TO: Don @realDonaldTrump , Mike @VP, Mitch @McConnellPress, Kevin @GOPLeader, Chuck @SenSchumer, Nancy @SpeakerPelosi,
Steny @LeaderHoyer, Lindsey @LindseyGrahamSC, Alexndria @AOC,
Sherrod @SenSherrodBrown , Bernie @SenSanders, Rob @senrobportman,
Steve @stevenmnuchin1, Jay @federalreserve
I hope you all are well. As you of course know, after close of business on Friday, Bob finally delivered his long awaited report to our Attorney General. I'm sure we're all looking forward to reading Bill's abbreviated "nothing to see here" presumably partisan summary of same. Don, I'm also grateful that you've supported the idea of making the full report public, so we can all finally move on. America is grateful. Whether the report indicates we need wholesale regime change/resignations/indictments or a tacit understanding that there is no "there" there, I think we can all agree that we need to make whatever decisions we need to make expeditiously so we can all get this behind us as soon as is practical.
Anyway, even though this report will probably be consuming much your time, and although, I'm sure, difficult for you, I'd like you, for the moment, to set it aside and move on to a different, dare I say, much more important topic.
We have work to do. We have to save the Western Financial System.
As always, for those of you following my work, you'll know that the really important concepts are in RED below. Feel free to skim past my humorous, anecdotal banter if you are pressed for time.
As you know, we Americans have been following your careers (and the careers of your predecessors) closely for quite some time now. I think we can all agree that your collective progress, in no particular order, on Health Care, Taxation, Education, Environment, Infrastructure, 2nd Amendment issues, Drugs, Immigration, Banking/Financial/Market Reform, Trade, Monetary Policy, Consumer Protection, etc. etc. etc. has indeed been, well, remarkable. We appreciate your effort.
To be direct, what's also remarkable, is that in an effort to remain in office, you have all come to believe that through your collective efforts and carefully crafted public relations campaigns, you have been able to appeal to our darkest, most destructive, visceral emotions and fears, convincing roughly half of the American electorate (based on any poll of your choosing) that you and your counterparts on the other side of the aisle are all to be despised and vilified with a passion heretofore unimaginable, by roughly one half of the electorate or the other. This is an incredible, unthinkable, yet effective achievement and quite a prolific legacy indeed. You should all be proud.
The partisan, petty and often patently false distractions and narratives that you and your constituents have all chosen to shout from the mountaintops, bring front and center, and elevate to an unproductive, destructive public debate, is something I could not imagine seeing in my lifetime. I may be overstepping my bounds here, but like emotionally damaged children forced to watch their dysfunctional parents scream, fight and antagonize each other, I'd suggest that most of us Americans would prefer to have the ugly, legislative sausage making done behind closed doors. But, alas, here we are. Through your carefully choreographed public displays of disturbing, irrelevant discourse, our reputation as a nation is quickly evolving from the "shining city on the hill" to a "how to" manual for, every third world Banana Republic on the planet. (I'm sure I'll get hate email from "Banana Republic" supporters for that last comment.....but I digress.)
For the love of God.....Please focus....
At any other time in history, my reaction to your antics would have been, "Geezzz.....what a mess....but that's Ok.....we've got a strong democracy and another election on the way....American voters are good hearted and wise...we'll find some reasonable people to put in office and we'll get through this..."
Unfortunately, today, delay and "waiting" for the next election is no longer an option. We are quickly running out of time. Unless you folks are incredible poker players and you are somehow feverishly working together as a cohesive unit behind the scenes to implement workable versions of the policies I'm going to discuss below, the American dream as we've known it, is doomed to extinction.
That said, I feel compelled, as an American citizen, to speak up. I'm trying to help you. I'm trying to help you save Western Civilization.
The Threat to Western Civilization
If you have indeed been following my work, and I know some of you (or your staffs) have been (Google Analytics is a wonderful thing), you are at least suspicious that I might actually be on the right track. I'll refer you to four recent posts (Below) which you might find informative, but if you already believe that the following thesis (in RED) may indeed be accurate, or at least merit further investigation, there's no need to rehash the concepts here. I'd refer you to Jay, Steve and their teams, as they have a much greater/better resource/data-set than I have access to.
Dalio's Big Debt Crisis....the FSB Report and Financial War Games....
Keeping is Simple....China has $50.1 Trillion of Brand New Financial Assets
Twas the Night Before Christmas....
When will Xi Click the "Sell Button"
I'll also cite two excellent and extremely wonkish BIS working papers, written, of course, using generally unintelligible economic jargon (Below) which also reference what we're discussing today.
Triffin: dilemma or myth?
FX swaps and forwards: missing global debt?
Again, no need to wade through these two working papers if you don't have time, I understand you folks are busy. I'll try to sum both of them up in a sentence or two. The "Triffin" paper discusses the history of monetary policy, debating the legitimacy of Bob Triffin's "Dilemma", that America at some point will be unable to supply enough "safe" dollar assets and reserve currency to satisfy the global demand for same. Referenced and described in the "Missing Global Debt" paper, as of 2017 there are at least US$21.4 Trillion (both Balance Sheet and Off-Balance Sheet) of known, non-bank dollar debt lurking outside of the United States. (i.e. out of the FED's purview) That amount is growing rapidly. The looming question is whether the FED, when subjected to demands for Eurodollars (and now clandestinely, and more appropriately, "Chinadollars"....as a point of reference, I believe I'm actually coining the phrase "Chinadollars" in this post, since most economists don't believe or understand that they actually exist) could effectively backstop a dollar shortage. The thinking is that It would be much more difficult to do so now, as off-shore dollar (Eurodollar & Chinadollar) requirements are much larger than they were prior to the Great Financial Crisis. The requirements, to support exchange rate equilibrium are also growing rapidly. Any rescue package the FED puts together would have to be on a much larger scale today. The conclusion of both of these, in my words rather than the respective authors, is that we are in uncharted territory. Western Central Bankers will be putting in some overtime at some point soon.
Jay, I think you know what I'm talking about....I'm guessing this is what drove your "pivot" and keeps you up at night. I have to say, that after your 60 Minutes interview I'm a bit concerned that you don't see this tsunami coming. Perhaps you are just trying to calm the masses and project an air of confidence. I certainly hope that's the case.
Unfortunately, I have this recurring nightmare that you and the other governors are in the cockpit of an out of control airliner, you've skipped a few training classes and are frantically paging through the operators manual. With the frightened passengers screaming in the background, your eyes widen as you discover the manual is written in Mandarin....That's when I wake up in a cold sweat.
Jay Powell - 60 Minutes - Full Transcript & Inverveiw - All is well.....
https://www.cbsnews.com/news/jerome-powell-federal-reserve-chairman-60-minutes-interview-2019-03-10/
In normal, regular, every-day, non-economist lingo, as far as you folks are all concerned, here's where we are today:
In a nutshell, here are our two choices:
Option #1.) Disengage with the Chinese under a managed policy, temporarily disrupting both Western and Chinese economies and markets, leaving the lion's share of the inevitable global economic pain to be absorbed on mainland China. Or....
Steny @LeaderHoyer, Lindsey @LindseyGrahamSC, Alexndria @AOC,
Sherrod @SenSherrodBrown , Bernie @SenSanders, Rob @senrobportman,
Steve @stevenmnuchin1, Jay @federalreserve
I hope you all are well. As you of course know, after close of business on Friday, Bob finally delivered his long awaited report to our Attorney General. I'm sure we're all looking forward to reading Bill's abbreviated "nothing to see here" presumably partisan summary of same. Don, I'm also grateful that you've supported the idea of making the full report public, so we can all finally move on. America is grateful. Whether the report indicates we need wholesale regime change/resignations/indictments or a tacit understanding that there is no "there" there, I think we can all agree that we need to make whatever decisions we need to make expeditiously so we can all get this behind us as soon as is practical.
Anyway, even though this report will probably be consuming much your time, and although, I'm sure, difficult for you, I'd like you, for the moment, to set it aside and move on to a different, dare I say, much more important topic.
We have work to do. We have to save the Western Financial System.
As always, for those of you following my work, you'll know that the really important concepts are in RED below. Feel free to skim past my humorous, anecdotal banter if you are pressed for time.
As you know, we Americans have been following your careers (and the careers of your predecessors) closely for quite some time now. I think we can all agree that your collective progress, in no particular order, on Health Care, Taxation, Education, Environment, Infrastructure, 2nd Amendment issues, Drugs, Immigration, Banking/Financial/Market Reform, Trade, Monetary Policy, Consumer Protection, etc. etc. etc. has indeed been, well, remarkable. We appreciate your effort.
To be direct, what's also remarkable, is that in an effort to remain in office, you have all come to believe that through your collective efforts and carefully crafted public relations campaigns, you have been able to appeal to our darkest, most destructive, visceral emotions and fears, convincing roughly half of the American electorate (based on any poll of your choosing) that you and your counterparts on the other side of the aisle are all to be despised and vilified with a passion heretofore unimaginable, by roughly one half of the electorate or the other. This is an incredible, unthinkable, yet effective achievement and quite a prolific legacy indeed. You should all be proud.
The partisan, petty and often patently false distractions and narratives that you and your constituents have all chosen to shout from the mountaintops, bring front and center, and elevate to an unproductive, destructive public debate, is something I could not imagine seeing in my lifetime. I may be overstepping my bounds here, but like emotionally damaged children forced to watch their dysfunctional parents scream, fight and antagonize each other, I'd suggest that most of us Americans would prefer to have the ugly, legislative sausage making done behind closed doors. But, alas, here we are. Through your carefully choreographed public displays of disturbing, irrelevant discourse, our reputation as a nation is quickly evolving from the "shining city on the hill" to a "how to" manual for, every third world Banana Republic on the planet. (I'm sure I'll get hate email from "Banana Republic" supporters for that last comment.....but I digress.)
For the love of God.....Please focus....
At any other time in history, my reaction to your antics would have been, "Geezzz.....what a mess....but that's Ok.....we've got a strong democracy and another election on the way....American voters are good hearted and wise...we'll find some reasonable people to put in office and we'll get through this..."
Unfortunately, today, delay and "waiting" for the next election is no longer an option. We are quickly running out of time. Unless you folks are incredible poker players and you are somehow feverishly working together as a cohesive unit behind the scenes to implement workable versions of the policies I'm going to discuss below, the American dream as we've known it, is doomed to extinction.
