Tag: news

Obamacare goes dark.

Barack Obama arrives to speak about Obamacare at an Organizing for Action event in Washington.

Photo credit: AFP

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/B9Zka9yVzts/story01.htm Tyler Durden

The goal of forward guidance is to steer market, as well as public, expectations about the future path of monetary policy. It would appear, to those without PhD.s that central banks are drifting from actions to words and the following chart shows the devolution over the past 20 years of central-banker-speak. We have come quite a way from the "never explain, never excuse" view of Montagu Norman in the early 20th century to the hope-laden promises of increasingly wordy statements today…

 

(click image for massive legible version)

 

and how the Big Four compare:

 

Source: Goldman Sachs

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Mv90dO3oUXQ/story01.htm Tyler Durden

Submitted by Ron Paul via The Ron Paul Institute,

October was Iraq’s deadliest month since April, 2008. In those five and a half years, not only has there been no improvement in Iraq’s security situation, but things have gotten much worse. More than 1,000 people were killed in Iraq last month, the vast majority of them civilians. Another 1,600 were wounded, as car bombs, shootings, and other attacks continue to maim and murder.
 
As post-“liberation” Iraq spirals steadily downward, Prime Minister Nuri al-Maliki was in Washington last week to plead for more assistance from the United States to help restore order to a society demolished by the 2003 US invasion. Al-Qaeda has made significant recent gains, Maliki told President Obama at their meeting last Friday, and Iraq needs more US military aid to combat its growing influence.
 
Obama pledged to work together with Iraq to address al-Qaeda’s growing presence, but what was not said was that before the US attack there was no al-Qaeda in Iraq. The appearance of al-Qaeda in Iraq coincided with the US attack. They claimed we had to fight terror in Iraq, but the US invasion resulted in the creation of terrorist networks where before there were none. What a disaster.
 
Maliki also told President Obama last week that the war in next-door Syria was spilling over into Iraq, with the anti-Assad fighters setting off bombs and destabilizing the country. Already more than 5,000 people have been killed throughout Iraq this year, and cross-border attacks from Syrian rebels into Iraq are increasing those numbers. Again, what was not said was that the US government had supported these anti-Assad fighters both in secret and in the open for the past two years.
 
Earlier in the week a group of Senators – all of whom had supported the 2003 US invasion of Iraq – sent a strongly-worded letter to Obama complaining that Maliki was far too close to the Iranian government next door. What was not said was that this new closeness between the Iraqi and Iranian governments developed under the US-installed government after the US invasion of Iraq.
 
Surely there is plenty of blame that can be placed on Maliki and the various no-doubt corrupt politicians running Iraq these days. But how was it they came to power? Were we not promised by those promoting the war that it would create a beach-head of democracy in the Middle East and a pro-American government?
 
According to former Treasury Secretary Paul O’Neill, in early 2001 as the new Bush administration was discussing an attack on Iraq, then-Defense Secretary Donald Rumsfeld said, “Imagine what the region would look like without Saddam and with a regime that’s allied with US interests. It would change everything in the region and beyond it. It would demonstrate what US policy is all about.”
 
We see all these years later now how ridiculous this idea was.
 
I have long advocated the idea that since we just marched in, we should just march out. That goes for US troops and also for US efforts to remake Iraq, Afghanistan, Libya, and everywhere the neocon wars of “liberation” have produced nothing but chaos, destruction, and more US enemies overseas. We can best improve the situation by just leaving them alone.

The interventionists have unfortunately neither learned their lesson from the Iraq debacle nor have they changed their tune. They are still agitating for regime change in Syria, even as they blame the Iraqi government for the destabilization that spills over. They are still agitating for a US attack on Iran, with Members of Congress introducing legislation recently that would actually authorize US force against Iran.

It looks like a very slow learning curve for our bipartisan leaders in Washington. It’s time for a change.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xLgE1ULyGb0/story01.htm Tyler Durden

Never in US history have so many individuals earned over $50 million per year.

 

Never before has the divide between the wealthy and the poor been so wide (never).

