Let's pretend it's early 2009 and you happen to be your typical modern-day politician... And let's say you inherit an economic nightmare: A mammoth 44% of revenue deficit, a sick economy, and a looming credit rating downgrade threat from Moody's... Now, being typical, if you happen to run a nation, you'd attempt to print your way out of trouble; bailouts, stimulus programs, quantitative easing... If you run a state, you'd grab all the stimulus money you can and transfer most of it straight through to your myriad entitlement programs...
Now let's pretend you're different, let's pretend your name is Luis Fortu
Monday, November 28, 2011
Sunday, November 27, 2011
Idealistic, I know...
“As we go into an election year, I think really fixing problems gets politically harder,” said Nicholas Johnson, who tracks the conditions of states as vice president for state fiscal policy at the liberal-leaning Center on Budget and Policy Priorities. From Some States Are Facing Revenue Shortfall—Again… Published: Wednesday, 23 Nov 2011 by Reuters:
Alas, Mr. Johnson I’m afraid has it right…
The latest example of going-into-an-election-year politicking would be The Super Committee failure—efforts stemming from nothing more than a weighing of political risks. Ironically, a no win proposition for the party that was virtually powerless the first two years of the present administration. The Democrats facing recession-induced disaster, come November 2012, are masterfully exploiting the Republican’s Achilles heel; a slash spending/no new taxes, written-in-blood Bush(1)-style pledge.
“The “Party of No” wants to cut your social security, medicare, medicaid, food stamps, etc., all the while refusing to ask the fat cats to pay their fair share.” That’s the left’s battle cry. They’re thinking the populace will buy in and give them yet another round of change-making. We’ll see. It’s a long road to November.
I’m thinking the Republicans have a legitimate riposte. And, ironically, their best political maneuver would be in the best interest of the country. They must join with the ranks (not that they’ll be widely accepted mind you)—the occupiers, the victims, the “99%” – and move to end crony capitalism once and for all (realistically; once and for awhile). No more loopholes, no more subsidies or deductions for government-friendly (to the right or left) enterprises, and no more bailouts. They need to call it like it is. Admit that government screwed up the day it flinched first and performed its first bailout of a supposedly systemically important enterprise. Roll back all new regs imposed on the bailees, etc., over the past three years. That’s right, let them do business within the framework of pre-2008 regs. Knowing there’ll be no backstop, and no incentive to grease the politician, will inspire prudence and due diligence, I guarantee it. Then lower the corporate tax rate to 25% (even lower would be better). I don’t know whether that (no loopholes w/lower rates) will initially result in more or less taxes due, but I assure you, longer-term, the confidence that stems from tax and regulatory certainty will unleash capital in a huge way, create jobs and ultimately increase government revenue.
Idealistic, I know…
Alas, Mr. Johnson I’m afraid has it right…
The latest example of going-into-an-election-year politicking would be The Super Committee failure—efforts stemming from nothing more than a weighing of political risks. Ironically, a no win proposition for the party that was virtually powerless the first two years of the present administration. The Democrats facing recession-induced disaster, come November 2012, are masterfully exploiting the Republican’s Achilles heel; a slash spending/no new taxes, written-in-blood Bush(1)-style pledge.
“The “Party of No” wants to cut your social security, medicare, medicaid, food stamps, etc., all the while refusing to ask the fat cats to pay their fair share.” That’s the left’s battle cry. They’re thinking the populace will buy in and give them yet another round of change-making. We’ll see. It’s a long road to November.
I’m thinking the Republicans have a legitimate riposte. And, ironically, their best political maneuver would be in the best interest of the country. They must join with the ranks (not that they’ll be widely accepted mind you)—the occupiers, the victims, the “99%” – and move to end crony capitalism once and for all (realistically; once and for awhile). No more loopholes, no more subsidies or deductions for government-friendly (to the right or left) enterprises, and no more bailouts. They need to call it like it is. Admit that government screwed up the day it flinched first and performed its first bailout of a supposedly systemically important enterprise. Roll back all new regs imposed on the bailees, etc., over the past three years. That’s right, let them do business within the framework of pre-2008 regs. Knowing there’ll be no backstop, and no incentive to grease the politician, will inspire prudence and due diligence, I guarantee it. Then lower the corporate tax rate to 25% (even lower would be better). I don’t know whether that (no loopholes w/lower rates) will initially result in more or less taxes due, but I assure you, longer-term, the confidence that stems from tax and regulatory certainty will unleash capital in a huge way, create jobs and ultimately increase government revenue.
Idealistic, I know…
Saturday, November 26, 2011
Shoulda experimented with low income driving first...
So the fella whose mismanaged his affairs, and consequently sports a 600 credit score, can finance a brand new car - but only at an interest rate of 12%... The problem is, he may not be able to afford it? While the guy whose managed his affairs well, and consequently sports an 800 score, can finance the same car at an easily affordable 2%...
More evidence that our system tilts in favor of the fortunate... The 800 scorer makes out, the 600er gets screwed... It's as if those who go to school, work hard, pay off their student loans, and save for their futures should be rewarded with opportunities not available to those who choose otherwise... Blatantly unfair!!
The problem folks isn't government, it's the free market... In the case of lending, banks are free to charge rates commensurate with risk... Lending to someone with a history of not honoring his commitments is risky business and therefore the banks require a higher return on investment... The government needs to put a stop to this prejudice and force lenders to treat everyone equally...
One solution would be to require banks to pool the risk: Instead of charging one customer 12% and the other 2%, split the difference and charge them both 7%... The banks still make out fine... In fact, there'd be a dramatic pick up in pickup sales and, consequently, loans... A greater number of subprime borrowers could get into cars they couldn't previously afford, and the greater demand would force prices and production higher. Everyone would be driving brand new cars and the economy would be booming!!
Hmm?? Sound at all familiar? Think subprime mortgages... Think real estate bubble... Think Barney Frank 2003:
More evidence that our system tilts in favor of the fortunate... The 800 scorer makes out, the 600er gets screwed... It's as if those who go to school, work hard, pay off their student loans, and save for their futures should be rewarded with opportunities not available to those who choose otherwise... Blatantly unfair!!
The problem folks isn't government, it's the free market... In the case of lending, banks are free to charge rates commensurate with risk... Lending to someone with a history of not honoring his commitments is risky business and therefore the banks require a higher return on investment... The government needs to put a stop to this prejudice and force lenders to treat everyone equally...
One solution would be to require banks to pool the risk: Instead of charging one customer 12% and the other 2%, split the difference and charge them both 7%... The banks still make out fine... In fact, there'd be a dramatic pick up in pickup sales and, consequently, loans... A greater number of subprime borrowers could get into cars they couldn't previously afford, and the greater demand would force prices and production higher. Everyone would be driving brand new cars and the economy would be booming!!
Hmm?? Sound at all familiar? Think subprime mortgages... Think real estate bubble... Think Barney Frank 2003:
Friday, November 25, 2011
A bit of tough love...
There's this growing frustration with Germany for not stepping up and fixing the Euro problem... 'The one country that's gained big time from the Euro experiment shouldn't be so reluctant to step in and help its prodigal brethren', many think... But unlike the Good Book's Prodigal Son, the Euro's wayward children don't get an open-arms pass for all their wandering and squandering... However I do sense there's still a little something pulling at Germany's heartstrings...
