G20 Finance Minister’s Meeting 2013


 

So amid all the crazy news surrounding asteroids and meteors did anyone notice that some of the most powerful politicians in the world were meeting in Moscow that past few days to discuss the trivial matter of the world economy? 

 

Yes, once again these 20 or so men (I count just 3 women in the official photo op) met behind closed doors in Moscow on February 15, 16 to eat caviar, sample fine Russian vodka and chat about making internationally binding agreements that effect the everyday lives of billions for people with nary a whimper from the international news media.   Economists and accountants in suits just aren’t as sexy has space junk falling from the sky I guess. 

 

Two major resolutions came out of this year’s meeting.

 

First, it was agreed that corporations that shift profits overseas to avoid paying tax are bad.  Second, it was agreed that countries that intentionally devalue their currencies in order to attract investment are also bad. 

 

Both resolutions however stopped short of enacting any kind of meaningful policy to actually prevent these practices. 

 

On the corporate taxation front, many companies, mostly multinationals based in the US have been accused of reporting profits in jurisdictions with lower tax rates, while at the same time reporting losses in jurisdictions that have higher taxes or generous write off provisions for expenses.   For instance, Facebook recently reported a total of $1bn in profits but managed to pay no corporate income tax in the US.  Instead they shifted most of the money to their international operating divisions and reported a loss to the internal revenue agency in the US, claiming a $451m refund on taxes paid there.  The net effect of taxes paid in one jurisdiction versus refunds claiming in others was $0. 

 

For the G20 to crack down on this practice seems like a good idea but I fear that the counter argument made by corporations, that lower taxes help create jobs, will hold sway in the United States and other capitalist jurisdictions and nothing will happen to prevent this practice from continuing.  Facebook has already made a statement in their defense saying that their employees have paid the equivalent of $2.86bn in income taxes and that this should more than offset the lack of corporate taxes that have been paid.  I say hogwash!  This is the result of so called trickle-down economics and it’s nothing more than the shifting of the tax burden from the highest wage earners to the lowest.  If history is any indication, sadly the Facebook argument will prevail to some degree and the burden of taxes that the rich continue to refuse to pay will fall squarely on the shoulders of the middle class. 

 

On the currency manipulation front countries that intentionally keep their currency low in order to attract investment are being singled out as somehow preventing free trade.  Competitive Devaluation as it is called is seen by many as an unfair practice designed to make one country easier to invest in than another.  If the Yen for instance is worth less than the Pound and I have to decide which country to build a factory in I am more likely to covert my dollars to yen and build my factory in Japan than I am to build it in the UK.  This is just basic math but for some reason it’s seen as unfair and counter to free trade. 

 

Why? 

 

If Japan wants to take whatever steps they can to attract foreign investment and make their exports more attractive to the world market while at the same time making imports more expensive in their domestic economy why shouldn’t they?  This is exactly the same tactic that has been used by the United States, the United Kingdom and other economies throughout history as a way to build up their domestic economies and help them become more competitive on the world stage.  But when the tables are turned, somehow it’s viewed as unfair? 

 

This is a double standard on an epic scale and it’s not just Japan that is being singled out here, this is exactly the same tactic that the World Bank and International Monetary Fund write punitive provisions against into every one of the loans they make to emerging markets in Africa, Latin America and Asia.  That’s right; in order to receive economic assistance developing economies must agree that they will allow the free flow of cheap foreign imports into their economies.  The net effect is the rich countries that dominate organizations like the G20 are forcing smaller economies to open their markets before they are strong enough to compete adding to and prolonging their economic dependence.

 

The bottom line is that the G20 is beholden to corporate interests and neither of these resolutions if they ever grow into real binding agreements will be done to help the average citizen.  Welcome to the new age of corporate mercantilism.

What’s With All the Earthquakes?


Washington, Vancouver, Cuba, New Zealand and Japan – all within the last 2 weeks.  Not to mention the epic disasters in Haiti and Japan over the past few years that we are still cleaning up from.  According to the US Geological Survey there have been six tremblers of magnitude 5 or greater somewhere in the world in the last 24 hours alone!  Sometimes it seems as though the earth just won’t stop shaking.  For a real-time list of seismic activity go here:

US Geological Survey – Latest Earthquakes

It’s nothing new but natural disasters like this tend to bring out the worst in people’s imagination about God.  Some crazy people are already starting to point to the increased frequency of these events as the harbingers of the apocalypse.  Check out this video posted to YouTube just after the Japanese earthquake last spring;

Really? Come on now!

Let’s look at what Jesus actually said about earthquakes, wars and other natural disasters shall we?

Jesus answered: “Watch out that no one deceives you. For many will come in my name, claiming, ‘I am the Messiah,’ and will deceive many. You will hear of wars and  rumors of wars, but see to it that you are not alarmed. Such things must happen, but the end is still to come. Nation will rise against nation, and kingdom against kingdom. There will be famines and earthquakes in various places. [Matthew 24:4-7]

Did you catch it?  One sentence tucked in the middle there that for me at least puts the whole earthquake and natural disaster thing into perspective.  “Such things must happen, but the end is still to come.”  Stuff happens, get over it, sometimes and earthquake is just an earthquake and not a sign of anything.

