Tag: finance

It’s no secret by now that governments in Europe, Japan and America have spent and borrowed beyond their means. As IceCap’s Keith Dicker notes, including both current debt and future unfunded liabilities, it is estimated America owes over $87 trillion dollars, while the Eurozone countries are on the hook for over $89 trillion. That’s a fistful of dollars. From a tax perspective, the incapacity of these super economic powers, becomes all the more clear. America’s annual tax revenue is only $2.5 trillion, while in Europe, they manage to squeak out roughly $5 trillion. From this view, America is leveraged 34.8x their tax revenues, while the Eurozone is leveraged at 17.8x their tax revenue. As Keith points out in his excellent letter, for the US, Japan, and Europe, Elvis has very much left the building on getting back to ‘normal’.

Since we have all become numbed by talks of billions and trillions, let’s put these numbers on the dinner plate of the average American family. According to the OECD, the average American family has income of about $31,000 per year. If this average family borrowed like the American government, it would have over $1.078 million in loans to pay. Good luck finding a bank to lend you that amount of money.

…

European, American and Japanese governments, on the other hand, continue to spend more than what they collect in taxes. Naturally, this means the money owed by these countries is always increasing. More worrisome is the fact that when interest rates eventually rise, the interest owed on this debt increases exponentially.

Even more worrisome, considering these countries are deeply committed to defying the laws of mathematics and never defaulting on their debt, only one outcome is assured – taxes have to increase, and government services have to decrease. In the end, everyone has to pay. Despite what Brussels may say, there is no magic solution.

The chart above shows the trend in taxes since 2010, for simplicity just note there are an awful lot of green “up” arrows. Don’t expect this to change anytime soon.

If the economy really was clipping along at an ear to ear grinning pace, several things would have happened by now. First up, central banks in the US, Canada, Britain, Europe and Switzerland would have all begun to raise interest rates. Not too mention, the money printing machines would have also begun to grind slower.

 

 

In addition, employment should be going gangbusters, while everyone’s favourite measurement of a stronger economy – inflation would be accelerating as well. Yet, none of these events are occurring.

Yet, the real questions behind the upcoming tax hikes are 1) why it will happen and 2) what will be taxed.

And more importantly – what is the Super Tax?

Full IceCap Asset Management letter below:

 

IceCap Asset Management Limited Global Markets 2013.10.pdf

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ERtocBGGFDA/story01.htm Tyler Durden

Originally posted at Represent.us blog,

The U.S. House just passed a bill called H.R. 992 – the Swaps Regulatory Improvement Act – that was literally written by mega-bank lobbyists. It repeals the laws passed in 2010 to prevent another meltdown like the one that crashed our economy in 2008. The repeal was co-sponsored by a former Goldman Sachs executive and passed with bipartisan support from some of the House’s largest recipients of Wall Street cash. It’s so appalling… so unbelievable… so blatantly corrupt… that you’ve got to see it to believe it:

In 2010, Congress passed the “Dodd-Frank” law to clamp down on risky “derivatives trading” that led to the financial collapse of 2008. Dodd-Frank was weakened by banking lobbyists from the start and has been under attack by those lobbyists ever since. Now a new law written by Citigroup lobbyists (we couldn’t make this stuff up if we tried) exempts derivatives trading from regulation, and was passed this week by the House of Representatives with broad bipartisan support.

It sounds bad… but don’t worry, it gets much, much worse:

• The New York Times reports that 70 of the 85 lines in the new House bill were literally written by Citigroup lobbyists (Citigroup was one of the mega-banks that brought our economy to its knees in 2008 and received billions in taxpayer money.)
• The same report also revealed “two crucial paragraphs…were copied nearly word for word.” You can even view the original documents and see how Citigroup’s lobbyists redrafted the House Bill, striking out ideas they didn’t like and replacing them with ones they did.
• The bills are sponsored by Randy Hultgren (R – IL), and co-sponsored by Rep. Jim Himes (D-CT) and others. Himes is a former Goldman Sachs executive, and chief fundraiser for the Democratic Congressional Campaign Committee.
• Maplight reports that the financial industry is the top source of campaign funding for 6 of the bills’ 8 cosponsors.
• Maplight’s data shows that members of the House received $22,425,740 million from interest groups that support the bill — that’s 5.8 times more than it received from interest groups opposed.
• “House aides, when asked why Democrats would vote for this proposal even though the Obama administration opposes it, offered a political explanation. Republicans have enough votes to pass it themselves, so vulnerable House Democrats might as well join them, and collect industry money for their campaigns.” — New York Times

Yep, it’s actually that bad. For the full story, check out this revealing piece by Represent.Us Communications Director Mansur Gidfar. You can also find out if your Rep. voted for H.R.992 here.

We elect Representatives to the House to represent us, the people — but both parties now refuse to do the job we elected them to do. And they won’t until we force them to. The American Anti-Corruption Act would stop this corruption, and Represent.Us is the movement behind the Act. Together, we can make blatant corruption illegal with simple reforms. It’s common sense that elected officials should be barred from collecting money from the industries they regulate.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/LvA0dbEOQbY/story01.htm Tyler Durden

Just a month ago, the President and his administration gloated as Republican support plumbed new record low depths amid the shutdown debacle. Just last week, however, amid the ongoing snafu that is the Obamacare launch, the President’s approval rating itself dropped to an all-time low (though the media was oddly quiet about that). This week sees another milestone on the verge of being broken as the “glitches” – both technological and physical – continue, stocks surge, and employment stagnates five years after the end of the recession… the President’s disapproval rating is within 1 point of its record high.

 

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/v-ZyUDDO7Sw/story01.htm Tyler Durden

By EconMatters

 

This is one of the few times where the benefactors or professionals who benefit from the bubbles, in this case created by the Federal Reserve, fully and openly acknowledge that stock prices and certain other asset classes are completely divorced from fundamental valuations.

 

 

© EconMatters All Rights Reserved | Facebook | Twitter | Post Alert | Kindle

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xqTCGu6AFnw/story01.htm EconMatters

A disturbing story is starting to make waves once again on the internet, according to Ben Swann who notes, you can now pay for Starbucks with food stamps. The story, which previously aired on FOX12, sees Jackie Fowler, a Salem, Oregon food stamp recipient, went inside the luxury Starbucks franchise located inside of a Safeway grocery store with the local Fox News station filming. She purchased one tall Frappaccino and a slice of pumpkin loaf. Her total was $5.25. She slid out her Oregon Trail food stamp card, paid in part by the federal government, and handed it to the cashier who processed the transaction. Fowler only made the purchase to assist FOX but it indicates just how deeply the ECBT card has become embedded in US society when, as she notes, coffee's "overpriced as it is, that's money that somebody could be eating with."

 

The original FOX 12 Clip:

KPTV – FOX 12

 

And as Ben Swann adds:

“They’re overpriced as it is,” said Fowler of the luxury brand. “That’s money that somebody could be eating with — a loaf of bread, a gallon of milk.” Fowler says the program is in need of reform due to the abuse.

 

It doesn’t seem like management is trying to discourage the use of food stamps inside of the Starbucks. In fact, they are advertising it, as seen in the sign.

 

 

Corporate stores do not accept food stamps. However, because the store is run by the grocery chain it is offered as a “grocery item”. Such Starbucks outlets are located inside of  airports, malls, colleges, Target, Alberstons, Fred Meyer and other chain grocery stores.

 

The initial report from FOX12,

…

 

"There are a lot of loopholes," she said.

 

A spokesman with Safeway told FOX 12 the store recently made the change as an added convenience to customers.

 

"We think that compliance with state laws is something we can easily do," said Dan Floyd, of Safeway.

