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Angolan oil will peak in 2016, IMF says – International | IOL Business | IOL.co.za

Angolan oil will peak in 2016, IMF says – International | IOL Business | IOL.co.za.

March 25 2014 at 08:00am
By Colin McClelland


br angolaBloomberg

A construction crane stands above a building site near the shoreline in Luanda. Angola’s crude oil output will decline from 2017 unless new fields are found, so it must make stronger efforts to diversify its sources of revenue, the International Monetary Fund advises. Photo: Bloomberg

Luanda – Economic growth in Angola will slow in 2017 as oil output declines, according to the International Monetary Fund (IMF).

The economy is forecast to expand by 5.3 percent this year, and by 5.5 percent and 5.9 percent in the following two years before the rate slows to 3.3 percent in 2017, IMF figures show.

Crude oil production in Africa’s second-largest producer is set to decline to 1.77 million barrels a day in 2017 from 1.9 million barrels a day in 2016.

“This reflects the expectation that oil production from currently known reserves will peak and then start to fall,” Nicholas Staines, the IMF representative in Angola, said last week.

“The timing of this turnaround could well be pushed back as new reserves are discovered.”

Angola produced 1.69 million barrels of oil a day last month. The country is attempting to diversify its economy away from oil, which accounts for about 80 percent of tax revenue and 45 percent of gross domestic product (GDP).

The government is targeting $4 billion (R43.5bn) a year in foreign investment in areas including mining, agriculture, transport and hotels, but so far it has attracted about half of that amount.

The IMF forecasts economic growth of 6.4 percent this year in non-oil industries as the country boosts spending on infrastructure.

Growth excluding crude oil may reach 6.7 percent next year, followed by 7.1 percent in 2016 and 7.7 percent the year after, IMF data show.

The diversification effort “is behind expectations and a stronger effort is clearly needed”, Staines said.

“This is particularly important in the context of higher government spending, softening oil revenue projections and, now, fiscal deficits.”

IMF forecasts for non-oil growth were lower than the government’s because the bank saw potential difficulties in large capital projects and was more cautious about their spillover effects, Staines said.

For 2015 to 2017, the government forecasts 10.3 percent non-oil growth in GDP, while the IMF projects 7.2 percent.

The government had a budget deficit of 1.5 percent of GDP last year – the first since 2009, when the IMF began a $1.4bn loan programme to help Angola weather an oil price drop. This year’s budget deficit is expected to reach 2 percent and the fiscal balance will not be in surplus until 2019, the IMF believes.

The IMF expressed disappointment over the government’s inaccurate reporting of data on domestic arrears during 2010 and accounts payable the following year, which breached the terms of the loan agreement. The fund said it also regretted continued weaknesses in public financial management and called for decisive efforts to address arrears.

Angola “is very committed to address these difficulties” and passed legislation last year to improve arrears accounting and to give more oversight to the finance ministry, Staines said.

Domestic arrears should not have an effect on plans by the government to issue a $1.5bn eurobond in the third quarter.

“The international financial environment is currently difficult and perhaps not the best of times for Angola to consider a eurobond issue,” Staines said. “The government will presumably seek the advice of its capital market advisers to get a sense of the right timing.”

Economic growth probably slowed to 4.1 percent last year from 5.2 percent in 2012 as a drought slowed agricultural expansion, the IMF said.

“Addressing capital infrastructure constraints in transport, water and electricity will go a long way and should have positive spillover effects on the economy,” Staines said. “But the full benefits will require a much stronger effort to address the structural constraints summarised in Angola’s very low ranking in the World Bank’s cost of doing business index.”

The index ranks Angola 179th of 189 countries benchmarked to June last year.

Angola is estimated to have recoverable oil reserves of 12.7 billion barrels, according to the BP Statistical Review of World Energy published in June.

Drillers including Statoil and ConocoPhillips are testing the Atlantic mirror theory and plan to spend $3bn on more than 32 wells this year in Angola’s largest exploration campaign.

They are searching for structures similar to those off Brazil, where Petrobras is developing the western hemisphere’s largest oil find in three decades, estimated at 20 billion barrels. – Bloomberg

IMF's Property Tax Hike Proposal Comes True With UK Imposing "Mansion Tax" As Soon As This Year | Zero Hedge

IMF’s Property Tax Hike Proposal Comes True With UK Imposing “Mansion Tax” As Soon As This Year | Zero Hedge.

One could see this one coming from a mile away.

