TAPER - It Matters and the Fed Has Few Options As Quality Collateral Disappears.

Why The Taper Matters (In One Simple Chart) 08-16-13 Zero Hedge

Obviously, there are numerous reasons why (no matter what the economic situation is) the Fed will need to Taper (deficits, technical fragilities, and sentiment). Furthermore, it seems the world is more than happy to give the central bankers the benefit of the doubt that not only is Tapering not tightening but that Tapering is a 'positive' as it means all is rosy in the world (despite our earlier point of the 'difficulty' that any actual unwind poses). However, there is one big reason (highlighted further this morning in the TIC data) why the Fed's Taper matters... they are (simply put) the only one buying...

5Y-30Y Treasury holdings...

Source: BofAML

TAPER - Why Fed Bond Buying Can't Go on Indefinitely and Why TAPER

Good Luck Unwinding That 08-15-13 Zero Hedge

A few months ago, when discussing the most pertinent topic for Bernanke and his merry central-planning men we said that "with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?" What followed was 3 months of heated debate on whether the Fed will or will not taper which for some reason were focusing on the wrong thing - the economy. Ironically, how the economy is doing has nothing to do with the Fed's decision, which is entirely decided by the increasing shortage of private sector "quality collateral" i.e., bonds.

How big is this shortage? As noted above, the Fed's literally absorbs ~0.3% of the bond market each week. And according to the most recently released Fed balance sheet data, this is indeed the case. According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before - a rate of increase almost in line with what we predicted. Inversely this means that the percentage of ten-year equivalents available to the private sector decreased to 68.53% from 68.76% in the prior week. Long story short, the Fed just soaked up 0.23% of the bond market in one week and half a percent in two weeks, a ratio that will only increase in time, and unless there is a taper, may reach 0.5% per week.

At that level of bond market "takeover", the liquidity in what was once the world's most liquidity bond market, already lamented by the TBAC as we showed earlier this week, will evaporate entirely and the daily bond halts that were a norm in Japan in April and May will promptly come to the US. Only at that point, unlike the BOJ which had the Fed to fall back on, there will be no Plan B, as the opportunity cost of an illiquid bond market is the reserve currency status of the dollar and the credibility of the Fed - the two are interchangeable. Which also means the future of the entire global fiat system will be on the brink.

Which brings us to the point of this post.

Clueless economists and pundits are happy to trot out every now and then a chart showing the ratio of the Fed's balance sheet to GDP, which supposedly is meant to indicate that the Fed owning 20% of US GDP on its books is normal.

What said clueless economists never seem to grasp is that a Fed whose balance sheet is full of 3 month bills is completely diffrerent than a Fed whose balance sheet is full of 30 Year bonds. And the best way to represent that is by showing the 10 Year equivalent holdings of the Fed.

Presenting Exhibit A: the Fed's balance sheet represented in the form of 10 Year equivalent holdings.

The long-term average is ~4%. As noted above, it just hit 31.47% this week. And even with a taper (especially since the untaper will be just around the corner once the market crashes and the Fed has no choice but to jump right in), we fully expect that the Fed will hit its current SOMA limit of 70% of any and every CUSIP across the curve by 2016.

Take one look at the chart above, and extrapolate it reaching twice as high.

And then imagine how this Mt. Everest of 10 Year equivalents will be unwound.

Good luck with that.

PATTERNS - A Gap That Must Be Soon Filled

Equity Bulls, Look Away 08-15-13 Zero Hedge

It seems to us that the corporate bond market (now absent the underpinning of a dominating retail technical flow) has reverted back to the macro background reality.... the question is - what happens when the equity market 'admits' that perhaps things are not so rosy...

Remember corporate credit risk reflects just as much on the underlying business volatility and cashflow outlook as the equity part of the capital structure. There are periods in the credit cycle when credit will underperform as management relevers (i.e. buybacks/dividends) but that always only lasts a brief time as credit begins to penalize those actions, making the re-levering non-economic, and an over-expectant equity market reverts back to a less-levered reality.

RECESSION - More Cyclical Signs of a US Recession

Worker Productivity Tapering 08-13-13 BoAML via ZH

After a surge at the beginning of the economic recovery, productivity growth has cooled. For the nonfarm business (NFB) sector, BofAML notes that productivity has slowed from a peak of 5.8% year-over-year in 4Q 2009 to just 0.9 in 1Q of this year. This week we will see Q2 data - expected to show a further slowing to just 0.6%. Moreover, what we show below is that, outside of the tech boom in the late 1990s, productivity tends to slow as business expansions mature. Our current 'expansion' is now thoroughly mature...

Source: BofAML

EARNINGS - As Goes Wal-Mart; So Goes America...?

As Goes Wal-Mart; So Goes America...? 08-15-13 Zero Hedge

While the 'people of Wal-Mart' may reflect the people of America, we hope - based on the chart below - that the growth in Wal-Mart does not reflect the growth of America...

6th HINDENBURG OMEN in 8 Days

Historic Cluster

The MORE occurances, the Higher the Probability of a crash within 90 days.

RISK - September Events Cluster

Ignore These Six 'Events' At Your Own Risk 08-13-13 Zero Hedge

With European stocks at multi-month highs, European bond risk at multi-year lows, US equities near all-time highs, US equity volatility expectations near post-crisis lows, and credit risk volatility fading, one could be forgiven for believing it's all gonna be ok.

Of course, that assumes we get through the next six weeks unscathed...

Source: Barclays

RISK - Positive Global Surprise Indices Topping In Developed Economies

The State Of The World As Seen Through Citi's Economic Surprise Indices 08-13-13 BI

Citi tracks a measure known as the "economic surprise index" for various locales, which shows how economic data are progressing relative to the consensus forecasts of market economists.

From Bloomberg:

The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance [been] beating consensus. The indices are calculated daily in a rolling three-month window. The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decay function to replicate the limited memory of markets.

So, what are the surprise indices saying right now? The stories will probably sound familiar.

In the United States, surprises surged into positive territory in August for the first time since April.

The eurozone surprise index also recently surged into positive territory, too. Investors and analysts are now discussing a possible end to the debilitating recession in the currency bloc.

Surprises in China turned negative earlier this year and were forced lower by weak second-quarter economic data. With the release of the July economic data, surprises are trending back up again, but are still negative.

