The Trumpet That Gives An Uncertain Sound

Avoid the "O" symbolism, will ya buddy?

Here's A Conservative Tax Idea For Mitt Romney And The Republicans

Current dollar GDP is $15.596 trillion.

All you get, for everything, is $1.56 trillion.

Capice?

The Left's True Objective Is Higher Taxes On Middle Class: Citizen Cohn Admits It

Say whatever you want about Romney's tax numbers not adding up, the objective of the left in America is to raise taxes on the middle class, precisely because government spending as projected going forward cannot be paid for without it.

So Jonathan Cohn, here:

To reiterate something I've said before, I happen to support higher taxes for the middle class, at least over the long term, assuming they are part of a balanced deficit reduction approach that preserves Medicare, Social Security, and other critical programs. In an ideal world, Obama would make a case for precisely that sort of agenda, because without those higher taxes (above and beyond taxing the rich, as Obama has proposed) government won't have enough money to fund future spending obligations. But it's hard to fault Obama for not presenting the full facts about fiscal tradeoffs when the other side has shown repeatedly that it doesn't care about facts at all.

Conservatives need to make the point that government spending even at Rep. Paul Ryan levels is unaffordable without tax hikes on the middle class.

All the talk in the Republican Party about broadening the tax base is really about eliminating tax loss expenditures in order to raise revenues. In other words, taking away the deductibility of mortgage interest expenses, state and local income tax expenses, and the like. If it walks like a tax increase and talks like a tax increase, it's a tax increase, whether it's brought to you by the Gang of Six, the Gang of Twelve, or Mitt Romney.

The Stupid Party is about to vote for this again and the left knows it, which is why they are so happy. People like Jonathan Cohn know a Romney presidency will help achieve their goal, so it really doesn't matter if Obama loses. Unless conservatives take over the Republican National Convention and give the nomination to someone who will actually protect the middle class, taxes on the 66 percent of America which earns less than $100K per year are going up, up, up.

Conservatives need to remember what happened last time we fell for this gimmickry. Ronald Reagan agreed to eliminate deductibility of consumer interest in the 1986 tax reform in exchange for lower rates. We lost that deductibility and got the lower rates, but when Democrat Bill Clinton raised taxes in 1993, we didn't get back the deductibility. The same thing will happen again. We'll sacrifice deductibility of something else in exchange for lower tax rates, which liberals later will succeed in raising the next time they have power, putting the middle class even farther behind than it is now.

We didn't get back the deductibility lost in 1986 under George Bush in 2001, and we won't in future if we answer the siren call of broadening the tax base again.

Unemployment Rate Rises To 8.3 Percent: All 42 Months Under Obama Over 8

For the report from the BLS, see here.

For the interactive graphic of unemployment from The Wall Street Journal, see here.

Full-time employment DROPPED from 114.6 million to 114.3 million. In April 2006 the level stood 5 million higher at 119.3 million. 

As recently as April 2006, just six years ago, people working part-time for economic reasons had dipped to 3.9 million. Today the number still stands elevated at 8.246 million, an INCREASE from last month's 8.21 million and more than double the level of six years ago.

Total part-time INCREASED from 27.894 million last month to 27.925 million now. In April 2006 the level stood at 19.1 million. Total part-time employment today is nearly 9 million higher than it was six years ago.

Total self-employment INCREASED from 9.572 million last month to 9.616 million now. The number stood at 10.5 million in April 2006. The number of entrepreneurial Americans has declined by nearly a million in six years.

Holders of multiple jobs INCREASED from 6.769 million last month to 6.845 million now. The number stood at 7.4 million in April 2006. The number of people holding extra jobs has declined by over half a million in six years.

Change you can believe in.