That said, I feel compelled, as an American citizen, to speak up. I'm trying to help you. I'm trying to help you save Western Civilization.
The Threat to Western Civilization
If you have indeed been following my work, and I know some of you (or your staffs) have been (Google Analytics is a wonderful thing), you are at least suspicious that I might actually be on the right track. I'll refer you to four recent posts (Below) which you might find informative, but if you already believe that the following thesis (in RED) may indeed be accurate, or at least merit further investigation, there's no need to rehash the concepts here. I'd refer you to Jay, Steve and their teams, as they have a much greater/better resource/data-set than I have access to.
Dalio's Big Debt Crisis....the FSB Report and Financial War Games....
Keeping is Simple....China has $50.1 Trillion of Brand New Financial Assets
Twas the Night Before Christmas....
When will Xi Click the "Sell Button"
I'll also cite two excellent and extremely wonkish BIS working papers, written, of course, using generally unintelligible economic jargon (Below) which also reference what we're discussing today.
Triffin: dilemma or myth?
FX swaps and forwards: missing global debt?
Again, no need to wade through these two working papers if you don't have time, I understand you folks are busy. I'll try to sum both of them up in a sentence or two. The "Triffin" paper discusses the history of monetary policy, debating the legitimacy of Bob Triffin's "Dilemma", that America at some point will be unable to supply enough "safe" dollar assets and reserve currency to satisfy the global demand for same. Referenced and described in the "Missing Global Debt" paper, as of 2017 there are at least US$21.4 Trillion (both Balance Sheet and Off-Balance Sheet) of known, non-bank dollar debt lurking outside of the United States. (i.e. out of the FED's purview) That amount is growing rapidly. The looming question is whether the FED, when subjected to demands for Eurodollars (and now clandestinely, and more appropriately, "Chinadollars"....as a point of reference, I believe I'm actually coining the phrase "Chinadollars" in this post, since most economists don't believe or understand that they actually exist) could effectively backstop a dollar shortage. The thinking is that It would be much more difficult to do so now, as off-shore dollar (Eurodollar & Chinadollar) requirements are much larger than they were prior to the Great Financial Crisis. The requirements, to support exchange rate equilibrium are also growing rapidly. Any rescue package the FED puts together would have to be on a much larger scale today. The conclusion of both of these, in my words rather than the respective authors, is that we are in uncharted territory. Western Central Bankers will be putting in some overtime at some point soon.
Jay, I think you know what I'm talking about....I'm guessing this is what drove your "pivot" and keeps you up at night. I have to say, that after your 60 Minutes interview I'm a bit concerned that you don't see this tsunami coming. Perhaps you are just trying to calm the masses and project an air of confidence. I certainly hope that's the case.
Unfortunately, I have this recurring nightmare that you and the other governors are in the cockpit of an out of control airliner, you've skipped a few training classes and are frantically paging through the operators manual. With the frightened passengers screaming in the background, your eyes widen as you discover the manual is written in Mandarin....That's when I wake up in a cold sweat.
Jay Powell - 60 Minutes - Full Transcript & Inverveiw - All is well.....
https://www.cbsnews.com/news/jerome-powell-federal-reserve-chairman-60-minutes-interview-2019-03-10/
In normal, regular, every-day, non-economist lingo, as far as you folks are all concerned, here's where we are today:
In a nutshell, here are our two choices:
Option #1.) Disengage with the Chinese under a managed policy, temporarily disrupting both Western and Chinese economies and markets, leaving the lion's share of the inevitable global economic pain to be absorbed on mainland China. Or....
Option #2.) Continue on the current path, allowing the CCP to destroy the US and Western economies, filling the void with their own shell game ideology, eventually breaking the dollar as the world's preferred reserve currency.
The obvious problem with this decision tree, is that "Option 2", kicking the can forever down the road, which ends with the US ceding financial hegemony to the CCP, actually keeps all of you in office and supports the current status quo until it's too late to prevent the collapse of Western financial systems. Ouch!
Whereas, "Option 1", the option where we survive financially as the leaders of the free world, and our own corrective fiscal and financial policies (i.e. those designed jointly by both Republicans and Democrats) will temporarily depress asset values, destroy market cap (Apple, Walmart, Amazon, American Retail, our Large/Global Banks and any business with a Chinese supply chain significantly embedded in their business model, etc. etc.)....and cost millions of global jobs, does, unfortunately, not keep all/any of you in office...any politicians (you) who are deemed to have caused this malaise will be blamed. The American people will revolt at the ballot box. Of course, the CCP understands this all too well.
If you do indeed opt for and succeed in implementing "Option #1" you'll have to come up with yet another "it's not our fault" wag-the-dog blame scenario. I'll leave that public relations battle/framing up to you.
GIVEN:
1.)The RMB exchange rate has been manipulated through currency controls. The exchange rate should be 20+:1 rather than 7:1 based on relative money supply growth. This imbalance has been accomplished through these currency controls, making the RMB virtually unusable outside of the Chinese mainland.
2.) The Chinese Communist Party (CCP) currently controls at least US$25 Trillion of Western Financial Assets through anonymous Off-Shore Tax Haven entities.
3.) These assets were purchased at significant discounts through their pegged/overvalued currency. (i.e. using the aforementioned CCP Currency Controls and money supply expansion.)
THESIS:
The CCP intends to weaponize these financial assets, selling them off in a coordinated "Pump & Dump", disrupting/destroying Western Financial Markets, forcing Western Central banks to "print money" like never before. The end game being the US Dollar will no longer be the world's reserve currency and the RMB will finally be "marked to market" along with the newly weakened dollar. The CCP will have effectively exported their self inflicted debt problem to the rest of the world.
In order to save Western Civilization we'll need to refer to our wonderful, brilliant compadre', Dr. Richard Thaler's work and look to some basic principals of Behavioral Economics. I'd suggest you bring him on this. He's really a bright guy. I'm sure he'd free some time to help us save Western Civilization.
Following Rich's lead, we'll need to incentivize, or nudge "good" financial behavior and penalize "bad" financial behavior.
Because the USD/RMB exchange rate is currently so flawed, we'll also need to do everything we can to shore up liquidity in Western Financial Systems prior to the dam bursting. (You'll notice that Jay and Mario are beginning to take steps already) We further need to distinguish between "real" Western Money/Financial Assets and "fake" Chinese/CCP owned Money/Financial Assets.
My premise is that when the CCP financial asset "dump" begins, we must be prepared to do everything possible to prevent the inevitable capital flight which would destroy the Western Banking/Financial systems. Extraordinary times require extraordinary measures.
Again, I'll emphasize, the hundreds of thousands of Chinese Accounts, Shell Companies, and investments sitting off shore (and on-shore) poised to "send money home" are not "free market" independently owned finances of Chinese entrepreneurs and investors who will make independent (rational or not) decisions on what to do with "their" money. In the eyes of the CCP, the money doesn't belong to these Chinese citizens and entities. It's not "their" money. It's CCP money. These entrepreneurs and investors will do exactly what they are told to do, and exactly when to do it, by the CCP. They will move these "printed from thin air" Financial Assets in a carefully choreographed, weaponized yard sale designed and implemented to collapse the Western Financial System. When Xi clicks the sell button....."Everything must go."
The "Financial War Games" tools I describe below are general/strategic in nature, but must be developed and ready to launch as soon as is practical. I don't have the resources or data to come up with the nitty-gritty particulars and probable "what-if" implications behind each of these tools (you folks do....or at least you should), but I believe each of my recommendations below are important and directionally correct. It's also important to note that, throughout history, each of these recommendations has been implemented with varying levels of success (or not) depending on their relationship to a holistic policy framework. In any case, if/when the circumstances warrant, these (or directionally similar) recommendations must be implemented in their entirety. Putting a couple of band-aids in place won't accomplish what we'll need to get done.
I'm hopeful that you will have carefully crafted, well thought out versions of the below recommendations ready to deploy by executive order at the drop of a hat, well in advance of when we actually need them....and we needed them yesterday. When the clock strikes midnight, we can't endure months of Congressional debate. We won't have that kind of time. We have to think these "what-ifs" through now. If we do indeed dawdle, muddle and stumble, pausing to figure these things out, under extreme stress, in a vacuum of politically motivated misinformation, as we did with the last financial crisis, it will all be over before we know it.
As always, I welcome your input.
The Goal
The obvious concern (as described in my Dalio's Big Debt Crisis....the FSB Report and Financial War Games.... post) is that once the CCP begins the "Dump" and Western Central Banks move to support markets and liquidity, we'll need to make sure that Western Currency doesn't leave (or become idled within) the respective Western financial systems under dubious circumstances. i.e.) Dollars sitting in offshore Forex accounts will be of no use to the US Banking system. Central banks will have to "print it again" to replace it. (I'll refer to US/Canadian/Aussie Dollars, Yen & Euros as Western Currency for the purpose of this discussion....the world's currencies, many pegged to the dollar, of course will all be caught up in this spectacle, but that analysis is well beyond the scope of this post) In short, we'll need to curtail the flow of Western money off-shore, while simultaneously providing a significant advantage to Domestic Investors to keep money on-shore (and usable) which does not currently exist today. To steal a phrase, we'll need to "Build a Wall"......but this one will actually be necessary, and will actually have to work.
The Manafort Indictment - An Illustration of the Problem
The Manafort Indictment is instructional on a number of fronts. First, it's really a poster child for the ease in which someone, with a little bit of access and a criminal mindset can hide and launder significant amounts of money, avoid paying taxes on foreign income, theoretically forever, if he/she were operating with less hubris. Second, it illustrates the level of resources, and dogged relentlessness, required to adequately investigate and prosecute these relatively complex cases. Finally, we can presume from the infrastructure that exists to facilitate these schemes, and the rapidity in which financial assets have ballooned offshore, that there are tens of thousands of "Manaforts" out there. If you have a chance to read through the relatively short (34 page) indictment I'd encourage you to do so, as it's quite entertaining.