Japan's surprise index shows the clear waning of excitement surrounding "Abenomics," the Japanese administration's experimental program of economic stimulus, in recent weeks.

Economic surprises in emerging markets have, in aggregate, been negative all year. They have rebounded a bit recently, but still remain in the deepest negative territory of all of the surprise indices.

RISK - A New Form of 1987 Portfolio Insurance and Dynamic Hedging

Fed Warns Leveraged ETFs Could Trigger 1987-Style "Cascade" In Stocks 08-12-13 Zero Hedge

In a 43-page research report, the Federal Reserve has authored a rather concerning tome warning that the mechanical positive-feedback rebalancing of Leverage ETFs (LETFs) resembles the portfolio insurance strategies, which contributed to the stock market crash of October 19, 2021. The impact of LETFs on broad stock-market indexes become significant during periods of high volatility (shown empirically in 2008/9 and H2 2011) as they show that LETF rebalancing in response to a large market move could amplify the move and force them to further rebalance which may trigger a “cascade” reaction. Furthermore, executing orders within a short period of time, such as the last hour of trading, may cause disproportionate price changes (especially in financial stocks). The Fed warns that a significant price reduction at market close may also impair investor confidence with accelerating depressed prices at the close potentially driving large investor outflows overnight.

ETF-rebalancing implied price effects are most egregious at times of stress...

ETF rebalancing flows have grown dramatically...

BUT - what is most concerning is that LETF rebalancing flows as a fraction of stock volume in the last hour is surging - especially for small-caps...

The frequency of a large price move in the last hour of trading is zero until 2007 when the first financial LETF is launched. Consistent with the implied price impact results, the frequency of a large price move is elevated when the price volatility is high, reaching 0.8 in the 2008-2009 financial crisis and 0.6 in the second half of 2011. These results, combined with the implied price impact estimates, suggest that LETF rebalancing contributed to the stock market volatility in the 2008-2009 financial crisis and in the second half of 2011.

FED paper: LETFs

RISK - A Confluence Of Risky Economic Events

The US Is Weeks Away From A Confluence Of Risky Economic Events That's Unlike Anything We Can Recall 08-13-13 BI

A couple weeks ago we wrote about the fact that the US is coming up to an unusual of significant econo-political events unlike anything we can recall.

Starting sometime in September, we can expect to see the following:

• A fight over the government's budget, leading to a possible government shutdown.
• A fight over the debt ceiling.
• The beginning of Fed tapering (the reduction of large-scale asset purchases, known as Quantitative Easing)
• A nomination for a Fed Chair to replace Ben Bernanke.

Each one of these could be economically significant to varying degrees. Together they're likely to be very exciting.

Over at POLITICO, Ben White and MJ Lee have a big story up about why this time, Wall Street should be afraid of the fiscal fight.

Of course the street expects that everything will get resolved at the last second (like it always does) but White and Lee argue that this time could be different.

The reasons why:

1. The GOP is even more fractured than it has been in recent fights, and
2. this time the Democrats may go to the mat as well, as they refuse to give an inch.

That the Democrats may not be willing to bargain at all over the debt ceiling seems like the big dynamic that makes this time different than those other times.

And even if the two parties find a path past Oct. 1 and avoid a government shutdown, raising the debt ceiling will be no easy task. Republicans have not backed off their mantra of a dollar in spending cuts for every dollar of debt-ceiling increase. But if they pass such a bill out of the House, it is going nowhere in the Senate. Democrats have no appetite for more cuts, given that annual deficits have been sliced in half and the sequester spending cuts are already taking a bite out of economic growth with no compromise on the horizon.

“It’s not negotiable. It should be done,” said Sen. Sherrod Brown (D-Ohio) about raising the debt ceiling. “Business everywhere believes that this is a bad thing for the country. The Republicans, they call themselves the pro-business party. They should act that way.”

The White House is also likely to stick hard to its vow not to negotiate over the debt ceiling.

This is a point that Eurasia Group analyst Sean West made back in mid-July:

Democrats are increasingly convinced that this is the moment to "break the fever" of sequestration and debt ceiling pay-offs. They will attempt to break up the upcoming deadlines by cutting a short-term deal on the 30 Septembercontinuing resolution-insisting on a clean debt ceiling increase with no pay-off for Republicans-and then gearing up for battle later in the fall when the short-term CR expires if necessary to get a sequester deal before January. In reality, Democrats would prefer to trade mandatory cuts and other piecemeal fiscal reforms for a sequester offset that can be implemented around the same time as the debt ceiling, without a direct negotiation on the latter issue. But Democrats have less appetite to agree to large-scale reforms amid a declining deficit: If Republicans demand too high a price for the Democrats' key goal of offsetting the sequester, Democrats, are willing to threaten shutdown even though they don't actually want it.

Anyway, lots coming up. Enjoy the rest of your summer.

JAPAN - Q2 GDP Misses By A Huge Margin

Japan's Q2 GDP Misses By A Huge Margin 08-11-13 BI

Japan's Q2 GDP growth missed expectations, hitting 2.6% against 3.6% expected.

The Yen hit $96.04 against $96.33 prior to the data print. The Nikkei is also off -1.26%.

Seasonally-adjusted GDP climbed +0.6% against Q1's +0.9%.

As we recently explained, Japanese economic data has been doing a lot of missing expectations lately. Industrial production, household spending and July PMI all fell short.

Plus, July employment fell for the first time in three months.

Abe-nomics — the loose monetary policy ordered by Prime Minister Shinzo Abe to reinflate Japan's economy — have now been in place about half a year. Clearly, something's not working.

JAPAN - Q2 GDP Misses By A Huge Margin 08-11-13 Zero Hedge

There goes the tax hike (and any expectation of fiscal balance). Japanese GDP grew at a miserly 0.6% QoQ, missing expectations of +0.9% (the biggest miss in a year) and slowing from an already revised lower 0.9% growth in Q1. So much for Abenomics breathing life back into a balance-sheet-recessed nation. Typically this kind of miss would be met with cheers as bad is good but in the case of Japan where they are so far down the rabbit hole, there is no moar left. The already collapsing JPY-carry trade is unwinding in a hurry as JPY surges to a 95 handle on the news; the USD is dropping, Nikkei futures are down 200 points, S&P futures are down a few handles, and gold is holding notable gains.

