FedUpUSA

The Tide Is Turning (Sunday 5/20 Edition)

Well well what do we have here?  (From Chris Whalen and IRA)

To rescue Europe, to reinvigorate the United States, and to set the global economy on a sustainable path toward expansion, the current debate offers a so-called “choice”: either slash government spending or spend your way to growth.

…..

But framing the discussion between austerity and stimulus is a canard that has enveloped economists, commentators, and policymakers in a collective delusion.

I’d argue it’s an intentional diversion, intentional in both diversion and mathematical bankruptcy, but those are the finer points of intent.  The fact is that there’s no path “forward” that can be found in this movement but you have 30 years of political investment in it, and thus it is difficult to get anyone to talk about the facts of debt-driven economic cycles in honest terms.

This is found in the so-called “Presidential” campaign, where we have three contenders, none of which will take this issue on.  Not even the “Libertarian” Gary Johnson will tackle it.

Some ask why.  It’s not very difficult to figure out, really: All are highly invested in the frauds of the last 30 years, because without them none of their so-called “successes” would have worked.  Obama, ironically, is the least invested in them simply because he has the least in actual “things” he’s accomplished in that his actual tenure of “acts” only encompasses the last three years!

The key question facing the global community is how to manage the transition to a less robust, but also less volatile period of growth without sliding into another world war. A true solution will have to involve not only governments reducing public debt, but also restructuring insolvent industries to fuel real, sustainable growth.

Well, yes and no.  No exponential growth curve can last forever.  We live on a finite rock here; it is of finite size and has finite resource.  As such we can either accept this or we can overextend ourselves and ultimately collapse.  One of those two outcomes is inevitable.  Choosing overextension and collapse is idiotic.

Indeed, to give Merkel her due, the key obstacle to global growth today is excessive government spending and public debt. But the United States, and, in fact, the majority of G-20 nations, have ruled out broad debt reduction and financial restructuring of insolvent banking systems.

True, but one must ask “why”?  And here the obvious reason comes to the fore – nearly all of the so-called “wealthy”, with a handful of exceptions, are not really wealthy — they own someone else’s obligation rather than the fruits of production by their own hand, and should restructuring come their “wealth” will all go “poof!”

This is a war by means other than hunks of lead hurled around at 3200fps, but it is no less of a war.  It is in fact full of the exact sort of attack that comes with any war — Bernanke yanking liquidity in 2008 while telling everyone he was providing it, Paulson threatening “tanks in the streets” before a huddled room full of Congressmen along with intentionally-fraudulent claims made about “recovery”, retail sales and employment.  As in all wars propaganda is a major part of the conflict, sometimes even more important than the actual shooting, as was true in Vietnam with the Tet Offensive and our media’s so-called “coverage” that decimated American support for a conflict that we had just, in objective terms, effectively won!

Some would call that act by our media organs treason, incidentally, and not entirely without cause.

But as “managed stability,” fueled by U.S. monetary emissions, is now falling by the wayside, G-20 leaders need to develop a new means of attacking joblessness and deflation. To start, we must build a new narrative free of neo-Keynesian fantasies about consumer purchasing power trumping true wealth creation.

You were doing good right up until this paragraph.  I’ll forgive you later; the sin is the word “deflation.”  There is nothing wrong and in fact plenty right with “deflation” that simply corrects past inflation.  That is, when one blows a huge credit bubble over the space of 30 years ceasing to pump it further and further is not “deflation”; it is recognition of an unsustainable dynamic and allowing it to contract back to natural and sustainable levels.

Let’s take education as one example.  Why should it cost more than $10,000, all-in, for a Bachelor’s Degree in essentially any field?  The argument is not about whether you can extract more, it is whether one can provide this at a profit given that as a price-point.  The answer is yes, as it happens in other nations all the time, with India being one example (actually, for less than half that.)

The point is that one can flip burgers or pizzas to pay $2,500/year for a college degree.  If the goal is to have a highly-educated population why should we not encourage the same decrease in cost that we all enjoy in televisions, computers and cellphones to take root in education?

