A Chill Wind. . .

A chill wind blew into Oklahoma City yesterday, bringing much-needed rain, fog, and a definite turn to the weather.  Winter is on its way! My list of pre-winter chores is long and I haven’t been making much progress.  There is nothing like a “chill wind” however, to move those projects up on the priority list.

A chill wind also blew through the stock market today.  Two days ago, the market zoomed upward, thanks to the latest, biggest, dose of financial methamphetamine.  But as that dreary record goes, the high just doesn’t last like it did once upon a time, when we all thought that financial meth was the greatest drug since the invention of paper currency.

The government is hoping for some success for its partial nationalization of the nine largest banks. I am a bit dubious. Soviet nationalization of agriculture in Russia didn’t do much for agricultural productivity, and the present crisis should cause us to wonder if the financial commissars at the Treasury and the Fed are more competent than the Soviet central planners of the 20s and 30s.

If I had any money in any of those banks, I would take it out immediately.  The government’s investment in those banks is not based on their soundness and their stability, but rather on their risk of failure.

This is what it looks like at the End of Empire.  That chill wind that roars through Wall Street is telling us that we had all better get busy on those “pre-Kondratieff Winter” checklists. . .

  • Money out of big transcontinental banks and in to a locally owned credit union or bank?
  • House superinsulated?
  • Practicing energy conservation?
  • Food storage?
  • Slash household spending, curb consumption? Credit cards cut-up?
  • Living below your means and saving money?
  • Growing some of your own food?
  • Edible perennial landscaping (fruit and nut trees, berry bushes, asparagus, rhubarb, Good King Henry, sorrel, etc.)?
  • Paying off your debt?
  • Supporting local businesses and farmers?

 

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The market giveth, the market taketh

The market giveth, and the market taketh away.

Yesterday the market zoomed up, after the most major hit of financial methamphetamine in the history of finance.  Today, as is always the case with drugs, financial or otherwise, the market is wilting down again, the Dow headed down towards 9K as I write this about 2 PM central time.

This mornings business news was full of “happy days are here again” reporting.  I was tempted to immediately rush out and buy maybe 6 cell phones and apply for a dozen credit cards, and refinance my house to get lots of cash. . . NOT REALLY, lol, but I think that is what the financial masters of the universe are hoping that I and others of us who live on the sidestreets and back alleys of Main Street would rush out and do.

I ain’t buying their scam.  The more money they shovel in, the more terrible the final doom is going to be.  You can take that to the bank and it will be a more secure deposit than anything Mr. Paulson or Mr. Bernanke will give you.

The “Save Yourself and Your Community” advice in my post of October 3, 2008 remains the best advice.  The Category 5 financial hurricane is not actually here yet, all that we’ve seen thus far is merely the leading winds and rising surf.  I don’t think we are even at “tropical wind” strength compared to what is coming.

Previews of coming attractions. . . more bank failures. . . more business bailouts . . . much higher inflation . . . much higher unemployment . . . increased outflows of foreign capital . . . decreased inflows of foreign capital . . . eventually, the inability of the Treasury to sell new bonds.

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OK, here’s a practical solution.

OK, it’s about time we had some practical solutions that might actually work to the present problem. 

This may be about when I start sounding crazy like the Mogambo Guru but I’m willing to take the risk. 

I think we need some serious stimulus at the grassroots, Main Street, including all the back-streets and back alleys.

Let’s start by abolishing all income taxes, for everybody, rich and poor.  Then let’s move on to wiping out the social security tax, both the employer and employee halves, AND the Medicare tax, and also all the Medicare premiums. 

While we’re at it, let’s get rid of all federal excise taxes, death taxes, and etc. Let’s completely wipe the federal taxation slate clean.

Suddenly, people who were not able to pay mortgages would have extra money, anywhere from 15% to 35% of their income.  More mortgage payments made on time equals less foreclosures equals less toxic mortgage debt. Households have much less financial stress — everybody in effect that pays taxes gets a pretty substantial raise.  Businesses save lots of money on their employment costs. It’s a good deal all around.

OK, my readers may be asking, what does the federal government do for money?

Well, it’s quite simple.  It really is, it is so simple, the answer is staring us all in the face.  But we are so trained by our political handlers to not see reality, but instead to only “see” the manufactured reality they craft for us, we can’t see the proverbial forest for the trees.

