Wednesday, April 21, 2010

This Sinking Feeling of Falling, Failing, Things Getting Out of Control

I have this slight but very distinct feeling that things are getting out of control again in slow motion.

The last time I felt that way was in February 2009 when the then-newly-elected president of the US was threatening "catastrophe" if we didn't support his stimulus bill; before that, in September / October 2008. I don't think I need to remind the readers what happened in that month, but here's a refresher just in case (it's the last of 4-part series).

Greedy (and money-starved) government officials around the world are welcoming the new IMF proposal for the "FAT" - that is, Financial Activity Tax, on top of the tax that they want to slap on financial institutions (defined very broadly).

British Prime Minister Gordon Brown, who sold UK's gold reserve at a decade low as Chancellor of Exchequer against opposition from Bank of England (to the Rothchilds, as rumor goes), says he was shocked by the "moral bankruptcy" of Goldman Sachs. (Really. I didn't know a politician like him could be shocked by anything immoral.)

In the US, a former President says that to be against the government policies and actions is an act of sedition. (He said that on April 19, the anniversary of Oklahoma City bombing and the fiery end to the siege of Branch Davidians in Waco, Texas.)

EPA is having a contest to choose the best video commercial that promotes the idea that more government regulations is good for us. They call it "environmental justice".

Where does this almost blind faith in the government come from, of all place in America? (Why did the colonists bother fighting the Brits and German mercenaries for independence?)

SEC sues the largest corporate donor to Obama's presidential campaign on an Op-Ex day, wrecking havoc in the stock market. (And here I naively thought the agency is supposed to regulate the financial markets so that things move in an orderly manner.)

The Treasury Department keeps on selling (well, it has no choice, really) short-term bills and longer-term notes and bonds from Monday to Thursday, every single week. Since the beginning of this year, there has been a noticeable drop in Indirect Bidders (that include foreign central banks) and a corresponding increase in Direct Bidders (no one knows exactly who they are, because the Treasury Dept doesn't tell you), leading many to speculate it is a backdoor monetizing operation by the Federal Reserve.

Speaking of the Federal Reserve, the Treasury has been raising $25 billion for the Federal Reserve every single week since February. This week will mark the 9th consecutive week. I haven't figured out yet where this money has been going. If and when I do, I will let you know.

The health care insurance "reform", aka ObamaCare, has been passed and signed into law against the majority of Americans who still believes it is a bad idea. But more bad ideas are in the pipeline:

-- The financial "reform" bill that will create $50 billion slush fund managed by (hold your breath) FDIC to perpetually bail out financial institutions, and will put the Federal Reserve in charge of "protecting" consumers (such a cynical joke);

-- The cap and trade bill to supposedly combat "global warming" whether it is happening or not, which will burden the American families with added tax of $2000 per year (and probably way more).

A California Congresswoman wants the federal government to make "whole" the investments in complex structured financial products (i.e. derivatives) by the municipal governments in her district. So the US taxpayers get to pay for the stupid investment decisions made by city, county, state bureaucrats.

An EU Commissioner declares vacationing is a human right, and wants EU taxpayers to subsidize vacations for low-income people.

The president of the US taunts people who don't agree with him, and tell them they should be thankful of the many tax cuts he created. (What tax cut?)

A volcano in Iceland erupts, and the entire Europe reacts as if it is another swine flu pandemic. Oh we are so scared. And as expected, someone has to ask if it was caused by "global warming". (It is a revenge of Icelanders against Brits and Dutch.)

The US Congress wants to prohibit banks from dealing with financial derivatives. Who would be put in charge to determine the so-called risk? Some sort of government council? Or the Federal Reserve, whose chairman is on record saying he didn't see any of it (financial crisis of the past 2 years, that is) coming. Now that would surely solve the problem, wouldn't it?