It was a week ago that we highlighted the latest implied IMF proposal on how to reduce income inequality, quietly highlighted in its paper titled “Fiscal Policy and Income Inequality“. The key fragment in the paper said the following:

Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation. Wealth taxes, of various kinds, target the same underlying base as capital income taxes, namely assets. They could thus be considered as a potential source of progressive taxation, especially where taxes on capital incomes (including on real estate) are low or largely evaded. There are different types of wealth taxes, such as recurrent taxes on property or net wealth, transaction taxes, and inheritance and gift taxes. Over the past decades, revenue from these taxes has not kept up with the surge in wealth as a share of GDP (see earlier section) and, as a result, the effective tax rate has dropped from an average of around 0.9 percent in 1970 to approximately 0.5 percent today. The prospect of raising additional revenue from the various types of wealth taxation was recently discussed in IMF (2013b) and their role in reducing inequality can be summarized as follows.

  • Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013).

We summed this up as follows: “if you are buying a house, enjoy the low mortgage (for now… and don’t forget – if and when the time comes to sell, the buyer better be able to afford your selling price and the monthly mortgage payment should the 30 Year mortgage rise from the current 4.2% to 6%, 7% or much higher, which all those who forecast an improving economy hope happens), but what will really determine the affordability of that piece of property you have your eyes set on, are the property taxes. Because they are about to skyrocket.

Sure enough, a week later the Telegraph reports that UK Treasury officials have begun work on a mansion tax that could be levied as soon as next year, citing  a Cabinet minister.

“Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, told The Telegraph that officials had done “a lot of work” on the best way to impose the charge. The preparatory work would mean that a Government elected next year might be able to introduce the charge soon after taking office.  Mr Alexander said there was growing political support for a tax on expensive houses, saying owners should pay more to help balance the books.

After all it’s only fair. It is also only fair, for now, to only tax the uber-rich, who are so defined merely in the eye of the populist beholder. However, said definition tends to be fluid, and what will be a tax on, i.e., £2  million properties tomorrow, will be lowered to £1  million, £500,000 and so on, in 2, 3, etc, years.

And in a world which as Zero Hedge first defined years ago as shaped by the “fairness doctrine“, the one word that was so far missing from this article, can be found momentarily:

“There’s a consensus among the public that a modest additional levy on higher value properties is a fair and reasonable thing to do in the context of further deficit reduction,” he said. “It’s important that the burden is shared.”

There you have it: “fair.” Because there is nothing quite like shaping fiscal (and monetary) policy based on what the du jour definition of fair is to 1 person… or a billion. Especially if that billion has a vote in the “democratic” process.

It gets betters:

Mr Alexander said the new tax would not be “punitive” and insisted that the Lib Dems remained in favour of wealth creation.

So if it’s not “punitive” it must be… rewarding? And how long until the definition of fair, far short of the projected tax windfall, is expanded to include more and more, until those who were previously for the “fair” tax, suddenly become ensnared by it? As for wealth creation, perhaps in addition to the fairness doctrine it is time to be honest about what socialism really means: “wealth redistribution.”

Telegraph continues:

That may be a seen as a challenge to Vince Cable, the Business Secretary, who first called for the mansion tax and has criticised high earners.

 

The Lib Dems and Labour are both in favour of a tax on expensive houses. Labour says the money raised could fund a new lower 10p rate of income tax.

 

The Lib Dems have suggested that the tax should fall on houses valued at £2  million and more.

 

The Treasury last year estimated that about 55,000 homes are in that range, though the Lib Dems say the figure is closer to 70,000.

To be sure not everyone is for the tax:

David Cameron has opposed a mansion tax but George Osborne, the Chancellor, is said to be more open to the idea. Most of the homes that might be affected are in London and the south-east of England.

 

Boris Johnson, the Tory Mayor of London, promised last week to oppose any move towards the tax, which he described as “brutally unfair on people who happen to be living in family homes”.

 

Some critics have questioned the practicality of the policy, asking how the State would arrive at valuations for houses.

Well, they will simply draw a redline above any number they deem “unfair”, duh. As for the London housing bubble, it may have finally popped, now that all those who bought mansions in London will “suddenly” find themselves at the “fair tax” mercy of yet another wealth redistributionist government.

Unfortunately, for the UK, the “mansion tax” idea, , gloriously populist as it may be, may be too little too late.

As we reported late last week in “The Music Just Ended: “Wealthy” Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash“, the Chinese offshore real estate buying juggernaut has now ended courtesy of what appears to be China’s credit bubble bursting. So if the liquidation wave truly picks up, and since there is no greater fool left (you can forget about sanctioned Russian oligarchs investing more cash in the City in a world where asset freezes and confiscations are all too real), very soon London may find that there is nobody in the “fair” real estate taxation category left to tax.

But that’s ok – because that’s when one simply expands the definition of what is fair to include the not so wealthy… and then again…. and again.

Finally, if anyone is still confused, the IMF-proposed “mansion tax” is most certainly coming to the US, and every other insolvent “developed world” nation, next.

IMF’s Property Tax Hike Proposal Comes True With UK Imposing “Mansion Tax” As Soon As This Year | Zero Hedge

IMF’s Property Tax Hike Proposal Comes True With UK Imposing “Mansion Tax” As Soon As This Year | Zero Hedge.

