FedUpUSA

Archive for January 5th, 2010

Where’s My Recovery? (Tax Receipts)

Posted by Karl Denninger

From The Wall Street Examiner:

Month to date tax receipts are now in for the entire month of December. They’re down 7.7% from December 2008, which is exactly the same rate of decline as November’s. We know that the TBAC and Treasury officials were not anticipating that in their debt sales forecast for the first quarter. They had assumed that a recovery was taking root and would continue to do so.

But I thought that we were in the midst of a strong economic recovery?  So say all the pundits, all the Tout TV folks, everyone…

So how come I can’t find it in the sales tax receipts of the states, and I also can’t find it in the Federal tax receipts?

Doesn’t recovery mean more spending, some hiring, or at least people getting more hours even if they don’t have new jobs?

If this is all happening, as we’re being told incessantly on ToutTV, shouldn’t tax receipts be going up?

Remember, last December was pretty much the bottom, or so the pundits have told us.  We keep hearing that sales are improving, durable goods are improving, employers aren’t firing any more (and indeed many people are looking for a positive employment number for December and a positive revision to +ve for November) – and yet none of that makes any sense – especially employment turning to an actual positive number – if Treasury tax receipts are actually down on a y/o/y basis from last December.

That’s not the worst of it when it comes to macro level stuff.  From The Wall Street Journal came this piece that was largely ignored:

First, in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state’s money.

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed “maintenance of effort” spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

Wait a minute. 

Isn’t there a requirement in State Constitutions that a bill go through the Legislature to authorize spending that is then signed by the Governor (or vetoed and overridden)?

The article goes on to say:

A few governors, such as Mitch Daniels of Indiana and Rick Perry of Texas, had the foresight to turn down their share of the $7 billion for unemployment insurance, realizing that once the federal funds run out, benefits would be unpayable. “One of the smartest decisions we made,” says Mr. Daniels. Many governors now probably wish they had done the same.

The Governor of a State does not have the right to legislate from his office!

This sort of crap has been pulled by The Federal Government for decades – shove a program down The State’s throat, acceptance of which is either automatic in some form or which occurs by the action of some administrative agency within a state and thus bypasses the entire State Legislative process.

This is beyond outrageous and yet it is one of the means by which our Federal Government has effectively destroyed the Federal/State boundary, usurping into The Federal Tax mechanism state governments and legislatures.

It would be one thing if the legislature was to have taken up these “stimulus” packages and passed acceptance of them as an act of the legislature, signed by the governor.  That would be lawful.

But they didn’t.  In some cases the governor explicitly acted, but in others the decision was effectively made by an administrative arm of the state (e.g. the road department) via acceptance of Federal Funds.

Both are blatantly unlawful as acts of legislation without the legislature!

The States should have put a stop to this crap back in the days of “double nickel” speed limits, when it made its “high pressure” debut, demanding that all such effective appropriations occur through legislative action.

They didn’t.

Now the States are saddled with impossible-to-pay budgetary requirements, in some cases leaving them with as little as 10% of their budgets open to discretionary action - all as a result of unlawful appropriations made without the state legislatures passing a bill that is then signed by the governor!

The Journal continues onward with claims that this is all a liberal conspiracy. 

Nonsense. 

This is a raw abuse by both political parties that has been crammed down the throat of the states since the 1970s, through both Republican and Democrat Congresses and Administrations, and it is flatly unlawful as it violates the Constitution of every state of the union to legislate without action of the legislature!

The States must rise and pass 10th Amendment resolutions with the binding force of law that all such unlawfully-enacted “appropriations” are void as unconstitutional usurpations of The State Legislature and will not be complied with.

This is no longer a matter of political expedience.  It is now a matter of budgetary survival and maintenance of what we are supposed to be as a nation – a union of States that each have a Constitution that must be respected and abided by all parties.

SS Trust Fund – 2009 Full Year Results – Ugh!

Submitted by Bruce Krasting

The Social Security Trust Fund issued their November and December reports today. They also provided the payment data for January 2010. I think there is some significant information.

From my writings on the Trust Fund I have received many comments from those who believe that the SS is a bankrupt Ponzi scheme. That is not correct. The SSTF did an admirable job in a very tough year. They paid a total of $675 billion in benefits and ended the year with an even $100 billion surplus. On December 31st they were sitting on $2.5 Trillion of US Treasury IOU’s.

