Reposted from Bruce Krasting’s blog with his permission.
There’s been an ongoing row about changes in lease accounting. Big players in the leasing industry (think GE) have been fighting the changes tooth-and-nail. This article had some interesting data on the consequences of the new accounting rules:
Consulting firm Chang & Adams found that proposed standards for lease accounting will result in an increase in total reported debt liabilities of $1.5 trillion; increased costs of $10.2 billion annually; job losses of over 190,000; and a lowered GDP of $27.5 billion annually.
$1.5 trillion is a hell of a lot of money to suddenly appear on the balance sheet of these lessors, for that reason alone I expect that the new rules will be watered down. No one wants to see another $1.5T of debt exposed those days. From the C&A report:
Do you believe that liquidity moves markets?Then click here to learn how you can follow the money.Essentially, the standards will require tenants to place leases on their balance sheets—an enormous line item that consists of anything from office, business and farm machinery to, yes, real estate.
But really, it’s there. I can’t imagine how the accounting rules can bury this debt. I’m amazed there a is even any debate, after all we’ve been through. The conclusion that it could cost 190k jobs and $28b annually might be correct. I would like to see a different report. What is the cost (in both jobs and money) of allowing phony accounting to persist? A few years ago we were measuring this in the Trillions. We still are.
This week the Fed came out with its consensus forecast of inflation for the next three years. No surprises, the Fed governors believe that inflation is a non-event:
I’m not sure if the Fed is trying to fool us with this very tame view of inflation. But the Fed is not fooling the market. The Ten-Year TIPS/Bond spread is now forecasting inflation at 2.3%. That’s the highest reading in the past six-months. Maybe the Fed folks are just kidding themselves.
Another big step has been taken in the global effort to control the use of money. The Financial Action Task Force (FATF) has adopted new regulation to control money laundering. FATF is a policy setting body that is comprised of thirty-six countries, including the EU, Switzerland, Russia, China and the USA.
It’s difficult to find fault with this new effort. It’s directed at terrorist financing and other illegal activities. Most interesting to me, the new rules bring tax evasion within the scope of global money laundering:
• Expanding the scope of money laundering predicate offenses by including tax crimes.
By accepting the new standards, the US has significantly upped the consequences for tax evasion. Tax evasion brings with it a range of penalties and fines that include jail time for some. The rules on money laundering are much harsher.
FATF will give the “authorities” a big excuse to go looking for tax-cheats. They will also have expanded capacities (surveillance/monitoring of accounts) to seek out and find those cheats:
• More effective international cooperation including exchange of information between relevant authorities, conduct of joint investigations, and tracing, freezing and confiscation of assets.
• Better operational tools and a wider range of techniques and powers, both for the financial intelligence units, and for law enforcement to investigate and prosecute money laundering.
It can be argued that we’re all better off when Big Brother can easily dig through financial records. It would be foolish to think that it doesn’t also come with an enormous cost.
FATF has provided an estimate of the global illegal activity. They think it could be as high as 5% of total GDP.
Ahhh. 5% means $3 Trillion in the $60T global economy. For the USA, 5% of GDP comes to $750 Billion. That’s a hell of lot of criminal activity. If FATF were able to achieve their objective of eliminating this activity, it would bring about a global depression greater than that seen in the 30s. Go figure.
The Federal Financing Bank has been hard at work over the past sixty days since my last report. Some highlights:
These results are consistent will all the other monthly reports from the FFB since Obama took office. The Administration is conducting a back-door stimulus and an interventionist industrial policy. It’s financing this with off-federal-balance-sheet-financing, in lieu of funds appropriated by Congress.
This article from the Fiscal Times is just another in a long list of how the folks getting this money are connected one way or another to the Administration.
This bank will make headlines at some point during the Presidential campaign.