One could see this one coming from a mile away.

It was a week ago that we highlighted the latest implied IMF proposal on how to reduce income inequality, quietly highlighted in its paper titled “Fiscal Policy and Income Inequality“. The key fragment in the paper said the following:

Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation. Wealth taxes, of various kinds, target the same underlying base as capital income taxes, namely assets. They could thus be considered as a potential source of progressive taxation, especially where taxes on capital incomes (including on real estate) are low or largely evaded. There are different types of wealth taxes, such as recurrent taxes on property or net wealth, transaction taxes, and inheritance and gift taxes. Over the past decades, revenue from these taxes has not kept up with the surge in wealth as a share of GDP (see earlier section) and, as a result, the effective tax rate has dropped from an average of around 0.9 percent in 1970 to approximately 0.5 percent today. The prospect of raising additional revenue from the various types of wealth taxation was recently discussed in IMF (2013b) and their role in reducing inequality can be summarized as follows.

  • Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013).

We summed this up as follows: “if you are buying a house, enjoy the low mortgage (for now… and don’t forget – if and when the time comes to sell, the buyer better be able to afford your selling price and the monthly mortgage payment should the 30 Year mortgage rise from the current 4.2% to 6%, 7% or much higher, which all those who forecast an improving economy hope happens), but what will really determine the affordability of that piece of property you have your eyes set on, are the property taxes. Because they are about to skyrocket.

Sure enough, a week later the Telegraph reports that UK Treasury officials have begun work on a mansion tax that could be levied as soon as next year, citing  a Cabinet minister.

“Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, told The Telegraph that officials had done “a lot of work” on the best way to impose the charge. The preparatory work would mean that a Government elected next year might be able to introduce the charge soon after taking office.  Mr Alexander said there was growing political support for a tax on expensive houses, saying owners should pay more to help balance the books.

After all it’s only fair. It is also only fair, for now, to only tax the uber-rich, who are so defined merely in the eye of the populist beholder. However, said definition tends to be fluid, and what will be a tax on, i.e., £2  million properties tomorrow, will be lowered to £1  million, £500,000 and so on, in 2, 3, etc, years.

And in a world which as Zero Hedge first defined years ago as shaped by the “fairness doctrine“, the one word that was so far missing from this article, can be found momentarily:

“There’s a consensus among the public that a modest additional levy on higher value properties is a fair and reasonable thing to do in the context of further deficit reduction,” he said. “It’s important that the burden is shared.”

There you have it: “fair.” Because there is nothing quite like shaping fiscal (and monetary) policy based on what the du jour definition of fair is to 1 person… or a billion. Especially if that billion has a vote in the “democratic” process.

It gets betters:

Mr Alexander said the new tax would not be “punitive” and insisted that the Lib Dems remained in favour of wealth creation.

So if it’s not “punitive” it must be… rewarding? And how long until the definition of fair, far short of the projected tax windfall, is expanded to include more and more, until those who were previously for the “fair” tax, suddenly become ensnared by it? As for wealth creation, perhaps in addition to the fairness doctrine it is time to be honest about what socialism really means: “wealth redistribution.”

Telegraph continues:

That may be a seen as a challenge to Vince Cable, the Business Secretary, who first called for the mansion tax and has criticised high earners.

 

The Lib Dems and Labour are both in favour of a tax on expensive houses. Labour says the money raised could fund a new lower 10p rate of income tax.

 

The Lib Dems have suggested that the tax should fall on houses valued at £2  million and more.

 

The Treasury last year estimated that about 55,000 homes are in that range, though the Lib Dems say the figure is closer to 70,000.

To be sure not everyone is for the tax:

David Cameron has opposed a mansion tax but George Osborne, the Chancellor, is said to be more open to the idea. Most of the homes that might be affected are in London and the south-east of England.

 

Boris Johnson, the Tory Mayor of London, promised last week to oppose any move towards the tax, which he described as “brutally unfair on people who happen to be living in family homes”.

 

Some critics have questioned the practicality of the policy, asking how the State would arrive at valuations for houses.

Well, they will simply draw a redline above any number they deem “unfair”, duh. As for the London housing bubble, it may have finally popped, now that all those who bought mansions in London will “suddenly” find themselves at the “fair tax” mercy of yet another wealth redistributionist government.

Unfortunately, for the UK, the “mansion tax” idea, , gloriously populist as it may be, may be too little too late.

As we reported late last week in “The Music Just Ended: “Wealthy” Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash“, the Chinese offshore real estate buying juggernaut has now ended courtesy of what appears to be China’s credit bubble bursting. So if the liquidation wave truly picks up, and since there is no greater fool left (you can forget about sanctioned Russian oligarchs investing more cash in the City in a world where asset freezes and confiscations are all too real), very soon London may find that there is nobody in the “fair” real estate taxation category left to tax.

But that’s ok – because that’s when one simply expands the definition of what is fair to include the not so wealthy… and then again…. and again.