That said there are some very disturbing trends at the Fund. First a Macro Economic thought:

There was a onetime negative COLA adjustment that kicked in January 1. Rather than the usual increase, beneficiaries are getting smaller checks. The difference between the December and January payments comes to $475 million. That re-base means a reduced outlay for the full year of $6 billion. In the scheme of things that is peanuts. But this is going to be felt most in the Sunbelt states where the bulk of the beneficiaries reside. I believe that a significant percentage of SS payments goes right into consumption. Given that fixed costs are actually rising for this group of consumers (the hell with COLA) the 65+ set might not be going to the Wal-Mart in Boca as much as they used to. A year ago we were talking of ‘green shoots’. This ‘shoot’ is decidedly brown.


On the Fund itself:

I think that the recession of 08 and 09 and the anticipated high unemployment (low employment) in 2010 has crippled the Fund. Nothing short of a major overhaul can turn it around at this point. The damage has been too great.

In the 2009 Trustee Report to Congress (signed by Chairman Tim Geithner) the following information was provided:

Now look at the reports released today. Total tax receipts were less than the disbursements. This was not supposed to happen until 2016. It happened last year.

There was a $100 billion surplus for the year. But compare that to the $190 Billion surplus in 2007. We have lost $90 Billion in just two years. But this number should be much higher than the 07 surplus. It was assumed that the Fund would have larger and larger surpluses for years to come. The 2008 Trustee Report (signed by then Chairman Hank Paulson) provided a set of Intermediate Assumptions for the Fund’s surpluses looking forward. As you can see we missed the 2009 target of a $220b surplus by a cool $120 billion. As of 12/31/09 the funds assets are behind that 08 schedule by $155 billion.

In prior years the SSTF has financed up to 50% of the deficit through their purchases of Treasury paper. In 2009 that ratio fell to a measly 7% of the total new issuance. It will be a rounding error in a few years. At some point someone is going to look at this and conclude it is not a plus for the bond market.

We are in an election year. Any significant legislation on SS changes will have to be completed by June. After that no one will want to touch this. Given that Health Care is far from resolved and there is that thorny problem with the mortgages Agencies I can easily see that the problems at SS get buried for another year. It will be very difficult to fix this beast if we wait another year.

The most optimistic scenario is that out of the ether comes a bi-partisan effort to address the issue head on and make the necessary fixes. By my calculation that would require a 2% increase in payroll taxes and as much as a 20% reduction in benefits (over time). Taxes on benefits would have to increase as well.

Those combined actions are extremely deflationary. It would directly cut consumer demand. It would be another blow to the head of small businesses. This would not be a brown shoot. Think of this development as being Amber Waves of Grain. And that is the optimistic scenario.

My solution has always been a means test. If you have $100k in taxable income you don’t get paid. Finished. I’m not sure that is legally possible. But to me it is the only option. The alternative will impoverish those that are/will be dependent on SS benefits. Raising taxes on America’s 90 million workers and their employers is just bad economics. It should not be considered.

I am not the only one looking at these numbers. This issue will have to come on the table before June. The 2009 results of the Fund are like an elephant in a room. It’s too big to avoid.

Glenn does a great job in todays’ show explaining how the Fed and the Treasury, along with a complicit Congress, are perpetrating the world’s biggest Ponzi scheme on the American people. 

Note, he mentions PIMCO.  We reported here on FedUp yesterday about the sudden ‘down turn’ in certain holdings of PIMCO fixed income (bond) funds.  Wonder why they are suddenly divesting themselves of these so-coveted bonds?  It wouldn’t be because they think the pyramid is crumbling and they don’t want to end up like Madoff’s clients, would it?   Nah….

Analyst charges that government is manipulating markets

By MarketWatch

WASHINGTON (MarketWatch) — The massive stock-market rally in the past nine months is mostly due to secret government buying of stock-index futures, a respected stock-market analyst said Tuesday.

Charles Biderman, chief executive of TrimTabs Investment Research, is the latest and most credible person to charge that the Federal Reserve and the Treasury (in league with top Wall Street firms) is rigging the stock market on a daily basis.

In a special report released Tuesday, Biderman said the $6 trillion increase in U.S. stock-market capitalization since March can’t be explained by the usual sources of funds flowing into the market — such as mutual funds, direct retail investment, pension funds, hedge funds or foreign purchases.