What prompted Jesus to say this?  The apostles asked him what would be the sign of the end of the age and his return. Jesus answers by giving a description of the apocalypse peppered with graphic images of war, famine and natural disasters.  It’s scary stuff but he starts the description with a sentence that most people miss.  “Watch out that no one deceives you.”  [Matthew 24:4]  and ends by reminding us that no one knows the time of his return so trying to predict it using these so call signs is pointless.  “But about that day or hour no one knows, not even the angels in heaven, nor the Son, but only the Father.”  [Matthew 24:36].

If you read Matthew 24 with those two bookending statements in mind you realize that the entire apocalyptic description is a warning about what NOT to look for.  Jesus knows that we tend to look for big and fantastic evidence of God.  We want the show.   We expect the to earth to move when God does.  And why shouldn’t it, God is God after all.  He should be awesome and big and even a little bit scary right?  But He isn’t, God is love, He comes like a thief in the night and speaks in a “still small voice.”

So what’s with all the earthquakes?  I don’t know I’ll leave that to the seismologists to figure out.  What I do know is that when God acts it isn’t very often in a way we expect, and just like with Elijah, God isn’t trying to say anything to us through them.

The LORD said, “Go out and stand on the mountain  in the presence of the LORD, for the LORD is about to pass by.”  Then a great and powerful wind tore the mountains apart and shattered the rocks before the LORD, but the LORD was not in the wind. After the wind there was an earthquake, but the LORD was not in the earthquake.  After the earthquake came a fire, but the LORD was not in the fire. And after the fire came a gentle whisper.  When Elijah heard it, he pulled his cloak over his face and went out and stood at the mouth of the cave.   Then a voice said to him, “What are you doing here, Elijah?”[1 Kings 19:11-13]

What are we doing here, indeed?

The Wealthiest Nation on Earth?


Last night the lead story on the 11 o’clock news was the impending debt crisis in the United States. To be fair this has been big news for several weeks now with everybody fighting over how much debt its okay for the government to carry and whether or not they will need to raise taxes or cut spending to get there (or do both).  As the talking head wrapped up the story he said something that I’ve heard before but which struck me as a bit odd this time given the circumstances.  He said that the United States is still the wealthiest nation on earth.

Really?  How can a nation that is more than $13 trillion in debt still be considered the wealthiest nation on earth?  I guess it depends on how you measure wealth.

True if all you calculate is income then the United States does bring in the most money of any other economy.  It’s called Gross Domestic Product or GDP and in the United States that number stands at $14 trillion per year, almost 3 times that of its closest rival, Japan at just under $5 trillion.

But income doesn’t tell the whole story.

My investment advisor once told me that when measuring wealth you have to consider the amount of debt you carry.  By that measurement that United States is not the wealthiest Nation on Earth, they are in fact the poorest.  Their debt is more than the entire European Union combined, and nearly triple that of such international debt pariahs as Greece and Portugal.

Of course when you have a population of over 300 million people you can afford to have a bit more debt right? You have more citizens contributing to the income of the nation and helping to make those dept payments so looking at the gross debt doesn’t quite tell the whole story, maybe a better measure of debt is per capita.  By that measure each US citizen is responsible for approximately $45,000 of debt.  That’s less than tiny Luxemburg (over $3 million) and Ireland ($500,000) but still more than the overall average for the European Union ($27,000), Russia, ($3,700) and poverty-stricken Ethiopia ($51!).

Now nobody is going to suggest that Ethiopia is richer than the United States so clearly dept per capita isn’t a good measure of wealth either. Then I remembered something else my investment advisor told me.  He told me that the only number that really matters is your debt to income ratio.  The United States debt is equal to 95% of its income. That’s better than England (400%) and Germany (142%) but again still not as good as the European Union as a whole (85%) my home of Canada (64%) or India (15%).

So taking all of these things into account who is the wealthiest nation on earth?

The Principality of Lichtenstein has $0.00 debt but with a GDP of just $4 billion and a population of just 34,000 is it fair to consider them the wealthiest?  I don’t think so.

In order to make a far comparison we need to establish a benchmark of some sort so for that sake of argument let’s go with a minimum GDP of $1 trillion.  Of the 14 countries with at least a $1 trillion GDP, none of them are completely without debt but
the country with the best debt to income ratio and therefore in my humble opinion the wealthiest nation on earth is;

Drum Roll…………

China!

The Chinese GDP is $4.4 trillion making it 3rd behind the United States and Japan but debt is just $407 billion which puts the  debt to income ratio at just 7%.  With a huge population, low debt and an annual growth rate of nearly 30%, China will likely surpass both Japan and the United states on the gross income scale within 5 years.  Until then the United States will still have a legitimate claim on the title of wealthiest nation by GDP but with such a high debt no one will be able to make that claim and keep a straight face for much longer.

(All numbers are based on 2009 data from the International Monetary Fund)