More to the point why hasn’t it happened all on its own?

That’s simple: Anti-competitive actions, ensconced into both actual and effective law, that make it impossible.

For example you cannot sit for many exams in fields that require them without an accredited degree first, and the boards will not accredit a school that does not force the teaching models and physical facilities (along with costs) they “like.”  You thus get to pay for a huge athletic department, ivory tower idiocy, gold-plated dorms with food that looks like something out PF Changs’ every night and graft like no tomorrow all to protect a scheme.  This sort of anti-competitive behavior is supposed to be illegal (see the Sherman and Clayton acts) but of course there are “exemptions” to protect the “quality” of the resultant fields.

Really?  Or is the truth that they’re simply protecting the inflated price?

Inflation is an assumed but unspoken part of the pro-stimulus agenda. But these same liberals refuse to accept that the marginal increase in GDP per a given amount of new public debt is now just about zero.

Yep.  I pointed this out on the Ticker years ago.  Nobody wants to hear it, but it’s true.  The numbers just are what they are and what’s worse is that the marginal increase for a given amount of debt, public andprivate, has been consistently negative for 30 years.

That is, from 1980 forward we never managed to post up more GDP increase than debt.

It is and has been a scam.

Welcome to reality; the red pill is a bitch, isn’t it?

But the biggest threat to Obama is the fact that the US economy is worse off today — more debt, lower home prices, fewer jobs — than in 2008. In November all incumbents will face tough challenges. And come 2013, a new, even angrier Congress is hardly going to be in a mood for compromise regardless of who occupies the White House.

When a political leader talks effectively about ways to pursue less volatile economic growth in a framework of limits on public spending and debt, such an individual will find a large and eager audience. The supposed debate between austerity and stimulus is false in economic terms, politically duplicitous, and, when one considers basic arithmetic, unsustainable. More debt and inflation is not a solution. The first politician to stand up and say just that in an intelligible way gets to set the course for the G-20 industrial nations over the next century.

Oh Gary!  Oh Gary!

Calling Gary Johnson, the latest edition of “clue-by-four” just smacked you upside the head!

Mittens won’t do the right thing because essentially all of his money was made by exploiting the frauds and scams of unbridled credit expansion; should he take this position it becomes obvious that his entire story line is a gigantic scam.  Obama won’t do it despite claiming he would in 2008 as he got invested in the bullshit with Geithner and the rest of them and is effectively trapped.

Anyone who’s followed the Ticker knows damn well that I’ve been pounding this drum since I started writing The Ticker in 2007.  Indeed I tried to lead John McCain and his campaign to the truth in 2008, and failed.

As for Gary Johnson I began my quest there in 2010 on Blogtalk, and then again before the Florida Libertarian Convention debate in his suite at the Embassy Suites hotel.

He refused then and he refuses now, but this much is clear – Institutional Risk Analytics and Chris Whalen are right, I’ve been right, and the people are tired of the same old crap as it is clear that it’s not working. 

What they’re not yet clear on is that it isn’t working because it can’t on a mathematical basis and that, in turn, means the people have been serially defrauded by the politicians and “business wonks” for the last 30 years.

The people will figure it out.  The people can be slow, but don’t mistake inertia and 30 years of conditioning driven by lies and frauds for stupidity.  Indeed as the people figure it out their reaction worldwide is increasingly one of anger, and with damn good cause.

The politician who gets in front of this issue and leads with it wins.

It was that simple in 2008 and was the message that I attempted to carry then, and it’s still that simple today. 

Get in front of this or get run over.

The Market-Ticker

Discussion (registration required to post)

Some look at today’s FaceBook IPO flop, the ongoing market rout, and the situation in Europe with disenchantment and disappointment. We, on the other hand, view it with hope: because more than anything, the events of the past few days show that the truth is getting out – the truth that capital markets simply can not exist under the authoritarian rule of central planners, the truth that the stock market is a casino in which the best one can hope for a quick flip, and finally the truth that our entire socio-economic regime, whose existence has been predicated by borrowing from theuncreated wealth of the future, and where accumulated debt could be wiped out at the flip of a switch if things go wrong in the process obliterating the welfare of billions (of less than 1%ers), is one big lie.