Chancellor Merkel indeed maintains her adamant stance that there'll be no Euro bond and no ECB rescue of sovereign debt, per CNBC.com this morning: Hopes for a swift resolution have been dampened after yet another inconclusive summit on Thursday. German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian Prime Minister Mario Monti's meeting did not result in any new initiatives, with Merkel reiterating her opposition to issuing joint euro bonds and allowing the ECB to print money.
However, she has offered up hints of late that maybe, just maybe, there is a scenario where Germany can step up without herself losing face... Here's more from this morning's article: Besides the German obsession with central bank independence and fear of hyperinflation, the core of the German opposition is "all about conditionality," Carsten Brzeski, an analyst with ING, said.
"The German government does not believe in a quick fix of the crisis, only in structural changes," Brzeski said.
"In fact, chancellor Merkel has recently made several pleas for more political integration in the euro zone. However, it is obvious that the German government first wants to see more political integration before it would give structural access to German money. This explains the German emphasis on Treaty changes," he added.
And seriously, can you blame her? Instead of just throwing money at the problem willy nilly, Germany's saying "hey, if you want our help, show us you can handle it, responsibly"... A bit of tough love you might say....
Chancellor Merkel indeed maintains her adamant stance that there'll be no Euro bond and no ECB rescue of sovereign debt, per CNBC.com this morning: Hopes for a swift resolution have been dampened after yet another inconclusive summit on Thursday. German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian Prime Minister Mario Monti's meeting did not result in any new initiatives, with Merkel reiterating her opposition to issuing joint euro bonds and allowing the ECB to print money.
However, she has offered up hints of late that maybe, just maybe, there is a scenario where Germany can step up without herself losing face... Here's more from this morning's article: Besides the German obsession with central bank independence and fear of hyperinflation, the core of the German opposition is "all about conditionality," Carsten Brzeski, an analyst with ING, said.
"The German government does not believe in a quick fix of the crisis, only in structural changes," Brzeski said.
"In fact, chancellor Merkel has recently made several pleas for more political integration in the euro zone. However, it is obvious that the German government first wants to see more political integration before it would give structural access to German money. This explains the German emphasis on Treaty changes," he added.
And seriously, can you blame her? Instead of just throwing money at the problem willy nilly, Germany's saying "hey, if you want our help, show us you can handle it, responsibly"... A bit of tough love you might say....
Tuesday, November 22, 2011
Something to Celebrate
With a hint of concern, perhaps disappointment even, the cable network staff economist reports that government spending has declined four straight quarters... He laments;
"now four straight quarters of decline in government spending in the GDP accounts, that hasn't happened since the wind down of government spending in the wake of the Vietnam War in 1971. So it's been a long time since government has been this sort of a drag on the economy."
"It's been a long time since (a decline in) government (spending) has been this sort of a drag on the economy" - let that sink in... As if government spending, as if $15 trillion in national debt, as if a $1.5 trillion budget deficit and its attendant uncertainty hasn't indeed been THE drag on the economy these days...
Notwithstanding the impact to GDP, I'm thinking four quarters of decline in gov't spending is something to celebrate...
Never [ever!] forget, the government doesn't have its own money... It has tax revenue that it extracts from the private sector... Every dollar the government doesn't spend is ultimately one the private sector allocates... You think maybe that dollar has a way better chance of growing (jobs, etc.) in the private sector than it would in the clutches of the politician?
"now four straight quarters of decline in government spending in the GDP accounts, that hasn't happened since the wind down of government spending in the wake of the Vietnam War in 1971. So it's been a long time since government has been this sort of a drag on the economy."
"It's been a long time since (a decline in) government (spending) has been this sort of a drag on the economy" - let that sink in... As if government spending, as if $15 trillion in national debt, as if a $1.5 trillion budget deficit and its attendant uncertainty hasn't indeed been THE drag on the economy these days...
Notwithstanding the impact to GDP, I'm thinking four quarters of decline in gov't spending is something to celebrate...
Never [ever!] forget, the government doesn't have its own money... It has tax revenue that it extracts from the private sector... Every dollar the government doesn't spend is ultimately one the private sector allocates... You think maybe that dollar has a way better chance of growing (jobs, etc.) in the private sector than it would in the clutches of the politician?
Monday, November 21, 2011
Big time sacrifice this ain't...
So what do you think about this pending "mammoth" sacrifice (the so-called Super Committee's charge of $1.2 trillion in spending cuts over the next decade)? Listening to the spenders, you'd think we're facing 10 years of gut-wrenching austerity...But they're only talking $1.2 trillion out of a budget estimated to increase our debt by $10.2 trillion...
So while they'd have us believe the deadlock is over how to manage less spending, what they're killing (let's pray) their careers over is how to stem the projected spending/debt increase by a paltry 10%...
It's like the spendthrift consumersaying, "instead of running up my credit cards by another $50,000, I'm going to sacrifice big time and only spend $45,000 I don't have..."
So while they'd have us believe the deadlock is over how to manage less spending, what they're killing (let's pray) their careers over is how to stem the projected spending/debt increase by a paltry 10%...
It's like the spendthrift consumersaying, "instead of running up my credit cards by another $50,000, I'm going to sacrifice big time and only spend $45,000 I don't have..."
Sunday, November 20, 2011
Sacrifice sharing
"Shared sacrifice", "fair share"; the mantras of those who'd raise taxes to cure our present ills... I'm sorry, but this has gone way beyond any semblance of commonsense... The Administrations and Congresses of the past decade+, consisting of both Republicans and Democrats, have furthered their respective agendas with no regard for anything other than what a fiat currency has to offer, i.e., unfettered printing...
Let's rewind all the way back to the ancient times of 2007... In 2007 our budget was $2.7 trillion, against revenue of $2.5 trillion (sadly The Bush Administration was bragging about the mere $200 billion deficit)... Today our budget is $3.7 trillion, against revenue of $2.2 trillion... I.e., over the course of the past 4 years we've ramped up annual spending by $1 trillion while tax revenue has declined (due to recession, not tax cuts, mind you) by only $0.3 trillion... I.e., politicians have been fully engaged in sacrifice sharing... I.e., while you've been sacrificing your time and resources (working your rear off, raising your kids, paying your bills, your taxes, saving for retirement, etc.), our policymakers have been sharing (and leveraging) your tax dollars with whoever bests their odds of keeping their jobs...
Now I'm not entirely suggesting that raising taxes should be entirely out of the question... I've stated here before that if a corporate tax code overhaul, consisting of closing loopholes and lowering rates, results in a net increase in revenue, so be it... It's the right thing to do, and I suspect that the certainty of a simpler tax code alone might inspire companies to begin deploying some of that $trillion+ resting on their balance sheets...
But let's not pretend we're in this fix as a result of heightened inequality...
It's like 4 years ago you were making X, paying taxes, etc... Today (if you're lucky) you're still making X, paying taxes, etc... While 4 years ago the government was spending X... Today it's spending Y (X+$1 trillion)... And they'd have you believe that the gap between government spending X and government spending Y is the result of you (or someone) not paying your (their) fair share... Ask yourself, is the problem taxes or spending? Now be honest...
Now read Dude, we need to put you on a diet...
