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Saturday, 21 September 2013

The Public Markets Trust and GST

The matter of whether or not the leases of the Public Markets are subject to Goods and Services Tax is the subject of the ongoing case before the Royal Court of Jersey.

Whilst I am one of the parties I hope to be able to demonstrate the situation and the matters that the Court will have to consider in an objective manner.

For simplicity's sake I have not written the full arguments which are now over 400 pages long and hope I have distilled the essence of the matters under consideration.

The following shows the importance of determining the capacity and status of all 'persons' be they human being, corporation, trust or similar.

The leases of the Public Markets are signed between 'the Department of Public Services and Environment for and on behalf of the Public of the Island of Jersey' and each stallholder.

So the first step is to determine who the parties are, who the agents are and who is providing what service and to whom.

To me it seems that 'the States of Jersey' are providing administrative services to the Public of the Island of Jersey and the Public of the Island of Jersey are providing the benefit of a lease to the stallholders. This is how the matter is determined for tax purposes if for example a property owner employs a lettings agent.

Of the 47 tenants of the markets only 4 are registered and taxable persons under the Goods and Services Tax (Jersey) Law 2007 ("GST Law"). The Public of the Island of Jersey are nor a registered person, nor are they ever a taxable person as they are the beneficiaries of the 'government trust' as defined in a previous blog posting. Therefore no GST is due.

The States of Jersey however is a registered person and a taxable person under the GST Law -

19    Application to the States of Jersey
(1)    This Law shall not apply to the supply of goods or services by the States, being a supply for which no charge or fee is payable by the person to whom the goods or services are supplied.
(2)    For the purposes of this Law –
(a)     the States are liable to be registered and the Comptroller shall register them;
(b)     the States shall be registered as one person;
(c)     the States however shall be a taxable person only to the extent that the States prescribe by Regulations;
(d)     a Minister, department, or administration, of the States shall be taken to be the same person as the States; and
(e)     the States shall keep the same accounts and records, and provide to the Comptroller the same information, as a taxable person.

However in the Goods and Services Tax (Jersey) Regulations 2007 ("GST Regulations"):

2      States a taxable person: Article 20 of Law
The States shall for the purposes of this Law be a taxable person to a full extent corresponding to the supplies to and importations by the States.
4      Article 19(1) of Law modified: Article 20 of Law
Article 19(1) of the Law is hereby modified so that it applies as if for the words “for which no charge or fee is payable by the person to whom the goods or services are supplied” there were substituted the words “that is not in the course of or furtherance of a business”.

So reading the GST Law and the GST Regulations together Article 19(1) of the GST Law as it applies to the States of Jersey reads:
This Law shall not apply to the supply of goods or services by the States, being a supply that is not in the course of or furtherance of a business.
So is the leasing of the Public Markets a 'business' of the States of Jersey?

A business may mean 'any undertaking earnestly pursued' or any 'activity not undertaken purely for social or entertainment purposes' (CCE v Lord Fisher 1981). There is however no Jersey case law to establish its meaning.

It is my supposition that this is to ensure that the same definition of 'business' applies to GST as it does to VAT in the UK, the government suggests that the word business in the context of the GST law means something other than what it does in the VAT Law.

In the VAT Law the definition of business as it applies to local authorities is as defined in West Devon Borough Council v Commissioners of Customs and Excise [CH/2001/APP/294]. Following this case HMRC issued VAT Notice 749.

Basically when government is operating under a 'special legal regime' they should not be treated like a business, when government operates under the same terms as those that apply to 'private traders generally' then they should be treated LIKE a business.

As both the leases and the Public Markets Administration (Jersey) Regulations 1947 allow the Inspector of Markets to issue summary fines and dictate other terms such as opening hours, how produce is displayed, arrangements for cleaning etc. The leases clearly do not operate on the same terms as those that 'apply to private traders generally' and it constitutes a 'special legal regime'.

Whilst their is an additional EU directive on competition which applies to the UK this does not apply to Jersey and is not part of the definition of the term 'business'. Incidentally, the leasing of Market Stalls is exempt from VAT in the UK.

If the leasing of the stalls is not 'a business' then they are not subject to GST.

However even if it is a business the States are supplying the administration service to the 'Public of the Island of Jersey' and not to the individual tenants.

But there is a further complication, the Trust (Jersey) Law 1984.

Whilst for the purposes of the GST Law the States may be treated as one person, for the purposes of the Trusts Law each trust is an entity in its own right.