For the purpose of this analysis, I'm going to ignore the FARA (Foreign Agent Registration Act) violations contained within the Indictment as they are not relevant to this discussion. When we review the Indictment, we see that Manafort accomplished the following, all fully described in the indictment:
1.) Manafort/Gates ran approximately US$75 Million through accounts owned and controlled by twenty three (23) domestic entities and fourteen (14) foreign entities under his direction and control. The foreign entities were domiciled in Cypress, St. Vincent, the Grenadines and the UK. Manafort also failed to complete and file the FBAR (Foreign Bank Account Reports) as required by the US Bank Secrecy Act.
2.) Through these entities he laundered approximately US$18 million in funds used to purchase US Real Estate, property, goods and services, concealing these transactions form the Treasury, Department of Justice and US Banking Authorities. Manafort directed these hundreds of wire transfers for his personal benefit, failing to report and pay income taxes on the funds.
3.) During the time period between 2008 and 2014 Manafort made hundreds of wire transfer transactions (documented in the indictment) to roughly two dozen "vendors" who accepted payment from foreign entities under his control. The indictment was silent as to whether the vendors broke any US laws.
4.) Once the money was effectively laundered, Manafort used the funds to acquire Real Estate in New York and Virginia, using the properties as collateral for additional bank loans, thereby committing mortgage fraud, misrepresenting both his financial relationships and the occupancy of the properties purchased.
5.) According to the recent USA Today chart below, the cost of the investigation is now roughly $25.5 Million with the expected recovery being approximately US$28.6 Million. The investigation, by virtue of seizures and asset forfeitures, at least to date, looks like it has actually "made money".
https://www.usatoday.com/story/news/politics/2019/02/12/mueller-russia-investigation-costs/2736507002/
When we further examine the extent of this network, we can also appreciate the level of difficulty and amount of forensic accounting work necessary to put a case like this together. It's currently impossible to locate and bring all of the "Manaforts" out there to justice in anything approaching an efficient manner, without the expeditious and immediate cooperation of off-shore financial institutions. For emphasis, there are currently no systems in place to match (currently nonexistent) third party, Off-Shore Foreign Bank data/reports with the FBAR documents and Tax Returns. Today, it's simply too easy to "get away with it" and the Manafort wannabe's out there know it.
If this case wasn't such a high profile crime spree, perpetrated by a national political figure, promulgating a raid on Mr. Manafort's home, we might never have known the extent of this fraud. Some believe, and I'm one of them, we probably still don't, and perhaps never will, have the full grasp of what happened. Dozens of investigators, attorneys and professionals were assigned to this case. Under the current construct, enormous resources are required to investigate, prosecute and conclude these cases. The Manafort case is, unfortunately, the exception, rather than the rule. Most tax cheat cases don't "make money"....the money is long gone.
Moreover, to my knowledge, none of the bankers involved have been charged with violations of US Anti-Money-Laundering (AML) "know your customer" laws, which US Financial Professionals are, of course, required to follow. After a multi year investigation, costing $25.5 million and counting, we caught one high profile tax cheat.....probably 10,000 or so cheaters to go. So it goes.
The Incentive for "Good Behavior" (the Carrot)
Long Term Capital Gains Tax Reduction - Before the Republicans (copied herein) erupt with glee and you Democrats (also copied herein) deride me as yet another "rich bastard" (Misplaced though it is, I don't take offense....I'm comfortable and happy to have benefited by our current system...but it's nevertheless a harsh moniker that comes with harsh times) who wants to give yet another tax break to the other "rich bastards" (no offense intended to present company copied herein as well).....please hear me out. The Tax Code's dirty little secret is that the "Capital Gains Tax" along with the "Death Tax" are the two gigantic, fake taxes that publicly strike fear in the hearts of America's wealthy/elite, yet, privately, behind closed doors, nobody (at least anybody who knows what they are doing or is properly advised) ever actually has to pay. For example, taxes like "earned/wage" income taxes, property taxes, sales taxes, excise taxes or generally anything that inures to the responsibility of the "little people" are paid by (taken from) us/them before we ever see it. Conversely, as "rich bastards" we have been given the privilege to "choose" to pay taxes on Capital Appreciation whenever we feel like it (triggering event), let it grow in tax deferred accounts, hedge it to prevent the triggering event, or for some modest fees, choose to avoid these taxes all together off-shore. (Consult your tax advisers for a long list of legitimate devices/tools you can use to avoid paying these taxes.....the list is significant.)
I could argue, quite successfully, that the US Capital Gains Tax Structure today, when combined with both offshore and "tax-purpose" entities/devices is the most regressive tax structure in history.
Currently, the amount of Capital gains taxes paid in relation to both Financial Asset appreciation and GDP are indeed insignificant.
The figures in the chart to the left are taken from the latest (2017) IRS Data Book. You'll note that in 2017 the IRS Collected roughly $3.4 Trillion of total taxes, broken out, in big round numbers (my long time readers know how much I enjoy "big round numbers") as $1.9 Trillion for Individual Income Taxes, $1 Trillion for "Payroll Taxes" (half individual & half business), about $400 Billion for Business Income Taxes, with Excise Taxes and "Death Taxes" bringing up the rear as insignificant in the grand scheme of things.
So what's missing you might ask? That's right, where are the Capital Gains Taxes? Well, unfortunately, in the IRS Data Book Capital Gains Taxes Paid/Collected are not broken out anywhere. In the entire 86 page report, Capital Gains Taxes are not mentioned once. That's weird.... Huh? You might guess that the only reason that the Long Term Capital Gain Tax collected isn't in the report is that these taxes are buried in both of the "big" individual and business taxes or they are irrelevant in the grand scheme of things.....and you'd be right on both counts!
The best source (and only public source that I'm aware of) of data describing historical Capital Gains Taxes Collected, comes from a report issued by the US Treasury in 2016, although the data is no longer published, presumably because of its insignificance, we can calculate that since the Financial Crisis, net Long Term Capital Gain Taxes paid, despite the incredible increase in Financial Assets (aka wealth) have averaged roughly US$69 Billion per year. Please read that figure again and let it sink in:
If we assume the "average" continued on in 2015-2017 (Note in 2019 with the new income indexing, exempting lower income taxpayers....the ones who actually pay the tax....we can expect Capital Gains Tax collections to decrease even further) we conclude the following:
Here's the Treasury Data:
https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Taxes-Paid-on-Long-Term-Capital-Gains.pdf
1.) Capital Gain Taxes Collected are 14.4% of "Total Net Gains", yet, they are only 2.47% of all Taxes Collected during the period (2008-2017) ($27.8T),
2.) Capital Gain Taxes collected were 2.37% of the Increase in Value of all US Financial Assets during the period (2008-2017 = $28.9T) Note: if we include the portion for US owned Financial Assets residing in Tax Haven accounts for "tax purposes" the % is much lower. Total Off-Shore Tax Haven Assets are US$58.7 Trillion as of 2017, of which US Investors own a significant percentage, but these figures are, of course unavailable.
3.) When we further compare the Capital Gains Taxes Paid during the period (2008-2017) to current US Wealth (i.e. Total US Financial Assets of $96.8T as of 2017), the ratio becomes 0.71%. Again, if we make the same adjustment for Off-Shore Tax Haven Assets, the percentage would be significantly reduced.
4.) Finally, when we compare the Capital Gains Taxes Paid in relation to US GDP over the same period (2008-2017 = $165.1T) the ratio approached zero....at 0.42%. (Note: All Federal Tax Collections for the same period amounted to 16.8% of GDP)
Further note that since the financial crisis, total tax collections have increased by roughly a $1 Trillion since 2009. The increase is comprised almost exclusively of Individual Income Taxes and Payroll Taxes. In America, we no longer tax capital appreciation, and under the current tax structure, it appears we never will.
It appears that America is well on the way to following the French capital flight model, where French capital abandoned the country to Luxembourg, the Netherlands, Ireland and Switzerland....searching for a better return. A tax exemption and a few basis points compounded over time makes quite a difference in a portfolio.
...or Great Britain, which doesn't necessarily want to leave the EU but refuses to shoulder the financial burden of the French, the Italians, the Greeks, the Spaniards, etc...etc....with no way to pay for it.
Bear in mind that un-taxed financial assets in Luxembourg/Netherlands/Ireland/Switzerland Tax Havens, since the financial crisis, have increased by at least US$12 Trillion, as taxed financial assets in the UK/France/Germany have decreased by roughly the same amount. Yet another remarkable coincidence.
Once the leadership of a nation refuses, or is unable to finance its society......anarchy will eagerly step in to replace it...
When I look at the numbers above, I find it hard to understand from a tax/incentive perspective, why anyone would actually "work for a living" anymore. I'm surprised that the American workforce just doesn't go out, get 0% interest rate loans, set up LLC's in the Caymans and trade Treasuries and FOREX futures from their couch all day....Oh....that's right.....it's Ray Dalio's "60% of American's can't scrape $400 dollars together because they can't afford an education, can't find a decent job and consequently their credit is really shitty dilemma".....quite a dilemma indeed.
The more worrisome and frightening aspect of this is that in America, unlike France and Great Britain, the potential "Yellow-Vest" recruits are heavily armed.
I'm also sure there's a very good reason why every Cabinet member and most members of Congress have offshore accounts. They (you) fully understand how this mechanism works, after all, they (you) along with help from lobbyists and influencers created it. After all, it's important to have a safe place to keep your unaccounted-for PAC money.
@AOC, I love your enthusiasm, but you are probably too new to the game to truly understand this. You seem to be preoccupied with "saving the environment", irritating billionaires and promulgating a 70% personal tax rate (which nobody who understands tax structured entities today would pay). These endeavors, though entertaining, are simply not a productive use of your time, but, I'm sure, if you ask a few lobbyists, they will get you in touch with capable advisory help and put you on the right track. You owe it to your constituents.
Based on the above, along with a few more modifications, though counter-intuitive, we must LOWER the Capital Gains Tax Rate to collect more taxes. I'll suggest a preliminary 5% rate implemented along with the recommendations below. The rate must be low enough, compared to alternatives, that investors will choose to pay it. To paraphrase Don's words, although relating to a different topic... "You've got nothing now....what the hell do you have to lose?"
The Enforcement Tools for "Bad Behavior"...(the Sticks)
Generally, in order to understand economic activity and thus, make correct monetary policy decisions, Jay and company must get a handle on the "usable" liquidity within the the US Financial System and by definition, the amount of "unusable" US dollar liquidity outside of the system. i.e.) Doubling M1 doesn't help Main street America if it immediately jumps into Caymans accounts owned by the CCP. Once we've rewarded "good behavior" with low domestic Long Term Capital Gains Rates, we must raise the cost of offshore "legal" avoidance, and of course, bring the hammer down on "illegal" tax evasion, bringing the money supply "home". (As you can see, I've become really fond of using "quotes" to emphasize these terms.)
