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April 30, 2012

Ron Paul Discusses the Gold Standard and Paper Money

Ron Paul stopped by CNBC last week to share his thoughts on gold and paper currency.

Waste and Fraud: The Consequences of an Unmanageable Tax Code

By now, everyone has heard our rants about some of the consequences of a bloated government. We've discussed the increasing personnel and overhead costs associated with regulating a massive body of laws. We've also discussed the losses in economic freedom associated with those regulations/laws.

Now, the dynamics of tax collection and refunding are being affected by the complicated tax code and the massive workloads it is creating.  These complications affect both the taxpayer and the government's ability to adequately collect revenue.

The newest trend has been identity theft.  This is where somebody steals your identity, files your taxes for you, and then collects the refund.  It is a rapidly growing practice that the IRS hasn't been able to quantify or control.  Today's video at the bottom of the article deals with the topic of identity theft in tax fraud.

The other problem, as seen on an article published to the CNBC website a few weeks ago, is the inability to collect revenue.  The IRS collects $2.4 trillion in revenues per year.  The organization estimates that it loses a stunning $385 billion to waste and fraud per year or 16.4% of total revenue.  For every dollar the IRS collects, it loses more than 16 cents in legitimate, collectible revenue.

To put these losses into perspective, the average operating margin for an S&P 500 company over the last 5 years is 15%, according to Reuters.  If we apply the IRS revenue capabilities to that model, we get an operating loss of more than 1%.  The 'average' S&P 500 company would eventually be insolvent if their collections methods were as efficient as the IRS.  In broader terms, over half of these companies would not survive.

Clearly the IRS doesn't want to forfeit this money, but it's hard to collect when the filers, accountants, IRS auditors, administration,  and basically the entire stakeholder model has an incomplete understanding of the tax code.  The data suggests that a simpler tax code would actually increase revenues, even if marginal tax rates were 10% lower than their previous levels.

Applying the same chart model as we did with the Buffett tax, take a look at the waste proportion of IRS collections.  Does correcting this improve the deficit over the Buffett tax?


April 27, 2012

Rick Santelli Discusses China's Currency

An interesting discussion on the Chinese Yuan.

Rick Santelli Is Solving Market Problems Without Regulations

Rick Santelli is presenting what appears to be a market problem and a proposed solution. This is all something that can be done within the confines of the CFTC, which is independent of the federal government. Another example where regulation isn't helping and is not needed to solve a problem!

April 26, 2012

How Many 'GSA's' Are Really Out There?

According to the GSA website, the Government Services Administration mission is to "build a more sustainable, responsible and effective government for the American people."  If by responsible, they mean spending $800,000 on lavish trips to Las Vegas and making music videos, then consider this "mission complete."

Unfortunately with this latest addition to the government waste file, it raises a better question.  How many more GSA's are out there and what is the federal government doing to stop this from happening again?  It's one thing if an organization is abusive with funds, it's another when the abusive organization is supposed to be overseeing other government agencies.

On the GSA, the simple solution is to disband it.  Don't merge it with another department or transform it.  Simply fire all the employees, and call it a day (or look for the next centers of waste).


April 25, 2012

Bill Gross refers to Spain as a "tumor" in relation to Europe.

Cost of Insuring Sovereign Debt at an All-Time High

While many consider interest rates to be a good barometer of a country's probability of default, another good indicator is the cost to insure the sovereign debt. Insurance pricing is based solely on probability of default while interest rates are influenced by debt supply and purchasing demand.

April 24, 2012

David Walker Discusses Taxes and Spending

We've heard David Walker talk a lot about our fiscal situation from the spending side, but this is a rare tax related interview.

Rick Santelli Weighs in on this Week's Federal Reserve Meeting

Rick, as usual, has a few thoughts about the Fed and interest rates.

April 23, 2012

Barack Obama Now Believes Oil Prices Are "Too High," Moves to Curb "Speculation"

Apparently, the markets, working in collaboration with millions of players, transactions, and interests have resulted in the 'high manipulation of oil prices,' according to Barack Obama. With zero economic or energy experience, the President assumes that he and/or Department of Energy know more about the price of oil than the market participants.