Finally, if anyone is still confused, the IMF-proposed “mansion tax” is most certainly coming to the US, and every other insolvent “developed world” nation, next.

If You Are Considering Buying A House, Read This First | Zero Hedge

If You Are Considering Buying A House, Read This First | Zero Hedge.

In September of 2011, when looking at the insurmountable debt catastrophe that the world finds itself (which has only gotten worse in the past several years) we warned that “the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world’s financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.”

Two years later, the financial asset tax approach, in the form of depositor bail-ins, was tried – successfully (as there was no mass rioting, no revolution, in fact the people were perfectly happy to accept the confiscation of their savings) – in Cyprus, further emboldening the status quo, in this case the IMF, to propose, tongue in cheek, that the time has come for the uber-wealthy to give back some (“it’s only fair”), and to raise income taxes through the roof (which of course would mostly impact the middle class as the bulk of current income for the 1% is in the form of dividend income, ultra-cheap leverage extraction on assets and various forms of carried interest).

And now, a new tax is not only on the horizon but coming fast and furious to allow the insolvent global regime at least one more can kicking: one which will impact current and future homeowners across the world.

But first, let’s step back.

Last week, the IMF did what only the IMF could do: come to the realization that we proposed in 2009, and even the Davosites discussed earlier this year: namely that the middle class is effectively an endangered species, and rapidly on its way to wholesale extinction, and that the polarity between the rich and poor has never been greater. The IMF concluded, with the panache that only this comical organization is capable of, that income inequality “is weighing on global economic growth and fueling political instability.”

The WSJ reports:

The International Monetary Fund’s latest salvo came Thursday in a top official’s speech and a 67-page paper detailing how the IMF’s 188 member countries can use tax policy and targeted public spending to stem a rising disparity between haves and have-nots.

IMF Managing Director Christine Lagarde has made the issue a high priority for the fund, warning—along with some of the fund’s most powerful shareholders—that inequality is threatening longer-run economic prospects. Last month, Ms. Lagarde said the income gap risked creating “an economy of exclusion, and a wasteland of discarded potential” and rending “the precious fabric that holds our society together.”

The IMF’s solution? The same as that of socialists everywhere: redistribute the wealth… because apparently socialism works every time, all the time, with stellar results.

“Redistribution can help support growth because it reduces inequality,” David Lipton, the fund’s No. 2 official and a former senior White House aide, said in a speech Thursday at the Peterson Institute for International Economics. “But if misconceived, this trade-off can be very costly.”

“There’s a sense that the burdens of the crisis have been unevenly distributed, that the middle classes and the poor have footed more of the bill of the crisis than the economic elite,” said Moisés Naím, a senior economist at the Carnegie Endowment for International Peace and Venezuela’s former trade minister.

Oh is there a sense? Is that why the Fed has halted its QE program which takes from what little is left of the middle class and gives to those who already have more money than they can spend in several lifetimes. Guess not.

So how does the IMF suggest going about this wholesale, global socialist revolution? Simple: the way we explained nearly three years ago.

The IMF’s latest paper doesn’t prescribe country-specific measures, but it does offer several proposals that are likely to be controversial. Most notably, the IMF says many advanced and developing economies can narrow inequality by more aggressively applying property taxes and “progressive” personal income taxes that rise as incomes increase.

The median top personal income-tax rate across the globe has halved since the 1980s to around 30%. But the IMF says “revenue-maximizing [personal income tax] rates are probably somewhere between 50% and 60% and optimal rates probably somewhat lower than that.”

We wouldn’t be too concerned about income taxes. After all, one needs to have a job to have income, and as everyone knows by now, jobs also are on their way to extinction, and every central bank everywhere will merely print the money needed to cover the income tax shortfall, leading to that “other” alternative to fixing the debt problem: global hyperinflation (with a little precious metals confiscation on the side: just like FDR did in the 1930s).

But going back to the original point, here is why those in the market for a house should be worried. Very worried. From page 40 of the IMF’s paper on “Fiscal Policy and Income Inequality“:

Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation. Wealth taxes, of various kinds, target the same underlying base as capital income taxes, namely assets. They could thus be considered as a potential source of progressive taxation, especially where taxes on capital incomes (including on real estate) are low or largely evaded. There are different types of wealth taxes, such as recurrent taxes on property or net wealth, transaction taxes, and inheritance and gift taxes. Over the past decades, revenue from these taxes has not kept up with the surge in wealth as a share of GDP (see earlier section) and, as a result, the effective tax rate has dropped from an average of around 0.9 percent in 1970 to approximately 0.5 percent today. The prospect of raising additional revenue from the various types of wealth taxation was recently discussed in IMF (2013b) and their role in reducing inequality can be summarized as follows.

  • Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013).

