Tuesday, July 21, 2015

The Glorious Underground Economies and How Folks are Learning to Survive and Thrive While Pissing Off Statists, Socialists and Tax Collectors

Image credit on size of European shadow economy: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/04-2/20130506_shadow1_0.jpg

Man has always survived through his labor - he simply must produces, trade and/or sell; it's how he feeds, houses and clothes himself and family or, put another way, it's absolute survival in the rawest sense.  It's been that way throughout history and that paradigm will never change.  But along comes government that literally extorts the product of his labor at the point of a gun, and the bigger the government theft machine the greater the efforts of man to skirt the robbery and extortion of taxation and government regulations. In the modern world, the activity of toiling to survive outside the expropriating system is called the underground economy or the shadow economy, and governments and bureaucratic goons are literally launching wars against folks for the crime of merely trying to survive because, well, human survival is verboten in the New World Order of corporatism, massive regulation, statism, socialism and command and control economies.

It's been estimated that the underground economy in Greece is 30-50% of GDP.  The Greeks have a long history of avoiding taxes, a practice that dates back to the days when Greece was part of the Ottoman Empire and subject to heavy taxation.  The Greeks understand that all government is corrupt and thieving, hence the high level of motivation to conduct commerce in a manner that lessens government expropriation.  Statists have been whining for years that the real problem with Greece is that the Greeks don't pay taxes.

However, Greece is far from the only European nation with a high level of underground economic activity.  Bulgaria and Romania (both joined the EU in 2007) hold the #1 and #2 spot for underground economic activity, leaving Greece 3rd.

A Bloomberg article, here, offers insights on how and why folks flee to underground economies.
After quitting his job as a driver to focus on peddling imported shampoo and coffee at a Bucharest market, Costin Dumbrava is on the lookout for Romanian anti-fraud agents intent on ruining his flourishing business.

The 45-year-old runs a stall selling goods shipped over from Hungary and Austria to throngs of customers lured by prices that undercut local supermarkets by a quarter. The secret of his success? He doesn’t pay income tax and he doesn’t charge his clients value-added sales tax. “I couldn’t afford to sell at these prices if I paid taxes,” said Dumbrava, whose wares included brands from Procter & Gamble Co and Unilever NV. “I saw the crackdown and the raids on television. If my turn comes, I’ll have to give up.”

As nations such as Greece struggle to clamp down on tax evasion, Romania is making inroads to curb its more than $40 billion shadow economy, the European Union’s second-largest. With as much as a third of gross domestic product still off the books a quarter-century after communism, the push is designed to swell coffers and help the government reverse painful austerity.

The highlighted sentence above borders on sheer lunacy but is typical of what one would expect from a statist loving Bloomberg article.  The fact that the article clearly states that the goal of cracking down on underground economic activity is to 'swell [public] coffers' is instructive on many levels. However, the assertion that giving governments more money reverses painful austerity is ludicrous to the point of being hilarious.  When folks keep the product of their labor, there is far less economic hardship and poverty.

Most taxes fund huge government bureaucracies or in the case of America, taxes and an $18 trillion mountain of federal debt funds wars, the empire, government bureaucracies and socialism.  Since joining the EU in 2007, Romanian debt has skyrocketed from 12.6% of GDP in 2008 to 39.6% in 2014, and undoubtedly that debt increase paid for the gargantuan government bureaucracy dictated by the EU bureaucrats and technocrats.

Source: http://www.tradingeconomics.com/romania/government-debt-to-gdp

Unlike clueless westerners of America and the original EU members of northern and southern Europe that religiously worship the state as their benevolent savior, the folks from the former Communist block nations of central Europe don't trust any government as far as they can throw it and they aren't about to pay the taxes to raise another oppressive government.  Indeed, those who survived the harsh days of communism owe their very survival to underground economies and these folks are well aware that communist bureaucrats were high paid and had the best food and housing while most of the people were condemned to misery, starvation and deprivation.

