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Raising Lazarus From the Dead?
Today is Palm Sunday, marking the beginning of Holy Week for the Orthodox Church.
I'm not particularly religious but decided to stop off St-George church
this afternoon to light a candle. Nobody was there; it was so peaceful
and serene, just the way I like it when praying.
This morning I
watched the American political shows, and then reflected on how
mainstream media presents certain topics on the economy. Bear with me as
I take you through some topics.
First, ABC's this Week discussed the Ryan budget,
proposing $6 trillion in federal government spending cuts. I think
Republicans are dreaming if they think they can pass these cuts. As far
as all the fear mongering on raising the debt ceiling, I will bet with
all the doomsayers out there that the US won't ever default on its debt.
And as
far as raising US government revenues, there is any easy solution, it's
called a value-added tax, better know as a goods and services tax
(GST). Canadians and Europeans know all about it. It hasn't crimped
Canada or Germany's growth. It's a fair tax because it's a consumption
tax, therefore non-regressive. The rich are back, spending more than ever on luxury goods,
so it's easier to tax what they're spending on than introduce more
income taxes. (The smartest thing the Conservatives did in Canada was
tax free savings accounts, TFSAs, and the dumbest was cut the GST by
2%).
I then watched Indra Nooyi, whom Fortune Magazine has listed
as the most powerful businesswoman in the world for several years
running, discuss her thoughts on a "blueprint" that brings manufacturing jobs back to the United States:
"We
need to start somewhere. I think the first step is, create a blueprint
for the country," Nooyi told CNN's "Fareed Zakaria GPS" in an
interview that aired Sunday."I don't think worrying about the
re-industrialization of America is a Republican issue or a Democratic
issue. It's the country's issue," she added.
"There
is an extremely qualified cadre of recently retired CEOs and C-suite
(top-level) executives who can all be co-opted to help author this
blueprint for the future."
Obama's Democrats have been sparring
with opposition Republicans over how much government spending to slash
this fiscal year, as part of a broader budget war and debate over how to
rein in a runaway deficit.
The president, Nooyi said, should
"forge these coalitions" that would lay out an economic framework for
the coming decades that would highlight energy efficiency.
"I
don't know if they can do it with an election year coming up (in 2012),
but I think people can put their differences aside and worry about the
country."
She acknowledged that such a project would take years,
but said there were several short-term measures that could revitalize
job creation in America, including slashing taxes on US subsidiaries
that bring foreign profits back to the United States.
Some US firms are "trapped in overseas countries, because the tax rate to bring them back is extremely high," Nooyi said.
She
suggested taxing repatriated money at 15 percent, compared to the top
corporate rate of 35 percent -- a move she described as "a creative way
to address unemployment without adding to the deficit."
In a
report this year, the Association for Financial Professionals estimated
that US firms had a total of $1 trillion in overseas cash and
investments.
Should Washington lower the tax on repatriated
profits, "the likely inflow of capital into the US would stimulate
capital investment and hiring, contributing to economic recovery in the
short run and economic growth in the long-term," according to the
association.
I don't buy the argument that US
corporate taxes are too high "trapping" profits abroad. As far as those
retired CEOs and C-suite executives, bring them on, anything is better
that that shameless self-promoter called Donald Trump (if he runs for
office, it will be a gift to Obama).
Ms. Nooyi also talked about
how Pepsico is now focusing on health conscious food. While I welcome
this shift, it's too little too late. There will be a revolution in
health conscious diets over the next decade in the US and elsewhere and
if the Pepsicos and Coca Colas of this world aren't part of it, they
will lose big.
But Ms. Nooyi is an impressive woman and she
didn't get to where she is by being behind the curve. She is in a
minority among Fortune 500 CEOs. She told Fareed Zakaria that she worked
"her tail off" to get to where she is and her accomplishments should be
a source of inspiration for all women.
On the economy, she
said that "Bill Sixpack" is back, saying things are better but too many
Americans feel uneasy with their economic prospects. As I stated above,
things are great for the rich invested in stocks, not so great for the
millions of unemployed or underemployed struggling to get by as food and
energy prices keep creeping up.
