Bill Gross says he has no faith in the US's policy makers, both Democrats and Republicans.
The stock market doesn't care. Dow Jones Industrial jumps 150 points on the strength of Bank of America and a slight easing of oil after Kuwait's oil minister promised they will pump more.
Never mind that Kuwaiti youth groups are protesting for the ouster of the prime minister...
Meanwhile, in "the land of the free and the home of the brave", the federal government, or rather, President Obama himself, is threatening the citizens with an economic disaster if his government is forced to shut down without the spending agreement in Congress.
Obama and his underlings (Geithner, his budget director with an unpronounceable name, for example) have been threatening the citizenry with one "catastrophe" after another unless they get what they want, ever since they gained power.
But wait, haven't I seen this kind of behavior somewhere else, recently?
Yes I have. I think Egypt's Hosni Mubarak said it, that Egypt would descend into chaos if he wasn't the president. I think Libya's Muammar Gaddafi said the similar thing.
Oh well. No one in the US pays a bit of attention to this guy any more, and life goes on with Ben Bernank printing like a mad professor that he is, exporting inflation abroad and becoming an accidental revolutionary spreading democracy in northern Africa and Middle East (and Asia next).
From AP:
WASHINGTON (AP) -- President Barack Obama says the economic recovery will stall if Congress can't agree on spending cuts and avoid a government shutdown.
The current budget expires next Friday. That means lawmakers must OK a new spending plan before the March 4 deadline to keep much of the government from running out of money and closing. The Republican-run House and Democratic-controlled Senate are bickering over how much to cut.
"For the sake of our people and our economy, we cannot allow gridlock to prevail," Obama said Saturday in his weekly radio and Internet address. "I urge and expect them to find common ground so we can accelerate, not impede, economic growth."
What economic growth?
For this man who has never worked a single honest day in his adult life in the private sector, the government squandering money on useless projects is economic growth.
But no matter. Along with Japan, this country will be the dead last to catch on to the idea that it is the government that is the impediment to economic growth, and to freedom to pursue economic growth.
Milwaukee is the largest city in the state of Wisconsin, where the public union teachers are staging the protests against the governor's budget rescue bill.
$100K per average teacher. I hate to think how much those school superintendents and administrators get. And that $100K per teacher hasn't done much to improve the Milwaukee Public School system.
The link to MacIver News Service at McIver Institute in Wisconsin was clearly overwhelmed with clicks (the link appeared on Drudge Report) but I've finally got there - here's the snippet:
MacIver News Service – For the first time in history, the average annual compensation for a teacher in the Milwaukee Public School system will exceed $100,000.
That staggering figure was revealed last night at a meeting of the MPS School Board.
The average salary for an MPS teacher is $56,500. When fringe benefits are factored in, the annual compensation will be $100,005 in 2011.
$56,500 average salary is more than double the city's average salary;
It is more than the median family income of $42,950; and
MPS graduation rate is 68%, compared to 90% statewide.
A poster on Yahoo's stock board who lives in Wisconsin says that the state employees in Wisconsin do not contribute to the pension fund, and pay only 0.5% of health care premiums. (BTW, trolls defending the public union teachers in Wisconsin suddenly appeared on the board for a double-short financial ETF... Fun to watch.)
And a clown like Jessie Jackson likens the protest to anti-government fights in Egypt and Tunisia, and these public union teachers go ecstatic.
Surreal.
And he thinks that will help the economy and win him another term as the president (so that he can throw parties every week and play golf every weekend). He's delusional.
From Americans for Tax Reform (2/14/2011):
President Obama released his budget this morning. Rather than focusing on Washington’s over-spending problem, the budget calls for higher taxes on families and small businesses to pay for even more government spending. Under the Obama budget, tax revenues will grow from 14.4% of GDP in 2011 to 20% of GDP in 2021. By comparison, the historical average is only 18% of GDP.
Tax hike lowlights include:
Raising the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike
Raising the capital gains and dividends rate from 15% to 20%
Raising the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike
Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phaseout of itemized deductions limits them even more. This is a $321 billion/ten year tax hike
New bank taxes totaling $33 billion over ten years
New international corporate tax hikes totaling $129 billion over ten years
New life insurance company taxes totaling $14 billion over ten years
Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years
- Increasing unemployment payroll taxes by $15 billion over ten years
Taxing management capital gains in an investment partnership (“carried interest”) as ordinary income. This is a tax hike of $15 billion over ten years
A giveaway to the trial lawyers—not letting companies deduct the cost of punitive damages from a lawsuit settlement. This is a tax hike of $300 million over ten years
Increasing tax penalties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion.
