Waiting for the GULAG Act...

When are we, as a nation, going to offer our apologies to the former Soviet Union for calling them an "Evil Empire" and "the focus of evil in the modern world." Honestly, a mere 30 years after Reagan's speech we have become what we excoriated in communist Russia.

It's like we took their "totalitarian darkness" as a blueprint for our own "supremacy of the state", complete with roadside checkpoints, indefinite detentions of citizens without trial, and violent crackdowns on dissidents.

Now we get the obscenely Orwellian (or oddly illiterate) Ex-PATRIOT Act (see below). Somehow this law, complete with the most bizarre acronym of a name, was produced in mere days after the story of Eduardo Saverin's renunciation. I tend to be very wary of conspiracy theories, but this has all the markings of an orchestrated propaganda play. Saverin filed for expatriation nearly 18 months ago. He was approved over 6 months ago.

Yet, somehow, it became headline news just before the Failbook IPO. The hue and cry that arose on social networks and in the press was blood curdling and blood thirsty. Something must be done to stop these people from evading taxes!! Only Saverin wasn't motivated by evading taxes. To wit, he hasn't lived in the US for 3 years, so what should the IRS feel entitled to his earnings. After all, Saverin helped make 850 new millionaires for the IRS to feed upon.

No matter, the public sentiment was set. Introducing a Soviet style law to stop those filthy rich from paying their fair share became totally acceptable. Now, all those people can either love America or learn to love it. Because leaving it... that's out of the question. Does no one remember the recent experience of Chinese dissident Chen Guangcheng? Where will our future dissidents turn for freedom? Who is going to be the "shining city on a hill" when the full effects of this Ex-PATRIOT Act come to fruition.

I'm sure the Government will have a place for all trying to get out from the "totalitarian darkness.".Look for the details in the upcoming Government Undesirables Lodging And Guarding Act


From Zerohedge:

Guest Post: US Citizens Now One Step Closer To Becoming Permanent Tax Slaves:
Submitted by Simon Black of Sovereign Man
US Citizens Now One Step Closer To Becoming Permanent Tax Slaves
This week, the universally stupid brainchild of US Senators Chuck Schumer and Bob Casey known as the Ex-PATRIOT Act inched a bit closer towards becoming law.
‘Ex-PATRIOT’ is an absurd acronym that stands for “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy”. I call it the Tax Slave Act… and it proposes three key provisions:
1) Individuals who are deemed, in the sole discretion of the US government, to have renounced US citizenship in order to avoid US taxes, will be permanently barred from re-entering the United States.
2) Such individuals will also be required to pay a 30% capital gains tax to the United States government on ALL future investment gains derived from the US. Currently, non-citizens who do not reside in the US pay no US capital gains tax.
3) These proposals are RETROACTIVE, and, if passed, would apply to anyone who renounced his/her citizenship within the last 10-years.
During a Sunday interview with ABC News, House Speaker John Boehner threw his support behind the bill… certainly a big step towards its eventual passage.
Let’s pause briefly for a little history lesson–
Dart Container Corporation was founded in 1960 by William F. Dart, the man who first perfected the design of styrofoam. Dart Container is today a multi-billion dollar family-owned company with thousands of employees and operations around the world.
In the early 1990s, brothers Kenneth and Robert Dart, heirs to the family fortune, renounced their US citizenship and became citizens of Belize and Ireland, and set up residency in the Cayman Islands.
Around the same time, several other wealthy Americans renounced citizenship, including Carnival Cruise Lines founder Ted Arison (who obtained Israeli citizenship), Campbell Soup heir John Dorrance (Irish citizenship), and fund manager Mark Mobius (German citizenship).
President Clinton was furious, and in 1996, he pushed Congress to pass a series of financial penalties for people who renounce citizenship. At the time, a ‘renunciant’ had to continue filing US tax returns for 10-years after renouncing.
Effectively, though, this penalty was a tax on worldwide income, not an exit tax on assets.
Fast forward to the mid-2000s, a time when the asset bubble was at its peak; the stock market was at its all-time high and real estate prices kept going up.
The Bush regime passed a series of changes to expatriation rules, dropping the income tax filing requirements in lieu of charging a one-time exit tax on assets.
In this way, the government was able to derive a much larger payment up front based on total assets rather than chasing around a former citizen for a piece of annual income.
In the years since the exit tax on assets was established, two things have happened:
1) The number of Americans renouncing US citizenship has risen steadily, from 235 people in 2008 to 1,780 last year (according to Schumer’s office).
2) The asset bubble has burst, and assets are worth much less than just a few years ago. As such, the government isn’t collecting as much revenue from the exit tax.
My sense is that the government has been watching the number of expatriates rise over the years, and simultaneously watching the value of the exit tax fall… and they’ve been looking for an excuse to make sweeping (i.e. retroactive) changes.
Eduardo Saverin is the perfect excuse. The Facebook co-founder’s recent renunciation of US citizenship has become a rallying cry for politicians to go back in time and steal money from former citizens retroactively…plus establish a larger base for future tax revenues.
This is a truly despicable thing to do considering that these former citizens followed the appropriate rules at the time, paid the tax, and moved on with their lives. Now Uncle Sam wants to go back in time to unilaterally change the deal, and expect everyone to abide even though they’re not even citizens anymore. The arrogance is overwhelming.
More importantly, this bill is also a major deterrent for people who are thinking about renouncing US citizenship today.
The passage of this law will undoubtedly cause many people who were considering expatriation to abandon the idea altogether as the thought of being permanently barred from entry is too much to bear.
It’s truly extraordinary that the Land of the Free has deteriorated to the point that the government must now resort to threats, coercion, and intimidation in order to keep its most productive citizens inside.