We spend all of our tax discussion time yacking about details, like income or sales tax rates. But there is a 900 pound gorilla in that conversation salon. 

Everybody studiously ignores him. 

The gorilla has a name — “The Political Definition of Taxable Items/Incomes”.  The fact of US taxation is that the definition of what is “taxable income” is extremely politicized, and thus far, the ordinary person has had the short end of that stick.

Because of this, our entire federal tax system is seen as fundamentally unfair by most people. Tax evasion is wide-spread, the government never collects all that it is owed, and every year it runs a deficit.

The costs of compliance are high.  Transaction and opportunity costs are everywhere to be found in our tax system.

Therefore, since we are in a box that is increasingly stifling us, perhaps we should consider jumping completely outside of that politically manipulated box and open our eyes to see the beautiful trees that compose the forest before us.

Let’s think about a tax that —

  • is levied at a flat rate, yet is ultimately progressive in its revenue (that is, the rich pay more, the poor pay less),
  • is universal, so that cheating isn’t possible, and the government always collects all of its money,
  • is not a hassle for people, and thus has very low compliance/transaction costs.
  • returns enough money to the government so that the budget can be balanced, social security made solvent, and the national debt paid off in say 10 years or less.

Impossible?  Au contaire, dear reader, it is simplicity personified.

I propose a flat tax on the movement of money and credit of .0025% (one-quarter of one percent).

So if you take $100 from your savings account, and put it in your checking account, ka-ching goes the government’s cash register, and you pay 25 cents to the government.

On the other hand, if in a given day the Federal Reserve extends $30 billion in credit to banks, then those banks pay $75 million to the government, .0025% of that transaction.  When they pay that back to the Federal Reserve, ka-ching goes the government cash register again and the Federal Reserve pays $75 million to the Treasury.

Make it totally universal, and it is always paid by the recipient of the money/credit.  It would be collected automatically by the payment clearing systems, so no annual ritual of filing a tax return.

How much money would this raise?  Well, that’s an interesting question. Each year the Committee on Payment and Settlement Systems of the Bank for International Settlements issues a report, “Statistics on payment and settlement systems in selected countries”, commonly known as the Red Book.  The March 2008 report gives the statistics for the most recent year available, 2006.

I added ‘em all up, and come up with $3,168,144,420,000,000. That’s 3.168 Quadrillion Dollars.

“Compare this” with 2006 personal income of about $10.9 trillion and corporate profits of about $1.6 trillion, and we see plainly that our present tax system is based on charging high rates on what amounts to a fairly small slice of the American economic pie (when compared to the total value of transactions/payments in a given year).

Expand the taxable base, and we can lower the rates to almost nothing. . . like say the .0025% (one quarter of one percent) I propose here.

Times .0025% equals $7,920,361,050,000, or 7.920 Trillion Dollars.

In 2006, the federal government spent $2.655 trillion for everything, including social security.

$7.920 trillion minus $2.655 trillion equals $5.265 trillion left over the first year to pay on the national debt.  Or we could take say a trillion dollars and invest it in needed improvements to our energy infrastructures to meet the looming challenges of peak oil.  Add in free universal health care (about $1.5 trillion in health care expenditures in 2006), thereby abolishing another punitive expense — health insurance premiums.

OK, if .0025% is yielding too much money. . . .

. . . we could lower the tax rate to .00125% (1/8th of 1 percent).

That would yield $3,960,180,525,000 — 3.960 trillion, which after paying all federal expenses that year would leave $1.305 left over to pay on the national debt, fund energy infrastructure upgrades, and increase support for health care for people without insurance.

This is a sensible, do-able plan.  Below are the details of the various payment systems that add up to my $3.168 quadrillion figure.  Check my math and my assumptions.

