Thursday, May 20, 2010

"All I gotta do is act Naturally"

"They're gonna put me in the Senate.
They're gonna make a big star outa me!
They're gonna put me in the Senate...
and all I gotta do is - act Naturally!"


How conservative is he? The 47-year-old Paul - who trounced establishment candidate Trey Grayson in Kentucky's GOP Senate primary Tuesday - wants to abolish the federal departments of education, commerce and energy, as well as the income tax.
(Yea, I know. What a source! Anyway, work with me for a minute...)

Dear Dick (and the rest of the "True Believers", Left and Right):

That isn't "Conservative" talking. You "Conservatives" spend like Liberals, only you aren't nearly as much fun in the sack and are a bit too fond of bombing people. Rand Paul is a LIBERTARIAN using your apparatus against you. If folks like Rand Paul do NOT STOP your silly Federal spending THE INTERNATIONAL BOND MARKET WILL ("IBM")! And SOON. Federal Spending is coming in for a CRASH LANDING. Paul and his supporters want to at least take a shot at a CONTROLLED crash landing, while the rest of you mathematically challenged lawyers and "political scientists" (LOLOLOLOLOL!!) want to fly the plane directly into the side of a mountain at full speed.

Sorry, that got a way from me...

In any event, the ONLY way to save ourselves from the Federal Bureaucracies is to starve them out! To CUT their budget, the budget they use to enrich themselves with salaries and benefits unavailable to mortal Americans while torturing us endlessly. The U.S. Federal Budget Deficit for this year will exceed 10% of GDP, and likely will or come close to that for the next several years - after which time things will get REALLY, REALLY bad. (Note to you Lefties - if you guys try to "tax the rich" to close that gap, all you will succeed in doing is EXPANDING the deficit from 10% per year to 20% to 30% per year... at which point you will be changing out of the blue jeans and sneakers into BDU's and combat boots. This is a time to be very, very careful what you ask for -you might get it.)

What, exactly, has the Department of Energy accomplished since its formation after the last "Energy Crisis"? (Other then expand their budget?) How about the Dept. of Commerce? (Guffaw!) And the Department of Education? All they have done is succeeded in enslaving a generation of young people with student loans for many an education that could have been had at a public library for the price of a library card. While we are at it, lets disassemble the Federal Student Loan program (Sallie Mae).

The funding for Social Security, Medicare, Medicaid, the Military, otherwise known as the "Big Spenders" are going to be cut, and cut deeply, by the IBM, too. (Don't know who the IBM is? Those are the folks that are lending us the money to do the things we are doing. When they stop lending us the money, and they will, it is GAME OVER. They don't care if you are Capitalist Pig out to exploit the masses or Communist Pinko out to save the worker - that funding is coming to an end; and with it most of the American "Rich".)

Sorry, Dick Cheney. Rand's not too "Conservative" for you. He is too NUMERATE for you.

24 comments:

Anonymous said...

The $US will be the last to go, but it will. It is still viewed as the last safe place to put your money. Look at what is happening to the Euro. It would have gone splat already, except the the Fed is printing money and giving it to European banks. Eurozone folks then buy the dollars with Euros and then buy US Treasuries with the dollars.

Essentially, the Fed is trying to devalue the dollar as fast as the Euro is tanking. Is that insane? How long will it go on?

At any rate, a whole bunch more liquidity is pouring into the US market. Even though sales tax receipts ( consumer spending ) is not up, diesel fuel consumption is up 5% year over year. This leads me to believe that the internal US economy has grown 5% in deflation adjusted dollars. The dollar value is flat to falling. I see more cars on the roads and people in restaurants and stores.

With all this money lying around, the possibility of a very hot economy over the next two years is pretty good. Pressure on oil is eased by problems in Europe and China, while things are picking up here. In the short run, the stock market will fall because of bad news everywhere. Cities and towns are going bankrupt. Municipal employees are going to be laid off in droves. This is actually a positive event, but the markets won't think so. The Piigs are still squeeling, and China is not, but soon will be, on the MSM's radar. In all equities will fall through November, then take off like a rocket, barring a complete Euro collapse or civil war in China.

Wish I'd seen the bump in Treasuries. Predictable and obvious in retrospect.

Regards,

Coal Guy

Lenny said...

G:

Things are getting interestinger and interestinger. Implement the L plan:

Give every man, woman and child $100,000 and let the chips fall where they may.