Add it all together, and this budget is a ten-year, $1.5 trillion tax hike over present law. That’s $1.5 trillion taken out of the economy and spent on government instead of being used to create jobs.
The “tax relief” in the budget is mostly just an extension of present law, and also some refundable credit outlay spending in the tax code. There is virtually no new tax relief relative to present law in the President’s budget.
Saw the link at Mish Shedlock's blogsite. The linked article (at Bloomberg) says:
The U.S. should cut its government spending and sell some gold reserves to balance its budget and fund its recovery, the People’s Daily overseas edition reported, citing Xia Bin, an adviser to the People’s Bank of China.
The U.S. has to resolve its “twin deficits” in the government budget and the current account, Xia was quoted as saying. Three ways that may help the U.S. achieve that target include reducing military expenses, selling part of its gold reserves and relaxing some export limits on technology, he said.
“The U.S. has more than 8,000 tons of gold reserves; why can’t it sell some of it since the country wants to raise funds for economic recovery but doesn’t want to add more burden to the fiscal deficit,” Xia told the newspaper. He didn’t mention whether China would be willing to purchase any gold from the U.S.
The first three links go to the articles by Jason Diz on September 24, 2010 at Antiwar.com website:
US Combat Continues in 'Post-Combat' Iraq
...US military spokesman Brig. Gen. Jeffrey Buchanan announced today that “our rules of engagement have no changed,” meaning the claims that only “non-combat” troops remains in the nation were even more transparently false than they appeared on the surface.Pants on fire!
...In an interview today with the BBC’s Persian Television channel, President Barack Obama promised that the United States would not end the war in Afghanistan as a result of the July 2011 drawdown date.Pants on fire! I thought the reason of going there was to grab Osama Bin Laden. No?
Rather Obama insisted the war would continue “until the job is done”and went on to define the job as “to provide Afghans themselves the capacity to secure their own country.” He gave no indications of when he thought this might be.
...The FBI is confirming that this morning they began a number of “raids” against the homes of antiwar activists, claiming that they are “seeking evidence relating to activities concerning the material support of terrorism.”
...Now we know what Homeland Security (sic) secretary Janet Napolitano meant when she said on September 10: "The old view that 'if we fight the terrorists abroad, we won't have to fight them here' is just that--the old view." The new view, Napolitano said, is "to counter violent extremism right here at home."And the multibillionaire Warren Buffett excoriates us for being angry at the government.
"Violent extremism" is one of those undefined police state terms that will mean whatever the government wants it to mean. In this morning's FBI's foray into the homes of American citizens of conscience, it means antiwar activists, whose activities are equated with "the material support of terrorism," just as conservatives equated Vietnam era anti-war protesters with giving material support to communism.
"Material support" is another of those undefined police state terms. In this context the term means that Americans who fail to believe their government's lies and instead protest its policies, are supporting their government's declared enemies and, thus, are not exercising their civil liberties but committing treason.
As this initial FBI foray is a softening up move to get the public accustomed to the idea that the real terrorists are their fellow citizens here at home, Kelly will get off this time. But next time the FBI will find emails on his computer from a "terrorist group" set up by the CIA that will incriminate him. Under the practices put in place by the Bush and Obama regimes, and approved by corrupt federal judges, protesters who have been compromised by fake terrorist groups can be declared "enemy combatants" and sent off to Egypt, Poland, or some other corrupt American puppet state--Canada perhaps--to be tortured until confession is forthcoming that antiwar protesters and, indeed, every critic of the US government, are on Osama bin Laden's payroll.
Almost every Republican and conservative and, indeed, the majority of Americans will fall for this, only to find, later, that it is subversive to complain that their Social Security was cut in the interest of the war against Iran or some other demonized entity, or that they couldn't have a Medicare operation because the wars in Central Asia and South America required the money.
Huh?
I sincerely, truly hope and pray that the rumor of Buffet becoming the chief of that consumer financial protection bureau within the Federal Reserve was, is, and remains utterly, totally false.
Buffett to taxpayers: Get over your anger (9/24/2010 Omaha.com)
"Taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy, billionaire investor Warren Buffett told CNBC.
