You may think only European countries have VAT (value-added taxes), but America has one, too--it's just hidden in the sprawling "healthcare" system, i.e. sickcare. A value-added tax (VAT) is a broad-based consumption tax designed to raise tax revenues from across the entire economy. Since it's in everything you buy, you can't escape paying it unless you go to another country without a VAT. While the U.S. doesn't have an official VAT, it has an unofficial one that we all end up paying for indirectly: the 8% difference between what we pay for our bloated, fraud-ridden healthcare system and what our global competitors pay for their universal-care healthcare systems.
I’m in favour of consenting adults being able to do whatever they like with each other, but the fact that the current push for gay marriage is supported by Lloyd Blankfein and Goldman Sachs makes me very suspicious (does he want to sell securitised gay marriage debt?). It just seems like an easy issue for Obama to posture on, while trampling the Constitution into the dirt. When it comes to civil liberties, Obama has always talked a good game, and then acted more authoritarian than Bush. He talked about an end to the abuses of the Bush years and an open and transparent government, yet extended the Fourth-Amendment-shredding Patriot Act, empowered the TSA to produce naked body scans and engage in humiliatingly sexual pat-downs, signed indefinite detention of American citizens into law, claimed and exercised the power to assassinate American citizens without trial, and aggressively prosecuted whistleblowers. Under his watch the U.S. army even produced a document planning for the reeducation of political activists in internment camps. Reeducation camps? In America? And some on the left are still crowing that talking about being in favour of gay marriage makes him “pro civil liberties”? Is this a joke?
By mainstream media accounts, the presidential election in France and parliamentary elections in Greece on May 6 were overwhelming verdicts against “austerity” measures being implemented in Europe. There is only one problem. It is a lie. First off, austerity was never really tried. Not really. In France for example, according to Eurostat, annual expenditures have actually increased from €1.095 trillion to €1.118 trillion in 2011. In fact spending has increased every single year for the past decade. The debt there increased too from €1.932 trillion €1.987 trillion last year, just as it did every year before. Real “austere”. The French spent more, and they borrowed more. The deficit in France did decrease by about €34 billion in 2011, but that was largely because of a €56.6 billion surge in tax revenues. Again, there were no spending cuts. Zero. Yet incoming socialist president François Hollande claimed after his victory over Nicolas Sarkozy that he would bring an end to this mythical austerity: “We will bring back Europe on a track for jobs, growth and the future… We’re no longer doomed to austerity.” This is just a willful, purposeful distortion. What the heck is he talking about? Certainly not France.
Mitt Romney's theory goes that by buying U.S. currency (so far they have accumulated around $3 trillion) and treasuries (around $1 trillion) on the open market, China keeps demand for the US dollar high. They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus. To keep this pile of dollars from increasing the Chinese money supply, China sterilises the dollar purchases by selling a proportionate amount of bonds to Chinese investors. Supposedly by boosting the dollar, yuan-denominated Chinese goods look cheap to the American (and global) consumer. What Romney is forgetting is that every nation with a fiat currency is to some degree or other a currency manipulator. That’s what fiat is all about: the ability of the state to manipulate markets through monetary policy. When Ben Bernanke engages in quantitative easing, or twisting, or any kind of monetary policy or open market operation, the Federal Reserve is engaging in currency manipulation. Every new dollar that is printed devalues every dollar out in the wild, and just as importantly all dollar-denominated debt. So just as Romney can look China in the face and accuse them of being a currency manipulator for trying to peg the yuan to the dollar, China can look at past U.S. administrations and level exactly the same claim — currency manipulation in the national interest.
What we have is a Central State and an economy that has borrowed and squandered trillions of dollars on consumption and malinvestment in unproductive "stranded" assets. The debt and risk pile up, while the labor that results from consumption is temporary and does not create wealth or permanent employment. Figuratively speaking, we're stranded in a McMansion in the middle of nowhere, a showy malinvestment that produces no wealth or value, and we're wondering how we're going to pay the gargantuan mortgage and student loans. Debt and the risk generated by rising debt create a death-spiral when the money is squandered on consumption, phantom assets, speculation and malinvestments. Sadly, that systemic misallocation of capital puts the job market in a death spiral, too.
Today it was widely reported that the CIA thwarted a “plot by al Qaeda’s affiliate in Yemen to destroy a U.S.-bound airliner using a bomb.” This bomb, which was to be concealed in a pair of underwear, was designed as an improvement over what Umar Farouk Abdulmutallab attempted to use to blow up an airliner over Detroit on Christmas Day of 2009. This bomb was upgraded and designed to specifically avoid metal detectors. At first glance it would appear to be a job well done by the world’s leading domestic affairs meddlers. The truth was finally revealed as the would-be bomber was, in fact, a double agent of the CIA. When considering the nature of the state, this new instance of government supported terrorism is unsurprisingly comparable to previous cases. The alleged Yemen “underwear” bomber was just another fabricated spook in the long line of mounting justifications to keep the war on terror and its profiteers going; no matter the cost. As long as the American people are still easily whipped into a frenzy over forged menaces from afar, their blood and treasure will go on to be squandered on military boondoggles and redundant intelligence agencies. War and fear end up becoming a way of life. And so does the state’s command over what could be a life of peace and tranquility for the nation it supposedly protects. This isn’t conspiracy theory; just a recognition of the various hobgoblins, as H.L. Mencken described them, invented to justify encroaching totalitarianism.
