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>China: Lightning Audit Ordered for Local Governments


>China: Lightning Audit Ordered for Local Governments WordPress Tags: China,
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Lightning Audit Ordered for Local Governments

Caixin
Auditors are fanning out to examine more than a decade of local government-related lending – and report by summer

(Beijing) – Central government auditors launched March 1 a strict, nationwide survey of provincial and municipal government debt programs, looking closely at risks involved in direct and indirect loans backed by local governments.

Auditors participating in the lightning campaign will trace loans issued over a 13-year period from 1997, when China rolled out an expansive fiscal policy to counteract a financial crisis spreading from Southeast Asia, through 2010, the second full year of an economic stimulus initiative that successfully spared China the worst of the global financial crisis.

The State Council recently ordered auditors to study local finances and return to Beijing in four months with a full report.

Ni Hongri, a research fellow at the State Council Development and Research Center, has several questions on his plate. ‘How much debt did local governments and their (financial) platforms assume after the recent stimulus plan?’ he asked. ‘How much banking and fiscal risk might these debts incur?

‘Policymakers need a clear picture before making the next moves on macroeconomic management or fiscal allocations,’ Ni said.

The National Audit Office dispatched 18 teams and mobilized 37 local audit bureaus to examine government books in 31 provinces and municipalities. They’re looking at loans made to, guaranteed by, or indirectly backed by local governments.

Funds for loans with indirect government backing usually come from local government financing platforms (LGFPs), government-affiliated agencies, and government-backed non-profit organizations. Credit agreements may not expressly say so, but local governments are generally expected to bail out borrowers that default.

Estimates vary for the amount of money loaned to local governments, with official and non-official institutions weighing in.

But outstanding loans to LGFPs alone had risen to 7.66 trillion yuan as of last June, exceeding the 7.1 trillion yuan raised through central government bonds. In addition, local governments have issued bonds worth 400 billion yuan via the finance ministry since 2008.
Lightning Audit Ordered for Local Governments_English_Caixin:

A full story will be published soon on Caixin Online.

Q&A: Ron Paul on His New Perch to Fight the Fed – Real Time Economics – WSJ


Q&A: Ron Paul on His New Perch to Fight the Fed

December 16, 2010, 1:43 PM ET

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Rep. Ron Paul (R)

Next month, Rep. Ron Paul (R., Tex.) will strengthen his place as a thorn in the side of the Federal Reserve when he becomes chairman of a House subcommittee that oversees U.S. monetary policy. That will give the longtime critic of the central bank an opportunity to question the Fed more aggressively about its role in the U.S. and the global economy. 

In an interview, Paul said he plans to use the position to gain more support for his movement to audit the Fed’s monetary-policy operations. A version of his measure made it into the financial overhaul-legislation last year, leading to recent details about the Fed’s emergency lending programs (with more to come down the road about who borrows from the Fed). But Paul calls the audit provision and the Fed’s releases “incomplete.” We talked with the author of “End the Fed” about his new role. (Read a previous Q&A on Mr. Paul’s views

Here are excerpts:
What will be your first priority in leading the subcommittee?

To perform oversight of the Federal Reserve. That’s the purpose of the committee and that’s what I’ll do. The best oversight is to get transparency of the Fed, which means we need a full audit of the Fed. We’ve gained a lot of attention on that and it’s been popularized to the point where we had 320 cosponsors last year. We’re moving along and I think the markets are moving in our direction, too. It used to be that it [the Fed] was sacred. I think it’s QE2 [the Fed’s $600 billion bond-buying program] that’s caught the attention of so many in not realizing how casually they can create money.
You don’t think the Fed will ever pull that money back?
Yeah, some of that goes back and forth. But even if that’s the case it still means that’s the amount of money you’re playing with. Every time they do something it has a consequence. The monetary effect is still there whether or not they end up with anything of value [in the Fed’s holdings]. But ultimately it won’t be of value whether you hold Treasury bills or derivatives.
The panel you’ll be leading hasn’t gotten much attention in the past. What can a subcommittee chairman really do?
I think it’s more calling attention and getting information and acting as oversight. There will be legislation that we can talk about. We can talk about auditing the Fed. Even in the other committees, everything is a reflection of popular demand. There’s getting to be a bigger demand now for more information. I’d certainly like to have competition with the Fed to legalize competing currencies. That’s not going to happen, but we sure can talk about it. Most people recognize that the dollar reserve standard, there’s nothing permanent about it. Even the international bankers are talking about a new currency or using gold even. The big question is should we move further away from national sovereignty and our constitution and give it to an international body and try some crazy Bretton Woods standard again, which is doomed to fail. Or should we look to our traditions and have sound money.
Over the past year, we’ve seen a lot more information about the Fed coming to both Congress and the public. Do you think it’s made a difference?
It hasn’t changed policy. I think it’s made the difference that we understand it a little bit better. And it hasn’t gone well for the Fed. The popularity of the Fed has changed. They’re being challenged from all angles right now. … It isn’t so much what I will do. It’s going to be that these policies are doomed to fail. They always want me to attack Bernanke. It isn’t the individuals. It’s not Greenspan, it’s not Bernanke, it’s the system and it’s not viable. They cannot practice central economic planning through the Federal Reserve. They cannot have stable prices, whatever that means. They cannot prevent prices from going up when the time comes for prices to go up. The perfect example of their ineptness is their mandate to have full employment.
A number of Republicans want to change the Fed’s dual mandate to focus on inflation. What effect do you think it would have?
Probably not a whole lot. But I like the subject because it does go after the Fed. They assume too much responsibility. It brings up the subject of unemployment. Since they have totally failed on that this is a great time to talk about, what good is a mandate?
What percentage of Congress do you think supports your view of wanting to end the Fed? Are you concerned that your views would differ from a lot of Republicans?
Oh it wouldn’t be very many. As a matter of fact, I don’t even take the position that tomorrow I’m going to end the Fed. I want competition. In my book, “End the Fed,” I talk about just allowing competition in currencies. … I think things are shifting. I did it for 25 years and nobody even cared. And now with every Republican supporting my audit bill last year, I would say that’s a reason for me to be encouraged.

