EB-5 PROGRAM COULD END THIS WEEK

EB-5 PROGRAM COULD END THIS WEEK

The much-publicized EB-5 “Immigrant Investor” program is set to expire this week, putting billions of dollars for commercial development at risk.

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EB-5 gives visas to foreign investors who invest $500k in projects that create at least 10 American jobs. When the program first passed in 1990, it required investors to spend $1M but was later adjusted to allow investors to spend half in rural or high-unemployment areas, CNBC reports.

Its popularity has soared in recent years—sparked in large part by Chinese investors, who account for around 90% of all EB-5 visas granted—causing it to hit its visa limit of 10,000 per year in 2013 for the first time. (In 2007, only 700 visas were issued.)

The US Citizenship and Immigration Service estimates that EB-5 has brought in more than $2M and created more than 77,000 jobs, although those numbers are up for debate.

But some are concerned that more EB-5 money is being spent on projects in wealthy areas like New York City’s Hudson Yards or San Francisco’s Hunter’s Point Shipyard.

This week the Securities and Exchange Commission announced enforcement actions against lawyers charged with defrauding the system. A developer was also charged with using $6M from Chinese investors for a building conversion that never happened.

But on the flip side, EB-5 money has been beneficial, with projects like Washington DC’s Uline Arena (pictured), which is being converted into an office and retail center, as part of a project to rejuvenate the entire area.

Angelique Brunner, president of EB5 Capital, says the program needs more regulation so it can focus on the reason it was created, which was to spark economic development in distressed areas. One possible solution is a bipartisan proposal spearheaded by Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy. The proposal would increase the minimum investment in rural and high-unemployment areas to $800k and would reserve 4,000 of the 10,000 EB-5 visas for rural and high-unemployment areas. [CNBC]

 

Source: EB-5 Program Could End This Week – Commercial Real Estate

Household Incomes now equal to 1989 Levels – Rising Rents Bring Back Feudalism Society

The Fed surprised markets on Wednesday with their taper head fake.  Was it because the economy is booming?  No.  Was it because household incomes were growing?  Not exactly.  Was it because inflation is non-existent?  Not if we look at rents or medical care.  In fact, going through the Fed’s statement it is largely holding back on the taper because of fear of budget negotiations in Congress.  That is, we are hitting our debt ceiling yet again and the Fed wants some leverage here.  Yet the larger signs all pointed to a taper if we consider that rents are rising at nearly twice the rate of the overall CPI.  Also, the Census figures for 2012 were released and household income adjusting for inflation is now back to levels last seen in 1989.  Lost decade?  Try a lost generation.  Also, recent data highlighted that the wealthiest in our country are capturing most of the income gains and given this trend and the Fed’s taper-less September, the feudalism trade is fully on.

Household income

The Fed is the housing market.  Investors are dominating the market and this is their number one client.  It is no surprise that a moderate rise in rates has essentially clobbered the “normal” home buyers out in the market.  Regular buyers need every piece of help buying a home because household incomes have done this:

MedianHouseholdIncome

The above chart shows a full lost decade (24 years of weak income growth).  Even in real terms, household income has plunged since the recovery started in 2009:

2007: $55,627

2008: $53,644

2009: $53,285

2010: $51,892

2011: $51,100

2012: $51,017

The Fed is largely playing the market and ironically, these moves are likely to continue the wealth disparity in the US further as investors once again plow into the real estate market to chase yields.  For regular households, more income is going to go to housing on the rental front:

Rent vs CPI

Keep in mind that rising rents with falling incomes is not exactly a good combination.  Rents are rising at nearly twice the pace of the overall inflation rate.  This divergence has accelerated since 2012.  The Fed has made a one way bet here.  The Fed is operating under a QE forever scenario.  Take a look at the Fed balance sheet and tell me if you think a taper is in serious consideration:

fed balance sheet

The Fed is largely playing one big confidence game.  The too big to fail are even larger today.  Real estate investors are virtually half the market in 2013.  Even in expensive California nearly one-third of all home sales are going to investors (in Las Vegas it is closer to 60 percent).