Note that this is only an approximate figure, as the actual total may be higher than this since a given payment may go through more than one payment system.  Demand deposits, for example, which include items like my little credit union account and also the payroll account of General Motors, will churn several times during the year.

http://www.bis.org/publ/cpss82.pdf

 

$18,111,000,000,000

Credit transfers

$13,499,000,000,000

direct debits

$1,023,700,000,000

debit card pymts

$1,944,900,000,000

credit card

$578,000,000,000

ATM cash withdrawals

$627,000,000,000

Value of 2006 demand deposits

$11,018,620,000,000

Annual total of avg daily credit extended by fed reserve

$41,730,000,000,000

checks

$967,213,100,000,000

fedwire/chips

$12,362,900,000,000

Automated clearing houses

$13,976,400,000,000

Fed reserve clearings

$21,789,900,000,000

value of NYSE transactions, 2006

$8,969,900,000,000

NASDAQ 2006

$174,900,000,000,000

Val of contracts/transactions cleared, National Securities Clearing Corp

$940,200,000,000,000

Val of contracts/transactions cleared, Fixed Income Clearing Corp

$864,100,000,000,000

Val of contracts/transactions cleared, Gov Securities Division

$76,100,000,000,000

Mortgage Backed Securities Division

   

$3,168,144,420,000,000

approx value of payments processed in US in 2006

   

$7,920,361,050,000

tax yield at .0025% (1/4 of 1 percent)

$3,960,180,525,000

tax yield at .00125 % (1/8 of 1 percent

   

$2,655,400,000,000

US gov 2006 expenditures include social security

$5,264,961,050,000

available for retiring debt @ .0025% tax

$1,304,780,525,000

available for retiring debt @ .00125% tax

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Where is this going?

The G-7 leaders are meeting “even as we speak” to come up with a plan to “save us”.  Of course, as in anything else political, the definition of “us” should be of interest to those of us on Main Street and the highways and byways and side streets. 

And one thing’s for sure, when the G-7 talk about “us”, they don’t mean those of us on Main Street and the highways and byways and side streets. 

The problem for our money managers is that as it turns out, they are not as smart as they would have us believe. The lie of the modern world is that money markets and etc are infinitely manageable by wise politicians.  That’s what’s gotten us in the present mess, and not a surprise, that’s what’s being proposed to get us out.  Nationalization of banks.  Guarantees of interbank lending.  Stock purchases by governments. Yadda, yadda, yadda.  Take from the real economy of Main Street and give to the parasites on Wall Street.  That’s the sum of their bright ideas.

Gerald Celente is the founder of Trends Research.  He predicted the “Panic of 2008″ in 2007 and has quite a few other credits for successful forecasting. 

Which is why we should be more than a bit concerned when he says this is the start of the “Greatest Depression“.

Kondratieff Winter.  Greatest Depression. What can this mean?

I think we are seeing the slow-motion-but-accelerating collapse of the American Empire.  I’ve been yadda-yadda-yadda-ing on that theme for years.

The big problem we Americans have is an adolescent sense of invulnerability coupled with our patriotic feelings of American Exceptionalism.  We think we are God’s chosen people, and that because of this, God will never let anything really bad happen to us.  “How soon we forgot” the lessons of the first first Great Depression and World Wars I and II.

We think we have a special American exception to the “what goes around comes around” principle, a/k/a karma, a/k/a “you reap what you sow”.  See also “Sow not in furrows of injustice lest you reap a seven-fold harvest.”

This is as true in the world of finances as it is anywhere else.  We thought we could go on the biggest spending binge in history while running up a giant tab for un-funded government expenditures and fighting an unjust war in Asia.  Trillions upon trillions upon trillions of dollars of debt.

What were we thinking of?

 

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Saving my money-market account

I work for the Archdiocese of Oklahoma City as director of music at Epiphany Catholic Church.  Through my employment, I have a retirement plan, a 403-b (like a 401-k, only for non-profit organizations).

The investment choices are stock and bond mutual funds, or a money-market account.  Metropolitan Life runs the show.  My retirement money is in the money-market account, but as I have noted previously, it is not a very sound money-market fund.  It’s funds are invested in:

  • Large (and therefore uninsured) deposits in banks,
  • Commercial paper (like Lehmans)
  • Bank acceptances (effectively, these are post-dated checks)

So in mid-September I wrote the business office, suggesting that employees be allowed to take their money out of this plan and deposit it in CDs at a locally owned bank or credit union.  Three weeks later, no reply.

So I sent another email, and noted that it seemed to me that the financial advice the Archbishop was getting was as toxic and useless as the psychological advice he received a few years ago stating that a certain priest with a predilection for teen-age boys was “cured” and no longer a danger to young people. 

Unfortunately, that psycho-babble wasn’t worth much, and he “re-offended”, thereby gravely harming two young men, and also causing great public scandal and a judgment of about $10 million, which the Archdiocese paid.