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Q&A: Ron Paul on His New Perch to Fight the Fed – Real Time Economics – WSJ

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Debt Factoids on Our National Debt Are Puzzling – And Scary – Seeking Alpha


If you’re interested in the subject of our national debt, there is a new must read report from the Congressional Budget Office (CBO) on the topic. It includes some odds and ends that I found interesting.
We know that there is a law called the debt ceiling. We also know that we will (again) hit that limit early in 2011. Many think that this will be a line in the sand fight with the new Congress. Phooey. According to the CBO report, suspending issuance of maturing cash management bills in the supplementary financing program will cost $200 billion; suspending flows and redeeming securities in government accounts, $124 billion; from the civil service retirement fund, “at least” $200 billion; from the exchange stabilization fund, $20 billion; and swapping debt with the federal financing bank, $15 billion. Total: $560 billion.

Conclusion: If there is to be a fight over the debt limit, it could be a long one.
The CBO is speaking with forked tongue in this report. A critical issue: How do we define what debt is at the federal level?

There are so many components to the puzzle. I give the CBO an A+ for this position:

CBO believes it is appropriate and useful to policymakers to include Fannie Mae’s and Freddie Mac’s financial transactions with other federal activities in the budget. The two entities do not represent a net asset to the government but a net liability — that is, their impact on the government’s financial position is a negative one.

So how does CBO actually account for F/F? It gets a D- for this:

Neither CBO nor the Administration currently incorporates debt or MBSs issued by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

That’s interesting. They say they “should” do it, but they don’t. Who makes that decision?

The Administration’s Office of Management and Budget (OMB) makes the ultimate decision about whether the activities of Fannie Mae and Freddie Mac will be included in the federal budget.

The White House decides which categories of debt are included when determining what constitutes debt? That is convenient. When did that happen? We are not talking chicken scratch here. The good folks over at the Fannie and Freddie have piled up $6 trillion in debt. We would blow out the debt ceiling set by Congress by over 40% if that came on the books. So it stays off the books. But the debt is staring us in the face. Funny system.
This also caught my eye:

Payments of interest from the FFB to the Treasury have been less than $1 billion annually in recent years but are projected to increase (to as much as $6 billion) because of higher loan activity (particularly by the Department of Energy’s Advanced Technology Vehicles Manufacturing program and the Rural Utilities Service). As of September 30, 2010, the FFB portfolio totaled $60 billion.

Hello, what is this? For interest to rise at the FFB from $1 billion to $6 billion, it would have to imply that there is at least a four- or five-fold increase in the balance sheet. This means that there is a plan to grow the FFB by $250 billion. Who is going to be the beneficiary of that? That is a hell of a lot of money. Is the FFB going to fund a solar build-out? The existing portfolio of Department of Energy loans:

Another (minor) data point of interest: The federal government has a number of trust funds that are used as accounting vehicles to store up IOUs from the government. The principal accounts and current holdings:

Social Security Trust Fund…….2.6t
Civil Service Retirement Fund…0.8t
Military Retirement Fund………0.3t
Medicare……………………….0.3t
All others…….…………………0.6t

Total:…………………………..4.6 trillion

These funds are all anticipated to grow over the next decade. One has a growth rate that is way out of whack with the others:

The Military Retirement Fund is growing at three times the rate of the others. The raw numbers are $282 billion for 2010 and $1.012 trillion for 2020. That’s a 10-year increase of $730 billion (a 350% increase). What is that about? Are we planning on a new war, or have we just not accounted for the retirement costs of the military properly over the past decade or two? I suspect (hope) it is the latter.
We have all seen a form of this chart elsewhere. It is nothing to be proud of. Yes, there are a few countries in worse shape than us. But Italy, Greece and Belgium are now making front-page news with their debt. And the U.S. will have a different outcome than Japan.

This chart of trust fund assets is central to our problem. Notice that these funds are scheduled to grow by more than $2 trillion. It sounds nice that the nation has trust funds where money is squirreled away someplace safe — money that can be used to pay bills (Social Security) when they come due over the next 20 years.

But there is no money in the trust funds. They have IOUs that obligate future taxpayers to come up with the cash when needed. The trust funds have nothing to do with “savings” in the traditional sense.
This has been going on since 1983, when Greenspan created the accounting gimmick and the huge surpluses that followed. The fact is we do have future liabilities, and there have been some savings set aside for that. But the money has been spent on funding past deficits. So, really, there are no savings.
I am not sure there is a fix to this problem. I do know that the bills on this are coming due in the next five years or so. I don’t think we will make it another 10 years without having to confront this problem.

Debt Factoids on Our National Debt Are Puzzling – And Scary – Seeking Alpha

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