Thus the Public Markets Trust for which the Trustees are the States of Jersey is a different entity to the States of Jersey (who might also be call 'the Trustees of the Public Markets Trust' when acting in that capacity)

Article 21 of the Trusts Law reads (emphasis mine)
21    Duties of trustee
(1)    A trustee shall in the execution of his or her duties and in the exercise of his or her powers and discretions –
(a)     act –
(i)     with due diligence,
(ii)    as would a prudent person,
(iii)   to the best of the trustee’s ability and skill; and
(b)     observe the utmost good faith.
(2)    Subject to this Law, a trustee shall carry out and administer the trust in accordance with its terms.
(3)    Subject to the terms of the trust, a trustee shall –
(a)     so far as is reasonable preserve the value of the trust property;
(b)     so far as is reasonable enhance the value of the trust property.
(4)    Except –
(a)     with the approval of the court; or
(b)     as permitted by this Law or expressly provided by the terms of the trust,
a trustee shall not –
(i)     directly or indirectly profit from the trustee’s trusteeship;
(ii)    cause or permit any other person to profit directly or indirectly from such trusteeship; or
(iii)   on the trustee’s own account enter into any transaction with the trustees or relating to the trust property which may result in such profit.
(5)    A trustee shall keep accurate accounts and records of the trustee’s trusteeship.
(6)    A trustee shall keep trust property separate from his or her personal property and separately identifiable from any other property of which he or she is a trustee.

If the States of Jersey collect GST from the rents on the leases of the Public Markets (the administration of which is entrusted to them) then they (in their capacity as trustees of the Public Markets Trust) are profiting either directly or indirectly from their trusteeship.

The 'Trust Instrument' of the Public Markets Trust is the Loi (1885), Touchant L'Administration des Marches Publiques which states that the proceeds of the leases are to be used for administration and maintenance of the Public Markets only.

There have been prior breaches of the Public Markets Trust as funds have been transferred to the consolidated fund from the Assets Held in Trust fund. (See Public Finances (Jersey) Law 2005 for more info on the various funds the States hold).

Tuesday, 10 September 2013

Compelled to Rebellion

In 1762 Jean-Jacques Rousseau wrote the treatise “Du contrat social ou, Principes du droit politique” [Of the Social Contract or, Principles of Political Rights] a seminal work on the organisation of human societies which continues to be the subject of study to this day. However in the intervening two hundred and fifty years there has been significant development in the framework of government and it is these that I look at in this essay.

There follows an extract from ‘The Unanimous Declaration of the thirteen united States of America’ (hereinafter referred to as ‘the US Declaration of Independence’).

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

When the United Nations Declaration of Human Rights (hereinafter referred to as ‘the UNDHR’) was drafted, this document served as one of the primary sources, for example in the preamble to the UNDHR it states:
‘Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law,’
‘ Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms’

And, in Article 1:

‘All human beings are born free and equal in dignity and rights. They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.’

It is important to note that the United Kingdom as a signatory to this document assumed the responsibility of ensuring the rights set out in the declaration to:

‘both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.’ [from the preamble to the UNDHR]

Such ‘territories under their jurisdiction’ in the case of the United Kingdom includes ‘the Island of Jersey and its Dependencies’ (as defined in the Interpretation (Jersey) Law 1954).

Article 1 of the Declaration (and the US Declaration of Independence) thus implies that life as experienced by human beings is an endowment of their Creator. Therefore all human beings are trustees of their Creator and bound in Law to dutifully execute the responsibilities set out in the trust instrument.

In the jurisdiction of England (latterly England & Wales) the trust instrument is set out in Exodus 20: 1-17 of the Holy Bible, more commonly referred to as, ‘the Ten Commandments’. This was first established by King Alfred, commonly referred to as ‘the Great’, and is re-affirmed at the coronation of each monarch, last having taken place at the coronation of Queen Elizabeth II where she placed her hand upon a copy of the King James Bible and stated, ‘this is the Royal Law’.

The Common Law” developed over a period of time as Courts applied the principles set out in the Ten Commandments to every day situations; these judgements were written down and circulated to all Court Circuits and in due course a ‘common law’ applied to all regions of the country, many of which had their own unique customs and practises until eventually there evolved a single ‘law of the land’. As colonies were established overseas they took the Law with them and there is as a result a Common Law basis to many jurisdictions particularly those that were once British colonies.