Fortunately, traders at the CME in Chicago aren't taking these intrusive regulatory proposals lightly.  One trader noted that the same mechanism that pushed oil prices up has brought natural gas prices down to ten year lows.  He added that perhaps the President should look at his energy policy for guidance as opposed to how he thinks prices are determined.

Price is determined by supply and demand, therefore, I would like to pose three questions for the Obama Administration.

1) What do you think is the appropriate price for oil and why?
2) Do policies that limit supply or the distribution of supply like the Keystone Pipeline determine price?
3) What supply and demand factors will change as a result of the policies you are proposing.

By the way, for those of you who believe oil is being speculated, please check out a recently revised article posted originally from 2008.


April 22, 2012

Captain Obvious: Geithner Says Country to Face Major Fiscal "Tests"

From the "Really?! You Don't Say!" file, Tim Geithner had an interview in front of a meeting involving 20 of the world's finance ministers in which he said we have major "budget" and "taxation" issues that we need to address.  The comments, recorded in an article by CNBC, briefly detail the challenge ahead for policymakers.


Geithner mentions that our deficit needs to get below 3% of GDP as soon as possible (currently near 10%), but did not mention a single solution in order to achieve that.  So far, we haven't heard any mention from the Obama Administration on spending controls to Medicare, Social Security, or income security.  These "autopilot" (as David Walker calls them) account for 62% of the federal budget and are growing out of control.

Perhaps Geithner is already punting to the next Treasury Secretary, who would take office in 2013 regardless of Obama's re-election status (as Geithner has indicated he is done after this year).

April 20, 2012

Milton Friedman: Fairness vs Freedom

Should we really sacrifice freedom for "fairness?"

Milton Friedman and Thomas Sowell versus a Welfare Administrator

The crutch mentality has some flaws.

April 19, 2012

Milton Friedman: Hong Kong as an Example of Free Market Success

Milton Friedman applies free market economics on location.

Borrowing Creates Growth? These Charts Seem to Disagree!


To date, agents of big government have defended the massive borrowing and spending policies that the federal government has undertaken since the financial crisis of 2008. Whether it was $700 billion for TARP, billions for education, Fannie/Freddie, jobs, or unemployment benefits, the government is arguing that all of this spending is being used to promote economic growth. "Investments" seems to be the term President Obama likes to use, as he did in his weekly address this past Sunday.

Unfortunately, as shown by the above charts, we are borrowing three to six times as much (in terms of % GDP) than we are getting in economic return. In 2011, we had under 2% economic growth for the year, however, the government borrowed an astounding 10% of GDP. Just by looking at the charts, we can see that this gap historically has not been this great since at least 1990. So, why aren't these deficits creating the knockout growth government officials imply them to be?

Because it's not true.

According to the chart detailing the same statistics going back to 1960, deficits were very small and yet we had periods of solid economic growth. Could it be perhaps that this was because the private sector controlled a larger portion of the economy? If anything, today's charts show us how inefficient the government has become in spending money.

Remember, it's your tax dollars (at perhaps a higher rate) that are going to have to pay for this debt trap we are running straight into!

April 18, 2012

Milton Friedman: Government Regulations Encourage Monopolies

It's not the other way around!

Milton Friedman on Bailouts

A great example of using an American auto manufacturer.

April 17, 2012

Milton Friedman on the Causes of Inflation

A similar cause to high government deficits as well!

Milton Friedman versus the "Spread the Wealth" Mentality

Milton Friedman educates another!

April 16, 2012

Milton Friedman Describes Today's Federal Reserve

A short clip, but telling!

So How Much Will the Buffett Rule Lower Our $1.5 Trillion Deficit?


The federal government has spent a lot of time and money promoting the Buffett Rule, a tax increase on Americans who earn more than $1 million per year.  According to a variety of sources, the revenue for the Buffett Rule would generate between $1.1 and $4.7 billion in new revenue per year.  Now, many will argue that the President is doing this for 'fairness,' but in his own weekly address this week, he admits to otherwise.

"This isn't just about fairness, it's about growth.  It's about being able to make the investments we need to strengthen our economy and create jobs."  You can watch the entire weekly address here.

