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Tue, Jan 1, 2013 - 4:20pm
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U.S. arms sales to Asia set to boom on Pacific “pivot”

Analysis: U.S. arms sales to Asia set to boom on Pacific “pivot”

U.S. sales of warplanes, anti-missile systems and other costly weapons to China’s and North Korea’s neighbors appear set for significant growth amid regional security jitters.

Strengthening treaty allies and other security partners is central to the White House’s “pivot” toward a Pacific region jolted by maritime territorial disputes in China’s case, and missile and nuclear programs, in North Korea’s.

Read More https://stratrisks.com/

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Tue, Jan 1, 2013 - 4:21pm
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Syrian rebels blow up major pipeline

Syrian rebels blow up major pipeline

Syrian rebels severed one of the civil war-wracked country’s major natural gas pipelines, state media reported Monday.The Los Angeles Times reported rebels had seized oil fields and attacked other strategic targets in an attempt to deprive the Syrian government of much-needed cash.

The destruction of the pipeline north of the city of Dair Alzour Sunday wiped out production of an estimated 1.5 million cubic meters of natural gas that had fueled fertilizer factors and power generating plants, the Syrian Arab News Agency said.

Read More https://stratrisks.com/

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Tue, Jan 1, 2013 - 4:22pm
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Tokyo eyeing purchase of US spy drones

Tokyo eyeing purchase of US spy drones

The Japanese government has embarked on a plan to acquire the Global Hawk–a high-altitude, long-distance unmanned surveillance and reconnaissance aircraft–from the United States to enhance the ability of Self-Defence Forces (SDF) to collect information, The Yomiuri Shimbun has learned.

The planned introduction of the cutting-edge drone would bolster Japan’s intelligence capabilities, enabling it to more effectively cope with the increased pressure by China over the Senkaku Islands in Okinawa Prefecture, according to government and Liberal Democratic Party (LDP) sources.

Read More https://stratrisks.com/

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Tue, Jan 1, 2013 - 4:24pm
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China’s Economic Cold War on the United States

Economic Intelligence: China’s Economic Cold War on the United States

Once the world admitted China to the World Trade Organization in 2001, we welcomed the country into our free-markets. China got a hand on the steering wheel: It turned the rules of global business in its favor. We woke up to find a hijacking of our free-market system. China was manipulating its currency, subsidizing its firms, undermining nascent U.S. firms, erecting trade barriers, and stealing intellectual property. China was using its firms as instruments of state capitalism—it even coordinated them to monopolize critical resources such as steel and rare earths.

Read More https://stratrisks.com/

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Tue, Jan 1, 2013 - 4:33pm
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2013 - Market Outlook & Economic Forecast: Special Report

Guest Post: 2013 - Market Outlook & Economic Forecast

Submitted by Tyler Durden on 01/01/2013 - 15:49

We can’t predict the future – if it was actually possible fortune tellers would all win the lottery. They don’t, we can’t and we aren’t going to try to. However, we can analyze what has happened in the past, weed through the noise of the present and try to discern the possible outcomes of the future. For every almost every positive tailwind there is an opposing headwind, and in the coming year, the political and economic decisions domestically, and globally, will define the coming landscape.

Special Report - 2013 Market Outlook and Economic Forecast

https://www.zerohedge.com/news/2013-01-01/guest-post-2013-market-outlook...

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Tue, Jan 1, 2013 - 5:08pm
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What Happened The Last Time Gold And Central Banks...

What Happened The Last Time Gold And Central Banks Were So Far Apart?

Submitted by Tyler Durden on 01/01/2013 - 16:31

From 9/11 on, Gold and the world's central bank balance sheets were as correlated as over-consumption and a hangover (and linked just as causally we suggest). Then a funny thing happened in 2008 - gold slid as the central banks went extreme. Of course, as this divergence occurred, the world's stock markets imploded almost as if the central banks knew their status quo was about to go entirely pear-shaped. From 2008 until November of 2011 (when the world's central banks began their coordinated ease-fest) the correlation went limit up once again. Since then, Gold and CB largesse once again decoupled as liquidity is flushed around the world's markets to suspend reality just a little longer. While this divergence is not as extreme as in 2008, something is afoot....