This brings me to my other topic, inflation. Zero Hedge posted an interview with Jim Grant
saying "there will be a lot of it suddenly". I got blasted for
commenting that I don't see how inflation can take hold without wage
inflation.
In an environment where corporate America has destroyed
unions, kept wages low, cut jobs to shift them abroad, it's
hard to see major inflation "all of a sudden". I know that inflation is
rising in emerging markets, spurred by the Fed's aggressive policies,
but let me share with you a comment from one of the smartest pension
fund managers I know (we were discussing the Shadowstats figure pegging
inflation in the US at 10%):
The guy from shadowstats may have some micro points, but he’s just plain nuts on the CPI. He added up every single potential adjustment to CPI, and says that all of them add up to a 6% (?) understatement. Thus his “True CPI” is (reported CPI + 6%).
Unfortunately, if CPI is “really” 8% per year for the past 10 years, vs. 2%, that compounds up to a huge gap. For example, that roughly implies that if you deflate nominal GDP by CPI, it’s been falling in “real terms”. Also, consumption would have to be contracting 3—4% on average over that period. But that flies in the face of actual volume data, which rose over the period. The only way his numbers make sense it that every other stat is being manipulated in a consistent manner to be in line with the CPI.
I have no worries about imported inflation, other than on oil/gasoline/food prices, but that’s still a relative price story. Oil prices fell in nominal terms from 1980-1998, but that did not stop inflation from rising steadily over the period. You cannot ignore wages, which are 70% of the cost of production. Unless wages rise, you can’t see price hikes sticking – by definition, volumes fall, and that will crush the price hikes. The only places you see imported inflation are countries like Iceland, where they import practically everything other than cod.
This
pension fund manager is a sharp cookie. He reminded me in the late
1990s, everyone was short JGBs, waiting for the implosion of the
Japanese bond market. There were back-up in yields, but over the next
decade, JGBs beat out not only the Japanese stock market but the S&P
500 too. In other words, just because yields are low, doesn't mean that
Treasuries can't outperform stocks on a risk-adjusted basis over the
next decade.
The Fed is doing everything it can to reflate risk assets and introduce
inflation back in the system. I've been writing about this ever since Operation AIG ("All In Goddammit").
There is only one thing that petrifies corporate America and bankers, a
long protracted period of deflation. Demographics are terrible in
Europe and Japan, and while growth is strong in emerging markets, the
risks of deflation have not subsided. That's why I expect more liquidity
to be pumped into the system. And with more liquidity will come more
warnings from Inflationistas that we are doomed but all that will happen
is more volatility in the financial markets which will benefit the
financial oligarchs and the ultra wealthy. Hopefully some of that
"wealth" will trickle down and start sustaining job growth.
That's
the Fed's game plan and it hasn't changed. The big question is will the
Fed succeed? Will it "raise Lazarus from the dead" and resuscitate the
US economy? I honestly don't know, but I will tell you this much,
they'll do whatever it takes to avoid debt deflation. That much I can
guarantee you. Below, part of Fareed Zakaria's interview with Indra Nooyi.
»
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Leo,
Just curious, have you ever taken an economic course, or is most of your socialist mantra taken from the Reader's Digest pile beside you toilet?
Team Red has already *said* that the debt ceiling is just political kabuki.
http://economix.blogs.nytimes.com/2011/04/13/fear-the-bond-market/
They're *negotiating* will Wal*Street over how long and scary the kabuki is.
If not a socialist, than likely a communist. Go read some Rothbard. That was an economist who understood so called "value added taxes". Nothing more than having to pay the state for the privilege of being able to buy what I need. Let's say I'm a self-employed contractor (for now we will skip the raping I take on CPP) and need new tires. cost is $1000. if vat is 10%, I need to come up with another 100 just to be able to buy them. I might have been able to use the 100 for clothing for my kid, but somehow the state knows better than me what to do with my money. on and on it goes. sod off.
It's your own fault for buying luxuries like tires.
