When is a bubble not a bubble?

Shock, horror. America to raise taxes

Needing to raise money for social programs, what does any Government do?

Either it can sell off assets or it can raise taxes.

Pakistan and the CIA

When is a vaccination program not a vaccination program?

American Treasury Bonds

In case you’d forgotten or not noticed in the first place, this year is an American Presidential election year. That’s right, it’s approaching that time when incumbent Presidents can either stop worrying about being re-elected and start worrying about how history will judge them or will be spending a lot of time writing their memoirs.

It’s also that time when Republicans will be desperately trying to demonstrate that Democrats are really ‘closet communists’, which translates into Democrats believe in radical, i.e any, social reform. The sort of reform that if any government in Europe tried to introduce it there would be people rioting in the streets. Rioting against benefit cuts.

So what has President Obama got up his sleeve that is so exercising the right? In two words, tax increases. Did I say up his sleeve? That would imply sleight of hand and the tax increases have been announced and are on the statute book, so no surprises there, surely?

Right now, American Treasury Bonds prices are, in simple terms, expensive to buy when looking at the yield. In the latest auction, seven-year bonds offered an effective yield of 1.18%. In reality, the nominal yield was 1.25% but the bonds were selling above par, at 100 14/32. Relax, that’s the end of the figures. What do they actually mean?

They mean that with the financial uncertainty in Europe, the ‘Fed’ can offer a low-yield bond and investors see them as a safe haven for their money. It’s as simple as that. The thing about ‘T Bills’ is that they are readily sale-able, unlike some stocks, which can tank and become unsaleable at almost any price. So what’s the ‘shock horror, bursting asset bubble’ story here?

America is raising the rate of Capital Gains Tax. From a current rate of 15% to 23.8% by Jan 1^st 2013. That’s in law; it’s going to happen. The Right, or sections of the right-wing Republican media in America, are hopping up and down, shouting that the tax rate ‘might’ go up to 33.8% during 2013 if Obama is re-elected. Well, it might. Doubtless, he is planning to introduce some sort of welfare benefit reform during his last term, to secure his place in history as the President who actually did something for the underprivileged in American Society. Did I say the Right is hopping up and down shouting? Not strictly-speaking true. It’s only certain elements of the Republican press who think that the people who hold T Bills are incapable of reading the financial papers. Some blood-curdling figures are being bandied about. A tax-rise of 58% is already in law and it might be as high as 125%, apparently the largest tax rise in American history. Cripes, daylight robbery. Or is it?

Strictly speaking, considering the tax-rise from 15% to 23.8% already in law that represents a rise of 8.8%, and 8.8 is 58% of 15. Sounds cataclysmic doesn’t it, the end of financial civilisation as we know it. The ultimate triumph of communism over capitalism. Republicans are congenitally incapable of making any distinction between Socialists and Communists. Certainly, a rise of 58% sounds worse than saying the Capital gains Tax is going up from 15% to 23.8%.

There are predictions of a financial meltdow(n). Investors scrambling to sell T bonds before Dec 31^st to avoid these extortionate ‘Goddam Commie’ tax increases. The price of T bonds plummet, the bubble bursts, worse than the property market etc etc, the final apocalyptic collapse of the American Dream. Er, not so fast. To pay capital gains tax, you have to actually make a capital gain and given that the American economy is showing signs of hesitant recovery the T Bills may not be selling above par at those yields for much longer. They’ll remain a haven for those looking for safety, but other investment opportunities may present themselves, meaning that investors and institutions change their portfolios, seeking a higher dividend yield. In other words, the price may well fall as individuals and institutions unload them irrespective of any tax increases, but of course a natural economic cycle doesn’t make a good ‘shock horror’ story, does it? And let’s not forget, taking a American-centric view, if jobs and manufacturing industries are sucked back into Europe and manufacturing output/exports rise there, the perceived safety factor of American Treasury Bills will diminish, also cutting prices. So no capital gain to pay tax on and not so much an asset bubble bursting as one deflating. Private investors might well decide to retain their holdings and take the guaraneed yield, it depends at what price they brought the bonds in the first place. Oh that’s right, they brought at above par. Not much of a bubble then, more a hedge against continuing uncertainty, except that there is no uncertainty about the tax rises. They’re not an uncertainty they’re a fact.