Don't get me wrong, there are lots of good reasons for US Taxpayers and Foreign Investors to have overseas financial relationships. There are also lots of "not so good" reasons. We simply need to separate the two and apply the proper cost/tax structure to each of them.
Increased Tax Return Reporting Requirements on US Entities with Foreign Relationships - Today, we have a wonderful system of tax filing and reporting where you simply check some boxes on your 1040/1120/1065/5472/851/etc. etc. forms describing your relationship with a foreign entity. If you have an interest in, or signing authority on a foreign bank account you are also required to file a Foreign Bank Account Report (FBAR). Since there really isn't much detail required (links to the forms below) I can imagine that if it just slips your mind to mention any of these relationships to your tax preparer that these boxes might easily just go unchecked. The IRS also has all sorts of brochures and training materials for tax preparers as to what to look for and "red flags" but again, if these relationships aren't disclosed, I doubt that the IRS would be able to pick up on it without an onerous, cumbersome and costly level of investigation. I also imagine that, since relatively few tax returns have these "foreign" boxes checked, if you do indeed check these boxes there would be an increased level of IRS scrutiny....at least there should be. This presumed, insufficient level of "unchecked box" oversight might further incentivize a tax payer's accidental memory failure when it comes to "box checking". Of course, this lack of oversight probably didn't happen by accident. There was most likely, significant resource, forethought and lobbying effort by wealthy investors and industry groups, emphasizing the importance of the free flow of capital which stymied of any sort of enforcement funding directed at lackadaisical "box checking". As we all know, the free, anonymous, unrestricted flow of capital and firearms is absolutely necessary to make America great again.
That said, from a national security perspective, I'd also think, and recommend, that if a US taxpayer is indeed entering into significant overseas transactions and/or maintains ownership of foreign bank accounts, that transaction amounts and the details of the particular accounts involved should also be disclosed and easily verifiable/cross checked by the Treasury. (This disclosure was absent in the Paul Manafort "Poster Child" Indictment above)
To that end, I would add one question block to the form 5472 (and/or any other applicable forms), the purpose of which would be to identify whether the the Taxpayer has any off shore bank accounts. The bank name and routing number would be required to be disclosed along with the total debits/credits and ending balance for the tax year, to be retained by the IRS in easily accessible/searchable electronic form. I'd contract the folks at Google and have them get to work on it....if Google can figure out how to archive every aspect of our lives and chronicle our every movement, matching up some bank account information should be a piece of cake.
Off-Shore Tax Haven Accounts - Ownership and Balance Reporting - Develop acceptable framework/treaties to work with Tax Haven jurisdictions (Caymans/Luxembourg/Netherlands/Hong Kong/Singapore/Switzerland/Ireland/Cypress, etc.) to develop Anti Money Laundering (AML) disclosures and electronically share "true" ownership and signing authority of accounts/records. Require Foreign Banks doing business with US Banks to gather Tax ID numbers and electronically transmit monthly balances, total debits and credits by routing number for same. The foreign banks should be required, like US Employers are required for 1099's and W2's, and US Banks/Brokerages are required with 1099-INT/DIV's, to electronically file these notices with the IRS and copy the taxpayer on what was filed....just to jog his/her memory. The Treasury should set reasonable compliance deadlines and revoke access to the US Banking System/SWIFT should foreign financial institutions fail to comply.
For example, when we look at the eight page official "Statement of Cooperation" issued by the Cayman Islands Monetary Authority (CIMA) intended to state its commitment to the FED, FDIC, et al, with regard to "information sharing", we see that the statement is filled with "will endeavor to", "under certain circumstances", "upon request" and "where warranted" fake-helpful-ish language, indicating that the CIMA currently has no intention of assisting the US Treasury in getting to the bottom of tax fraud cases. The statement is so vague and non-committal that it's actually pretty comical. This is type of "cooperation" is not acceptable.
Off-Shore Balance Excise Tax - Simply put, there should be a cost to US Investors for keeping funds off shore. A small percentage of say 3%/yr. (Feel free to run the numbers and come up with your own reasonable percentage) on the offshore financial assets/balances required to be reported by US Taxpayers/Entities should be sufficient. These taxes would be collected along with annual tax return filings and reported on the modified 1040/1120/1065/etc. forms described above.
Excise Tax on Wire Transfers "Money Out" - There should also be a cost to moving money off shore. I'd recommend a 1% excise tax on on overseas wire transfers. (Again, feel free to do some research and come up with a better number). This excise tax would be applied similarly to gasoline taxes, collected by banks and remitted to the Treasury "at the pump" so to speak, as off shore wire transfers are completed. There would, of course, be no tax on money coming in, the excise tax would be a "one way" tax on money leaving.
Increased Civil and Criminal Penalties - As a "real" national emergency and a matter of national security, we must enhance the penalties for improper or misleading statements on US Tax returns regarding foreign funds. After all, we're not talking about meaningless documents like those silly SF-86 White House Security Background Check forms, where it's easy to forget about hundreds of contacts with unregistered foreign agents. I mean really, we all know how easy it is for these secret "agents of a foreign government" meetings to slip one's mind. Luckily, with those forms, once an error is pointed out by investigators, the subject is simply allowed to amend the form as often as is necessary, until he/she get's it right.
US Tax returns, are arguably the most important, sacrosanct, intimate document an American citizen produces on a periodic basis. For those of us who are blessed to have worked hard and received the bounty of this country, we owe it to the American public to make sure that these documents are carefully and accurately prepared by professionals. They should be error free. They should be perfect. Consequently, there should be significant, per incident, civil, monetary penalties for each "error" on these tax forms including and up to forfeiture of any property involved in the non-disclosure, per existing 18 US Code 981 & 982 and 18 US Code 2461 requirements/guidelines.
Properly Fund IRS Enforcement - We must properly develop an electronic matching system which compares Foreign Bank reported data to US Tax Returns and Identify discrepancies or reporting failure. We must implement a system to identify discrepancies between foreign bank reports and US Tax Returns. There should be significant administrative, "by the book" penalties for non compliance. i.e.) if you didn't check a box, or your figures are wrong, without any determination as to whether there is a tax liability involved, there's a significant "failure to disclose" fine. I might even suggest a reasonable "amnesty window" allowing a penalty free, but NOT tax free, window for compliance. Non-compliant taxpayers would be allowed one chance to get the data right and amend prior tax returns with no criminal penalties. Like those SF-86's.....Everyone deserves a limited number of second chances.
The IRS would be tasked with hiring a small army of analysts, programmers, investigators and prosecutors to gather and compare the newly acquired third party foreign bank account data to taxpayer reported data. Currently, as I'll discuss below in the Manafort analysis, it's not yet practical or cost effective for the IRS to investigate and hunt down tax cheats until the third party bank data is fully accessible and automated.
Of course, it will be important to fully publicize the favorable compliance window as well as the thunderous level of enforcement resources under development, which will soon be crashing down on tax cheats in the near future. It should also be clear to taxpayers that the newly funded, increased enforcement action on offshore accounts will be treated as a profit center for the IRS. Now, there's a new MAGA jobs program that might prove to be worthwhile, hiring 50,000 new IRS examiners, agents and IT professionals....that might help make America great again....don't you think?
I think American voters would absolutely be willing to jettison the MAGA slogan and get behind a MATCH program "Make America Tax Cheat Hell!" I can visualize it on red baseball hats all over the heartland!
Again, all of the above are important, necessary steps to separate and identify legitimate offshore money from illegitimate offshore money.
Acts of Financial War - (Even Bigger Sticks)
The following mechanisms will have to be available once we've separated and identified legitimate offshore funds from CCP and/or illegal/criminally controlled funds. The CCP will likely consider these actions an escalation of "financial war" and respond in a predictable, retaliatory manner.
Currency Controls - When this mess goes south, we'll need to protect the dollar. Which means that we won't be honoring what were previously considered free market commitments to those who would have improperly obtained US/Western Assets through nefarious, questionable means or with illegitimate funds of unknown origin. We need to develop a system where we can vet or pre-approve larger transactions in advance. Based on the incredible increase in offshore Tax Haven Assets (roughly US$58 Trillion as of 2017 with an estimate of roughly US$65 Trillion currently) we'll need to take a page out of China's play book (SAFE) and develop a framework to prevent deposits of questionable origin from leaving Western Financial Systems. As a point of reference, today, if you are a Chinese Citizen and you attempt to take more than $50,000/yr. of your currency off shore without specific CCP permission, you'll get a stern talking to as well as some "reeducation". Your family might wonder where you've been for the last few weeks/months, but it's all part of the CCP modus operandi. We need to replicate a version of these currency controls in America and have them ready to go should the need arise.
My concern of course is that once the CCP begins the "Dump" the owners of the US$25+ Trillion of Western Currency (the CCP controlled portion of the US$65 Trillion) will attempt to get it out of usable circulation, transferring it to Chinese banks to bolster foreign currency reserves. Since this has become a matter of national security, US Bankers must have the authority or discretion to delay or stop larger transfers of questionable origin to non-US Banks until they can determine whether the transfers are legitimate and/or might cause systemic liquidity risk to their institutions. The framework must be coordinated with other Western Central Banks and financial systems.
As a point of reference, the CCP is already doing this with US Investor funds on the mainland today. US Investors are having trouble getting their money off the mainland. This isn't publicized as the investors are trying to work out the issues through back channels at mainland banks, rather than have their funds seized outright.
In other words, we'll need to provide institutions and bankers the latitude to stop the illegitimate, foreign drivers of the "run".
Chinese Branch Banks - Develop a framework to immediately shut down and suspend operations (unplug) the CCP Branch banks operating in US Markets on US soil. (ICBC, Bank of China, China Merchants Bank, CITC and the Agricultural Bank of China). We should encourage other Western Nations to do the same. I don't care if we have to cut power to their buildings, large amounts of Western Currency must not be allowed to improperly leave the US banking system through these CCP conduits.
