Fausta's Blog

Cristina looks at a specimen

Argentina’s Deadbeat Special: Buy a 4% Bond or Go to Jail

President Cristina Fernandez de Kirchner wants tax evaders hiding about $160 billion in dollars to help finance Argentina’s oil-producing ambitions. Her offer: Buy a 4 percent bond or face the prospect of jail time.

The tax authority announced the plan May 7, highlighting its information-sharing agreements with 40 nations and warning Argentines who don’t use the three-month amnesty window that they risk fines or arrest. Evaders have two options for their cash and the only one paying interest will be a dollar bond due in 2016 to finance YPF SA (YPF), the state oil company. The 4 percent rate is a third the average 13.85 yield on Argentine debt and less than the 4.6 percent in emerging markets.

I’m sure investors will rush to purchase bonds with below-market yields from a government who’s fined economists who dared publish data on Argentina’s real inflation rate of 25%, while

The government’s statistics agency reported Wednesday that annual inflation last month amounted to 10.5%.

That’s been roughly the rate around which the government has been paying on its inflation-linked bonds.

If investors in those securities have accepted the reduced payments based on the official data, workers unions in recent years have not, successfully garnering annual wage increases of 25% or more.

But, hey, the government’s increasing the monitoring of income and spending.

What could possibly go wrong?

Linked by Dustbury. Thank you!

El Tejar, one of Argentina’s (and the world’s) largest agribusiness has moved, as Businesses Hightail It out of Argentina in droves.

Monty comments,

Argentina has to re-learn this lesson every two decades, it seems like: socialism is a one-way ticket to the poorhouse. Someone ought to remind them of Einstein’s aphorism that insanity can be defined as doing the same thing over and over again and expecting different results.

I don’t think that Argentina has really internalized that lesson, at least in the past 80 years.

So businesses will continue to leave, especially when the cost of staying is higher than the cost of leaving.

Ralph Lauren Corp., which closed its Buenos Aires shop last year over economic and currency issues (at a cost of US$3million in severance pay and lease expenses), self-reported to the US DOJ and the SEC, and agreed to pay

$882,000 penalty as part of an agreement with the U.S. Department of Justice and $734,846 to the Securities and Exchange Commission

over bribes company employees allegedly paid to

Argentine customs officials with dresses, perfume and cash to accelerate the passage of merchandise into the South American country…
…
The bribes, allegedly paid via a customs broker, were labeled as “loading and delivery expenses” or “stamp tax/label tax” on invoices in order to disguise the payments, according to U.S. authorities.
…
The Justice Department alleged that the bribes were paid in order to improperly obtain the paperwork necessary for goods to clear customs, to permit the clearance of prohibited items and to occasionally avoid inspection entirely.

With a system of rampant corruption, the local employees probably figured it was the only way to get the merchandise to the store. Otherwise the cargo would sit in customs until a substantial part of it went “missing” – and you’d still have to pay off someone.

RLC didn’t admit or deny the allegations in its agreement with the SEC, and this is the first time the SEC has entered a nonprosecution agreement in a Foreign Corrupt Practices Act matter.

They’re taking what’s yours

This should take no one by surprise at this point; in fact, Kudlow was talking about it on his show last week,
Cyprus bail-out: savers will be raided to save euro in future crises, says eurozone chief
Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’,” he said.

“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”

Because,

“If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on,’” he said.

It would have been nice of him to have warned savers that their accounts could be raided. But I digress.

The president of Cyprus says it’s all temporary,

Which brings up this question,
Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus? Yes, they have, never to return.

How’s that for “temporary”?

Related:
Hayek v. Krugman – Cyprus’ Capital Controls

UPDATE:
Repeat after me: $19.2 trillion dollars is currently held by US citizens in 401k and other retirement accounts.

Do you really think the government doesn’t want to “help” you manage that money?

At the WaPo, Foreign citizens making big investments in U.S. in exchange for green cards

The EB-5 program is booming in popularity, driven largely by a struggling U.S. economy in which developers are searching for new sources of capital. It is also fueled by rising demand from foreigners looking for access to U.S. schools, safe investment in U.S. projects and — in the case of China, where most of the investors are from — greater freedom.