 

The source of this catalyst for unrest in society, as Mark Spitznagel warned, is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm: the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

 

The actual distribution of wealth in America is mind-boggling – the following shows the pattern of income is similar to a power-log function (often referred to by Didier Sornette as the basis for his bubble indicator)…

As Spitznagel concludes so succinctly:

"The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president's presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

 

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?"

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lLU-szL1hVI/story01.htm Tyler Durden

The US bug, whereby the worse the economy, the higher the stock market and bond prices must have shifted to Greece, because while the Greek stock market was the best performing “asset” class in October, and Greek bond yields are plunging just because the greater fool stock posse has now moved to the insolvent nation if only for a few months, the economic reality just gets worse by the minute. Case in point – Greek corporations, or what’s left of them, and what Greece needs more than anything – taxes. Kathimerini reports, in what is now nail overkill on the Greek economic coffin, that “hundreds of thousands of enterprises are unable to fulfill their tax obligations, according to the data published on Monday by the Finance Ministry. Within just one month, from the end of August to end-September, the number of corporations that have fallen behind on their taxes soared from 182,785 to 526,477.” No, you read that right: the number of companies that went in arrears on their tax obligations has tripled to over one million in one month. The same month in which the Grecovery was rumored to be in full swing and when John Paulson was buying every Greek stock he could find.

It’s a crazy pills world as Kathimerini reports.

According to a senior ministry official, most of those 343,692 additional enterprises that failed to meet their obligations have entered special payment programs in the hope of settling their debts in 12 installments. The total amount that corporations owe to the state comes to 39.3 billion euros, but only 647.69 million euros of that has been arranged for payment.

There was a silver lining: with virtually nobody working officially, as unknown amounts have shifted to the gray economy, the taxpayer debt have plunged. Why? Simply because if one doesn’t officially make money, a luxury corporations can’t afford, one doesn’t officially have to pay any taxes, hence no taxpayer debts.

Surprisingly, the opposite trend is apparent in taxpayer debts, as debtors numbered 2.8 million at the end of August, a figure which fell to 2.59 million at end-September. In total, they owe 22.6 billion euros.

 

A ministry source pointed to the improvement in debt collection, as total receipts in the year to end-September amounted to 2.13 billion euros, up by 35 percent year-on-year.

 

September revenues grew by 37.2 percent from September 2012, which the general secretary for public revenues, Haris Theoharis, attributes to “the high level of collection of past years’ debts.”

Good luck collecting in current year debts when the unemployment hits fresh record highs, and thus the base of taxpaying individuals craters.

As for corporations, our best advice is for Greece to tax the bankruptcy process. That’s the only way the dying country can possibly collect any “owed” funds from what is left of the country’s once thriving businesses.

But at least the Greek economic skeleton still has its precious euro.

Meanwhile, elsewhere in the same basket case country…

Three police officers were injured on Monday as a group of protesters smashed into a courthouse in the city of Iraklio on Crete where the trial of 92 farmers arrested in 2009 was under way.

 

The three officers suffered scrapes and cuts from falling glass when a group of farmers smashed through the courthouse’s main door at around 3 p.m. demanding that their colleagues be acquitted of all charges.

 

The 92 farmers standing trial are accused of obstructing public transportation, among other charges, after staging a blockade of Iraklio Airport in January 2009.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/vdMQ_X7KenY/story01.htm Tyler Durden

Submitted by Michael Snyder of The Economic Collapse blog,

Desperate people do desperate things, and it appears that Americans are rapidly becoming a lot more desperate.  An epidemic of thievery is sweeping across America, and authorities are not quite sure what to make of it. 

Down in Texas, cattle thieves can get up to $1,500 per head of cattle, and cattle rustling was up nearly 40 percent last year.  As you will read about below, cargo hijacking is becoming much more sophisticated, and it is being estimated that losses from cargo thefts will total about $216 million this year alone.  And for some reason, Tide laundry detergent has become a very hot commodity among common criminals all across America.  In fact, it is being reported that some grocery stores are "losing $10,000 to $15,000 a month" as a result of Tide thefts. 