The President also added in his speech that the Bush tax cuts of 2001 and 2003 had a negative impact on job creation (and income) and the Clinton tax hikes of the early 1990s had a positive impact.  He then states, "we've seen this trickle down theory not work."  Excuse me, but if allowing investors to keep more of their own money does not trickle down to job creation, how is the federal government collecting more revenue to "fight the deficit" going to trickle down to job creation?

Ultimately, the Buffett Rule revenue will cover about 0.3 cents of every dollar borrowed or 0.3% of our $1.5 trillion deficit.

Maybe the President should look at the deficit, look at the quote he stated above, and ask what's fair to our future generations.  I think Rick Santelli does a better job describing how we should think about our deficit, debt, and opportunities.

The Freedom Post and Fact Check.org also have good articles about the Buffett Rule.

April 13, 2012

Chart of the Day: Feb 2012 Unemployment By State

Unfortunately, Google is giving me problems with interactive charts, so I will post an image of the unemployment map followed by a pasted table of state unemployment rates below.

Feb 2012
Alabama 7.6
Alaska 7.1
Arizona 8.7
Arkansas 7.6
California 10.9
Colorado 7.8
Connecticut 7.8
Delaware 7
District of Columbia 9.9
Florida 9.4
Georgia 9.1
Hawaii 6.4
Idaho 8
Illinois 9.1
Indiana 8.4
Iowa 5.3
Kansas 6.1
Kentucky 8.7
Louisiana 7
Maine 7.1
Maryland 6.5
Massachusetts 6.9
Michigan 8.8
Minnesota 5.7
Mississippi 9.5
Missouri 7.4
Montana 6.2
Nebraska 4
Nevada 12.3
New Hampshire 5.2
New Jersey 9
New Mexico 7.2
New York 8.5
North Carolina 9.9
North Dakota 3.1
Ohio 7.6
Oklahoma 6
Oregon 8.8
Pennsylvania 7.6
Rhode Island 11
South Carolina 9.1
South Dakota 4.3
Tennessee 8
Texas 7.1
Utah 5.7
Vermont 4.9
Virginia 5.7
Washington 8.2
West Virginia 7.2
Wisconsin 6.9
Wyoming 5.4

How Would You Like This Guy Regulating Your Economic Activity?

Whether it's health, finance, education, or consumer goods, how comfortable are you with this guy limiting your economic freedom?

April 12, 2012

Rick Santelli: High Corporate Taxes Won't Create Jobs


Rick discusses corporate tax rates and their impact on other economic objectives.

Regulation by the People: The "Pink Slime" Bankruptcy

I'm very proud of the results we are seeing from the "Pink Slime" controversy.  For those of you who don't know, it started several weeks ago when the USDA reported it had purchased 7 million pounds of pink slime meat additive to give to the public school system.  The result was public outcry.

Interestingly enough, the USDA was surprised that people would be upset this was being fed to their children.  Apparently, many in the federal government have already perceived Americans as fat slobs who will do what they are told and/or fall in line.  The public outcry led to schools turning down the fat laden garbage, and last week, a lead manufacturer of pink slime declared bankruptcy.

Where were our so-called regulators to protect us?  They were actually supporting a position that clearly was not in the interests of parents or their children.  Despite the weight of the regulators against them, the American people crushed this maniac idea in what I consider to be the strongest exercise of self-regulation since the beginning of the Obama Administration.

It's also chilling to think of the number of federal agencies that could have gotten involved in regulating this trash.  You have the USDA (beef), the FDA (food), and the Department of Education (schools) already directly involved.  However, a case could be made for Health and Human Services and the new Consumer Protection Bureau (because somebody at the school could be stupid enough to sign for something when they don't know what it is).

The bottom line is that ultimately the consumers were wise enough to choose for themselves and get this trash off the market.

April 11, 2012

Comparing Spain to Greece

As the debt situation in Spain becomes worse, speculation has begun that Spain is going to the same road as Greece. This video describes what different about Spain, but still presents a crisis.

Rick Santelli vs Bill Gross

Rick Santelli responds to comments made by "bond king" Bill Gross.

April 10, 2012

Rick Santelli: Bond Fund Managers Investing Based on Federal Reserve Actions

Last week, Rick Santelli made an excellent observation during the jobs discussion. It makes us wonder how many don't trade based on what the concentration of power invests in.