"“Sentiment has turned very sour in the last three or four or five months,” the chairman and CEO of Omaha-based Berkshire Hathaway Inc. said in an interview broadcast Thursday.
"“I hope we get over it pretty soon, because it’s not productive,’’ Buffett said. “We will come back regardless of how people feel about Washington, but it is not helpful to have people as unhappy as they are about what’s going on in Washington.”
"...“The truth is we’re running a federal deficit that’s 9 percent of gross domestic product,” Buffett said. “That’s stimulative as all get out. It’s more stimulative than any policy we’ve followed since World War II.”
"...Buffett said he uses a common sense standard to evaluate the economy. Buffett gets insight into the health of the economy through the performance of Berkshire’s many subsidiaries." [The whole article at the link above.]
So the federal government running deficit of over 9% of GDP is a good thing, according to Buffett. Deficit spending on useless projects and government union workers is a good thing.
And if that's his common sense, then he really, truly has nothing in common with the rest of us. (His father would be very disappointed in him.)
by Jackson Browne. (It should be the theme song for the US stock market.)
and to Steve Liesman, "Go read some Austrian economist instead of the funny pages."
From yesterday's program. Fast-forward 8 minutes or so for the good part...
but rewriting the US tax code so that it is "fair".
Reuters' article quotes Obama at a news conference at G20 in Toronto, saying he is serious about reigning in the huge US budget deficit (i.e. deficit incurred by his government).
"I'm serious about it," Obama said when asked at a news conference at the Group of 20 summit in Canada if he believed he could meet his deficit reduction goals.No plan, no anything, but he is serious. He even challenged people who want deficit reduction (i.e. his government actually cutting spending), basically saying "You want deficit reduction? Oh yeah? Watch me do exactly that, and you'll regret it."
Obama also said that he believed a review of the "messy and unfair" U.S. tax code should be considered as part of a plan to deal with long-term budget problems.Oh no... Most American taxpayers know the US tax system is a mess with a huge bureaucracy (IRS) gaining more and more power (latest via the health care so-called "reform"), and they know it needs to be changed.
"We've got to look at a tax system that is messy and unfair in a whole range of ways," Obama said.
a lot more tax.
The White House has released its version of the health care reform bill, which is basically the Senate version with some so-called "compromise" to bait the Republicans. The president has declared that it will be voted in, using the Senate "reconciliation" process that requires only 51 votes instead of 60, unless GOP "cooperate" (meaning they capitulate to the president's bill).
It will cost $1 trillion over 10 years, and Obama claims it won't add to the federal deficit.
He is right. Because it will be funded by TAXPAYERS, whether they like it or not (61% of voters dislike it, and think it should be scrapped). The U.S. taxpayers will be forced to fund this monstrosity that will put IRS as the enforcer, penalties for individual and companies for not having a health insurance that is deemed "appropriate" by the government, tax investment income, tax branded prescription drugs and medical devices (they disingenuously call it "annual fee"), include "Cadillac tax", the government panel to decide on insurance premiums, and much more.
Probably the definition of "reform" has changed. It may not be "making it better", but "make a change, whether it is good or bad, but change nonetheless".
I am afraid the President is either several steps behind the general public, or he is tone-deaf. When Americans were more worried about deepening recession and job loss in early 2009, he declared health care "reform" and global warming legislation to be the top priorities. When Americans grew angrier at federal budget deficit and wasteful spending by his government, he decided to throw more money on job creation. When Americans feel they are totally tapped out and no more extra money to shell out to the government, he proposes, among other things, to tax even the unearned income so the taxpayers can pay for his health care reform which is really just an insurance "reform" which is not even a reform.
And his pitch? It won't add to the federal deficit.
SO WHAT? Americans don't have money for him.
by executive fiat to study how to reduce federal deficit.
What's "Humphrey", you ask? It's from Sir Humphrey Appleby, a fictional character in a British comedy, a staunch defender of the status quo, who advises a newbie Minister that they form a committee when they don't want to find out about anything.
Obama sets up deficit panel without help from Hill (2/18/2010 AP via Yahoo Finance)
"WASHINGTON (AP) -- President Barack Obama signed an order Thursday unilaterally creating a bipartisan commission to rein in unruly deficits after Congress rejected a similar body with considerably more enforcement power.
"In making the announcement, Obama said that unless lawmakers put aside partisan differences, the continuing red-ink trend could "hobble our economy."
"The federal deficit hit a record $1.4 trillion last year and could grow larger this year as the struggling economy puts a big dent in tax collections.