The only logical explanation for the extent of the rally, he suggested, is secret buying by a government committee known colloquially as the Plunge Protection Team. It’s like the dark matter that astrophysicists conjecture must be there, even if we can’t detect it.

The PPT was established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate the government’s response to market meltdowns. It consists of the Fed chairman, the Treasury secretary, the head of the Securities and Exchange Commission and the head of the Commodity Futures Trading Commission.

Biderman acknowledged that he had no direct evidence that the Fed and other agencies have intervened in the stock market. But he worried about what will happen to the market if the PPT has been buying and suddenly stops.

The Fed, of course, is a major player in the fixed-income markets, buying and selling billions in Treasurys, agency bonds and mortgage-backed securities. It’s taken on hundreds of billions in assets from Bear Stearns, American International Group Inc. /quotes/comstock/13*!aig/quotes/nls/aig (AIG 29.30, -0.03, -0.10%) and many unnamed banks to which it’s lent money. Presumably, all of those positions are duly reported by the central bank each week.

But the Fed has never said it is buying equities or equity futures. Doing so would likely violate the Federal Reserve’s investment policies, and could violate federal law if not disclosed properly.

Aside from the legal issues, the PPT would have operational constraints. It’s hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. An operation big enough to manipulate markets for months on end would be big enough to develop leaks.

With so much money at stake, anyone with direct knowledge of the conspiracy (such as a $30,000-a-year administrative aide) would be highly tempted to blow the whistle.

Yet Biderman’s accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed’s books. As any casual reader of this site’s community boards knows, there is a widespread belief that the PPT does manipulate stock prices on a daily basis to enrich its pals and screw individual investors.

It would be useful to prove them wrong. And if they are right, the PPT should be put out of business.

–Rex Nutting, Washington bureau chief

First, a little history for perspective:

“The Democrats intend to lead the most honest, most open and most ethical congress in history.”

Democratic Leaders Plan Secret Health Reform Deliberations

January 04, 2010 05:45 PM ET | Peter Roff
By Peter Roff, Thomas Jefferson Street blog

Despite their claims to the contrary, the way that House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have handled the healthcare bill has been anything but transparent. And, if the left-wing blogosphere is to be believed, the two congressional leaders intend to keep the deliberations secret as they try to merge the House and Senate versions of the legislation into something that will pass both chambers.

The Talking Points Memo website reported Monday that Democrats in both the House and Senate are saying the process will likely follow the path of the House taking up the Senate-passed legislation, amending it and sending it back to the Senate, which will have to pass it again. “This process cuts out the Republicans,” a House Democratic aide told TPM, indicating the congressional majority intended to make sure the Republican minority would “not have a motion to recommit opportunity.”

It also, say those who are following the issue, allows Pelosi to avoid having to cut deals with problematic House Democrats like Michigan’s Bart Stupak, who has promised to do what he can to scuttle the final bill if it provides for federal funding of abortions.

Henry Waxman, the chairman of the House Energy and Commerce Committee, is saying much the same thing, according to David Dayen at FireDogLake, another prominent left-wing website.

Dayen reported that the powerful California Democrat told constituents he would be coming back to Washington Tuesday to begin negotiations with Senate leaders and the White House about what a final healthcare bill will look like—even though the House doesn’t come back into session until January 12.

According to Waxman, the process for moving will not include the standard House/Senate conference committee, because the motions to select and instruct conferees in the Senate “would need 60 votes all over again.” Instead, whatever agreements made could be packaged in an amendment to the bills passed by the House and Senate.

By blocking out the Republicans—not to mention House Democrats who object to what the Senate passed—Pelosi and Reid are setting up a protracted game of “ping-pong,” in which the legislation goes back and forth from the Senate to the House and back to the Senate again. They may be able to prevail as far as the legislation goes, ultimately, but at enormous cost to their majorities. And that may be the biggest secret of all as far as the healthcare debate is concerned, or at least the one Pelosi and Reid are most concerned about.

Despite their claims to the contrary, the way that House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have handled the healthcare bill has been anything but transparent. And, if the left-wing blogosphere is to be believed, the two congressional leaders intend to keep the deliberations secret as they try to merge the House and Senate versions of the legislation into something that will pass both chambers.