Reconcile all the facts coming out this month:

-Household incomes adjusting for inflation are back to levels last seen in 1989 (24 years ago – a lost generation)

-50 percent of income generated in 2012 is going to the top 10 percent of earners (highest ever since the early 1900s)

-Rents are rising much faster than overall CPI

-Investors are gobbling up an incredibly large share of all real estate purchases

There has been a serious disconnect going on since the recovery hit and these kind of divergent data points suggest we are in a mania like mode.  Investors are largely chasing yield even on many deals that simply do make sense (i.e., cap rates are simply not panning out in many markets).  The Fed taper is merely a magician’s trick.  The Fed can’t taper to any large degree.  It is an end-game in the mortgage market.  The Fed is the housing market.  The Fed is largely focused on helping member banks so it is no surprise that banks are doing exceptionally well and many financial institutions are the largest real estate buyers in the current market.  For now, the investor trade will continue to play out even if people with common sense realize this is simply one giant shell game and the Fed is on its way to a $4 trillion balance sheet.  Doesn’t seen so farfetched that we are entering a modern age of feudalism.

Dr. Housing Bubble
http://www.doctorhousingbubble.com/federal-reserve-taper-household-income-lost-generation/?

The Dollar Losing Ground As The World’s Reserve Currency

Australia and China have announced that they will trade with each other without using the U.S. Dollar.  China and Russia will chip away at the Dollar’s reserve currency status by establishing direct payment in their own currencies with one trading partner after another.  When the world no longer considers the Dollar a necessary reserve currency, we will be in big trouble.  We will no longer be able to endlessly print money and kick the can further down the road.  That will be the end game for the fiat currency system that has been in place since Bretton Woods.

In a previous article by David Stockton on this blog, he makes the following statement about Richard Nixon, which I completely agree with:

“When Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit.”

The following is an article that appeared in zerohedge.com that demonstrates how the world is changing and how the U.S. Dollar is unlikely to remain the worlds reserve currency.

Continue reading “The Dollar Losing Ground As The World’s Reserve Currency”

Sundown in America – David Stockman

There have been a lot of doom and gloom articles appearing lately.  Should we be concerned?  (GA)

By DAVID A. STOCKMAN
New York Times
Published: March 30, 2013

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.

THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

Continue reading “Sundown in America – David Stockman”

Past the Point of No Return?

Casey Research has an article, “The U.S. Government is About to Get Hit with the ‘Perfect Storm’ of Debt. Anyone concerned about the financial health of the US, and the world, should read the article.  Here is an excerpt:

Hearing President Obama’s economic peptalks, you might be under the impression that the U.S. needs to keep spending for just a little while longer to stimulate the economy – but then will swear off big deficits.

Reinforcing the point, to address concerns stirred by a Congressional Budget Office (CBO) forecast that the U.S. government will accumulate total deficits in excess of $6 trillion over the next decade, in February President Obama issued an executive order to create a bipartisan fiscal commission. The commission’s task is to deliver recommendations to the president by December 1 for limiting future deficits to 3% of GDP. (The FY 2009 deficit approached 10% of GDP. The FY 2010 deficit will probably go even higher.)

It’s our contention that the president’s fiscal commission is mostly for show; the 3% limit is just a hoop for the clowns to jump through. U.S. government finances are now past the point of no return; the U.S. government lacks not just the will but the ability to close the gap between revenue and expenditure.

At The Casey Report, we like to focus on facts. Unfortunately, when it comes to government debt, the facts aren’t pretty. They show that the country is already sliding towards financial collapse and hyperinflation in a way not dissimilar to the Weimar Republic.

Let’s first look at recent history to see how reliable CBO forecasts have been. In 1999 the CBO issued its 10-year forecast for 2000-2009 (see charts below). It looked as though we were heading into ten years of prosperity that would rescue us from little worries like the trillions in unfunded liabilities of Social Security and Medicare.