Let's rewind all the way back to the ancient times of 2007... In 2007 our budget was $2.7 trillion, against revenue of $2.5 trillion (sadly The Bush Administration was bragging about the mere $200 billion deficit)... Today our budget is $3.7 trillion, against revenue of $2.2 trillion... I.e., over the course of the past 4 years we've ramped up annual spending by $1 trillion while tax revenue has declined (due to recession, not tax cuts, mind you) by only $0.3 trillion... I.e., politicians have been fully engaged in sacrifice sharing... I.e., while you've been sacrificing your time and resources (working your rear off, raising your kids, paying your bills, your taxes, saving for retirement, etc.), our policymakers have been sharing (and leveraging) your tax dollars with whoever bests their odds of keeping their jobs...
Now I'm not entirely suggesting that raising taxes should be entirely out of the question... I've stated here before that if a corporate tax code overhaul, consisting of closing loopholes and lowering rates, results in a net increase in revenue, so be it... It's the right thing to do, and I suspect that the certainty of a simpler tax code alone might inspire companies to begin deploying some of that $trillion+ resting on their balance sheets...
But let's not pretend we're in this fix as a result of heightened inequality...
It's like 4 years ago you were making X, paying taxes, etc... Today (if you're lucky) you're still making X, paying taxes, etc... While 4 years ago the government was spending X... Today it's spending Y (X+$1 trillion)... And they'd have you believe that the gap between government spending X and government spending Y is the result of you (or someone) not paying your (their) fair share... Ask yourself, is the problem taxes or spending? Now be honest...
Now read Dude, we need to put you on a diet...
Saturday, November 19, 2011
Doodoo's doing them in...
If you're an "Occupy Wall Street" sympathizer, aren't you just a little embarrassed? Forget for a moment that their message is harder to make out than Alcatraz on a foggy morning (that in and of itself ought to discourage your allegiance), but when the Mayor of San Francisco, the "liberal" capitol of America, wants to kick your can down the road, your cause is in deep doodoo my friend...
And speaking of doodoo, your heroes are on the outs due to unsanitary acts too grotesque to mention on this family channel...
But you know, as nauseating as the whole thing's been, I'm thinking the efforts of these vulgar vagabonds haven't been entirely in vain... As misplaced (should've been placed in DC) as this movement's (not to mention bowel movements) been, if it has in any way shined more light on crony capitalism (gov't picking its winners) it wasn't all for naught...
And speaking of doodoo, your heroes are on the outs due to unsanitary acts too grotesque to mention on this family channel...
But you know, as nauseating as the whole thing's been, I'm thinking the efforts of these vulgar vagabonds haven't been entirely in vain... As misplaced (should've been placed in DC) as this movement's (not to mention bowel movements) been, if it has in any way shined more light on crony capitalism (gov't picking its winners) it wasn't all for naught...
Thursday, November 17, 2011
Should we default to commonsense?
Granted, I'm a bit strange, but I enjoy studying economics... And as much as you'd suspect I'd go searching for only that evidence which supports my free market biases, that's not entirely the case... I do in fact subject my nervous system to even the most Keynesian of Keynesians, the likes of Nobel Laureate Paul Krugman and others... I suspect therefore that someday in the not too distant future some caring soul might suggest a little Botox to undo the crevices etched between my eyebrows...
It is indeed troubling:
In this morning's NY Times Mr. Krugman emphatically states the opposite of the logic I was reared on... He implies that the path to our nation's prosperity involves tax and spending hikes (reading Krugman does more to add character to my brow line than just about anything I can imagine)... What probably frustrates me the most is his penchant for blurting, with no links to studies that might support his position...
When you have a little time, if you're a bit strange, read Krugman's article, and this one [I just quickly Googled] that leans more toward my bias...
In the end, shouldn't we simply default to commonsense? I mean shouldn't we apply to government spending the same logic we apply to our personal spending?
I know people, personally and professionally, who operate their finances much like our government (present and immediate past administrations in particular), and I know people who pay off their credit cards every month, save for their vacations and store nuts for the winter... I find the latter (save for the obsessive/compulsive) to be, virtually without exception, happier and healthier than the former...
Unscientific as that (comparing gov't money management to personal, and comparing personal happiness among spenders and savers) is, I think ultimately that's how we should consider how we allow our government to operate going forward... Doesn't Europe clearly make the case?
It is indeed troubling:
In this morning's NY Times Mr. Krugman emphatically states the opposite of the logic I was reared on... He implies that the path to our nation's prosperity involves tax and spending hikes (reading Krugman does more to add character to my brow line than just about anything I can imagine)... What probably frustrates me the most is his penchant for blurting, with no links to studies that might support his position...
When you have a little time, if you're a bit strange, read Krugman's article, and this one [I just quickly Googled] that leans more toward my bias...
In the end, shouldn't we simply default to commonsense? I mean shouldn't we apply to government spending the same logic we apply to our personal spending?
I know people, personally and professionally, who operate their finances much like our government (present and immediate past administrations in particular), and I know people who pay off their credit cards every month, save for their vacations and store nuts for the winter... I find the latter (save for the obsessive/compulsive) to be, virtually without exception, happier and healthier than the former...
Unscientific as that (comparing gov't money management to personal, and comparing personal happiness among spenders and savers) is, I think ultimately that's how we should consider how we allow our government to operate going forward... Doesn't Europe clearly make the case?
Wednesday, November 16, 2011
Dude, we need to put you on a diet!!
So the nurse invites you back, asks you to slip off your 4-inch heel boots, you step on the scale, she rests the sliding bar on 261 pounds, you cheat a tiptoe to 59 inches...
Ninety minutes later (you're starving) the doc says "Dude (young/hip doc) we need to put you on a diet!" You say "how about diet pills?" Doc says "no, I don't like the side effects, and your heart's not sounding so good. Let's see how you do with just cutting calories for awhile." You say "no way Doc! That's not fair! If you don't give me the pills I'm not cutting back what I eat!!" "What'r you nuts?" cries Doc, "whether or not you get the pills, assuming you wanna live, you still gotta go on a diet!!"
So our nation's frame currently supports $2.2 trillion per year... We step on the scale and we're at $3.7... One side says "Dudes we have to cut spending!" The other says "how about we raise taxes?" The one side says "let's see how we do with just spending cuts first (being that the economy's been so erratic)." The other says "that's not fair! If you don't give us tax increases, we're not cutting a dime!!" You know the rest...
Our "leaders" in action...
Ninety minutes later (you're starving) the doc says "Dude (young/hip doc) we need to put you on a diet!" You say "how about diet pills?" Doc says "no, I don't like the side effects, and your heart's not sounding so good. Let's see how you do with just cutting calories for awhile." You say "no way Doc! That's not fair! If you don't give me the pills I'm not cutting back what I eat!!" "What'r you nuts?" cries Doc, "whether or not you get the pills, assuming you wanna live, you still gotta go on a diet!!"
So our nation's frame currently supports $2.2 trillion per year... We step on the scale and we're at $3.7... One side says "Dudes we have to cut spending!" The other says "how about we raise taxes?" The one side says "let's see how we do with just spending cuts first (being that the economy's been so erratic)." The other says "that's not fair! If you don't give us tax increases, we're not cutting a dime!!" You know the rest...
Our "leaders" in action...
Can't we even get a drop in the bucket??