In Law the duties of a trustee include:
·         Carry out the expressed terms of the trust instrument
·         Defend the trust
·         Prudently invest trust assets
·         Be impartial among beneficiaries
·         Account for actions and keep beneficiaries informed
·         Be loyal
·         Not delegate
·         Not profit
·         Not be in a conflict of interest position
·         Administer in the best interest of the beneficiaries

Thus human beings, are endowed at birth by their Creator with certain rights AND certain responsibilities and within most spiritual and religious traditions there exists the concept of ‘a final judgement’ where the actions of the ‘being’ will affect the future of that ‘being’ once the physical form has ceased. This may vary from the form that reincarnation takes as in the Hindu Tradition, to eternal damnation in the Judeo-Christian and Muslim religions.

The concept of ‘being’ or ‘animus’ [Greek: Sprit] is essential in Common Law as only something with an animus can be held to have caused a wrong or to have been wronged. Thus for example if someone had been run over by an ox drawn cart, the ox could be culpable, but the cart could not.

Government is, in both the US Declaration of Independence and in the UNDHR, there simply to provide the necessary environment to allow individuals the enjoyment of the rights and the fulfilment of the responsibilities that they were endowed with by their Creator.

Whilst Rousseau exalted the Direct Democracy which existed in Geneva at the time he wrote his treatise, and continues in the Cantons of Switzerland, and indeed in the Parishes of Jersey, to this day, in larger jurisdictions different approaches have been applied.

British Liberal Democracy relies on the principles of trust. The government (by which Rousseau meant ‘the bureaucracy’ and which I will also take as my definition herein) is directed by the people. However it is impractical for the government to have eighty million bosses. The people therefore elect from amongst themselves 653 representatives who select a smaller number within that group to assume personal responsibility for the operation of a particular Ministry of State.

Each of those 653 is entrusted with the authority of the electors of his constituency; he is in a position of trust. Each Minister is also entrusted with a duty.

An Act of parliament generally curtails upon the individual freedoms of people. Referring back to the UNDHR, impinging upon these freedoms may only be done in observance of the rule of law ‘that human rights should be protected by the rule of law’.

The European Convention on Human Rights (hereinafter referred to as ‘the ECHR’) is how the United Kingdom has chosen to incorporate the UNDHR within its laws. In essence it means that whatever a government does it must be, "in accordance with law" and "necessary in a democratic society".

The Law is determined after debate by the duly elected representatives of the people, who create what are the instruments of trust that the government officers, agents and employees are required to operate within.
Therefore in any criminal case the first element which must be demonstrated is that the government is acting ‘in accordance with the law’. A statute will normally empower the government to levy a fine on someone guilty of ‘an offence’, it is therefore necessary to demonstrate that a person has undertaken the actions which are defined as an offence in order to demonstrate that the government has been endowed with the authority to levy a penalty.

Criminal trials therefore are not so much about guilt, but rather are about ensuring that the government has been endowed with the authority, “in accordance with the Law”, to act at all.

Once it has shown that it has authority ‘in accordance with the law’ it must then demonstrate that whatever actions it proposes to take is ‘necessary in a democratic society’.

The question of what constitutes ‘necessary in a democratic society’ is a matter for future study.

The fundamental issue in many modern societies is that the elected representatives confuse the authority they are endowed with as ‘trustee of the people’, a subservient position, with the position of being in charge of the government. Too many of them are, in fact, in ‘breach of trust’.

If the failure of elected representatives continues for a prolonged period of time then as the UNDHR states, ‘man is … compelled to have recourse, as a last resort, to rebellion against tyranny and oppression’.

Golden Jackass: US Dollar As Money, Myths, Lies, Deceptions and Millstones

Many are the myths held so firm by the public. Many are the lies told so boldly by the leaders. Many are the millstones around the neck of the system that is fast losing its momentum. Many are the frauds committed routinely in full view. The entire US system is unraveling, myths exposed, lies contradicted, while the millstones weigh down the financial and economic system. The absent Gold Standard, the invalidity of money, the insolvency of banks, the toxic nature of sovereign debt, the illegitimate money, the intrusive debilitating central bank franchise system, these are grand millstones around the neck of the Western system. The current monetary policy is killing capital, a fact not observed by 5% of working economists, the harlots working closely to policy making. The nation is hurtling quickly toward systemic failure in every conceivable frame of light. A quick review should be revealing of myths, lies, deceptions, and millstones.


