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News Notes

10 Mar

[courtesy Google Images]

[courtesy Google Images]

Bits, bytes, implications and insights seen in recent news reports:

 

Formerly Fearsome IRS Becomes a “Rodney Dangerfield” Bureaucracy

How strange.  Talk about “politically incorrect”.

Just six week before tax time, Yahoo! Finance published an article entitled “It’s a great time to cheat on your taxes”.

The IRS can’t be pleased.

According to Yahoo!,

 

If you don’t already cheat on your taxes, it’s an opportune time to start.”

 

Say whut?!  Yahoo! is actually telling people now’s the time to start cheating on your taxes?!

 

“For the fourth year in a row, the Internal Revenue Service will be doing more with less when it audits 2014 tax returns, with the odds of getting audited falling to an 11-year low.  Just 0.86% of individual tax filers are likely to get audited this year.  In 2010, the odds were 1.11%.  “IRS Commissioner John Koskinen calls that change ‘a deeply disturbing drop’

“The odds of wealthy filers earning more than $1 million getting audited have fallen from 8.4% to 7.5% since 2010.”

 

That’s an 11% reduction in one year.

 

“For big corporations, the odds of an audit are down from 16.7% to 12.2%.

 

Big corporations won the audit-reduction sweepstakes.  They’re 27% less likely to be audited in A.D. 2014 than in A.D. 2013.  That’s huge.

 

“Funding for the tax agency has been cut by about 10% since 2010. The number of IRS employees has fallen by about 8% in that time.  Meanwhile, the number of returns filed is up by 3.4%. . . . ‘I’m very concerned the IRS may actually crash,’ says Michael Gregory, a former IRS supervisor. . . .”

I don’t expect the IRS to crash anytime soon.  But if mainstream media (is Yahoo! a MSM?) continues to print stories that implicitly advocate cheating on your income taxes, the IRS’ former storm-troopers will start to look more like a bunch of Rodney Dangerfield impersonators (“I don’t get no respect”).

Voluntary compliance with tax laws may become a thing of the past.

 

 

 

Currency War Advertisements

Simon Black recently visited Bangkok and reports being amazed to see a huge billboard from the Bank of China.

The billboard reads, “RMB: New Choice; The World Currency”.

China is advertising the “RMB” (the Renminbi currency) as a “New Choice” for World [reserve] Currency—and thus a viable alternative to US dollars.

Renminbi2

I’m shocked, shocked I tell you! 

The “currency wars” that were previously understood and acknowledged only by the elite and intelligentsia, are now being publicly advertised to common people.

Implication:  the currency wars (especially those directed against the US dollar) are heating up.

According to Mr. Black,

 

“The renminbi’s importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto.  Multinational companies such as McDonald’s are now issuing bonds in renminbi, and even sovereign governments are issuing debt denominated in renminbi, including the UK.  Almost every major global player out there, be it governments or major multinationals, is positioning itself for the Renminbi to become the dominant reserve currency.”

The Bangkok billboard may have another intriguing implication.

The graphic image on the billboard doesn’t include a stack of paper Renminbi or even a plastic credit card denominated in Renminbi.  Instead, the dominant graphic on the billboard is a lady’s hand holding what appears to be a gold coin.

This appearance proves nothing.

Nevertheless, it’s odd that China would use a metallic coin to advertise the Renminbi rather than a stack of paper Renminbi or even plastic credit cards denominated in Renminbi.  After all, paper and plastic Renminbi implicate a fiat currency.  But, a metallic coin implicates the possibility of a new “World Currency” that, unlike conventional fiat currencies, is backed by gold.

China mints a number of relatively low value coins that appear to be silver—but are actually made of base metals like nickel.

China also mints 1 Yuan and 5 Jiao coins that have a somewhat golden appearance, but are made of an inexpensive alloy like brass.

And, China also mints “Pandas” that are made of gold and are similar to the modern United States “gold Eagles”.

Unfortunately, the photo of the billboard is too indistinct for me to determine whether the coin depicted is made of brass or gold.  It’s probably brass.  But the color certainly looks like gold.  Thus, the billboard might depict a Panda that’s truly made out of gold.

From a purely political perspective, advertising a new, alternative to the US dollar that even “appears” to be made of gold is so bold as to be almost provocatory.

In the unlikely event that the billboard actually depicts a gold coin, is China signaling that they’re ready to issue gold-backed Renminbi as an alternative world reserve currency?

 

 

 

Oil Up?  Oil Down?

