Huge gold buying from China.

"As at 31 October 2010, the US has approximately 8,134 metric ton of gold reserve while China has only 1,054 metric ton of gold reserve."

Gold's record rally has been attributed to everything from worries about inflation, the dollar and the emergence of exchange-traded funds. One big factor many may have missed: huge buying from China.

Data cited Thursday by China's state-run Xinhua news agency showed that China imported 209.7 metric tons of gold in the first 10 months of the year, a fivefold increase compared with the same period last year.

That surpassed purchases made by ETFs and surprised analysts, who until now had no clear insight into the size of China's buying.

Gold demand in general has soared globally this year, as a result of the sovereign-debt crisis in Europe and the Federal Reserve's new round of bond buying. Gold prices were pushed up to an all-time high of $1,409.80 a troy ounce on Nov. 9. Thursday, gold settled $1.20 higher, or 0.1%, to $1,388.50, up 27% for the year.

"Everybody in the gold market knew there was a surge in investment demand, but they didn't know it was China," said Jeff Christian, managing director at CPM Group.

China's import growth is a reminder of the country's huge but nascent purchasing power.

It comes as the government loosens its restrictions on gold purchases by financial institutions and individual investors. In August, the country began allowing more banks to import and export gold, opening up the gold market to the institutions and their clients.

Then this week, the Chinese securities regulator approved the country's first gold fund designed to invest in overseas-listed gold ETFs, a move analysts interpreted as another bullish sign for gold.

"The big picture is that China is continuing to relax the rules governing the domestic gold market," said Martin Murenbeeld, chief economist of DundeeWealth Inc., which oversees $69.9 billion in assets. "What we are seeing is the latent demand that has been there all the time and now can be exercised in the market because now the market is freed."

The World Gold Council estimates that China's gold demand could double in 10 years as more investors there embrace precious metals.

Until several years ago, China's gold market was strictly controlled by the central bank, which bought all the gold mined domestically. It then sold the metal to jewelry makers. The country, which is now the largest gold producer, remained largely self-sufficient in gold, with imports at a meager 31 metric tons in 2009, according to GFMS Ltd.

This year, fears of inflation have driven many Chinese investors to include gold in their portfolios as a store of value. At the Shanghai Gold Exchange, trading volume increased 43%, to 5,014.5 tons, in the first 10 months of 2010, exchange Chairman Shen Xiangrong said, according to Xinhua.

At a speech at the China Gold and Precious Metals Summit in Shanghai Thursday, Mr. Shen detailed the size of China's imports this year, Xinhua said. Those purchases were big enough to absorb all the gold that the International Monetary Fund had shed during that time period, which stood at 148.6 tons. It also dwarfed the SPDR Gold Shares, the world's largest gold-backed ETF, which added 159.48 tons of gold into its holdings in the same period.

China also is home to a booming gold-mining industry that keeps it as the world's largest gold producer. Wednesday, China's Ministry of Industry and Information Technology said the nation's gold production reached 277.017 metric tons in the January-to-October period, up 8.8% from the same period last year.

China's 2010 gold production is expected at about 350 metric tons, according to Standard Bank head of commodity strategy Walter de Wet.

"We note that there is likely to be illegal gold exports and imports from and to China," Mr. de Wet said in a note to clients. "This would distort the actual gold numbers for China. However, the trend is undeniable, gold demand in China is rising rapidly."

In other commodities markets:

CRUDE OIL: Prices settled at a two-year high Thursday, with oil for January delivery rising $1.25, or 1.4%, to $88 a barrel on the New York Mercantile Exchange, as economic data in the U.S. and actions in the euro zone to support debt markets lifted hopes for oil demand. Improving economic conditions in the U.S., the world's largest oil consumer, are vital to continuing the drawdown in global supplies that piled up during the recession. Tightening supplies could help clear the way for oil prices to hit $100 a barrel next year.

Source

WikiLeaks: Reveal US Banks Document Next

Julian Assange says he’ll levy a “tremendous reputational tax” on unethical companies.

After revealing hundreds of thousands of Pentagon and State Department documents, the founder of WikiLeaks, Julian Assange, intends to expose bank documents next. Assange talked to Forbes on Monday, saying the site plans to release tens of thousands of internal documents from a major U.S. bank early next year.

Assange declined to name the bank, except to say it's a major U.S. bank still in operation. He said that he expects the disclosures will lead to investigations.

He compares what he is ready to unleash to the emails released during the Enron trial, Forbes reports. "You could call it the ecosystem of corruption," he told Forbes. "But it's also all the regular decision making that turns a blind eye to and supports unethical practices: the oversight that's not done, the priorities of executives, how they think they're fulfilling their own self-interest."

While the promised release of bank documents would be the largest assault by WikiLeaks on the corporate sector, Assange says the business community should expect plenty of sequels, according to Forbes. Assange says he has unpublished, damaging documents on pharmaceutical, finance and energy companies, as well as on other governments, including Russia.