Both Romney And Obama Will Destroy The Economy By Destroying Housing

In November 2011 Romney told Hugh Hewitt, here, that it was not a good time to eliminate the mortgage interest deduction in view of the problems in the housing sector:

My own view is that the idea of limiting deductions in the way the Bowles-Simpson panel recommended makes a good deal of sense. I’d like to see us have lower tax rates, and have a broader base. And it sounds like their idea is looking for a way of doing that. I must admit, I don’t think that this is a great time to be eliminating the home mortgage interest deduction. We obviously have a lot of trouble in the housing sector right now, but I haven’t seen their proposal. It may work just fine, but I just haven’t seen it, so I wouldn’t want to comment on that. But the home mortgage interest deduction right now is something that I think we need to keep in place.

But by February 2012 it had become a good time to eliminate the deduction, at least for the rich, a position identical to Obama's, as noted here:

“In order to limit any impact on the deficit, because I do not want to add to the deficit, and also to make sure we continue to have progressivity in our tax code, I’m going to limit the deductions and exemptions, particularly for high-income folks,” Mr. Romney, a former governor of Massachusetts, said.

Reiterated in April at a private fund-raiser as reported here, the idea suddenly had become toxic again, enough to merit walkbacks from his advisers, reported here:

Senior advisers to Mitt Romney said Monday that Mr. Romney, the presumptive Republican nominee for president, was merely tossing around ideas, not making policy announcements, when his chat with donors about some significant changes to the tax code was overheard by reporters at a fund-raiser this weekend.

When it comes to Mitt Romney, we all know that there's no there there on any number of issues. But it is especially disturbing that neither Romney nor Obama seem to grasp the scope of the damage their shared idea of eliminating the mortgage interest deduction for the wealthy would cause to the American economy.

Wayne Allyn Root explains, here:

If you think the housing market is in trouble now, wait until the home mortgage interest deduction is eliminated for upper income homeowners.

From Manhattan, Great Neck, and Scarsdale, to Boca Raton, Scottsdale, and Brentwood, home prices in upper class neighborhoods from coast to coast will drop by about 35% overnight. That 35% number is not a guess, it’s automatic.

Today, if you’re in the top bracket, you deduct 35% of your mortgage interest off your tax bill. If tomorrow you can’t, your home is worth about one third less.

That's how economics works.

Unless Obama manages to also raise the top income tax rate to 40%. Then, when you lose your mortgage deduction your home will drop by about 40% overnight. Can you imagine the carnage to the housing market if this happens?

Obama's economic theories just don't compute. He believes that if you take away more of rich people's income through tax increases, and take away their deductions so that the value of their net worth collapses, that will be good for the economy.

He thinks if you take away rich people's money, consumer spending will somehow increase. Even though the facts are that the top 2% of income earners produce over 30% of U.S. consumer spending, while the top 5% produce 40% of consumer spending.

Just as a rising tide lifts all boats, a tsunami wiping out values at the top end of the housing market can only swamp values at the low end.

Six years after the collapse in housing began, we still have no leadership on the most significant economic problem facing Americans at all income levels.

Obama's War On Coal Is A War On The Heartland Of America

From a worthwhile discussion of the issues, here:

America produces 40 percent of its electricity from coal. Eight states, including Kentucky, Indiana, Ohio, Missouri, and West Virginia, use coal to generate more than 80 percent of their electricity. But over 100 coal-fired generating plants have closed since January 2010, mostly due to Environmental Protection Agency regulations.

EPA's Mercury and Air Toxic Standards for Power Plants rule, issued last December, will make electricity generation more complex and expensive, especially in the eastern half of the United States. It will lead to the closure of many coal- and oil-fired power plants that would be too expensive to bring into compliance. Ultimately, power users will bear these costs.

"Retirement Is The Darkness At The End Of The Tunnel"

The End Of The Tunnel

So says Rosie, here:

“The median age of the boomer is 55 going on 56 and retirement is the darkness at the end of the tunnel,” Rosenberg said. “The trend towards second jobs, do-it-yourself, private labels, dollar stores, maintaining your existing vehicle, downsizing property needs, cocooning and frugality will continue unabated.”

Can We Call It A Depression Yet?

2008 GDP in 2005 dollars didn't recover until 2011, and only just barely so. 

Per the latest revisions from the Bureau of Economic Analysis here, real GDP in 2005 chained dollars:

2008 $13.162 trillion

2009   12.758

2010   13.063

2011   13.299

2012   13.558.