 

According to federal Supplemental Nutrition Assistance Program (SNAP) guidelines, people cannot buy foods that will be eaten in the store or hot foods. However, luxury items that are allowed include soft drinks, candy, cookies, ice cream, even bakery cakes and energy drinks that have a nutrition facts label.

 

While FOX 12 learned you cannot use an Oregon Trail Card at a corporate, stand-alone Starbucks location, the Starbucks inside Safeway is run by the store. Fowler tried to use her card at a stand-alone Starbucks, but was denied.

 

However, the register at the in-store location considers the purchase a "grocery item" and as long as it's cold, it's allowed, according to store employees.

 

"It shouldn't be allowed, whether it's a cold item or not," said Fowler. "It's a luxury item. If you really want one (Frappuccino), save your money and go buy one. Don't use the system.

 

A spokesman with the State Department of Human Services told FOX 12 he wasn't aware this practice was happening.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-ijJZBLmYJA/story01.htm Tyler Durden

A disturbing story is starting to make waves once again on the internet, according to Ben Swann who notes, you can now pay for Starbucks with food stamps. The story, which previously aired on FOX12, sees Jackie Fowler, a Salem, Oregon food stamp recipient, went inside the luxury Starbucks franchise located inside of a Safeway grocery store with the local Fox News station filming. She purchased one tall Frappaccino and a slice of pumpkin loaf. Her total was $5.25. She slid out her Oregon Trail food stamp card, paid in part by the federal government, and handed it to the cashier who processed the transaction. Fowler only made the purchase to assist FOX but it indicates just how deeply the ECBT card has become embedded in US society when, as she notes, coffee's "overpriced as it is, that's money that somebody could be eating with."

 

The original FOX 12 Clip:

KPTV – FOX 12

 

And as Ben Swann adds:

“They’re overpriced as it is,” said Fowler of the luxury brand. “That’s money that somebody could be eating with — a loaf of bread, a gallon of milk.” Fowler says the program is in need of reform due to the abuse.

 

It doesn’t seem like management is trying to discourage the use of food stamps inside of the Starbucks. In fact, they are advertising it, as seen in the sign.

 

 

Corporate stores do not accept food stamps. However, because the store is run by the grocery chain it is offered as a “grocery item”. Such Starbucks outlets are located inside of  airports, malls, colleges, Target, Alberstons, Fred Meyer and other chain grocery stores.

 

The initial report from FOX12,

…

 

"There are a lot of loopholes," she said.

 

A spokesman with Safeway told FOX 12 the store recently made the change as an added convenience to customers.

 

"We think that compliance with state laws is something we can easily do," said Dan Floyd, of Safeway.

 

According to federal Supplemental Nutrition Assistance Program (SNAP) guidelines, people cannot buy foods that will be eaten in the store or hot foods. However, luxury items that are allowed include soft drinks, candy, cookies, ice cream, even bakery cakes and energy drinks that have a nutrition facts label.

 

While FOX 12 learned you cannot use an Oregon Trail Card at a corporate, stand-alone Starbucks location, the Starbucks inside Safeway is run by the store. Fowler tried to use her card at a stand-alone Starbucks, but was denied.

 

However, the register at the in-store location considers the purchase a "grocery item" and as long as it's cold, it's allowed, according to store employees.

 

"It shouldn't be allowed, whether it's a cold item or not," said Fowler. "It's a luxury item. If you really want one (Frappuccino), save your money and go buy one. Don't use the system.

 

A spokesman with the State Department of Human Services told FOX 12 he wasn't aware this practice was happening.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-ijJZBLmYJA/story01.htm Tyler Durden

Remember the main reason why the Fed should have tapered, namely the illiquidity in the bond market it is creating with its feverish pace of collateral extraction, and conversion of quality collateral into 500x fwd P/E dot com dot two stocks? Here to put it all in context is Scotiabank’s Guy Haselmann: “Through its QE policy, the Fed buys $3 of mortgages for every $1 of origination.  The consequence is that secondary mortgage market liquidity has been decimated: it is as bad as when Bear Stearns failed.” That’s just MBS for now. However, since the Fed has refused and refuses to taper, the same liquidity collapse is coming to Treasury’s first, then corporates, then ETFs, then REITs and everything else that the Fed will eventually monetize. Just like the BOJ.