Why the Spending Stimulus Failed

"New economic research shows why lower tax rates do far more to spur growth."

President Obama and congressional leaders meeting yesterday confronted calls for four key fiscal decisions: short-run fiscal stimulus, medium-term fiscal consolidation, and long-run tax and entitlement reform. Mr. Obama wants more spending, especially on infrastructure, and higher tax rates on income, capital gains and dividends (by allowing the lower Bush rates to expire). The intellectual and political left argues that the failed $814 billion stimulus in 2009 wasn't big enough, and that spending control any time soon will derail the economy.

But economic theory, history and statistical studies reveal that more taxes and spending are more likely to harm than help the economy. Those who demand spending control and oppose tax hikes hold the intellectual high ground.

Writing during the Great Depression, John Maynard Keynes argued that "sticky" wages and prices would not fall to clear the market when demand declines, so high unemployment would persist. Government spending produced a "multiplier" to output and income; as each dollar is spent, the recipient spends most of it, and so on. Ditto tax cuts and transfers, but the multiplier is assumed smaller.

Macroeconomics since Keynes has incorporated the effects of longer time horizons, expectations about future incomes and policies, and incentives (including marginal tax rates) on economic decisions.

Temporary small tax rebates, as in 2008 and 2009, result in only a few cents per dollar in spending. The bulk (according to economists such as Franco Modigliani and Milton Friedman) or all (according to Robert Barro of Harvard) is saved, as people spread any increased consumption over many years or anticipate future taxes necessary to finance the debt. Empirical studies (such as those by my colleague Robert Hall and Rick Mishkin of Columbia) conclude that most consumption is based on longer-term considerations.

In a dynamic economy, many parts are moving simultaneously and it is difficult to disentangle cause and effect. Taxes may be cut and spending increased at the same time and those may coincide with natural business cycle dynamics and monetary policy shifts.

Using powerful statistical methods to separate these effects in U.S. data, Andrew Mountford of the University of London and Harald Uhlig of the University of Chicago conclude that the small initial spending multiplier turns negative by the start of the second year. In a new cross-national time series study, Ethan Ilzetzki of the London School of Economics and Enrique Mendoza and Carlos Vegh of the University of Maryland conclude that in open economies with flexible exchange rates, "a fiscal expansion leads to no significant output gains."

My colleagues John Cogan and John Taylor, with Volker Wieland and Tobias Cwik, demonstrate that government purchases have a GDP impact far smaller in New Keynesian than Old Keynesian models and quickly crowd out the private sector. They estimate the effect of the February 2009 stimulus at a puny 0.2% of GDP by now.

By contrast, the last two major tax cuts—President Reagan's in 1981-83 and President George W. Bush's in 2003—boosted growth. They lowered marginal tax rates and were longer lasting, both keys to success. In a survey of fiscal policy changes in the OECD over the past four decades, Harvard's Albert Alesina and Silvia Ardagna conclude that tax cuts have been far more likely to increase growth than has more spending.

Former Obama adviser Christina Romer and David Romer of the University of California, Berkeley, estimate a tax-cut multiplier of 3.0, meaning $1 of lower taxes raises short-run output by $3. Messrs. Mountford and Uhlig show that substantial tax cuts had a far larger impact on output and employment than spending increases, with a multiplier up to 5.0.

Conversely, a tax increase is very damaging. Mr. Barro and Bain Capital's Charles Redlick estimate large negative effects of increased marginal tax rates on GDP. The best stimulus now is to stop the impending tax hikes. Mr. Alesina and Ms. Ardagna also conclude that spending cuts are more likely to reduce deficits and debt-to-GDP ratios, and less likely to cause recessions, than are tax increases.

These empirical studies leave many leading economists dubious about the ability of government spending to boost the economy in the short run. Worse, the large long-term costs of debt-financed spending are ignored in most studies of short-run fiscal stimulus and even more so in the political debate.

Mr. Uhlig estimates that a dollar of deficit-financed spending costs the economy a present value of $3.40. The spending would have to be remarkably productive, both in its own right and in generating jobs and income, for it to be worth even half that future cost. The University of Maryland's Carmen Reinhart, Harvard's Ken Rogoff and the International Monetary Fund all conclude that the high government debt-to-GDP ratios we are approaching damage growth severely.

The complexity of a dynamic market economy is not easily captured even by sophisticated modeling (an idea stressed by Friedrich Hayek and Robert Solow). But based on the best economic evidence, we should reject increased spending and increased taxes.

If anything, we should lower marginal effective corporate and personal tax rates further (for example, along the lines suggested by the bipartisan deficit commission's Erskine Bowles and Alan Simpson). We should quickly enact an enforceable gradual phase-down of the spending explosion of recent years. That's what the president and congressional leaders should initiate. Then let the equally vital task of long-run tax and entitlement reform proceed.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

How Will The Quant Models Change The World of Finance?

Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall st. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behavior.

Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light. What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster?

Some of the hedge funds that do black box trading have been very successful in the past 10 - 20 years. One of the best hedge funds started in 1982 by James Simons, Renaissance Technologies (https://www.renfund.com) is said to be one of the most successful hedge funds in the human history. It currently has more than $15 billion in assets under management. Since 1989, the company's $5 billion Medallion Fund has averaged 35% annual returns, after fees.

Video clip below tells a story about greed, fear and randomness from the insides of Wall Street.

The Giving Pledge: Warren Buffett, Bill Gates, Ted Turner Talk Philanthropy

Over the summer, billionaires Bill Gates and Warren Buffett announced The Giving Pledge, a commitment to donate the majority of their fortunes to charity -- and to encourage other Americans to do the same.

Dozens of wealthy families have joined the pledge.

Buffett and Gates recently sat down with ABC's Christiane Amanpour to discuss their visions of philanthropy. Melinda Gates joined her husband for the interview.

Amanpour also spoke with media mogul Ted Turner, who has pledged his wealth away.

Bill and Warren spent some time a while in China to promote the same idea. But, it didn't work out well. They did not push mega-wealthy families to sign up for their campaign because China had to develop its own culture of philanthropy.

Philanthropy in China has complications beyond issues like possible waste or corruption that might worry Western donors. Some wealthy Chinese fear generous donations could expose fortunes larger than the government or rivals had calculated, inviting unwanted attention.

2011’s Top 10 Fat Tail Risks

What are 2011’s top 10 fat tail risks?

1) European peripherals – apocalypse scenario is realized resulting in a depression, including the breakup of the Euro

2) Protectionism – pressure put on Asian countries to appreciate their currencies and correct imbalances fails, pushing the US and/or Europe to enter trade wars or adopt protective measures

3) A US double-dip – still cannot be ruled out following recent weakness in house prices and the build-up in inventory which may cause default rates to rise

4) US municipal debt, home foreclosures, current investigation on insider trading – any one of these issues can impair US bank profitability and liquidity

5) Capital controls – more draconian measures adopted by Asian policymakers resulting in a sharp withdrawal of capital

6) Geopolitical risks flare up in the region – starting with a divided political regime in Thailand compounded by concerns of the King's health; North Korea ups the ante with the South in its military maneuvers; violence in Pakistan escalates and spills over into neighbouring India

7) Sharp rise in inflation – driven by higher food & commodity prices results in unrest in the developing Asian economies

8) China property prices – the decline in house prices is much greater than the consensus estimate of 10-15%

9) US and UK’s AAA ratings are downgraded

10) US$’s status as a reserve currency is challenged

Source: Nomura

Gold is just another Ponzi Scheme

If you think gold could buy you a good inflation hedge, you could be making a big mistake here. Just imagine living in a hyperinflationary environment, how much food you could buy with your gold bar? I think you could probably buy more food if you have something people would like to exchange for? I think it will be more sensible to invest your money in things such as a garden where you could grow your own vegetables and fruits, solar panel, rain collection/water filtration technology and other things people need to stay alive when the entire monetary system collapses.

Gold bubble will eventually burst. It is a matter of time. People are just buying gold for the sake of buying due to the inflationary concern. With the gold marketing gimmick, it further exagerates the true value of gold.


Is gold tracked by exchanged-traded funds such as SPDR Gold Shares(GLD) reaching new highs because of the fear of a double dip? Is it because of quantitative easing? Is it because of the fear of euro collapse? Is it because of the first dip? Is it because of expectations for future inflation? Is the current price movement being fueled by investor speculation or has there truly been a fundamental change in society that can explain the spike?

Let's uncover the real story behind the gold bubble.

There have been four groups who have participated in this run-up:

* Group 1 (November 2007 - April 2009): Hedge funds who were worried the global financial system would crumble as a result of the mark-to-market banking regulatory requirements.
* Group 2 (October 2009 - April 2010): Hedge funds who were worried that unprecedented stimulus would result in hyperinflation as global economies recovered.
* Group 3 (May 2010 - July 2010): Hedge funds who were worried that the eurozone would collapse, thereby causing currency chaos.
* Group 4 (August 2010 - ???): Individual investors who are now buying gold for the first time because they want in on the action.

Before the financial crisis, in January 2007, gold was priced at $650/ounce. The average price of gold had fluctuated between $300 and $500 during the 10 years before. Assuming 5% inflation in the past 10 years, the inflation adjusted gold price as at today is only around $800 plus dollar.

As the financial crisis unfolded, gold served as the ultimate investment vehicle to profit from fear because of its unique characteristics. It isn't valued on fundamentals, it generates no earnings, it pays no interest, it is essentially a perpetual zero-coupon bond that is easy to manipulate into a snowball effect.