We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year–long debt super-cycle and the aftermath of an unsustainable bubble. Quantitative easing is making it worse by facilitating more public-sector borrowing and preventing debt liquidation in the private sector—both erroneous steps in my view. The federal government is not getting its financial house in order. We are on the edge of a crisis in the bond markets. It has already happened in Europe and will be coming to our neighborhood soon. The Fed is destroying the capital market by pegging and manipulating the price of money and debt capital. Interest rates signal nothing anymore because they are zero. Capital markets are at the heart of capitalism and they are not working.
The paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises. The fundamental dynamic of America's job market is simple: we need relatively few workers to provide the absolute essentials of life even as the cost-basis of the economy inexorably rises. In other words, there are fewer jobs even as the costs of maintaining a "middle class" life rise. The solution to the post-industrial decline of labor is not unproductive "make-work" jobs and borrowing trillions of dollars until the system implodes, it's lowering the cost basis of the entire economy and culture, which means eliminating all the systemic sources of unproductive friction.
So we know that the pro-bailout parties in Greece have failed to form a coalition, and that this will either mean an anti-bailout anti-austerity government, or new elections, and that this will probably mean that the Greek default is about to become extremely messy (because let’s face it the chances of the Greek people electing a pro-austerity, pro-bailout government is about as likely as Hillary Clinton quitting her job at the State Department and seeking a job shaking her booty at Spearmint Rhino). It was said that the E.U.’s existence was justified in the name of preventing the return of nationalism and fascism to European politics. Well, as a result of the austerity terms imposed upon Greece by their European cousins in Brussels and Frankfurt, Greeks just put a fully-blown fascist party into Parliament.
All this talk of promoting growth rather than austerity misses the point entirely. Who is going to give the Greeks, or the French for that matter, the amounts of money they would need to fill the almighty hole in which they find themselves along with most of the rest of Europe, the UK and dare I say it the US? If your answer involves a central bank don’t pass Go and head straight for jail which is where the banksters and their politico/media fan club should all be anyway.
The entire bogus recovery is again being driven by subprime auto loans being doled out by Ally Financial (85% owned by the U.S. government) and the other criminal Wall Street banks. The Federal Reserve and our government leaders will continue to steer the country on the same course of encouraging rampant speculation, deterring savings and investment, rewarding outrageous criminal behavior, purposefully generating inflation, and lying to the average American. It will work until we reach a tipping point. Dr. Krugman thinks another $4 trillion of debt and a debt to GDP ratio of 130% should get our economy back on track. When this charade is revealed to be the greatest fraud and theft in the history of mankind, Ben and Paul better have a backup plan, because there are going to be a few angry men looking for them.
The global economy is facing a structural surplus of labor and a scarcity of paid work. Here is the critical backdrop for the global recession that is unfolding and the stated desire of central banks and states everywhere for "economic growth": most of the so-called "growth" since the 2008 global financial meltdown was funded by sovereign debt and "free money" spun by central banks, not organic growth based on rising earned incomes. Take away the speculation dependent on "free money" and the global stimulus dependent on massive quantities of fresh debt, and how much "growth" would be left? The Internet has enabled enormous reductions of labor input. A mere 15 years ago when I first learned HTML (1997), you had to code your own site or learn some fairly sophisticated website creation/management software packages, and you needed to set up a server or pay a host. Now anyone can set up a Blogspot or equivalent blog for free in a few minutes with few (if any) technical skills, and the site is free. The other trend is the cost of labor in the developed West is rising as systemic friction adds cost without adding productivity. Workers in the U.S. only see their wages stagnate, but their employers see total labor costs rising as healthcare costs rise year after year. In effect, the U.S. pays an 8% VAT tax to support a bloated, paperwork-pushing, inefficient and fraud-laced healthcare system that costs twice as much as a percentage of GDP as other advanced democracies. No wonder many entrepreneurs are selling their high-overhead businesses and becoming flexible, low-cost one-person enterprises.
What are the classic signs of an asset bubble? People piling into an asset class to such an extent that it becomes unprofitable to do so. Treasury bonds are so overbought that they are now producing negative real yields (yield minus inflation). And so America’s creditors are now getting slapped quite heavily in the mouth by the Fed’s easy money inflationist policies. John Aziz proposes (much to the consternation of the monetarist-Keynesian “print money and watch your problems evaporate” establishment) that this is a very, very, very dangerous position. And that those economists who are calling for even greater inflation are playing with dynamite. See, while the establishment seems to largely believe that the negative return on treasuries will juice up the American economy — in other words that “hoarders” will stop hoarding and start spending — we believe that negative side-effects from these policies may cause severe harm. Do we really want to risk the inflationary impact of continuing to print money to monetise debt (and hiding the money in excess reserves, thereby temporarily hiding the inflation). As John wrote recently - "So, does the accumulation of excess reserves lead to inflation? Only so much as the frequentation of brothels leads to chlamydia and syphilis." We’d call that playing dice with the devil.
The trouble is that war is a great excuse for weapons contractors to make lots of money, and weapons contractors happily fund war-mongering politicians into power. That’s the self-perpetuating military industrial complex. So the problem then lies in differentiating the necessary actions from the unnecessary. I propose a simple heuristic for this purpose, one that if introduced would also render the war-mongering politician — the Congressman who votes to authorise, or the President who signs the authorisation into law — personally responsible:
If you start a war, you have to fight. If you cannot fight, then your nearest fit relative has to fight.
If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured. Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped. It is said that history doesn't repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress. You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to "level the playing field" and the global economy, already in tatters, will fall off the edge. There is no more timely nor acute example of this growing trend than what is currently going on in France. I refer, of course, to the first round of the presidential election process, scheduled for this weekend.