We believe that hope is what SocGen’s Dylan Grice is what he has in mind when he penned the following conclusion to his most recent piece: La Grande Illusion.

Since the crisis broke in 2008, the Fed and BoE have printed enough money to buy over 60% of the issuance of their respective government securities since. It makes you wonder. What would bond yields in the US and the UK look like without these purchases? Probably like those in the eurozone periphery. Indeed, maybe the euro debacle could have been completely avoided if the ECB had been headed up by a Ben von Bernanke, or a Mervyn Le Roi. Maybe that’s why so many of my friends agree with Atlantic magazine, which praised Ben Bernanke for ‘masterfully navigating’ the financial crisis and avoiding another depression.

Maybe all the Anglo-Saxon central banks have done is create the illusion that our sovereigns are more solvent than they are, and that our budget constraints are really a safe distance away.

But I don’t think they are. And I think the truth gets out eventually. The Enrons, the Allied Capitals, the Bernie Madoffs … they all get their comeuppance. Indeed, it’s what’s happening today in the eurozone. The accounting shenanigans eurozone governments resorted to in order to meet the entry criteria have been found out. Or at least, current CDS prices correlate well with countries’ cumulative deficit manipulations in the run-up to monetary union, as estimated by Paul van den Noord and Vincent Koen at the OECD. You can’t escape your budget constraint with financial gimmickry. You can just make it look like you have for a while.

 

Because if there is at least one thing the central planners of the status quo do not have control over, it is just that: hope.

Who will pay for the massive US public debt? 30 percent of those with incomes above $10 million audited.

Now that tax seasons is mostly finished for your average American and people can exhale and take a breather, some interesting data is released by the IRS.  Audit data is fascinating because it highlights that in terms of those getting an audit, the more you make the more likely you are to be audited.  It is useful to get a sense of how this plays out.  The IRS is unlikely to audit the average American making $25,000 a year because in reality, the cost and return of going after this group is so minimal.  As the famous bank robber Willie Sutton once replied to a reporter as to why he robbed banks, “because that’s where the money is.”  The government is running lean and as many of you know, carrying over a $15 trillion in public debt is starting to become a burden.  Debt ceiling talks are already out in the open as if we are already preemptively ready to spend more money we don’t have.  Ultimately all Americans will need to shoulder some piece of this debt via cuts or tax increases and that is the painful reality.

IRS audit data

The IRS data is fascinating in terms of where they focus the large portion of their audits:

Source:  Sober Look

You’ll notice that once a $200,000 income is hit, the risk of being audited increases.  I also found it interesting that those reporting no adjusted income had a higher chance of being audited than those who made between $25,000 and $500,000.  This is probably another group that will show up on the radar.  However, those with incomes of $10 million or more have a 30 percent chance of being audited.  Yet as we know many Americans are simply struggling to get by with a per capita income of $25,000.  Our total credit market debt is simply off the charts and over three times annual GDP:

Some serious challenges are coming online in the near future:

-1.  Unemployment benefits are phasing out and expiring for many

-2.  2001 and 2003 tax cuts set to expire

-3.  The debt limit will be reached again by the end of the year

-4.  Payroll tax cut will expire and increase from 4.2% to 6.2%

-5.  AMT will drop from $74,000 or higher to $45,000 or higher.  This will make it harder for middle class families to use deduction in effect creating a tax increase

Many purists would argue that we either go full on tax increases or full on cuts.  The reality is, the economy is incredibly weak.  Most of the economy is still fueled by subsidies via home owner mortgage interest deductions, bailout funds to banks, government backed student loans, food stamps, and unemployment insurance.

Read the rest at My Budget 360