Then...

and now...

Charts: Bloomberg

https://www.zerohedge.com/news/2013-01-01/what-happened-last-time-gold-a...

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Tue, Jan 1, 2013 - 6:28pm
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Next Bear Market A Planned Event Or Failure Of Central Planning?

Guest Post: Will The Next Bear Market Be A Planned Event Or A Failure Of Central Planning?

Submitted by Tyler Durden on 01/01/2013 - 17:35

Ironically, the very success of stock market manipulation only thins the market of legitimate participants and thus increases the probability that risk that has been suppressed for years will erupt uncontrollably. That the stock market is manipulated is no longer in question. One explicit goal in the Fed's zero-interest rate policy (ZIRP) is to drive capital into risk assets such as stocks. That is a first-order, transparent policy of manipulation, i.e. a centrally managed policy aimed at managing markets to meet a key central-planning goal: creating an illusion of prosperity via an elevated stock market and the resultant "wealth effect" for the 10% who own enough stocks to matter. Indirect manipulation is hidden from public view lest the rigging of the market taint the perception that a rising market is "proof" that Federal Reserve and Administration policies are "succeeding." Indirect manipulation is achieved via Federal Reserve quantitative easing operations, unlimited liquidity and lines of credit to fund bank speculations and masked buying of market futures. This multilevel manipulation creates a Boolean either/or for any Bear market: either it is a planned "panic" that profits the banks or a systemic failure of the orchestrated campaign of market manipulation.

https://www.zerohedge.com/news/2013-01-01/guest-post-will-next-bear-mark...

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Tue, Jan 1, 2013 - 6:31pm
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Hu Jintao: China to Step Up Efforts to Support Growth

Hu Jintao Says China to Step Up Efforts to Support Growth

By Bloomberg News - Dec 31, 2012 11:14 PM ET

China will work toward bolstering global economic growth in 2013, President Hu Jintao said in a New Year’s Eve address, amid optimism that a recovery in the world’s second-biggest economy is gaining traction.

The nation will “step up efforts to promote strong, sustainable and balanced growth in the world economy,” Hu said in the speech broadcast by state radio and television. China achieved stable economic development in 2012 and will seek to do the same this year while making restructuring of its growth model a focus, he said.

Hu’s last New Year’s Eve address before he steps down as president in March signaled Chinese leaders’ confidence the economy may be rebounding after a seven-quarter slowdown. A recovery may facilitate the transfer of power to Xi Jinping, appointed head of the Communist Party in November and set to become president, as authorities seek to assuage discontent sparked by corruption and a widening income gap.

The Chinese people are now uniting around the leadership of Xi to work toward building a “well-off society,” Hu said.

China’s new Communist Party leaders have pledged to abandon extravagance, cut down on lavish receptions and live more frugally, amid a broader push to stamp out corruption and win back people’s trust.

Hu’s speech didn’t indicate how China, set to complete its once-a-decade leadership transition in March, plans to manage an economy that’s estimated to expand 8.1 percent this year.

Monetary Policy

People’s Bank of China Governor Zhou Xiaochuan, in a separate New Year’s Eve statement posted on the central bank’s website, said the nation will maintain “prudent” monetary policy and deepen financial reforms in 2013. Policy makers will seek to effectively prevent financial risks and keep prices basically stable, he said.

In another statement on the PBOC website, Zhou said the nation’s management of its foreign exchange reserves had seen stable growth in returns during the “past few years.” The global economic situation will remain “complicated” in 2013 and China’s management of its reserves will face “relatively large” challenges, he said.

China’s foreign exchange reserves increased to $3.29 trillion at the end of September from $3.18 trillion at the end of 2011, according to central bank data....

https://www.bloomberg.com/news/2012-12-31/hu-jintao-says-china-to-step-u...

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Tue, Jan 1, 2013 - 6:34pm
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Top Goldman Sachs execs get shares on New Year's Eve

Top Goldman Sachs execs get shares on New Year's Eve

Lloyd Blankfein, chairman and CEO of The Goldman Sachs Group, delivers remarks at an event sponsored by the Economic Club of Washington in Washington, July 18, 2012.