The greatest myth of all is that the USDollar is money. No way, not a shred of truth! The reality is that Gold & Silver are money. The USDollar is declared to be legal tender, when it is actually debt denominated coupons brought down to low parcels for spending purposes. Being debt, the monetary system based upon the USDollar will next deliver powerful blows to the US population. Their savings and investments are based in the USDollar. Therefore the debt writedown will foist a huge wealth writedown upon the hapless masses. Their wealth was never wealth at all. It was more debt markers, gathered in much like Al Capone would hold.


The myth is that the people's life savings are always protected and safe. The reality is that 401k, IRA, and Keough savings plans are a grand trap. They entice the participants with tax deferral which is hardly tax avoidance. People's savings are then stuck in the system, never to come out. The reality is that funds are subjected to the whiplashes of the ever-present asset bubbles. Next on the reality tap is the forced conversion to special USTreasury Bonds, where they will earn no interest yield and be vulnerable to USGovt debt default writedowns. The ongoing risk is also for Bail-in confiscation taxes, but that seems more like a fail-safe insurance threat in protection of accounting fraud and bank criminality.


The myth is that the Bail-in plans would recapitalize the big banks. The myth is that conversions would build back the urgently needed bank capital base. The reality is that the big banks are far too insolvent to remotely be in a position for such restoration. As the Western nations one by one installed the Bail-in plans, the light bulb went on in the Jackass skull. The Bail-in plans are an insurance policy against the big banks ever being forced to capitalize to proper levels. The Bail-in plans are an insurance policy against the big banks ever being prosecuted for grand fraud and grand larceny and grand counterfeit. Attack the big banks, and the people will lose a large portion of their life savings. Therefore, the big banks will be left alone to go about their business, whatever that is, to be sure mostly criminal.


The myth is that the United States leaders are working avidly on a solution to end the stubborn financial crisis. The myth is that feeding the banking sector gobs of welfare cash will bring about a recovery. The reality is that the political and banking leadership of the nation has absolutely no interest in seeking a solution or implementing it. They are fully dedicated to preserving power, at any cost, even lost wealth of the nation, even wrecked economic system, even destroyed financial structure. The first step to any viable workable solution with potential to solve anything is the liquidation of the big banks. They suffer from incurable cancer in the form of the grotesque disease of insolvency, which plagues the nation. Such a step will never be taken, crystal clear from the last five years since Lehman was killed for exploited purpose, since Fannie Mae was hidden under the USGovt wing to conceal its multi-$trillion fraud. The powers in place will remain in place. Therefore, the US will remain on the path to suffer a systemic failure.


The myth is that the ZIRP in place is stimulus to the USEconomy. The reality is far in the opposite direction. The only benefit from the 0% rate is that the big banks can fund their toxic bond redemptions with free money. They can fund their Interest Rate Swap derivatives with free money, in order to keep the USTreasury Bond complex from toppling over. The basic economic science dictates that when debt supply remains over $1 trillion annually, but with a vanishing breed of creditors willing to finance the debt, the prevailing rate should rise and rise and rise, kind of like in Greece, Portugal, and elsewhere. The reality is that the 0% cost of money has distorted all pricing of assets. The entire capital system has been turned upside down, unclear as to where value or profit lies. The reality is that the 0% rate is a gigantic wet blanket on the USEconomy, offering pitiful low yields to savers. The reality is that the 0% rate is slowly killing the entire pension fund system, and the insurance sector. The reality is that more savings are to earn interest than consumer loans are to pay out interest. Therefore the Zero Bound is a massive smothering device on the USEconomy. No stimulus here.


The myth is that the QE programs are stimulus to the US financial system. The reality is far in the opposite direction. The reality is that the USFed is gradually becoming the only buyer of USGovt debt, the only buyer of converted maturing USGovt debt. The Weimar machine is the last resort window to purchase USGovt debt, and to prevent the rate on borrowing costs from rising to 10%. The reality is that the USDept Treasury is fast converting mountains of fraud-ridden USAgency Mortgage Bonds whose volume lies in the $trillions, so that the housing market might be freed up to recover. The reality is that the entire world reacts to the hyper monetary inflation that is the bond purchase initiatives, by hedging against it. The investment community and business sector hedge by buying hard assets. The rising commodity prices, energy prices, material prices, and resulting service prices, all result in a rising cost structure. The reality is that the QE bond purchases force rising costs and shrinking profits, which bring about a colossal capital destruction from business segment shutdown and retired equipment, later liquidated equipment. Outside Antal Fekete, hardly an analyst has noticed. The economists are fast asleep on this extraordinary destructive factor. They are paid to be asleep. No stimulus here.