So why is all of this happening?  Well, as I have written about previously, crime is on the rise in the United States, and poverty is absolutely exploding.  In fact, according to the latest numbers from the U.S. Census Bureau, 49.2 percent of all Americans are receiving benefits from at least one government program each month.  Over the past five years, we have seen an unprecedented rise in the number of people that cannot take care of themselves without help from the government.  Millions upon millions of Americans that have been forced into poverty are becoming increasingly angry, frustrated and desperate.  And what we are watching right now is only just the beginning – all of this is going to get a whole lot worse.

When people think of the "social decay" that is happening to America, most of the time Texas and Oklahoma would not be the first places that come to mind.  But according to NPR, there was nearly a 40 percent rise in the theft of cows and horses down in that area of the country last year…

Ranchers saw a sharp jump in cattle rustling last year in Texas and Oklahoma. Over 10,000 cows and horses were reported missing or stolen. That’s an almost 40 percent increase from the year before. It’s a trend that’s surprised some in law enforcement.

And this is happening even though the penalties for cattle rustling have gotten much stronger…

Penalties against rustlers were toughened by Texas lawmakers in 2009. Now, the crime could put you in prison for up to 10 years. But ironically more and more cattle have gone missing or stolen since that law was passed.

Another trend that is baffling law enforcement authorities is the huge wave of cargo hijackings that they have been seeing.  According to a recent CBS News article, cargo thefts are becoming a lot more elaborate these days…

To steal huge shipments of valuable cargo, thieves are turning to a deceptively simple tactic: They pose as truckers, load the freight onto their own tractor-trailers and drive away with it.

 

It’s an increasingly common form of commercial identity theft that has allowed con men to make off each year with millions of dollars in merchandise, often food and beverages. And experts say the practice is growing so rapidly that it will soon become the most common way to steal freight.

You may not think that stealing truckloads of walnuts or cheese is a big deal, but the truth is that the dollar values of some of these thefts are absolutely staggering…

News reports from across the country recount just a few of the thefts: 80,000 pounds of walnuts worth $300,000 in California, $200,000 of Muenster cheese in Wisconsin, rib-eye steaks valued at $82,000 in Texas, $25,000 pounds of king crab worth $400,000 in California.

And this is not just happening in a few isolated locations.  We are literally seeing an epidemic of cargo theft that stretches from coast to coast…

Although cargo thieves prey on companies across the nation, the hot spots are places with shipping ports or rail hubs. California leads the nation. Large numbers of thefts have also been reported in Texas, Florida, New Jersey, Michigan, Illinois, Georgia, Pennsylvania and Tennessee.

Perhaps most fascinating of all is the wave of Tide thefts that is sweeping the nation.  The following is an excerpt from a New York Magazine article from earlier this year…

The call that came in from a local Safeway one day in March 2011 was unlike any the Organized Retail Crime Unit of the Prince George’s County Police Department had fielded before. The grocery store, located in suburban Bowie, Maryland, had been robbed repeatedly. But in every incident the only products taken were bottles—many, many bottles—of the liquid laundry detergent Tide. “They were losing $10,000 to $15,000 a month, with people just taking it off the shelves,” recalls Sergeant Aubrey Thompson, who heads the team. When Thompson and his officers arrived to investigate, they stumbled onto another apparent Tide theft in progress and busted two men who’d piled 100 or so of the bright-orange jugs into their Honda. The next day, Thompson returned to the store’s parking lot to tape a television interview about the crimes. A different robber took advantage of the distraction to make off with twenty more bottles.

So why are criminals so interested in Tide detergent?

Well, apparently it is heavily used as currency in the drug trade…

Southern Calif
ornia authorities say it’s a dirty business and a bizarre trend – drug users trading Tide detergent for crack.

 

The Riverside Press-Enterprise says it’s a nationwide problem – people are stealing the popular but expensive detergent and trading it for marijuana and crack cocaine.

 

San Bernardino police Sgt. Travis Walker says detectives raiding dope houses in recent years were puzzled when they found lots of Tide. Turns out it wasn’t being used to make drugs but to buy them.