Credit: Reuters/Jason Reed

Tue Jan 1, 2013 6:17pm EST

(Reuters) - Ten senior Goldman Sachs Group Inc (GS.N) executives, including Chief Executive Lloyd Blankfein, were on New Year's Eve given stock pegged to earlier restricted awards worth tens of millions of dollars.

The executives, which also include Chief Operating Officer Gary Cohn, Vice Chairmen Michael Evans and John Weinberg, Global Head of Human Capital Management Edith Cooper, Chief of Staff John Rogers, General Counsel Greg Palm, Global Head of Compliance Alan Cohen, and Chief Accounting Officer Sarah Smith, got a total of 508,104 shares, according to multiple filings late Monday with the U.S. Securities and Exchange Commission.

These executives sold 245,838 of those shares to cover tax obligations, and held on to the rest, which were worth $33.1 million. The shares were sold at a price of $126.24 on Monday.

The shares were not awarded as 2012 compensation; rather, they were grants that were awarded in prior years.

A spokesman for the firm said Goldman had no comment on the stock delivery.

Although the executives did not sell shares for profits on Monday, in recent months, top Goldman executives have been cashing in on stock awards granted in prior years that would have expired in November. Blankfein took home $5.9 million in proceeds from such transactions.

The transactions come amid a broader rally in bank shares. Goldman's stock soared 41 percent in 2012, to close the year at $127.56.

https://www.reuters.com/article/2013/01/01/us-goldmansachs-stock-idUSBRE...

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Tue, Jan 1, 2013 - 6:35pm
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U.S. arms sales to Asia set to boom

Aerospace & Defense

U.S. arms sales to Asia set to boom

By Jim Wolf

WASHINGTON - U.S. sales of warplanes, anti-missile systems and other costly weapons to China's and North Korea's neighbors appear set for significant growth amid regional security jitters. Full Article

https://www.reuters.com/

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Tue, Jan 1, 2013 - 6:36pm
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How cartels used HSBC to launder drug money

Business

How cartels used HSBC to launder drug money

By Carrick Mollenkamp and Brett Wolf

Julio Chaparro, one of the Colombian men indicted by U.S. authorities in January 2010, helped run a money-laundering ring for drug traffickers that took advantage of lax controls at HSBC Holdings Plc. Full Article

https://www.reuters.com/

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Tue, Jan 1, 2013 - 6:37pm
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At least 61 killed in Ivory Coast stampede

Africa

At least 61 killed in Ivory Coast stampede

ABIDJAN - At least 61 people were crushed to death in a stampede after a New Year's Eve fireworks display at a stadium in Ivory Coast's main city Abidjan, officials said. Full Article

https://www.reuters.com/

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Tue, Jan 1, 2013 - 6:44pm
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New Year, New Problem? Pakistan’s Tactical Nukes

New Year, New Problem? Pakistan’s Tactical Nukes

By Shashank Joshi

January 02, 2013

Pakistan is developing a new generation of smaller "tactical" nuclear weapons. The dangers and challenges such arms present are very real.

October of last year marked the fiftieth anniversary of the 1962 Cuban missile crisis. Many Asian policymakers will read the lessons of that harrowing episode with some self-satisfaction.

When India and Pakistan conducted their nuclear weapon tests in 1998, foreign analysts repeatedly told them that, as poor countries with weak institutions, they could not be entrusted with such awesome weaponry. Nascent nuclear powers were simply less reliable stewards than their Cold War counterparts. Over a decade on, and multiple crises later — Kargil in 1999, a military standoff in 2001-2, and the Mumbai attacks of 2008 — India and Pakistan have experienced nothing quite as perilous as the Cuban scare.

U.S. officials claim that Pakistan readied nuclear weapons during the Kargil conflict without the knowledge of then-Prime Minister Nawaz Sharif. But, even at the height of their crises neither India nor Pakistan have attempted, as the U.S. did in 1962, anything quite as foolish as depth-charging nuclear-armed submarines or scrambling aircraft equipped with nuclear air-to-air missiles towards hostile airspace. The dawn of Asia’s nuclear age has been calmer than that of Europe, and far calmer than the nuclear alarmists predicted.