As a post script, here are some other observations from Haselmann:

• Moral Hazard has run wild due to Fed policies. Risk appetite, complacency, and market speculation are at elevated levels.  Buyers are scrambling to find assets to buy. As a result, there has been a surge in debt issuance, especially of riskier securities like covenant-lite loans, leveraged loans, and payment-in-kind bonds. 
• The Fed does not have an inflation problem, simply because the $3 trillion+ it has created out of thin air has not been lent into the fractional reserve system.  In other words, the velocity of money has been falling.  The lack of visibility health care costs, the national fiscal budget, the tax code, regulatory rules and economic growth generally (to name a few), is so widespread that it is impossible to assess the financial logic behind potential capital investment projects. When this uncertainty fades, the velocity of money will rise and the Fed’s ability to control inflation with be challenged accordingly.
• IPO’s have also come at a fierce pace, taking advantage of investors scrambling to put easy money to work; and who may not be giving enough attention to valuations and the risks involved.  Market pundits seem to fuel investor complacency with daily statements that equity P/E’s are historically cheap. However, comparing today’s “new normal” growth trajectory to the high growth period of the 1990’s seems misguided.  Furthermore, the current environment is unprecedented and the “E” is a rapidly moving target.
• The P/E’s of the top 50 Russell 2000 stocks is over 45.  The P/E of Linkedin is 755, AOL’s is1278, Chipotle’s is 54.  After Twitter’s IPO tomorrow, the stock will trade near 42X revenues (because it has no “E”).  Now that is “cheap”- at least relative to where some stocks traded during the dot.com bubble.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qo79Lhj0-Ug/story01.htm Tyler Durden

Remember the main reason why the Fed should have tapered, namely the illiquidity in the bond market it is creating with its feverish pace of collateral extraction, and conversion of quality collateral into 500x fwd P/E dot com dot two stocks? Here to put it all in context is Scotiabank’s Guy Haselmann: “Through its QE policy, the Fed buys $3 of mortgages for every $1 of origination.  The consequence is that secondary mortgage market liquidity has been decimated: it is as bad as when Bear Stearns failed.” That’s just MBS for now. However, since the Fed has refused and refuses to taper, the same liquidity collapse is coming to Treasury’s first, then corporates, then ETFs, then REITs and everything else that the Fed will eventually monetize. Just like the BOJ.

As a post script, here are some other observations from Haselmann:

• Moral Hazard has run wild due to Fed policies. Risk appetite, complacency, and market speculation are at elevated levels.  Buyers are scrambling to find assets to buy. As a result, there has been a surge in debt issuance, especially of riskier securities like covenant-lite loans, leveraged loans, and payment-in-kind bonds. 
• The Fed does not have an inflation problem, simply because the $3 trillion+ it has created out of thin air has not been lent into the fractional reserve system.  In other words, the velocity of money has been falling.  The lack of visibility health care costs, the national fiscal budget, the tax code, regulatory rules and economic growth generally (to name a few), is so widespread that it is impossible to assess the financial logic behind potential capital investment projects. When this uncertainty fades, the velocity of money will rise and the Fed’s ability to control inflation with be challenged accordingly.
• IPO’s have also come at a fierce pace, taking advantage of investors scrambling to put easy money to work; and who may not be giving enough attention to valuations and the risks involved.  Market pundits seem to fuel investor complacency with daily statements that equity P/E’s are historically cheap. However, comparing today’s “new normal” growth trajectory to the high growth period of the 1990’s seems misguided.  Furthermore, the current environment is unprecedented and the “E” is a rapidly moving target.
• The P/E’s of the top 50 Russell 2000 stocks is over 45.  The P/E of Linkedin is 755, AOL’s is1278, Chipotle’s is 54.  After Twitter’s IPO tomorrow, the stock will trade near 42X revenues (because it has no “E”).  Now that is “cheap”- at least relative to where some stocks traded during the dot.com bubble.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qo79Lhj0-Ug/story01.htm Tyler Durden