We live at a time when an increasing number of Americans will do just about anything for money.

Down in Florida, one mother was so desperate for money that she was actually prostituting her three teenage daughters.  Two of them were under the age of 18…

A St. Cloud mother was picked up Thursday on charges of serving as her three teenage daughters' madam in a West U.S. Highway 192 prostitution ring, according to the Osceola County Sheriff's Office.

 

At 2:30 p.m., Paula Howard flagged down an undercover detective acting as a "John" in front of a bus stop and arranged for him to have sex with one of her girls, ages 16, 17, and 18, an arrest record states.

 

The daughter agreed to perform the act for $20 and hopped into the car, telling the detective, "Oh yea. That's my family, but don't even worry about it. They know what I do," the report states.

But haven't you heard?

Everything is just fine in America.  Barack Obama and the mainstream media keep telling us that over and over, so it must be true.

Right?

I think that we got a glimpse into the true condition of America last month when a "technical glitch" caused the system that processes food stamp card payments to malfunction for a couple of hours.  A Time Magazine article described what happened at one Wal-Mart in Louisiana…

Customers cleared shelves and police were called in to control crowds taking advantage of suddenly unlimited spending allowed on their Electronic Benefits Transfer cards, which are issued to recipients of government food stamps. Spending limits on the cards were reportedly disabled for about two hours.

 

When a store in Springhill, La., announced over the loudspeaker that the glitch was fixed, shoppers simply abandoned loaded carts, according to Springhill Police Chief Will Lynd.

And similar "mini-riots" happened in a bunch of other locations as well.

For example, customers at one Wal-Mart in Mississippi just started taking groceries out of the store that they hadn't paid for when their food stamp cards were not accepted…

Customers staged a disturbance then walked out of a Mississippi Walmart store with groceries that hadn’t been paid for Saturday night after a computer glitch left them unable to use their food stamp cards.

 

People in 17 states found themselves unable to buy groceries with their Supplemental Nutrition Assistance Program cards after a routine check by vendor Xerox Corp. resulted in a temporary system failure.

 

Shortly after the mini-riot, managers decided to temporarily close the store, citing customer safety.

Keep in mind that all of this was caused by a "technical glitch" that only lasted for a few hours.

What would happen if there was a problem that lasted for much longer?

That is a sobering thing to think about.

And as I wrote about recently, all 47 million Americans on food stamps just had their benefits reduced on November 1st.  This is causing food banks all across the country to brace for a huge influx of needy people…

Food banks across the country, stretched thin in the aftermath of the recession, are bracing for more people coming through their doors in the wake of cuts to the federal food stamp program.

 

Food stamp benefits to 47 million Americans were cut starting Friday as a temporary boost to the federal program comes to an end without new funding from a deadlocked Congress.

 

Under the program, known formally as the Supplemental Nutrition and Assistance Program, or SNAP, a family of four that gets $668 per month in benefits will find that amount cut by $36.

In fact, the president of the Food Bank for New York City says that members of her organization "are panicking"…

As president of the Food Bank for New York City, Margaret Purvis expects those cuts will draw even more people to organizations that already provide 400,000 meals a day to hungry city folks.

 

"Our members are panicking," she said as time wound down before the benefit decreases go into effect. "We're telling everyone to make sure that you are prepared for longer lines."

Purvis also told Salon.com that "when people cannot afford to eat food" it has the potential to start "riots"…

“If you look across the world, riots always begin typically the same way: when people cannot afford to eat food,” Margarette Purvis, the president and CEO of the Food Bank for New York City, told Salon Monday. Purvis said that the looming cut would mean about 76 million meals “that will no longer be on the plates of the poorest families” in NYC alone – a figure that outstrips the total number of meals distributed each year by the Food Bank for New York City, the largest food bank in the country. “There will be an immediate impact,” she said.

So will we see riots as a result of these food stamp cuts?

No, I do not believe that we will see riots yet.

But the volcano of anger, frustration and desperation that is simmering just below the surface of this country continues to get hotter.

Someday it will explode.

What will you do when that happens?