Japanese GDP disappoints...

sending JPY surging...

EU - Eurozone Funding Shortfall Rises To Over $4 Trillion

Eurozone Funding Shortfall Rises To Over $4 Trillion, Increases By More Than $500 Billion In A Year 08-11-13 Zero Hedge

Back in April 2012, Zero Hedge pointed out something rather disturbing for the European banking sector and defenders of the European monetary myth: the "aggregate shortfall of required stable funding Is €2.78 trillion" which was the number estimated by the BIS' Basel III rules needed to return to some semblance of balance sheet stability in Europe. More importantly, this was a number so big, it was obvious that there was only one way to deal with it: cover it up deeply under the rug and pray it never reemerged.

What happened next was inevitable: Basel III's implementation was delayed as there was no way Europe's banks could satisfy their deleveraging requirements, while the actual capital shortfall hole became bigger and bigger. Today, 16 months later, the FT discovers what Zero Hedge readers knew long ago in "Eurozone banks need to shed €3.2tn in assets to meet Basel III." In other words, not only has Europe not fixed anything in the past year, but the liquidity tsunami injected by the central banks merely taped over the epic capital shortfall that just got epic-er, increasing from €2.8 trillion to €3.2 trillion, an increase of half a trillion to over $4 trillion in one short year.

Sadly, just like back in April 2012, so now, Europe has no hope of actually addressing this much needed deleveraging and so the can kicking will continue until the number rises to $5 trillion, $6, $7 etc until one day the market's "head in the sand" strategy finally fails and every emperor around the world is found to be naked.

From the FT:

Europe’s biggest banks will have to cut €661bn of assets and generate €47bn of fresh capital over the next five years to comply with forthcoming regulations aimed at reducing the likelihood of another taxpayer funded bailout.

The figures form part of an analysis by the UK’s Royal Bank of Scotland – which singles out Deutsche Bank, Crédit Agricole and Barclays as the banks most in need of fresh capital – highlighting that five years on since the financial crisis, Europe’s banks are still “too big to fail”.

Overall, the region’s banks need to shed €3.2tn in assets by 2018 to comply with Basel III regulations on capital and leverage, according to RBS.

The burden is greatest on smaller banks, which need to shed €2.6tn from their balance sheets, raising fears that lending to the region’s small and medium size enterprises will be sharply reduced as a result.

“There is too much debt still across Europe’s economies and the manifestation of that is on bank balance sheets,” said James Chappell, an analyst at Berenberg bank. “The major issue is that the banks still don’t have enough capital to write down those loans.”

Eurozone banks have already shrunk their balance sheets by €2.9tn since May 2012 – by renewing fewer loans, repurchase and derivatives contracts and selling non-core businesses – according to data from the Frankfurt-based European Central Bank.

Deutsche Bank recently said it would seek to cut its assets by about a fifth over the next two and a half years. Barclays, which announced a £5.8bn rights issue last month, said it wants to shrink its balance sheet by £65bn-£80bn.

Europe’s banking sector assets are worth €32tn, or more than three times the single currency zone’s annual gross domestic product.

Of course, if Europe's banking sector actually does take its deleveraging obligations seriously, what will happen to Europe's economy, where private sector loan creation is already at a record low level, will be nothing short of a stunning contraction, unlike anything seen in the past 5 years. And yet, that is precisely the path Europe most take in order to emerge on the other side with a healthy beating financial heart. That it won't is a given because doing the right thing would mean a complete wipe out for the banker oligarchy. And, as always, it will be the common man who will suffer when the forced deleveraging day finally comes.

CHINA - China's $1 Trillion GDP Lie

China's $1 Trillion GDP Lie 08-13-13 Zero Hedge

From goal-seeked GDP, manipulated inflation, liquidity-flow-exaggerated trade data, and hidden (and divergent) PMI details, the question of the unreliability of Chinese data is not a new one. However, anecdotes aside, a new study from Peking University finds, conservatively, correcting for housing price inflation in the Chinese CPI data adds approximately 1% to annual consumer price inflation in China, reducing real GDP by 8-12% or more than $1 trillion.

How Badly Flawed Is Chinese Economic Data? The Opening Bid is $1 Trillion

Baseline Chinese economic data is unreliable. Taking published National Bureau of Statistics China data on the components of consumer price inflation, I attempt to reconcile the official data to third party data. Three problems are apparent in official NBSC data on inflation.

First, the base data on housing price inflation is manipulated. According to the NBSC, urban private housing occupants enjoyed a total price increase of only 6% between 2000 and 2011.

Second, while renters faced cumulative price increases in excess of 50% during the same period, the NBSC classifies most Chinese households has private housing occupants making them subject to the significantly lower inflation rate.

Third, despite beginning in the year 2000 with nearly two-thirds of Chinese households in rural areas, the NSBC applies a straight 80/20 urban/rural private housing weighting throughout our time sample. This further skews the accuracy of the final data.

To correct for these manipulative practices, I use third party and related NBSC data to better estimate the change in consumer prices in China between 2000 and 2011.

I find that using conservative assumptions about price increases the annual CPI in China by approximately 1%.

This reduces real Chinese GDP by 8-12% or more than $1 trillion in PPP terms.

For example...

From 2000 to 2011, according to official statistics, M2 money grew more than six fold, nominal GDP nearly fivefold, and real GDP three fold, but the price of private housing by only 8%.

If we focus on nothing other than the growth of official real GDP, it seems implausible that the price index of private housing would be falling so significantly relative to output. If we include the nearly five-fold increase in nominal GDP and six fold growth in M2 money into the analysis, it again strains credibility that the price of private housing would remain nearly unchanged for eleven years.