The Return of the Euro Debt Crisis

As of last week, crisis momentum is regaining strength in the Euro zone.  Interestingly enough, this comes barely 30 days after the ECB's second round of liquidity.  The second video describes to us why monitoring the close of the European markets is important.

April 9, 2012

Rick Santelli and Harry Dent: The Market is on Crack, Wants More

Last week, Rick Santelli interviewed Harry Dent about his market perspective.  It's interesting that Dent has written a book about a great market crash, yet he has a different immediate term outlook.

The Corporate Tax Debate, And What's Being Left Out

Recently, the United States inherited #1 rank in highest corporate tax rates in the world.  This has increased the debate about whether or not there should be some type of corporate tax reform.  In most debates, we hear about the marginal rate, but the other side (which says the real rates are lower), notes that after deductions and in some cases subsidies, the tax rates are actually lower.

What needs to be added to the discussion is the costs associated with the deductions and subsidies.  There is no doubt that many of these organizations need accountants and lawyers in order to get these tax deductions and subsidies.  These costs can come in the form of having accountants and lawyers directly on the payroll or paying outside help.

Additionally, there's costs associated with the application process for subsidies and costs associated with bringing in outside consultants to find new subsidy opportunities.  Reforming the tax structure for corporations has to not only take these costs into consideration, but it needs to make these ancillary processes more efficient.


April 8, 2012

Paul Ryan vs Barack Obama: A Budget Battle

This past week, a lot of talking has been done about the future fiscal condition of the United States. On one hand, President Obama believes that the economy needs the excessive government spending he's been pushing through the Congress over the past four years.

His opposition, Paul Ryan and House Republicans, believe that the economy is headed towards a cliff if we do not stabilize our costs and our deficits.  Below are videos of each stating their positions.

April 7, 2012

This Week in Economics: Jobless Claims and the March Employment Report

Just when everyone thought we'd get positive economic news from here to eternity...

April 5, 2012

Video: Commodity Traders Upset Over Government Reporting of Supply




The government manipulating economic data? Never!

Government Making Housing Recovery More Difficult: A Personal Story

I read a troubling article today in which a realtor described how selling homes in the newly regulated market have been extremely difficult and it brought back some memories.

While the article did not point out specific examples as to how regulation is affecting the markets, my housing purchase experience sure did point them out. Back in June, I agreed to purchase a home and went to seek financing with Chase Bank in the town that I worked. I wanted an FHA loan because the down payment was affordable.

My first mistake was choosing an FHA mortgage, my second mistake was choosing Chase Bank.

I gave the sellers until August 31st to close, and since it was the end of my apartment lease, I figured it would be a good time to transition. On September 30th, I marked Day 30 as effectively being homeless. I could not get a provisional extension to my lease since I had given the required 45 day notice and my apartment had already been leased to someone else. The reason for the delay was because my home was to share a well with the new home next door.

FHA, under its regulations, required that since the well pump was going to two houses, that it be placed on a separate, exclusive electricity meter. The amount of electricity coming out of the well amounts to between 80 cents and $1.10 per month (total). However, we had to pay $4,000 to have this meter put in and we currently pay a $27.00 per month required meter fee.

To make matters more complicated, the loan officer with Chase Bank was rude, dishonest, and on a few occasions, lost information. On September 26th, I wrote a letter to Chase Corporate detailing a list of grievances against the organization. I even had an email from my loan officer in June stating "the massive amounts of paperwork required for month's end take precedent here (over your mortgage)," which I attached to the letter.

On September 30th, I got a call from the corporate headquarters. Their investigation found several errors in record retention and the underwriting of the loan. Had it not been for the hard work on my realtor, the seller's realtor, and my involvement with Chase Corporate, I would not have closed and moved into my home on October 7th.

FHA mortgages now account for 95% of all new mortgages in the United States. With that as the case, if anyone has half the pain I've had, I could see the rationale of a long-term lag in housing.

April 4, 2012

(Video) Big Government Strikes Again: Public Pool Regulations



More big government BS...

Video: Government Loses Money on TARP Investment



All this business about TARP saving the world...