And there you have it: if you are buying a house, enjoy the low mortgage (for now… and don’t forget – if and when the time comes to sell, the buyer better be able to afford your selling price and the monthly mortgage payment should the 30 Year mortgage rise from the current 4.2% to 6%, 7% or much higher, which all those who forecast an improving economy hope happens), but what will really determine the affordability of that piece of property you have your eyes set on, are the property taxes.

Because they are about to skyrocket.

If You Are Considering Buying A House, Read This First | Zero Hedge

If You Are Considering Buying A House, Read This First | Zero Hedge.

In September of 2011, when looking at the insurmountable debt catastrophe that the world finds itself (which has only gotten worse in the past several years) we warned that “the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world’s financial asset holders: the middle-and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.”

Two years later, the financial asset tax approach, in the form of depositor bail-ins, was tried – successfully (as there was no mass rioting, no revolution, in fact the people were perfectly happy to accept the confiscation of their savings) – in Cyprus, further emboldening the status quo, in this case the IMF, to propose, tongue in cheek, that the time has come for the uber-wealthy to give back some (“it’s only fair”), and to raise income taxes through the roof (which of course would mostly impact the middle class as the bulk of current income for the 1% is in the form of dividend income, ultra-cheap leverage extraction on assets and various forms of carried interest).

And now, a new tax is not only on the horizon but coming fast and furious to allow the insolvent global regime at least one more can kicking: one which will impact current and future homeowners across the world.

But first, let’s step back.

Last week, the IMF did what only the IMF could do: come to the realization that we proposed in 2009, and even the Davosites discussed earlier this year: namely that the middle class is effectively an endangered species, and rapidly on its way to wholesale extinction, and that the polarity between the rich and poor has never been greater. The IMF concluded, with the panache that only this comical organization is capable of, that income inequality “is weighing on global economic growth and fueling political instability.”

The WSJ reports:

The International Monetary Fund’s latest salvo came Thursday in a top official’s speech and a 67-page paper detailing how the IMF’s 188 member countries can use tax policy and targeted public spending to stem a rising disparity between haves and have-nots.

IMF Managing Director Christine Lagarde has made the issue a high priority for the fund, warning—along with some of the fund’s most powerful shareholders—that inequality is threatening longer-run economic prospects. Last month, Ms. Lagarde said the income gap risked creating “an economy of exclusion, and a wasteland of discarded potential” and rending “the precious fabric that holds our society together.”

The IMF’s solution? The same as that of socialists everywhere: redistribute the wealth… because apparently socialism works every time, all the time, with stellar results.

“Redistribution can help support growth because it reduces inequality,” David Lipton, the fund’s No. 2 official and a former senior White House aide, said in a speech Thursday at the Peterson Institute for International Economics. “But if misconceived, this trade-off can be very costly.”

“There’s a sense that the burdens of the crisis have been unevenly distributed, that the middle classes and the poor have footed more of the bill of the crisis than the economic elite,” said Moisés Naím, a senior economist at the Carnegie Endowment for International Peace and Venezuela’s former trade minister.

Oh is there a sense? Is that why the Fed has halted its QE program which takes from what little is left of the middle class and gives to those who already have more money than they can spend in several lifetimes. Guess not.

So how does the IMF suggest going about this wholesale, global socialist revolution? Simple: the way we explained nearly three years ago.

The IMF’s latest paper doesn’t prescribe country-specific measures, but it does offer several proposals that are likely to be controversial. Most notably, the IMF says many advanced and developing economies can narrow inequality by more aggressively applying property taxes and “progressive” personal income taxes that rise as incomes increase.

The median top personal income-tax rate across the globe has halved since the 1980s to around 30%. But the IMF says “revenue-maximizing [personal income tax] rates are probably somewhere between 50% and 60% and optimal rates probably somewhat lower than that.”

We wouldn’t be too concerned about income taxes. After all, one needs to have a job to have income, and as everyone knows by now, jobs also are on their way to extinction, and every central bank everywhere will merely print the money needed to cover the income tax shortfall, leading to that “other” alternative to fixing the debt problem: global hyperinflation (with a little precious metals confiscation on the side: just like FDR did in the 1930s).

But going back to the original point, here is why those in the market for a house should be worried. Very worried. From page 40 of the IMF’s paper on “Fiscal Policy and Income Inequality“:

Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation. Wealth taxes, of various kinds, target the same underlying base as capital income taxes, namely assets. They could thus be considered as a potential source of progressive taxation, especially where taxes on capital incomes (including on real estate) are low or largely evaded. There are different types of wealth taxes, such as recurrent taxes on property or net wealth, transaction taxes, and inheritance and gift taxes. Over the past decades, revenue from these taxes has not kept up with the surge in wealth as a share of GDP (see earlier section) and, as a result, the effective tax rate has dropped from an average of around 0.9 percent in 1970 to approximately 0.5 percent today. The prospect of raising additional revenue from the various types of wealth taxation was recently discussed in IMF (2013b) and their role in reducing inequality can be summarized as follows.