Western Banks Operating in China - By my count, the US currently has nine (9) banks operating in China. There are at least forty-five (45) additional foreign banks with branches on the Chinese mainland. (Hong Kong (5), UK/EU/Swiss (17), Japan/Singapore/South Korea (10), Other (13)) There should be an executive order "shelf-plan" ready to go, if necessary, to immediately close US Branches on the Chinese Mainland, and suspend, pending further review, transfers to banks actively involved in transferring/exchanging Western Currency to the mainland (CCP controlled accounts). Most likely, these operations will be considered casualties of financial war. Let's just do our best to negotiate, evacuate and get our bankers home.
What We Hope To Accomplish
So let's sum it up. Here's what we need to accomplish before the US$25+ Trillion tsunami of sell orders on Chinese owned, dollar/euro denominated Financial Assets washes away our Western financial system:
1.) Stabilize the Western money supply.
2.) Understand the flow of "real" money/assets vs. "fake" CCP money/assets.
3.) Provide the FED with On-Shore/Off-Shore "usable" Money flow/domicile data.
4.) Provide "Onshore Stimulus" via significant Capital Gains Tax Cuts, incentivizing money to "come home". Reduce the Long Term Capital Gain tax rate to 5% (keeping the 0% rate for lower income taxpayers)
5.) Increase Revenue and deincentivize Off-Shore Tax Havens by increasing the tax cost. (Excise Taxes on Off-Shore balances and transfers "out".)
6.) Increase Revenue through Tax Collections/Enforcement on illegal funds.
7.) Streamline/automate the tax collection matching process on offshore tax schemes and intentional failure to report (FBAR Violations) through international bank cooperation agreements.
8.) Develop an efficient criminal enforcement mechanism for "aiding and abetting" the "Manaforts" of the world.
9.) Rebalance the tax base by collecting an appropriate tax on Off-Shore capital appreciation.
10.) Provide meaningful, usable data to the FED, Treasury and Banking System allowing them to stop and/or review illegitimate Off-Shore transfers prior to completion.
11.) Fully understand and be ready to respond with targeted liquidity when Xi does indeed "press the sell button".
Again, I can't emphasize enough how difficult this will be for all of us. The sacrifice that will be required to get the country and the world through this will be enormous. Kicking the can down the road is no longer an option.
Finally, you all have it within your combined power, here and now, to change history. We can continue on the same path, put out fires and scratch our heads, wondering why the economy isn't reacting to all of this stimulus. (I know, I know....some of you think that everything is great...that's part of the problem) We can continue to keep our heads in the sand and believe that the CCP is simply a second tier, bumbling competitor not-ready for prime time on the global stage, letting our arrogance and self importance blind us to what's actually happening to our great country. We can continue to dream that someday, the Chinese Communist Party will somehow see the light and march with us, hand in hand to a Kumbaya Utopian world order, where every voice is heard and the entire planet, not just America, becomes the land of the free and the home of the brave. Yes....we can continue to take that unlikely, improbable path.....because it's easy.
Today, at least for a short time, the choice is ours. The sooner we act, the better off America will be. We can all, as a united coalition, galvanize our resolve for the good of the American people. We can choose to engage with each other and disengage with the CCP. We can chose to acknowledge our problems, together, and fix them. We can either do something together, soon, as American leadership, or continue our "all is well" Rip Van Winkle sleep walk into the forfeiture of Western hegemony's whirring-buzz-saw.
I, for one, am getting way to old to start over without putting up a fight..... breaking up is indeed, really hard to do.....
Finally, if we fail, and we're required to begin teaching our children how to say "at your service exalted one" .....在你的服务高举一个 .....in simplified Chinese, I want you to visualize that, fifty years from now, when some little boy/girl in Iowa does a "Who caused the demise of Western Civilization?" subliminal, state-monitored Wang-ipedia search through the (stolen IP) Huawei chip surgically implanted in his/her cute little head at birth, your names, faces and biographies will all come up.....
I hope you'll think long and hard about that.
Additional Reading/Viewing
Mueller Investigation Costs
https://www.usatoday.com/story/news/politics/2019/02/12/mueller-russia-investigation-costs/2736507002/
Yi Gang - pledges "No Intervention"....well....he doesn't need to intervene....he has enough off-shore monetary firepower already.
https://www.bloomberg.com/news/articles/2019-03-10/pboc-s-yi-says-prudent-monetary-policy-is-also-counter-cyclical
SAFE Controls - $50,000/yr.
https://www.ft.com/content/b69166fa-ee01-11e7-b220-857e26d1aca4
Caymans Cooperation Agreement
https://www.cima.ky/upimages/commonfiles/1499794669STATEMENTOFCOOPERATION.pdf
Offshore Money transaction Tax
1120
https://www.irs.gov/pub/irs-pdf/f1120.pdf
5472
https://www.irs.gov/pub/irs-pdf/f5472.pdf
851
https://www.irs.gov/pub/irs-pdf/f851.pdf
Manafort indictment
https://www.politico.com/f/?id=0000015f-6d73-d751-af7f-7f735cc70000
Jay Powell - 60 Minutes - Full Transcript & Inverveiw - All is well.....
https://www.cbsnews.com/news/jerome-powell-federal-reserve-chairman-60-minutes-interview-2019-03-10/
Kyle Bass - Thoughts on "not wasting" the trade talks. So much to do....so little time....
https://www.bloomberg.com/opinion/articles/2019-02-11/trump-can-t-waste-china-trade-talks
Trade Balance for China - OED - $20T Western Currency from Trade Alone
https://atlas.media.mit.edu/en/visualize/line/hs92/show/chn/all/all/1995.2017/
EXPORTS $29,869,203,365,116
IMPORTS $18,277,591,290,356
BALANCE $11,591,612,074,761
The obvious problem with this decision tree, is that "Option 2", kicking the can forever down the road, which ends with the US ceding financial hegemony to the CCP, actually keeps all of you in office and supports the current status quo until it's too late to prevent the collapse of Western financial systems. Ouch!
Whereas, "Option 1", the option where we survive financially as the leaders of the free world, and our own corrective fiscal and financial policies (i.e. those designed jointly by both Republicans and Democrats) will temporarily depress asset values, destroy market cap (Apple, Walmart, Amazon, American Retail, our Large/Global Banks and any business with a Chinese supply chain significantly embedded in their business model, etc. etc.)....and cost millions of global jobs, does, unfortunately, not keep all/any of you in office...any politicians (you) who are deemed to have caused this malaise will be blamed. The American people will revolt at the ballot box. Of course, the CCP understands this all too well.
If you do indeed opt for and succeed in implementing "Option #1" you'll have to come up with yet another "it's not our fault" wag-the-dog blame scenario. I'll leave that public relations battle/framing up to you.
GIVEN:
1.)The RMB exchange rate has been manipulated through currency controls. The exchange rate should be 20+:1 rather than 7:1 based on relative money supply growth. This imbalance has been accomplished through these currency controls, making the RMB virtually unusable outside of the Chinese mainland.
2.) The Chinese Communist Party (CCP) currently controls at least US$25 Trillion of Western Financial Assets through anonymous Off-Shore Tax Haven entities.
3.) These assets were purchased at significant discounts through their pegged/overvalued currency. (i.e. using the aforementioned CCP Currency Controls and money supply expansion.)
THESIS:
The CCP intends to weaponize these financial assets, selling them off in a coordinated "Pump & Dump", disrupting/destroying Western Financial Markets, forcing Western Central banks to "print money" like never before. The end game being the US Dollar will no longer be the world's reserve currency and the RMB will finally be "marked to market" along with the newly weakened dollar. The CCP will have effectively exported their self inflicted debt problem to the rest of the world.
In order to save Western Civilization we'll need to refer to our wonderful, brilliant compadre', Dr. Richard Thaler's work and look to some basic principals of Behavioral Economics. I'd suggest you bring him on this. He's really a bright guy. I'm sure he'd free some time to help us save Western Civilization.
Following Rich's lead, we'll need to incentivize, or nudge "good" financial behavior and penalize "bad" financial behavior.
Because the USD/RMB exchange rate is currently so flawed, we'll also need to do everything we can to shore up liquidity in Western Financial Systems prior to the dam bursting. (You'll notice that Jay and Mario are beginning to take steps already) We further need to distinguish between "real" Western Money/Financial Assets and "fake" Chinese/CCP owned Money/Financial Assets.
My premise is that when the CCP financial asset "dump" begins, we must be prepared to do everything possible to prevent the inevitable capital flight which would destroy the Western Banking/Financial systems. Extraordinary times require extraordinary measures.
Again, I'll emphasize, the hundreds of thousands of Chinese Accounts, Shell Companies, and investments sitting off shore (and on-shore) poised to "send money home" are not "free market" independently owned finances of Chinese entrepreneurs and investors who will make independent (rational or not) decisions on what to do with "their" money. In the eyes of the CCP, the money doesn't belong to these Chinese citizens and entities. It's not "their" money. It's CCP money. These entrepreneurs and investors will do exactly what they are told to do, and exactly when to do it, by the CCP. They will move these "printed from thin air" Financial Assets in a carefully choreographed, weaponized yard sale designed and implemented to collapse the Western Financial System. When Xi clicks the sell button....."Everything must go."
The "Financial War Games" tools I describe below are general/strategic in nature, but must be developed and ready to launch as soon as is practical. I don't have the resources or data to come up with the nitty-gritty particulars and probable "what-if" implications behind each of these tools (you folks do....or at least you should), but I believe each of my recommendations below are important and directionally correct. It's also important to note that, throughout history, each of these recommendations has been implemented with varying levels of success (or not) depending on their relationship to a holistic policy framework. In any case, if/when the circumstances warrant, these (or directionally similar) recommendations must be implemented in their entirety. Putting a couple of band-aids in place won't accomplish what we'll need to get done.
I'm hopeful that you will have carefully crafted, well thought out versions of the below recommendations ready to deploy by executive order at the drop of a hat, well in advance of when we actually need them....and we needed them yesterday. When the clock strikes midnight, we can't endure months of Congressional debate. We won't have that kind of time. We have to think these "what-ifs" through now. If we do indeed dawdle, muddle and stumble, pausing to figure these things out, under extreme stress, in a vacuum of politically motivated misinformation, as we did with the last financial crisis, it will all be over before we know it.
As always, I welcome your input.