Rubber (for footwear soles, but NOT for bondage gear) will be 0% rated for VAT purposes, as will children's clothing.
Of course the state knows how we should spend our money better than we do. What are you thinking? They have economists with Ph.D's and everything. And all money belongs to the government anyway, as does our property, because without the state's wise beneficence, nothing good could come into being.
Jeez.
Leo, You are an apologist for the Fed. I won't deny your assertion that core inflation can't move up much without wage increases. Therefore core remains tame.
You conclude that we need more stimulus to solve that problem. Same as Bernanke. This is bullshit, I think you know it.
Before the end of this year gas will pass $5. Food will be up another 20%. EVERYONE will be poorer as a result. The economy will suffer. Equity values will fall. We will have nothing to show for the madness the Fed has brought us.
The only reason you want cheap money from the Fed is that you think it will goose your personal portfolio by a bit. It has nothing to do with what is the "right thing to do".
Get this straight Leo. What the Fed is doing will rob you and everyone else of their well being. We will all be worse off as a result. Stop talking your personal book and take a look around you. How can you possibly think that what is happening is a good thing?
If you take flack in these pages it is because you ask for it. If you want to defend the Fed so you can make an extra buck or two don't be surprised that you are not well liked. The view that you are taking is very unpopular these days. Every day will bring more people who think the Fed has gone mad.
Soon you and Ben will be the only ones holding up the banner that says "WE NEED MORE INFLATION NOW!"
I wouldn't be proud of that position. Are you?
But in Leo's world, that 's OK. He gets his government hand out at the expense of the legitimate wealthy... and sticks it to them... the enjoyment of all socialists.
And no, I'm not a socialist! Stop labelling, it's infantile!
You are a Canadian, Liberal, bootlicking lacking that believes in state sponored and sanctioned handouts. You would push your own mother under a bus to get first to the trough for your handout.
You are a first class socialist.
woops
If you like bailouts then your a socialist.
just like if you like boys you are gay.
All my girlfriends have liked boys, but very few of them were gay... some of the bi's were quite entertaining, though, I must admit.
ooh i wonder who junked me?
lol
just messin' Leo
Leo you are a socialist - we get it.
Some of us aren't - you need to get that.
Remember what MAggie Thatcher said
Socialism is wonderful till the last taxpayer dies. We are at that point metaphorically speaking.
Government largesse and "big brotherism" is eveyrwhere. It has to stop and civil liberty must prevail
I am purposely ignoring the morons on ZH. Not everyone posts dumb comments but the regular cyber bullies (cowards) keep popping up on my posts. This only confirms that I'm able to get under their skin. If they hate me that much, they would simply ignore and move along. But the fact that they gang up on my just tells me I'm on the right track. The more they come at me, the harder I will come at them with my posts (not comments). Only confirms that comments should not be allowed on blogs. For every great comment, there are 20 idiotic ones!
Leo,
We (the 36 people who junked you) don't have anything against you as a person, its just the nonsense that comes out of your mouth.
Leo,
Also, lighten up a bit... we're also having some fun at your expense.
Only confirms that comments should not be allowed on blogs. For every great comment, there are 20 idiotic ones!
Get rid of the comments, and you'll lose the majority of the readership. We're here to debate, insult, laugh, defend, and learn, and the comments are what makes that possible.
Like most statists, you believe in censorship, because you are more interested in establishing control than you are in establishing truth.
BigJ is right. I write on these pages. Sometimes I get tossed under the bus too. It happens. Leo ripped me a new Ahole recently on some remarks I made.
Without the comments this form of "information" is worthless. Leo is not "right". His detractors (including me) are not "right" either.
The beauty of this is that anyone can say as they wish. If you don't like what is being said, skip to the next one.
Remember you can learn something from everyone Leo.
You should know by now who your audience is here at zerohedge. Mention deflation or more taxes and your asking for a beatdown.
You lost me at VAT's not being regressive because they are a consumption tax. That was a joke right? Did I miss the sarcasm? I am currently unemployed so every penny of income I have and a significant amount of my savings are spent to meet my basic needs.