Key Facts

• According to the National Bureau of Statistics China (NBSC), the price of private housing in China rose by a total of 8.14% between 2000 and 2011 and only 5.99% in urban areas, where Chinese were moving to in large numbers.
• According to the NBSC, the annual price of private housing in rural areas grew at 1.67%, more than three times faster than prices in urban areas at 0.53%.
• According to the NBSC, the price increase of renting outpaced the change in the price of private housing by nearly 50%, making it significantly more advantageous to purchase an apartment between 2000 and 2011 in China.
• According to the NBSC, only 12% of Chinese households are renters, skewing inflation data.
• To calculate the total private housing price change, the NBSC utilizes a straight 80% weighting of the urban population and a 20% weighting of the rural population despite the fact that in 2000 nearly two-thirds of Chinese households were rural and only rose to 51% urban in 2011.
• According to the NBSC, rural home values rose by 249% between 2000 and 2011 for a compounded annual growth rate of 8.65%.
• According to the third party data, from the first quarter of 2000 to the first quarter of 2010, the nominal value of apartments in urban areas in China rose nearly threefold.
• When using third party data and reconciling NBSC data in place of official housing inflation data, annual Chinese CPI increases by approximately 1% annually.
• Incorporating this change in CPI into real GDP calculations reduces total real GDP by a mid-range estimate of 8-12% or $1 trillion in PPP.
• Other significant discrepancies exist that will likely increase the size of the needed restatement of total real GDP.
• According to NBSC data, the food component of the CPI in China was responsible for 99% of inflation between 2003 and 2011. This implies that the NBSC is claiming that the only prices to rise in China between 2003 and 2011 were food prices.

Given what we obviously locate, it seems likely that much larger revisions to Chinese real GDP and other economic data is needed to produce more reliable statistics.

Full Report below:

How Badly Flawed is Chinese Economic Data - $1 Trillion and Over Hit to GDP

CHINA - What the Deceleration could Portend

Is China Doomed? 08-10-13 Rajan Menon viaThe National Interest.org, via ZH

Between 1978, the year Deng Xiaoping’s sweeping economic reforms were launched, and 2011, China’s GDP increased by an average of 10 percent annually, three times that of the global economy. Now the boom times may be over.

By mid-2013, economic growth had slowed to 7.7 percent. That’s still a roaring pace compared to the rest of the world. Europeans, Americans and even Japanese might say about China’s slippage, “We should all have such problems.” Still, in thirty-five years, the Chinese polity hasn’t had to handle a prolonged economic slowdown and one may be in the offing. Hence the debate on what the deceleration could portend should it get worse and linger.

Is China headed for upheaval? The argument that it is seems plausible. Eye-popping growth rates and the accompanying increase in living standards—and of course the state’s massive machinery of repression—have been critical to maintaining political stability and public support for the Communist Party. Or is Beijing so skillful, so flush with foreign-exchange reserves—and hence with the capital needed for priming the economy and managing financial crises—that slower economic growth is no big deal? Don’t look to the experts for enlightenment on which take is true: they see the same data but draw different conclusions.

We’ll get to those incongruous assessments soon, but first, some context on China’s remarkable achievements since 1978. (While some China watchers think Beijing cooks the books, they do concur that the country’s economic transformation has been breathtaking.) China’s GDP, measured in purchasing-power parity using current dollars, was $248 billion in 1980; by 2012 it had soared to $12.3 trillion. Per-capita GDP—a useful measure of prosperity, even though it doesn’t reveal income distribution, the inequality of which has soared in China—has likewise surged, from $205 (at purchasing-power parity) in 1980 to $11,316 in 2011. Together, massive investment, breakneck economic growth, sharp declines in population growth, the advent of universal literacy and big increases in the number of people with a higher education have helped pulled six hundred million Chinese out of poverty.

Other numbers illustrate China’s economic makeover. In 1978 China accounted for about 2 percent of the value of global exports. By 2010 its share had risen to 10 percent, and the total value was $1.5 trillion. This success in the global marketplace was achieved to no small extent at the expense of the world’s other economic behemoths, Japan and the United States, whose shares declined. What makes this particularly noteworthy is that China’s GDP, though it recently surpassed Japan’s, is still smaller America’s, which was $15.7 trillion in 2012. Yet the value of China’s trade last year was $3.87 trillion, eclipsing America’s total of $3.82 trillion. Even allowing for differences in the two economies’ relative dependence on trade this was headline-grabbing news. And it’s not just the value of what China sells the world but the difference that’s emerged in what it sells. Staples such as apparel, toys, shoes and basic electronics have been replaced by machinery and equipment, which account for over 50 percent of China’s exports, compared to just over 25 percent in 1995. Whether it’s energy, banking or telecommunications, Chinese companies have a global presence and are competing with American, European, South Korean and Japanese multinational corporations.

Okay, so what’s the problem then? It’s on this question that informed opinion is split. Paul Krugman is sure that the decrease in China’s economic-growth rate portends “big trouble” and that the signs are “unmistakable.” He and others pessimists chalk up China’s economic success to a combination of a vast rural population that has been available for induction into the industrial sector; low wages for workers, a function of an abundant supply of labor from the countryside; massive investment at the expense of consumption; and an exchange-rate policy that keeps the value of China’s currency low and its export earnings high.

The old paradigm, effective though it was, is starting to crumble. We’ve seen this before. The Soviet economy started slowing in the 1960s once it became harder - because of falling population-growth rates and the drying of the rural labor reservoir - to rack up big growth rates by pumping more people and money into manufacturing. The big difference is that while total-factor productivity (output per composite unit of labor and capital) didn’t pick up the slack in the USSR, in China it has increased significantly over the past two decades. Still, with Europe mired in recession, America posting anemic economic-growth rates and adding few jobs, and India’s and Brazil’s economies slowing down, it’s going to be harder for China to continue banking on big sales abroad to sustain rapid growth. So a lot hinges on whether Beijing finds a new way to sustain high growth, one that goes beyond basic industrialization and catching up to the West and sets trends in innovation.

The experts who reject Krugman’s apocalypse soon scenario are confident that Beijing will adapt to slower growth and diminished demand abroad by “rebalancing.” They don’t deny that China’s economy is slowing or that that could pose problems. They insist that China will simply shift to growth that’s slower and less reliant on investment and exports and that relies more on domestic consumption, with the government using its cash bonanza to boost employment and income as needed.