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

“The reality is we’re doing less with less,” is the dismal reality facing Fresno police chief and appears to sum up the situation facing many of America’s cash-strapped cities (as we previously discussed here). Fresno’s problem, as the mayor put it, “we have no money in the current account all.” The situation was so dire that covering an unexpected expense—a new air-conditioning unit or firetruck, for example, would mean slicing into the payroll or borrowing from another depleted city fund. “We can get through the day to day. [But] if there’s a derailed train, a natural disaster, where’s the money going to come from?” Like many other cities, Fresno saw its sales- and property-tax revenue plummet as the economy tanked. In response, the city slashed services and staff. Fresno now can pay its bills, but it can’t do much more than that.

 

 

 

Via WSJ,

…

 

“Our problem is we have no money in the checking account at all,” Mayor Ashley Swearengin said to the silent room. “None.” The situation was so dire that covering an unexpected expense—a new air-conditioning unit or firetruck, for example—would mean slicing into the payroll or borrowing from another depleted city fund, she said.

 

…

 

The sprawling city of about 500,000 people had less than a day’s worth of available cash in its general fund, based on its 2012 financial report.

 

…

 

Fresno currently has just $1.5 million in emergency reserves—a fraction of the $10 million a city its size should have, based on standards from a national government-finance group.

 

…

“We can get through the day to day. [But] if there’s a derailed train, a natural disaster, where’s the money going to come from?” said Karen Bradley, the city’s assistant controller. She said she sometimes worries about the freight trains that rumble through town multiple times a day.

…

Like many other cities, Fresno saw its sales- and property-tax revenue plummet as the economy tanked. The city ran up $36 million in deficits by 2011, mostly from revenue shortfalls, cost overruns on grant-funded projects and debt incurred to build a $26 million convention-center garage.

The garage became an albatross

 

…

 

As revenue declined and creditors fretted over Fresno’s deficits, the city decided to use the cash it had to pay down debt. To rectify the garage deficit, the city borrowed from its water and solid-waste funds to pay back an array of other city departments that the parking garage had raided. Such moves helped Fresno clear out a tangle of internal debts, but left the city low on cash and barely able to cover operating expenses.

 

In response, the city slashed services and staff. Fresno now can pay its bills, but it can’t do much more than that.

 

…

 

In the past four years, the city reduced its workforce by 1,200 people—a 29% cut. The police department lost 426 employees, or 30% of its staff. Now, 72 dispatchers handle some 1,000 emergency calls a day, down from 91 dispatchers four years ago. Residents are encouraged to go online to report nonviolent crimes such as auto thefts and break-ins.

 

“The reality is we’re doing less with less,” Fresno Police Chief Jerry Dyer said.

 

…

 

City officials are seeing small signs of hope: Revenue is up slightly this year as the economy improves and tax proceeds rise. Officials say their plan should keep Fresno out of bankruptcy and put it on track to build $5.8 million in reserves by the end of 2018—still below the $10 million target.

Let’s hope!!!

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Vb-Q7OVC4dU/story01.htm Tyler Durden

Over 2 years ago when we first discussed the fact that “muddle through” had failed, BCG noted that “there were only painful ways out of this mess.” The most painful truth, they suggested, was that “the only way to resolve the massive debt load is through a global coordinated debt restructuring… which will have to be funded by the world’s financial asset holders: the middle-and upper-class’ who will have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.” However, given the delay (and worst progression), Ken Rogoff warns that temporary wealth taxes may well be a part of the answer for countries in fiscal trouble today, and the idea should be taken seriously; but they are no substitute for fundamental long-term reform to make tax systems simpler, fairer, and more efficient.

 

BCG’s Original “Muddle Through has failed” discussion… which addresses the inevitable need for a wealth tax

BCG_Back_to_Mesopotamia_Sep_11[2]

 

And why that won’t be enough…

On The Shortcomings Of A One-Time Wealth Tax,

Authored by Ken Rogoff, originally posted at Project Syndicate,

Should advanced countries implement wealth taxes as a means of stabilizing and reducing public debt over the medium term? The normally conservative International Monetary Fund has given the idea surprisingly emphatic support. The IMF calculates that a one-time 10% wealth levy, if introduced quickly and unexpectedly, could return many European countries to pre-crisis public debt/GDP ratios. It is an intriguing idea.