Mr. Bernanke, China Disagrees With You

Ben Bernanke says that Gold isn't money, but rather just an asset. It appears that China may disagree with the Chairman...


Will China Make the Yuan a Gold-Backed Currency?:

If China Backs Its Currency with Gold, It Could Have Profound Effects for Investors … and Consumers

Larry Edelson – - writes today:

I know for a fact that Beijing wants its yuan to eventually become a gold-backed currency,
much like the Swiss franc was originally. Backing the yuan with some
gold will certainly help it become a major international currency.

Edelson
is a financial adviser who travels frequently to Asia, a former
high-volume gold trader who is interviewed a lot in the mainstream
financial media.
I have no idea whether Edelson is right or not.  But he’s not the first to make the claim.
Doug Casey says that if one country – such as China – switches to a gold-backed currency, the dollar will be toast:

All it will take for the world to realize that U.S.
dollars are nothing more than hot potatoes is for one country (Doug
postulated that maybe China would be first) to introduce a gold-backed
currency. If China introduced a gold-backed yuan, for example, who on
earth would want anything to do with U.S. dollars?

Similarly, SafeHaven points out:

Suppose a large exporter, such as China, which
undervalues its currency and runs a large trade surplus as a result,
takes a huge radical step and goes all the way to a 100%-reserve gold
currency. The ultimate hard currency. If this succeeds, China is the new
England – the financial capital of the world, forever. Everyone else’s
money? In a word: pesos. Hard currency is Chinese currency. China’s
natural supremacy over the barbarian kingdoms of the West is restored.

Goldcore argues:

China is clearly trying to position the yuan or renminbi
as the alternative global reserve currency. The Chinese likely realise
that they will need to surpass the Federal Reserve’s official, but
unaudited, gold holding of 8,133.5 tonnes.

***

World Bank President Robert Zoellick recently mooted the possibility
of a return to some form of gold standard. It seems extremely likely
that senior and influential Chinese policy makers, bankers and
government officials may be having similar thoughts.

Simit Patel writes:

China’s central bank continues to aggressively accumulate
gold. Is this a setup for making the renminbi a gold-backed currency?
Many have speculated that this is the game plan. Certainly a currency
that is gold-backed will have appeal as a reserve currency capable of
storing wealth; indeed, the reason why the US was able to position
itself as a reserve currency is largely because it was once pegged to
gold.

MaxKeiser says:

China is clearly trying to position the yuan or renminbi
as the alternative global reserve currency. The Chineselikely realise
that they will need to surpass the Federal Reserve’s official, but
unaudited, gold holding of 8,133.5 tonnes. China is the sixth largest
holder of gold reserves in the world today and officially has reserves
of 1054.1 tonnes which is less than half those of even Euro debtor
nations France and Italy who are believed to have 2,435.4 and 2,451.8
tonnes respectively.


