An import report on a key element of the economy will show big problems looming for Social Security - it will be ignored.
IRS to Spy on Our Shopping Records, Travel, Social Interactions, Health Records and Files from Other Government InvestigatorsSubmitted by George Washington on 05/02/2013 12:58 -0500
More and More People Are Staring Into Our Fishbowl
After reading the Spiegel article below, which reveals so much about German thinking, it becomes very clear that not only is Cyprus the "benchmark", but that the second some other PIIG country runs into trouble again, and its soaring non-performing loans inevitably demand a liability "resolution" a la Cyprus, it will be Germany once again at the helm, demanding more of the same equity, unsecured debt and ultimately depositor impairment. As the following punchline from Spiegel summarizes, "It would be more sensible -- and fairer -- for the crisis-ridden countries to exercise their own power to reduce their debts, namely by reaching for the assets of their citizens more than they have so far. As the most recent ECB study shows, there is certainly enough money available to do this." And that is the crux of the wealth-disparity demand of the European Disunion.
We are a long way from really resolving the argument between the Keynesian and Austrian economic theories, despite some so-called experts proclaiming Krugman's victory this week. The discovery of the calculation error in the Reinhart/Rogoff study does little to change the overall premise that excessive debt levels impede economic growth and have, historically, led to the fall of economic empires. All one really has to do is pick up a history book and read of the Greeks, Romans, British, French, Russians and many others. Does fiscal responsibility lead to short term economic pain? Absolutely. Why would anyone ever imagine that cutting spending and reducing budgets would be pain free? However, what we do know is that the path of fiscal irresponsibility has long term negative consequences for the economy. In the meantime we can continue to ignore the long term conseqences in exchange for short term bliss.
That Congress has had aspirations on collecting sales tax on online purchases, which comprise an increasingly bigger portion of all retail sales in the US, in the past is nothing new. However, following last night's passage of the Marketplace Fairness Act in the Senate with a cloture busting 74 votes for (and 20 against), the US may be very close to finally adopting a uniform standard taxing all online transactions, regardless of physical jurisdiction or any other geographic boundaries. As Ars Technica reported last night, "your tax-free days of online shopping are numbered. If S743, also known as the Marketplace Fairness Act, becomes law, the millions of Americans who have been able to avoid sales tax online will have to start paying it. Given the broad support shown by today's US Senate vote, some version of it is likely to come to fruition."
One element of the President's budget is a sham.
While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."
As the fast-money flabber-mouths stare admiringly at the rise in nominal prices of Japanese (and the rest of the world ex-China) stock prices amid soaring sales of wheelbarrows following Kuroda's 'shock-and-awe' last night, it is Kyle Bass who brings these surrealists back to earth with some cold-hard-facting. Out of the gate Bass explains the massive significance of what the Japanese are embarking on, "they are essentially doubling the monetary base by the end of 2104." It is a "Giant Experiment," he warns, but when you are backed into a corner and your debts are north of 20 times your government tax revenue, "you're already insolvent." Simply put, Bass says they have to do something and they have to something big because they are "about to implode under the weight of their debt." For a sense of the scale of the BoJ's 'experimentation', Bass sums it up perfectly (and concerningly), "the BoJ is monetizing at a rate around 75% of the Fed on an economy that is one-third the size of the US!"
While immigration was pretty far down on the priority list at this time last year, recently the topic has taken a front seat in lawmakers’ chambers down in Washington. ConvergEs's Nick Colas notes that policymakers on both sides of ideological spectrum are establishing positions and recommendations for reform, and are familiarizing themselves with some of the lesser-known facts about immigration. In a nutshell, he explains: immigration is not all about border crossings from Mexico and undocumented workers. There are many more figures – and costs – associated with immigration, most of which have palpable and measurable impacts on the US economy. From GDP growth to the health of the housing market, immigration’s influences may not be widely known, but should be in order for policymakers and investors to make informed decisions.
"All this money printing, massive debt, and reckless deficit spending – and we have 2% inflation? I'm beginning to believe that either the deflationists are right, or the Fed's interventions are working." While a low CPI may be puzzling in the midst of massive, global currency abuse, there are three realities about inflation that convince us it's not only coming, but will catch an unsuspecting citizenry off guard. Let's take a look at why we're convinced inflation will be one of the next big catalysts for the gold price...