I've written that I think we had a depression starting in 2008 when GDP declined from the previous year 2007, and that the depression ended based on reports of real GDP, but perhaps looked at from the point of view of chained 2005 dollars the depression ended just last year and not in 2010 as I've maintained previously.

Al Lewis for MarketWatch here disagrees:

The Great Depression that Federal Reserve Chairman Ben Bernanke claims to have averted has been part of the background radiation of our economy since at least 2008.

It’s just that like radiation — it’s invisible.

We’ve called it the recovery, the jobless recovery, the slogging recovery and more recently the fading recovery. We’ve measured modest growth in our nation’s gross domestic product to record that our so-called Great Recession ended in June 2009. And now we are saying that if this disappointing growth suddenly disappears, as currently feared, we will be in a new recession.

There is nothing more depressing than hearing about a new recession when you haven’t fully recovered from the last one. I take heart in suspecting that in a still-distant future, historians will look back with clarity and call this whole rotten period a depression.


Lewis' remarks at least show that calling what we've been through a "depression" is now possible in polite company.

I'd call that . . . progress!

Congratulations, Rush, For 24 Years Of Success With Irritable Mental Gestures

Euro Area Gold Holdings Declined Almost 14 Percent Up To Crisis, Then Held Steady

So says Axel Merk in a very interesting analysis, here, which concludes that central banks have been scared into holding gold since the financial crisis:

From what we see, central banks have been scared into holding gold since the onset of the financial crisis. Beyond that, we don’t see an active strategy at the ECB to keep its gold reserves at 15% of total assets. Instead, the ECB’s comparatively measured approach has simply lead to a reasonably stable percentage of gold reserves. Of course that was before ECB President Draghi said on July 26, 2012, that he shall do “whatever it takes to preserve the euro.” (an interpretation of that may be that more money printing is on the way). For now, the cultural differences in responding to the financial crisis (Europe: think austerity; US: think growth) suggest that the euro should outperform the U.S. dollar over the long term, assuming the not-so-negligible scenario of a more severe fallout from the Eurozone debt crisis won’t materialize.

His chart shows Italy has sold absolutely no gold since 1999, and Germany very little, while the Euro area as a whole has sold just under 14 percent of gold holdings since December 1999. France was the big seller from 1999, arresting its gold holdings during the crisis at a level which nearly matches Italy's. America's gold reserve has remained constant for years according to official reports, although it is said that Rep. Ron Paul would like to audit Fort Knox and The Federal Reserve Bank Of New York just to make sure.

(image source)

"Never Has The American Consumer Been This Weak For This Long"

So says Stephen Roach of Yale University, here:

Over the last 18 quarters, annualized growth in real consumer demand has averaged a mere 0.7 percent. This compares with a 3.6 percent growth trend in the decade before the crisis erupted. Never before has the American consumer been this weak for this long.

What's Happened To Michelle Obama's Toned Arms?

Lookin' just a little flabby down south.

h/t 'nita (source)

The State-Capitalist Quotation Of The Day Comes From Elizabeth Warren

Elizabeth Warren provides the state-capitalist quotation of the day, as seen at this link:

“We've got bridges and roads in need of repair and thousands of people in need of work. Why aren’t we rebuilding America? Our competitors are putting people to work, building a future. China invests 9% of its GDP in infrastructure. America? We’re at just 2.4%. We can do better.”

Oh, if only Obama were the head of China, things would be so much better . . . here!

Banking "The Achilles Heel Of Capitalism"? Or The Right's Version Of Socialism?

There is a term for right-wing socialism, but nobody seems to want to use it because to do so is to indict what we've been living under since at least the time of FDR as fascism.

It was inevitable that grafting onto capitalism elements of left-wing economics would turn out this way. Just look at China, which grafted from the other direction. Both now meet in that middle ground of state capitalism and find in each other the most agreeable of economic partners. The Chicoms have become but the mirror image of an America which long ago shed its devotion to free-market capitalism.

