by Anton Keller, Secretary,
Investors Protection Association - email@example.com - url: www.solami.com/vision.htm
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Providing legitimacy in the opaque QI world
You do not have to take my word for it. But when I look out of my ivory tower, figuratively speaking, I see the world upside down, the gravitational forces and other fundamental laws reversed, and water running uphill. That, of course, may be because I'm living on the continent, up in the alps, and in fact even above the clouds. Which may not only expose me to too much sunshine, but also to the dizziness effects of high altitudes. So, you may now prefer to take an early coffee break. -- And for the rest of us, you've now been forewarned to take my words with a grain of salt.
Speaking of this year's symposium theme, I'm more inclined to focus on survival, and to leave the task of ensuring integrity and stability to those who busy themselves - as Ernst Friedrich Schumacher would say - with optimising the arrangement of the deck chairs on the Titanic.
Which is not to say a return to integrity won't be part of the survival solution. But it is to stress that bad behaviour by parents is not going to assure good education of children. And governments have given very bad examples when they abandoned the family father discipline and principles. Ie in that they unmoored their currencies from gold. In that they undercut the citizens' sense of responsibility by re-instating Prohibition, ie by burdening and even criminalizing ever more domains of civil society. And in that they encouraged betrayal, theft and fencing by buying and exploiting stolen bank client data.
Let me call a spade a spade. To begin with, the United States is broke. And that's not even news anymore. At least not since the Congressional Budget Office released in June 2010 its Long-Term Budget Outlook. Not since the International Monetary Fund doubled up in July with its two reports, titled Financial Stability Set Back as Sovereign Risks Materialize and its Report 10/248 on the United States (Section 6). And not since an inquisitive Boston University professor added one and one and Bloomberg published his, ie Laurence Kotlikoff's sobering analysis under the title "U.S. Is Bankrupt and We Don't Even Know It" (Bloomberg, August 11, 2010). Looking at the US government's unfunded entitlements, the IMF revealed that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” Based on this and the CBO data, Kotlikoff calculated a present value "fiscal gap of $202 trillion, which is more than 15 times the official debt. ... The annual costs ... will total about $4 trillion". To fund that gap, the IMF study shows that the US would have to double its taxes. Wryly, Kotlikoff observes: "This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck. ... Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner."
Lest the creditors of the US take note too clearly, lose their cool and stampede the rest of the world into disaster, some people have sounded the tocsin (see index of related texts). The world's out-of-control sovereign debt Ponzi schemes should indeed be rained in before the once-triple-A greenback will have soured to a triple-M paper, ie to Monopoly monkey money. But I venture to predict that the disciplinary part won't, and the triple M part will happen. With even more damaging financial tsunamis hitting our societies. For human nature being what it is, and power politics functioning the way they are, the established mechanisms of decision-making in Washington, Beijing, Moscow and Berlin - not to speak of the host country - are all locked in to stay the course. Ie on the road to the abyss of war and/or global social and political turmoil, not excluding a breakup of the United States, the EU and China along their rising fault lines.
The Tea Party adepts, New Age soothsayers, and modern Prohibitionists are right in one respect: there won't be any painless remedy to avoid the collapse of the global monetary system without some disciplining strict re-mooring of the currencies in universally recognisable and recognized real values. To be sure, for achieving that daunting task, gold avails itself only qualitatively any more. Let's then take a look at the crystal ball, and see how a deus ex machina solution could look like.
In 1998, the IMF's managing director Michel Camdessus famously estimated the world's underground economy to account for between 2 and 5 percent of the world's gross domestic product . This would now translate to about $1 and 2.5 trillion per year.
In the dualistic real world, good can exisit only in opposition to bad. Therefore, it makes sense not to assume the underground economy to go away - or do-gooder institutions to make things much better, if not indeed often much worse. Moral questions notwithstanding, bringing the world's illicit trillions back into the "white economy" in a democratically controlled way appears worth considering. For it might make a real dent on the debt problem and facilitate a return to real-value-based currencies which deserve and will regain the market's confidence.
Is such a system in sight?
Yes, with the exception of its democratic control, it has even been in place since January 2001. By now, it's operated behind the back of constitutional lawmakers in more than 50 countries, with some 7000 banks signed up.
Who designed it with which partners?
Some gurus at the US Treasury and the IRS way back in the nineties. Their initial partner was the UBS with whom they worked out the model agreement. That was in return for special arrangements for UBS clients in the US (incidentally, these arrangements and their unilateral abrogation by current US office holders are at the core of the UBS' ongoing troubles in the US).
How does the system work, how effective is it, and who controls the thus white-washed funds?
Behind a smokescreen of a 30% withholding tax for foreign-based income, a hidden 28% special "backup withholding tax" on capital (not only income, mind you) is available for clients who are willing to pay dearly for keeping the government off their back, with mutually trustworthy private foreign banks collecting these funds as IRS agents acting under US law. Estimated current global rake-in for this special anonymity tax is north of $500 bn, with official figures kept under lock, and no congressional control in place over the use of these funds.
How could this system be adapted for
more mutually beneficial ends?
As a follow-up to the IMF's current studies on the underground economy, the IMF might be charged with transferring this so-called Qualified Intermediary, or QI system into the hands of their member and other interested countries. Of course, some have already called this system the world's biggest money-laundering machine. But think again. In the Polanski extradition battle, California's Court of Appeal exhorted all parties to uphold the principle which places "the integrity of the criminal justice system above the desire to punish any one individual". If higher interests are to prevail, it makes sense to plea bargain with criminals, to negotiate with the Talibans, with Hamas and with the PKK, and to de-criminalize drugs. It made sense for Gaddafi to release some 400 Lybian Jihad fighters from prison. And it would have made sense for Columbia's drug baron to be paroled against payment of Columbia's national debts. Just as America's WW II alliance with the Mafia helped liberating Italy, saved lives and shortened the war.
But mind you, all of that will come to naught unless the G2 countries will enforce a policy of printing only real new money backed up by real values.
Also sprach Zarathustra.