The myth is that the Bernanke Fed is committed to stimulus until a recovery occurs. They speak about a dual mandate of low price inflation and full employment, with the third priority of preserving financial stability. The reality is that the current monetary policy assures further capital destruction, further business shutdown, and further job cuts. The promised continuation is a death sentence, truth told. ZIRP is the smothering device. QE is the capital destruction tool. The fixed monetary policy relying upon both ZIRP & QE will continue until the US systemic failure and climax of USGovt debt default. One might be reminded of the old pirate saying, "The beatings will continue until morale improves!" The USFed monetary policy is killing the nation, rather than anything remotely resembling a solution, and surely not stimulus.


The myth is that the bank sector, the economic counsel, the news networks, even the charities, will offer intellectual and foundational support as the system works toward its restoration. The reality is that the bank sector is motivated only by preservation of power and protection of the money printing machinery. The reality is that the economists are obvious props for the big money center banks and investment banks. They have morphed over the years into a veritable harlot community with no motive to inculcate or disseminate truth. They have stepped into the roles of Wall Street marketing agents and the roles of apologist for failed government economic policy. They have been forced into the role of concealing what the big banks have created since the 1990 decade, a vaporous false foundation upon which the entire banking system rests, namely the derivatives. The news networks cannot speak the truth, or else the population would exit banks, exit investment securities written on paper, and invest heavily in Gold & Silver, even take wealth in droves outside the country. The charities are best exemplified by United Way, which devotes 5% of donations toward actual projects, with a ripe 95% devoted to executive compensation, their perks, and overhead. A nation's institutions are its pillars for building wealth. Not much evidence here.


The myth is that the US housing market is in recovery, prices having bottomed, on the rise again. To be sure, the mortgage rates even at 4.5% on 30-year loans are still quite low. The reality is that most cities and states have seen no appreciable rise in home prices. The reality is that big banks have been hiding their bloated home inventory, seized by virtue of home foreclosures. The reality is that off-market sales by banks of REO homes are not counted in the official statistics. The reality is that private equity firms funded by Wall Street are scooping up large tranches of bank-owned properties with the hope of converting them into massive cash flow machines. They are the primary factor in any semblance of fortified demand, the supply from continued foreclosures ongoing. The nasty ugly facade to the housing market is the cost that the private equity firms will be smacked with for renovation, vandalism, and rugged tenants who refuse to vacate. Two subscribers provided direct experience from South Florida and NorthEast Ohio on the upcoming sinkhole the carpetbaggers from Wall Street will see. No recovery remotely visible.


The myth is a bull market in stocks has been underway for two years. It is bull, but more like bull droppings. The myth is that stocks have value. Perhaps when placed within the Fed Valuation Model and 0% rates, the stocks can benefit from an endless rise in share prices, the model broken by the outlier zilch rate. The reality is that accounting standards have become a mockery, with debt value adjustments and raids on loss reserves. The reality is that the USEconomy is mired in a powerful recession. A quick look at the Cass Freight Index and the Electrical Power Usage Index, and the conclusion is easy on a flat-line comatose economy. No recovery visible, same story as in 2008 through 2012. Thanks to Cass, Barrons, and GATA for a glimpse of truth, which is the enemy of the fascist state.


The myth was that the USEconomy would benefit greatly from the low-cost manufacturing done in China after the year 2000. The foreign direct investment from US and Western corporations was staggering in the following years, well over $25 billion toward creation of a vast industrial sector. The myth was that the entire movement would power corporate profits and bring a new decade of prosperity. It would have to follow the Stolen Decade of Prosperity from the Clinton-Rubin era. The reality is that the United States forfeited and dispatched the core of its industry to China, and along with it the core of its legitimate income. The nation was forced to rely heavily upon the housing & mortgage bubbles for income and disposable funds. The nation was locked into a death grip of rising debt and falling income. The ugliest secret associated with granting China the Most Favored Nation status was the deal cut by Wall Street banks to lease Mao Era gold. It was not returned to China under contract, causing enormous resentment and tremendous anger, in addition to ample motive to render the USDollar to the dustbin. The MFN grant permitted the continuation of the gold lease game and gold price suppression. However, the reality is that China has been transformed into a formidable enemy, which alongside Russia, have accumulated over 30,000 tons of gold together. They expect to be ready for the next Gold Standard, launched through trade and not banks. The United States will be outside looking in, the great gold thieves and conmen.