This upsets people, especially the partisans of left and right who couldn't possibly tolerate the obliteration of the distinctions they assert between themselves, as between Republicans and Democrats. Still, some perceptive individuals in our midst see that there is really no difference between left and right in America because the two have been combined in a peculiarly American way through multiple revolutions in banking which socialized both the assets and the liabilities.

Despite what anyone says, the fact is we don't have a free market in banking, and haven't had one for a very long time.

From Ed Yardeni, excerpted here:

“The problem with banks is that they tend to blow up on a regular basis. That’s because bankers are playing with other people’s money (OPM). They consistently abuse the privilege and shirk their fiduciary responsibilities. Whenever they get into trouble, government regulators scramble to bail them out first and then scramble to regulate them more strictly. Without fail, the bankers respond to tougher rules by using some of the OPM to hire financial engineers and political lobbyists to figure out ways around the new regulations.

"In my opinion, banks are the Achilles’ heel of capitalism. They really do need to be regulated like utilities if their liabilities are either explicitly or implicitly guaranteed by the government, i.e., by taxpayers. Banks should be permitted to earn a very low utility-like stable return. Bankers should receive compensation in the middle of the pay scale for government employees, somewhere between the pay of a postal worker and the head of the FDIC. It should be the capital markets, hedge funds, and private-equity investors that provide credit to risky borrowers instead of the banks.”

Our money is your money. We print it for you to use.

The Fascist Grip Of Banking: Rate Rigging In LIBOR, Now Also In Municipal Bonds

There is no corner of contemporary economic life which is not in thrall to state-sponsored banking, and so no corner of it which is not rigged to favor the players wielding the taxpayer backstop.

American-style fascism only seems most vivid when "banking's" losses are finally socialized through spectacular bailouts. Just as spectacular as the bailouts are the efforts to re-define nearly everything as banking in order to bring it all under its aegis. Think GE, GM, Chrysler, investment banking and AIG. That process of socialized losses continues apace on a smaller scale with every bank failure carefully orchestrated for Friday nights, to which Americans are now so thoroughly inured due to its frequency and efficiency. That is but the ubiquitous residual background radiation of the system's big bang, the collapse of banking's housing collateral, rapaciously used to leverage private shareholder and investor gains.

But even the spectacular blow-ups do not keep our attention for very long. Like the public servants who have succumbed to regulatory capture by industry, our anger is also subject to capture by the power of banking's propaganda, the central message of which is that the collapse of banking as we know it would mean nothing short of civilizational collapse. But it is merely their revolutionary version of civilization, not ours, based as it is on the dictum "How can you respect a man who needs you more than you need him?" Traditional Americans have always believed instead in "Owe no man anything".

Meanwhile the gains accruing to elites manipulating the levers of industries which have installed doors to the government are harder to ferret-out, the heads-they-win side of tails-you-lose. Lately it was LIBOR manipulation which came to the light, which has been rigged for far longer than since the latest financial crisis. Now the municipal bond market's municipal market data index, MMDI, is in the spotlight, according to this story in The New York Times, reproduced here:

Thomson Reuters, which owns Municipal Market Data, said on Monday that it “has been involved in discussions with regulators” about the rates, which influence the prices of bonds and derivatives in the $3 trillion municipal bond market.

The company released the statement after the municipal bond industry’s self-regulator, the Municipal Securities Rulemaking Board, said that its board was “concerned about the transparency” behind the creation of a few indexes used to set prices in the municipal bond market, the most important of which is the M.M.D. index.

What we may find from this is that local taxing districts have been paying way too much for roads, schools, libraries, cops and firemen, providing gains for the few financed once again on the backs of many (property) taxpayers.

Massive Central Bank Purchases Of Gold Boosted Price Over 30 Percent In Last Year

This baby weighs one metric ton

That's the upshot from this report in The Wall Street Journal, here, in early June:

Central banks increased their gold hoards by 400 metric tons — each equal to almost 2,205 pounds — in the 12 months through March 31, up from 156 tons during the prior year, according to recent World Gold Council data. ...