As you can see in the charts titled “CBO Revenue Projections 2000 – 2009” and “CBO Outlay Projections 2000 – 2009,” the CBO expected a budget surplus in every year from 2000 to 2009. And not just that, but that the surpluses would grow at an annual rate of more than 13% and would accumulate to $2.5 trillion over the decade.

The article is quite sobering and indicates that it is possible we have reached the point of no return. Continue reading “Past the Point of No Return?”

Our Unsustainable Debt

Reason Magazine has an article in the June issue about United States debt.

America’s financial situation is unsustainable. In 2009 the federal government spent $3.5 trillion but collected only $2.1 trillion in revenue. The result was a $1.4 trillion deficit, up from $458 billion in 2008. That’s 10 percent of gross domestic product, a level unseen since World War II. Worse, the Congressional Budget Office (CBO) projects that we’ll be drowning in red ink for the foreseeable future, with annual deficits averaging $1 trillion during the next decade.

While these figures are dramatic, they pale in comparison to what the federal government owes foreign and domestic investors. According to the CBO, in 2009 America’s public debt reached $7.5 trillion, or 53 percent of GDP, the highest it has been in 50 years. In 2010 the debt will cross the 60 percent threshold, a level at which many economists believe a country is putting itself in financial peril.

The money used to pay our debt comes from the savings of Americans.  There will soon not be enough money from the savings of Americans which will mean that our government will increasingly have to look to foreign investors to loan us money (buy our bonds).  This is not a good financial situation for the US to be in.  We will not be able to sustain it over time.

Fiscal prudency would require that the US start generating budget surpluses to repay our debt.  Following the course laid out by the current administration the future looks bleak.  This administration has plans to run the US debt up to unprecedented levels rather than reducing it.

Probable result of this activity: significant inflation, weakness of American currency against other currencies, an extraordinarily large amount of our gross national product going to service the huge debt burden, loss of confidence in America, inability of our economy to generate innovative new industries, inability to finance new construction and a host of other economic maladies.

We need to fire Keynes and hire Hayek as soon as possible.

Read the whole article in Reason Magazine.

World Fiscal Crisis Caused By Excessive Public Employee Benefits

Does this sound familiar? The government is unable to cover payroll in full. A 40 percent tax on cigarettes sets off a flurry of angry text messages among smokers, and opposition groups warn new taxes could unleash a popular revolt. California? No, the Hamas government in Gaza.

Or this: Workers can retire after just 35 years of work at full pension and health benefits. San Francisco? No, Greece. In San Francisco, you can retire after 30 years of work.

Around the world and in the United States, an aging population with higher life expectancy and generous public sector pension and health benefits are bankrupting governments. State benefits plans are $1 trillion underfunded. It’s getting worse.

Since the election of President Barack Obama, the number of federal employees making over $150,000 a year has more than doubled to over 10,000. In San Francisco, one out of every three city workers earns over $100,000, not including pension and health benefits.

In 2009, federal government salaries jumped 2.4 percent, about twice the increase earned by private sector employees. The average salary of a federal worker is now $71,000, about $22,000 more than the average private-sector employee. In San Francisco, the average is $83,000, not including benefits.

How did we reach this point? In the late-1950s, New York City Mayor Robert Wagner signed an executive order authorizing city workers to unionize, and soon other local and state Democrat legislators around the country followed his lead. Then in 1962, President John F. Kennedy granted federal employees the right to collectively bargain.

But that was then. Now governments — Greece, Portugal and Spain in Europe, states like California and cities like San Francisco — are facing the consequence of years of incremental increases in salaries and benefits. California, San Francisco and Washington are postponing the inevitable.

There’s a silver lining. When socialist nations like China, the Eastern bloc and Russia finally cut burdensome public sector jobs, closed state factories and reduced their pension obligations, it unleashed the private sector. That’s the unalterable truth about socialistic policies.