The Goal
The obvious concern (as described in my Dalio's Big Debt Crisis....the FSB Report and Financial War Games.... post) is that once the CCP begins the "Dump" and Western Central Banks move to support markets and liquidity, we'll need to make sure that Western Currency doesn't leave (or become idled within) the respective Western financial systems under dubious circumstances. i.e.) Dollars sitting in offshore Forex accounts will be of no use to the US Banking system. Central banks will have to "print it again" to replace it. (I'll refer to US/Canadian/Aussie Dollars, Yen & Euros as Western Currency for the purpose of this discussion....the world's currencies, many pegged to the dollar, of course will all be caught up in this spectacle, but that analysis is well beyond the scope of this post) In short, we'll need to curtail the flow of Western money off-shore, while simultaneously providing a significant advantage to Domestic Investors to keep money on-shore (and usable) which does not currently exist today. To steal a phrase, we'll need to "Build a Wall"......but this one will actually be necessary, and will actually have to work.
The Manafort Indictment - An Illustration of the Problem
The Manafort Indictment is instructional on a number of fronts. First, it's really a poster child for the ease in which someone, with a little bit of access and a criminal mindset can hide and launder significant amounts of money, avoid paying taxes on foreign income, theoretically forever, if he/she were operating with less hubris. Second, it illustrates the level of resources, and dogged relentlessness, required to adequately investigate and prosecute these relatively complex cases. Finally, we can presume from the infrastructure that exists to facilitate these schemes, and the rapidity in which financial assets have ballooned offshore, that there are tens of thousands of "Manaforts" out there. If you have a chance to read through the relatively short (34 page) indictment I'd encourage you to do so, as it's quite entertaining.
For the purpose of this analysis, I'm going to ignore the FARA (Foreign Agent Registration Act) violations contained within the Indictment as they are not relevant to this discussion. When we review the Indictment, we see that Manafort accomplished the following, all fully described in the indictment:
1.) Manafort/Gates ran approximately US$75 Million through accounts owned and controlled by twenty three (23) domestic entities and fourteen (14) foreign entities under his direction and control. The foreign entities were domiciled in Cypress, St. Vincent, the Grenadines and the UK. Manafort also failed to complete and file the FBAR (Foreign Bank Account Reports) as required by the US Bank Secrecy Act.
2.) Through these entities he laundered approximately US$18 million in funds used to purchase US Real Estate, property, goods and services, concealing these transactions form the Treasury, Department of Justice and US Banking Authorities. Manafort directed these hundreds of wire transfers for his personal benefit, failing to report and pay income taxes on the funds.
3.) During the time period between 2008 and 2014 Manafort made hundreds of wire transfer transactions (documented in the indictment) to roughly two dozen "vendors" who accepted payment from foreign entities under his control. The indictment was silent as to whether the vendors broke any US laws.
4.) Once the money was effectively laundered, Manafort used the funds to acquire Real Estate in New York and Virginia, using the properties as collateral for additional bank loans, thereby committing mortgage fraud, misrepresenting both his financial relationships and the occupancy of the properties purchased.
5.) According to the recent USA Today chart below, the cost of the investigation is now roughly $25.5 Million with the expected recovery being approximately US$28.6 Million. The investigation, by virtue of seizures and asset forfeitures, at least to date, looks like it has actually "made money".
https://www.usatoday.com/story/news/politics/2019/02/12/mueller-russia-investigation-costs/2736507002/
When we further examine the extent of this network, we can also appreciate the level of difficulty and amount of forensic accounting work necessary to put a case like this together. It's currently impossible to locate and bring all of the "Manaforts" out there to justice in anything approaching an efficient manner, without the expeditious and immediate cooperation of off-shore financial institutions. For emphasis, there are currently no systems in place to match (currently nonexistent) third party, Off-Shore Foreign Bank data/reports with the FBAR documents and Tax Returns. Today, it's simply too easy to "get away with it" and the Manafort wannabe's out there know it.
If this case wasn't such a high profile crime spree, perpetrated by a national political figure, promulgating a raid on Mr. Manafort's home, we might never have known the extent of this fraud. Some believe, and I'm one of them, we probably still don't, and perhaps never will, have the full grasp of what happened. Dozens of investigators, attorneys and professionals were assigned to this case. Under the current construct, enormous resources are required to investigate, prosecute and conclude these cases. The Manafort case is, unfortunately, the exception, rather than the rule. Most tax cheat cases don't "make money"....the money is long gone.
Moreover, to my knowledge, none of the bankers involved have been charged with violations of US Anti-Money-Laundering (AML) "know your customer" laws, which US Financial Professionals are, of course, required to follow. After a multi year investigation, costing $25.5 million and counting, we caught one high profile tax cheat.....probably 10,000 or so cheaters to go. So it goes.
The Incentive for "Good Behavior" (the Carrot)
Long Term Capital Gains Tax Reduction - Before the Republicans (copied herein) erupt with glee and you Democrats (also copied herein) deride me as yet another "rich bastard" (Misplaced though it is, I don't take offense....I'm comfortable and happy to have benefited by our current system...but it's nevertheless a harsh moniker that comes with harsh times) who wants to give yet another tax break to the other "rich bastards" (no offense intended to present company copied herein as well).....please hear me out. The Tax Code's dirty little secret is that the "Capital Gains Tax" along with the "Death Tax" are the two gigantic, fake taxes that publicly strike fear in the hearts of America's wealthy/elite, yet, privately, behind closed doors, nobody (at least anybody who knows what they are doing or is properly advised) ever actually has to pay. For example, taxes like "earned/wage" income taxes, property taxes, sales taxes, excise taxes or generally anything that inures to the responsibility of the "little people" are paid by (taken from) us/them before we ever see it. Conversely, as "rich bastards" we have been given the privilege to "choose" to pay taxes on Capital Appreciation whenever we feel like it (triggering event), let it grow in tax deferred accounts, hedge it to prevent the triggering event, or for some modest fees, choose to avoid these taxes all together off-shore. (Consult your tax advisers for a long list of legitimate devices/tools you can use to avoid paying these taxes.....the list is significant.)
I could argue, quite successfully, that the US Capital Gains Tax Structure today, when combined with both offshore and "tax-purpose" entities/devices is the most regressive tax structure in history.
Currently, the amount of Capital gains taxes paid in relation to both Financial Asset appreciation and GDP are indeed insignificant.
The figures in the chart to the left are taken from the latest (2017) IRS Data Book. You'll note that in 2017 the IRS Collected roughly $3.4 Trillion of total taxes, broken out, in big round numbers (my long time readers know how much I enjoy "big round numbers") as $1.9 Trillion for Individual Income Taxes, $1 Trillion for "Payroll Taxes" (half individual & half business), about $400 Billion for Business Income Taxes, with Excise Taxes and "Death Taxes" bringing up the rear as insignificant in the grand scheme of things.
So what's missing you might ask? That's right, where are the Capital Gains Taxes? Well, unfortunately, in the IRS Data Book Capital Gains Taxes Paid/Collected are not broken out anywhere. In the entire 86 page report, Capital Gains Taxes are not mentioned once. That's weird.... Huh? You might guess that the only reason that the Long Term Capital Gain Tax collected isn't in the report is that these taxes are buried in both of the "big" individual and business taxes or they are irrelevant in the grand scheme of things.....and you'd be right on both counts!
The best source (and only public source that I'm aware of) of data describing historical Capital Gains Taxes Collected, comes from a report issued by the US Treasury in 2016, although the data is no longer published, presumably because of its insignificance, we can calculate that since the Financial Crisis, net Long Term Capital Gain Taxes paid, despite the incredible increase in Financial Assets (aka wealth) have averaged roughly US$69 Billion per year. Please read that figure again and let it sink in:
US Capital Gains Taxes Collected Since 2008 have averaged US$69 Billion Per Year.
If we assume the "average" continued on in 2015-2017 (Note in 2019 with the new income indexing, exempting lower income taxpayers....the ones who actually pay the tax....we can expect Capital Gains Tax collections to decrease even further) we conclude the following:
Here's the Treasury Data:
https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Taxes-Paid-on-Long-Term-Capital-Gains.pdf
1.) Capital Gain Taxes Collected are 14.4% of "Total Net Gains", yet, they are only 2.47% of all Taxes Collected during the period (2008-2017) ($27.8T),
2.) Capital Gain Taxes collected were 2.37% of the Increase in Value of all US Financial Assets during the period (2008-2017 = $28.9T) Note: if we include the portion for US owned Financial Assets residing in Tax Haven accounts for "tax purposes" the % is much lower. Total Off-Shore Tax Haven Assets are US$58.7 Trillion as of 2017, of which US Investors own a significant percentage, but these figures are, of course unavailable.
3.) When we further compare the Capital Gains Taxes Paid during the period (2008-2017) to current US Wealth (i.e. Total US Financial Assets of $96.8T as of 2017), the ratio becomes 0.71%. Again, if we make the same adjustment for Off-Shore Tax Haven Assets, the percentage would be significantly reduced.
4.) Finally, when we compare the Capital Gains Taxes Paid in relation to US GDP over the same period (2008-2017 = $165.1T) the ratio approached zero....at 0.42%. (Note: All Federal Tax Collections for the same period amounted to 16.8% of GDP)
Further note that since the financial crisis, total tax collections have increased by roughly a $1 Trillion since 2009. The increase is comprised almost exclusively of Individual Income Taxes and Payroll Taxes. In America, we no longer tax capital appreciation, and under the current tax structure, it appears we never will.
It appears that America is well on the way to following the French capital flight model, where French capital abandoned the country to Luxembourg, the Netherlands, Ireland and Switzerland....searching for a better return. A tax exemption and a few basis points compounded over time makes quite a difference in a portfolio.
...or Great Britain, which doesn't necessarily want to leave the EU but refuses to shoulder the financial burden of the French, the Italians, the Greeks, the Spaniards, etc...etc....with no way to pay for it.
Bear in mind that un-taxed financial assets in Luxembourg/Netherlands/Ireland/Switzerland Tax Havens, since the financial crisis, have increased by at least US$12 Trillion, as taxed financial assets in the UK/France/Germany have decreased by roughly the same amount. Yet another remarkable coincidence.
Once the leadership of a nation refuses, or is unable to finance its society......anarchy will eagerly step in to replace it...