Sounds nice, but it may not be so easy. To begin with, the “rebalancing” metaphor is too pat. It conjures up the image of a bicyclist who’s tilting too far left or right and merely needs to adjust body weight a bit before pedaling happily onward. Would that it were so simple. Despite the huge increase in China’s per-capita income over the past three decades, today it is still only $9,300. It remains well behind America, Europe, Japan and South Korea and ranks 123rd in the world, closely trailing the Dominican Republic and the Maldive Islands. It also doesn’t help that 12 percent of China’s population lives below the officially established poverty line ($3,630). That’s not a big proportion; it’s smaller than America’s and represents a huge decline from over 80 percent in 1981, but it amounts to 130 million people who can’t generate much of what economists call “effective demand.” If you’re going to rely on consumers to power growth it helps to have a population with abundant disposable income.

Then there’s income inequality, another barrier to rebalancing. The greater it is in a country with a low per-capita income, the harder it will be to foster consumption-driven economic growth quickly. And China’s income distribution is highly skewed. One common measure of economic inequality is the Gini Index, which measures income distribution. The lower a country’s score, the more equal its income distribution, and vice versa. Sweden’s Gini score is 23, Germany’s 27, the EU’s as a whole 30, Japan’s 37, and America’s 45 (nothing to be proud about). China’s is 47.4. This is another reason why rosy forecasts involving rebalancing should occasion skepticism, the more so because in China high inequality (the super-rich elite can consume only so much) and low per-capita income are accompanied meager retirement and health-insurance benefits that don’t offer most Chinese much protection during adversity or old age.

Speaking of aging, China is doing so rapidly. And its total fertility rate, the average number of children a woman is projected to have during her childbearing years, is now 1.55 (2.11 is required to maintain the size of a population). This means that labor shortages loom, an increasing proportion of the workforce will consist of retirees, and revenue will have to be reallocated to care for the growing proportion of elderly. Yes, Europe and Japan also have aging populations, but the difference is that these are (despite Europe’s current problems) relatively wealthy places. Moreover, they confronted the demographic transition after they became prosperous. China is facing it now, when it’s not.

China’s challenges aren’t limited to its economy. Protests - sparked by outrage over corruption, environmental degradation, and the abuse of political authority - have risen sharply: the number of incidents reached 180,000 in 2010, double that of 2006. Despite big investments that have produced a literate and wealthier population in China’s minority regions, unrest among Tibetans and the Uighurs of Muslim-Turkic Xinjiang continues, not surprising given the vital role that the intelligentsia has played in producing nationalism. Chinese leaders no longer deny the dangers of separatism or whisper about it in secret conclaves. They speak about it openly and seem flummoxed as Tibetans continue to immolate themselves and riots and bombings persist in Xinjiang.

Now, the Chinese state has a massive a coercive apparatus to quell rebellions and spends more on it than on the People’s Liberation Army. Revolution is not around the corner. What we don’t know is how and to what extent the economic slowdown could produce instability and whether non-economic sources of discontent will prove harder to manage in times of hardship, especially in an age in which social-media-savvy youth have shown that they can communicate and mobilize in multiple ways.

Some commentators - Ian Bremmer among them - argue not just that China’s leaders can manage fine with a 7.5 percent rate of economic growth or even less but also that they may even welcome it. The proof presented to back up this claim is shaky at best. Bremmer assures us that Chinese officials have stated that they’re comfortable with the slowdown (I guess that settles it then) and he adds that slower growth will provide them an opportunity to ram through much-needed reforms. But the reforms being discussed will all require sacrifices by the elite and the masses and will therefore be harder to implement in (relatively) tough times. The rich and powerful will offer more resistance than the masses; they have more to lose and greater influence to use.

Then there are China’s main banks, which have been the source of credit for state-owned industries (SOEs), many of which are running red ink, and local governments that have borrowed heavily—they owed $1.7 trillion in 2011—to launch mega construction projects. It’s hard to believe that these banks, companies, and local political bosses won’t find it much tougher, albeit for different reasons, to conduct business as usual as the economy slows. With $3 trillion in reserves, the Chinese government has plenty of cash to throw at problems, and its central bank can step in when it’s a matter of bad loans made in local currency by local banks. Besides, China has a respectable debt-to-GDP ratio to boot: 50 percent. That’s up from 37.8 percent in 2011, but a far cry from Japan’s at 236 percent or ours at 107 percent. But with China’s banks having extended, at the government’s urging, trillions of dollars in stimulus following the 2008 global economic slowdown, banks’ adeptness at circumventing official lending limits, in a variety of ways and off the books, and the huge expansion of “shadow banks,” the true magnitude of a financial crisis that could be triggered by a sluggish (by Chinese standards) economy may be hard gauge.

No matter their phlegmatic public pronouncements, China’s leaders don’t regard bad bank loans and debt-laden companies and local governments with equanimity. They can’t be unruffled by a slowing economy that could aggravate the problems of creditors and debtors who are already in distress. The government already did a $650 billion bank bailout between 1998 and 2005, and now there are murmurs that another is in the works. Leaders everywhere are good at whistling in the dark and putting a gloss on things. China’s are no exception.

What’s the upshot? No one can predict accurately at what point slower growth will start producing political turmoil on a scale that’s unprecedented in the China that Deng made, what the magic number is, or even whether there’s an iron connection between economic and political crises. Yet the increase in capital flight from China and soaring applications for American and European residential visas by well-heeled Chinese suggest that the elite is hedging its bets. Krugman may be overstating things, but the rebalancing camp is too sanguine.

This much is certain: China’s leaders are in uncharted waters, and because of the diminishing utility of the established formula for rapid growth their maps may be of questionable value. There will be disagreements among them, not just about the appropriate the solutions but also about the roots of the problem. The one point of agreement will be that that tough decisions loom and will have to be taken under circumstances far less favorable than those that have existed during the last thirty-five years.

US PUBLIC POLICY - Yet Another Game of Deception

19 Illegal Immigration Facts You Won't Read In Mainstream Media 08-11-13 Michael Snyder via The Economic Collapse blog via ZH

Should we broadcast a message to the rest of the world that anyone that can find a way to enter this country and somehow get to a “sanctuary city” can sign up for a plethora of welfare benefits and live a life of leisure at the expense of hard working American citizens?  Yes, this question sounds absurd, but what I have just described will essentially be official U.S. government policy if the immigration bill going through Congress becomes law. And unfortunately, Democrats now say that they have the Republican votes that they need to get “immigration reform” through the House of Representatives. 

