumours are rife that he is actually part of a hoax.

Answering questions about world leaders' response to the eurozone debt crisis, the 34-year-old said traders "know the stock market is finished. The euro, as far as they're concerned, they don't really care".

"For most traders, we don't really care that much how they're going to fix the economy, how they're going to fix the whole situation, our job is to make money from it," he said.

"Personally I've been dreaming of this moment for three years. I have a confession, which is I go to bed every night, I dream of another recession."

As the BBC presenter looked on in shock, he added: "The governments don't rule the world. Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package, neither does the big funds."

A Goldman Sachs spokeswoman said the bank had no comment.

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Record Low New Home Sales In 2011

New home sales in the United States are on pace to set a brand new all-time record low in 2011.  This will be the third year in a row that new home sales have set a new record low.  Sadly, this is yet another sign that the U.S. economy continues to grow weaker.  Back in 2005, more than four times as many new homes were being sold as are being sold today.  The home building industry is one of the central pillars of the U.S. economy, and the fact that we are going to set another new record low for home sales in 2011 is a really bad sign for those hoping for an economic recovery.  Unlike most of those that work in the financial industry, those that build new homes produce something of lasting value for American families.  In addition, millions of Americans have traditionally made a solid living by building and selling new homes.  But today the market for new homes has totally dried up and large numbers of those jobs are disappearing.  Some of the reasons for this include high unemployment, a glut of foreclosures on the market and the tightening of lending standards on home loans.  In order for the U.S. to have anything resembling a healthy economy again, we are going to need a revival in the sale of new homes.
But unfortunately, it looks like things are getting even worse.  In August, the number of new home sales declined for the fourth month in a row.  That is a very troubling sign because typically summer is the best time for new home sales.
Celia Chen, the director of housing economics at Moody’s Analytics, is saying the following about the dismal numbers....
"With job growth at a standstill, the stock market swinging wildly, Congress wrangling over the debt ceiling and the euro zone’s problems sending consumer confidence down, sales of new homes are slipping from an already weak pace."
When you take a close look at the numbers, it really is shocking to see how far we have fallen.
Back in 1963, the U.S. Census Bureau began monitoring new home sales.  Prior to the most recent economic downturn, the record low for new home sales happened in 1982.
In that year, only 412,000 new homes were sold.
Well, that record was broken in 2009.
Then it was broken again in 2010.
And it will be broken again in 2011.
This year, we are on pace to see only 303,000 new homes sold in America.
That is beyond pathetic.
To get an idea of just how bad that is, just check out the following chart which comes from the Calculated Risk blog.  The first number is the year, the second number is the total number of new homes sold during that year, and the third number is the total number of new homes sold through the month of August during that year.  The number of new homes sold during 2011 is a projected number....
2000:  877  608
2001:  908  644
2002:  973  670
2003:  1,086  759
2004:  1,203  841
2005:  1,283  906
2006:  1,051  756
2007:  776  577
2008:  485  365
2009:  375  261
2010:  323  231
2011:  303  211
As you can see, this will be the fifth year in a row that new home sales have fallen.
And yet the folks on television keep telling us that the recession is over.
The frightening thing is that new home sales are this anemic even with mortgage rates at historic lows.
So what is going to happen once mortgage rates start going up?
It is hard to imagine new home sales getting even worse than they are now.
And we desperately need to get things turned around.  New home construction is very good for the economy.
According to the National Association of Home Builders, each new home that is constructed creates the equivalent of 3 jobs for an entire year and generates approximately $90,000 in taxes.
So what is holding things back?
Well, for one thing, if people do not have good jobs they cannot afford to buy new homes.
Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.
That is a massive problem that needs to be solved.
Unfortunately, our leaders continue to allow millions of our jobs to be shipped overseas.
If you gathered together all of the people in the United States that are "officially unemployed" right now, they would constitute the 68th largest country in the world.  It would be a nation larger than Greece.
Secondly, there is a gigantic glut of foreclosed homes on the market right now that is competing with new homes for the few qualified home buyers that are out there.
It is absolutely shocking how many vacant homes there are in some areas of the country.
According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.
In the city of Detroit alone, there are more than 33,000 abandoned homes.
Until the number of vacant homes goes down, there is just not going to be a need in the marketplace for a lot of new homes.
Sadly, it looks like another huge wave of foreclosures could be on the way.
According to the Mortgage Bankers Association, at least 8 million Americansare currently at least one month behind on their mortgage payments.
That is more than a bit frightening.
Thirdly, lending standards on home loans have dramatically changed.
Five or six years ago, if you were breathing you could get a home loan.
Even the family dog could get a home loan.
But now the pendulum has swung to the opposite end of the spectrum.
Applying for a mortgage today is like getting a series of proctology exams from a very rude and very uncaring doctor.
Many mortgage lenders today will deny you at the slightest hint of a problem.
Even if you have a very high income, near perfect credit, very little debt and a long history of financial responsibility there is still a very good chance that you will be turned down.
If you don't believe this, just start talking to people that have applied for home loans lately.
A ton of pending home sales are being cancelled because potential home buyers simply cannot get approved.
Until some sort of "balance" is restored to the mortgage lending process, this is going to continue to be a major problem.
It would be nice if I could tell you that things are going to get better soon, but the truth is that there are all kinds of signs that the U.S. economy is getting even worse and there are all kinds of signs that the global financial system is on the verge of a massive nervous breakdown.
So if you make a living by building or selling new homes, you might want to find other ways to supplement your income for a while.
Things are not going to turn around significantly any time soon.
Economic Collapse