""It will cloud our future and it will saddle every child in America with an intolerable burden," he said before signing an executive order establishing the commission." [The article continues.]
Is this some kind of sick joke? This guy is surpassing FDR in terms of government spending; he just signed a bill that raised the debt limit by $1.9 billion which may carry us till the end of February; his 2011 budget is $3.8 trillion.
He IS the cause for "the continuing red-ink trend", and he is the one who "will cloud our future and saddle every child in America with an intolerable burden". The red-ink trend will continue not because of partisan differences but because of his government's spending.
I can tell him, so can the majority of this country, how to reduce deficit without wrecking the country's tax-paying middle class and without creating a panel stuffed with some august appointees.
Stop spending.
(By the way, speaking of executive orders, do you remember what Obama's last two executive orders were? One was to confer full diplomatic immunity to INTERPOL, and the other was to create the council of governors for national security.)
Trust me, this will be so popular with every city and county managers in the U.S. Also with public unions (police, firefighters, teachers, etc.), which already successfully campaigned in Oregon for "tax the rich" scheme that would save their jobs and pensions at the expense of higher tax for higher-income earners and private businesses, big and small.
Tax on food, you can say it is "tax everyone" scheme. But there is no equality here, because the poor will suffer more as the proportion of income going to food items is higher for them. (Unless of course they rely 100% on food stamps in Phoenix.)
Phoenix gives OK to 2% tax on food (2/3/2010 AZCentral.com)
"Desperate to save police, fire and other city jobs, a divided Phoenix City Council on Tuesday approved a sales tax on grocery items that will generate tens of millions of dollars a year.
"The 2 percent food tax will take effect April 1 and expire after five years, though Mayor Phil Gordon said the council has the option of reversing its decision after it hears from the public during 15 budget hearings planned for this month.
"The tax on milk, meat, vegetables and other food purchased by shoppers will generate an estimated $12.5 million for the fiscal year that ends June 30. It will raise another $50 million for fiscal 2011. Food purchased with food stamps will not be taxed." [The article continues.]
$12.5 million new tax will fill only 5% of $241 million deficit that Phoenix has to fill.
Let's all go bankrupt and receive food stamps. Walk away from the mortgages. Why bother struggling, trying to make ends meet on your own? All they (government, federal and state and local) do is to take from us. "It's for your own good", they all say.
Wait till they start talking about VAT again (which I suspect may be coming soon), and kiss any shred of hope for recovery goodbye.
States that already have tax on groceries: Arkansas, Georgia (same rate as state sales tax), Illinois, Lousiana (same rate as state sales tax), Missouri, North Carolina (same rate as state sales tax),Tennessee, Utah, Virginia, West Virginia.
(The information source, the Federation of Tax Administrators, is short on staff, so the information is 2-year old. The Federation hopes to update the data in January 2010. Well that's gone.)
Ah the danger of cash method accounting.
(UPDATE 12:40 PM PST)
The House passed the legislation that would raise the debt limit by $1.9 trillion. The vote was extremely close, at 217-212, with all Republicans voting against and more than 30 Democrats joining them.
Remember, the Treasury Department said the new limit of $14.3 trillion would be hit by the end of this month.
---------------------------------------------
The debt limit, which would be raised by $1.9 trillion to $14.3 trillion, will be hit by the end of February, the Treasury Department says. It is THIS FEBRUARY.
As this blog posted on January 28, the Senate already passed the measure by 60-39 (Scott Brown of Massachusetts was not not seated back then)
Now it's the House's turn to vote today, and the increased debt ceiling will carry them till the end of February. What a joke.
US debt to hit proposed ceiling by end-February: Treasury
(2/3/2010 AFP via Google)
"WASHINGTON — The US debt is on track to hit a congressionally proposed debt ceiling of 14.3 trillion dollars by the end of February, the Treasury said Wednesday, a day ahead of a key vote to raise it to that level.
""Based on current projections, Treasury expects to reach the debt ceiling as early as the end of February. However, the government's cash flows are volatile, making it difficult to forecast a precise date," the Treasury said in a statement.
"The current limit on the public debt of the United States is 12.374 trillion dollars.
"The US debt exceeded 12.349 trillion dollars on Monday, according to Treasury data.
"The US House of Representatives will vote Thursday on whether to raise the US debt limit to a historic 14.3 trillion dollars, allowing the United States to borrow another 1.9 trillion dollars." [The article continues.]