The moral case for a wealth tax is more compelling than usual today, with unemployment still at recession levels, and with deep economic inequality straining social norms. And, if it were really possible to ensure that the wealth levy would be temporary, such a tax would, in principle, be much less distortionary than imposing higher marginal tax rates on income. Unfortunately, while a wealth tax may be a sound way to help a country dig out of a deep fiscal pit, it is hardly a panacea.

For starters, the revenue gains from temporary wealth taxes can be very elusive. The economist Barry Eichengreen once explored the imposition of capital levies in the aftermath of World Wars I and II. He found that, owing to capital flight and political pressure for delay, the results were often disappointing.

Italy’s armada of Guardia di Finanza boats would hardly forestall a massive exodus of wealth if Italians see a sizable wealth tax coming. Over- and under-invoicing of trade, for example, is a time-tested way to spirit money out of a country. (For example, an exporter under-reports the price received for a foreign shipment, and keeps the extra cash hidden abroad.) And there would be a rush into jewelry and other hard-to-detect real assets.

The distortionary effects of a wealth levy would also be exacerbated by concerns that the “temporary” levy would not be a one-off tax. After all, most temporary taxes come for lunch and stay for dinner. Fears of future wealth taxes could discourage entrepreneurship and lower the saving rate.

In addition, the administrative difficulties of instituting a comprehensive wealth tax are formidable, raising questions about fairness. For example, it would be extremely difficult to place market values on the family-owned businesses that pervade Mediterranean countries.

Wealth taxes that target land and structures are arguably insulated from some of these concerns, and property taxes are relatively underused outside the Anglo-Saxon countries. In theory, taxing immobile assets is less distortionary, though taxes on structures obviously can discourage both maintenance and new construction.

So what else can eurozone governments do to raise revenue as their economies recover? Most economists favor finding ways to broaden the tax base – for example, by eliminating special deductions and privileges – in order to keep marginal tax rates low. Broadening the income-tax base is a central element of the highly regarded Simpson/Bowles proposals for tax reform in the United States.

In Europe, efficiency would be enhanced by a unified VAT rate, instead of creating distortions by charging different rates for different goods. In principle, low-income individuals and families could be compensated through lump-sum transfer programs.

Another idea is to try to raise more revenue from carbon permits or taxes. Raising funds by taxing negative externalities reduces distortions rather than creating them. Though such taxes are spectacularly unpopular – perhaps because individuals refuse to admit that the externalities they themselves create are significant – I regard them as an important direction for future policy (and I intend to suggest other ideas along these lines in future columns).

Unfortunately, advanced countries have implemented very little fundamental tax reform so far. Many governments are giving in to higher marginal tax rates rather than overhauling and simplifying the system.

In Europe, officials are also turning to stealth taxes, particularly financial repression, to resolve high public-debt overhangs. Through regulation and administrative directives, banks, insurance companies, and pension funds are being forced to hold much higher shares of government debt than they might voluntarily choose to do. But this approach is hardly progressive, as the final holders of pensions, insurance contracts, and bank deposits are typically the beleaguered middle class and the elderly.

There is also the unresolved question of how much the periphery countries really should be asked to pay on their debilitating debt burdens, whatever the tax instrument. Although the IMF seems particularly enthusiastic about using wealth taxes to resolve debt overhangs in Spain and Italy, some burden sharing with the north seems reasonable. As the economists Maurice Obstfeld and Galina Hale recently noted, German and French banks earned large profits intermediating flows between Asian savers and Europe’s periphery. Unfortunately, arguing over burden sharing creates more scope for delay, potentially undermining the efficacy of any wealth tax that might finally be instituted.

