FedUpUSA

Archive for May, 2010

US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.

By Ambrose Evans-Pritchard

Bank Robbery in Reverse

Remember when it was little guys who robbed banks?

By Don Hank

Remember when little guys robbed banks? Well, now big crooked bankers rob us, thanks to the crooks we put in office.

Alternet recently ran an amazing article on the ten most corrupt capitalists. I take issue with the use of the word “capitalists” to refer to people whose behavior is best described by the term “fascist” or, as my UK friends politely say, “corporatist.”

But the point is, as a quick scan of that column shows, if you want to get rich through corruption, the winning formula is to be an investor who is well connected to government officials. The popular bank bailouts, started under G.W. Bush and pursued enthusiastically by the Obama administration, are the quintessence of the concept. The idea is to hit up the taxpayer to make your banking buds richer. Of course, no kickbacks ever occur, because crooked politicians wouldn’t stoop that low.

Most of us are vaguely aware that this phenomenon of government-private partnering as part of a get-rich scheme is not just happening in America. It is all the rage in Europe as well, and the following illustrates to just what extent.

Previously, we had run a German language column (no translation yet) at Laigle’s Forum exposing a giveaway of hard-earned EU taxpayer money to millionaire investors in Panama under the wafer-thin guise of “carbon credits.” I sent the column to a number of outlets and a Swiss publisher asked for permission to reprint it there. Briefly, the column shows that the investors received the cash because they planned to build a hydroelectric plant instead of a coal-fired power plant.

What’s wrong with that, you say?

Two things come to mind:

1—There never have been nor ever will be coal-fired power plants in Panama. Thanks to the country’s rich water resources, rivers brimming with enormous flows and lakes to back them up, anyone proposing the construction of a coal-fired plant would become laughingstock immediately. Therefore, the incentive is not an incentive.

2—The same people who want to give the “carbon credits” to Panama for not proposing a coal-fired plant are keen on distributing “carbon credit” wealth to the Tata company to build a coal-fired plant in Gujarat, India under the paper thin pretext that this plant is more efficient than ordinary coal-fired plants.

In other words, there is always an excuse to rob from the poor to give to the rich. The governments of 2 continents saw how readily we swallowed the warnings that the banks would all collapse without a bailout, and now the sky’s the limit.

Now here comes an even taller tale of poor-to-rich wealth redistribution — but a true one (sorry, I was unable to find an English language report on the web).

The report comes from a small conservative blog but is backed up by facts from German radio/TV giant ARD and the widely read mainstream German daily Welt, and my translation follows:

Banker profits most from bailout?

The billionaire rakes in an additional 12 billion from the billion euro grab in Germany. He’s friends with EU Chief Commissioner Jose Manuel Barroso. Get the picture?

Naturally, the report by the ARD didn’t come out until after mental pygmies in the Bundestag (German Lower House) agreed to the package.

According to the report, the billionaire gets an additional 12 billion euros because ordinary Germans are being forced by greedy hands with long arms and fingers reaching into the multi-billion euro grab bag shoveled in by the Bundestag.  Is it insane to wonder whether money is being transferred to certain parties in Germany from these 12 billion extra euros that the billionaire will rake in? Are we out of our minds to think about a secret ugly but juicy kick-back?

The ARD web site explains the European Central Bank (EU) is buying Greek government junk bonds and that Spiro Latsis, Greece’s most powerful banker, is the chief beneficiary. Latsis is a personal friend of EU Commission Chief Barroso, who is one of the decision makers in the bailout process. The conflict of interests is obvious, and the ordinary Europeans who paid the bill now know this.

Once they have taken our last dime, we may all finally figure things out.

Just don’t expect to get your money back.

25 Questions To Ask Anyone Who Is Delusional Enough To Believe That This Economic Recovery Is Real

If you listen to the mainstream media long enough, you just might be tempted to believe that the United States has emerged from the recession and is now in the middle of a full-fledged economic recovery.  In fact, according to Obama administration officials, the great American economic machine has roared back to life, stronger and more vibrant than ever before.  But is that really the case?  Of course not.  You would have to be delusional to believe that.  What did happen was that all of the stimulus packages and government spending and new debt that Obama and the U.S. Congress pumped into the economy bought us a little bit of time.  But they have also made our long-term economic problems far worse.  The reality is that the U.S. cannot keep supporting an economy on an ocean of red ink forever.  At some point the charade is going to come crashing down. 

And GDP is not a really good measure of the economic health of a nation.  For example, if you would have looked at the growth of GDP in the Weimar republic in the early 1930s, you may have been tempted to think that the German economy was really thriving.  German citizens were spending increasingly massive amounts of money.  But of course that money was becoming increasingly worthless at the same time as hyperinflation spiralled out of control.