But, as Paul Bracken and others have warned, we should not get complacent. When India tested its Agni-V missile in April, I and others raised a number of potential issues: Indian scientists were making cavalier statements of nuclear posture best left to political leaders, and the development of multiple warheads for each missile (known as MIRVs) and missile defense technology could all be destabilizing if not handled extremely carefully. India has legitimate deterrence requirements vis-a-vis China, but it would be counterproductive for this to become an open-ended expansion.

Pakistan’s nuclear trajectory is, however, altogether more worrying.

This issue is usually framed in terms of numbers. Pakistan possesses what is thought to be the fastest-growing nuclear arsenal in the world and if present trends continue, could equal or surpass Britain’s stockpile within a decade. So far, the Western world has viewed this expansion as a nonproliferation issue, not a security one. But, over the longer-term, that could change. As a recent report from the EU Non-Proliferation Consortium noted, “EU members might have military facilities within reach of Pakistani longer-range missiles … or temporary bases and personnel” and, “in the case of a deterioration in Pakistan’s relations with the West, this could be a subject of concern.” Pakistan is free to dismiss European and American anxieties, but this will only reinforce the country’s longer-term isolation.

There is also a second, more serious concern. Pakistan is developing a new generation of tactical nuclear weapons (TNWs) that target not Indian cities, but Indian military formations on the battlefield. The purpose of these...

https://thediplomat.com/2013/01/02/pakistans-new-nuclear-problem/?all=true

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Wed, Jan 2, 2013 - 10:01am
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Chinese Fly Cash West, by the Suitcase: WSJ

Chinese Fly Cash West, by the Suitcase

January 1, 2013, 7:12 p.m. ET

By ALISTAIR MACDONALD, PAUL VIEIRA and WILL CONNORS

Amid a rush of newly affluent Chinese eager to move money out of China, U.S. and Canadian border officials are seizing large amounts of cash tucked into wallets, purses and suitcases at airports across North America.

And at Canada's two busiest airports—Toronto and Vancouver—seized around 12.9 million Canadian dollars ($13 million) in undeclared cash from Chinese nationals from April 2011 through early June 2012, according to documents provided to The Wall Street Journal by the Canada Border Services Agency.

The money, most of it returned to the owners, represented 59% of all cash seized at the airports in the period, according to the data. In the U.S., Chinese citizens are the top source of airport cash seizures after Americans.

In June, a Chinese man touched down at Vancouver airport with around $177,500 in cash—mostly in U.S. and Canadian hundred-dollar bills, stuffed in his wallet, pockets and hidden under the lining of his suit case. Clarence Lo, the Canadian Border Service officer who found the cash, said the man told him he was bringing the money in to buy a house or a car. He left the airport with his cash, minus a fine for concealing and not declaring the money.

"He wasn't very happy," said Mr. Lo.

The financial penalty—at 2,500 Canadian dollars, or about $2,500—was a relatively small price to pay for successfully evading strict foreign-capital controls imposed by Beijing. China restricts private citizens from taking out more than $50,000 per individual per year. While it is hard to enforce these restrictions, Chinese authorities are scrutinizing outgoing private cash amid a broad anti-corruption drive and as worry grows over the risks of capital flight.

The money seized at airports represents just a sliver of private Chinese money pouring out, but highlights that Chinese citizens are turning to one of the oldest and simplest methods to evade those controls...

https://online.wsj.com/article/SB100014241278873236355045782139336471670...

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Wed, Jan 2, 2013 - 10:32am
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Europe's Resolution To Unpaid Bills? Ignore Them

Chart Of The Day: Europe's Resolution To Unpaid Bills? Ignore Them

Submitted by Tyler Durden on 01/02/2013 - 07:47

Curious how Europe's insolvent peripheral countries, where the government is increasingly the only source of demand (if not funding), have managed to avoid falling into a primary budget deficit abyss? Simple: instead of paying their outstanding bills, Europe's insolvent nations are simply not paying them. And with the entire European bond market now a central bank controlled policy mechanism, meaning there are no longer any checks and balances to keep governments honest, there is no pressure on said countries to actually pay. Hopefully those companies on the other end of these unpaid invoices have as generous a benefactor as the ECB to fund their now persistent and growing undercapitalization....