***

[This]
game theory article is great because it points out that China does not
need to amass a gold stock similar to the US, it can simply go to a gold
standard now and effect a simultaneous devaluation against the dollar
(as game theory dictates that the US and all other CB’s would be forced
to follow China’s lead, or risk losing all their capital as investors
buy the only gold backed currency in the world).

And Wikileaks noted several reasons for China’s stocking up on gold.  ZeroHedge summarizes:

As the following leaked cable explains, gold is, to China
at least, nothing but the opportunity cost of destroying the dollar’s
reserve status. Putting that into dollar terms is, therefore,
impractical at best, and illogical at worst. We have a suspicion that
the following cable from the US embassy in China is about to go not
viral but very much global, and prompt all those mutual fund managers
who are on the golden sidelines to dip a toe in the 24 karat pool. The
only thing that matters from China’s perspective is that “suppressing
the price of gold is very beneficial for the U.S. in maintaining the
U.S. dollar’s role as the international reserve currency. China’s
increased gold reserves will thus act as a model and lead other
countries towards reserving more gold. Large gold reserves are also
beneficial in promoting the internationalization of the RMB.” Now, what would happen if mutual and pension funds finally
comprehend they are massively underinvested in the one asset which
China is without a trace of doubt massively accumulating behind the
scenes is nothing short of a worldwide scramble, not so much for paper,
but every last ounce of physical gold…

From Wikileaks:

3. CHINA’S GOLD RESERVES

“China increases its gold reserves in order to kill two birds with one stone”

“The China Radio International sponsored newspaper World News Journal
(Shijie Xinwenbao)(04/28): “According to China’s National Foreign
Exchanges Administration China ‘s gold reserves have recently increased.
Currently, the majority of its gold reserves have been located in the
U.S. and European countries. The U.S. and Europe have always suppressed
the rising price of gold. They intend to weaken gold’s function as an
international reserve currency. They don’t want to see other countries
turning to gold reserves instead of the U.S. dollar or Euro. Therefore,
suppressing the price of gold is very beneficial for the U.S. in
maintaining the U.S. dollar’s role as the international reserve
currency. China’s increased gold reserves will thus act as a
model and lead other countries towards reserving more gold. Large gold
reserves are also beneficial in promoting the internationalization of
the RMB.”

Were the Mayans Predicting the Dollar's End?

I'm going to go out on a limb and say that December 21, 2012 isn't the end of the world. However, it could easily be the end of the world as we know it. And how have we known it? Well, for all my life and all of my parents' lives the world we knew was a world where the Dollar was the world reserve currency. Since the Bretton Woods agreement in 1944, the Dollar (or at least the Federal Reserve Note posing as the Dollar) has been the reserve currency of the world. What that has meant for us citizens of the USA is that we enjoyed world dominance when it came to importing things we need... oil, food, labor, etc. And that has meant we paid the best prices for all the things we needed or wanted to consume. And consume we did.
Now we are entering a time when the Dollar's world reserve status is threatened due to manipulation and devaluing of the Dollar by our Central Bank, the Federal Reserve. Brazil, Russia, India, China and South Africa (the BRICS) have entered into agreements to conduct trade without the Dollar. They represent an amount of economic activity nearly equal to the US. Population-wise they represent 40% of the world (the US represents 4.5%). Chief among this bloc of countries is, of course, China. China, who holds 25% off all the foreign US debt in the world and nearly 10% of all our debt. China, who sells us massive amounts of their resources and labor for Dollars that buy less and less throughout the world. China, who has been granted special direct access to our Treasury. And now... China who is tired of the Dollar's special treatment and thinks there currency should be the most favored currency in the world.
This doesn't look good...


There Can Be Only One: China Sovereign Wealth Fund Says Renminbi Will Become Reserve Currency:
First the CIC stirs havoc in Europe, saying it would rather invest in Africa than in Brussels finmin summit caterers, which at this stage in the business cycle are the most profitable corporation imaginable... and now this:

• CIC'S JIN SAYS RENMINBI WILL BECOME GLOBAL RESERVE CURRENCY

Naturally, to parahprase titles of cheesy 80s movies, there can be only one.