Via ClubOrlov blog,

[This week’s guest post is by Scott Erickson, who is an award-winning humor writer and the author of a satirical novel titled The Diary of Amy, the 14-Year-Old Girl Who Saved the Earth. I liked it. It is entirely disarming and strikes a good balance between humor and seriousness. There are enough jeremiads and diatribes and rants on this topic out there. Luckily, this isn’t one of them because Scott’s scathing social critique and mordant wit are delivered via a charming narrative device: a smart, earnest, precocious 14-year-old girl.]

A 14-YEAR-OLD GIRL EXPLAINS HOW WE CAN STOP THE ADDICTION TO ECONOMIC GROWTH THAT’S DESTROYING THE EARTH

Hi! I’m Amy Johnson-Martinez, the 14-year-old girl who’s saving the earth from environmental destruction. A lot of people don’t understand how the destruction of the earth is connected to our addiction to economic growth. Actually, a lot of people don’t even realize that we’re addicted!

Personally speaking, I think it’s kind of weird that economists don’t tell us about this. So I guess it takes a 14-year-old girl to tell you about it!

Economists always say, “The economy has to keep growing or else it will collapse.” But it can’t grow forever, because the earth is running out of resources. Actually, it’s already starting to happen. That’s a big reason why the economy is getting worse.

Our economy is giving us a totally stupid choice: Save the economy or save the earth. It won’t let us save both! I personally think that’s pretty crazy!

On my journey to save the earth from environmental destruction, I figured out pretty quickly that the main problem is the economy. Pretty much every time there’s an idea that would make things less destructive and more sustainable, the argument against it is always: “It will be bad for economic growth.”

That’s when I found out the economy has to grow or else it collapses. But when I asked why, nobody knew the answer. So I had to figure it out myself.

I looked at a bunch of economic books, but none of them said anything about why we’re addicted to economic growth. I couldn’t even find out how the economy could grow. That’s another basic question: How can money grow?

Isn’t that an interesting question?

This led to another question, “How is money introduced into the economy?”

The answer wasn’t easy to find. At first I thought the answer was that the government prints it, but that was back when I was young and naive. It turns out that the government prints only a tiny percentage of the money in circulation, and the rest is just promises, based on future growth (which is kind of weird if you think about it.)

Then I found out about “quantitative easing,” which sounds intellectually sophisticated. But it’s not the “real” answer, because quantitative easing only creates more promises. And the only way to live up to these promises is by overall growth of the economy. So we’re back to where we started: How does the economy grow?

Since I couldn’t find any answers in books about contemporary economics, I tried looking at books about the history of economics. I focused a lot on John Maynard Keynes, who was from England and invented the basic economic ideas we still use.

I found something interesting that he wrote in 1933. It’s the first thing I found that talks about economic growth. Basically, he thinks it’s important to have the economy grow, but when everybody is doing OK then growth should stop:

Suppose that a hundred years hence we are eight times better off than today. The economic problem may be solved.

The economic problem, the struggle for subsistence, always has been the primary, most pressing problem of the human race. Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to live wisely and agreeably and well.

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. The love of money will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanor, and the love of money is detestable.

But the prediction that economic growth would end poverty hasn’t happened. In fact, even with all the economic growth that’s happened since then, poverty is getting worse. Obviously, the idea that economic growth will end poverty isn’t right.

I had to look up what the word “avarice” means, and basically it means “greed.” I also had to look up what “usury” means. It means to charge interest on loaning money. It’s a religious word and at one time all religions were against it as unethical.

Even though the quote was interesting, it didn’t answer the question about how money can grow. So I had to go back even farther. The ideas of John Maynard Keynes were influenced by another guy – John Law.