https://www.zerohedge.com/

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Wed, Jan 2, 2013 - 10:34am
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India FinMin: "Demand For Gold Must Be Moderated"

India FinMin: "Demand For Gold Must Be Moderated"

Submitted by Tyler Durden on 01/02/2013 - 09:16

As we wondered out loud yesterday, many have questioned the disconnect between increasingly burgeoning central bank balance sheets and money printing and the range-bound trading in Gold. It seems the first real hint of why is peeking through as the Economic Times reports the Indian government are growing increasingly concerned at the rate of gold imports. As the India Finance minister stated: "Demand for gold must be moderated... We may be left with no choice but to make it more expensive to import gold. The matter is under government consideration." Gold imports are playing a major part in India's record high current-account deficit (at $20.2bn for the period April to September), down 30.3% YoY thanks to a doubling of the customs duty on standard gold bars (to 4%). It seems the Indian powers-that-be are learning from their US and European leaders that if something is happening in a free-market that threatens the status quo even modestly - crush it with regulation and centrally-planned control. As the article goes on to note, currently, the government is also making efforts to channelise investor money into equities and other financial instruments to reduce demand for the yellow metal.

https://www.zerohedge.com/

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Wed, Jan 2, 2013 - 10:37am
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The Dangerous Blindspots of Clueless Keynesians

Guest Post: The Dangerous Blindspots of Clueless Keynesians

Submitted by Tyler Durden on 01/02/2013 - 10:28

Via Charles Hugh-Smith of OfTwoMinds blog,

The Keynesian model is a Cargo Cult, mired in a distant, romanticized past where Central Planning, intervention and manipulation were solutions rather than the root of the economy's fatal disease.

If we want to trace today's policy failures back to the source, we find ourselves at Richard Nixon's famous statement that "We are all Keynesians now." The fundamental Keynesian project is that the Central State and Central Bank should manage market forces whenever the market turns down. In other words, the market only "works" when everything is expanding: credit, profits, GDP and employment. Once any of those turn down, the State and Central Bank "should" intervene to force the market back into "growth." The Keynesian has two basic tools: the State can borrow and spend money (fiscal stimulus) and the Central Bank can create money and "inject" it into the economy (monetary stimulus): quantitative easing, lowering interest rates, extending unlimited credit to broker/dealer investment banks and financial institutions, etc. The sharper the downturn, the greater the State/Central Bank intervention. This accounts for the martial analogies of State/CB responses: "bazookas," "nuclear option," etc., as the market is overwhelmed with ever greater fiscal/monetary firepower. After basically voiding the market's ability to price risk and assets, the Keynesians believe the market will naturally resume pricing risk and assets at "acceptable to Central Planning" levels once fiscal and monetary stimulus is dialed back. The entire Keynesian Project has numerous blindspots. When reality inconveniently fails to meet Keynesian expectations, reality is ignored or massaged to suit the Keynesian Cargo Cult's belief system. For example... https://www.zerohedge.com/news/2013-01-02/guest-post-dangerous-blindspot...

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Wed, Jan 2, 2013 - 10:42am
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Demography as destiny: The vital American family

Demography as destiny: The vital American family By Joel Kotkin December 31, 2012

Recent reports of America’s sagging birthrate ‑ the lowest since the 1920s, by some measures ‑ have sparked a much-needed debate about the future of the American family. Unfortunately, this discussion, like so much else in our society, is devolving into yet another political squabble between conservatives and progressives.

Conservatives, including the Weekly Standard’s Jonathan Last, regularly cite declining birth and marriage rates as one result of expanding government ‑ and a threat to the right’s political survival. Progressives, meanwhile, have labeled attempts to commend a committed couple with children as inherently prejudicial and needlessly judgmental.

Yet family size is far more than just another political wedge issue. It is an existential one – essentially determining whether a society wants to replace itself or fall into oblivion, as my colleagues and I recently demonstrated in a report done in conjunction with Singapore’s Civil Service College. No nation has thrived when its birthrate falls below replacement level and stays there – the very level the United States are at now. Examples from history extend from the late Roman Empire to Venice and the Netherlands in the last millennium.