I think employees everywhere should demand reforms in the 401-k/403-b system.  Every plan should be required by law to include an account at a locally owned bank or credit union as one of its investment options. 

Alas, that would be a structural support for the Main Street economy, and would take money away from the parasitical Wall Street economy, so it will take strong pressure from voters for Congress to force such changes on the retirement system.

Here’s a final curious note.  I went to the Metropolitan Life retirement system website today, and curiously the documents describing the investment options in the Archdiocese’s plan aren’t available.  How conveeeeeeeeeeeeeeeeenient.

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On liberation from the tyranny of cell phones.

I am enjoying my second day without cell phone service.  Someone said to me — “I can’t believe you cancelled your cell phone service, Bob”.  The answer to that is — “If I had known it would be so relaxing, I would have ditched the cell months ago.” 

Some time in the middle of the afternoon today, I realized that one of the facts of life with a cell phone in your pocket is that you are always on duty.  You never have a moment away.  Even if you turn it off, it’s there in your pocket, subliminally reproaching you for willingly separating yourself from instant access.

Well, with 8 web sites, a half dozen or so emails, and a landline at home and at the office, I think I am plenty accessible. 

The guy at the cell phone company was practically incredulous that I would cut off my cell phone service entirely.

He kept dangling treats, “Jump, Doggie, Jump, that’s a good boy, renew your contract for 2 years, add more minutes, think about what you’re doing, here’s your treat — a cheap plastic phone made by slave labor in a country far away that cost us about 5 dollars.  See, you can pay us even more money and download RINGTONES AND WALLPAPER FOR THE DISPLAY.”  Ooooh.  Aaaaah. Ooooh. Aaaaah.

I wasn’t impressed though. Yeah, I had the overture to the Marriage of Figaro for my ring-tone, but if I want to listen to opera, there are better ways than sitting around and hopng that people call me. Alas for him, ka-ching did not go the cash register — but my household cash register sounded like a slot machine hitting the jackpot reporting the large raise I gave myself over the next few years by ridding myself entirely of one more monthly bill.

 

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Toking on a small white pebble, desperate to get high.

On Wall Street today, the market zig-zagged like a drunk on a binge.  It reminded me of people I have known who have sadly gone down the tubes with various kinds of drug addiction.  I remember showing up at one person’s house, and he was on the floor, feeling around, peering at little rocks, to try to find one more little cocaine rock to smoke.  He couldn’t believe he was actually out of drug, surely he must have dropped some on the floor, so went his muddled thinking. I left right away as he tried to get high off what was certainly a small white pebble.

The government keeps shooting up the junkie marketplace, and sure enough, things swoop up for a bit, all the junkies feel fine, but alas, it does not last, and ever more quickly, the financial meth high goes away.

Some time soon we will get to the financial meth equivalent of toking on a small white pebble in a desperate attempt to get high.  I feel very sorry for the many people who got sucked into the parasitical Wall Street scam.  I hope this event is enough to teach entire generations some prudence and financial wisdom.

 

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My last trip to a casino.

This happened more than ten years ago, when I was living in Kansas City, Missouri.

KCMO comes equipped with “riverboat casinos”, which are actually “pier casinos”, but that doesn’t sound as romantic as “riverboat”.  One day I decided to go there with a friend. 

I am not much of a gambler, so I went to the slot machines.  I put three quarters in a machine, and bingo, I won FIVE HUNDRED DOLLARS.  My friend, bless his heart, said, “Bob, we should leave now!”  I said, “No, I’m going to win some more!”  So I kept feeding that one armed bandit, high on adrenaline, and ended up not only losing all of the $500 I had won, but also hitting the ATM for another fifty bucks!

I should have walked out of that casino right after winning that money.  But I didn’t.  So I lost and lost but I kept plugging away because I just knew I would eventually hit another jackpot.

The time to get out of this market was a year ago.  But like Bob in the casino, people think they are supposed to “buy and hold”.  That’s the advice they hear all the time.  That advice is given by people with a vested interest in keeping people in the market.  It is not necessarily advice that is good for any individual situation.

If I had walked out after losing half my money, I would have been ahead.  If I had walked out after losing three-fourths of my money, I would have been ahead.