The most positive aspect of last night’s deal was that a deal was reached at all, and that some steps have been taken to counter moral hazard. However, overall, this is a bad deal for Cyprus and the Cypriot population. Cypriot GDP is likely to collapse in the wake of the deal with the possible capital controls hampering the functioning of the economy. The large loan from the eurozone will push debt up to unsustainable levels while the austerity accompanying it (along with the bank restructuring plan) will increase unemployment and cause social tension. There is a strong chance Cyprus could become a zombie economy – reliant on eurozone and central bank funding, with little hope of economic growth. Meanwhile, the country will remain at the edge of the single currency as tensions increase between members with Germany, the ECB and the IMF now looking intent on a more radical approach to the crisis. The eurozone took this one down to the wire. But late last night, after a week of intense back and forth negotiations, a deal was reached on the Cypriot bailout. Below we lay out the key points of the deal (the ones that are known, there are plenty of grey areas remaining) and our key reactions to the deal.
Can't get enough of Cyprus? Then here is yet another post-post-mortem from Goldman's Jernej Omahen, once more trying to put some very silvery lining on this particular mushroom cloud, and providing some useful facts in the process. "As part of its rescue package, Cyprus introduced a one-off tax on deposits. This “tax” can be viewed as both (1) a depositor bail-in, and/or (2) a wealth tax. Cyprus aims to capture €5.8 bn of tax revenue in this way, which compares to the total bailout package of €10 bn. In absolute terms, the amounts are low; regardless, the market focus on potential read-across will be high, in our view. The tax on depositors is setting a precedent, which is likely to have an impact beyond the immediate term, in our view. Resilience of, in particular, retail deposits was an important element of stability during crisis peaks (e.g., Spain). Post the Cyprus precedent, however, it is reasonable to expect that the deposit volatility in stressed sovereigns could rise, for two reasons: firstly, perceived risk of deposit bail-in will have increased; secondly (independent of failing bank issues), perceiving savings as a potential tax-base – for wealth taxes – is new."
The more time passes, the more skeletons emerge from the closet. So what’s the punishment for an industry that has literally destroyed countless communities across the American landscape? Trillions in taxpayer bailouts and even more control over our government. They say “it would’ve been much worse without the bailouts.” Tell that to Detroit...
Thirty cities at the center of the nation’s most populous metropolitan areas faced more than $192 billion in unpaid commitments for pensions and other retiree benefits, primarily health care, as of fiscal 2009. Pew notes that these cities had 74 percent of the money needed to fully fund their pension plans but only 7.4 percent of what was necessary to cover their retiree health care liabilities. Cities typically count on investment earnings from their pension funds to cover two-thirds of benefits. During the Great Recession, though, returns were lower than expected, and unfunded pension liabilities grew in nearly all of the cities. Even cities with well-funded systems struggled to keep up their yearly contributions as local tax revenue plummeted during the recession, and while pension assets have largely returned to pre-recession levels, they still must make up for years of lost growth, as liabilities continue to rise. So pressure for reforms is not expected to lessen. New York and Philadelphia may have the largest unfunded liability per household, but it is Chicago and Pittsburgh that have the lowest funding levels for pensions and the lowest retiree health care funding levels - while Washington D.C. tops the list in both. Benefits down, taxes up.
Hauser's law contends that Federal tax revenues rarely rise above 20% of GDP, regardless of where nominal tax rates are set. The implicit dynamic here is that when taxes exceed 20% of GDP, participants modify their behavior to lower their taxes. Corporations will shift operations overseas. Some high-wage earners will simply work less, reducing their income to lower tax brackets. Small business owners will decrease their compensation, cut back their workload, or simply bail out. Others will leave the high-tax market and slip into the cash/informal economy where the tax rate is zero. In a $15 trillion economy, this suggests the maximum Federal tax revenue that can realistically be collected is around $3 trillion. Currently, Federal tax revenues are around $2.5 trillion, and Federal spending is about $3.8 trillion. That leaves a $1.3 trillion deficit that is filled with borrowed money. Tradeoffs will have to be made. That is the essence of adulthood. Too bad we've become a nation of spoiled adolescents.