Here's the Treasury Department's "February 2010 Quarterly Refunding Statement" dated February 3, 2010. Aside from the debt limit, there are several interesting things in that statement:
Reuters reports that President Obama will unveil his 2011 Budget on Monday, and the price tag is going to be $3.8 trillion.
$300 billion increase from his 2010 budget of $3.5 trillion. So what if he finds $20 billion savings?
If the receipts projected for 2011 haven't changed (last updated in May 2009), they will be about $2.7 trillion. The deficit (receipts minus outlays) will be $1.1 trillion in 2011, making it the second consecutive year of over $1 trillion deficit.
If you look at the budget projection summary by the White House, you'll find that it is made of very optimistic (if not irrational) assumptions. It reminds me of the budget of the State of California, which was based on ever-increasing housing price.
For example, receipts (personal and corporate taxes) in 2010 is supposed to grow by a robust 8.2% from 2009, on a 3.4% growth in GDP. Receipts in 2011 is supposed to grow by a phenomenal 15.1%, while GDP grows by 5.2%. Receipts in 2012 is supposed to grow by another 14.5%, and GDP by 6.2%.
And all the while, government spending (outlays) is supposed to stay flat.
Well, flat no more. Instead of 2010 projection of 0.7% growth for 2011, outlays will grow by 5.8% if Obama's budget is indeed $3.8 trillion.
Even before the 2011 budget announcement, the projection by the White House assumes average 5.5% annual increase of receipts from 2009 to 2019, GDP increase of 4.4%, and outlays increase of 5.6%. The White House clearly does not see any "double-dip" or any dip in the next 10 years.
So, tax receipts are to increase at a higher pace than the GDP increase, and the government spending is to outpace both tax receipts and GDP. The budget deficit incurred from 2009 to 2019 will be $9 trillion under the current White House projection, and over $11 trillion with new 2011 budget and apply the average annual increase of outlays of 5.6%.
So what's this talk of reducing the deficit? An empty talk, nothing more.
Current budget deficit, as Timmy Geithner's Treasury Department (Debt to the Penny) tells us, is about $12.3 trillion.
(By the way, Treasury has the site where you can make donations to reduce the public debt, at Pay.gov.)
I have a feeling that Obama may not want to be elected for the second term, and may be wishing that the presidential election is every two years.
'New and improved Obama', as Drudge headline proclaims (see the picture), is to propose federal spending freeze in his State of the Union address on Wednesday. Since his health care "reform" has floundered, defeating the purpose of delaying the address, the suddenly populist president has decided to join the rest of us in attacking the ever increasing federal deficit.
One obvious problem here is his record budget size and his record budget deficit, not this year but as far as eye can see.
According to various news reports (here's one from Washington Post), Obama is to propose a freeze for 3 years on federal discretionary spending, excluding the military, veterans affairs, homeland security and certain international programs. Also excluded will be the various stimulus packages past, present, and future. Total of the affected spending amounts to $447 billion. Obama's proposal will cut $10 to 15 billion, or 2 to 3 percent, from that $447 billion, for 3 years.
Discretionary spending makes up about one-third of the total federal budget. Each year, Congress determines how much to spend/not to spend on which programs. The remaining two-thirds is called mandatory spending, which includes entitlement programs like Medicare and Social Security.
Now, Obama's 2010 budget is whopping $3.5 trillion dollars. $447 billion worth of programs subject to the freeze is only about 13% of the total budget. In relation to the total budget size, this 10 to 15 billion saving amounts to 0.3% reduction in budget size. As to the impact on the deficit, 10 billion reduction of the projected $1.3 trillion deficit is less than 0.8%.
Washington Post's article has this amusing quote from Senator Kent Conrad, chairman of the Senate Budget Committee:
Senate Budget Chairman Kent Conrad (D-N.D.), a strong proponent of balanced budgets who would have to sell the notion of a freeze to his colleagues, said Obama's proposal is "entirely possible to do." The results of a freeze would be "relatively modest in terms of overall deficit reduction," Conrad said. "But it sends an important signal that everything is on the table."
Oregon is voting today to decide whether to raise taxes on higher income earners to pay for schools and other public services. Public employee unions are in favor, as the new taxes would help secure their jobs. Businesses are against, calling the measures "job killers".
How will the people in Oregon vote? After all, this is a state known for its anti-tax tradition.