  • Property taxes are equitable and efficient, but underutilized in many economies. The average yield of property taxes in 65 economies (for which data are available) in the 2000s was around 1 percent of GDP, but in developing economies it averages only half of that (Bahl and Martínez-Vázquez, 2008). There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument, although effective implementation will require a sizable investment in administrative infrastructure, particularly in developing economies (Norregaard, 2013).

And there you have it: if you are buying a house, enjoy the low mortgage (for now… and don’t forget – if and when the time comes to sell, the buyer better be able to afford your selling price and the monthly mortgage payment should the 30 Year mortgage rise from the current 4.2% to 6%, 7% or much higher, which all those who forecast an improving economy hope happens), but what will really determine the affordability of that piece of property you have your eyes set on, are the property taxes.

Because they are about to skyrocket.

Harold James examines the real story behind the international response to the near-meltdown in 2008. – Project Syndicate

Harold James examines the real story behind the international response to the near-meltdown in 2008. – Project Syndicate.

The Secret History of the Financial Crisis

PRINCETON – Balzac’s great novel Lost Illusions ends with an exposition of the difference between “official history,” which is “all lies,” and “secret history” – that is, the real story. It used to be possible to obscure history’s scandalous truths for a long time – even forever. Not anymore.

Nowhere is this more apparent than in accounts of the global financial crisis. The official history portrayed the US Federal Reserve, the European Central Bank, and other major central banks as embracing coordinated action to rescue the global financial system from disaster. But recently published transcripts of 2008 meetings of the Federal Open Market Committee, the Fed’s main decision-making body, reveal that the Fed has effectively emerged from the crisis as the world’s central bank, while continuing to serve primarily American interests.

The most significant meetings took place on September 16 and October 28 – in the aftermath of the collapse of the US investment bank Lehman Brothers – and focused on the creation of bilateral currency-swap agreements aimed at ensuring adequate liquidity. The Fed would extend dollar credits to a foreign bank in exchange for its currency, which the foreign bank agreed to buy back after a specified period at the same exchange rate, plus interest. This gave central banks – especially those in Europe, which faced a dollar shortage as US investors fled – the dollars they needed to lend to struggling domestic financial institutions.

Indeed, the ECB was among the first banks to reach an agreement with the Fed, followed by other major advanced-country central banks, including the Swiss National Bank, the Bank of Japan, and the Bank of Canada. At the October meeting, four “diplomatically and economically” important emerging economies – Mexico, Brazil, Singapore, and South Korea – got in on the action, with the Fed agreeing to establish $30 billion swap lines with each of their central banks.

Though the Fed acted as a kind of global central bank, its decisions were shaped, first and foremost, by US interests. For starters, the Fed rejected applications from some countries – whose names are redacted in the published transcript – to join the currency-swap scheme.

More important, limits were placed on the swaps. The essence of a central bank’s lender-of-last-resort function has traditionally been the provision of unlimited funds. Because there is no limit on the amount of dollars that the Fed can create, no market participant can take a speculative position against it. By contrast, the International Monetary Fund has finite resources provided by member countries.

The Fed’s growing international role since 2008 reflects a fundamental shift in global monetary governance. The IMF emerged at a time when countries were routinely victimized by New York bankers’ casual assumptions, such as J.P. Morgan’s assessment in the 1920’s that Germans were “fundamentally a second-rate people.” The IMF was a critical feature of the post-WWII international order, intended to serve as a universal insurance mechanism – not one that could be harnessed to advance contemporary diplomatic interests.

Today, as the Fed documents clearly demonstrate, the IMF has become marginalized – not least because of its ineffective policy process. Indeed, at the outset of the crisis, the IMF, assuming that demand for its resources would remain low permanently, had already begun to downsize.

In 2010, the IMF made a play for resurrection, presenting itself as central to solving the euro crisis – beginning with its role in financing the Greek bailout. But here, too, a secret history has been revealed – one that highlights just how skewed global monetary governance has become.

The fact is that only the US and the massively over-represented countries of the European Union supported the Greek bailout. Indeed, the major emerging economies all strongly opposed it, with the Brazilian representative calling it “a bailout of Greece’s private debt holders, mainly European financial institutions.” Even the Swiss representative condemned the measure.

As fears of a sudden collapse of the eurozone have given way to a prolonged debate about how the costs will be met through bail-ins and write-offs, the IMF’s position will become increasingly convoluted. Though the IMF is supposed to have seniority over other creditors, there will be demands to write down a share of the loans that it has issued. Poorer emerging-market countries would resist such a move, arguing that their citizens should not have to foot the bill for fiscal profligacy in much wealthier countries.

Even the original advocates of IMF involvement are turning against the Fund. EU officials are outraged by the IMF’s apparent effort to gain support in Europe’s debtor countries by urging write-offs of all debt that it did not issue. And the US Congress has refused to endorse the expansion of IMF resources – part of an international agreement brokered at the 2010 G-20 summit.