When I look at the numbers above, I find it hard to understand from a tax/incentive perspective, why anyone would actually "work for a living" anymore. I'm surprised that the American workforce just doesn't go out, get 0% interest rate loans, set up LLC's in the Caymans and trade Treasuries and FOREX futures from their couch all day....Oh....that's right.....it's Ray Dalio's "60% of American's can't scrape $400 dollars together because they can't afford an education, can't find a decent job and consequently their credit is really shitty dilemma".....quite a dilemma indeed.
The more worrisome and frightening aspect of this is that in America, unlike France and Great Britain, the potential "Yellow-Vest" recruits are heavily armed.
I'm also sure there's a very good reason why every Cabinet member and most members of Congress have offshore accounts. They (you) fully understand how this mechanism works, after all, they (you) along with help from lobbyists and influencers created it. After all, it's important to have a safe place to keep your unaccounted-for PAC money.
@AOC, I love your enthusiasm, but you are probably too new to the game to truly understand this. You seem to be preoccupied with "saving the environment", irritating billionaires and promulgating a 70% personal tax rate (which nobody who understands tax structured entities today would pay). These endeavors, though entertaining, are simply not a productive use of your time, but, I'm sure, if you ask a few lobbyists, they will get you in touch with capable advisory help and put you on the right track. You owe it to your constituents.
Based on the above, along with a few more modifications, though counter-intuitive, we must LOWER the Capital Gains Tax Rate to collect more taxes. I'll suggest a preliminary 5% rate implemented along with the recommendations below. The rate must be low enough, compared to alternatives, that investors will choose to pay it. To paraphrase Don's words, although relating to a different topic... "You've got nothing now....what the hell do you have to lose?"
The Enforcement Tools for "Bad Behavior"...(the Sticks)
Generally, in order to understand economic activity and thus, make correct monetary policy decisions, Jay and company must get a handle on the "usable" liquidity within the the US Financial System and by definition, the amount of "unusable" US dollar liquidity outside of the system. i.e.) Doubling M1 doesn't help Main street America if it immediately jumps into Caymans accounts owned by the CCP. Once we've rewarded "good behavior" with low domestic Long Term Capital Gains Rates, we must raise the cost of offshore "legal" avoidance, and of course, bring the hammer down on "illegal" tax evasion, bringing the money supply "home". (As you can see, I've become really fond of using "quotes" to emphasize these terms.)
Don't get me wrong, there are lots of good reasons for US Taxpayers and Foreign Investors to have overseas financial relationships. There are also lots of "not so good" reasons. We simply need to separate the two and apply the proper cost/tax structure to each of them.
Increased Tax Return Reporting Requirements on US Entities with Foreign Relationships - Today, we have a wonderful system of tax filing and reporting where you simply check some boxes on your 1040/1120/1065/5472/851/etc. etc. forms describing your relationship with a foreign entity. If you have an interest in, or signing authority on a foreign bank account you are also required to file a Foreign Bank Account Report (FBAR). Since there really isn't much detail required (links to the forms below) I can imagine that if it just slips your mind to mention any of these relationships to your tax preparer that these boxes might easily just go unchecked. The IRS also has all sorts of brochures and training materials for tax preparers as to what to look for and "red flags" but again, if these relationships aren't disclosed, I doubt that the IRS would be able to pick up on it without an onerous, cumbersome and costly level of investigation. I also imagine that, since relatively few tax returns have these "foreign" boxes checked, if you do indeed check these boxes there would be an increased level of IRS scrutiny....at least there should be. This presumed, insufficient level of "unchecked box" oversight might further incentivize a tax payer's accidental memory failure when it comes to "box checking". Of course, this lack of oversight probably didn't happen by accident. There was most likely, significant resource, forethought and lobbying effort by wealthy investors and industry groups, emphasizing the importance of the free flow of capital which stymied of any sort of enforcement funding directed at lackadaisical "box checking". As we all know, the free, anonymous, unrestricted flow of capital and firearms is absolutely necessary to make America great again.
That said, from a national security perspective, I'd also think, and recommend, that if a US taxpayer is indeed entering into significant overseas transactions and/or maintains ownership of foreign bank accounts, that transaction amounts and the details of the particular accounts involved should also be disclosed and easily verifiable/cross checked by the Treasury. (This disclosure was absent in the Paul Manafort "Poster Child" Indictment above)
To that end, I would add one question block to the form 5472 (and/or any other applicable forms), the purpose of which would be to identify whether the the Taxpayer has any off shore bank accounts. The bank name and routing number would be required to be disclosed along with the total debits/credits and ending balance for the tax year, to be retained by the IRS in easily accessible/searchable electronic form. I'd contract the folks at Google and have them get to work on it....if Google can figure out how to archive every aspect of our lives and chronicle our every movement, matching up some bank account information should be a piece of cake.
Off-Shore Tax Haven Accounts - Ownership and Balance Reporting - Develop acceptable framework/treaties to work with Tax Haven jurisdictions (Caymans/Luxembourg/Netherlands/Hong Kong/Singapore/Switzerland/Ireland/Cypress, etc.) to develop Anti Money Laundering (AML) disclosures and electronically share "true" ownership and signing authority of accounts/records. Require Foreign Banks doing business with US Banks to gather Tax ID numbers and electronically transmit monthly balances, total debits and credits by routing number for same. The foreign banks should be required, like US Employers are required for 1099's and W2's, and US Banks/Brokerages are required with 1099-INT/DIV's, to electronically file these notices with the IRS and copy the taxpayer on what was filed....just to jog his/her memory. The Treasury should set reasonable compliance deadlines and revoke access to the US Banking System/SWIFT should foreign financial institutions fail to comply.
For example, when we look at the eight page official "Statement of Cooperation" issued by the Cayman Islands Monetary Authority (CIMA) intended to state its commitment to the FED, FDIC, et al, with regard to "information sharing", we see that the statement is filled with "will endeavor to", "under certain circumstances", "upon request" and "where warranted" fake-helpful-ish language, indicating that the CIMA currently has no intention of assisting the US Treasury in getting to the bottom of tax fraud cases. The statement is so vague and non-committal that it's actually pretty comical. This is type of "cooperation" is not acceptable.
Off-Shore Balance Excise Tax - Simply put, there should be a cost to US Investors for keeping funds off shore. A small percentage of say 3%/yr. (Feel free to run the numbers and come up with your own reasonable percentage) on the offshore financial assets/balances required to be reported by US Taxpayers/Entities should be sufficient. These taxes would be collected along with annual tax return filings and reported on the modified 1040/1120/1065/etc. forms described above.
Excise Tax on Wire Transfers "Money Out" - There should also be a cost to moving money off shore. I'd recommend a 1% excise tax on on overseas wire transfers. (Again, feel free to do some research and come up with a better number). This excise tax would be applied similarly to gasoline taxes, collected by banks and remitted to the Treasury "at the pump" so to speak, as off shore wire transfers are completed. There would, of course, be no tax on money coming in, the excise tax would be a "one way" tax on money leaving.
Increased Civil and Criminal Penalties - As a "real" national emergency and a matter of national security, we must enhance the penalties for improper or misleading statements on US Tax returns regarding foreign funds. After all, we're not talking about meaningless documents like those silly SF-86 White House Security Background Check forms, where it's easy to forget about hundreds of contacts with unregistered foreign agents. I mean really, we all know how easy it is for these secret "agents of a foreign government" meetings to slip one's mind. Luckily, with those forms, once an error is pointed out by investigators, the subject is simply allowed to amend the form as often as is necessary, until he/she get's it right.
US Tax returns, are arguably the most important, sacrosanct, intimate document an American citizen produces on a periodic basis. For those of us who are blessed to have worked hard and received the bounty of this country, we owe it to the American public to make sure that these documents are carefully and accurately prepared by professionals. They should be error free. They should be perfect. Consequently, there should be significant, per incident, civil, monetary penalties for each "error" on these tax forms including and up to forfeiture of any property involved in the non-disclosure, per existing 18 US Code 981 & 982 and 18 US Code 2461 requirements/guidelines.
Properly Fund IRS Enforcement - We must properly develop an electronic matching system which compares Foreign Bank reported data to US Tax Returns and Identify discrepancies or reporting failure. We must implement a system to identify discrepancies between foreign bank reports and US Tax Returns. There should be significant administrative, "by the book" penalties for non compliance. i.e.) if you didn't check a box, or your figures are wrong, without any determination as to whether there is a tax liability involved, there's a significant "failure to disclose" fine. I might even suggest a reasonable "amnesty window" allowing a penalty free, but NOT tax free, window for compliance. Non-compliant taxpayers would be allowed one chance to get the data right and amend prior tax returns with no criminal penalties. Like those SF-86's.....Everyone deserves a limited number of second chances.
The IRS would be tasked with hiring a small army of analysts, programmers, investigators and prosecutors to gather and compare the newly acquired third party foreign bank account data to taxpayer reported data. Currently, as I'll discuss below in the Manafort analysis, it's not yet practical or cost effective for the IRS to investigate and hunt down tax cheats until the third party bank data is fully accessible and automated.
Of course, it will be important to fully publicize the favorable compliance window as well as the thunderous level of enforcement resources under development, which will soon be crashing down on tax cheats in the near future. It should also be clear to taxpayers that the newly funded, increased enforcement action on offshore accounts will be treated as a profit center for the IRS. Now, there's a new MAGA jobs program that might prove to be worthwhile, hiring 50,000 new IRS examiners, agents and IT professionals....that might help make America great again....don't you think?
I think American voters would absolutely be willing to jettison the MAGA slogan and get behind a MATCH program "Make America Tax Cheat Hell!" I can visualize it on red baseball hats all over the heartland!
Again, all of the above are important, necessary steps to separate and identify legitimate offshore money from illegitimate offshore money.
Acts of Financial War - (Even Bigger Sticks)
The following mechanisms will have to be available once we've separated and identified legitimate offshore funds from CCP and/or illegal/criminally controlled funds. The CCP will likely consider these actions an escalation of "financial war" and respond in a predictable, retaliatory manner.