This ambiguity made the asset a prime profit-generating allocation during times of uncertainty. Unfortunately for current gold investors, fear/panic is diminishing by the day. Without that essential element, the big money will exit the trade. September's strong stock market performance was the beginning of a new stage -- a stage that I refer to as a "sigh of relief."

Investors have endured panic for three years, and gold has rightfully gone up. Now that the cataclysmic panic is subsiding those left carrying gold in their portfolios are trying to come up with reasons to justify the holding. Quantitative easing is a tough sell. Slow growth isn't enough. The time looks ripe for the investment vehicle of fear to break down. Perhaps, we need to have a war to justify a further rally in gold.

Gold at $1,400 an ounce is eerily similar to oil at $140. Remember all the credible firms extrapolating the speculative action into $200 oil forecasts. Those same bubble-builders are now calling for $2,000-an-ounce gold.

Geroge Soros has highlighted the danger of gold bubble recently. We might not be able to tell what his real agenda is. He might be telling the market one thing and doing the reverse in his own book. This is not uncommon for the big boys to do such things in the market. However, Soros Fund Management LLC sold 547,689 SPDR Gold shares as of Sept. 30, according to a filing with the U.S. Securities and Exchange Commission. The disposal represented 10 percent of Soros’s holding in SPDR Gold, according to Bloomberg calculations, and follows sales in the first two quarters. Still, SPDR Gold remains the Soros Fund’s largest single equity holding. This could be a real early warning sign.

Soros said that gold’s rally may continue, Reuters reported in September, citing an interview. “I called gold the ultimate bubble which means it may go higher but it’s certainly not safe and it’s not going to last forever,” Soros was cited as saying.

Fasten your seat belt!

*some of the inputs are taken from "thestreet.com"

Federal Reserve Scam? Real Business Remains to be Discovered!

The Federal Reserve, or the Fed as it is lovingly called, may be one of the most mysterious entities in modern American government. It was created during Wilson's presidency to protect the economy in times of financial turmoil, its real business remains to be discovered. During the Wilson presidency, the U.S. government sanctions the creation of the Federal Reserve. Thought by many to be a government organization maintained to provide financial accountability in the event of a domestic depression, the actual business of the Fed is shrouded in secrecy.

Many Americans will be shocked to discover that the principle business of the Fed is to print money from nothing, lend it to the U.S. government and charge interest on these loans. Who keeps the interest? Good question. Find out as the connective tissue between this and other top-secret international organizations is explored and exposed.

The myth of Asia's miracle or the recovery of Asia?

The Past & The Future:

With the recent crisis, the East asserted with increasing confidence that their system was superior than the West: Societies that accepted strong, even authoritarian governments and were willing to limit individual liberties in the interest of achieving overall net gain, take charge of their economics, and sacrifice short run consumer interests for the sake of growth would eventually outperform the increasingly chaotic societies of the West.

Before turning to Asian growth, it may be useful to introduce the concept of growth accounting and review some important pieces of economic history. Economic expansion represents the sum of two sources of growth: (1) increase in inputs – growth in employment, in the education level of workers, and in the stock of physical capital (2) increase in productivity – may result from better management or better economic policy, but in the long run, it is primarily due to increase in knowledge. The growth accounting can tell us how much of growth is due to each input – say capital as opposed to labor and how much of it is due to improved efficiency.

Now, let’s turn to the example of rapid Soviet economic growth four to five decades ago. It was one of the wonders of the world. Official soviet growth numbers were consistently being criticized. Nonetheless, Soviet claimed that the astonishing achievement was fully justified: their economy was achieving a rate of growth twice as high as that attained by any important capitalistic country over any considerable number of years and three times as high as the average annual GDP growth rate in the US by the early 1970s. When economists began to study the growth of the Soviet economy by using growth accounting, they actually found that Soviet growth was based on rapid growth inputs, rather than efficiency growth. By some estimates, the efficiency growth was almost nonexistent. The Soviet moved millions of workers from farms to cities, pushed millions of women into the labour force and millions of labours into longer hours, pursued massive programs of education, and plowed the ever-growing industrial output back into the construction of new factories. Soviet rapid expansion did eventually come to an end.

It is hard to see anything in common between the Asian success stories of recent years and the Soviet Union five decades ago. Indeed, it is safe to say that a typical business traveler flying into Singapore’s remarkable harbour with thousands of cargo boats in endless lines off the coast, never even thinks of any parallel to its roach-infested counterpart in Moscow. How is this Soviet example relevant to the modern world? Yet there are surprising similarities. The newly industrializing countries in Asia, like Soviet Union of the 1950, have achieved rapid growth in large part through an astonishing mobilization of resources, rather than by gains in efficiency.

Singapore grew through a mobilization of resources. Some statistics show that its productivity growth has been very much flat in the past few decades. Of course, Singapore today is far more prosperous than the Soviet when it was at its peak, because Singapore is closer to, though still below, the efficiency of Western countries. The point, however, is that Singapore’s economy has always been relatively efficient, it just used to be starved of capital and educated workers.