The myth is that both Russia and China have no concept of leadership, no concept of capitalism, and are fraught with corruption, if not broken systems. The reality is that the United States is caught in the mire of profound insolvency, a lopsided economy lacking industry, a government incapable of managing its spending, and a lethal devotion to war. The United States has created some powerful enemies over the last couple decades. The Russians & Chinese are dedicated to establish a new fair monetary system, and a new fair trade settlement system. The United States will be outside looking in, no longer able to control the system.


The nonsense is endless and truly moronic, the stuff of mental midgets to consume and lap up. The myth is the story of rampant deflation as promoted regularly. At the same time, the USGovt was spinning off annual deficits over $1 trillion. At the same time, the USFed was engaged in multi-$trillion monetary expansion. That can be called hyper monetary inflation with the clear Weimar nameplate on the printing press, devoted for near exclusive bank and government privilege. The Deflation Knuckleheads have been silent for over two years by the QE to Infinity programs. Good thing, since they were as tiresome as they were imbecilic. The news network propaganda has been pumping out the story of a USEconomic recovery and a War on Terrorism. The recovery is non-existent, the memories still fresh of the Green Shoots nonsense spread by financial press networks in 2009. The war is to cover the domestic eradication of civil liberties, while on foreign lands to cover the narcotics monopoly in Afghan soil. It remains a highly profitable business, set with vertical integration and enjoying full USGovt agency protection. The profits range from $800 billion to $1.2 trillion per year, the costs mostly covered by sleepy dopey dullard taxpayers. The nation building in Iraq and Afghanistan will be judged by history to be rather empty. The drone strikes on civilian centers and helicopter gunship target practice on civilians will be remembered well. When discussion of chemical weapons takes place, let the white phosphorus that rained on Fallujah Iraq in 2003 be remembered.

The myth is that the US is still a beacon of freedom. It is unclear how large the moron population is that clings to such klaptrapp hokum in beliefs. The USGovt tore up its Constitution, ripped its Bill of Rights, installed numerous fascist executive orders to kill citizens, to seize property of citizens, to jail citizens, to silence citizens. The British overlords have seen fit to create the most monitored society in the world. The oft-heard cry that they hate us for our freedom brought laughter to the Jackass for years, uttered by the president with the sub-90 IQ who served as a pompom-toting cheerleader at Yale University, where secret societies were a regular haunt. The reality is that the United States, Great Britain, and a small ally nation on the SouthEast corner of the Mediterranean are the Axis of Fascism. They are hell-bent on destroying the beacon of freedom and the cradle of democracy and the foundation of free enterprise capitalism. The narco barons have taken control. The big US banks are so deeply dependent upon narco money, that they would collapse in three months without it. The Jackass had the privilege of meeting Aaron Russo in January 2005 in Los Angeles, the producer of "From Freedom to Fascism" before his death a couple years later. The primary success of the Axis of Fascism is in banishing freedom, crushing democracy, and extinguishing capitalism. However, the vengeance will be with the rise and return of the Gold Standard.

The irony of removing the United States from its privileged perch in command of the USDollar as reserve currency will have a nasty foul consequence on the other side. The United States has for two generations provided adequate useful police protection and sentry duty across the world. When the USMilitary withdraws, perhaps to repeat the Nazi German route of embarking on a private enterprise (see the Odessa Group), the world will become a more dangerous place. The various hot spots across the world, like at entry points to sea passageways, will be inhabited by more pirates inflicting their violence. The world will have to rely upon Russia and China for more global protection and sentry. It is unclear they can meet the task. They will have a first priority very soon to protect the Persian Gulf. A transition is in progress. The victim will be the Petro-Dollar, the defacto trade standard that keeps the USDollar afloat and keeps the USTreasury Bonds firmly in place within the banking reserve systems. That will all change, and cause a grand shock.


A significant Jackass theme stated since 2009 and 2010 has been that a new legitimate monetary system is coming, but it must arrive with a critical mass. The concept has been articulated and explained in numerous Hat Trick Letters over the past three years or more. Here is the main point. A new asset-backed currency can arrive, but it is at risk of killing its own economy quickly from its own sudden success unless certain conditions are met. If only one or two nations use the new currency, then they will see the currency rise quickly, too quickly, which would result in a massive loss of export industry. No foreign trade partner could afford its output. Although the imports would be made absurdly cheap, the domestic economy could not support the system. The ultimate requirement of a new asset-backed currency is for the new instrument to be used by a large critical mass of the global economy.The Eurasian Trade Zone combined with the BRICS nations, along with other wise nations wishing not to be excluded, could actually form the requisite critical mass.