You and I were told that there'd be this bipartisan "super committee" that would, by November 23rd, agree on some $1.5 trillion in spending cuts over the next ten years (a drop in the bucket btw) or, automatic spending cuts ($1.2 trillion worth) would be forced upon the nation's budget... That, they (Congress and the President) made it seem, was carved in stone...
As it stands, we're seven days from the deadline, lightyears from an agreement, and lo and behold, they who made the rules are reportedly scrambling to change them... I.e., they don't like the automatic cuts, so they're (reportedly) looking to proverbially kick the can down the road...
Should they fail however to scrap the prescribed consequence for failure (i.e., if Congress doesn't do away with the automatic cuts), the President suggests he may veto them anyway... Which is interesting in that, as I understand it, no cuts whatsoever would force another debt ceiling battle some two months before next year's election... Hmm?
Stay tuned...
As it stands, we're seven days from the deadline, lightyears from an agreement, and lo and behold, they who made the rules are reportedly scrambling to change them... I.e., they don't like the automatic cuts, so they're (reportedly) looking to proverbially kick the can down the road...
Should they fail however to scrap the prescribed consequence for failure (i.e., if Congress doesn't do away with the automatic cuts), the President suggests he may veto them anyway... Which is interesting in that, as I understand it, no cuts whatsoever would force another debt ceiling battle some two months before next year's election... Hmm?
Stay tuned...
Tuesday, November 15, 2011
In Your Face
I find it utterly fascinating how politicians forever get away with professing allegiance to the consumer at large while doing everything within their might to promote select producers and consumers (operative word; "select")- right in the face of the consumer at large...
A case in point would be The President's comments following last weekend's Asia-Pacific Economic Cooperation summit... According to yesterday's Reuter's article titled Obama to China; Behave like 'Grown Up' Economy the president minced no words in shaming China for not "playing by the rules"... "We don't want them taking advantage of the United States" he told reporters... He demanded that China stop "gaming" the international system and create a level playing field for U.S. and other foreign businesses.
For starters (I can't resist); Obama, presiding over $15 trillion in debt, 1/3rd of which was borrowed in the past 3 years alone, telling Jintao to grow up is like the guy who mortgaged his house six times in 2006 (you know, the guy who had the boat, the his and her jet skis, the Escalade and the Harley) telling Ben Stein how to manage his money...
But of course that's not what the President's carping about... His gripe is the same poll-inspired gripe of virtually every politician from Dennis Kucinich to Michelle Bachman... Operative words; "poll-inspired"...
The strange irony is that without our so-called trade deficit (a myth by the way), Obama would be presiding over an even bigger economic mess here at home... You see one of the many items China is spending all those U.S. dollars on is U.S. Treasury bonds... Now ask yourself, if goods from China suddenly became expensive and you therefore kept all of your purchases domestic, do you suppose the U.S. producer would be apt to use his profits to buy 10 year treasury notes at 1.9%, like China's doing? And if you're right and they wouldn't (you said "no", right?), then I assure you the interest rate on all that U.S. debt the government needs to fund that $trillion.5 budget deficit would be substantially higher - thus exacerbating the problem - big time!!
And besides, if China is indeed guilty of purposely cheapening the Yuan, it is, in no uncertain terms, to our (consumers at large) net benefit... Read On Balance...
A case in point would be The President's comments following last weekend's Asia-Pacific Economic Cooperation summit... According to yesterday's Reuter's article titled Obama to China; Behave like 'Grown Up' Economy the president minced no words in shaming China for not "playing by the rules"... "We don't want them taking advantage of the United States" he told reporters... He demanded that China stop "gaming" the international system and create a level playing field for U.S. and other foreign businesses.
For starters (I can't resist); Obama, presiding over $15 trillion in debt, 1/3rd of which was borrowed in the past 3 years alone, telling Jintao to grow up is like the guy who mortgaged his house six times in 2006 (you know, the guy who had the boat, the his and her jet skis, the Escalade and the Harley) telling Ben Stein how to manage his money...
But of course that's not what the President's carping about... His gripe is the same poll-inspired gripe of virtually every politician from Dennis Kucinich to Michelle Bachman... Operative words; "poll-inspired"...
The strange irony is that without our so-called trade deficit (a myth by the way), Obama would be presiding over an even bigger economic mess here at home... You see one of the many items China is spending all those U.S. dollars on is U.S. Treasury bonds... Now ask yourself, if goods from China suddenly became expensive and you therefore kept all of your purchases domestic, do you suppose the U.S. producer would be apt to use his profits to buy 10 year treasury notes at 1.9%, like China's doing? And if you're right and they wouldn't (you said "no", right?), then I assure you the interest rate on all that U.S. debt the government needs to fund that $trillion.5 budget deficit would be substantially higher - thus exacerbating the problem - big time!!
And besides, if China is indeed guilty of purposely cheapening the Yuan, it is, in no uncertain terms, to our (consumers at large) net benefit... Read On Balance...
If I just woke from a coma
If I were to awaken today from a five year coma, being the chap I be, I'd first ask about my family, then the market, then the economy...
Here's how the market/economy Q and A (an analyst) would go:
Q: What's the S&P's current multiple? (the aggregate price/earnings ratio for the companies making up the S&P 500)...
A: Somewhere between 12 and 14, based on estimates... Probably will come in around 13...
Q: That's pretty cheap... How's the earnings outlook?
A: Two-thirds of companies have been meeting or beating expectations... Forward guidance has been decent, depending on the industry... Next year's multiple looks to be around 13 as well...
Q: That's great! What about profit margins?
A: Higher than they've been since the '50's...
Q: That's incredible!What about balance sheets?
A: Huge cash positions, and any debt is at extremely low interest rates...
Q: Unbelievable!! What about overall interest rates and money supply?
A: Interest rates are at all-time lows and money supply is off the charts...
Q: Wow!The market looks better than I've ever seen it!
Q: Now tell me about the economy...
A: Well.... we just went through the worst recession since the Great Depression - and we're just limping along at this point... Unemployment remains at 9%... The Administration passed a trillion dollar stimulus package that went largely to the states, which they used largely to fund their transfer payments (welfare, etc.)... We now have a national healthcare plan that has done nothing thus far but mired the industry in uncertainty... The Fed has embarked on a QE bonanza like you wouldn't believe... Its balance sheet is bulging with $2.8 trillion in treasuries and mortgage backed paper... Our nation's budget for 2011 is something like $3.7 trillion and our revenue is $2.2... The debt ceiling was recently raised to accommodate the borrowing for another year or so... The Administration has been on a class warfare campaign as ridiculous as any we've ever seen... The financial industry has been saddled with some 400 new regs... Small banks are struggling mightily to keep up... I could go on and on but suffice it to say that all this explains why companies are hanging onto all that cash... Oh and don't even ask me about Europe...
Q: Oh my God! That's sickening!
A: Yep...
Q: That explains why stocks aren't going through the roof...
A: Yep...
Q: I imagine corporate earnings are coming largely from the business they're doing in emerging markets, which I suspect are doing much better than us...
A: Yep...
Q: Hmm... Sounds like corporate America has its act together... Guess I'll be owning stocks... And without all this crap going on, I wouldn't be getting in this cheap... I like it!
A: I agree... But you should expect a great deal of volatility going forward...
Q: I know, but I love that... When I rebalance twice a year, I'll be selling when the market's rising and buying when it's falling...
A: Yep...