If this amnesty bill becomes law, it will encourage even more illegal immigration and it will be one more step toward making the U.S. border essentially meaningless.

The following are 19 very disturbing facts about illegal immigration that every American should know…

#1 57 percent of all households that are led by an immigrant (legal or illegal) are enrolled in at least one welfare program.

#2 According to one study, the cost to U.S. taxpayers of legalizing current illegal immigrants would be approximately 6.3 trillion dollars over the next 50 years.

#3 The Obama administration has distributed flyers that tell illegal immigrants that their immigration status will not be checked when they apply for food stamps.

#4 The Department of Homeland Security says that it has lost track of a million people that have entered this country but that appear never to have left.

#5 One out of every five children living in Los Angeles County has a parent that is in the country illegally.

#6 In one recent year, taxpayers in Los Angeles County spent 600 million dollars on welfare for children of illegal immigrants.

#7 Thanks to illegal immigration, California’s overstretched health care system is on the verge of collapse.  Dozens of California hospitals and emergency rooms have shut down over the past decade because they could not afford to stay open after being endlessly swamped by illegal immigrants who were simply not able to pay for the services that they were receiving.  As a result, the remainder of the health care system in the state of California is now beyond overloaded.  This had led to brutally long waits, diverted ambulances and even unnecessary patient deaths.  At this point, the state of California now ranks dead last out of all 50 states in the number of emergency rooms per million people.

#8 It has been estimated that U.S. taxpayers spend $12,000,000,000 a year on primary and secondary school education for the children of illegal immigrants.

#9 It is estimated that illegal aliens make up approximately 30 percent of the population in federal, state and local prisons and that the total cost of incarcerating them is more than $1.6 billion annually.

#10 The federal government actually has a website that teaches immigrants how to sign up for welfare programs once they arrive in the United States.

#11 The Obama administration recently introduced the very first “unmanned” border station along the Texas-Mexico border.

#12 The Obama administration has sued individual states such as Arizona that have tried to crack down on illegal immigration.

#13 According to the FBI, there are approximately 1.4 million gang members living in our cities.  Illegal immigration has been one of the primary factors that has fueled the growth of these gangs.

#14 As I have written about previously, there are only about 200 police officers assigned to Chicago’s Gang Enforcement Unit to handle the estimated 100,000 gang members living in the city.

#15 Mexican drug cartels make approximately 6.6 billion dollars a year “exporting” illegal drugs to the United States.

#16 It is an open secret that Mexican drug cartels are openly conducting military operations inside the United States.  The handful of border patrol agents that we have guarding the border are massively outgunned and outmanned.

#17 According to the Justice Department’s National Drug Intelligence Center, Mexican drug cartels were actively operating in 50 different U.S. cities in 2006.  By 2010, that number had skyrocketed to 1,286.

#18 Overall, more than 55,000 people have been killed in drug-related violence in Mexico since 2006.  That same level of violence will eventually show up in major U.S. cities unless something dramatic is done about illegal immigration.

#19 It is being projected that the Senate immigration bill will bring 33 million more people to the United States over the next decade.

One of the very few things that the federal government is actually required to do by the U.S. Constitution is to defend our borders, and unfortunately the Obama administration has willingly chosen to leave our borders completely wide open.  In fact, you can go down to the Texas border right now and watch illegal immigrants hop right across the Rio Grande.

Several retired Border Patrol agents recently drafted an open letter to the American people on the subject of illegal immigration, and what they had to say was quite startling.  The following is an excerpt from that letter that was in a recent Breitbart article…

“Transnational criminal enterprises have annually invested millions of dollars to create and staff international drug and human smuggling networks inside the United States; thus it is no surprise that they continue to accelerate their efforts to get trusted representatives in place as a means to guarantee continued success,” the Border Patrol agents wrote.

“We must never lose sight of the fact that the United States is the market place for the bulk of transnational criminal businesses engaged in human trafficking and the smuggling, distribution and sale of illegal drugs. Organized crime on this scale we are speaking about cannot exist without political protection.”

According to those retired border agents, by refusing to secure our border the Obama administration is openly facilitating the trafficking of drugs into the United States…

“Most heroin, cocaine, meth, and marijuana marketed in the United States is produced outside of our country, and then smuggled into the United States,” they wrote. “The placement of trusted foreign employees inside the United States is imperative to insure success in continuing to supply the demand, and returning the profits to the foreign organization. Members of these vicious transnational crime syndicates are already well established in more than 2,000 American cities and their numbers are increasing as networks expand and demands accelerate. These transnational criminals present a real and present danger to all Americans, and they live among us.”

Sadly, in politically correct America you can’t even talk about the problem of illegal immigration these days without being labeled as a “racist”.

For the record, I believe that all people deserve love and respect no matter what they look like or where they are born.  God created us all and He loves us all very much.  I have long been a very strong advocate for racial reconciliation in this country, and I will continue to be.

And there are tens of millions of Latino-Americans in this country that are hard working, law-abiding citizens.  They have done things the right way, and it is extremely unfortunate that they often get lumped in with millions of illegal immigrants that willingly choose to break our laws.

Unfortunately, we have a system of immigration today that greatly rewards lawless behavior.  We have made coming into this country through the front door exceedingly difficult, but we have left the back door completely wide open.

So hard working, law-abiding people that want to do things the right way are kept out, but those that want to come here and commit crimes or abuse the system are free to come on over any time that they would like.

What sense does that make?

Our immigration system is completely broken, but these days we cannot even have a rational debate about these issues.  In politically correct America, illegal immigrants have become a “favored class” of people that you are never supposed to say anything bad about.

In fact, one activist recently went out and actually got people to sign a petition that said that we should let illegal immigrants out of prison no matter what crimes they have committed…

What in the world is happening to this country?

FED'S EXCESS RESERVES - 51% Foreign Banks, 49% Domestic

Where The Fed's Excess Reserves Are Going: 51% Foreign Banks; 49% Domestic 08-11-13 Zero Hedge

As shown here previously, there is a direct correlation between the excess reserves created by the Fed, and the cash holdings of domestic and foreign banks (operating in the US) disclosed by the Fed's weekly H.8 statement. So with the Fed's reserves reaching new all time highs with every week courtesy of the $85 billion in monthly flow injected by the Fed...