Falling birthrates and declining family formation clearly effect national economies. One major United States’ advantage has long been high birthrates, akin to a developing nation’s, as well as a vibrant family-oriented culture. This was largely because of immigrants and their children, striving first- and second-generation Americans. The United States, according to the U.S. Census Bureau, is expected to have a roughly 40 percent growth in its workforce in the first half of this century, largely thanks to immigration.

In contrast, the Census Bureau predicts that leading U.S. competitors, notably Japan, Europe and South Korea, will likely suffer a decline of 25 percent or more over that time. Even China, whose birthrate has dropped precipitously under its one-child policy and rapid urbanization, is expected to see a sharp drop in its labor force over the next decade.

Perhaps the greatest threat from collapsing fertility is the aging of society. Consider “the dependency ratio,” which measures the number of people in the workforce compared to retirees ‑ in effect, how many working people are needed to support those over age 65. In 1960, before the decline in birthrates, that ratio was 9 percent in the 23 most developed countries. Today, it is 16 percent across these advanced countries. By 2030 it could reach as high as 25 percent.

Countries with the longest history of declines in fertility face the biggest fiscal crises. By 2050, for example, Germany and Singapore are predicted to have roughly 57 people above age 65 for every 100 workers. In the United States, this ratio will rise by 50 percent, to roughly 35 per 100 workers, even if the current decline is eventually reversed.

If birthrates continue to decline, Western nations may devolve into impoverished and enervated nursing homes. And without strong families, children are likely to be more troubled and less productive as adults.

You don’t need a crystal ball to see what this future could look like. Consider Japan. By 2050, there are expected to be three people above age 65 for every person in Japan under 15. In fact, more people are expected to be over 80 than under 15.

This demographic shift signals a kind of death sentence for that once thriving, but now declining, nation. Not only are Japanese couples having far fewer children, sociologist Mike Toyota notes, roughly one-third of Japanese women in their 30s are not getting married ‑ which, in that conservative society, essentially means they are unlikely to have children. Even teenagers, according to a recent government-commissioned study by the Family Planning Association, seem oddly indifferent to dating and sex.

Given the stakes, Americans must forgo political squabbles and focus on practical ways to...

https://blogs.reuters.com/great-debate/2012/12/31/demography-as-destiny-...

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Wed, Jan 2, 2013 - 10:48am
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In 2013, the great global unraveling: Teetering

In 2013, the great global unraveling

By Mark Leonard - December 30, 2012

The disparate prospects of each continent have little in common. To the extent that they can be linked by a single theme in 2013, however, it is the idea of the unraveling of the global economy and the political integration that supported it. After two decades of globalization, this year will see each of the big political theaters re-erecting barriers and focusing more on domestic repairs than on global expansion. The unraveling has its roots in longer-term trends, but it is set to step up in the next year.

There has been a remarkable stabilization within the euro zone since European Central Bank President Mario Draghi’s intervention in the summer of 2012. But even as the euro zone integrates, the politics and economics of the wider European Union are likely to diverge. In practice, the measures toward an integrated banking union, increased parliamentary accountability and more incentives for reform could go hand in hand with the de facto economic and political disintegration of the EU. Economically, as Sebastian Dullien argues in a paper, “Why the euro crisis threatens the EU single market,” there is a significant risk of a gradual unraveling of the EU’s single-market system. A full euro zone breakup would shatter the euro, while a great leap toward political union could see shrinkage of the single market, as countries such as the United Kingdom withdraw from the heart of Europe.

Even muddling through the crisis seems likely to diminish the depth of the single market. In recent months, banks in the euro zone have withdrawn from trans-border business. Even poorly-managed German companies are paying significantly less interest on capital than well-managed Spanish companies. These new barriers between euro zone members will lead to a renewed focus on domestic markets. For Europe, this means less competition, less growth and higher prices for consumers.

Europe’s economic unraveling will be matched by a new political geography. The continent is already seeing a reshuffling of its elite, as the traditional political forces in many countries – from Greece to Italy to Finland to Austria – find themselves besieged by an emerging anti-political class of populists from left and right. There is also a renegotiation of the relationship between the “core” and the “periphery” – with many EU member states, including larger nations such as the UK, Poland and Spain, deeply concerned that integration is forcing them to the periphery of the European project.