Here's how the market/economy Q and A (an analyst) would go:
Q: What's the S&P's current multiple? (the aggregate price/earnings ratio for the companies making up the S&P 500)...
A: Somewhere between 12 and 14, based on estimates... Probably will come in around 13...
Q: That's pretty cheap... How's the earnings outlook?
A: Two-thirds of companies have been meeting or beating expectations... Forward guidance has been decent, depending on the industry... Next year's multiple looks to be around 13 as well...
Q: That's great! What about profit margins?
A: Higher than they've been since the '50's...
Q: That's incredible!What about balance sheets?
A: Huge cash positions, and any debt is at extremely low interest rates...
Q: Unbelievable!! What about overall interest rates and money supply?
A: Interest rates are at all-time lows and money supply is off the charts...
Q: Wow!The market looks better than I've ever seen it!
Q: Now tell me about the economy...
A: Well.... we just went through the worst recession since the Great Depression - and we're just limping along at this point... Unemployment remains at 9%... The Administration passed a trillion dollar stimulus package that went largely to the states, which they used largely to fund their transfer payments (welfare, etc.)... We now have a national healthcare plan that has done nothing thus far but mired the industry in uncertainty... The Fed has embarked on a QE bonanza like you wouldn't believe... Its balance sheet is bulging with $2.8 trillion in treasuries and mortgage backed paper... Our nation's budget for 2011 is something like $3.7 trillion and our revenue is $2.2... The debt ceiling was recently raised to accommodate the borrowing for another year or so... The Administration has been on a class warfare campaign as ridiculous as any we've ever seen... The financial industry has been saddled with some 400 new regs... Small banks are struggling mightily to keep up... I could go on and on but suffice it to say that all this explains why companies are hanging onto all that cash... Oh and don't even ask me about Europe...
Q: Oh my God! That's sickening!
A: Yep...
Q: That explains why stocks aren't going through the roof...
A: Yep...
Q: I imagine corporate earnings are coming largely from the business they're doing in emerging markets, which I suspect are doing much better than us...
A: Yep...
Q: Hmm... Sounds like corporate America has its act together... Guess I'll be owning stocks... And without all this crap going on, I wouldn't be getting in this cheap... I like it!
A: I agree... But you should expect a great deal of volatility going forward...
Q: I know, but I love that... When I rebalance twice a year, I'll be selling when the market's rising and buying when it's falling...
A: Yep...
Monday, November 14, 2011
Setting Up Big Business
Our individual advisory clients pay us a fee, a percentage of the value of their portfolio, directly from their accounts on a quarterly basis... We like this because it's entirely transparent, they know what they pay us... No mystery...
Having been in the investment business for 27 years, I'm sure I've seen it all... And I suspect (I know in fact) there's still the "advisor" out there who, using fee-bundling vehicles, such as traditional annuity contracts, load funds, etc., would have his client believe he gets paid by his company, or the fund/annuity, as opposed to by his client... Nothing, as you might imagine, is further from the truth...
As I suggested in The Market at Work, the big banks backing off the monthly debit card fee was no victory for the consumer - I wondered if the $5 wasn't ultimately a bargain... The title of this morning's NY Times article Banks Quietly Ramping Up Costs to Consumers says it all... And for this my friends you can thank the Durbin Amendment; an eleventh-hour add-on to the Dodd Frank Financial Reform Bill - you know that wonderful new, two-thousand+ page slate of regs forged (they say) on behalf of the little guy...
You see it's all too often, if not always, the little guy (often himself lobbying for tighter regs) who takes it in the chin with tighter regs... The politician sets up big business (big retailers in Durbin's case) to benefit, then sets up big business (big banks in Durbin's case) to take the blame...
Having been in the investment business for 27 years, I'm sure I've seen it all... And I suspect (I know in fact) there's still the "advisor" out there who, using fee-bundling vehicles, such as traditional annuity contracts, load funds, etc., would have his client believe he gets paid by his company, or the fund/annuity, as opposed to by his client... Nothing, as you might imagine, is further from the truth...
As I suggested in The Market at Work, the big banks backing off the monthly debit card fee was no victory for the consumer - I wondered if the $5 wasn't ultimately a bargain... The title of this morning's NY Times article Banks Quietly Ramping Up Costs to Consumers says it all... And for this my friends you can thank the Durbin Amendment; an eleventh-hour add-on to the Dodd Frank Financial Reform Bill - you know that wonderful new, two-thousand+ page slate of regs forged (they say) on behalf of the little guy...
You see it's all too often, if not always, the little guy (often himself lobbying for tighter regs) who takes it in the chin with tighter regs... The politician sets up big business (big retailers in Durbin's case) to benefit, then sets up big business (big banks in Durbin's case) to take the blame...
Sunday, November 13, 2011
Forever mired in the us-vs-them debate
I find it fascinating how empirical evidence proves that vast mobility exists between levels of prosperity... One might think therefore, given the evidence, that we wouldn't be forever mired in this us-vs-them debate...
Clearly the "us" and the "them" are composed of ever-changing individual combatants... I.e., some of the "us" inevitably become the "them" and vice versa... The question is, in terms of upward mobility, who wants to work for it and who wants government to give it to them?
With respect to poverty, is government the answer, or in fact the problem to begin with?
Here's Milton Friedman on the topic (this is what you call confirmation bias):
http://www.youtube.com/watch?v=fKc6esIi0_U&feature=youtube_gdata_player
Clearly the "us" and the "them" are composed of ever-changing individual combatants... I.e., some of the "us" inevitably become the "them" and vice versa... The question is, in terms of upward mobility, who wants to work for it and who wants government to give it to them?
With respect to poverty, is government the answer, or in fact the problem to begin with?
Here's Milton Friedman on the topic (this is what you call confirmation bias):
http://www.youtube.com/watch?v=fKc6esIi0_U&feature=youtube_gdata_player
Friday, November 11, 2011
Open Wide(r)
"Government is that fiction whereby everybody believes that he can live at the expense of everybody else." Frederic Bastiat, 19th Century French Economist...
Here are the highlights from Ohio Congressman Dennis Kucinich's rant on Friday evening's edition of CNBC's Kudlow and Company (Keynesianism at its finest)... And my translations:
DK: "We've got to do something about our trade deficit... We're talking about $550 billion a year; those are jobs out of our country... We've got to start bringing work back into this country"...
Translation: We've got to do something about our consumers exploiting the opportunity to save money through international trade... They should pay up for U.S.-made goods... I don't give a rip about the U.S. businesses where they spend that surplus... And forget about those U.S. companies (and the jobs they create) that redeem those U.S. dollars our foreign trading partners are so eager to get their hands on... It's all bad for our unions!
DK: "And we've got to prime the pump of our economy"...
Translation:And we've got to borrow, tax and spend more money to keep government growing and our unions going...
DK: "If the Fed can create money out of nothing, with its Quantitative Easing and give it to the banks, or give it to the banks in Europe, why can't our government claim our constitutional authority to be able to create millions of jobs rebuilding America's infrastructure... We should be expanding our economy, we should be creating wealth, we should be creating jobs"...
Translation: If the Fed can print money and give it to the banks, why can't we, through tax-hikes, higher interest rates and inflation, suck even more capital out of the private sector to pay for yet another monster spending bill... We need to open wide(r) the flood gates! I have supporters to support damn it!