While the outrage that followed the appointment of another European as IMF Managing Director in 2011 is likely to ensure that the Fund’s next head will not hail from Europe, the IMF’s fast-diminishing role means that it will not matter much. As 2008’s secret history shows, what matters is who has access to the Fed.

Read more at http://www.project-syndicate.org/commentary/harold-james-examines-the-real-story-behind-the-international-response-to-the-near-meltdown-in-2008#EYtp3dyZ7LsmTwgc.99

Ukraine Won’t Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn’t Have | Zero Hedge

Ukraine Won’t Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn’t Have | Zero Hedge.

About an hour ago, the head of Russia’s top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine’s total debt to Gazprom for gas deliveries was nearing $2 billion. “Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries,” he told Russian President Vladimir Putin.

As reported by Reuters, Miller added that Ukraine managed to redeem only $10 million on Wednesday from a total debt of $1.529 billion. He said that Ukraine’s debt would rise by $440 million on March 7, a deadline for payments. In other words, as of this moment the Ukraine already owes Russia $2 billion, or about double what John Kerry announced to much fanfare, the US would provide the country with in terms of aid. And considering that yesterday Gazprom announed that beginning in April it would end the gas pricing discount to the Ukraine, which lowered the price of gas to $268.5 per 1,000 cubic metres from around $400, this accrual is only set to get bigger with every passing day, and very soon Ukraine may get no Russian gas at all which was and continues to be the biggest leverage Russia has over the country which nuclear power plants provide less than half of its electricity needs.

As a reminder, and as we have pointed out since the start of the Ukraine conflict, Gazprom, which meets 30 percent of Europe’s gas demand, shipped 86 billion cubic meters, or over half of its total exports, to the European Union through Ukraine last year. Gazprom already warned Europe may see “fluctuations” in its gas delivieries from Russia.

A Gazprom spokesman said Russian gas transit to Europe via Ukraine was flowing normally. For now.

But gas is only the beginning of Ukraine’s problems. As also announced about an hour ago, Ukraine’s acting finance minister Oleksander Shlapak reported that the country needs to repay $10 billion by year end and that the country may ask for a debt restructuring. Naturally, absent outside help, no repayment is possible and the country will certainly default, which means someone has to step up and bail out the Ukraine. The only question is where this aid comes from: EU/IMF or Russia.

And that is the €/$64K question. Which is why also earlier today, the European Commission announced that it will provide Ukraine with 11 billion euros ($15 billion) in financial assistance to Ukraine.  As reported by RIA, European Commission President Jose Manuel Barroso said the aid package was designed to enable “a committed, inclusive and reforms-oriented government in rebuilding a stable and prosperous future for Ukraine.” The European Commission said in a statement that financial support would be provided over a two-year period from the EU budget and EU-based international financial institutions.

There is only one problem with Europe’s aid:  the money is not only not “there,” it is also conditional on individual countries getting approval from their populations, and most of it would come from the IMF, i.e. funded primarily by US taxpayers. As the WSJ summarized, “The EU said it would make at least $15 billion in grants and loans available for Ukraine in the next couple of years, although much of the money has strings attached and would need approval from member states and other institutions.”

So basically, it comes down to a matter of timing and payment acceleration: if Russia really wants Ukraine to fold, it will make sure the bill is high enough and the gas shut off looming enough that the only source of funds would be Russia itself, not insolvent Europe. The last thing Putin will want is to give Europe the years it needs to figure out how to honor its bailout commitment (ask Greece). Which is why Medvedev has also announced Russia would be able to provide $2-3 billion immediately to Ukraine… to pay for the gas bill. Naturally, with a few strings attached.

Ukraine Won't Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn't Have | Zero Hedge

Ukraine Won’t Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn’t Have | Zero Hedge.

About an hour ago, the head of Russia’s top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine’s total debt to Gazprom for gas deliveries was nearing $2 billion. “Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries,” he told Russian President Vladimir Putin.

As reported by Reuters, Miller added that Ukraine managed to redeem only $10 million on Wednesday from a total debt of $1.529 billion. He said that Ukraine’s debt would rise by $440 million on March 7, a deadline for payments. In other words, as of this moment the Ukraine already owes Russia $2 billion, or about double what John Kerry announced to much fanfare, the US would provide the country with in terms of aid. And considering that yesterday Gazprom announed that beginning in April it would end the gas pricing discount to the Ukraine, which lowered the price of gas to $268.5 per 1,000 cubic metres from around $400, this accrual is only set to get bigger with every passing day, and very soon Ukraine may get no Russian gas at all which was and continues to be the biggest leverage Russia has over the country which nuclear power plants provide less than half of its electricity needs.