Last-minute voters could decide tax Measures 66, 67
(1/25/2010 The Oregonian)
"After a bruising campaign and weeks of voting by mail, today's big tax election may be decided by an onslaught of last-minute voters such as Courtenay Morton and Neil McManaway, two Portlanders who were among a steady stream of voters dropping off ballots Monday at Pioneer Courthouse Square.
""The election is going to be close enough that those who are still wrestling with a decision and sending in their ballots can have a significant effect," said Pat McCormick, spokesman for Oregonians Against Job-Killing Taxes, the main group opposing Measures 66 and 67.
"Tuesday is the last day to vote on whether to increase taxes on higher-income earners and corporations to pay for schools and other state services. Ballots, which have been in the hands of voters for nearly three weeks, must be deposited in one of nearly 300 drop-box sites across Oregon. It's too late to mail them to meet Tuesday's 8 p.m. deadline." [The article continues.]
According to the article, the turnout seems unusually high (62 to 64%). The state is divided into two opposing camps: public employee unions (teachers, firefighters, policeman, etc.) vs the business community.
Public employee unions has raised more money ($6.8 million) than the opponents ($4.6 million) in support for the measures. Teachers union has contributed millions of dollars.
If these measures are to be passed, Oregon will tie with Hawaii for the highest personal income tax rate in the nation, the highest capital gains tax, and the highest minimum corporate tax. Read this article from LA Times for more details.
The LA Times article features a young woman carrying placard that says "Protect middle class, preserve vital services". Can't argue against that, can you? But at what price? Vital to who? They are the services that the taxpayers pay, but at some point the taxpayers would rather have less or no such services than pay through their noses.
This guy is getting incoherent by the day.
Obama endorses deficit task force (1/23/2010 AP via Yahoo Finance)
"WASHINGTON (AP) -- President Barack Obama Saturday endorsed a bipartisan plan to name a special task force charged with coming up with a plan to curb the spiraling budget deficit, though the idea has lots of opposition from both his allies and rivals on Capitol Hill.
"The bipartisan 18-member panel backed by Obama would study the issue for much of the year and, if 14 members agree, report a deficit reduction blueprint after the November elections that would be voted on before the new Congress convenes next year. The 14 would have to include at least half of the panel's Republicans -- a big obstacle.
""These deficits did not happen overnight, and they won't be solved overnight," Obama said in a statement. "The only way to solve our long-term fiscal challenge is to solve it together -- Democrats and Republicans."
"The deficit spiked to an extraordinary $1.4 trillion last year and could top that figure this year as the struggling economy puts a big dent in tax revenues. Even worse from the perspective of economists and deficit hawks, the medium-term deficit picture is for deficits hitting around $1 trillion a year for the foreseeable future." [Emphasis is mine. The article continues.]
Not only that, the debt limit is set to be raised by $1.9 trillion dollars (which, by the way, will require all of 60 votes in the Senate to pass). Who is he kidding?
Himself?
This is not the first time and definitely will not be the last time for me to remind the readers that when politicians don't want to solve anything and don't want to find out about anything, they form a committee, or a task force or whatever they want to call it. I'm looking for that particular episode of BBC's "Yes Prime Minister" where Cabinet Secretary Sir Humphrey tells his novice boss exactly that. It could have been "Yes Minister".
The president must have watched the episode. (Or his handlers did.)
I am.
President Obama, in his effort to appear as if he sides with the populace and to capitalize on the popular anger and resentment toward Wall Street bankers, has proposed a 0.15% tax on the liabilities of the nation's big banks (about 50 of them) to help fill his budget shortfall. He declared, "We want our money back."
Now that's my first problem right there. Who are "we"? That seems to be "we" in the government. Whose money is it? The money is our, i.e. taxpayers' money which the government, both under George Bush and under Obama, has squandered on companies like AIG, GM, Chrysler, Fannie and Freddie against a significant opposition from the U.S. taxpayers (who, alas, don't count in politics).
Obama wants to use this selective taxation as a form of punishment for supposedly causing the financial crisis and getting large bonuses and as a deterrent for future risky behavior. Since bankers, particularly Wall Street bankers, are the people everyone seems to love to hate, he can't lose for singling them out, can he?
The proposed tax, which requires Congressional approval, would be applied to financial institutions whose liabilities exceed $50 billion. Not only the banks who already repaid TARP would be taxed, but those firms who never received a penny from the government would be taxed. $50 billion balance sheet is puny these days: big Wall Street banks have their balance sheet in $1 to 2 trillion, and many well-run regional banks in tens of billions.