Singapore’s case is admittedly the most extreme. Other rapidly growing East Asian economies have not increased their labour force participation as much, made such dramatic improvements in education levels, or raised investment rates quite as far. Nonetheless, the basic conclusion is the same – there is little evidence suggesting improvements in efficiency.

What about Japan and China? Japan, unlike the East Asian tigers, seems to have grown both through high rates of input growth and through high rates of efficiency growth. Today’s fast growing economics are nowhere near converging on the US efficiency levels, but Japan is staging an unmistakable technological catch-up. However, for China, it is still a relatively poor country by GDP per capita standard. Its population is so huge that it will become the next economic power if it achieves even a fraction of Western productivity levels. And China, unlike Japan, has in recent years posted truly impressive rates of economic growth. Back to growth accounting, it is unclear what year to use as a baseline for the growth assessment in China. If one measures Chinese growth from the point at which it made a decisive turn toward the market, say 1978 Mao Zedong’s later years, there is little question that there has been dramatic improvement in efficiency as well as rapid growth in inputs. If one measures growth from before the cultural Revolution, say 1964m the picture looks more like the East Asian “tigers” – only modest growth in efficiency, with most growth driven by inputs.

If growth in East Asia is indeed running into diminishing returns, it is likely that growth in East Asia will continue to outpace growth in the West for the next decade and beyond without improving efficiency, but it will not do so at the pace of recent years. Going forward, the next priority on the list for Asian nations is to focus more on the long term sustainability of their economies, rather than the short term gains. To achieve this, investments in education, infrastructure, social benefits, technology and higher-value industries will have to be increased. The good news is, technology now increasingly flows across borders, and that newly industrializing nations are increasingly able to match the productivity of more established economies within a much shorter period of time. Diffusion of technology will place huge strains on Western world as capital flows into the emerging world and imports from these nations undermine the West’s industrial base.

If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain.

~ Summary of Paul Krugman's "The Myth of Asia's Miracle" article from MIT

Warren Buffett: Read My Lips, Raise My Taxes

With the US Congress hurtling toward a deadline on expiring tax cuts, a growing number of wealthy people are calling for higher taxes on the rich to help restore America's fiscal health.

One effort gathered over 45 millionaires who signed an open petition calling for the end of the tax cuts adopted since 2001 on those with annual incomes exceeding one million dollars.

Tax breaks for the wealthy should expire "for the fiscal health of our nation and the well-being of our fellow citizens," the letter said. It was signed by Ben & Jerry's ice cream founder Ben Cohen, hedge fund manager Michael Steinhardt and others.

Guy Saperstein, a retired California trial lawyer who organized the effort, said he was "frustrated" that President Barack Obama appeared to be wavering on his pledge to end tax cuts for the wealthy.

"I think the country's in trouble," Saperstein told AFP. "In hard times, the top strata who have done fabulously well need to sacrifice a bit, and it's not much of a sacrifice... We have among the lowest tax rates of any industrialized democracy."

Saperstein said an estimated 1,500 people have signed the letter although some of them did not want to be publicly identified on the group's website.

Philippe Villers, a French-born US businessman who founded Computervision in the 1960s and now heads Grain Pro, says he signed the letter even though it would mean higher taxes for himself.

"I don't think (extending the tax cuts for the wealthy) are fair or in the interest of building a strong economy," he said.

Villers argued that tax cuts enacted under former president George W. Bush gave a "disproportionate benefit to people with means" and contributed to the current economic woes.

Another 410 high-income Americans have signed a similar petition by Wealth for the Common Good, a network of business and civic leaders, calling for tax cuts to expire for families with incomes above 250,000 dollars.

"I've had a good run over the last few years. There's no question that others now deserve to share in that prosperity," said one of the signatories, Jeffrey Hayes, president of Stratalys Research & Consulting.

Similar comments have come from Warren Buffett, the investment guru who ranks among the world's richest individuals.

"I think that people at the high end -- people like myself -- should be paying a lot more in taxes. We have it better than we've ever had it," Buffett said in an ABC News interview.

The efforts come with Congress struggling in the face of tax cuts expiring at the end of this year.

If no action is taken by December 31, the current top rates of 33 and 35 percent would return to pre-Bush levels of 36 and 39.6 percent for the richest Americans. But taxes would also rise on all Americans if Congress fails to act.

Many Republicans are pressing to extend the tax cuts to stimulate a wobbly economy.

Obama and his Democratic allies are urging extended tax cuts for all but the wealthiest two percent of Americans -- claiming this move would help raise 700 billion dollars over 10 years to ease a crushing deficit.

"I'm glad there is a group of people who are sticking out their necks to say, 'Tax me more,'" said Mike Lapham of United For a Fair Economy's Responsible Wealth project, which has recruited 700 people in high-income brackets to work for a more progressive tax structure.