Whereas those rich people with lots of income don't have to spend every thing they make to meet their needs.
Explain how it isn't regressive.
Leo, you really missed it on this one.
Rich people by definition spend more money on goods and services. Therefore a consumption tax is progressive because the more you spend on luxury items, the higher the tax revenues. Economists understand this is the single best way to tax society. US is behind the rest of the industrialized world when it comes to VATs.
The VAT tax has one flaw. It camouflages the real cost of the tax. You see something on the shelf and can't understand why it costs so damn much. Well, it has multiple layers of tax built in. Nice for the government because they get to hide the extent to which they are sodomizing people and can blame the high prices on 'greedy industrialists'.
Still, a VAT would be preferable to the income tax. The only way I'd consent to it though is if there were a positive amendment to the Constitution to kill the income tax permanently. Something along the lines of:
What are the odds of that happening?
Sure Leo, stick it to the rich.
You socialists are all the same. What are you voting for in the upcoming Canadian election - boot licking Liberals or smiling Jack Layton's socialists, or will it be the Greens?
Anytime you have someone talk about taxing the rich, we get the picture - European socialism.
More taxes for people when we already have so many extra fees and BS already is not the answer.
you rent a car lately?
how about more taxes on corporations that use the American system for profit.
Why not use your intelligence to come up with a way to attract "American" companies back home to pay their fair share.
Hey Leo, You're of Geek extraction, why don't you entertain us some more and do an expose on the Greek Pension System. Instead of calling it, as you called this article: "You don't need to be religious to read this comment... you just need to be #uckin stupid", let's call it: "Leo's Little Pig House".
You can expound on the virtues of government backed pensions and speak in a language that only you understand. You can then play victim, tell us all how stupid we are because it's all Greek to us, and continue on until the next flush.
Leo works for the canadian government I believe,
Now you know why my family moved our assets offshore..
Well meaning tax sucking maggots drain us dry in the hopes of giving us a quality pension which no one in our family will ever see, and rightly so since we work hard and invest hard and take generational views to our holdings.
We teach our young'ins how to manage money at an early age so they are not afraid of wealth. It takes will power and strength not to blow your wealth.
And no Leo I am not a troll. I am wealthy person from a wealthy family with lots of precious you can't touch.
Throughout history we gladly paid our share of taxes as part of our belief in the Canadian standard of life and for the Canadian way of helping our brethren.
However, because the politicians, civil serpents, blood sucking consultant vampire squids, have drained the coffers of the people. We now refuse to be bankrupted by taxation of any kind. Thus, we are internationalists now.
There's always some jerk at the party that fucks it up for everyone.
And people like you who are well meaning in government bureaurats or an NGO's, unfortunately create stupid financial engineering tricks to mask some simple things.
You want our money and you will resort to any Ponzi scheme possible to get it.... Well my friend you won't get ours. Have a nice day, I hope you feel better these days.
I gotta agree with those pointing out that 'inflation' can be driven by things other than monetary policy or wages.
Governments are imposing all manner of fee, tax and tuition hikes on the public in response to lower revenue driven, in large part, by the reduced incomes of that same public. Talk about a negative feedback loop!
Utility prices can be quirky too and not follow Freidman or classical economists 'rules'. Water and sewage rates can be driven by regulatory requirements and they seldom cause them to go down. Gas and Electric prices have that component in their price structure as well as a fairly inelastic distribution charge, i.e. if demand goes down or the customer base shrinks the delivery charge doesn't, it is just paid by fewer customers or composes a higher percentage of the final bill.
GST or VAT, its evil twin, is a regressive tax when implemented on basic necessities and medicine. There is no doubt that GST will tax the rich more on luxury goods. However, when it comes to necessities, it taxes the poor and the rich the same. Once can argue that the rich eats more finely, but how much can one eat anyway, no matter how rich he is?
With much money sloshing around, the rich will not bat an eyelid on GST given that money came easy anyway.
I come from a country which has GST.
