The Move to America — the Great Capital Migration
Something very interesting is unfolding. Included in the new year-end spending bill was a waiver of the Foreign Investment in Real Property Tax Act (FIRPTA), which had been implemented during the late 1980s when the Japanese were buying everything. They claimed to have focused on buying U.S. farmland, but it also applied to buying trophy U.S. property like Rockefeller Center in New York City.
This position has been reversed in the new year-end spending package. While some attribute this to a grand conspiracy, giving far more credit to those in Congress and in the White House than they deserve, our sources simply tell the plain story of lobbying to allow foreign buyers, who are supporting the real estate market in key areas, to purchase properties. Especially after London basically kicked every foreigner out of town by telling them their money was not welcomed, and with lightning speed they instantly turned to New York City.
High properties, even in Florida, are being sold to the Chinese largely in cash deals whereas Canadians are buying the greatest number of properties. The lobbying has been from the real estate and banking industry who see a market they want to service. Slipped into the $1.1 trillion spending measure, which was passed to avoid a government shutdown, were tax breaks for Americans that simultaneously treats foreign pension funds the same as Americans. There has been lobbying from foreign pension funds because they see no hope in Europe and have been pleading for permission to enter the U.S. market in a big way. For the first time this provision waives the tax imposed on foreign investors under FIRPTA.
This is perfectly in line with our cyclical models because the DOLLAR has become the world reserve currency for real and by default. The dollar bears, who keep claiming it will crash, are looking only domestically. They have no peripheral vision and thus remain blind to the trend globally. They may sell stocks, assuming lower oil means more deflation. What if they are wrong?
Summers & Why Economics Refuses to Forecast
QUESTION: Marty,
Regarding the brief clip of Larry Summer’s opining on why economic declines are hard to predict, I was struck by the 2nd part of his explanation, which seemed to me to indicate that economists would not want to forecast a decline (even if they could) because it would set expectations of a decline and become sort of a “self fulfilling prophecy” because people might hunker down anticipating a recession and thus bringing it on or making it worse.
In other words, they need to keep CONFIDENCE so they will never forecast a downturn of the business cycle. This is like why Stalin executed Kondratiev b/c he recognized cycles and the governments inability to regulate them. Do you think Summers realized what he was actually communicating?
Thanks for sharing your knowledge – it has opened my eyes wide.
G
G
ANSWER: Clearly, economists know that CONFIDENCE is the game, and so do politicians. When French TV played my interview and questioned Sapin, the Finance Minister, his response was that this was not helping to maintain CONFIDENCE. You can see the same attitude. I do not believe that Summers can forecast anything for there has been no attempt to do so. Traditional economics shun any such attempt to forecast the economic turns. They only forecast if the trend in motion would remain in motion.
When I testified before Congress, they made me the last to speak on the panel because everyone else was an academic. They apologized for having to place me on such a panel. When asked what would happen to the dollar if the tax rate changed, each person before me said it would have no impact. By the time I was finished testifying, the other people on the panel slammed the doors as they walked out because they looked like fools. The questioning focused on me and the academics were there just for show.
When the government/Goldman Sach’s Alan Cohen tried to shut us down to prevent us from doing any forecasting, the same attitude prevailed that we had too much influence. The Department of Energy came to us in 1999 and asked us to provide a model for them because of our forecast that oil would rise from $10 to $100 by 2007 — it closed that year at $98.
There was a hearing on October 3, 2000. Alan Cohen of Goldman Sachs insisted that PEI be shutdown. The SEC even said the company was not insolvent, which should have allow us to have the case moved to the Bankruptcy Court to get rid of Goldman Sachs and that judge. They knew they would lose control of the case if that happened. So the SEC sent a letter stating PEI was not insolvent so the case should continue.
Jim Smith, a staff member, came to testify on October 3, 2000 with a written request from the Department of Energy for us to create a model given our forecast for $100 by 2007. Alan Cohen objected and Judge Owen would not even allow Jim Smith to testify. Nothing could be done after the court forbid any employee from testifying. Federal court is just a dog and pony show. There is no Constitution and there were no rights respected of any employee.
The second part of Summers’ statement was precisely what they argued against me in court, that I “manipulated the world economy” because our model had correctly called the turning points. To them, it was not the model. It was influence. If you assume it is impossible to forecast, then the only other conclusion is influence from a self-fulfilling prophecy.
So there is really little hope of ever turning the economic community into actual forecasters. It was Wesley Mitchel who did not understand cyclical wave structure, and as a result, declared that the business cycle was not regular and could not be predicted, which removed that as a viable avenue for research. So economists, to this day, remain unable to understand how to forecast the business cycle and assume it is a pointless endeavor, kind of like the old belief that the world was flat because you could not possibly stand upside down on a ball.
Hence, the second part of Summers’ statement is all about “influence” and the name of the game is precisely as Sapin complained to the French TV — this does not maintain CONFIDENCE. Consequently, economists forecast +-2% from the current trend, NEVER turning points, and they are like the gold promoters who only ever say BUY. They think if you only say UP, UP, and AWAY, then “influence” wins. Sorry —that is total bullshit. They simply become witch doctors with an even worse track record.
Bank of Italy Bails Out Four Banks
The European banking crisis is brewing. Last month alone, the Bank of Italy poured €3.6 billion euros into Banca Marche, Banca Etruria (PEL.MI), CariChieti, and CariFeto to prevent their collapse. The money was funded by financing from healthy banks. This is precisely how the banking crisis began in Austria back in 1931. They took a healthy bank and forced it to absorb a failed one, which was far worse than anyone realized as it took down all the banks.
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