Although Romania has more than doubled its debt since joining the EU, the world's largest European underground economy of Bulgaria is safer because the Bulgarian government didn't pile on debt and it's debt to GDP ratio is a reasonably healthy 18.9 percent. Granted, Romanian debt is still way lower than Greek debt as a percentage of GDP but the pressure to grow government and taxation by declaring war on the underground economy is a recipe for disaster.

Western European nations are also discovering the benefits of the underground economy.  Nasty economies and public corruption have resulted in soaring unemployment, Fortune chirped in on the underground economies in Spain and Italy, here.
According to a recent report by Spain’s Ministry of Finance, at the end of 2012 the underground economy accounted for 24.6% of GDP, up from 17.8% at the time the crisis began in 2008....

Spain’s economic crisis, the government’s reaction to it, and pervasive political and business corruption have inspired a black market boom....

A recent European Commission report found that 95% of Spaniards thought corruption was widespread in their country, outdone only by Italy (97%) and Greece (99%).....
Arrogantly, the Spanish government's response is typical - instead of cracking down on corruption "the government raised taxes to the point that Spain — one of Europe’s poorer countries — now has among the highest personal income tax rates on the continent, providing more motivation to work off the books" according to Fortune.

Western governments and its bureaucratic goons are in an absolute panic.  Drowning under poverty inducing statist economies and mountains of debt that is becoming increasingly difficult to service, they are going full blown totalitarian Nazi by increasing public plunder.  Moreover, they have declared war on the underground economies and are attempting to OUTLAW cash.

Cash is the mothers milk of survival for folks struggling to survive.  If anything, the schemes of the central planners will only serve to grow the underground economies which are growing everywhere. Despite the best efforts of government goons to criminalize cash and productive work-commerce among consenting people (true free trade), the survival instincts of humans will always trump government and bureaucracy.

The failures of statism-socialism will propel folks to seek new paradigms of survival and folks will always revert back to the only proven system of survival - work-produce-trade-sell.  For a while, folks did in fact vote for big bad governments because they perceived a benefit from authorizing the government to rob somebody at the point of a gun to give them the freebies that they wanted or thought they deserved.  However, the glory days of entitlements are in steep decline.  There are no 'freebies' as manna from the heavens of central banks and bloated governments.  There is only the misery of significant declines in the standards of living in the West because, well, the cradle to the grave entitlement state was all a farce anyway.

What will happen next?  It will be the productive people working hard to survive vs. the strong arm of the militarized police state.

The murderous and ruthless communism of Stalin, Lenin and Mao that killed 100 million folks and mostly through starvation, did not have the luxury of a rich and productive economy to loot and plunder. But the West is already substantially plundered and mostly from unsustainable entitlement promises, statism on steroids and the policies of central banks and governments that force the poor and middle class to bailout bondholders and banksters.

Such a situation is destined to turn ugly and violent.  Those in power will not voluntarily relinquish their absolute power and would gladly immerse the planet under a nuclear mushroom cloud.

But there is one certainly - governments are going down, the fiat banking systems are destined to implode and mass civil unrest will terrorize and rattle humanity to its core. History keeps repeating itself over and over as this is nothing new.

Meanwhile the bureaucrats and central planners will continue crush any and all entrepreneurial spirit that exists among industrious folks.  In 2013, Zero Hedge estimated the total size of Europe's shadow economy at $3.55 trillion with an estimated tax loss of nearly 900 billion Euros.
On an unweighted average basis, European shadow economies are 22.1% of total economic activity or around $3.55 trillion (as large as Germany's whole economy). A report by Tax Research, suggests that Austria and Luxemburg have the smallest shadow economies in the euro area at 9.7% of GDP, while Bulgaria at 35.3% and Romania at 32.6% top the list. Of the major economies, Germany clocks in at 16%, France at 15%, Italy at 27% and Spain 22.5%. Stunningly, in terms of tax revenues lost, the shadow economy translates into an estimated €864bn or just over 7% of euro area GDP and, in context, accounts for 105.8% of the enture healthcare spending of the EU. It appears that more and more Europeans have no choice but to shift to a shadow economy (as taxes rise among other things), and this is the biggest threat to the entire economy. This is likely one reason the 'austerity' actions have not been successful since far less taxes are being paid via the conventional channels.