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Germany slams 'stupid' US plans to boost EU rescue fund

Stars and stripes, white house

German finance minister Wolfgang Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.

"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said.

Mr Schauble told Washington to mind its own businesss after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world".

"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government," he said.

The comments risk irritating the White House. US Treasury Secretary Tim Geithner has been a key driver of plans to give the EFSF enough firepower to shore up Italy and Spain, fearing a drift into "cascading default, bank runs and catastrophic risk" without dramatic action.

The danger for Germany is that America will lose patience, with unpredictable consequences. The US Federal Reserve is currently propping up the European banking system in a variety of ways, including dollar swaps.

Markets across the world ignored the mixed signals about the true scope of EU rescue measures, convinced that EU leaders have a "grand plan" up their sleeves and will unveil the details after the Bundestag has voted on Thursday on the earlier July deal to revamp the fund.

France's CAC-40 surged by 5.7pc, led by a 17pc rise for Societe Generale. Germany's Dax was up 5.3pc. The FTSE 100 jumped 4pc in London, the biggest one-day rise this year. Oil jumped almost $4 in New York to $88 a barrel.

In Berlin, Chancellor Angela Merkel was fighting for her political life as the rump of lawmakers from her coalition vowed to reject the EFSF package, though the latest tally suggests she may squeeze by with her own majority. Angry dissidents suspect that secret plans are being withheld until after the vote.

Greek premier George Papandreou told German business leaders that his country would honour its austerity pledges, but also issued a veiled warning. "The persistent criticisms levelled against Greece are deeply frustrating, not only at the political level, where a superhuman effort is being made to meet stringent targets in a deepening recession, but frustrating also for the Greeks, who are making these painful sacrifices."

"Drastic measures have had a dramatic impact on the living standards of our citizens. Many Greeks feel they have little left to give. If people feel only punishment and scorn, this crisis will become a lost cause," he said.

Mr Papandreou's Pasok party passed a crucial vote on Tuesday to raise property taxes, but at a high political price. The party's approval rating has fallen to 15pc in the latest Mega poll.

However, Greece was confronted with a new threat as it emerged that several eurozone members are demanding the private sector absorb bigger losses than originally agreed as part of a second bail-out.

A deal struck in July would see creditors taking 21pc losses on their Greek debt holdings, adding around €45bn to the €109bn proposed second rescue. However, more than a third of the 17-member single currency bloc are now said to be demanding bigger haircuts for the private sector. Talk of revisions to the second bail-out may renew default fears as the IMF has yet to re-engage with Greece over the latest €8bn tranche of its initial €110bn rescue. Greece is at risk of running out of money by October 8, though analysts say the payment is almost certain to be made whether or not Greece has complied fully with the terms.

Greece has a trump card in rescue talks with the IMF-EU "Troika". If it opts for a "hard default", it could set off a chain reaction. Lorenzo Bini-Smaghi, an ECB board member, said those arguing that Europe's banks could withstand a Greek default are misguided. "Similar views were held before Lehman. Those who say this have no idea how contagion works," he said.

Analysts say the Troika will have to approve the next €8bn tranche of aid for Athens in October whether or not Greece has complied fully with the terms. It cannot risk a showdown before Europe's banks have beefed up their capital base, or before the EFSF is fully equipped to defend the rest of the system.

Like a forced marriage, Europe and Greece must kiss and pretend.


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Greece on edge of debtonation as govt tightens tax noose

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