Most worrying is the fragmentation of the core itself, with possibly irreconcilable differences emerging between Paris and Berlin over the future shape of the EU polity.

The Middle East could also become divided like never before in 2013. In the past two years we have seen political action unite the Arab world with an “awakening” that has spread from capital to capital through social media, satellite television and the infectious promise of change. But the story of the year ahead will focus more on the splits.

Syria’s civil war is becoming the epicenter of a regional sectarian conflict, bringing the threat of wider destabilization. It has already sharpened sectarian tensions and reinvigorated dormant Sunni jihadi forces, putting Iran and its allies on the defensive and providing space for Kurdish ambitions. The febrile atmosphere in Kurdish areas is opening cracks between Ankara and its de facto allies Saudi Arabia and Qatar, and reverberations are spreading into northern Iraq.

A story with enormous global resonance is the growing tension between a strong Chinese society and a weak Chinese state, as it drives the new Asia apart. Many in the Chinese elite think their country needs to enter a new era of political and economic change. After Mao’s political revolution (China 1.0) and Deng Xiaoping’s economic revolution (China 2.0), they are calling for a major re-orientation toward a China 3.0.

Now that China’s populace is becoming increasingly affluent, how does the state deal with issues like growing inequality, the need to rebalance its economy and its increasing exposure to the global economy? How does the Communist Party retain stability in a time of unrest within Chinese society that includes half a billion “netizens” on the Web? And how does China take on the burden of being a Great Power as it develops interests in every continent on the planet?

In September, China’s 18th Party Congress anointed leaders whose views are more aligned with the past than the future. As the political system becomes more rigid and its foreign policy more aggressive, there is a risk of growing tension between China’s strengthening society and its weakening political system. These tensions are already having an impact on the wider Asian system.

Asia’s economic map has been redrawn over the past 15 years as increasing intra-regional trade, investment and supply chains have driven deep interdependence (all done largely without the United States). But tension and weakness in the Chinese state seem to be driving the nation to take ever more worrying steps toward neighbors such as Japan, the Philippines and Korea. Since 2010, a more aggressive China has increasingly threatened to pit the “economic Asia” that was uniting without the United States against a “security Asia” that is demanding an American pivot to balance against China’s rise.

All of the above are linked to the question of American leadership, or its absence. At the moment, America’s political class wonders whether there will be a deal made as Congress hurtles toward a fiscal cliff. But for the first time in decades, a dramatic question at the heart of the most powerful nation in the world is met outside with curiosity and concern rather than existential angst.

The fiscal cliff drama does not show America at its best – its law-makers seem divided and disconnected from economic reality. But there is an even more shocking development about the events on Capitol Hill: the fact that that the stakes for the rest of the world seem so low. It is a sobering reminder that – although no power has emerged to replace the United States– American leadership will not be able to stop the great unraveling. In fact, to the extent that America will continue to lead the world, it will be pioneering a focus on internal rebuilding rather than foreign adventures.

https://blogs.reuters.com/mark-leonard/2012/12/30/in-2013-the-great-glob...

An epic lack of foresight, accuracy and rationale... https://www.tfmetalsreport.com/comment/170246#comment-170246

Wed, Jan 2, 2013 - 6:20pm
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Moody's & IMF statement on US Debt Level/Ceiling

Moody's Warns On USAAA Rating; IMF Piles On

Submitted by Tyler Durden on 01/02/2013 - 14:56

Moody's has stepped forward with the first warning shot across the bow that:

  • *MOODY'S: MORE MEDIUM TERM ACTIONS MAY BE NEEDED TO SUPPORT Aaa

Has contradicted itself (from September) on the debt-ceiling breach; and warns that while the deal 'mitigates' some fiscal drag, it does not remove it. To wit: the IMF piles on:

  • *IMF SAYS `MORE REMAINS TO BE DONE' ON U.S. PUBLIC FINANCES
  • *IMF SAYS U.S. DEBT CEILING SHOULD BE RAISED `EXPEDITIOUSLY'

Full statements below....