Central banks “will probably be continuous buyers of small volumes of gold for the foreseeable future,” says Jeff Christian, founder of New York–based commodities consulting firm CPM Group. By small volumes, he means 311 to 374 metric tons a year, or about 10% of the global supply. ...

He says that central bankers will avoid buying any quantity that dramatically affects the price. They know that the market is tiny, compared with the $4 trillion-a-day foreign-exchange market. Still, consistent buying of 10% of annual supply can’t but help keep the price elevated.

Up from 156 tons? That's a 156 percent increase in purchases by banks in the last year, March over March.

That's a remarkable development in the face of the enormous growth in central bank balance sheets to support weak economies at the same time that stiffer Basel III capital rules are imposed on the world's largest fiat money banks. Central banks are the banks of last resort and have been demonstrating rather vividly what they think counts as the capital of last resort.

Is it any wonder then that gold soared from $1,400 the ounce in March 2011 to $1,900 by September 2011? Gold has been above $1,750 as recently as March 2012. Clearly central bank demand has boosted price. 

Purchases of 400 metric tons at today's pull-back-price of $1,600 the ounce would imply $22.58 billion allocated to gold purchases by central banks during the one year period. Purchases of 156 tons at $1,400 the ounce at the top previously comes to at best only $7.7 billion allocated to gold purchases just prior to the period. That's a nearly three-fold increase, and a sign that central banks' confidence in sovereign support of fiat currencies has eroded to say the least. 

The implications for gold price going forward, however, are tricky.

The Wikipedia gold investing article, which also depends on figures from the World Gold Council, puts annual demand in 2005 at 3,754 tonnes and states annual production figures, for example, of as few as 2,500 tonnes as of 2010 to as many as 3,859 tonnes in 2005. Complicating matters is its assertion that 2,000 tons routinely gets allocated to jewellry and industrial production annually, making central bank acquisitions of 375 metric tons annually far more than 10 percent of the remaining supply on either accounting of the total.

It would seem that the very wide spread for annual production reported between 2,500 tons and nearly 3,900 tons (over 50 percent!) is part of a delicate balancing act by the industry, which attempts to pay its respects to all sides concerned in the gold business, both those who profit from production and those who profit from consumption.

Jeff Christian, cited in The Wall Street Journal article above, hints perhaps at how to split the difference. If his low end estimate for bank purchases of 311 metric tons is really 10 percent of annual supply, that means annual supply is probably closer to 3,100 metric tons. Sans jewelry of 2,000 metric tons, bank consumption of 350 metric tons or so going forward would be nearly a third of remaining production if sustained at that level.

In response to this surging demand by banks in the last year, however, production has probably run up against a new and unsustainable level, which is why the price of gold has softened roughly 15 percent off the high in recent months. Add to this that significant fresh inputs from consumers are unlikely in view of declining wages and the increased demand for return on investment which gold cannot give. Few have significant resources left to mop up increased supply of gold.

Oversupply of gold has been noted as recently as mid-July, here, by Dominic Schnider, an analyst at UBS Wealth Management in Singapore:


"The market is in oversupply -- production growth is solid and we simply don't see incremental gold purchases," he said.


That suggests banks continue to buy at levels consistent with the recent past, but are restraining themselves a little bit. This coheres with an observed supply glut and softened prices.

An attempt at a non-partisan evaluation of supply here suggests that already mined gold "above ground" historically totals 170,000 metric tons, with another 100,000 metric tons in the ground, less than half of which is profitable to mine under current conditions. In other words, you could devalue the above ground supply with the below ground supply over time, but only by another 28 percent at the extremes, not counting such factors as the small amounts of above ground gold lost to industrial production, the long time required for mines to become profitable, the changing costs of extraction, and the like.

My take is that bank purchases of gold at higher levels in recent times signals that the pendulum has started to swing against endlessly devaluing fiat currencies and against the elite consensus which created them. Official gold reserves around the world already approach 31,000 metric tons, and I expect they will only increase from here, if but gradually. The effect, however, may be to shore up existing currencies rather than to replace them, which would augur for a stabilization of gold prices near present levels and improved conditions for the world's economies.