Well, today the purchasing power of our dollar is rapidly eroding as the price of food and other necessities continues to increase.  So just because Americans are spending a little bit more money than before really doesn’t mean much of anything.  As you will see below, there are a whole bunch of other signs that the U.S. economy is in very, very serious trouble. 

Any “recovery” that the U.S. economy is experiencing is illusory and will be quite temporary.  The entire financial system of the United States is falling apart, and the powers that be can try to patch it up and prop it up for a while, but in the end this thing is going to come crashing down.

But as obvious as that may seem to most of us, there are still quite a few people out there that are absolutely convinced that the U.S. economy will fully recover and will soon be stronger than ever.

So the following are 25 questions to ask anyone who is delusional enough to believe that this economic recovery is real….  

#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy?  In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011.  Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?

#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March.  This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.  So can you please explain again how the U.S. real estate market is getting better?

#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period.  That was a record high and up from 9.1 percent a year ago.  Do you think that is an indication that the U.S. housing market is recovering?

#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?

#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?

#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that “terrible cuts” are urgently needed in order to avoid a complete financial disaster in his state?

#7) But it just isn’t California that is in trouble.  Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades.  What do you think all of those budget cuts will do to the economy?

#8) In March, the U.S. trade deficit widened to its highest level since December 2008.  Month after month after month we buy much more from the rest of the world than they buy from us.  Wealth is draining out of the United States at an unprecedented rate.  So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?

#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?

#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April.  So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?

#11) According to one new report, the U.S. national debt will reach 100 percent of GDP by the year 2015.  So is that a sign of economic recovery or of economic disaster?

#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster.  In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?

#13) The FDIC’s list of problem banks recently hit a 17-year high.  Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?

#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke.  So what do you think will happen if a significant number of small banks do start failing?

#15) Existing home sales in the United States jumped 7.6 percent in April.  That is the good news.  The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming.  So now that there is no more tax credit for home buyers, what will that do to home sales? 

#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money.  So what does it say about the U.S. economy when the two “pillars” of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?

#17) 43 percent of Americans have less than $10,000 saved for retirement.  Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin.  With so many Americans living on the edge, how can you say that the economy is healthy?

#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent.  So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America’s biggest cities?

#19) Gallup’s measure of underemployment hit 20.0% on March 15th.  That was up from 19.7% two weeks earlier and 19.5% at the start of the year.  Do you think that is a good trend or a bad trend?

#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession.  So are the vast majority of Americans just stupid or could we still actually be in a recession?

#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth.  So is Barack Obama’s mantra that “what is good for Wall Street is good for Main Street” actually true?

#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquid because of the economic trouble that is coming.  Do you think that Richard Russell is delusional or could he possibly have a point?

#23) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010.  In fact, that was almost twice the level of a year earlier.  Does that look like a good trend to you?

#24) In March, the price of fresh and dried vegetables in the United States soared 49.3% - the most in 16 years.  Is it a sign of a healthy economy when food prices are increasing so dramatically?

#25) 1.41 million Americans filed for personal bankruptcy in 2009 – a 32 percent increase over 2008.  Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.  So shouldn’t we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words “economic recovery”?

I Know! Let’s Vilify Germany!

Posted by Karl Denninger

Amusing the articles on Bloomberg this morning… let’s start here:

“The situation has been tough for all of us, lawyers and regulators alike,” said Jochen Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt. “The step was dropped on us like a bomb and no one really had any time to prepare.”

Germany was criticized for banning naked short selling of debt securities as well as naked credit-default swaps last week. BaFin published the ban late in the evening of May 18 and the rules took effect less than four hours later. Stocks around the world fell and Germany’s benchmark DAX Index dropped more than 8 percent since the ban was announced.

Awwwwww poor babies!  You mean that people who bill by the hour actually had to put in some billable hours on time other than 9-5 Monday – Friday? 

Then there’s this:

The euro crisis is looking more like a German crisis every day. The way the single currency now works is clear: It involves massive transfers of wealth from the richer to the poorer regions. And it means you have a soft, political currency. If Germany doesn’t like that, it should decide it doesn’t want to be part of the euro club anymore.

Crisis?

Germany has no crisis.  It has a pension funding problem but as a percentage of the budget, as a percentage of GDP, as a fiscal matter they look like the Girl Scouts at this party.

The amusing part of this is that without Germany the Euro probably trades at about 30 cents to the dollar.  Why?  Because the entire Euro zone’s GDP has been “borrow and blow”, just like it has been in the US, and without Germany to anchor this you’ll get some really amazing dislocations over in Europe.

I hope Germany does leave the Euro and goes back to the Mark.  They should.  There’s no more reason for them to support this nonsense than there is for China to play mercantilist with us in the intermediate and longer term, although this sort of thing always looks good in the short term.  In China’s case their exports to America have been subsidized, and now Germany is being told they must do the same.

Bah.

Nations should do the right thing, which means stopping spending money they cannot obtain by actual taxation.