Some final figures and these reveal something of a surprise. China owns America, right? Everybody knows that, it’s common knowledge. Is that so? T Bills, aka American Government debt, are currently valued at US$14.3 Trillion. The value of the Chinese holding? US$1.2 Trillion or less than 10%. In fact, us dammed foreigners, long-lunch and excessive vacation taking crypto-communists to a person, hold about 31% of American Government debt. To put that another way, American individuals and institutions hold about 69%. See, I can play around with figures as well. If you compare that with France, where some 59% of Government debt is held outside of the country, it doesn’t sound so bad. And of course America is still seen as a safe haven for your money whilst France is seen as …. Insert your own word or phrase.

The CIA and the fake vaccination program

The CIA set up a fake vaccination program in Abbottabad in order to obtain DNA samples from children living in what was suspected, and eventually proved to be, Bin Laden’s lair. The vaccination program was aimed at Hepatitis B and usually it takes three doses before the vaccine has a chance of being effective. Allegedly only one dose was adminisistered.

According to various reports, not only was the CIA unable to actually obtain a DNA sample, but also they failed to complete the vaccination program. The Pakistani doctor who was apparently unwittingly recruited to run the program has recently been sentenced to thirty-three years for treason, plus another three years if he doesn’t pay a fine.

Now quite rightly the WHO (World Health Organisation) and other organisations connected with providing immunisations have pointed out the damage that this does to immunisation campaigns in areas where the motive behind them is already suspect, at least according to locals who fear that they are being sterilized or worse. A couple of questions remained unanswered. In fact as far as I can tell, they haven’t even been asked, in public at least.

What would it have actually cost the CIA to complete the vaccination program? Didn’t the doctor, a respected Pakistani surgeon who had worked in the area for a number of years, question the amount of vaccine he was given? Perhaps more interesting is why did he remain in the area after the raid on the Bin Laden compound? The CIA is not commenting, but I wonder if in the rush to condemn such apparently heartless behavior people are missing the fact that the program might have been completed? I’m certainly not an apologist for the CIA, and definitely not if the facts in this case are true, but it does seem to me that there is a bit of a shortage of facts on the ground. The trial of the doctor was held in secret and under the jurisdiction of a tribal court rather than the Pakistani High Court. Given that Abbottabad is a mere thirty- one miles from Islamabad, the capital of Pakistan, wouldn’t you have expected a highly public visible trial in a High Court?

Of course, the conventional answer to that is because the Pakistani government was complicit in hiding Bin Laden they would want to avoid a public trial. Doesn’t wash. What seems to be emerging, in general terms, is that the ISI (Inter Services Intelligence) agency, or at least sections of it, were complicit in hiding Bin laden. This was long-suspected by the Americans and had had poisoned US/Pakistan relations, aka slowed the flow of American funding to Pakistan, for a number of years. The Pakistan Government is involved in a long-running power struggle with the Military and ISI. It would have surely been to their advantage to hold a public trial. Under the Tribal court system that brought charges against him, the doctor had no access to a lawyer and was not present in court. He does have the right of appeal, but to which court? Interestingly, the Tribal Court that tried him has no jurisdiction in the area where the alleged fake program took place. As an aside, the Pakistan legal process can take years, with judges granting lengthy adjournments for seemingly minor reasons. The Tribal system is much faster in dispensing justice.

As I said, I am no apologist for the CIA, but there are some questions here that have not been publicly answered. Given that there was no public presentation of evidence, the statement that the vaccination program was not completed is based on hearsay evidence, obtained in an area where America and the CIA are not exactly flavour of the month. I can well believe that the CIA mounted an operation to obtain confirmation that Bin laden was present in the compound, after all the Seal team operation did amount to a gross violation of Pakistani sovereignty whichever way you look at it. Would the CIA have been so clumsy and obvious? Maybe, but it does seem to me that there has been a bit of a rush to judgement by those who are not members of the CIA supporters club. They may well be correct in their assertions. Or they may not. I think we should be told.

@peterbernfeld