Moody's Anticipates Further US Fiscal Action Following "Fiscal Cliff" Deal

New York, January 02, 2013 -- Moody's Investors Service said that the fiscal package passed by both houses of Congress yesterday is a further step in clarifying the medium-term deficit and debt trajectory of the federal government. It does not, however, provide a basis for a meaningful improvement in the government's debt ratios over the medium term. The rating agency expects that further fiscal measures are likely to be taken in coming months that would result in lower future budget deficits, which are necessary if the negative outlook on the government's bond rating is to be returned to stable. On the other hand, lack of further deficit reduction measures could affect the rating negatively. Notably, yesterday's package does not address the federal government's statutory debt limit, which was reached on December 31. The need to raise the debt limit may affect the outcome of future budget negotiations.

Although the fiscal package raises some revenue through higher tax rates on individuals earning more than $400,000 ($450,000 for joint filers) and through some other smaller measures, the estimated amount of increased revenue over the next decade is far outweighed by the amount of revenue foregone through the extension of lower tax rates for those with incomes below $400,000, the indexation of the alternative minimum tax, and other measures.

The Congressional Budget Office (CBO) estimates that the net increase in budget deficits from the fiscal package when compared to its baseline scenario (which assumes taxes on all income levels would increase) is about $4 trillion over the coming decade, excluding higher interest costs on the resultant higher debt. Based on that estimate, a preliminary calculation by Moody's shows that the ratio of government debt to GDP would peak at about 80% in 2014 and then remain in the upper 70 percent range for the remaining years of the coming decade. Stabilization at this level would leave the government less able to deal with future pressures from entitlement spending or from unforeseen shocks. Thus, further measures that bring about a downward debt trajectory over the medium term are likely to be needed to support the Aaa rating.

The macroeconomic effects of the package are positive, since it averts the recession that would likely have occurred had personal income taxes gone up for all income levels. However, the increase in the Social Security payroll tax from 4.2% to 6.2% of income that became effective on January 1 will likely be a constraint on growth in coming quarters. Furthermore, expenditure cuts that may be decided in coming months could also affect the rate of GDP growth in the near term. Overall, therefore, the recent package mitigates part of the fiscal drag on the economy associated with the fiscal cliff but does not eliminate it.

The statutory debt limit was reached on December 31, and the Treasury indicates that its extraordinary measures may be sufficient to maintain normal expenditure levels for approximately two months. Nonetheless, the debt limit will have to be raised in February or early March. At the same time, the fiscal package passed yesterday delayed the implementation of spending cuts mandated by the Budget Control Act of 2011 for two months. Therefore, it seems likely that new measures addressing the expenditure side of the budget will be negotiated at around the time the debt limit will need to be raised.

Although Moody's believes that the debt limit will eventually be raised and that the risk of default on Treasury bonds is extremely low, this confluence of events adds uncertainty to the outcome of negotiations. However, the spending measures that result from the negotiations will form part of the medium-term outlook for the budget deficit. Moody's will need to consider these measures in assessing the rating outlook. Further revenue measures may also form part of the negotiations. The debt trajectory resulting from this process is likely to determine whether the Aaa rating is returned to a stable outlook or downgraded to Aa1, as Moody's stated last September.

From IMF:

Mr. Gerry Rice, Director of External Relations at the International Monetary Fund (IMF), issued the following statement today:

“We welcome the action by the U.S. Congress to avoid sudden tax increases and spending cuts, including through an extension of unemployment benefits during 2013. In the absence of Congressional action the economic recovery would have been derailed.

“However, more remains to be done to put U.S. public finances back on a sustainable path without harming the still fragile recovery. Specifically, a comprehensive plan that ensures both higher revenues and containment of entitlement spending over the medium term should be approved as soon as possible. In addition, it is crucial to raise the debt ceiling expeditiously and remove remaining uncertainties about the spending sequester and expiring appropriation bills.”

https://www.zerohedge.com/news/2013-01-02/moodys-warns-usaaa-rating-imf-...

An epic lack of foresight, accuracy and rationale... https://www.tfmetalsreport.com/comment/170246#comment-170246

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