Note what Geithner said today:

European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner said earlier in Beijing today.

Oh really Timmy?  How about restoring sustainability to an unsustainable system IN THE UNITED STATES?

The “Pump Brigade” was out this morning in force on CNBS as the futures were down 200 DOW points and 25 handles on the S&P.  Why?  Well gee, you think there might be recognition that the concept of spending more than you make must end at some point, and when the point comes not through your decision to stop being a profligate jackass but because your creditors start jacking up the cost of borrowing more money this leads to an economic dislocation?

How many times do we need to see this movie?

Iceland proved what happens when you borrow and spend money you don’t have on an indefinite forward basis and the bubble pops.  We learned nothing from it and didn’t stop it, and a year later the same thing happened to Greece.

Now we have the very same pumpers claiming this is “irrational fear” in the markets today, and that “it won’t come here, America is strong.”

Uh huh.

We’re spending 11% of GDP beyond what we have with the government borrowing it and blowing it.  Remove that and GDP contracts by at least $1.5 trillion instantly and the economists all scream “DEPRESSION!“

The choice we have today is the same choice we had in 2000, 2007 and last year: We can either accept the damage that we have caused by our own hand – not as an accident, but as a consequence of our idiocy – or we can continue with the same Wimpy econolies that got us into this mess in the first place and instead of having a lot of damage we can have an economic catastrophe.

We cannot increase taxes to get out of this.  Historically, no matter the tax rate, governments seem to be unable to collect more than about 20% of GDP in taxes.  With a $14 trillion economy this means the federal government has to be limited to about $2.8 trillion in size maximum, and somewhat less during recessions (like now, for instance.)

But it’s not – it’s $4 trillion and growing.

The gap, currently $1.5 trillion, cannot be closed by “slowing the growth of the budget.”

The ugly truth is that most of what The Federal Government does is unconstitutional.  The Education and Agriculture Departments, Medicare, Medicaid, Social Security – all unconstitutional.  Yet we don’t care so long as “we get ours.”

This has to change.  “I got mine, now screw you” as a personal attitude must change.

If it does not, we will become Greece.

Insider Trading Is Perfectly Legal – But Only For Members Of The U.S. Congress

Did you know that insider trading is perfectly legal in the United States?  Well, not for 99.9% of the population.  It is actually only a very small percentage of the population that can legally indulge in insider trading – the members of the United States Congress.  In fact, a law that would ban insider trading by members of Congress has been stalled for years on Capitol Hill.  So why wouldn’t lawmakers in Washington D.C. want to apply the same rules to themselves that apply to the rest of us?  After all, how are we supposed to respect the integrity of those “serving” in Congress when they are playing by an entirely different set of rules?  The American people aren’t stupid.  They can see what is going on.  The truth is that there is a reason why approval ratings for Congress are at an all-time low.

The sad thing is that this issue has gotten very little attention in the mainstream media.  Nobody seems really that upset about it.  But it is a travesty that our lawmakers can legally make trades in the open market based on inside information that they have gained by being in positions of authority.  As the Wall Street Journal recently explained, they can generally make all the money they want off of insider information without any fear of prosecution because “insider-trading laws generally do not apply to lawmakers, leaving them free to trade on nonpublic information.”

But members of the U.S. Congress are generally in a greater position to influence the fortunes of individual companies than almost anyone else.  For example, certain members of the U.S. Congress may know that certain legislation is going to be introduced that would have a dramatic impact on the economic fortunes of a particular industry or corporation.  What would stop those members of Congress from making very profitable trades in the marketplace based on that information?

Nothing.  Nothing at all.

So, is there any evidence that members of Congress have been involved in this sort of activity?

Well, there is at least one study that seems to indicate that members of the U.S. Congress have been much more successful in the stock market than members of the general public….

A 2004 study of the results of stock trading by United States Senators during the 1990s found that that senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade.

Of course Congress could stop all of this by simply passing a law that bans insider trading by our lawmakers.

But they refuse to do it.

Instead, it is likely that our “leaders” will continue to make millions of dollars by betting against the U.S. economy and very few people will even raise an objection.

In the upcoming Wall Street sequel, Gordon Gekko makes a statement that seems very appropriate for the world in which we now live….

“Someone reminded me I once said ‘Greed is good’ – now it seems it’s legal”

Stealth IRS Changes Mean Millions of New Tax Forms

By Neil deMause

NEW YORK (CNNMoney.com) — The massive expansion of requirements for businesses to file 1099 tax forms that was hidden in the 2,409-page health reform bill took many by surprise when it came to light last month. But it’s just one piece of a years-long legislative stealth campaign to create ways for the federal government to track down unreported income.

The result: A blizzard of new tax forms that the Internal Revenue Service will begin rolling out next year.