"People complain that the government should do more for New Orleans (after Hurricane Katrina) and for the (Gulf of Mexico) oil spill, but the reality is we've cut back on a lot of the things our government could do."

Jim Nunns, a senior fellow with the Tax Policy Center of the Brookings Institution and Urban Institute, said there is some momentum to raise taxes on the wealthy "because they've captured most of the growth in incomes over the last 30 to 40 years," creating a wider rich-poor gap.

But Nunns said taxing the rich alone would not solve US fiscal problems.

The better solution is to "broaden the base" so that all taxpayers contribute more, he said.

Analysts also acknowledge a climate where any tax hike is politically unpopular, especially in view of the belief that increases could choke off the economic recovery.

Bruce Josten of the US Chamber of Commerce said in an open letter to Congress that all tax cuts should be extended to boost confidence and end uncertainty about tax policy.

"The Chamber believes that no one should have their taxes raised during a time of economic weakness -- not individuals, not small businesses, not large businesses," he said, adding that this "would only hinder the already too weak recovery."

New business opportunity - Combat Tourism

UK-based Taliban spend months fighting Nato forces in Afghanistan

Taliban fighter reveals he lives for most of year in London and heads to Afghanistan for combat holidays

British-based men of Afghan origin are spending months at a time in Afghanistan fighting Nato forces before returning to the UK, the Guardian has learned. They also send money to the Taliban.

A Taliban fighter in Dhani-Ghorri in northern Afghanistan last month told the Guardian he lived most of the time in east London, but came to Afghanistan for three months of the year for combat.

"I work as a minicab driver," said the man, who has the rank of a mid-level Taliban commander. "I make good money there [in the UK], you know. But these people are my friends and my family and it's my duty to come to fight the jihad with them."

"There are many people like me in London," he added. "We collect money for the jihad all year and come and fight if we can."

His older brother, a senior cleric or mawlawi who also fought in Dhani-Ghorri, lives in London as well.

Intelligence officials have long suspected that British Muslims travel to Afghanistan and Pakistan each year to train with extremist groups.

Last year it was reported that RAF spy planes operating in Helmand in southern Afghanistan had detected strong Yorkshire and Birmingham accents on fighters using radios and telephones. They apparently spoke the main Afghan languages of Dari and Pashtu, but lapsed into English when they were lost for the right words. The threat was deemed sufficiently serious that spy planes have patrolled British skies in the hope of picking up the same voice signatures of the fighters after their return to the UK.

The dead body of an insurgent who had an Aston Villa tattoo has also been discovered in southern Afghanistan.

British military officials say there have been no recent reports of British Taliban in Helmand in southern Afghanistan and that the overwhelming majority of foreign fighters are Pakistanis. Not since John Walker Lindh, the so-called American Taliban, was captured in late 2001, has the US admitted to having successfully captured an insurgent from a western country.

In the main US-run prison near Bagram airfield, there are just 50 "third country nationals" being held, a spokeswoman said.

"Most of these are Pakistani, with small numbers from other countries in the region," she said.

According to a senior officer at the National Directorate of Security, Afghanistan's equivalent of MI5, foreign fighters tend to be Arabs, Chechens, Pakistanis or from central Asia's former Soviet republics such as Tajikistan and Uzbekistan.

source: http://www.guardian.co.uk/world/2010/nov/24/uk-based-taliban-afghanistan

A positive spin on the US - Why is America so "rich"?

Before you start reading, I would like to summarise this whole article with one sentence - As long as there is confidence in the US democratic system, America will do just fine going forward.

ECONOMIC gloom and doom aside, America remains the world's richest large country. It's generally estimated to have a per capita GDP level around $45,000, while the richest European nations manage only a $40,000 or so per capita GDP (setting aside low population, oil-rich states like Norway). Wealth underlies America's sense of itself as a special country, and it's also cited as evidence that America is better than other economies on a range of variables, from economic freedom to optimism to business savvy to work ethic.

But why exactly is America so rich? Karl Smith ventures an explanation:

I am going to go pretty conventional on this one and say a combination of three big factors

1. The Common Law
2. Massive Immigration
3. The Great Scientific Exodus during WWII

You’ll notice that four of the top five countries in the Human Development Index have the Common Law and the top, Norway, is a awash in oil. Without the petro-kronors they probably wouldn’t be so hot.

You’ll also notice that 3 of the top 4, again with Norway the odd man out, are immigrant nations. The founder effect here should be clear.

The bonus from the great exodus is definitely waning. Most of our hey-day German and Jewish scientists are dying off, but its still given us a boost that lingers to this day. There is no fundamental reason why the US should be the center of the scientific world but for a time it was the only place in the world safe for many scientists.