DK: "We need to change our thinking about America and create wealth again and get the government involved in it and stimulating the private sector in a way that everybody wins... This whole approach we're taking right now is a losing approach."
Translation: We need to change our thinking about America and destroy wealth by getting the government involved and stimulate my supporters in a way that only they win... This whole approach we're taking isn't enough... We need bigger government!
Once again:
"Government is that fiction whereby everybody believes that he can live at the expense of everybody else."
Here are the highlights from Ohio Congressman Dennis Kucinich's rant on Friday evening's edition of CNBC's Kudlow and Company (Keynesianism at its finest)... And my translations:
DK: "We've got to do something about our trade deficit... We're talking about $550 billion a year; those are jobs out of our country... We've got to start bringing work back into this country"...
Translation: We've got to do something about our consumers exploiting the opportunity to save money through international trade... They should pay up for U.S.-made goods... I don't give a rip about the U.S. businesses where they spend that surplus... And forget about those U.S. companies (and the jobs they create) that redeem those U.S. dollars our foreign trading partners are so eager to get their hands on... It's all bad for our unions!
DK: "And we've got to prime the pump of our economy"...
Translation:And we've got to borrow, tax and spend more money to keep government growing and our unions going...
DK: "If the Fed can create money out of nothing, with its Quantitative Easing and give it to the banks, or give it to the banks in Europe, why can't our government claim our constitutional authority to be able to create millions of jobs rebuilding America's infrastructure... We should be expanding our economy, we should be creating wealth, we should be creating jobs"...
Translation: If the Fed can print money and give it to the banks, why can't we, through tax-hikes, higher interest rates and inflation, suck even more capital out of the private sector to pay for yet another monster spending bill... We need to open wide(r) the flood gates! I have supporters to support damn it!
DK: "We need to change our thinking about America and create wealth again and get the government involved in it and stimulating the private sector in a way that everybody wins... This whole approach we're taking right now is a losing approach."
Translation: We need to change our thinking about America and destroy wealth by getting the government involved and stimulate my supporters in a way that only they win... This whole approach we're taking isn't enough... We need bigger government!
Once again:
"Government is that fiction whereby everybody believes that he can live at the expense of everybody else."
Thursday, November 10, 2011
Wednesday, November 9, 2011
Can't you come up with a better question?
"Under a Republican governor, the state of California hired a company in China to build major portions of the new San Francisco Oakland Bay Bridge. Created thousands of jobs in China, and California did that because it was cheaper. Is that smart purchasing by government in a global economy or is there something wrong with that?" CNBC's John Harwood asked the Republican candidates during last night's debate...
Can't you come up with a better question?
"Under a Republican governor, the state of California hired a company in China to build major portions of the new San Francisco Oakland Bay Bridge. Created thousands of jobs in China, and California did that because it was cheaper. Is that smart purchasing by government in a global economy or is there something wrong with that?" CNBC's John Harwood asked the Republican candidates during last night's debate...
Directed first at Herman Cain, who of course responded with how the panacea 999 Plan cures all ills... Then to Mitt Romney who, after railing at China's stealing of our intellectual property (I sympathize) and promising to label it a currency manipulator (I don't sympathize), threw up the T word... Gingrich intelligently yielded to Huntsman, the one candidate with real world [direct] experience with China (Newt did touch briefly on cracking down on intellectual property theft and the fact that our burdensome regs hinder our global competitiveness)... Huntsman (re; tariffs) was right on the money; "you start a trade war if you start slapping tariffs randomly on Chinese products based upon currency manipulation, that's not a good idea". Oh andMichelle Bachman chimed in with more on counterfeiting (again, I sympathize) and a chilling, spy-novelish account of the digging of thousands of miles of nuclear-weapon-housing underground tunnels in China - that we're paying for... Implying that China is readying itself to become the next North Korea and essentially destroy all the economic gains its realized over the past thirty years...
Now what would you think of a candidate who would offer the following?
"John, you said "because it was cheaper", well of course that's "smart purchasing by government" - global economy or not... In fact I would hope that every taxpaying Californian would insist that his/her state get the quality it requires at the cheapest possible price from wherever on the planet it can find it... Don't we compromise job creation in the industries we compete well in (tech for just one example) when we operate inefficiently; essentially requiring more (higher taxes) from the private sector?
Now let's look at this in the context of a truly foreign concept to the state of California; a budget... Let's assume that California allocated only so many dollars toward the project... And that U.S. labor costs simply didn't allow for its completion within the budget's limits... Then what? Should they have recalculated what was needed, perhaps in terms of quality? Should they have used cheaper materials? Maybe skimped on the number of support beams?
And when you say "jobs in China", are you not implying that we're sending our taxpayer money overseas, as opposed to keeping it here at home? Now tell me John, in what currency did California pay this Chinese contractor? That's right, U.S. Dollars... Or let's say, they were paid with little green claims on U.S. goods and services... You see John, U.S. dollars never ultimately leave home; they're only good for U.S. stuff. I.e., U.S. dollars spent on non-U.S. labor, goods and services can be every bit as stimulating to the economy as when they're spent on domestic goods and services... Particularly when, as a result, we have leftover capital to invest elsewhere...
Now John, you're not suggesting that, for political favor, California's Governor should've jeopardized the quality of the bridge, are you? Or in any way minimized the gains to the U.S. producers of the goods and services aimed at capturing those dollars we paid the Chinese contractor? Or denied the beneficiaries of the investments we'd have made with the money we saved by hiring the Chinese contractor? Or denied the Californian the future prosperity that comes from living in a state that is finally doing the right thing with his/her taxpayer money?
John, can't you come up with a better question?"
Now I'd call that candidate a true blue American patriot!
If you struggle with this, here's Part 1 of my 3 part video series on International Trade...
Directed first at Herman Cain, who of course responded with how the panacea 999 Plan cures all ills... Then to Mitt Romney who, after railing at China's stealing of our intellectual property (I sympathize) and promising to label it a currency manipulator (I don't sympathize), threw up the T word... Gingrich intelligently yielded to Huntsman, the one candidate with real world [direct] experience with China (Newt did touch briefly on cracking down on intellectual property theft and the fact that our burdensome regs hinder our global competitiveness)... Huntsman (re; tariffs) was right on the money; "you start a trade war if you start slapping tariffs randomly on Chinese products based upon currency manipulation, that's not a good idea". Oh andMichelle Bachman chimed in with more on counterfeiting (again, I sympathize) and a chilling, spy-novelish account of the digging of thousands of miles of nuclear-weapon-housing underground tunnels in China - that we're paying for... Implying that China is readying itself to become the next North Korea and essentially destroy all the economic gains its realized over the past thirty years...
Now what would you think of a candidate who would offer the following?
"John, you said "because it was cheaper", well of course that's "smart purchasing by government" - global economy or not... In fact I would hope that every taxpaying Californian would insist that his/her state get the quality it requires at the cheapest possible price from wherever on the planet it can find it... Don't we compromise job creation in the industries we compete well in (tech for just one example) when we operate inefficiently; essentially requiring more (higher taxes) from the private sector?
Now let's look at this in the context of a truly foreign concept to the state of California; a budget... Let's assume that California allocated only so many dollars toward the project... And that U.S. labor costs simply didn't allow for its completion within the budget's limits... Then what? Should they have recalculated what was needed, perhaps in terms of quality? Should they have used cheaper materials? Maybe skimped on the number of support beams?