Be well brother.

LD

Lenny said...

Coal Guy:.

I agree the USD will be the last to go (elvis trade). However, I think the real economy is about to take a header.

This is how I am playing things:

Short oil
Short copper
Short stocks

Will look to short anything economically sensitive (platinum, palladium, lead, zinc et al) on any rallies.

Long gold
Long (less) silver

FX will be done on a case-by-case basis. I am out of the Elvis trade for now. FWIW, some EM currencies will present some opportunities.

Treasuries will be a huge short. Either default or monetization will get 'em. But not yet.

LD

Anonymous said...

Lenny,

There is a TON of money lying around, and more every day. This economic growth thing is happening under the radar, because the growth is occurring at about the deflation rate. They are fibbing about deflation in order not to scare the markets. Cheaper commodities are not going to hurt the growth process. Not one bit. Don't stay short too long, but with Europe and China in a slide, they may stay depressed for a while. It'll be time to short Treasuries when the reported inflation hits 3 or 4%. It will happen fast. They won't be able to rein it in very easily with all the loose change floating around.

We may have a few bad looking months coming up, but the trend will be warm to hot to overheated to ???

This leads me back to Greg's point. If Gov't spending is not brought under control before inflation hits, it's all over but the crying.


Regards,

Coal Guy

bureaucrat said...

Jeffers, the Libertarian thing is nonsense in the real world. The reason no large numbers of Libertarians can get elected (Paul's kid was elected for the same reason Obama was elected: they were cries for help!) is because it is that the voters get shafted in the event of any reduced Federal (government) spending.

You know the biggest programs in the Federal govt., as I've listed before, and as you have now listed: social security, medicare, medicaid, defense and interest are 80% of Federal spending. Not Israel, not illegal immigrants, not little Federal departments. Every older American, and a lot of rich Americans (the people who give the go ahead to invade Iraq) would be hurt by Federal cutbacks. They will never be cut back by much if at all.

Depts of Energy (most of its money going to nuclear weapons decommissioning), Commerce (teeny weeny department which does statistics, mostly) and Education (most of their money goes to defaulted student loans) are nothing in the Federal spending picture. Neither are us overpaid, over-benefitted Federal workers. The big money goes to the VOTERS AND TAXPAYERS. And with incumbents getting their heads chopped off this year, no one is going to be cutting anything.

The main problem is tax avoidance by the baby boomer rich, and it has been that way for 30 years, as they elected one Reagan clone after the other. The separation between rich and poor in America hasn't been this wide since the 1920s. The boomers wanted their big houses they couldn't afford and their SUVs, saving nothing for their retirement cause they were never going to get old. WRONGO!!

The Libertarian stuff sounds nice, and I have incorporated some of that thinking into my own life, but in the real world, Libertarianism is a crock of alligator doody. :)

We also can fix some of these government spending problems with slight changes in benefit formulas.

bureaucrat said...

(The news mentioned that the Thailand riots has a lot to do with the dirt-poor farmers in the north being really upset with the Thai rich (and their army). The same thing could erupt here. Food for thought.)

Anonymous said...

Bureaucrat,

The federal government extracts about 19% of the GDP in the form of income tax and another 8% in FICA/Medicaid. The 19% number hasn't changed since the 1950s. FICA and Medicaid have grown dramatically. State taxes have mushroomed too. Every time they try to suck more than that 19% out of our pockets by income tax, the economy tanks. Federal and State revenue over the last 60 years, 30 years for that matter, have grown dramatically as a percentage of GDP. Government spending has grown much more.

That is the fact of it. They cannot extract more without killing the goose that lays the golden eggs. Period. When they take a larger percentage, the economy shrinks so that total revenue declines. If is politically impossible to cut your programs, we're screwed.

Give up on the class warfare thing. We're all on the same sinking ship. If you insist, just remember, the enemy in class warfare is anyone who makes $5000 a year more than you.

Regards,

Coal Guy

Anonymous said...

Consider this, after people pay down their credit card debt, all that money that went for debt service is available for other uses. While the debt is being paid down, it is an economic drag. After is is paid down, economic stimulus occurs.

Regards,

Coal Guy

bureaucrat said...

carbon, weren't you the one who told me that nobody ever really paid the super-high top tax rate in the past? :) Maybe we should try it. We white folks did very well in the 1950s economically-speaking when taxes were high. Haha!!

Greg T. Jeffers said...