Still, the IMF is right – on grounds of both fairness and efficiency – to raise the idea of temporary wealth taxes in advanced countries to relieve fiscal distress. However, the revenues will almost certainly be lower, and the
costs higher, than calculations used to promote them would imply. Temporary wealth taxes may well be a part of the answer for countries in fiscal trouble today, and the idea should be taken seriously. But they are no substitute for fundamental long-term reform to make tax systems simpler, fairer, and more efficient.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/J3ZL2ABL0EA/story01.htm Tyler Durden

Over 2 years ago when we first discussed the fact that “muddle through” had failed, BCG noted that “there were only painful ways out of this mess.” The most painful truth, they suggested, was that “the only way to resolve the massive debt load is through a global coordinated debt restructuring… which will have to be funded by the world’s financial asset holders: the middle-and upper-class’ who will have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path.” However, given the delay (and worst progression), Ken Rogoff warns that temporary wealth taxes may well be a part of the answer for countries in fiscal trouble today, and the idea should be taken seriously; but they are no substitute for fundamental long-term reform to make tax systems simpler, fairer, and more efficient.

 

BCG’s Original “Muddle Through has failed” discussion… which addresses the inevitable need for a wealth tax

BCG_Back_to_Mesopotamia_Sep_11[2]

 

And why that won’t be enough…

On The Shortcomings Of A One-Time Wealth Tax,

Authored by Ken Rogoff, originally posted at Project Syndicate,

Should advanced countries implement wealth taxes as a means of stabilizing and reducing public debt over the medium term? The normally conservative International Monetary Fund has given the idea surprisingly emphatic support. The IMF calculates that a one-time 10% wealth levy, if introduced quickly and unexpectedly, could return many European countries to pre-crisis public debt/GDP ratios. It is an intriguing idea.

The moral case for a wealth tax is more compelling than usual today, with unemployment still at recession levels, and with deep economic inequality straining social norms. And, if it were really possible to ensure that the wealth levy would be temporary, such a tax would, in principle, be much less distortionary than imposing higher marginal tax rates on income. Unfortunately, while a wealth tax may be a sound way to help a country dig out of a deep fiscal pit, it is hardly a panacea.

For starters, the revenue gains from temporary wealth taxes can be very elusive. The economist Barry Eichengreen once explored the imposition of capital levies in the aftermath of World Wars I and II. He found that, owing to capital flight and political pressure for delay, the results were often disappointing.

Italy’s armada of Guardia di Finanza boats would hardly forestall a massive exodus of wealth if Italians see a sizable wealth tax coming. Over- and under-invoicing of trade, for example, is a time-tested way to spirit money out of a country. (For example, an exporter under-reports the price received for a foreign shipment, and keeps the extra cash hidden abroad.) And there would be a rush into jewelry and other hard-to-detect real assets.

The distortionary effects of a wealth levy would also be exacerbated by concerns that the “temporary” levy would not be a one-off tax. After all, most temporary taxes come for lunch and stay for dinner. Fears of future wealth taxes could discourage entrepreneurship and lower the saving rate.

In addition, the administrative difficulties of instituting a comprehensive wealth tax are formidable, raising questions about fairness. For example, it would be extremely difficult to place market values on the family-owned businesses that pervade Mediterranean countries.

Wealth taxes that target land and structures are arguably insulated from some of these concerns, and property taxes are relatively underused outside the Anglo-Saxon countries. In theory, taxing immobile assets is less distortionary, though taxes on structures obviously can discourage both maintenance and new construction.

So what else can eurozone governments do to raise revenue as their economies recover? Most economists favor finding ways to broaden the tax base – for example, by eliminating special deductions and privileges – in order to keep marginal tax rates low. Broadening the income-tax base is a central element of the highly regarded Simpson/Bowles proposals for tax reform in the United States.

In Europe, efficiency would be enhanced by a unified VAT rate, instead of creating distortions by charging different rates for different goods. In principle, low-income individuals and families could be compensated through lump-sum transfer programs.

Another idea is to try to raise more revenue from carbon permits or taxes. Raising funds by taxing negative externalities reduces distortions rather than creating them. Though such taxes are spectacularly unpopular – perhaps because individuals refuse to admit that the externalities they themselves create are significant – I regard them as an important direction for future policy (and I intend to suggest other ideas along these lines in future columns).