The program has broad bipartisan support in Congress, and key senators who are negotiating an overhaul of the immigration system have said they are leaning toward expanding visa programs that provide an immediate boost to the economy.
…
Since the EB-5 program began in 1992, more than 29,000 people have received visas, foreigners have invested more than $6.8 billion and 50,000 American jobs have been created, U.S. officials said.

IF (big “if”) the government can carry out this program in such a way that real investors are bringing thriving businesses, there’s only thing to say:

More cowbell!

In other immigration news,
Texas taxpayers spent at least $250 million last year in state prison and health care costs for illegal immigrants.

This blog’s mission, if you want to call it that, is to highlight the intersection of American and Latin American news and events.

The expansion of the Panama Canal is a crucial event that, for the most part, has been ignored by the American news media. It’s going on right now, and expected to be completed in April 2015. It will enable super-large ships, called “Post-Panamax,” to cross, but it necessitates that ports around the world, and especially in the Gulf states are deepend to accomodate them.

Roberto Roy, Panama’s Minister for Canal Affairs and Georgia Tech graduate, met with Georgia governor Nathan Deal,

“It is a critical issue for Georgia and for Savannah,” Roy said in an interview outside the governor’s office. “The reason is that the shipping fleet is totally changing. It is not only a matter of the ships being bigger. The key is that the most important variable is the fuel costs.”
Roy said the new ships can carry more containers, which makes them more energy efficient with significantly lower fuel costs per container.
“That is the game changer,” Roy said.
…
Georgia already has received the necessary federal approvals for the project, but it will need hundreds of millions of dollars in order to complete the deepening of the port. Reed has been working with state leaders to build support within President Barack Obama’s administration and other Democratic leaders for the project.
“Georgia needs to do a hard lobbying in Washington to get approval for this dredging,” Roy said. “The message is the fleet is changing, and we are already late.”

Let’s hope the bureaucrats in Washington are listening. An infrastructure project of this magnitude should have already started in the US ports, instead of those so-called “shovel ready jobs” that wasted the stimulus money.

ol·i·garch

 [ol-i-gahrk]  

Old meaning:

one of the rulers in an oligarchy.

New meaning:

Russian mobster.

Use:
Russian oligarchs stung by Cypriot bank tax

But it’s not just Russia that is affected by the proposed bank account tax in Cyprus. Oligarchs in Ukraine also like to transfer money to Cyprus and then re-invest it back home. Just like in Russia, Cyprus has been the largest foreign investor in Ukraine. In 2011, the country invested more than $10 billion, according to Ukraine’s statistics agency Derzhkomstat. That represents one-fifth of the total foreign investments in the former Soviet republic.

More than 90 percent of all Ukrainian foreign investments in 2012 went to Cyprus. If ownership changes in the Ukraine, a company with a postal address in Cyprus simply gets replaced by another one in Cyprus.

Which brings to mind another term: money laundering.

Here’s the latest on Cyprus,

Yesterday the plan was to scalp all bank accounts over €100,000 by 10%, and everybody else by 6.75%.

But now, the Cyprus’s government, just like in a Sham-Wow ad, right when you think has sucked up all the sanity, doubles the offer, and proposes a new plan to ease the burden of that tax on small savers:

According to two European officials familiar with the talks, the new proposal being floated by the government would see smaller depositors, those with up to €100,000, taxed at 3% rate—down from 6.75% as initially envisaged. Savers with €100,000 to €500,000 would be taxed at a 10% rate; and those with over €500,000 taxed at 15%, one official said.

Because the “small savers” are the ones who take to the streets, storm the banks’ doors, and riot.

Maybe the EU ought to be worrying about Putin, who’s not happy,

The deposit levy would be felt sharply by Russian financial institutions and companies which have large footholds on the island. According to Moody’s Investors Service estimates, Russian residents and institutions could lose around $2 billion if Cyprus goes ahead with this latest unconfirmed proposal to raise taxes on deposits.