And when you say "jobs in China", are you not implying that we're sending our taxpayer money overseas, as opposed to keeping it here at home? Now tell me John, in what currency did California pay this Chinese contractor? That's right, U.S. Dollars... Or let's say, they were paid with little green claims on U.S. goods and services... You see John, U.S. dollars never ultimately leave home; they're only good for U.S. stuff. I.e., U.S. dollars spent on non-U.S. labor, goods and services can be every bit as stimulating to the economy as when they're spent on domestic goods and services... Particularly when, as a result, we have leftover capital to invest elsewhere...
Now John, you're not suggesting that, for political favor, California's Governor should've jeopardized the quality of the bridge, are you? Or in any way minimized the gains to the U.S. producers of the goods and services aimed at capturing those dollars we paid the Chinese contractor? Or denied the beneficiaries of the investments we'd have made with the money we saved by hiring the Chinese contractor? Or denied the Californian the future prosperity that comes from living in a state that is finally doing the right thing with his/her taxpayer money?
John, can't you come up with a better question?"
Now I'd call that candidate a true blue American patriot!
If you struggle with this, here's Part 1 of my 3 part video series on International Trade...
We Always Seem to Muddle Through
As I put together my second collection of past essays, I'm constantly reminded of how short-term our memories can be... I'm amazed at how many crises have befallen the world in the mere twenty-seven years I've been in the investment business... I came across a column I wrote back in 2008 that chronicled the panics I
Tuesday, November 8, 2011
Liberalizing Ain't Easy
Simon Galina is feeling nervous these days... He has five years left to pay back the money he borrowed (originally $185k) to buy his taxi license... That's right $185,000... That's what it took to start his company in Rome ten years ago...
Liberalizing Ain't Easy
Simon Galina is feeling nervous these days... He has five years left to pay back the money he borrowed (originally $185k) to buy his taxi license... That's right $185,000... That's what it took to start his company in Rome ten years ago...Insane, I know, but perhaps that gives you a little more insight into why Europe is what it is...
Isn't it interesting how the fix, for the Eurozone debt crisis, involves "liberalizing" their economies? That's "liberalize"; as in "favorable to or in accord with concepts of maximum individual freedom" (dictionary.com)... In Italy it means no more government control over the number of taxis (and other industries)... And of course that's why Mr. Galina's losing sleep...
Please tell me you're getting the message... The U.S. has been slipping when it comes to economic freedom... And that my friends is entirely the problem...
Please watch this video again and send this post to everyone you know...
Thanks!!
http://www.youtube.com/watch?v=v1U1Jzdghjk&feature=results_video&playnext=1&list=PL07079E222C41F872
Isn't it interesting how the fix, for the Eurozone debt crisis, involves "liberalizing" their economies? That's "liberalize"; as in "favorable to or in accord with concepts of maximum individual freedom" (dictionary.com)... In Italy it means no more government control over the number of taxis (and other industries)... And of course that's why Mr. Galina's losing sleep...
Please tell me you're getting the message... The U.S. has been slipping when it comes to economic freedom... And that my friends is entirely the problem...
Please watch this video again and send this post to everyone you know...
Thanks!!
http://www.youtube.com/watch?v=v1U1Jzdghjk&feature=results_video&playnext=1&list=PL07079E222C41F872
Monday, November 7, 2011
Sunday, November 6, 2011
Haven't we done enough??
"We simply haven't done enough." says Nancy Pelosi, Jared Bernstein, Mark Zandi, etc. I.e., the stimulus was too small, we need another round and this time we need to go huge!
Now let's see, in the past three years we've grown the national debt by $5.5 trillion and the Fed's ballooned its balance sheet to $2.8 trillion. So I'm guessing we should blow past the [next] debt ceiling by say another $6 trillion and maybe the Fed should buy up another few trillion worth of bonds/mortgages?? Hmm...
George Mason University Professor Don Boudreaux, blogging at cafehayek.com, puts it this way;
“It’s as if a person who is bleeding to death because of a gunshot wound in his stomach is brought to a physician. The physician correctly realizes that the patient is losing massive amounts of blood and, also, correctly understands that such blood loss is dangerous to the patient’s health.
So the physician prescribes massive infusions of blood, period. If the patient doesn’t recover, the physician orders that the volume of blood-infusions be increased. If the patient dies, the physician will forever blame himself for not increasing the volume of blood-infusions even further.
If the patient does recover, the blood-infusions will be praised for saving the patient.”
Now let's see, in the past three years we've grown the national debt by $5.5 trillion and the Fed's ballooned its balance sheet to $2.8 trillion. So I'm guessing we should blow past the [next] debt ceiling by say another $6 trillion and maybe the Fed should buy up another few trillion worth of bonds/mortgages?? Hmm...
George Mason University Professor Don Boudreaux, blogging at cafehayek.com, puts it this way;
“It’s as if a person who is bleeding to death because of a gunshot wound in his stomach is brought to a physician. The physician correctly realizes that the patient is losing massive amounts of blood and, also, correctly understands that such blood loss is dangerous to the patient’s health.
So the physician prescribes massive infusions of blood, period. If the patient doesn’t recover, the physician orders that the volume of blood-infusions be increased. If the patient dies, the physician will forever blame himself for not increasing the volume of blood-infusions even further.
If the patient does recover, the blood-infusions will be praised for saving the patient.”
Saturday, November 5, 2011
Scary!
Wow! I gotta tell ya, it is a little scary out there. I just read a NY Times article by Nobel Laureate Paul Krugman that had some 400+ comments attached... Mr. Krugman, a devout Keynesian, dismisses the arguments folks like me have presented in the presently-heated class war debate... While we've offered up empirical evidence that things aren't necessarily as they seem, Krugman simply dismisses them as "not so"... I guess all this chap needs to do is say "not so", perhaps reference a study or two (with no link) and we're to accept it - with no evidence attached... Hmm...
The scary part is the comments... I just skimmed through them and found but one dissenter (there's surely more)... Clearly folks buy the whole "we gotta redistribute" malarky... Krugman talks about "total income" as if our income somehow belongs to the nation... That one gets me; per this excerpt from my column The Pie:
Folks, don
The scary part is the comments... I just skimmed through them and found but one dissenter (there's surely more)... Clearly folks buy the whole "we gotta redistribute" malarky... Krugman talks about "total income" as if our income somehow belongs to the nation... That one gets me; per this excerpt from my column The Pie:
Folks, don
Friday, November 4, 2011
On Fairness
Some two-thirds of people surveyed would like to see a more even (more "fair")distribution of the "nation's wealth" (if you don't see the misnomer in that sentence read Whose Wealth?)... The implication being that government should step in, through taxation and redistribution, and even the field...
The problem with fairness, as I forever preach, is that someone else must choose on behalf of someone else... The following excerpt from F.A. Hayek's 1944 classic The Road to Serfdom (a must read) succinctly describes the problem...
Where the precise effect of government policy on particular people are known, where the government aims directly at such particular effects, it cannot help knowing these effects and therefore it cannot be impartial. It must, of necessity, take sides, impose its valuations upon people, and instead of assisting them in the advancement of their own ends, choose the ends for them... As soon as the particular effects are foreseen at the time a law is made, it ceases to be a mere instrument to be used by the people and becomes instead an instrument used by the lawgiver upon the people and for his ends.