Some people may think the thing to do is ride this market all the way down to the bottom.  But if in fact we are on the verge of a Kondratieff winter, it will be a long time before the market recovers.  When a house is on fire, that’s the time to save what you can quickly and run.

I have not been tempted to return to a casino since my little mis-adventure a decade ago, so I guess, overall, I am way ahead of the game, even if I did lose $500 at the time. If there is a silver lining in the present situation, it will be found in people recovering a healthy skepticism of the parasitical Wall Street economy.  If people want true financial security, now is the time to invest in the local Main Street economy.

Greed is not good.  Greed is one of the seven deadly sins, and is objectively evil.  No long term good comes from rejoicing in greed. We cannot pursue a good end by objectively evil means. Governments which structurally encourage greed lay the foundations for their own collapse.

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The many faces of the 401-k scam.

This is a collection of some miscellaneous thoughts that have been running through my brain regarding 401-ks.

+ It’s a mistake to base our independent retirement programs on 401-ks. (Or 403-bs, for those of us who work for non-profit organizations.)

+ A 401-k is NOT a savings plan, it is a speculation plan.  

+ 401-ks structurally encourage risky behavior with your retirement funds.

+ 401-k investments are typically “morally neutral”, that is, they aren’t invested in funds that have had any kind of moral screening regarding their investments. I work for the Archdiocese of Oklahoma City, our 403-b retirement plan offers a variety of stock and bond mutual funds, plus 1 money market account, and that’s it. For all we know, money in those funds may be invested in making bombs and funding abortion drug research. No one can say “the Archdiocese of Oklahoma does not invest in abortion” because the retirement mutual funds of the Archdiocese are not morally screened.

+ The bait on the 401-k/403-b is that the money isn’t taxed now, it is taxed at retirement.  “Presumably” one’s income tax rate will be less at retirement, but this is not a guarantee.  And many people have 401-ks who are in the minimum tax brackets anyway. With the way things are going, the idea that tax rates will be lower 20 years in the future is speculative to the extreme.

+ 401-ks encourage people to save less, because they expect to make speculative gains.  In reality, most people should save more.  That would require most of us to “spend less”.

+ 401-ks are based on the idea that over time, the market always goes up.  Folks neglect to point out that the history of humanity stretches hundreds of thousands of years into the past, and the US stock market has a very short history compared to that.  Where — today — in an investment made in the stock market of ancient Rome?  Noting increases over long periods of time says nothing about what happens to any individual person sucked up into the scam.  A person could retire and the very next day lose everything in a stock market crash. 

+ 401-ks starve local economies of real wealth, and shift that wealth to parasitical financial markets that produce no real wealth, no actual goods and services.

+ Employers often don’t listen to their employees when making decisions about retirement plans. The Archdiocese of Oklahoma City personnel people don’t even reply to my notes suggesting that employees be allowed to put their money in a simple bank account in a credit union.  Their attitude is that they know better how to handle my money than I do.  However, by their decision — not mine — my retirement money is invested in post-dated checks, large uninsured deposits in large banks that may be on the verge of failure, and other similarly risky ventures.   The financial advice that the Archbishop of Oklahoma is getting is as toxic as the psychological advice he received about a particular pedophilic priest’s being “cured” and thus eligible to return to ministry.  Oops.

Going forward, we are going to need better programs than this.  We are going to need community — real community — to make it into the future.  We will have to build new structures to replace the ones collapsing around us, and the time to start that was yesterday.

American leaders of business, economics, academia, and religion are busy betraying ordinary people, abandoning the weak to the devouring wolves, and generally doing what aristocrats do — take care of themselves and those like them, at the expense of everybody else.

They are as clueless as the French aristocracy in 1789, or the Russian aristocracy in 1917.

We will all pay the price of their greed, and our willing participation in their bloodthirsty games of violence and gluttony.

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And you thought “party on, dudes” was just a phrase.

Not at AIG it isn’t.  It’s apparently a way of life.

The ink is barely dry on the mega-billion dollars bail-out welfare checks, and the brass at AIG are partying as though it was “business as usual.  Said event included $23,000 in “spa services” like facials and pedicures.  Woo hoo, nice work if you can get it, especially at the taxpayer’s expense.

The $700 billion bailout for the parasitical Wall Street economy will end up paying for a lot of Dom Perignon, you betcha. 

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