Bur:

It is NOT the marginal tax rate that we are talking about! We are talking about taxes as a percentage of GDP! Nothing else really matters. The educated Left knows full well that money is a marker for real wealth - Ag, Mining, Fisheries, Forestry, Energy, Livestock, Fresh Water - and these things are NOT increasing, they are decreasing. What the Left wants is to put these sources of wealth under control of THEIR state (as opposed to OUR state).

However, they continually enter into the "Fallacy of misplaced concreteness". They cannot comprehend the OTHER side of the trade - when you tax somebody you break the link in the velocity of money chain, among other impacts. Many folks cannot seem to grasp this, for whatever reason.

Why you/they cannot grasp the International Bond Market is another story. I think again the fallacy of misplaced concreteness is at work. "THey have always lent us the money... where else are they going to go?" seems to be the logic...

Egh! Wrong! Thanks for playing!

Greg T. Jeffers said...

Lenny:

I often quote your "Elvis Trade" to this day.

Hope all is well.

PioneerPreppy said...

Speaking of the IBM, and I think this maybe a good place to ask this question and a reasonable discussion. What happens when or IF the US does finally reach a point that no one is interested in it's bonds anymore?

I mean if the US defaults on it's debt could that spark some military or other action? I know such things have caused wars in the past but do we think it could happen today? I fear my knowledge of current economic and foreign policy is not up to answering that question for myself.

Charles said...

Re the Euro; Europe had a positive trade balance with China and India before the Euro slide - its just getting better and better!

Re differences in wealth; the US has a massive difference between rich and poor, which is exacerbated by the 'sink-or-swim' politics of the far right. If violence erupts, it will be because people cannot see any alternative solution to their problems through political or legal means.

Anonymous said...

Greg, on a somewhat different but related subject, what do you think of the MMT ideas that Warren Mosler is putting out?
He seems to be fairly successful in the investment world.
The things he is saying about sovereign debt are really radical, but it does explain why Japan keeps perking along, why the Euro will die and why Dick Cheney was right when he says "deficits don't matter". And I do remember that Cheney was in the Nixon administration in 1971 when the US finally left the gold standard.
Just curious what you think.

westexas said...

I think that most developed countries are engaged in the "Thelma & Louise Grand Prix of Debt Race," racing each other to the fiscal cliff edge.

A country reaches the cliff edge when they can't borrow enough money, from traditional sources, to fund their deficits. Clearly, Greece has arrived at the "Thelma & Louise" moment, but government entities in many other countries are following close behind the Greeks.

The bottom line is that most developed countries cannot afford their current level of government spending. In most cases, attempts to raise taxes will produce disappointing results, so it's going to come down to enormous budget cuts and/or massive central bank monetization.

bureaucrat said...

I think we can all agree if you want benefits, and you don't want to pay for them, the magical "free oil" ain't gonna "fund" this fraudulent world anymore. So the next issue becomes .. who gets screwed?

Should the young people, who had very little hand in this, be the ones to have their lives adversely impacted by choices they did not make? Do we financially imprison the children for the crimes of their fathers?

If not, who has the money?

Considering the wide gulf between the rich and poor, the undertaxing of the last 30 years, and the people who are going to benefit the fastest and the longest from government benefits (Federal especially), where silents (born 1930-45) and boomers (born 1946-64), paid in in pennies and are getting back dollars, who do you think you should get dinged?

If you want to delude this fat, overstuffed, spoiled segment of the population (born 1930-1964), and fool them into thinking they bare no blame for this intergenerational theft, you all go ahead.

You want to make them feel good with dreams of libertarianism ("you all pull yourself up by your bootstraps while I take my annual vacation trip to Cancun"), go right ahead.

The Khmer Rouge weren't a bunch of old people rebelling. They were 13 and 14 year olds, brainwashed and given automatic weapons. They we responsible for killing 1-2 million people (many from starvation).

You all better start thinking what your kids are capable of if they get mad enough.

Anonymous said...

WestTexas,
What Mosler and the MMT people say is that there is nothing wrong with central bank monetization in a non convertible currency, until it becomes inflationary. It won't become inflationary until there is full employment and at that point you control the inflation with taxes to dampen aggregate demand.
They claim that what we call government 'debt' is not like private sector debt. It used to be when the currency was convertible. But with fiat currencies it is just about controlling inflation and currency exchange.
So called government 'debt' actually represents nothing more than private sector savings.
The problem with Greece is that the Euro is not sovereign to them, the Greek government cannot control the exhange rate and thus they will default and/or leave the Euro at some point. If they could control the exchange rate, they would simply devalue and pay off with devalued currency.
MMT seems very interesting because it might represent a method of managing the economy with fossil fuel decline.
They also use Japan as an example of why 'debt' doesn't make any difference.
My God, could Uncle Dick Cheney be right on something? Tell me its not so.