So what would happen to the current one? Maybe the same as what happened to all the prior global "reserve" currencies:

Living Fathers Contribute More Than Dead Soldiers

From The Tacoma News Tribune story 2 JBLM soldiers killed in Afghanistan:

"They were sons, husbands, fathers and Soldiers who contributed immeasurably to their families, communities, our unit and the nation. Our thoughts and prayers are with their families."

This sort of trite genuflection to families enrages me. Widows and orphans don't need thoughts and prayers. They need husbands and fathers. The United States has created more widows and orphans through military adventurism over the last decade than terrorists did in all acts against the US up through 9/11. In Iraq and Afghanistan there have been 5,073 killed in action since 2003. Another 1,380 have been killed on duty in these theaters. A total of 6,453 soldiers - sons, fathers, husbands - killed for what increasing looks like pointless aggression (source: DOD Casualty Status Report). They leave behind 3,549 widows/widowers and 4,646 orphans. (source: TAPS Fact Sheet)


Now as two soldiers from our local base have been killed, we are reminded of how they "contributed immeasurably" to their families, communities, their unit and the nation. I daresay a better contribution to their families would be to continuing living as sons, husbands and fathers. 

“Mike was a soldier through and through and you just couldn’t ask for a guy that’s more loyal to our country and to my daughter, and then to my granddaughter,”

The 9 month old girl who will grow up never knowing her father would be better served by having her father nearby than she was served by his death 7,000 miles away. When she speaks her first word, has her first day of school, loses her first tooth, encounters her first bully or boyfriend, what contribution will her father have to offer her from the grave? When she feels alone, questions her identity or aches for belonging, what contribution will her father be able to make? Thoughts and prayers are little consolation at that point. That he died in service to his country will not comfort that little girl in those times.


Let me be clear. I mean no disrespect to the men and women who seek to serve our nation through the military. To the contrary, I greatly respect them. I value their lives and their service. I can't help but think of them as husbands, wives, fathers, mothers with families who will be without them. And with plans for keeping a military presence in Afghanistan for at least another 10 years and military contractors in Iraq indefinitely, we will continue to see contributions to families cut short in the service of military goals that contribute very little, if anything, to our nation.

Do Americans Want Smaller Government and Lower Taxes?

Aziz examines the difference between what Americans say they want and how they actually vote. Are we all just confused or are we not being given real choices.

Choice is an illusion created between those with power and those without.

Americans Want Smaller Government and Lower Taxes:
From Rasmussen:

A new Rasmussen Reports national telephone survey finds that 64% of Likely U.S. Voters prefer a government with fewer services and lower taxes over one with more services and higher taxes. That’s unchanged from last month and consistent with findings in regular surveys since late 2006. 

In fact, a plurality of Americans have called for small government and lower taxes ever since the days of Reagan.
But it has never worked out like that:

So what’s the difference? Is it that voters outwardly claim to be in favour of smaller government, and then when it comes down to it choose the advocates of big government? I don’t think so — I think it is that voters aren’t being given a real choice.
Here’s the increase in national debt by President:

The reality is that — with the exception of Obama — Americans have again and again opted for a candidate who has paid lip-service to small government. Even Bill Clinton paid lip service to the idea that “the era of big government is over” (yeah, right). And then once in office, they have bucked their promises and massively increased the size and scope of government. Reagan’s administration increased the debt by 190% alone, and successive Presidents — especially George W. Bush and Barack Obama — just went bigger and bigger, in total contradiction to voters’ expressed preferences.
The choice between the Republicans and Democrats has been one of rhetoric and not policy. Republicans may consistently talk about reducing the size and scope of government, but they don’t follow through.Today Ron Paul, the only Republican candidate who is putting forth a seriously reduced notion of government, has been marginalised and sidelined by the major media and Republican establishment. The establishment candidate — Mitt Romney — as governor of Massachusetts left that state with the biggest per-capita debt of any state. His track record in government and his choice of advisers strongly suggest that he will follow in the George W. Bush school of promising smaller government and delivering massive government and massive debt.
As Libertarian presidential candidate and former New Mexico governor Gary Johnson put it:

Pick Obama, pick Romney, government’s going to be bigger. Government’s going to be more intrusive.