 Business Insider reports that the staffing firm Challenger, Gray, & Christmas issued a January report on job cuts which indicated that falling oil prices are reducing the number of jobs.   According to that report,

 

“Of the 53,041 job cuts announced in January, 21,322 were directly attributed to the recent and sharp decline in oil prices. Most of these cuts occurred in the energy industry, where employers announced a total of 20,193 layoffs (19,722 of which were directly attributed to oil prices). The January total is 42 percent higher than the 14,262 job cuts announced by the energy industry in all of 2014.”

 

Job cuts mean production cuts.  Production cuts mean supply cuts.  Supply cuts mean higher prices.

The logical chain seems obvious, but the timing remains a mystery. How soon should we expect to see the prices of crude and gasoline begin an upward trend—or has that trend already begun?

The Associated Press ran another article entitled, “US running out of room to store oil; price collapse next?”

 

“The U.S. has so much crude that it is running out of places to put it, and that could drive oil and gasoline prices even lower in the coming months.  For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming.”

Is that over-supply accidental or intentional?

Is government expecting some sort of economic dislocation that will reduce the supply of crude oil?  Is government therefore storing up?

Or, is the government creating an over-supply in order to suppress the price of crude oil?

 

“That extra crude is flowing into storage tanks . . . is pushing U.S. supplies to their highest point in at least 80 years . . . .  If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude—and probably gasoline, too—plummeting.”

So, which economic force will prevail?

Will more job cuts in the crude oil industry shrink the supply enough to push the price of crude higher?

Or will the over-supply and insufficient storage capacity push the price lower?

Whichever force prevails, we should see a definite change in the price trend of crude by mid-April when either the production of crude oil is sharply curtailed, or the storage capacity is exceeded.

I’d bet that, since the oil companies are already cutting employees, they’ll also cut production in the next month or so to ensure that they don’t bump into the “tank tops”.

If so, the price of crude is unlikely to fall much further but will probably enter into a rising trend within the next month or so.

 

 

A Prodigal Son Returns?

Victor Yanukovich served as the lawfully-elected President of Ukraine from A.D. 2010 until February of A.D. 2014, when he was deposed by a revolution precipitated by the Obama administration.

Yanukovich’s offense?  He favored closer Ukraine ties to Russia.

The US objective?  To dump Yanukovich and install a pro-US government in Ukraine that would allow the installation of an Anti-Ballistic Missile (ABM) defense system on Ukraine soil just inside Ukraine’s border with Russia.  Those speedy ABMs could shoot Russia ICBMs out of the sky in the first 30 seconds or so after they were launched and were moving upward so slowly, that they were sitting ducks.

Result?  The Crimea broke free from Ukraine to join Russia.  Pro-Russian rebels in eastern Ukraine started a civil war that’s pushed Ukraine deeper into chaos.

Instead of triggering a successful coup and permanent overthrow of the previous Ukraine government, the US now faces an ongoing, shooting revolution in Ukraine.  The US ABM objective seems further out of reach than ever.

Worse, the current Ukrainian chaos, so far, defies resolution, hurts both Russia and Ukraine, and—because Russia and the US are essentially nose-to-nose in Ukraine—threatens to precipitate WWIII.

This is not a win-win situation.  So far, everyone involved appears to be losing.

Therefore, a recent report by Reuters (“A year after fleeing Ukraine, Yanukovich speaks of return”) struck me as intriguing:

 

“Ousted Ukrainian President Viktor Yanukovich, who fled to Russia a year ago after being toppled by months of street protests, said he was ready to return to Ukraine if the opportunity arose.

“The pro-Russian leader was overthrown by the ‘Maidan’ uprising in Kiev against his decision to back away from a deal that would have taken the country towards integration with Europe and instead tighten economic ties with Russia, Ukraine’s old Soviet master.”

 

Is Mr. Yanukovich’s offer to return to Ukraine just one of the items on his “bucket list”?  (“Golly, I sure hope I can someday visit to my old home town.”)

Or is Yanukovich’s possible return to Ukraine being advanced, pawn-like, by chess-master Putin?  Could Yanukovich be the wild card needed to end the Ukraine crisis?  Would both the pro-Russian and pro-US forces in the Ukrainian civil war (who both voted for Yanukovich five years ago) trust Yanukovich enough to allow him to regain control of Ukraine and reach a cease fire both sides could accept?  Is Yanukovich the one man who might be able to settle the Ukrainian civil war and offer some hope of national stability?

If so, does Yanukovich’s public offer to return to Ukraine signal that Russia is ready to negotiate a cease fire and settlement in Ukraine?

 
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Posted by on March 10, 2015 in Economy, Fiat Currency, IRS, Ukraine

 

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