... some wonder where is this cash ending up. The answer: in the week ended July 31, a record $1,157 billion was parked with foreign banks in the US, while "just" $1,112 of the Fed's created reserves was allocated to US banks.

This breakdown is shown in the chart below:

Or, in short, the Fed's QE-created reserves have gone to:

• Foreign banks: 51%
• Large-domestic banks: 36%
• Small domestic banks: 13%

At least someone is benefiting from the Fed's generosity, in that order.

Source: H.8

EU Banks' Preparing for Inevitable Financial Tsunami

via Excess US Fed Reserves

Read also about EU Banks' $4T Bank Shortfall

GLOBAL SHIFTS AHEAD

In the United States, surprises surged into positive territory in August for the first time since April.

The eurozone surprise index also recently surged into positive territory, too. Investors and analysts are now discussing a possible end to the debilitating recession in the currency bloc.

Surprises in China turned negative earlier this year and were forced lower by weak second-quarter economic data.

With the release of the July economic data, surprises are trending back up again, but are still negative.

Japan's surprise index shows the clear waning of excitement surrounding "Abenomics," the Japanese administration's experimental program of economic stimulus, in recent weeks.

Economic surprises in emerging markets have, in aggregate, been negative all year. They have rebounded a bit recently, but still remain in the deepest negative territory of all of the surprise indices.

US PUBLIC POLICY - Pointing US Towards Government Dependence

21 Facts About America's Surging Government Dependence 08-13-13 Michael Snyder via The Economic Collapse blog via ZH

The percentage of Americans that are economically independent has dropped to a stunningly low level.  In order to be economically independent, you have got to be able to take care of yourself without any assistance from anyone else.  Unless you are independently wealthy, that means that you either have your own business or you have a full-time job.  Unfortunately, as you will see below, the percentage of Americans that are self-employed is at an all-time record low and the percentage of Americans with a full-time job has declined to a level not seen in about 30 years.  As a result, more Americans than ever find themselves forced to turn to the government for assistance. 

When you add it all up, about half of all Americans get money from the government each month these days.  And yes, there will always be poor people that cannot take care of themselves that need help, but when you have more than half of the population dependent on the government that is a major problem.  You see, the truth is

that our independence is systematically being taken away from us and we are steadily being made serfs of the state. 

And once you become a serf of the state, it is very hard to resist anything the government is doing in a meaningful way.  After all, the money that you are getting from the government is enabling you to survive.  In essence, your allegiance has been at least partially purchased and you may not even realize it.

Of course this is not how the United States was supposed to operate.  We were never intended to be a collectivist nation.  Rather, we were intended to be a country where liberty and freedom thrived and where most people would be able to independently take care of themselves.

Unfortunately, it is becoming increasingly difficult to be economically independent in America today.  One reason for this is that the environment for small businesses in this country is the most toxic that it has ever been before.  The federal government, our state governments and even our local governments are constantly coming up with new ways to oppress small business.

And just this week we learned that the IRS is specifically targeting small business owners and sending them threatening letters.

Yes, you read that correctly.  Despite all of the trouble that the IRS is currently in, they are still choosing to specifically go after small businesses with both barrels.  As a recent Forbes article explained, the IRS plans to send threatening letters to 20,000 small businesses all over the country...

The tax agency is doing some targeting of its own, fingering at least 20,000 small businesses. And that number will grow. The scrutiny on this group and in this way is a little frightening. Small business people across America are receiving IRS notices. More will be coming. The IRS gathers data from many third parties—including credit card companies—to see if you picked up every nickel of income.

This is absolutely disgusting, but it is just another example of how small business is being eradicated in the United States.  As I mentioned in a previous article, the percentage of Americans that are self-employed has dropped to a record low...

Well, at least we can achieve economic independence by getting a full-time job, right?

Sadly, that is becoming increasingly difficult to do as well.

The chart below was created by Chartist Friend from Pittsburgh, and it shows that the percentage of working age Americans with a full-time job dropped sharply to 47 percent during the last recession and it has stayed about that level ever since.  The yellow line is the line in the chart which demonstrates this...

As you can see, we briefly touched that level in the 1970s and again briefly in the 1980s, but it is important to remember that the percentage of women that chose to seek employment was much lower back then.  When you take that into account, the current level of full-time employment in this country looks even worse.

The quality of jobs in this country has been steadily falling for quite some time, and we are rapidly transitioning to an economy where part-time employment will be much more prominent.

But you can't support a family or be economically independent on a part-time income.  In fact, most of those that try to make it on a part-time income find that they must turn to the government for help.

And right now, a higher percentage of Americans are economically dependent on the government than ever before.  The following is from a recent article by Charles Hugh-Smith...

Why? Because half of us are getting a direct check, benefit or payment from the state. Over 61 million people get a check from Social Security, over 50 million draw Medicare benefits, another 50 million get Medicaid benefits, 47 million receive SNAP food stamp benefits, 22 million people work directly for the state on all levels, millions more work for government contractors that are effectively proxies of the state, millions more receive Federally funded extended unemployment, retirement checks, Section 8 housing benefits, and so on.

Orwell underestimated the power of complicity. Once a citizen receives a direct payment from the state, the state has purchased their complicity, for no matter how much that citizen may complain privately about the state, he or she will never risk the payment/benefit by resisting the state in a politically meaningful way.

Once you get a check from the state, you begin loving your servitude. The collusion of the state and its central bank is truly a thing of authoritarian beauty: the central bank (the Federal Reserve) creates money out of thin air and buys government bonds with the new money. The state can thus borrow unlimited sums at low rates of interest, and continue to send tens of millions of individual payments out to buy the passivity and complicity of its citizens.

So what is the solution?

Of course the solution would be for our economy to produce more small businesses and more full-time jobs so that more people could achieve economic independence.

Sadly, right now our system is steadily killing full-time jobs and small businesses, and there does not appear to be any hope for a major turnaround any time soon.

At this point, the number of Americans that are financially dependent on the government is absolutely staggering, and it gets worse with each passing year.  Just consider the following statistics which come from one of my previous articles entitled "21 Facts About Rising Government Dependence In America That Will Blow Your Mind"...

1. Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent.  In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent.  Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.