Paul Volcker mentioned it recently, and now his boss openly promotes it: VAT. And since his need for money is so gargantuan and ever growing (see how much Treasury is raising every single week on my other blog) I doubt that there would be much of an offsetting decrease in income tax. The deficit has never been reduced by increased tax. What do politicians do when they have more money from more tax? They spend it, and find more ways to spend more. Duh.

Pentagon (not Israel) is mulling the military option against Iran.

The world cannot survive such insanity very long. I don't think I can, either.

How about you?


Anonymous said...

Well, I am hoping that the VAT tax vote will be delayed until after November. I think if they do pass it, they would need to delay for another year so that businesses can apply changes to there accounting systems to handle VAT.

What is scary is that there is a significant number of republicans that appear to support the idea of VAT.

At this point the US gov't is screwed. Entitlement outlays are beginning to soar. They will never be able to tax enough to support all of the entitlements promised and interest payments on debt owed. Like Greece, They can't cut entitlements without causing general civil disobedence. The only direction they will take is to hyperinflate to put off collapse to the last possible moment.

As the dollar collapses, states will start to succeed from the union.

arevamirpal::laprimavera said...

Or default. Or devalue the currency like North Korea and Venezuela did.

Politicians (with few exceptions) love any increase of tax. If they pass VAT, that's the end for the US. Join EU for stagnation for decades, if lucky.

Anonymous said...

Printing money is defaulting. I can't see the US hard defaulting, when it controls the printing press.

US can't handle a VAT for very long. Europe can get away with it because it uses exports to support its economy. VAT is intended to reduce domestic consumption and to promote exports. This won't work because the US has no export growth potential. Asia can beat the US in manufaction with its ultra-low labor costs and its lack of environmental regulations. The US simply cannot complete. A US VAT will also destabilize Europe that is dependant on exports to the US.
A VAT will easily double unemployment sending tax revenue into a tailspin. Back in the FDR years, FDR raised taxes to 98%, and wonder why the US couldn't get out of its depression.

I see two possible outcomes for the US (regardless of the VAT. The VAT will only accelerate the problems)

1. Breakup of the US into regional states (ie New England, mid-Alantic, SouthEast, etc form new nations) as the dollar become worthless forcing states to print their own currency. The US dollar is the only binding force that keeps it in power (aka Alex Hamilton and the Contenntial debt). When the dollar no longer retains value, the federal gov't losses is ability to pay for goods and services.

2. We end up in WW 3, as major world powers go to war, just as the did during the last financial crisis of the 1930's.

I pray for option 1. Consider what happened to the Soviet Union. The Soviet Union's currency collapsed in a matter of weeks and it was broken up into many states. Through out history, we see that when a world power collapses. it breaks up. Rome, England, Germany, etc were all broken up after they collapsed. Rome and England lost the majority of the lands they controlled after financial ruin. Germany was divided after WW 1.

arevamirpal::laprimavera said...

I do see the US at least partially defaulting - on so-called "entitlements", without saying it is defaulting. All it needs to do is to cut the benefits. The first step has been already taken, in the form of health care "reform", that will reduce medicare benefits.

I hope for your option 1, but afraid of option 2 happening.

Anonymous said...

I don't think they will cut the entitlements. Consider how many politicans remain in office simply because of the entitlement programs they support. In recent years, there has been ever increasing the benefits offered. For instance Bush nearly doubled the medicare liabilities with the Prescription drug benefits (which got him a second term). Obama is pushing for health-care reform and increased medical benefits for the poor and retirees. I believe we will see Obama press hard for bigger entitlements in the next year in order to have a crack at a second term.

As the economy crumbles. Politicians will become more reliant of entitlement support to stay in office. They can't fix the economy, the spending deficit or the huge corporate and consumer debt loads. All they can do is promise the masses more and bigger entitlements.

Might I remind you of this famous (or perhaps infamous) quote from 18th Century:

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits the public treasury with the result that a democracy always collapses over lousy fiscal policy, always followed by a dictatorship. The average of the world’s great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to Complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage."

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