The Talking Points Memo website reported Monday that Democrats in both the House and Senate are saying the process will likely follow the path of the House taking up the Senate-passed legislation, amending it and sending it back to the Senate, which will have to pass it again. “This process cuts out the Republicans,” a House Democratic aide told TPM, indicating the congressional majority intended to make sure the Republican minority would “not have a motion to recommit opportunity.”

It also, say those who are following the issue, allows Pelosi to avoid having to cut deals with problematic House Democrats like Michigan’s Bart Stupak, who has promised to do what he can to scuttle the final bill if it provides for federal funding of abortions.

Henry Waxman, the chairman of the House Energy and Commerce Committee, is saying much the same thing, according to David Dayen at FireDogLake, another prominent left-wing website.

Dayen reported that the powerful California Democrat told constituents he would be coming back to Washington Tuesday to begin negotiations with Senate leaders and the White House about what a final healthcare bill will look like—even though the House doesn’t come back into session until January 12.

According to Waxman, the process for moving will not include the standard House/Senate conference committee, because the motions to select and instruct conferees in the Senate “would need 60 votes all over again.” Instead, whatever agreements made could be packaged in an amendment to the bills passed by the House and Senate.

By blocking out the Republicans—not to mention House Democrats who object to what the Senate passed—Pelosi and Reid are setting up a protracted game of “ping-pong,” in which the legislation goes back and forth from the Senate to the House and back to the Senate again. They may be able to prevail as far as the legislation goes, ultimately, but at enormous cost to their majorities. And that may be the biggest secret of all as far as the healthcare debate is concerned, or at least the one Pelosi and Reid are most concerned about.

EDITORIAL: Hiding health bills behind closed doors

By THE WASHINGTON TIMES

It may be a new year, but congressional Democrats are planning the same old sorts of sleazy tactics in their bid to take over America’s health care system. Congressional Republicans, especially in the Senate, should not let them get away with it. Transparency and ethics should be Republican rallying cries, and obstruction on those grounds should be a point of pride.

By now it’s almost trite to complain that President Obama repeatedly has broken his campaign pledge to “broadcast [health care] negotiations on C-SPAN so that the American people can see what the choices are.” That doesn’t make the complaint invalid. For legislation that could so profoundly and personally affect the daily lives of every American, Congress and the White House should be more transparent and more accessible than ever before. Instead, the process has been secretive and sordid throughout.

The House passed its version of the bill on a Saturday night. The Senate held its key procedural vote at 1 in the morning, and then provided a lump of coal in our stockings by forcing full passage of its bill on Christmas Eve. The House leadership banned consideration of all but one amendment not offered by leadership itself – forbidding debate on more than 150 of them – then provided just 24 hours for members to study the bill’s final text. The Senate leadership inserted so many tawdry last-minute items that analysts are still finding jokers in the deck 11 days later.

All these shenanigans have driven approval for the government health care bills even lower in public polls than the strong majorities that already opposed them a month ago. Yet that hasn’t fazed congressional leaders. Now comes word from multiple sources that not only will Congress refuse to televise the usual Conference Committee to reconcile the two chambers’ versions of the bill, but it won’t allow a formal conference at all. Instead, a chosen few negotiators will concoct the final version out of sight, without formal rules governing the process and without a single Republican at the table.

Democratic Rep. Henry Waxman of California, chairman of the House Energy and Commerce Committee, candidly told a Jan. 3 home-state Democratic gathering that the sleight-of-hand is intended to enable his colleagues to avoid any more tough votes until the one on final passage. David Dayen of the liberal Web site Firedoglake reported from the meeting that, “this will not be a traditional conference committee, Waxman said, because the motions to select and instruct conferees in the Senate ‘would need 60 votes [in the Senate] all over again.’”

(Corrected paragraph:) Back in October, Rep. Vern Buchanan, Florida Republican, offered this simple resolution: “Resolved, that it is the sense of the House of Representatives that any conference committee or other meetings held to determine the final content of sweeping national health care legislation be held in full public view and not behind closed doors.”

If congressional leaders do not abide this simple request, Republicans should bring the whole Senate to a halt. Senate rules provide for so many procedural obstacles, if a determined minority wants to exercise them, that the entire body could be tied up in knots for weeks on end. In the name of open and accountable government, that’s what senators should do if the public interest continues to be trampled.