“It was actually something that we were following back under the Bush administration under the 2008 budget — we started to see these kinds of rumblings about the ‘tax gap’ and whether or not businesses were paying their fair share,” says Tom Henschke, president of the Pennsylvania-based SMC Business Councils, which was one of the first organizations to call attention to the health care amendment when it was introduced last fall. “So two administrations can claim credit for this.”

The first tax-reporting expansion was buried in a different bill, the Housing Assistance Tax Act introduced by House Speaker Nancy Pelosi and signed into law by President George W. Bush in July 2008. Best known for its first-time homebuyers’ credit, the bill also created a new addition to the family of 1099 tax forms: the 1099-K.

The 1099 is a catch-all series of IRS documents used to report non-wage income from a variety of sources like contract work, dividends, earned interest and pension distributions. The new 1099-K aims to shine a light on a currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year’s transactions.

The rule comes with a floor to weed out the most casual retailers: The 1099-K is only required when a merchant has at least 200 payment transactions a year totaling more than $20,000. But it applies to all payment processors, including Paypal, Amazon.com, and others that service very small businesses.

The goal of the new regulations is to catch income that is going unreported to the IRS. The federal government loses an estimated $300 billion each year from the “tax gap” between what individuals and businesses owe and what they actually pay.

“Better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” IRS Commissioner Doug Shulman explained last year as his agency unveiled the 1099-K. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses.”

For companies that currently report all their credit card and Paypal sales to the IRS, the 1099-K requirement will have little impact. All the paperwork will be done by the bank or payment processing service, and business owners will simply receive a form at the end of the year listing their total receipts.

The 1099 changes attached to the health care reform bill are another kettle of fish. These massively expand the requirements for filing the “1099-Misc” form, which companies use for recording payments to freelance workers and other individual service providers. Until now, payments to corporations have been exempt from 1099 rules, as have payments for the purchase of goods.

Starting in 2012, that changes. All business payments or purchases that exceed $600 in a calendar year will need to be accompanied by a 1099 filing. That means obtaining the taxpayer ID number of the individual or corporation you’re making the payment to — even if it’s a giant retailer like Staples or Best Buy — at the time of the transaction, or else facing IRS penalties.

In essence, the 1099-Misc is having its role changed from a form for tracking off-payroll employment to one that must accompany virtually any sizeable business transaction.

“Just with business travel it would include hotels, rental cars,” Henschke says. “Phone service: 1099. Computer service: 1099. Whoever does your postage meter: 1099. You do a little advertising, Yellow Pages: 1099. Your landlord: 1099. You might as well just keep them in your pocket and hand them out as you go around every day.”

How did this sweeping provision end up hidden in the health reform bill? No one is willing to take credit for introducing the new legislation, which appeared in the Senate Finance Committee’s version of the health bill last fall. Committee chairs Don Baucus, D-Mont., and Chuck Grassley, R-Iowa, both referred calls to committee staffers, who wouldn’t comment on the record.

But the provision appears to be a long-in-the-works change that was just waiting for the right moment to be attached to legislation.

Back in 2007, the Senate Finance Committee asked the government’s General Accountability Office to conduct a tax-gap study. The resulting report estimated that establishing additional 1099 paper trails for income could provide up to $345 billion annually in new federal tax revenues.

Enter the health reform bill. Last fall, as the debate raged over its projected cost, Congressional supporters of the bill began a desperate search for “revenue enhancers” to bring the net cost down — and eliminating the 1099 exceptions for corporations and goods was seen as an easy way to bring in more cash without raising tax rates.

House and Senate staffers “essentially have a cupboard full of convenient revenue raisers that they can put into bills when they need it,” notes Chris Edwards, director of tax policy studies for the libertarian Cato Institute. In the case of the 1099 changes, he says, “this was sitting around, the IRS wanted it and had testified in favor of it, and they needed a revenue raiser. This was just a convenient thing.”

Still, the form the new law took was surprising — especially the requirement that businesses file 1099s when they purchase goods, which hardly anyone saw coming.

Henschke’s group had previously surveyed its members and learned that they average 10 filings a year of 1099 forms, each of which takes about half an hour to prepare. That’s in line with the GAO report, which found that a typical small business spent between three and five hours per year filing 1099s.

But SMC’s survey found that extending 1099s just to services purchased from corporations would push that number to at least 200 filings per year for a typical small business — adding an estimated $6,000 to the cost of preparing the average tax return. And that’s without even accounting for the requirement that 1099s be filed for purchases of goods, a provision that Henschke’s group didn’t see coming when it conducted its survey last year.

“These folks are doing their paperwork in the evenings and on the weekends already,” he says. “This certainly adds to the burden substantially.”

The IRS has a draft version of the 1099-K form available now for public feedback, and will begin requiring the form’s use next year. The additional 1099 requirements take effect in 2012. The agency is in the process of drafting its guidance on them.