As a reminder, and as we have pointed out since the start of the Ukraine conflict, Gazprom, which meets 30 percent of Europe’s gas demand, shipped 86 billion cubic meters, or over half of its total exports, to the European Union through Ukraine last year. Gazprom already warned Europe may see “fluctuations” in its gas delivieries from Russia.

A Gazprom spokesman said Russian gas transit to Europe via Ukraine was flowing normally. For now.

But gas is only the beginning of Ukraine’s problems. As also announced about an hour ago, Ukraine’s acting finance minister Oleksander Shlapak reported that the country needs to repay $10 billion by year end and that the country may ask for a debt restructuring. Naturally, absent outside help, no repayment is possible and the country will certainly default, which means someone has to step up and bail out the Ukraine. The only question is where this aid comes from: EU/IMF or Russia.

And that is the €/$64K question. Which is why also earlier today, the European Commission announced that it will provide Ukraine with 11 billion euros ($15 billion) in financial assistance to Ukraine.  As reported by RIA, European Commission President Jose Manuel Barroso said the aid package was designed to enable “a committed, inclusive and reforms-oriented government in rebuilding a stable and prosperous future for Ukraine.” The European Commission said in a statement that financial support would be provided over a two-year period from the EU budget and EU-based international financial institutions.

There is only one problem with Europe’s aid:  the money is not only not “there,” it is also conditional on individual countries getting approval from their populations, and most of it would come from the IMF, i.e. funded primarily by US taxpayers. As the WSJ summarized, “The EU said it would make at least $15 billion in grants and loans available for Ukraine in the next couple of years, although much of the money has strings attached and would need approval from member states and other institutions.”

So basically, it comes down to a matter of timing and payment acceleration: if Russia really wants Ukraine to fold, it will make sure the bill is high enough and the gas shut off looming enough that the only source of funds would be Russia itself, not insolvent Europe. The last thing Putin will want is to give Europe the years it needs to figure out how to honor its bailout commitment (ask Greece). Which is why Medvedev has also announced Russia would be able to provide $2-3 billion immediately to Ukraine… to pay for the gas bill. Naturally, with a few strings attached.

Kerry Promises Ukraine $1 Billion Bailout (Detroit, Not So Much) | Zero Hedge

Kerry Promises Ukraine $1 Billion Bailout (Detroit, Not So Much) | Zero Hedge.

Having threatened Russia that “any military move would be a grave mistake” and sounding awefully like a “line” to be crossed, US Secretary of State John Kerry told reporters that the US is ready to bail out Ukraine…

  • *KERRY: RUSSIA MILITARY MOVE ON UKRAINE WOULD BE GRAVE MISTAKE
  • *KERRY SAYS U.S. PLANNING $1 BLN LOAN GUARANTEE FOR UKRAINE
  • *KERRY SAYS U.S. WORKING WITH IMF, OTHERS ON AID TO UKRAINE

One has to wonder how many US jobs this will create (or save)? Or will Ukraine offer unlimited vodka to citizens of Detroit (or Puerto Rico for that matter)?

As Reuters headlines show:

  • U.S. CONSIDERING UNSPECIFIED BUDGET SUPPORT FOR UKRAINE ON TOP OF POSSIBLE $1 BILLION LOAN GUARANTEE – KERRY
  • KERRY SAYS POSSIBLE MILITARY INTERVENTION BY RUSSIA IN UKRAINE WOULD BE A COSTLY DECISION, GIVES NO DETAILS

Via AP,

Secretary of State John Kerry says the United States is planning to provide Ukraine with $1 billion in loan guarantees and will consider additional direct assistance to the former Soviet republic.

Speaking to reporters at the State Department on Wednesday, Kerry said it was “urgent to move forward” in assisting Ukraine following the ouster of its Russian-backed president. But he said it was also urgent for Ukraine’s interim authorities to enact reforms, curb corruption, and prepare free and fair elections.

The U.S. aid would be part of a planned massive international assistance package that was expected to include European contributions as well as loans from global financial institutions.

Ukraine Bonds Re-Collapse As Russia Warns Of “High Chance Of Default” | Zero Hedge

Ukraine Bonds Re-Collapse As Russia Warns Of “High Chance Of Default” | Zero Hedge.

Russian bonds had rallied for 2 days on the heels of the ouster of Yanukovych and a hope-fueled strategy (supported by Goldman’s buy-buy-buy recommendation) that Europe or the IMF would save the day and fund them back to solvency. However, Russian deputy finance minister Storchak has a different perspective…

  • *UKRAINE FACES HIGH PROBABILITY OF DEFAULT: RUSSIA’S STORCHAK
  • *RUSSIA AGAINST INCLUDING $3B UKRAINE DEBT IN ANY RESTRUCTURING
  • *RUSSIA: NO LEGAL OBLIGATION TO GIVE UKRAINE REMAINING BAILOUT

And that has sent 3-month Ukraine bond prices tumbling once again…

 

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