Even C-Span is crying foul:

C-SPAN Challenges Congress to Open Health Care Talks to TV Coverage

FOXNews.com

The head of C-SPAN has implored Congress to open up the last leg of health care reform negotiations to the public, as top Democrats lay plans to hash out the final product among themselves.

The head of C-SPAN has implored Congress to open up the last leg of health care reform negotiations to the public, as top Democrats lay plans to hash out the final product among themselves.

C-SPAN CEO Brian Lamb wrote to leaders in the House and Senate Dec. 30 urging them to open “all important negotiations, including any conference committee meetings,” to televised coverage on his network.

“The C-SPAN networks will commit the necessary resources to covering all of the sessions LIVE and in their entirety,” he wrote.

In a Tuesday afternoon press conference on health legislation negotiations, House Speaker Nancy Pelosi appeared to object to the premise behind the request.

“There has never been a more open process for any legislation in anyone who’s served here’s experience,” she said.

However, Republican leaders sided with C-SPAN’s calls for transparency.

“As House Republican leader, I can confidently state that all House Republicans strongly endorse your proposal and stand ready to work with you to make it a reality,” Minority Leader John Boehner wrote in response to the letter. “Hard-working families won’t stand for having the future of their health care decided behind closed doors. These secret deliberations are a breeding ground for more of the kickbacks, shady deals and special-interest provisions that have become business as usual in Washington.”

Democratic leaders could bypass the traditional conference committee process, in which lawmakers from both parties and chambers meet to reconcile differences between the House and Senate versions of a bill. Top Democrats in the House, Senate and White House were meeting Tuesday evening to figure out the final product in three-way talks before sending it back to both chambers for a final vote.

“We don’t even know yet whether there’s going to be a conference,” Democratic Congressional Campaign Committee Chairman Chris Van Hollen said responding to a question about the C-SPAN request. “It’s not clear whether or not that’s going to happen yet.”

This format would seem ideal for closed-door meetings, which congressional Democrats have used many times to figure out sensitive provisions in the health care bill — though President Obama pledged during the campaign to open up health care talks to C-SPAN’s cameras.

“That’s what I will do in bringing all parties together, not negotiating behind closed doors, but bringing all parties together, and broadcasting those negotiations on C-SPAN so that the American people can see what the choices are,” Obama said at a debate against Hillary Clinton in Los Angeles on Jan. 31, 2008.

Asked about the request to Congress, White House Press Secretary Robert Gibbs said he hadn’t seen the letter.

“I know the president is going to begin discussions today on health care to iron out differences between the House and Senate bills,” he said.

Lamb urged Congress in his letter to fling open the doors in the final stretch of the negotiations.

“President Obama, Senate and House leaders, many of your rank-and-file members, and the nation’s editorial pages have all talked about the value of transparent discussions on reforming the nation’s health care system,” he wrote. “Now that the process moves to the critical stage of reconciliation between the chambers, we respectfully request that you allow the public full access, through television, to legislation that will affect the lives of every single American.”

Lamb said his network would use “the latest technology” to be “as unobtrusive as possible” during the talks.

Another Lost Decade?

By Eric Fry

01/05/10 Laguna Beach, California – In today’s edition of The Daily Reckoning, we turn our attention to the “Decade of No Returns” – aka, the “Lost Decade.” Students of recent financial history may recall that our friends over in Japan have already logged a couple of “lost” decades. Japanese workers still punch time clocks every day, but the national economy barely seems to notice. Meanwhile, the Nikkei Index has surrendered 73% of its value during the last twenty years.

Here in the States, things are a little bit better. We’ve only lost ONE decade so far…

The S&P 500 Index posted a total return of MINUS 9% during the first ten years of the new millennium. And THAT was the “strong” index. The NASDAQ Composite tumbled 40% during the same 10-year span.
Stocks are not exactly synonymous with economic vitality, of course. And we know that US GDP increased during the decade. So maybe the US economy isn’t as lost as the stock market suggests. But based on the nearby chart, the economy looks so disoriented that no GPS device on the planet could lead it back to the path of productivity. In terms of job creation, the last 10 years were a complete bust.

Despite an abysmal 10-years of zero wealth creation and zero job growth, betting on a second consecutive Lost Decade seems like a bad wager. And yet, it happened in Japan…