Greg T. Jeffers said...

Charles:

Your opinion on the "sink or swim policies of of the far right" are simply unsupported in the extreme. Irrespective of how often you say it, or how loud. this is just simply not true.

The vast US budget deficit i is primarily because of the Social Programs (with 25% of the deficit belonging to the military).

Your political view is clouding your economic sense.

BTW... IMHO the far RIght are for the most part out of power, and losing strength every day - as is the far Left. It appears to me that the middle is gaining some traction. Being a "small government" Tea Party type means less government intervention.... and those are the folks making headway at this moment. That is inconsistent with ANY policy directed by the "Right", assuming you call them the "Right", as less government simply cannot mean more or more powerful "sink or swim policies"... it likely means less or eventually no policy.

westexas said...

Bur:

I think that we are headed for something of a virtual civil war between net tax payers and net tax receivers, especially civil servants with very generous pension benefits on the net tax receiver side.

I think that we are also headed for something of an Export Land Model for government spending, to-wit, before money and services are "exported" out of a government entity, large fixed expenses have to be paid, especially G&A costs, pension costs, debt service etc.

So, just as an oil exporting country consumes an ever greater share of their production, as their production falls, government itself will consume an ever greater share of revenue, as incoming revenue falls. This means that money and services "exported" out of governments to citizens will fall at an accelerating rate, even as governments try to raise taxes.

Greg T. Jeffers said...

Westexas:

I gotta tell "a virtual civil war", has been on my mind for weeks now... I just didn't have the correct name. Now I do...

That is pretty much how I see it.

Dextred1 said...

Charles,

Really? So easy to throw around empty epithets. It's okay though, I won’t insult your intelligence by asking if you actually believe what you wrote about the right! I suggest laying off of the MSNBC addiction.

I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.

-Thomas Jefferson

Dan said...

Presently, the banks are selling their trash to Bernanke at par. Then turning around and buying t-bills with the proceeds. This accomplishes several things for them. Primarily, it simultaneously improves their balance sheet, and drives down interest rates. While you may wonder why they would want to do that; keep in mind that the money center banks have largely securitized and sold or offloaded to the fed their loan assets, so driving down interest rates is not bad for the banks. However, by driving down rates, loans will be less likely to default, today. It helps generate fee income from servicing the loans.

It’s the big reason for the recent mad dash for trash. Buy em cheap and sell em to the Fed at par. I reckon it can continue until we run out of dodgy debts. Until then the IBM is irrelevant, we Ain't in Kansas anymore.

Dan said...

Heterodox thought:
In the early 90’s I did a paper for an honors tax course on “Title 26 as a Means of Social Control” examining how various activities were either incentivized or disincentivized. One of the things I explored was presidential candidate Ross Perot’s 19% overall tax rate. At the time I think the top rate was 31% of income over 80K +/- a few hundred bucks. In other words one could seriously reduce one’s tax bill by doing what the government wanted.

To get to the point, as bureaucrat is fond of pointing out, during the “golden years” of the late 50’s early 60’s the top tax rate hovered slightly north of 90%. However the government seriously wanted to build up the middle class to discourage socialist ideologies. How much of the prosperity was due to tax incentives? How much of labor union success at that time was due to tax incentives? A rich fellow earning more will only create so much demand; where as several middle class men will spend a much larger portion of an equal increase in earnings resulting in much more final demand. As Henry Ford realized, your employees are your customers, provided they can afford the product.

Does a marginal tax hike necessarily lead to an decrease in economic activity? An overall decline in living standards? Finally; how much could we stimulate jobs if we simply stopped incentivizing the off shoring of production?

Greg T. Jeffers said...

"Does a marginal tax hike necessarily lead to an decrease in economic activity? An overall decline in living standards?"

Of course it does, Dan, if all other things are equal! If the government drains the private bank accounts (that's what taxes are in a fiat currency system), then of course that would decrease demand and therefore economic activity.

What's not equal? The exceptions made for special interests with political power.