The average shadow economy is 22.1% of the nation's economy...Read the rest here.
It literally takes millions of working and producing folks to generate $3.55 trillion in underground GDP.  I'm sure that the underground stats have increased since 2013, although shadow economy stats are difficult to measure and are at best a guess.   Furthermore, nearly all underground economic activity is un-banked.  The last thing these folks will do is deposit their money in a thieving bank, Greece or Cyprus style.

Governments will argue that underground economic activity involves mostly drugs and all kinds of illegal activities but that's simply not true.  A consultant that advocated for the abolition of cash, here, clearly defined the shadow economy: "The shadow economy comprises legal business activities that are performed outside the reach of government authorities". 
Bingo, that's it - outside the reach of government authorities is the operative wording.  In New York City, a dude named Eric Garner was literally choked to death on a New York street by NYPD because he was selling 'loosie' cigarettes on a street corner. In severely Nazified and progressive places like NYC, underground economic activity carries the death penalty.

If anything, the shadow or underground economy represents true free market capitalism, and before corporatists, oligarchs, government goons, progressives, socialists, tax collectors etc. demand their pound of flesh for every morsel of economic activity.

Finally, I applaud the underground economy and the hardworking and brave folks who make it happen!  Some government officials have even acknowledged that clamping down on underground economies will result in more economic hardships so they begrudgingly look the other way or accept a bribe. Even statists are learning that the 'command' and 'control' aspects of the command and control economy are ultimately unenforceable.

In America, the underground economy has been estimated at $2 trillion and deprives the IRS of some $500 billion a year in tax revenues, here.

Yeah!  Go Baby!  Grow the underground economy and deprive the tyrannical and corrupt monster known as government of revenues.  That's precisely how you slay the statist monster.  Democracy won't vote it out of office, you can only starve the monster to death.

Saturday, July 11, 2015

Greece vs. Grease - When you grease the wheels of statism, a nation flies off the slippery slope into the dark abyss

The situation in Greece is playing out like a classic Greek tragedy and it has elicited considerable commentary from the right and the left, and even a few reasonably sane observers.  The right wing position is:  the Greeks made their bed so they need to sleep in it, man up and pay their damn debts. The left wing position is: in the interest of socialist solidarity, the debt should be forgiven, written off and Greece should be supplied with fresh new debt money.  Well, Greece can't pay its debts, not now and not ever.  However, the Greeks do OWE somebody some $370 billion and Greece voluntarily signed on the dotted line for those nasty loans that constitute nothing more than more debt slavery.

If anybody really wants to understand Greece, you have to ask a Greek who intimately knows Greek history, culture and politics.  The problems in Greece just didn't pop up overnight, they've been brewing for decades. Socialism, oligarchy and corruption are the leading culprits for the horrors presently occurring in Greece. Taki Theodoracopulos explains in his essay titled Demagogue Days.

Last Sunday’s referendum was truly Greek, a tragicomedy of errors, a yes-or-no question drafted in cryptic, technocratic gobbledygook, worthy of the best Brussels newspeak. 
But let’s start at the beginning.

The Greek ship of state was cruising on choppy waters under a benign monarchy headed by the 23-year-old King Constantine back in 1967. Greeks are known for their hot tempers, and they were never hotter than during the spring of 1967. MPs regularly came to blows in Parliament as elections loomed. On April 21, 1967, a military coup took place, one that the king was forced to accept in order to avoid bloodshed. After six months the king attempted a countercoup to restore democracy, but he failed, choosing exile instead. The colonels collapsed in the summer of 1974 when Turkey invaded and occupied the northern part of Cyprus. Democracy was restored, and the king was rejected in a plebiscite reminiscent of the kind perfected by South American strongmen. Thus begins Greece’s latest democratic period.
Two men dominate the post-colonel period: Constantine Karamanlis and Andreas Papandreou. Both men started their own political parties, New Democracy for the former, PASOK for the latter. Karamanlis was center-right, Papandreou center-left. Both got very rich in office, and both corrupted the patronage system to the maximum. Then Karamanlis, a man I knew very well, and one who had benefited from my father’s largesse only to turn against him once he was no longer needed, had a brilliant idea. He proposed to the powers of the EEC, as it was then called, to allow Greece to join the then six nations, thus ensuring no ambitious colonel would try to grab power by force of arms. The EEC welcomed us with open arms. European money began to flow into a poor country whose main exports were olives and fruit and whose economy was based on tourism and shipping.