Unfortunately, advanced countries have implemented very little fundamental tax reform so far. Many governments are giving in to higher marginal tax rates rather than overhauling and simplifying the system.

In Europe, officials are also turning to stealth taxes, particularly financial repression, to resolve high public-debt overhangs. Through regulation and administrative directives, banks, insurance companies, and pension funds are being forced to hold much higher shares of government debt than they might voluntarily choose to do. But this approach is hardly progressive, as the final holders of pensions, insurance contracts, and bank deposits are typically the beleaguered middle class and the elderly.

There is also the unresolved question of how much the periphery countries really should be asked to pay on their debilitating debt burdens, whatever the tax instrument. Although the IMF seems particularly enthusiastic about using wealth taxes to resolve debt overhangs in Spain and Italy, some burden sharing with the north seems reasonable. As the economists Maurice Obstfeld and Galina Hale recently noted, German and French banks earned large profits intermediating flows between Asian savers and Europe’s periphery. Unfortunately, arguing over burden sharing creates more scope for delay, potentially undermining the efficacy of any wealth tax that might finally be instituted.

Still, the IMF is right – on grounds of both fairness and efficiency – to raise the idea of temporary wealth taxes in advanced countries to relieve fiscal distress. However, the revenues will almost certainly be lower, and the costs higher, than calculations used to promote them would imply. Temporary wealth taxes may well be a part of the answer for countries in fiscal trouble today, and the idea should be taken seriously. But they are no substitute for fundamental long-term reform to make tax systems simpler, fairer, and more efficient.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/J3ZL2ABL0EA/story01.htm Tyler Durden

Having been the first to warn the world about the perils of high frequency trading nearly 5 years ago, when momentum ignition, layering and quote stuffing were still incomprehensible buzzwords to all but a select few algo traders from Citadel, GETCO and DE Shaw, and warning about such top-down systemic lock ups like flash-crash over a year in advance; as well as the bottom-up impacts of 20 year old math PhDs being in charge of market topology, our crusade from the micro has since shifted to the macro and the primary nemesis of all that is free and fair, the Federal Reserve. In the intervening years, traders such as Haim Bodek opened the HFT kimono even more publicly a few years ago. The following is a must-watch documentary for every investor and trader to comprehend just what it is (and who it is) that drives stock prices day in and day out.

 

The Dark (Pool) Truth About What Really Goes On In The Stock Market Part 1

“I’ll show you how it works.”

 

The rep told Bodek about the kind of orders he should use – orders that wouldn’t get abused like the plain vanilla limit orders; orders that seemed to Bodek specifically designed to abuse the limit orders by exploiting complex loopholes in the market’s plumbing. The orders Bodek had been using were child’s play, simple declarative sentences sent to exchanges such as “Buy up to $20.” These new order types were compound sentences, with multiple clauses, virtually Faulknerian in their rambling complexity.

 

The end result, however, was simple: Everyday investors and even sophisticated firms like Trading Machines were buying stocks for a slightly higher price than they should, and selling for a slightly lower price and paying billions in “take” fees along the way.

 

Bodek felt sick to his stomach. “How can you do that?” he said.

 

The rep laughed. “If we changed things, the high-frequency traders wouldn’t send us their orders,” he said.

 

The Dark (Pool) Truth About What Really Goes On In The Stock Market Part 2

The game had changed. Bodek became increasingly convinced that the stock market—the United States stock market—was rigged. Exchanges appeared to be providing mechanisms to favored clients that allowed them to circumvent Reg NMS rules in ways that abused regular investors. It was complicated, a fact that helped hide the abuses, just as giant banks used complex mortgage trades to bilk clients out of billions, in the process triggering a global financial panic in 2008. Bodek wasn’t sure if it was an outright conspiracy or simply an ecosystem that had evolved to protect a single type of organism that had become critical to the survival of the pools themselves.

 

Whatever it was, he thought, it was wrong.

 

The Wall Street Code

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WedEbv3Ndwk/story01.htm Tyler Durden