Interest On The Debt 2007-2012 Has Completely Swallowed GDP Growth

Using the numbers from the June Z.1 release from the Federal Reserve, combined with the latest revisions to GDP from the Bureau of Economic Analysis, I'm showing current GDP, Q2 2012, at $15.596 trillion. GDP in 2006 was $13.377 trillion, for a nominal gain of $2.219 trillion over the period.

The Treasury Department indicates that for fiscal years 2007 through 2011, interest payments on the debt have totaled $2.132 trillion. Extrapolating to twelve months for fiscal 2012 from nine months so far, I add an additional $504 billion to get $2.636 trillion in interest payments over the period, for a net loss of $417 billion. If I forget the current fiscal year and substitute 2006, interest payments have totaled $2.538 trillion, for a net loss of $319 billion.

Either way, America isn't growing at all, and hasn't since 2006. In point of fact, America is in decline. Our national income is not growing sizeably enough even to keep pace with interest payments on the debt.

Ask many people who have gone bankrupt in recent years if they are familiar with the phenomenon of more going out than coming in.

Noted Progressive Calls Second-Great-Depression-Excuse For TARP "Crap"

Dean Baker, here:

[T]he commonly claimed "second Great Depression" scenario is, to use a technical economic term, "crap."  The first Great Depression, by which I mean a decade of double-digit unemployment was not locked in stone by the mistakes made at its onset. There was nothing that would have prevented the government from having the sort of massive stimulus spending that eventually got us back to full employment (a.k.a. World War II) in 1931 instead of 1941 and without the war. The fact that we remained in a depression for more than a decade was due to inadequate policy response.

Don't you see? There are no problems which Keynesian monetarism cannot solve, it's just that FDR didn't practice them then,  and that Obama is not practicing them now.

Otherwise Baker makes the case for clearing the system the quick and dirty way, the way free markets are supposed to work:

The place to look for insight on this question is Argentina, which went the financial collapse route in December of 2001. This was the real deal. Banks shut, no access to ATMs, no one knowing when they could get their money out of their bank, if they ever could.

This collapse led to a plunge in GDP for three months, followed by three months in which the economy stabilized and then six years of robust growth. It took the country a year and a half to make up the output lost following the crisis.

While there is no guarantee that the Bernanke-Geithner team would be as competent as Argentina's crew, if we assume for the moment they are, then the relevant question would be if it is worth this sort of downturn to clean up the financial sector once and for all. I'm inclined to say yes, but I certainly could understand that others may view the situation differently.


Once again, the domestic analogy would be 1920, but that's so, I don't know, modern.

This Idaho Billboard Doesn't Quite Capture It For Me

Instead of "Kills Thousands With His Foreign Policy," I suggest more to the point would be:

"Murders Americans Abroad With Drones. Republicans Applaud."

The political party which lately lays claim to all things constitutional, even showboating by reading the damn thing from the House floor, loudly approves of the president deeming someone a terrorist and dispatching him without benefit of trial. Which is why they voted for the NDAA, an ominous codification of the imperial power of the presidency by a servile Congress.

The Republicans are not the friends of ordered liberty they claim to be. They are the Executive's slaves.

So what does that make you?

"WHY DO WE HEAR THE LOUDEST YELPS FOR LIBERTY THE CONSTITUTION FROM THE DRIVERS OF NEGROES THOSE WHO IGNORE IT?"

Ben Bernanke Sure Is Lucky

Somehow he got the European Central Bank to commit to quantitative easing for a change instead of having to do it again himself.

It buys Ben a bunch of time, and gives him cover during the perilous political season when direct Federal Reserve action would look especially political. Maybe it even frees him up to do a little bit more, on the theory that he can always credit any success we experience to European action, not to his, saying a rising tide lifts all boats, and rot like that.

Crafty devil.

Obama must be praying like hell it works long enough and well enough to keep everyone afloat for three more months.