In 1981, the established EU Greek nation decided to swing left. Andreas Papandreou came into office and a real Greek upheaval took place. Papandreou established a core constituency of voters by enriching them for life. The trick was an easy one. Tony Blair tried it years later. Close to 25 percent of Greeks were employed by the state, with pensions worthy of far, far richer nations, and leaders of civil unions enjoying double or triple pensions for retiring at age 50. With 25 percent of the electorate in his pocket for life, Papandreou then proceeded to nationalize industries, milk the EU treasury, and flirt with Middle Eastern dictators. He personally became very rich, and even divorced his American wife for a very generously endowed airline hostess he met while flying to an EU meeting who went by the nickname Mimi Big Tits. He married Mimi, survived all sorts of riots against his corrupt policies, and finally expired, his face buried in Mimi’s bosom. After his demise she became a nonperson, as in Stalinist societies. Both Karamanlis and Papandreou were succeeded by their nephew and son, respectively, becoming prime ministers—which illustrates a certain lack of imagination on the part of a battered electorate. Then came the 2004 Athens Olympics and the crowning of Greece as a rich, modern European nation covered in glory. The Greek state spent like there was no tomorrow. And, as it turned out, there was not.

Throughout the early years of the new millennium, the Karamanlis-Papandreou cliques had a new party trick up their sleeves. They played musical chairs for the premiership and were advised on how to cook the books by Goldman Sachs at 300 million greenbacks a shot. It was worth it. EU funds kept pouring in, while Greeks enjoyed avoiding taxes and going to the beach. But a word about tax avoidance: The omnipotent state created by Karamanlis and Papandreou gave back very little to hardworking Greeks who did not rely on the state for their welfare. Hospitals are poorly run and dirty, city planning almost nonexistent, and garbage collection a hit-or-miss affair. In other words, there is very little in return for paying one’s taxes.

The party ended when the you-know-what hit the fan around 2010.  Soaring wages and gold-plated pensions had to end. Eternal austerity was the antidote. This was the EU at its best—worst, actually. It was like taking a middleweight boxer, putting him on a very strict diet, and expecting him to become a heavyweight contender. It was and remains an impossibility. Three successive Greek prime ministers played along with the EU charade of austerity, bankrupting the nation further, until the present bunch of ex–student activists and so-called academics with dubious degrees came along and gave the nation the coup de grace. Which brings me to the present. 
What the EU bureaucrats expect of Greece is a contradiction in terms. Austerity cannot grow an economy, even the unelected and unaccountable technocrats living in la-la land should know that. But the EU’s first and only commitment is to keep the union going, with face-saving devices invented as it staggers along.
Yes, Greece has huge problems but throwing more money at those problem will not make them go away and will only increase the suffering of the Greek people.  In fact, throwing more money at Greece is like throwing alcohol at an alcoholic while demanding that he not drink it. Bailout money engineered by the Troika (European Commission - EC, European Central Bank - ECB and International Monetary Fund - IMF) mostly went to bailing out banks, specifically French and German banks.

IMF Director Admits: Greek Bailout Was "To Save German & French Banks"
For the first time in public, though practically the entire world assumed it, an official from The IMF has admitted that the various Greek bailouts were not for The Greeks at all... "They gave money to save German and French banks, not Greece,” Paolo Batista, one of the Executive Directors of International Monetary Fund told Greek private Alpha TV on Tuesday.
According to Zero Hedge, of the whopping $230 billion in bailouts 1 and 2, only 11% of the bailout money actually went to the Greeks, here.  At this juncture, bailout money is either bailing out banks or servicing the debt, and it's been that way since the 1st Greek bailout in 2010.