What a weird person! According to one book, in addition to being a banker and an economist he was “a gambler, swindler, rake and adventurer forced to flee the British Isles after killing an opponent in a duel.” This kind of person helped invent our economic system?

I found something in a book about John Law that seemed important: “Law made clear the distinction between a passive treasury, where money just accumulated, and an active bank, where money was created.”

Banks create money? That was news to me! I thought they just kept money and loaned some of it out.

The answer has to do with the “fractional reserve system” which started in the 1700s. It used to be that money was sort of a “receipt” for gold. The receipt was called a “banknote,” which was printed by the bank. But then some bankers figured out they could print more “receipts” than the gold they had, therefore they only had a “fraction” of the gold compared to the “receipts” (actual money).

That explains how it came to be that banks could create money, but it didn’t explain how money could “grow” – since banks were only allowed to print a certain percentage extra.

Then, some bankers figured out a way to become even more wealthy with this “extra money” they could print themselves. What they did is to give out the money in the form of a loan. Since they charged interest on the loan, they would get back more than they gave out. This next part is where the addiction starts.

Let’s say you get a loan for $100, but because of the interest you pay back $110. Here’s an interesting question: Where did that extra $10 come from?

It didn’t come from you, since you can’t create money. Only banks can – by making loans. So the extra money could only come from one place: More loans! If you trace money to where money comes from, it almost always comes from a loan.

People can get personal loans, but what’s more important for the economy is business loans – loans to start or expand a business. Of course all the loans have interest, which means paying bac
k more money. But we’ve already figured out that money is “created” by banks issuing loans. So to pay off past loans, somewhere else in the economy there has to be new loans which create more money. But then THOSE loans have to be paid off with money, which means MORE loans.

It always comes back to the banks making more loans to pay off the existing loans. This has been going on for hundreds of years, which is how the economy “grows.”

Economic growth needs more money, but more money needs more economic growth, which needs more money. And it doesn’t stop. It can’t stop.

That’s not only how the economy grows, but why it HAS to grow. We can never get to a point where growth is “enough.”

This is why we’re addicted to economic growth. We’re not creating money; we’re creating debt!

Like with any addiction, we keep doing it even when it’s not working any more. This is why even when it’s obvious that economic growth isn’t solving unemployment or ending poverty or doing any of the other stuff it says it can do, we keep trying it anyway. It’s why even though we have more money than ever before in history, we still need more.

The funny thing is that the solution is super-easy. All we have to do is stop the banks from creating money as debt.

You know what’s really interesting? I discovered that our greatest president Abraham Lincoln figured this out and tried to stop it. Lincoln tried to fix the problem by having the government print a kind of money called “greenbacks”—$450 million of interest-free money. But the banks did NOT like this because they wanted to create all the money themselves! So they bought up all the “greenbacks” and forced the government to buy them back in exchange for gold.

Lincoln had the right idea, but he didn’t go far enough. We have to eliminate interest on ALL money. The answer is actually super-easy.

To end the addiction to economic growth and save the earth, this is what we need to do: End the creation of money as interest-bearing loans. Put an end to fractional reserve banking and make it so banks can’t create money. Then give the U.S. Treasury the exclusive right to issue U.S. currency free of debt.

Of course, the big banks won’t like this, because they make money from keeping us addicted. But as I learned in school, we live in a democracy which means companies aren’t the boss of us; we’re the boss of them. Yay for democracy!

Let’s stop the addiction before the economy collapses and destroys the earth, which is very beautiful. In fact, it’s my favorite planet!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-blhaLn39uA/story01.htm Tyler Durden

3 months later and it appears hope has reverted (once again) to its new normal reality. “Just one more quarter,” we are sure, will be the clarion call from all asunder…

(it seems the hatchet has been taken to Q4 – one-off of course, due to the shutdown – which incidentally had no effect whatsoever on any survey or soft-data macro or the stock market)

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QkM0mV8tGk0/story01.htm Tyler Durden