For five years since Lehman Brothers failed, the world has been seeking to exit the USDollar. The challenge has been in setting up financial frameworks, creating trade platforms, and wiring them to banks and commodity markets. They are on the verge, with G-20 Meetings scheduled to forge out the necessary tools and platforms. The nations not participating in the combined platforms established by the BRICS nations, the Eurasian Trade Zone players, and the G-20 members, run the extreme risk of being left out in the cold. They will fall into the Third World. Many are the rumored stories of a group of Gold-backed new currencies to arrive soon, like with the Chinese Yuan, like with the new USTreasury Dollar, like with the new Nordic Euro. My gut tells me that United States will be the last to participate, and the first to fall into the Third World. The next chapter will be all about Gold-backed currency and a return to the Gold Standard. Any analyst, any counselor, any economic planner with integrity knows that the Gold Standard is the missing solution since 2008 when the global financial crisis struck. The hammer will come through the Gold Trade Standard, and not from banks or the FOREX currency market. The rest of the world cannot seek a solution when the Wall Street bankers and the London bankers are in the room. Watch the Moscow G-20 Meeting, where the quasi ostracized Anglo delegates will be watching from the corner, not participating, reporting home on progress.

Monday, 9 September 2013

The Complete German Election Preview: The Worst Case Scenario

The 2013 German federal elections may bring about pretty complicated results. With Merkel's junior coalition partner's (FDP) support dropping below the mandated 5% to enter parliament (according to polls), as Deutsche Bank notes, there is no point in working through the numerous possible coalition scenarios and options. In that case, the task of governing Germany and providing joint leadership in European affairs will become much more complicated than it used to be in normal times of a clear-cut victory for one camp. All inter-camp coalitions may well have a built-in tendency towards paralysis and require special political tricks that allow the partners to show their true colours in clearly circumscribed policy issues while not rocking the boat. A few years from now, September 22, 2013, might be remembered as the day when German politics finally became normally complicated, as in other countries, too.There are two major political narratives that appear dominant currently.
In normal times, a popular leader, an all-time employment record and the traditional conservatism of the German electorate ought to suffice to keep a conservative chancellor in power. A recent poll by the Institut für Demoskopie Allensbach found that respondents did not think the election would matter much, a big majority expected a victory for Merkel (63%) and only one-third of respondents favoured a change in government. For the Social Democrats to win, it often takes deep-seated dissatisfaction of the electorate with the conservative incumbent, a generally strong desire for substantial policy change and an SPD candidate who possesses most outstanding leadership qualities. In the last century, it usually took a shift of the Liberals to the SPD caucus, too. That has happened every twenty years or so. Staying in power for another term is usually possible.
Yet why are the 2013 elections not a foregone conclusion? What’s wrong with 2013? Why should we bother at all about what some observers call a “non-event”? The answer is much more nuanced than one might think. It is not the impact of the financial crisis that is shaping German politics directly these days, even though different policy responses to the crises dominate the party platforms and the ideas driving them.

Why 2013 is quite special

The 2013 elections might be quite special in that longer perspective, once again. The change in electoral law will make the German system much more like a strict proportional system in which additional mandates of one party due to the first vote being much stronger than the proportional second vote (Überhangmandate) will be fully offset (Ausgleichsmandate). Therefore, the combined second vote of the centre-right political camp is the crucial factor to watch. While this number hovered above 50% from 1953 to 1990, it decreased to 41% in 1998 but recovered to some 45-46% in the 2002 and 2005 elections and to 48.4% in 2009. Based on current polls, some seven to nine per cent of the vote may be for parties which will not likely pass the 5% threshold and thus not be represented in parliament. This implies that 45.5-46.5% of the combined vote may this time suffice for a majority in parliament.
Clearly, the trend towards a multi-party system with five/six major parties (counting CDU and CSU as separate parties gives us the number of six) and at least two small new parties – Pirates and the AfD (Alternative for Germany) matters.
Until 1982, there were only three parties, until 1998 the Greens became number four, since 1998 the Left Party has been represented in most parliaments with the exception of the 2002-05 legislature.
If the AfD were to enter parliament, it would probably attract voters from the centre-right camp in no small measure. This could directly reduce the Liberal vote to below five per cent or erode enough of the centre-right camp to drive it below the majority threshold. If the AfD enters parliament, any coalition will likely have to come close to a combined vote of 47.5% or more.If the election result of the centre-right camp were to be worse than the current polling by more than two percentage points, the options for forming a new government would dramatically narrow down to one or two mathematically and politically feasible options.