So when the left starts screaming that the bailouts are not helping the Greek people or the Greek economy, it's not as though they aren't making a valid point.  Well, Europeans aren't exactly sympathetic toward the Greeks who have a long history of milking somebody - be it their creditors, bondholders, the EU, European taxpayers etc.

Politicians exist for 2 reason - to buy votes and plunder the people to pay for the thieving public sector and promised 'free' everything programs.  In Greece vote buying and growing the pampered public sector was elevated to such an art that even the obsessively liberal, statist and labor union loving New York Times chirped in to complain about the thieving Greek public sector. 

The Cost of Protecting Greece’s Public Sector
For generations, political power in Greece has been based in large part on providing public sector jobs in exchange for votes....

“Instead of shrinking the bloated government apparatus and making it more efficient, New Democracy and Pasok hardly even touched it,” Stefanos Manos, a former Greek finance minister, said in an interview with Frankfurter Allgemeine in June.

Wages in the public sector were on average almost one and half times higher than in the private sector.

In the past, a more productive and expanding private sector could have withstood — to a degree — the financial drain of a costly and profligate public sector. Today, shielding the public sector is no longer an option, especially when it comes at the expense of the rest of the population.
In his outstanding book, Boomerang, Michael Lewis was spot on in his analysis of Greece that also accurately portrays most problems in nations with powerful public sector unions. Lewis said "As it turns out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piƱata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past twelve years the wage bill of the Greek public sector has doubled, in real terms – and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a years. Twenty years ago a successful businessman turned minister of finance….pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension…..and there isn’t a single private company in Greece with that kind of average pay.”

Greece isn't even a nation that is economically productive and it only represents about 2% of EU GDP.  It's 2 main industries, tourism and shipping, are taking hits and tourism is about to suffer a major decline as folks cancel their Greek vacations because of financial instability.

Switzerland is one of the most prosperous nations on the planet.  It's 8 million people produce a whopping GDP of $685 billion.  In Greece, 11 million folks produce a pathetic GDP of $242 billion. I don't know what the Greeks do, I don't think anybody does.

Why is Greece such an economic laggard?  Well, the primary reason is that foreign capital does not flock to places where property rights are not secure and Greece is notorious for its lack of secure property rights.

What's Really Wrong With Greece? It Lacks Secure Property Rights, and US Property Rights Keep Declining

Who owns what in Greece is such a freaking nightmare that the New York Times did an awesome piece on the ridiculously archaic Greek property registration system.

Who Owns This Land? In Greece, Who Knows?
At one point, in the early 1990s, Greece took more than $100 million from the European Union to build a registry. But after seeing what was accomplished, the European Union demanded its money back.
Such is the sorry state of Greece.   Greece is always shaking down somebody for something. Decades of corruption, crooked politicians, bloated public sector unions, oligarchs and the absolute worst of the worst in all things have left Greece and its people a certifiable basket case.

So long as the wheels of statism continue to be greased with new money and new bailouts, Greece is destined to continue its accelerated descent into misery and poverty as debt slaves.  If the Greeks truly had anything resembling sanity left within their national moral compass besides the perpetual rattling of macho rage that blames everybody else for their nightmarish fate, perhaps they should ring up the Swiss with a blaring SOS that screams "HELP, we're drowning and we need help in learning how to become free, prosperous and sovereign".

As if the mess in Greece isn't already bad enough, $120 billion in Greek bank deposits are locked up in the Greek banking system that is CLOSED.  Greeks do not have access to what little money they do have - it's been locked away by the Troika that refuses to provide liquidity for Greek banks.  If a central bank has one defining function, it's to maintain liquidity so that ordinary folks can access their money.  However, the strong hammer of the Troika denied Greeks the right to their own money. Morever, it is clearly evident that the European Central Bank is a big fail.  If anything, the one issue that folks should be debating is the issue of fractional reserve banking and its glaring failures.