Currency Controls - When this mess goes south, we'll need to protect the dollar. Which means that we won't be honoring what were previously considered free market commitments to those who would have improperly obtained US/Western Assets through nefarious, questionable means or with illegitimate funds of unknown origin. We need to develop a system where we can vet or pre-approve larger transactions in advance. Based on the incredible increase in offshore Tax Haven Assets (roughly US$58 Trillion as of 2017 with an estimate of roughly US$65 Trillion currently) we'll need to take a page out of China's play book (SAFE) and develop a framework to prevent deposits of questionable origin from leaving Western Financial Systems. As a point of reference, today, if you are a Chinese Citizen and you attempt to take more than $50,000/yr. of your currency off shore without specific CCP permission, you'll get a stern talking to as well as some "reeducation". Your family might wonder where you've been for the last few weeks/months, but it's all part of the CCP modus operandi. We need to replicate a version of these currency controls in America and have them ready to go should the need arise.
My concern of course is that once the CCP begins the "Dump" the owners of the US$25+ Trillion of Western Currency (the CCP controlled portion of the US$65 Trillion) will attempt to get it out of usable circulation, transferring it to Chinese banks to bolster foreign currency reserves. Since this has become a matter of national security, US Bankers must have the authority or discretion to delay or stop larger transfers of questionable origin to non-US Banks until they can determine whether the transfers are legitimate and/or might cause systemic liquidity risk to their institutions. The framework must be coordinated with other Western Central Banks and financial systems.
As a point of reference, the CCP is already doing this with US Investor funds on the mainland today. US Investors are having trouble getting their money off the mainland. This isn't publicized as the investors are trying to work out the issues through back channels at mainland banks, rather than have their funds seized outright.
In other words, we'll need to provide institutions and bankers the latitude to stop the illegitimate, foreign drivers of the "run".
Chinese Branch Banks - Develop a framework to immediately shut down and suspend operations (unplug) the CCP Branch banks operating in US Markets on US soil. (ICBC, Bank of China, China Merchants Bank, CITC and the Agricultural Bank of China). We should encourage other Western Nations to do the same. I don't care if we have to cut power to their buildings, large amounts of Western Currency must not be allowed to improperly leave the US banking system through these CCP conduits.
Western Banks Operating in China - By my count, the US currently has nine (9) banks operating in China. There are at least forty-five (45) additional foreign banks with branches on the Chinese mainland. (Hong Kong (5), UK/EU/Swiss (17), Japan/Singapore/South Korea (10), Other (13)) There should be an executive order "shelf-plan" ready to go, if necessary, to immediately close US Branches on the Chinese Mainland, and suspend, pending further review, transfers to banks actively involved in transferring/exchanging Western Currency to the mainland (CCP controlled accounts). Most likely, these operations will be considered casualties of financial war. Let's just do our best to negotiate, evacuate and get our bankers home.
What We Hope To Accomplish
So let's sum it up. Here's what we need to accomplish before the US$25+ Trillion tsunami of sell orders on Chinese owned, dollar/euro denominated Financial Assets washes away our Western financial system:
1.) Stabilize the Western money supply.
2.) Understand the flow of "real" money/assets vs. "fake" CCP money/assets.
3.) Provide the FED with On-Shore/Off-Shore "usable" Money flow/domicile data.
4.) Provide "Onshore Stimulus" via significant Capital Gains Tax Cuts, incentivizing money to "come home". Reduce the Long Term Capital Gain tax rate to 5% (keeping the 0% rate for lower income taxpayers)
5.) Increase Revenue and deincentivize Off-Shore Tax Havens by increasing the tax cost. (Excise Taxes on Off-Shore balances and transfers "out".)
6.) Increase Revenue through Tax Collections/Enforcement on illegal funds.
7.) Streamline/automate the tax collection matching process on offshore tax schemes and intentional failure to report (FBAR Violations) through international bank cooperation agreements.
8.) Develop an efficient criminal enforcement mechanism for "aiding and abetting" the "Manaforts" of the world.
9.) Rebalance the tax base by collecting an appropriate tax on Off-Shore capital appreciation.
10.) Provide meaningful, usable data to the FED, Treasury and Banking System allowing them to stop and/or review illegitimate Off-Shore transfers prior to completion.
11.) Fully understand and be ready to respond with targeted liquidity when Xi does indeed "press the sell button".
Again, I can't emphasize enough how difficult this will be for all of us. The sacrifice that will be required to get the country and the world through this will be enormous. Kicking the can down the road is no longer an option.
Finally, you all have it within your combined power, here and now, to change history. We can continue on the same path, put out fires and scratch our heads, wondering why the economy isn't reacting to all of this stimulus. (I know, I know....some of you think that everything is great...that's part of the problem) We can continue to keep our heads in the sand and believe that the CCP is simply a second tier, bumbling competitor not-ready for prime time on the global stage, letting our arrogance and self importance blind us to what's actually happening to our great country. We can continue to dream that someday, the Chinese Communist Party will somehow see the light and march with us, hand in hand to a Kumbaya Utopian world order, where every voice is heard and the entire planet, not just America, becomes the land of the free and the home of the brave. Yes....we can continue to take that unlikely, improbable path.....because it's easy.
Today, at least for a short time, the choice is ours. The sooner we act, the better off America will be. We can all, as a united coalition, galvanize our resolve for the good of the American people. We can choose to engage with each other and disengage with the CCP. We can chose to acknowledge our problems, together, and fix them. We can either do something together, soon, as American leadership, or continue our "all is well" Rip Van Winkle sleep walk into the forfeiture of Western hegemony's whirring-buzz-saw.
I, for one, am getting way to old to start over without putting up a fight..... breaking up is indeed, really hard to do.....
Finally, if we fail, and we're required to begin teaching our children how to say "at your service exalted one" .....在你的服务高举一个 .....in simplified Chinese, I want you to visualize that, fifty years from now, when some little boy/girl in Iowa does a "Who caused the demise of Western Civilization?" subliminal, state-monitored Wang-ipedia search through the (stolen IP) Huawei chip surgically implanted in his/her cute little head at birth, your names, faces and biographies will all come up.....
I hope you'll think long and hard about that.
Additional Reading/Viewing
Mueller Investigation Costs
https://www.usatoday.com/story/news/politics/2019/02/12/mueller-russia-investigation-costs/2736507002/
Yi Gang - pledges "No Intervention"....well....he doesn't need to intervene....he has enough off-shore monetary firepower already.
https://www.bloomberg.com/news/articles/2019-03-10/pboc-s-yi-says-prudent-monetary-policy-is-also-counter-cyclical
SAFE Controls - $50,000/yr.
https://www.ft.com/content/b69166fa-ee01-11e7-b220-857e26d1aca4
Caymans Cooperation Agreement
https://www.cima.ky/upimages/commonfiles/1499794669STATEMENTOFCOOPERATION.pdf
Offshore Money transaction Tax
1120
https://www.irs.gov/pub/irs-pdf/f1120.pdf
5472
https://www.irs.gov/pub/irs-pdf/f5472.pdf
851
https://www.irs.gov/pub/irs-pdf/f851.pdf
Manafort indictment
https://www.politico.com/f/?id=0000015f-6d73-d751-af7f-7f735cc70000
Jay Powell - 60 Minutes - Full Transcript & Inverveiw - All is well.....
https://www.cbsnews.com/news/jerome-powell-federal-reserve-chairman-60-minutes-interview-2019-03-10/
Kyle Bass - Thoughts on "not wasting" the trade talks. So much to do....so little time....
https://www.bloomberg.com/opinion/articles/2019-02-11/trump-can-t-waste-china-trade-talks
Trade Balance for China - OED - $20T Western Currency from Trade Alone
https://atlas.media.mit.edu/en/visualize/line/hs92/show/chn/all/all/1995.2017/
EXPORTS $29,869,203,365,116
IMPORTS $18,277,591,290,356
BALANCE $11,591,612,074,761
BAL Invested at 6% - $20,005,189,141,954
World Currency Transaction Breakdown
US $2 Trillion of illegal money flow from China to the West
http://www.antimoneylaunderinglaw.com/2017/01/qa-on-the-2-trillion-in-proceeds-of-corruption-removed-from-china-and-taken-to-us-australia-canada-and-netherlands.html
IRS - Gross Collections
https://www.irs.gov/pub/irs-soi/17databk.pdf
Capital Gains Taxes Paid thru 2014
https://www.taxpolicycenter.org/statistics/historical-capital-gains-and-taxeshttps://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Taxes-Paid-on-Long-Term-Capital-Gains.pdf
BIS Working Paper - Missing Global Debt?
https://www.bis.org/publ/qtrpdf/r_qt1709e.pdf
BIS Working Paper - Triffin Dilemma? of Myth?
FATCA/IGA Compliance
https://www.reuters.com/article/us-usa-tax-fatca/cayman-islands-u-s-reach-pact-to-fight-tax-evasion-idUSBRE97D17U20130814
TAX Issues
https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-offshore-corporate-tax-loopholes/
IRS-Abusive Off-Shore Tax Schemes
https://www.irs.gov/businesses/small-businesses-self-employed/abusive-offshore-tax-avoidance-schemes
Citi - The RMB as Global Currency...."Not so much"
https://www.citivelocity.com/citigps/waiting-waiting-global-renminbi/
World Currency Transaction Breakdown
US $2 Trillion of illegal money flow from China to the West
http://www.antimoneylaunderinglaw.com/2017/01/qa-on-the-2-trillion-in-proceeds-of-corruption-removed-from-china-and-taken-to-us-australia-canada-and-netherlands.html
IRS - Gross Collections
https://www.irs.gov/pub/irs-soi/17databk.pdf
Capital Gains Taxes Paid thru 2014
https://www.taxpolicycenter.org/statistics/historical-capital-gains-and-taxeshttps://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Taxes-Paid-on-Long-Term-Capital-Gains.pdf
BIS Working Paper - Missing Global Debt?
https://www.bis.org/publ/qtrpdf/r_qt1709e.pdf
BIS Working Paper - Triffin Dilemma? of Myth?
https://www.reuters.com/article/us-usa-tax-fatca/cayman-islands-u-s-reach-pact-to-fight-tax-evasion-idUSBRE97D17U20130814
TAX Issues
https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-offshore-corporate-tax-loopholes/
IRS-Abusive Off-Shore Tax Schemes
https://www.irs.gov/businesses/small-businesses-self-employed/abusive-offshore-tax-avoidance-schemes
Citi - The RMB as Global Currency...."Not so much"
https://www.citivelocity.com/citigps/waiting-waiting-global-renminbi/