The problem with fairness, as I forever preach, is that someone else must choose on behalf of someone else... The following excerpt from F.A. Hayek's 1944 classic The Road to Serfdom (a must read) succinctly describes the problem...
Where the precise effect of government policy on particular people are known, where the government aims directly at such particular effects, it cannot help knowing these effects and therefore it cannot be impartial. It must, of necessity, take sides, impose its valuations upon people, and instead of assisting them in the advancement of their own ends, choose the ends for them... As soon as the particular effects are foreseen at the time a law is made, it ceases to be a mere instrument to be used by the people and becomes instead an instrument used by the lawgiver upon the people and for his ends.
Thursday, November 3, 2011
Illusive Labyrinth of Loopholes
Dueling congressmen faced off last evening (on CNBC) over corporate tax reform... The Democrat suggested we need to scrap the loopholes but to expect push-back from companies that presently exploit the system... His opponent agreed that "loopholes that don't make sense" can go, but at the end of the day, we can't have what results in an increase in corporate taxes...I sensed, in the conservative, a hint of hesitation with the "loopholes that don't make sense" comment...
Now loopholes, by definition, are a means of escape or evasion... And I, for one, would be all for legislation that stamps out all means of escape or evasion... Liberals lobby for what they call tax-fairness... Conservatives for (what I'd call) tax-friendliness. I say we vote for neither... The notion of "tax-fairness" is utter nonsense, for it requires A (being politicians) to determine what's fair for B (being you) and C (being me)... And as for friendliness, speaking for myself, a small business owner, I desire no chumminess whatsoever from politicians... What I want is freedom!!
The fundamental problem is two-fold... One; we have the second highest corporate tax rate on the planet (Japan says it's ultimately going to bring its down). And Two; the code is an incredibly illusive labyrinth of loopholes... Close the loopholes, lower the rates, and what do you get? Certainty... Certainty for CEOs as to what the future holds tax-wise... And certainty (in today's world) would clearly trump a potential increase in taxation when it comes to putting that $trillion+ in corporate cash to work...
Now loopholes, by definition, are a means of escape or evasion... And I, for one, would be all for legislation that stamps out all means of escape or evasion... Liberals lobby for what they call tax-fairness... Conservatives for (what I'd call) tax-friendliness. I say we vote for neither... The notion of "tax-fairness" is utter nonsense, for it requires A (being politicians) to determine what's fair for B (being you) and C (being me)... And as for friendliness, speaking for myself, a small business owner, I desire no chumminess whatsoever from politicians... What I want is freedom!!
The fundamental problem is two-fold... One; we have the second highest corporate tax rate on the planet (Japan says it's ultimately going to bring its down). And Two; the code is an incredibly illusive labyrinth of loopholes... Close the loopholes, lower the rates, and what do you get? Certainty... Certainty for CEOs as to what the future holds tax-wise... And certainty (in today's world) would clearly trump a potential increase in taxation when it comes to putting that $trillion+ in corporate cash to work...
Wednesday, November 2, 2011
Let's Think a Little Deeper
So you pay $70 for a pair of sneakers that sport a label under the tongue reading "made in China"... You think "well there's another $70 heading China's way"... You start checking the bottoms of every item you see and you think "Sheese! Pat Buchanan's got it right, we're selling our souls to the Chinese!"...
Let's Think a Little Deeper
So you pay $70 for a pair of sneakers that sport a label under the tongue reading “made in China”. You think “well there’s another seventy bucks heading China’s way”.You start checking the bottoms of every item you see and you think “Sheese! Pat Buchanan’s got it right, we’re selling our souls to the Chinese!”
Now let’s think a little deeper for a minute: You bought said sneakers from an English-speaking, home-grown lad who goes by the name of John. John works for U.S. retailer Sports Authority, which has to rent the building (from a U.S. landlord), transport and market the item, pay its employees, etc.. The fact of the matter is that the bulk of that $70 stays right here at home. I.e., you bought a Chinese-made sneaker but you supported the U.S. economy—big time!
I bet you didn't know that according to the Census Bureau 2011 U.S. International Trade Data; the Bureau of Labor Statistics 2010 input-output matrix; and personal consumption expenditures (PCE) by category from the U.S. national accounts of the Commerce Department’s Bureau of Economic Analysis, a mere 11.5% of U.S. consumer spending goes for imported goods and services—i.e., 88.5% stays home. And that Chinese goods account for only 2.7%—of which, 55% goes for services (as in above example) provided right here in the U.S.. Which means, the politician and the protectionist pundit are getting you all worked up over 1.2% [of your expenditures] going to China…
Now let’s think a little deeper for a minute: You bought said sneakers from an English-speaking, home-grown lad who goes by the name of John. John works for U.S. retailer Sports Authority, which has to rent the building (from a U.S. landlord), transport and market the item, pay its employees, etc.. The fact of the matter is that the bulk of that $70 stays right here at home. I.e., you bought a Chinese-made sneaker but you supported the U.S. economy—big time!
I bet you didn't know that according to the Census Bureau 2011 U.S. International Trade Data; the Bureau of Labor Statistics 2010 input-output matrix; and personal consumption expenditures (PCE) by category from the U.S. national accounts of the Commerce Department’s Bureau of Economic Analysis, a mere 11.5% of U.S. consumer spending goes for imported goods and services—i.e., 88.5% stays home. And that Chinese goods account for only 2.7%—of which, 55% goes for services (as in above example) provided right here in the U.S.. Which means, the politician and the protectionist pundit are getting you all worked up over 1.2% [of your expenditures] going to China…
Tuesday, November 1, 2011
The Market at Work
According to this morning's Wall Street Journal, B of A will announce today that it'll drop its plan to charge some customers $5 a month for debit card purchases... This follows similar moves by the competition...
No legislation, no new reg, just the market at work... Customers spoke with their feet, Credit Unions grabbed some new business and the big banks decided that hitting their customers in this fashion wasn't in their best interests after all...
Now before you get too excited, understand that legislation did indeed intrude on the marketplace with the Durbin Amendment - which effectively cut (by 50%) the per swipe fee charged to merchants... Costing, they say, the likes of B of A's shareholders, employees and customers some $2 billion a year... Notice I said "shareholders, employees and customers" - that's who pays corporate expenses... Corporations themselves are inanimate objects...
The question now is, how will shareholders, employees and customers share the pain inflicted by the Durbin Amendment? Lower deposit rates, higher loan fees, maybe? I wonder if it (The Durbin Amendment [I stress]) won't ultimately cost the customer more than $5 a month... Hmm...
No legislation, no new reg, just the market at work... Customers spoke with their feet, Credit Unions grabbed some new business and the big banks decided that hitting their customers in this fashion wasn't in their best interests after all...
Now before you get too excited, understand that legislation did indeed intrude on the marketplace with the Durbin Amendment - which effectively cut (by 50%) the per swipe fee charged to merchants... Costing, they say, the likes of B of A's shareholders, employees and customers some $2 billion a year... Notice I said "shareholders, employees and customers" - that's who pays corporate expenses... Corporations themselves are inanimate objects...
The question now is, how will shareholders, employees and customers share the pain inflicted by the Durbin Amendment? Lower deposit rates, higher loan fees, maybe? I wonder if it (The Durbin Amendment [I stress]) won't ultimately cost the customer more than $5 a month... Hmm...
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