Why should Obama confine "financial institutions" to banks and insurance companies anyway? Remember in September 2008 when SEC first banned the shorting of "financial institutions"? It was just banks at first, but the banned short list quickly grew to include any company that had a lending arm. Auto companies got included, so were some of the high tech companies like IBM. Many manufacturing companies issued bonds guaranteed by FDIC, including GE and Deer, exposing the taxpayers to potential loss. What about them?
Speaking of tech companies, many cash-rich techs actively manage (or at least they used to) their cash/cash equivalent in various financial instruments - derivatives, swaps, futures, options. What about them? Motorola, for instance, used to have their net profit solely derived from financial income.
Speaking of risky behavior, what about huge hedge funds and private equity firms? Like those select hedge funds who were let in on the shorting opportunities by the Vampire Squid (aka Goldman Sachs)? Or endowments at nation's top universities which bet on derivatives only to spectacularly lose, contributing to the financial chaos in 2008?
What about people who took out home loans or borrowed on their credit cards? Would Obama tax the liabilities of these borrowers for their risky behavior of taking on a large debt?
Lastly, who defines what's "risky"? And why should it be punished? If he believes what the financial institutions did was criminal in nature and therefore should be punished, why doesn't Obama instruct his Attorney General to indict the banks and prosecute them?
The arbitrary and punitive nature of this proposed tax is what irks me. It shows this administration may be quite willing to devise any scheme to arbitrarily target any industry, company, or individual. Why single out only the banks and insurance companies? There are whole bunch of other entities with equally risky behavior, and they are not confined to the private sector either. Actually, the public sector has even riskier players. Here's two that come to my mind immediately:
The Federal Reserve: for having pursued the low interest policy that created the speculative frenzy in various asset classes; recklessly expanding the balance sheet over $2 trillion with toxic junks that no one wants as it assists the federal government's fiscal policies; and
State and local governments: for having created their budgets year after year on the assumption that the housing prices will go up forever; for having invested millions of taxpayers money in highly sophisticated and risky financial derivatives without even knowing what they are.
However, the riskiest and most reckless of all is Obama's own government that is taking on an unmanageably large debt that cannot possibly be paid back.
Now how should we punish this risky behavior?
if 13-week bill auction is any indication.
The U.S. Treasury Department will auction away the last big batch of Treasury bills and notes in the final week of this year. The total amount will probably exceed $200 billion (4-week bill amount yet to be announced), of which $118 billion will be Treasury notes of various durations.
I was making a mental note as I went through the recent auction results, and something felt disturbing (from Treasury Department's point of view, I suppose). So I checked the numbers. And here's the chart of 13-week bill auctions since October, plotting the Indirect Bidder (foreign buyers) Percentage and Bid to Cover Ratio.
13-week bill is a run-of-the-mill Treasury bill. The Treasury Department auctions this bill every single week along with 26-week bill and 4-week bill, to the tune of $30 billion in each auction. No one pays particular attention to the auction results of these short-duration bills. They are continuously rolled over to fund the operation of the federal government.
What I noticed was a rather steep, consecutive decline of the Indirect Bidder Percentage in 13-week bill auctions. Bid to Cover Ratio has also started to decline. Now, both Indirect Bidder Percentage and Bid to Cover Ratio sit below their respective 2-plus month support (dotted lines).
Foreign buyers of Treasuries have shifted to the shorter end, or so we have been told. They now seem to be also deserting the short maturity bills. Treasury Secretary Timmy Geithner has announced the Treasury's intention to increase the average maturity of all Treasuries from the current 49 months to 72 months. That means 7-year note, 10-year note, and 30-year bond issues will be significantly increased. The prices will be pressured. Will foreign buyers increase buying the longer-dated notes and bonds for better yields? Or, seeing that there may be no end in sight for the U.S. deficit spending, will they further decrease the long-term Treasuries holdings?
In the worst case, there will be few foreign buyers to be found for both short-term and long-term Treasuries. The vice chairman of the Chinese central bank has recently said, in no uncertain terms, that the world does not have money to continue to buy the U.S. debt.
Who is going to absorb the avalanche of long-term Treasuries, by the way? This immediately comes to my mind. I hope I'm wrong, but I have this sinking feeling that my hope is ill-founded.
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