Tax Revenue

The market is so focused on this morning's BLS number it has completely ignored the latest round of Reuters "news" (after their last two market-testing, unsourced "exclusives" about European developments were roundly refuted nobody can blame it) on how the OMT will proceed once operational (assuming of course Spain ever requests an activation of the mechanism that has allowed it to consider not requesting it). So, on to the thing of importance via BBG: expectations is for a NFP print of 115,000 and an unemployment rate of 8.2%. Any major surprises to either side will likely be risk negative. The unemployment rate has held above 8% level for 43 consecutive months; U.S. labor force participation rate last month declined to 63.5%, lowest since Sept. 1981. Back to Europe, a possible bailout for Spain is not imminent, a European Union official said, as concerns grow over the country’s ability to reach its deficit-reduction targets. The German recession accelerates as factory orders fell 1.3% in August, more than forecast. Switzerland’s foreign-currency reserves rose to a record 429.3 billion francs at the end of September from 420.8 billion francs at the end of August.Around the world: the Bank of Japan held off from more easing after adding to stimulus last month; shoppers from China’s mainland curbed spending at Hong Kong luxury stores during the Golden Week holiday.

The "mañana" approach to fiscal management, that Spain is known for, presented what is generally perceived as overly optimistic growth forecasts for 2013 and lacked details on structural reform resulted in another risk off session. As a result, Spanish stocks continued to underperform (IBEX seen lower by over 5% on the week), with 10y bond yield spread wider by around 12bps as market participants adjusted to higher risk premia. The state is due to sell 2s and 5s next week, which may also have contributed to higher yields. As a reminder, Moody’s review on Spain is set to end today, however there is a chance that the ratings agency may extend the review for another couple of months or wait until the stress test results are published to make an announcement. In other news, according to sources, Greece could return to its European partners for a Spanish-style rescue of its banking sector, as the country is looking to ease the burden via another writedown of its debts or a strong recapitalisation of its banks (no official response as yet). Going forward, the second half of the session sees the release of the latest PCE data, as well as the Chicago PMI report for the month of September.

Whether Atwater, California will join the prodigious ranks of Stockton, San Bernardino, and Mammoth Lakes to become the 4th Muni bankruptcy is up for vote on October 3rd (before a $2mm bond payment in November). As Bloomberg notes, the 28,000-strong Merced county town is suffering under the same weight of public employee costs, lost revenue, and a stagnant economy leaving it with a $3.3 million budget deficit. While some put their hope in the FB IPO, perhaps Bernanke should have mandated investment in AAPL for all these municipal comptrollers? The median income is 19% below the national average as the foreclosure crisis - which saw Atwater's median home price drop by more than half - has depleted property-tax revenues dramatically. "We just started negotiating with our unions and they are going to have to take a major cut," Mayor Joan Faul said. "We hope that once we declare a fiscal emergency, that they will realize that we are definitely in an emergency. If they want to save all the jobs, everyone is going to have to take a cut,"

Confused why contrary to all public lies otherwise, Spain is Greece? Here's why

• TAX RECEIPTS THROUGH AUGUST FELL 4.6% ON YR, SPAIN DATA SHOW: perhaps their tax collectors were also on strike?
• SPAIN GOVT SPENDING THROUGH AUGUST ROSE 8.9%, BUDGET DATA SHOWS: missed the austerity by just thiiiiiiis much
• SPAIN JAN-AUG CENTRAL BUDGET DEFICIT 4.77% GDP VS 3.81% YR AGO

Luckily, there is always hope that the magic money tree will bloom eventually

• SPAIN EXPECTS HIGHER TAX REVENUE IN COMING MONTHS

So, to summarize: revenues down, spending up, budget deficit naturally higher than last year. Oh, stop calculating... and just buy their bonds. The Central Planners will make sure the math is irrelevant always and forever.

Two weeks ago we showed the human aspect of the absolute economic collapse in Greece (because depression is too light a word to describe what is happening in this globalist vassal collony) when charting Greek unemployment surging by 1% in one month to 24.4%, and which as of September is likely nearly 30%. What this means in practical tax revenue terms (if the tax collectors were actually doing their job collecting taxes, instead of striking) is that there is nobody generating any economic products and services, and thus no state revenues. Today, Kathimerini confirms this, in a report that almost a third of all business in Athens have now shuttered: "The number of shuttered shops on the capital's busiest commercial streets, Panepistimiou and Stadiou, also hit a record high in August, reaching 34.7 percent on Panepistimiou and 42 percent on Akadimias, up 14 percent in the last six months." And so the close loop continues as fewer businesses are around to hire less people, generating less state revenue, encouraging less businesses to open and so on, until the entire country collapses in a heap of worthless debt.