So will the American people eventually get what they want? To do that, they have to ditch the hierarchies and orthodoxies of the past. Ron Paul and his tireless band of youthful supporters look set to achieve a strong showing at the Republican convention, as well as so far winning party chairs in Iowa, Colorado, Alaska, and Virginia. The Republican party — currently dominated by ageing tax-and-spend boomer Republicans — is being taken over by the libertarian youth who crave small government at home, as well as a smaller foreign policy. Ron Paul has taken the majority of youth votes in a plurality of states in 2012. And even if Ron Paul is not on the presidential ballot, Gary Johnson — a consistent advocate for lower debt, lower taxes, and smaller government — seems set to take a large slice of the vote in November.
As the mainstream parties continue to defy a majority of voters’ will and accrue more debt and make government bigger and bigger (while failing to address problems of unemployment and underemployment)  it seems natural and inevitable that more and more Americans — especially young Americans (who tend more and more to be unemployed and underemployed) — will abandon the sclerotic big-government Republicans and Democrats.
Trouble is, things may go badly wrong before Americans get the chance to put a practitioner of smaller government into power. Already a majority of Eurasian manufacturing and resource-producing nations have ditched the dollar for bilateral trade. Dollars and treasury bonds have long been America’s greatest export — and the greatest pillar of support for growth in spending and welfare. With the dollar’s downfall, smaller government may not be a choice.

Does Jamie Dimon Even Know What Hedging Risk Is?

Aziz goes straight to the heart of the problem with bailing out anybody. The moral hazard created with JP Morgan has set them up to think they can just break the rules without repercussion. JPM knows that they are too big to fail and can suffer losses like this because the Fed or the Feds will bail them out. So they break laws and rules without the hint of regard. If JPM is acting like this, you better believe others are too. The bailouts of 2008 didn't fix ANYTHING and they only exacerbated a problem. The only thing accomplished was buying enough time for highly connected people to get out of the system and hand the bag off to others... primarily taxpayers.

===========================

Does Jamie Dimon Even Know What Hedging Risk Is?:
From Bloomberg:
J.P Morgan Chief Executive Officer Jamie Dimon said the firm suffered a $2 billion trading loss after an “egregious” failure in a unit managing risks, jeopardizing Wall Street banks’ efforts to loosen a federal ban on bets with their own money.
The firm’s chief investment office, run by Ina Drew, 55, took flawed positions on synthetic credit securities that remain volatile and may cost an additional $1 billion this quarter or next, Dimon told analysts yesterday. Losses mounted as JPMorgan tried to mitigate transactions designed to hedge credit exposure.
Having listened to the conference call (I was roaring with laughter), Jamie Dimon sounded very defensive especially about one detail: that the CIO’s activities were solely in risk management, and that its bets were designed to hedge risk. Now, we all know very well that banks have been capable of turning “risk management” into a hugely risky business — that was the whole problem with the mid-00s securitisation bubble, which made a sport out of packaging up bad debt and spreading it around balance sheets via shadow banking intermediation, thus turning a small localised risk (of mortgage default) into a huge systemic risk (of a default cascade).
But wait a minute? If you’re hedging risk then the bets you make will be cancelled against your existing balance sheet. In other words, if your hedges turn out to be worthless then your initial portfolio should have gained, and if your initial portfolio falls, then your hedges will activate, limiting your losses. A hedge is only a hedge if it covers your position. That is how hedging risk works. If the loss on your hedge is not being cancelled-out by gains in your initial portfolio then by definition you are not hedging risk. You are speculating.
Dimon then stuck his foot in his mouth even more by claiming that the CIO was “managing fat tails.” But you don’t manage fat tails by making bets with tails so fat that a change in momentum produces a $2 billion loss. You manage tail risk by making lots and lots of small cheap high-payoff bets, which appears to be precisely the opposite of what the CIO and Bruno Iksil was doing:
The larger point, though, is I think we all know damn well what Jamie Dimon and Bruno Iksil were doing — as Zero Hedge explained last month, they were using the CIO’s risk management business as a cover to reopen the firm’s proprietary trading activities in contravention of the current ban.
Personally, I have no idea why the authorities insist on this rule — if J.P. Morgan want to persist with a hyper-fragile prop trading strategy that rather than hedging against tail risk actually magnifies risk, then there should be nothing to stop them from losing their money. After all, these goons would quickly learn to stop acting so incompetent without a government safety net there to coddle them.
The fact that Dimon is trying to cover the tracks and mislead regulators is egregious, but that’s what we have come to expect from this den of vipers and thieves.