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Another month has passed by with lightening speed, albeit glacial resolution of the issues facing the world. As I have mentioned, the decade is going to be challenging and Mr Clem Sunter and his team of scenario planners have forecast a high probability of “hard times”. We are almost half-way through the hard times – only another six years or so to go. 

I do quite a lot of reading in terms of the world economic situation and I came across another pearler. This is an American (which will very shortly become apparent) economist, Ms Joan McCullough. She is a mainstream economist, has strong views on a number of points, is very well respected and, in a manner which is most refreshing in these PC times, does not shy away from calling it as she sees it (please see her rather direct viewpoints). Below please find an extract of her comments on Europe, the USA and the continuing intercessions/ interventions by the FED and ECB.

Excerpt commences (all formatting, punctuation, spelling and Americanisms are hers):

So if you ask me, both the FED and the ECB have tread where needed, but both have way overstayed. To the point where they have now become almost a permanent function in the market. And they have also violated Bagehot’s rule in that they have encouraged moral hazard to the extreme. The FED with ZIRP and the ECB with crap collateral and 1%, 3-year loans to deadbeats. Repeatedly. And look poised to continue with the same m.o. NO GOOD ON ANY LEVEL.

Let’s stick with raggin’ on the ECB, shall we’ They have inserted themselves so profoundly into the financial mix that they are really no longer behaving like a central bank as they are no longer fostering stability. Rather by taking huge risk on their books like any other run-of-the-mill commercial bank, they are putting the system in jeopardy. Think in any terms you wish; the easiest way to get there is to wonder aloud how they exit this hellhole they have dug even deeper.

In the meanwhile, what is their contribution to solving the problems the Euro system is facing’ Right. This morning we touched on this point briefly with this: … “The only lender to the banks was the ECB. The only lenders to the sovereigns were the banks. The more the sovereigns borrowed, the more the banks loaned them. The more the debt racked up by the sovereigns, the more they are pressed to implement austerity. The more austerity that is enacted, the slower the growth. The slower the growth, the closer to default they creep. Take the visual of a long line of collapsing dominoes. That’s about right.” …

Do you copy how bollixed up this is’ The efforts of the ECB can only have short-term, temporary impact. What they are doing is propping these skanks in the short-term which does nothing in terms of reducing the overall debt. As a matter of fact, it worsens the debt picture. Because I
am thinking along these lines, the lines of extend and pretend. This variety: a bank gets dough at the LTRO. Pays down some current obligations and makes the next sovereign auction look good because of their heavy participation. These loans from LTRO are 3 years now, don’t forget. So let’s say that after some time passes, this bank has an upcoming obligation. Now what’ Where do they get the money to pay that down’ Right. They have to sell some of the sovereign debt. To whom’ To the very entity who lent them the money to buy it in the first place. And if the timing is anything less than optimum, you can bet your boots that they are selling this stuff at a loss. Noting that the ECB has taken a boatload of the same paper in as collateral. And there appears no end in sight to the madness. Including the lowest blow of all, which puts the ECB right in the same category with the FED: what they are doing has zip to do with the economy. Like the FED, they have forgotten John Q. a long time ago and are acting solely as agents to keep the banks, the sovereigns and by extension, themselves, afloat.

Which brings us around to the final straw, referenced above. The austerity. I can’t figure out what the thinking is here, can you’ I mean, which side are we supposed to be rootin’ for’ A. this country does not meet its austerity targets, gets no aid and the economy collapses. Or B. this country meets its austerity targets, gets aid, but it’s too late because the austerity has already pushed it over the economic cliff.

I believe that Draghi will come with a bazooka;he’s in for a nickel already; you know what comes next. But as we know, no matter what he does and I’m sure the effort will be a gangbuster … there is no permanent fix here unless we get fundamental change. Do the math, Sunshine. Fundamental change can only come about in the event that there is a massive restructuring of all this un-payable debt. In the meantime, they are touchin’ themselves if they think this short-term meddling is gonna’ “stick”. Parting words, thanks to BG who alerted me to the 7/30/12 memo which was posted on the DOL’s (ETA division) website. You should really take a good, hard look at this posting.
Excerpt ends.

She goes on the record, at length, as per her comments above. Some would say that is a rather succinct summary.  I will devote a lot of time to the USA in the near future – by virtue of its size and the fact that American firms reach in all parts of the world, there is a huge amount to say, but Europe is more pressing as the problem is more immediate and they are a greater trading partner with SA as things stand. The American presidential race is a major factor that has pushed all other matters to back of the collective consciousness – it is quite amazing, it is all there – the big elephant in the room, but no-one is talking about it, almost as though by not talking about it, it doesn’t exist.. There is also the impact of the Chinese growth slowing (if no-one wants to (can afford to (a la Europe)) buy the stuff the Chinese make then they don’t need to make it which means they don’t need the raw materials from South Africa and Australia (iron ore, coal, copper, etc)).

I am going to say nothing about the ongoing disaster/ national embarrassment that is the Companies and Intellectual Property Commission (CIPC). Their actions speak more eloquently than I ever could.

As has been previously mentioned, SARS have added a truly vicious and malevolent beast to their arsenal known as an IT14SD. This is a reconciliation which requires reconciliation between the payroll numbers on the financial statements to the payroll reports (IRP5s and EMP501s) and a reconciliation of the VAT inputs and outputs (to cost of sales). This is an incredibly labour intensive reconciliation and I am seriously considering advising clients that rather than (say) us or the client spend a week of their life at great expense, performing the reconciliation, SARS be told that it is too expensive and takes too much time and therefore an invitation be extended to SARS to rather come and perform an audit, which will be, for the client, a much cheaper way of doing things……. It bears thinking about. In addition, we are expecting SARS to change the format of the companies income tax return. This has not been widely publicized but it appears to be imminent, necessitating careful management to ensure that tax returns are not completed (to then have the format change, necessitating a rework).

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