There was a time about a year ago, before the second Greek bailout was formalized and the haircut on its domestic-law private sector bonds (first 50%, ultimately 80%, soon to be 100%) was yet to be documented, when it was in Greece's interest to misrepresent its economy as being worse than it was in reality. Things got so bad that the former head of the Greek Statistics Bureau Elstat, also a former IMF employee, faced life in prison if convicted of doing precisely this. A year later, the tables have turned, now that Germany is virtually convinced that Europe can pull a Lehman and let Greece leave the Eurozone, and is merely looking for a pretext to sever all ties with the country, whose only benefit for Europe is to be a seller of islands at Blue Aegean water Special prices to assorted Goldman bankers (at least until it renationalizes them back in a few short years). So a year later we are back to a more normal data fudging dynamic, one in which Greece, whose July unemployment soared by one whole percentage point, will do everything in its power to underrepresent its soaring budget deficit. Case in point, on Friday the Finance Ministry proudly announced its budget deficit for the first eight months was "just" €12.5 billion, versus a target of €15.2 billion, leading some to wonder how it was possible that a country that has suffered terminal economic collapse, and in which the tax collectors have now joined everyone in striking and thus not collecting any tax revenue, could have a better than expected budget deficit. Turns out the answer was quite simple. According to Spiegel, Greece was lying about everything all along, and instead of a €12.5 billion deficit, the real revenue shortfall is nearly double this, or €20 billion, a number which will hardly incentivize anyone in Germany to give Greece the benefit of another delay, let along a third bailout as is now speculated.

It’s not like anvils are flying low, nor shoes dropping.

No major news, but jittery here.

No fun.

Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing? A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.

“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges

Just in case there wasn't enough excitement and fury directed at Swiss bank account holders, which continue to dominate the presidential election "debate" above such mundane topics as the economy, or, say, reality, here comes the IRS, which as we noted yesterday collected $192 billion less than the government spent in the month of August alone, and have awarded Bradely Birkenfeld, a former UBS employee who in 2008 pleaded guilty to conspiracy to defraud the United States and was sentenced in 2009 to 40 months in prison, but received preferential whistleblower status after a prior arrangement to expose numerous Americans with Swiss bank accounts, has just been awarded $104 million.

While the official number from the FMS is not out yet, according to an advance look by the CBO, the August deficit soared from a modest $70 billion to a whopping $192 billion, the highest August deficit in history, and coming at a time when traditionally the US Treasury does not generate substantial deficits. It also means that "that" $59 billion budget surplus in April, coming after 42 straight months of deficits, and which surprised so many, was just as we suspected, nothing but a play on the temporal mismatch between treasury receipts and outlays. Most importantly, with one month left in the fiscal year, a month which, too, will likely come well above last year's $63 billion, the US has now spent $1.165 trillion more than it has received via various taxes. Finally so much for the year over year improvement: at $1.23 trillion deficit in the LTM period, this is only 3.2% less than the August 2011 LTM deficit which was $1.27 trillion, despite nearly 2 million more workers employed (at least according to the BLS) and generating tax revenue. Expect the US to end Fiscal 2012 with a total deficit of well over $1.2 trillion, which in turn means that the average burn rate of $100 billion in new debt issuance each month, will continue into the indefinite future.

As President Obama doubles down on federal spending, he tells us these aren't the droids we're looking for

Bernanke knows this. I wish he would admit to it.

If you haven't heard yet, the United States of America just hit $16 trillion in debt yesterday. On a gross, nominal basis, this makes the US, by far, the greatest debtor in the history of the world.  It took the United States government over 200 years to accumulate its first trillion dollars of debt. It took only 286 days to accumulate the most recent trillion dollars of debt. 200 years vs. 286 days. This portends two key points:

1. Anyone who thinks that inflation doesn't exist is a complete idiot;
2. To say that the trend is unsustainable is a massive understatement.

This is banana republic stuff, plain and simple... and smart, thinking people ought to be planning on capital controls, wage and price controls, pension confiscation, and selective default. Because the next trillion will be here before you know it.

Over the weekend, we pointed out that the old mechanism for the People’s Bank of China to expand its balance sheet and create base money has been broken by new funds flow pattern, and it will sooner or later require some sort of large scale asset purchases programme a.k.a. quantitative easing to offset the impact of the broken mechanism (after other tools such as cutting RRR reach their limits). However, we also mentioned that as the private sector is currently quite overstretched and will start the deleveraging process (if they have not already started), and that would render traditional monetary tools useless, and quantitative easing ineffective. And that would necessitate deficit spending at both local and central government levels. If we have read the social mood correctly that China might be more pro-austerity than pro-Keynesian, and if policymakers indeed share that view, then the consequence in the near term could be rather grim. The delay in stimulus as well as the small size of it so far has already done damage, if you like. The economy is already on course to a hard landing.

A key sticking point in the ongoing presidential debate is what happens to US tax rates, either for just those making over an arbitrary $250,000/year, aka "the rich", or for everyone. To put this debate into perspective, here is a chart that shows how over the past 20 years the US funding needs (demonstrated previously here), have been met in terms of the only two components of US funding - tax revenue and debt issuance.