It's a difficult question to tackle because there's so very much to it. America jumped to a huge productivity lead early last century by developing a resource- and capital-intense, high-throughput style of manufacturing producing mass market goods. The fractious, class-riven European continent struggled to copy this technology, and while adoption of these methods eventually led to a period of rapid catch-up growth, the process of catch-up was never quite completed. And so that's one gap to explore.

There's also the question of what exactly one is comparing. What if we take similar European and American metropolitan areas and adjust for human capital and hours worked? On that basis, the difference between America and northern Europe looks relatively small. One might then focus on the ways in which America's more integrated domestic market leads to a lower level of within-continent inequality, even though national inequality levels in Europe compare favourably with America's.

The size of the market may be more important than we imagine. As Mr Smith notes, four of the top five HDI countries share the Common Law. They also speak English. In a world in which national and cultural barriers still bite, America's wealth could be chalked up to the fact that it's a uniquely large and uniform nation. Common rules, culture, language, and so on facilitate high levels of trade and mobility. National and cultural barriers within Europe, by contrast, work to limit the extent to which the economic potential of the continent can be reached.

Mr Smith also gets at something important in discussing immigration and talent. The economic geography of the world is lumpy, and talent likes to clump together into centres of innovation. Through fortune and foresight, America managed to develop world-leading centres of talent in places like Silicon Valley, Boston, and New York. Relatively open immigration rules and the promise of a safe harbour for war refugees, including persecuted Jews, helped build these knowledge centres. When one combines that innovative capacity with a system that makes it relatively easy to develop ideas and relatively lucrative to exploit them economically, the potential is there for rapid and sustained growth.

America does seem to be special in important ways, but it's not always clear what those ways are. A liberal economic order and geographically mobile population are important, but so is the level of education, the promise of social mobility, and the openness of America's borders. It's worth keeping all of that in mind as the country's leaders think about the ways economic policy should change in the wake of the Great Recession.

source: http://www.economist.com/blogs/freeexchange/2010/11/growth

What if the US Dollar Collapses?

[This clip is in Dutch with English subtitle]

Do we live on a bubble? Is it possible for the heavily indebted American economy to collapse and take all of us down in a free fall with it? Have the days of the dollar been counted? Is it really unimaginable that we will see the time of the Great Depression repeating itself?

VPRO Backlight and Dutch national newspaper NRC Handelsblad present this ‘what if’ scenario. What if the dollar collapses? Fiction meets facts in this 24 hour scenario. At 9AM a Singapore trader is ordered to sell a large amount of dollars, which sends off the enormous downfall of the dollar.

This film shows the results for the world economy every following hour. It ends in Amsterdam, where the only currency accepted by a taxi driver is cigarettes.

The weak US Dollar seemed to have caught up with this 2005 film...

Here is another similar clip about the fall of US Dollar:

Author of "Black Swan" - Nassim Taleb on Antifragility

The author of "The Black Swan" and "Fooled by Randomness" on why some systems actually benefit from shocks. Brilliant!!!

Nassim Nicholas Taleb's humble homepage:
http://www.fooledbyrandomness.com/


Nassim Nicholas Taleb (Arabic: نسيم نيقولا نجيب طالب‎, alternatively Nessim or Nissim, born 1960) is a Lebanese philosophical essayist, scholar and practitioner of mathematical financial economics. He is best known as the author of the 2007 book (completed 2010) The Black Swan.

Taleb has had three distinct careers, built around what he calls "epistemic limitations and constraints": probability, uncertainty and the fragility of human knowledge, which he packaged as the theory of Black Swan Events. Firstly, he is a bestselling author with 2.7 million copies sold in 31 languages. Secondly, he is a university professor in Risk Engineering (Distinguished Professor), a scholar, an epistemologist and a philosopher of science. Finally, he is a former senior Wall Street trader, risk expert, and practitioner of mathematical finance.

Taleb has been critical of the finance industry and has been credited with making warnings regarding financial crises and making a fortune out of the 2008 crisis. Taleb is an activist and a promoter of what he calls a "Black Swan robust" society as well as aggressive "stochastic tinkering" as a means of scientific discovery.

The Black Swan has been described by The Times as one of the 12 most influential books since World War II. Among the people Taleb has influenced are writer Malcolm Gladwell and British Prime Minister David Cameron, who uses his black swan robustness idea as "intellectual ballast" for his program. Taleb's idiosyncratic writing style mixes narrative fiction (often semi-autobiographical) and short philosophical tales with historical and scientific commentary.

Taleb received his bachelor and master in science degrees from the University of Paris and holds an MBA from the Wharton School at the University of Pennsylvania, and a PhD in Management Science (thesis on the mathematics of derivatives pricing) from the University of Paris (Dauphine) under the direction of Hélyette Geman.