2. According to the U.S. Census Bureau, 49 percent of all Americans live in a home that gets direct monetary benefits from the federal government.  Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

3. Overall, more than 70 percent of all federal spending goes to “dependence-creating programs”.

4. According to the Survey of Income and Program Participation conducted by the U.S. Census, well over 100 million Americans are enrolled in at least one welfare program run by the federal government.  Sadly, that figure does not even include Social Security or Medicare.

5. Today, the federal government runs about 80 different “means-tested welfare programs”, and almost all of those programs have experienced substantial growth in recent years.

6. The number of Americans on Social Security disability now exceeds the entire population of the state of Virginia.

7. If the number of Americans on Social Security disability were gathered into a separate state, it would be the 8th largest state in the country.

8. In 1968, there were 51 full-time workers for every American on disability.  Today, there are just 13 full-time workers for every American on disability.

9. Right now, there are approximately 56 million Americans collecting Social Security benefits.  By 2035, that number is projected to soar to an astounding 91 million.

10. Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

11. The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

12. Back in the 1970s, about one out of every 50 Americans was on food stamps.  Today, about one out of every 6.5 Americans is on food stamps.

13. Today, the number of Americans on food stamps exceeds the entire population of the nation of Spain.

14. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

15. According to a report from the Center for Immigration Studies, 43 percent of all immigrants that have been in the United States for at least 20 years are still on welfare.

16. Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse.  It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

17. As I wrote about recently, it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

18. At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for every single household in the United States.

19. Back in 1990, the federal government accounted for just 32 percent of all health care spending in America.  It is being projected that the federal government will account for more than 50 percent of all health care spending in the United States very soon.

20. The amount of money that the federal government gives directly to the American people has increased by 32 percent since Barack Obama entered the White House.

21. When you total it all up, American households are now receiving more money directly from the federal government than they are paying to the government in taxes.

Once again, there is certainly nothing wrong with helping the poor, and there will always be people that need a helping hand.

But what we have in America today is far beyond that.  What we have in America today is a situation where economic independence is being systematically eradicated and the government is increasingly being expected to provide our daily bread and to take care of all of us from the cradle to the grave.

And once you are dependent on the system, at least part of you is going to become resistant to anyone or anything that threatens to bring meaningful change to the system because your survival depends on the system.

MONETARY POLICY - A Game of Calculated Decption Evolving to Something Worse

Dishonesty And Candor In Monetary Policy 08-11-13 Hunter Lewis via The Circle Bastiat blog, via ZH

In the July 26, 2021 edition of the Bank Credit Analyst,  editor Jim Grant notes that when Ben Bernanke was beginning the second round of “quantitative easing,”  he described it in February 2011 Congressional testimony as equivalent to an interest rate cut. In recent Congressional testimony explaining what might be ( or might not be) a forthcoming “taper” in ” quantitative easing,” he suggested that it would not be equivalent to a rate hike.

This blatant double talk just further compounds the basic dishonesty of the underlying  term “quantitative easing”. It is of course intended to disguise the truth which is that the Fed is creating money. Another favorite circumlocution, favored by nearly all mainstream journalists, is “bond buying.” Nobody ever mentions that the Fed is “bond buying” with newly created money, which is the relevant point.

The origin of today’s monetary policy of course lies in Keynesian economics, and Keynes was quite explicit that monetary authorities should intentionally use deception as a primary tool. He spoke of the need to gull workers into thinking that wages were going up even if net of inflation they were going down. At least he had a sense of humor about it, calling a central bank a "green cheese factory" that would persuade the public to accept "green cheese" (newly created money) as the real thing.

Keynes’s disciple Bernanke is lacking in both honesty and wit, although he earnestly talks about the need for more openness in monetary policy, and even gives press conferences. There is alas a logical inconsistency inherent in the idea of lying more openly. It is similar to the conundrum that Gorbachev faced when he tried to reconcile classical liberal values with Soviet communism.

RISK - Biggest Hindenburg Omen Cluster On Record

Hindenburg Omen Strikes Again - Biggest Cluster On Record 08-13-13 Zero Hedge

For the 5th time in the last 7 days, equity market internals have triggered an anxiety-implying Hindenburg Omen. Based on our data, this is the most concentrated cluster of new highs, new lows, advancing/declining based confusion on record. The last few occurrences have not ended well (though obviously not disastrously) but as the creator of the 'Omen' notes, the more occurrences that cluster, the stronger the signal.

We have seen clusters before... (but not on this scale)...

Full details of construction here.

CRONY CAPITALISM - Avoiding Taxes

Look At The Humongous Amounts Of Money US Tech Companies Stash Overseas To Avoid Taxes 08-13-13 BI

U.S. companies are stockpiling really huge amounts of cash in offshore accounts.

But, it turns out, the two most vocal proponents concerning the tax rules that incentivize companies to avoid moving cash into the U.S., Cisco and Apple, aren't even the ones with the biggest stashes.

Microsoft's pile of foreign cash is way bigger.

A lot of the money sitting overseas was earned overseas, but some of it is put there through accounting methods to avoid U.S. taxes, a situation that Congress has recently been investigating.  If these companies want to spend that money in the U.S. to make an acquisition or hire a bunch of new employees, Uncle Sam wants to take a 35% cut.

Cisco's CEO John Chambers and Apple's CEO Tim Cook have been trying to get Congress to change the rules, asking for a lower tax rate  or even no taxes at all.

Chambers even went so far as to threaten not to make any more U.S. acquisitions or hire any more U.S. employees unless the rule is changed. He didn't make good on that. Last month, Cisco bought Maryland-based Sourcefire for $2.7 billion.

But Cisco and Apple clearly aren't the only ones with a lot at stake. Bloomberg on Tuesday published a list of the 25 companies with the biggest overseas tax hoards.

All of the top 10 are tech companies:

1. Microsoft, $76.4 billion

2. IBM, $44.4 billion

3. Cisco Systems, $41.3 billion

4. Apple, $40.4 billion

5. Hewlett-Packard , $33.4 billion

6. Google, $33.3 billion

7. Oracle, $26.2 billion

8. Dell , $19.0 billion

9. Intel, $17.5 billion

10. Qualcomm, $16.4 billion

STANDARD OF LIVING - Artificial Expectations

Americans trying to keep up with the Joneses – and going broke 08-13-13 Globe and Mail