Who will run Germany next?

There is no point in working through the numerous possible coalition scenarios and options. On policy grounds, a CDU/CSU – SPD “Grand Coalition” government would be feasible but it is being very firmly dismissed by the SPD, still. Also, a coalition of CDU/CSU and Greens might be considered. All other options are almost too theoretical to mention. In any case, considering the primary political purpose of the next coalition will be the most important consideration that will take hold after September 22 if a simple continuation of the current coalition or a clear-cut shift to a SPD-Green government is not feasible.There are two major political narratives that might work.

Narrative number one works like this:

Germany must remain the economically strong stabiliser of the euro area, it needs more public investment and some additional targeted transfer payments financed out of budget surpluses if they materialize. The coalition sticks to a balanced budget and does its homework on setting up a new fiscal framework for the federal level and the states which is due in 2020, anyhow.The political climate for deep reforms of either social security systems, labour markets and education does not yet exist – this is politics for the next election. The parties cannot agree on new taxes (apart from a FTT) and will address some shortcomings in the labour market. This narrative could be told by both the CDU/CSU and the SPD. They could bring a collection of seasoned politicians into the cabinet. All truly controversial issues would be shelved, and the energy portfolio would be jointly managed. The real policy alternatives would be tabled in 2017 again. The SPD could once again try proving that it is ready to govern and would look optimistically towards running in 2017 with a new candidate and more luck. The CDU could cope and by and large pursue its objectives, albeit with a lot of compromises.

Another Grand Coalition would have an easier time with the Bundesrat, too, in which the SPD runs states that have a total of 30 votes out of 69 and in which it is the junior party to the CDU in even more states that have a total of another 18 votes. CDU/FDP jointly have 21 votes in the Bundesrat right now. If there are no changes to conservative governments in Bavaria (elections on September 15) and Hesse (on September 22), this would remain the case for quite some time. On European affairs, some pretty significant differences on details of the banking union and growth-promoting policies at the European level would have to be hammered out.

The drawback is insufficient political distinction for both major parties and a potential next round of bad luck for the SPD at statelevel elections and/or the federal level given the greater prominence of the Chancellor in such a government.

The second narrative would be that all politically easy solutions do not work right now, which is why something new has to be tried.

CDU/CSU and Greens agree to bridge the gap between their camps and allow some greening of the economy within the tight constraints of balanced budgets, no new taxes and no significant regulation or deregulation of the economy at large. On European issues, the Greens would try pushing in federalist directions but the conservatives would call the intergovernmental shots. The real difficulty of getting there is the repositioning of the Green Party to the left of the SPD on many classic tax-and-spend and regulatory issues which is upheld by party resolutions. Joining a government with the CDU/CSU would be pretty controversial for the party against that background.

If this coalition were not to work well, then the exercise could be terminated at will early on.Building such a coalition would not be that difficult as the Greens would roughly replace the Liberals, with some reshuffling of portfolios. However, on important issues consensus would have to be sought with the Social Democrats in particular to achieve majorities in the Bundesrat. Of course, the price of “yes” votes from SPD-led governments in the Bundesrat would be predictably higher if the SPD were not part of a federal government. Whether and how the politics of such a split system would work is impossible to predict. It might work in narrowly circumscribed instances such as euro area policies, the energy turnaround or enhanced investment in education and transportation. The drawback would be insufficient transparency and political accountability in such a multi-layered system. 
The 2013 federal elections may bring about pretty complicated results. In that case, the task of governing Germany and providing joint leadership in European affairs will become much more complicated than it used to be in normal times of a clear-cut victory for one camp. All inter-camp coalitions may well have a built-in tendency towards paralysis and require special political tricks that allow the partners to show their true colours in clearly circumscribed policy issues while not rocking the boat. A few years from now, September 22, 2013, might be remembered as the day when German politics finally became normally complicated, as in other countries, too. It might, albeit indirectly, be a consequence of small shifts in the party system in response to the euro crisis. Even rock-solid political systems do not live on political islands.

If the current coalition does not have a majority in parliament, building a new government will be quite difficult and depend heavily on the specific outcome. A CDU/CSU-Green coalition or another Grand Coalition of CDU/CSU and SPD might be the only options in town. On many policy issues, difficult compromises would have to be found. On European issues, only slight changes in the policy positions on banking union and other issues would be plausible.