Taleb wrote in Fooled by Randomness that he considers himself less a businessman than an epistemologist of randomness and used trading to attain his independence and freedom from authority. As a trader, he was a pioneer of tail risk hedging (now called "Black Swan Protection") and has held the following positions: managing director and proprietary trader at UBS; worldwide chief proprietary arbitrage derivatives trader for currencies, commodities and non-dollar fixed income at CS First Boston; chief currency derivatives trader for Banque Indosuez; managing director and worldwide head of financial option arbitrage at CIBC Wood Gundy; derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, as well as independent option market maker on the Chicago Mercantile Exchange; and founder of Empirica Capital after which Taleb retired from trading and became a full-time author and scholar in 2004. Taleb is currently Principal/Senior Scientific Adviser at Universa Investments in Santa Monica, California, a tail protection firm owned and managed by former Empirica partner Mark Spitznagel.

How Germany Could Kill the Euro

By Gideon Rachman

Published: November 22 2010

“Tell me how this ends,” was the question posed by General David Petraeus about the Iraq war. European leaders are asking the same question as they contemplate the crisis in the eurozone.

Having failed to construct a firebreak in Greece, the Europeans are hoping that they can stop the euro crisis in Ireland. But, even as an Irish rescue package is put together, the bond markets are already looking with unhealthy interest at Portugal. After Portugal, Spain is assumed to be next. And, if a really big economy such as Spain needed to call the financial fire brigade, the whole future of the euro would be in serious peril.

The question of “how this ends” is therefore obvious and urgent – but also fiendishly difficult to answer. It is like watching a three-dimensional game of chess – in which the financial, economic and political levels all interact with each other.

My current best guess is that the single currency will indeed eventually break up – and that the euro’s executioner will be Germany, the most powerful country and economy inside the European Union.

The headline on one of the most-read stories in the Financial Times last week was “Anger at Germany boils over” – reporting accusations by some Europeans that the latest twist in the euro crisis had been triggered by inflexible German policies.

But Germans themselves have plenty of reasons to be cross about the way the single currency is developing. Their country has been through a painful decade of wage restraint and cuts in government services. Many voters are outraged that their tax-euros might be used to finance early retirement for Greeks, or Ireland’s super-low corporate tax.

Across the globe: Read the FT’s international affairs columnist’s authoritative and lively commentary

The German people were also promised that the euro would be as stable as the Deutschmark – and that there would be a “no bail-out clause” that would prevent the richer countries in Europe having to save the indigent. Both promises look perilously close to being violated. That, in turn, is triggering growing concern that Germany’s constitutional court could declare their government’s participation in European “bail-outs” illegal.

The German government’s fear of its own constitutional court has already been a crucial driver of the crisis. This year, the Germans were accused of acting far too slowly to organise a rescue for Greece. But official sloth was driven by a fear that speedy action would be deemed to violate the European treaties.

The immediate crisis in Ireland was triggered about a month ago when Angela Merkel suggested that, in future euro crises, private bondholders should bear more of the losses and that further European treaty changes were needed. This remark was also made under pressure from the courts.

Germany’s actions have, in turn, created political and legal pressures in bail-out nations. In Greece, we have seen deadly riots in Athens and a senior government minister evoking the Nazi occupation of the 1940s. In Ireland, there is much lamentation about the threat to national sovereignty. on Monday, the government itself was wobbling.

It is possible that the rise of nationalist and anti-capitalist parties such as Ireland’s Sinn Féin will cause recipient countries to stick two fingers up to the EU – and to see whether life might be better outside the single currency. Countries such as Greece and Portugal might be a lot more competitive if they could devalue their currencies. But quitting the euro might feel like a national humiliation for members of the southern periphery. There is also no mechanism for quitting the euro in an orderly fashion. Any obvious preparations to do so might trigger a bank run.

So if the euro is to break up, the country that sues for divorce is likely to be a strong economy – with Germany as the likeliest litigant. The Germans would not take this step quickly or lightly. A commitment to European integration has been a leitmotif of German foreign policy for half a century.

But if the Germans became convinced that their eurozone partners were simply impossible to deal with – and that therefore the whole single currency experiment could not work – they might decide to quit. There are two ways I could imagine this happening.

The first is a successive wave of financial crises across the eurozone, affecting larger countries, which gradually sap German taxpayer confidence that the “loans” that the EU is extending to its weaker members will ever be repaid. The second is if, as seems quite likely, the treaty changes that the German government is demanding to satisfy its courts fail to be ratified by some of the other 26 EU members. At that point, the Germans might throw up their hands and say, in effect, “Well, we tried our best, but the other Europeans won’t do what is necessary to save themselves.” Germany might then feel released from its historic obligation to “build Europe”.

I realise that, in setting out these scenarios, I am laying supposition upon supposition. It only takes one point in the chain of argument to be wrong and events could charge off in another direction. All I would point out is that the optimists who put together the euro – and still argue that the currency will surmount its current problems – also made a lot of suppositions. And theirs don’t seem to be working out too well.

Nigel Farage: 'Who the Hell do You Think You Are: The Euro Game Is Up!'