Greece: A Warning of the Totalitarian Power of Centralized Government and Banking, and FRACTIONAL RESERVE BANKING

Finally, it's being reported that the Greek Parliament blessed off on the Troika deal, the very same deal that Greek voters rejected in the July 5, 2015 referendum.

Greek debt crisis: MPs approve bailout plan but some Syriza MPs rebel 

By genuflecting before the Troika in an act reminiscent of a kneeling victim about to be beheaded by the swordsman, the socialist Greek government literally voted to condemn the Greek people to the status of debt slaves.  It's the equivalent of tossing the Greek people into a boiling cauldron of grease and deep frying them as munchies for the financial cannibals.

Socialists and statists are notorious for their love of the banksters, oligarchs and above all THEIR LOVE OF ABSOLUTE POWER.  It's no surprise that Syriza capitulated to the Troika.  Socialism and statism cannot survive without banksters and mountains of debt - it's the mothers milk of tyranny, cronyism and corruption. 

Wednesday, July 1, 2015

Greece: A Warning of the Totalitarian Power of Centralized Government and Banking, and FRACTIONAL RESERVE BANKING

Greece is a bankrupt mess for a whole lot of reasons with the primary reason being that it's a debt ridden socialist nation that borrowed heavily to fund statist programs.  Of course, the debt mountain is now so big that paying it back is simply impossible.  Moreover, most of the new loan proceeds in recent years have gone to servicing the debt instead of to entitlement programs.  This is precisely how socialism and statism ends: eventually the debt is so big that it will eat up nearly all tax dollars. America and nearly all of Europe will face the exact same problems as Greece in the not too distant future.

The socialist Greek government wants more loan proceeds from the Troika (European Commission, European Central Bank and International Monetary Fund).  The Troika is demanding many thing including cuts in pensions and public spending.

The real issue here isn't Greek debt as everybody know that the Greeks can't possibly pay it, now or anytime in the future.  The real issue here is the ELA or Emergency Liquidity Assistance that the ECB uses to prop up its member banks.  Over the weekend, the Troika bared it's gargantuan razor sharp teeth by cutting off the ELA.  Greeks could not get their money out of the banks and Greece was forced to close its banks for 7 days.  They do this by declaring a bank holiday! It's also called capital controls.

The Troika is sick of negotiating with Greece and effectively nuked the nation by withdrawing ELA. Yeah, Greece is holding a referendum on whether or not to submit to the Troika but at this juncture does it really matter?

There is a big lesson to be learned here, namely that fractional reserve banking is fraught with horrific risk, especially for depositors.  Under fractional reserve banking, banks only keep a small percentage of its deposits as reserves and the rest is converted to loans (bank assets) that earn interest income for banks.  If too many people go to the bank to get their money, there isn't sufficient money to give the depositors back their money and a bank run occurs.  Central banks function as a backstop to bank runs by providing liquidity.  Yes, the 'liquidity' is fiat central bank money created out of thin air but so long as the public has confidence in the system, it works.

With the situation in Greece, the extreme volatility of many western banks and the economic fragility of European nations, confidence in central banking is waning, especially after the bail-in in Cyprus when depositor money was literally stolen to recapitalize bankrupt banks that wiped out all their capital by making bad loans.

If the world needs anything now, it needs to restrict fractional reserve banking and offer options in non-fractional reserve banking. It's the only way that deposits can be truly protected.  Before the arrival of fractional reserving banking and before Americans flocked to the banks with their money in exchange for a toaster, folks actually paid banks a small fee to house and protect their wealth, typically gold, silver or gold and silver certificates. The wealth of citizens is no longer protected (never really was) and central banks are such schizophrenic basket cases that they can no longer function as guarantors of deposits. That's already been proven in Cyprus and Greece.

At the end of the day, fractional reserve banking turns toasters (bank deposits) into burnt toast. The public absolutely needs safety and accessibility for their money.  

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