Quote: I have read again and again that the median government wage is more then twice that of a worker in private employment ( ~$122k v. $52K).
Either the private sector have been complete and utter suckers over the years, or the figures are wrong. There are lies, damned lies and then there are statistics. All joking aside, these figures do highlight one very important thing. Private companies are SHITE employers. The only mass jobs likely to be created will be so poorly paid, they'll hardly be worth having.
Abolish Income Tax introduce sales tax. At least you'd be free to spend YOUR money how YOU wish and effectively regulate your own tax rate! That gives everyone more freedom than the current system and would stimulate the economy no end?
This author better put away The Bong and expalin why food, palladium, silver, and so on have exploded even here in the States despite "sticky wages."
While it's true some wages have been stagnant, gubberment wages have been rising 3-4% per year (and much more in some sectors). I have read again and again that the median government wage is more then twice that of a worker in private employment ( ~$122k v. $52K).
If anyone has better numbers pls feel free to comment but America better uckle down for when The Inflation starts "coming back home" it will be a Doozy. Why do you think Bruce Zimmerman, the head of UT Pension Fund took physical delivery of their $1 Billion in gold bars? When this serious inflation hits, everyone will be grabbing for all the Hard Assets, esp PMs (gold, silver, palladium and platinum)...not that paper stuff.
IMHO
GL!
I hear alot about inflation being dependant upon raising wages ("Unless wages rise, you can’t see price hikes sticking – by definition, volumes fall, and that will crush the price hikes.") I look to our latest example Zimbabwe and find that wages of the workers were not raised significantly, but the incomes of the upper eschelons were raised considerable. That hyperinflation was on the back of massive government printing and the explosion of foreign reserve requirements (like the Zim government importing Mercedes-Benz's for police vehicles instead of using cheaper vehicles). As long as we have massive foreign reserve requirements from imported oil (and everything else from China) and the continued printing of paper/adding pixilated zeros, the threat of a massive hyperinflation hitting the US is very real, even though worker wages are stagnant to dropping (as they are) while incomes of our elite are increasing exponentially.
Exactly.
1970's stafglation.
Ah the 70's...Seniors buying Alpo dog food - gas lines - American Dream and manufacturing dying - before Reagan came and ignited the afterburners for corporate and goverment Amerika to sell out any assets and capital left.
Afterburners sputter mid 1990's but FED jumps in, same in 2001 with tech bubble and 9/11. More banking legerdemain, Washington D.C. hijinx with regulations, leveraging of the housing markets in CDS, MBS, and insurance and the next bubble which is healthcare.
We've been running on fumes for 40 years, collapse imminent.
Leo:
Stagflation not inflation; reference 1970's and Jimmy Carter but with a weaker manufacturing base.
American manufacturing can never recover because the housing and taxation rates are much too high (e.g. - government supports, banking CDS, and insurance premiums); they will never ever be low enough in the next century without a major world war or cataclyism.
Western Civilization is toast...as in..."Rome Burns".
With nuclear power and nuclear weapons I don't know that there will be much left for the Barbarians to clean up or salvage.
when the fed stops buying ....
it will be badger whacking time ...
What a bunch of bull crap. As long as the public continues to buy the bogus notion that currency has to be a debt instrument issued by a central bank there are no solutions possible.
Leo you are wrong wrong wrong.
US Labor rates don't mean a thing for US inflation.
Since most of the labor for goods and services sold in the US originate in Asia, Asian wage inflation translates into higher import prices and US inflation. Wages are rising so fast in China, companies are relocating to central China from Shenzen and Guangdong. Some are just "outsourcing" to Vietnam or even Laos.
Throw in a declining USD, gasoline and food prices and you have huge inflation.
The Bernank and China are playing a high stakes game of creating and exporting inflation to each other, with consumers and weak regimes as the collateral damage. China so far has managed to keep its currency weak and its export sector alive, to keep its citizens employed.
I can only guess that the inflation and debt spiral continues, until the bond vigilantes scream and US bond market collapses. Add a debt collapse by the PIIGS and you have something much worse than 2008, large countries going bust, not just banks.
If they install a VAT tax in the USSA, there will be a shooting war in short order. And half of those not shooting will leave the USSA permanently.
Up your VAT.
At this point in history, the USSA has been run so far off the rails, the only viable solution remaining is for the states to dissolve the federal government, shut down the entire mess and default.
The experiments in "central banks" and "central governments" has been an absolute, complete, utter failure [for everyone except the predators and kleptocrats].
It's a fair tax because it's a consumption tax, therefore non-regressive.
Where did you get that bullshit? The poor have to spend everything they have just to barely survive. So they get to pay the tax on everything. The rich get to spend their bucks on stock and bonds and vacations and stuff abroad. No tax there. Non-regressive? Not on this planet pal.
Being relatively rich, I'm personally in favour of the consumption tax and elimination of the income tax. BTW.
The proposals I've seen for the 'fair tax' give every family a monthly rebate on basic living expenses, up to the poverty level. So, if the inclusive tax rate were 23% and the poverty level for a family of 4 was $20,000 a year, every family of 4 would get a monthly payment of $383 as a rebate of the sales tax collected.
It's this feature of the proposal that may make it non-regressive (or less regressive).
I think the idea has some merit - unfortuantely, serious discussion never gets beyond the "you just want to kill poor people" stage.
Food, clothing and "necessities" are usually taxed at lower rates. Luxury Items at higher rates. Let the rich hedgie wife bitchez pay through the nose.
Escalade tax: 200%
Porsche tax : 150%
LVMH tax :75%
Nike tax: 30%
Wine tax: 20%
Unhealthy Food tax : 10%
Beer tax 5%
Healthy Food tax: 3%
you get the point.problem solved
Wine tax too high!
Hooker & Coke Tax = 0
Leo, you have such a Yin-Yang thing going on with some of your observations.
I recommend you consume one tablespoon of honey followed immediately by one tablespoon of raw vinegar, before bedtime. If the contrast upsets your stomach, ingest a generous shot of ouzo. Yamas.
Those 'feeling' wealthier based on any rise in equity balance sheet valuations are the tomorrow's tsunami of economic contraction and depressionary trends unless they've cashed out and locked that realized/extracted wealth up somewhere very tight.
The United States will never default on its debt. It will simply continue debasing the USD at ever-increasing rates. It is magical thinking to believe that tax increases will transform a terminally-diseased fisc into a sustainable model. As if a multiple of any incremental revenues will not continue to be spent. The US government has become a parasite with no regard for its survival. Either the host kills it or it ends up killing the host and then dies.
Leo, hate to disagree with you, but the US has already defaulted on it's debt. Trying to inflate our way out of debt is a de facto default and everybody knows it.
No, it's not a straight up default, but it's an "extend and pretend we didn't default."
"I got blasted for commenting that I don't see how inflation can take hold without wage inflation."
Yeah, because its impossible for real wages to fall. (sarcasm)
Just because the US poor and middle class don't have money right now doesn't mean there isn't tons of money on the Street, in the big banks, among the super-wealthy, and in the emerging countries like China, Brazil, Mexico, India, etc. Real wages in the US are falling because we out-sourced all our manufacturing, but that can't stop the results of money-printing on prices.
Mexico?
the only thing emerging in mexico is decapitated heads in pozole
Its OK. It's Leo.
He was dismantled (he's a poor victim) on this site with 36 "Junked" comments because of his shallow analysis and nonsense.
sorry leo, i don't like taxes of any kind. it is unconstitutional anyway. the irs is just the collection agency for the FED. sorry, vat is not the answer. cutting government spending in spades is the answer as stated almost daily by the great santelli. the cities are cutting now, so the feds can too. but will they? the ryan plan is too little , too late. the game is over leo. face it. we are done.
Here is the way I see it the US is like a dog with lots of big ticks sucking it dry (Fed,bankers,Leo,etc). The ticks always trot out solutions like taxes (more blood) instead of the obvious solution of getting rid of the ticks.