April 3, 2012

(Video) Spain: The Next Greece



Spain has become the process of calling strikes just like Greece did when the government cut spending.



(Video) Former Aetna CEO: I Supported the Individual Mandate



I would like to know who in the insurance industry opposed the individual mandate?

April 2, 2012

Video: Update on the Euro Debt Crisis



There hasn't been as much media coverage on Europe lately, but the debt crisis is beginning to heat up again.

Rehash: Oil is Not Being Speculated!

NOTE: This is an article I originally wrote in 2008, but has been slightly edited to explain the current situation regarding oil. The mechanics remain the same.

Oil has become a term that has struck fear and anger in the hearts of millions of Americans over the past few years. Since the summer of 2005, oil has made a nearly parabolic move upwards in price. What was once $30 per barrel oil and $1.15 per gallon gas has turned into $145 per barrel oil and $4.15 per gallon of gas. Like many, I believed that trader speculation had to be a partial cause to the dramatic increase in prices.

Over the last several months, several points have come to light to show that oil is not being speculated. In fact, the rise in oil prices can be blamed on a combination of supply, demand, and currency issues.

SUPPLY AND DEMAND

The global oil supply has sustained long-term growth over the past several decades until 2005. In 2005, some traders noted that global demand from developing nations like China and India would outpace the increase in global production. To make matters worse, production from 2005 through 2007 did not increase while demand growth remained sustained. Eventually, demand outstripped supply, crossing the 85 million barrels per day mark.

By 2008, demand increased to 86 million barrels per day while supply remained at 85 million barrels per day. At this point, crude inventories worldwide began to decline. Different from a shortage, crude was still able to meet the demand, however, since production was so difficult (if not impossible) to increase, demand had to be decreased. This could only be done through an increase in prices.

Since oil is not an elastic commodity, the price must move upwards by more than what demand is required to drop by. (In plain English, the price must increase a percentage much greater than 1% in order to pull more than 1% off of demand).

CURRENCY

In 2005, before the run-up in the price of oil, the dollar index was around 90. Thanks to the latest decreases in the Federal Reserve rate and the subsequent increase in the money supply, the dollar index has fallen to between 72 and 81 over the past year. This means between 10-20% more dollars are required to buy foreign oil (which is 70% of the consumed oil in the US) than what was required less than three years ago. This means at the high of $145, $25 was attributed to the recent decline of the dollar! At the current price of $110, oil is actually valued at between $88 and $99 in terms of 2005 dollars.

SPECULATION?

I have come to find out over the past couple of months exactly how oil is traded. Oil trades on 30 day contracts one month in advance. For example, if the August contract for crude oil expired today, the September contract will become the front (current) contract on the next trading. The argument in support of speculation states that hedge funds, ETFs, and other speculators are buying up oil contracts and futures, thus bidding the price up, but this argument has one fatal flaw.

On the last day of the front contract, delivery takes place. On this, the delivery day, buyers must pay for the oil and take physical possession of it. Therefore, if you are a speculator, you must take possession of the oil. Those who believe speculation is at fault will counter that speculators will simply “roll” out of the front month and into the back (future) month’s contract.

By examining the mechanisms of the oil trade a little closer, the flaw of this logic is also revealed. In order to “roll” out of the front contract and avoid taking delivery, a buyer must sell his/her stake to someone who is going to take delivery. This means that when the contract expires, every speculator has to sell their holdings to a buyer that is taking delivery or take delivery themselves. If oil’s price was over-exaggerated, we would see a radical shift in price on that final day to the market equivalent of what all buyers would be willing to pay.

The bottom line is that the markets are in a period of price discovery. While I have my opinions of what is going to happen to oil and traders have their opinions, as long as production is not increasing at the rate of demand, oil prices will have to rise to maintain equilibrium.



LINKS
http://www.cnbc.com/id/15840232?video=753754816&play=1 http://peakwatch.typepad.com/peak_watch/peak_oil/index.html http://peakwatch.typepad.com/photos/research_images/oil_supply_and_demand.jpg http://gailtheactuary.files.wordpress.com/2007/06/north-sea.jpeg http://omrpublic.iea.org/DashBoard/demand.gif

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