Structural problems in state and local budgets were exacerbated by the recession and are likely to further restrain the sector’s growth for years to come. As the NY Fed notes, the last couple of years have witnessed threatened or actual defaults in a diversity of places, ranging from Jefferson County, Alabama, to Harrisburg, Pennsylvania, to Stockton, California. But do these events point to a wave of future defaults by municipal borrowers? History - at least the history that most of us know - would seem to say no. But the municipal bond market is complex and defaults happen much more frequently than most casual observers are aware. As the NY Fed points out "the untold story of municipal bonds is that default frequencies are far greater than reported by the major rating agencies" but, until recently, investors could take some comfort from the fact that many municipal bonds - both rated and unrated - carried insurance that paid investors in the event of a default. But now that bond insurers have lost their AAA ratings, they no longer play a significant role in the municipal bond market, increasing the risks associated with certain classes and certain issuers of municipal debt.
The market has screamed loud and clear what the tangible results of the QE3 program are even without ever being implemented.
To get private debt to a sustainable level via tax cuts, Ryan would have to cut taxes to zero for a very long time (and hope that people use their tax cut to pay down debt instead of spending it at Chipotle and the Apple Store). The biggest problem with that? Over 75% of Federal spending is mandated by law, and so US public debt — which Ryan believes is the real problem — would soar (as has happened in Britain). Ryan might seem worried about the future possibility of massive public debt (as opposed to the current reality of massive total debt), but his plan could conceivably result in much higher public debt — after all the OMB and CBO have gotten it all very wrong before, just twelve years ago foreseeing massive tax surpluses of $48 and $87 billion respectively in 2012. So does he have any real plan to significantly raise revenues? In his entire 98-page manifesto, Ryan doesn’t name any — but he has ruled out taxing capital gains as income, surely the biggest tax loophole of all, and one that has seriously benefited his running mate.
What to do about this one?
The health of the economy is driven by after tax income. We need a big tax increase that does not reduce current income. My plan.
California's budget deficit may be $16 billion (up from $9 billion in January), the state's cities may be keeling over and filing for bankruptcy left and right (Stockton and Mammoth Lakes), and overall container traffic at the Port of Long Beach may have dropped 7.2% in May compared to last year, but at least California is about to get its own monorail. Well, maybe not monorail, but certainly a high speed line between Los Angeles and San Francisco for the low, low price of at least $4.5 billion in debt to start (and much, much more to actually end). The winners: Keynesians and labor groups. The losers: anyone who has ever taken math for idiots. From USA Today: "California lawmakers approved billions of dollars Friday in construction financing for the initial segment of what would be the nation's first dedicated high-speed rail line connecting Los Angeles and San Francisco. The state Senate voted 21-16 on a party-line vote after intense lobbying by Gov. Jerry Brown, Democratic leaders and labor groups." And while nobody really expects the train to actually be built, here is the real reason for passing the legislation: "The bill authorizes the state to begin selling $4.5 billion in voter-approved bonds that includes $2.6 billion to build an initial 130-mile (210-kilometer) stretch of the high-speed rail line in the Central Valley. That will allow the state to collect another $3.2 billion in federal funding that could have been rescinded if lawmakers failed to act Friday." In summary, just passing the bill, gives California a $3.2 billion federal bailout while the actual use of funds may or may not ever appear (or money is on the latter). If still confused think Greece and Germany, because Federal tax collections were just used to give California a very fungible cash injection. Where the money ends up now is anyone's guess.
UBS' Art Cashin had originally intended to explore the scholarly give and take of both the opinion and of the dissent. Both have marvelous allusions to things like the Federalist papers and “original intent”. As he notes "a full reading is like a visit to the mind gym, a mental workout of the first order." However, the more he read the dissent, the more he saw the minority’s very evident concern that the Constitution was being weakened. On a very timely day, Art encourages one and all to read both the Opinion and Dissent as the venerable patriot adds: "It's important to all of us".
Let's give federal money to tax cheats!!
Fed Vice Chair Yellen Says Scope Remains For Further Policy Accommodation Through Additional Balance Sheet ActionSubmitted by Tyler Durden on 06/06/2012 19:08 -0500
That former San Fran Fed chairman Janet Yellen would demand more easing is no surprise: she used to do it all the time. That Fed Vice Chairman, and Bernanke's second in command, Janet Yellen just hinted that she is "convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions", and that "while my modal outlook calls for only a gradual reduction in labor market slack and a stable pace of inflation near the FOMC's longer-run objective of 2 percent, I see substantial risks to this outlook, particularly to the downside" is certainly very notable, and confirms everyone's worst dream (or greatest hope assuming they have a Schwab trading platform or Bloomberg terminal) - more cue-EEE is coming to town.
Reflecting on yesterday's monetary-policy-hope-driven rally, UBS' Art Cashin prefers to focus on Richard Fisher's very frank (and succinct) speech on the limits of monetary policy and the importance of fiscal policy. Urging everyone to read it, and send it to your Congressman and Senators, he reminds us that Fisher is the only Fed policymaker to have been a banker and a money manager, and in the words of Richard Fisher, he worries that: "there is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress."
Out of money and in the red, but with revenue projections out the wazoo
iTax Avoidance - Why In America There Is No Representation Without "Double Irish With A Dutch Sandwich" TaxationSubmitted by Tyler Durden on 04/29/2012 05:44 -0500
Back in October 2010 we presented an analysis by Bloomberg which showed not only that courtesy of not paying taxes at its statutory rate of 35% Google was adding about $100/share to its then stock price of $607/share, but just how this was executed. Now, it is the turn of Apple, with its $110 billion in cash, to fall under the spotlight, with an extended expose in the NYT titled "How Apple Sidesteps Billions in Taxes" in which we learn that, shockingly, if you are at a table with only corporations sitting to your left and right, then you are the only person in the room paying taxes. Why - because global corporate tax "avoidance" schemes are not only perfectly legal, but they are actively encouraged, and in some cases form the backbone of a sovereign's (ahem Ireland) economic and even domestic policy, which just happens to be front and center in virtually every global corporate org chart permitting virtually the entire elimination of cash taxation at the corporate level.
Modern investing offers the promise that investors who "do their homework" and use data more intelligently than the herd can gain a valuable edge. But what if the underlying data available to the investing public is fundamentally flawed?
The Federal government is supporting its dependents and its crony-capitalist Elites with borrowed money: $1.5 trillion every year, fully 40% of the Federal budget. It is in effect filling the gap between exploding costs and declining income, just like the middle class did until they ran out of collateral to leverage. The dwindling middle class, now at best perhaps 25% of the workforce, has been reduced to tax donkeys supporting those above and below who are dependent on Federal largesse. Fisher found that this cycle ends in transformational political upheaval. No wonder; even as the class paying most of the taxes shrinks and is pressured by higher costs, the class of dependents expands as the economy deteriorates and the super-wealthy Power Elites continue to control the levers of Central State power.
Better stock up on the Depends now.