Russian President Vladimir Putin has strongly criticized a proposed deposit tax in Cyprus that could cost Russian financial institutions an estimated $2 billion as “unfair” and “dangerous,” his spokesman told news agencies Monday.

“Mr. Putin said that such a decision, if adopted, would be unfair, unprofessional and dangerous,” said his spokesman Dmitry Peskov.

We all know what happens when Vladdy is not happy.

Putin is nothing if not professional; he might even say “This is the business we have chosen”:

Tomorrow all bank deposits over €100,000 will have 10% expropriated in Cyprus, while

Goat herders, taxi drivers, et al. (what the New York Times calls“pensioners, workers and regulator depositors”) with less than €100,000 get whacked 6.75 percent.

What do they get for that? A €10 billion bailout from the International Monetary Fund and European lenders.

Roger Kimball has the story.

In Ireland, Hungary, Poland, Bulgaria and France, the governments take over citizens’ pension money to make up government budget shortfalls.

In 2008, Ambrose Evans-Pritchard asked, Argentina seizes pension funds to pay debts. Who’s next?

My fear is that governments in the US, Britain, and Europe will display similar reflexes. Indeed, they have already done so. The forced-feeding of banks with fresh capital – whether they want it or not – and the seizure of the Fannie/Freddie mortgage giants before they were in fact in trouble (in order to prevent a Chinese buying strike of US bonds and prevent a spike in US mortgage rates), shows that private property can be co-opted – or eliminated – with little due process if that is required to serve the collective welfare. This is a slippery slope.

This is only the beginning, folks.

This is what teen unemployment has been for the last six years:

With that dismal number, the President proposes a 25% increase in minimum salary to $9/hr. The result? The least educated, experienced and skilled will be priced out of the market.

In today’s WSJ:
The Minority Youth Unemployment Act
A higher minimum wage will hurt Obama’s most loyal supporters.

The damage from a minimum wage hike depends on the overall labor market. If the job market is buoyant, as it is in the fracking boomtown of Williston, N.D., fast-food workers may already make more than $9 an hour. But when the jobless rate is high, as it still is in California and New York, the increase punishes minority youth in particular.

That is what happened during the last series of wage hikes to $7.25 from $5.15 that started in July 2007 as the economy was headed toward recession. The last increase hit in July 2009 just after the recession ended, and as the nearby chart shows, the jobless rate jumped for teens and black teens especially. For black teens, the rate has remained close to 40% and was still 37.8% in January.

A study by economists William Even of Miami University and David Macpherson of Trinity University concludes that in the 21 states where the full 40% wage increase took effect, “the consequences of the minimum wage for black young adults without a diploma were actually worse than the consequences of the Great Recession.”

William Dunkelberg, chief economist for the National Federation of Independent Business, says that after the July 2009 increase 600,000 teen jobs disappeared in the next six months even as GDP expanded. In the previous six months, when the economy was still shrinking, half as many teen jobs were lost. The overall teen jobless rate was still 23.4% last month, which means demand for unskilled workers is low even at $7.25 an hour. Demand will be lower at $9.

As for that family Obama referred to,

But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.

Wrong, indeed,

He left out that most minimum-wage earners are not the primary bread winner. Nearly 40% live with a parent or relative. The average family income of a household with a minimum-wage worker is about $47,023—which is far above the poverty line of $23,550 for a family of four.

Mr. Obama didn’t even tell the whole story about parents raising a family on a minimum-wage income. A full-time minimum-wage worker earns roughly $15,000 a year. But that worker also receives a cash supplement from the earned income tax credit of roughly $5,000, and many states provide benefits on top of that to reward working. That doesn’t count government benefits like food stamps, Medicaid, child care and more. According to data from the Employment Policies Institute, about two of every three minimum-wage workers also get a raise within one year.

There’s also the erroneous premise that people are forever stuck at minimum wage, when, in fact, minimum wage jobs are entry-level jobs where workers gain the experience they need to advance. More on that in the video: