Unemployment, The Economy And What We Can Learn From an Old Movie....

These are the opening scenes of "Ladri di Biciclette" (the bicycle thief). It's rated 98%! on "rottentomatoes.com". It was made in 1947, when most of Europe was still in ruins from WWII.

https://www.youtube.com/watch?v=pSmDrWgveYw&pbjreload=101

 

As the movie begins, men rush to assemble at the foot of steps to hear of new job openings. A clerk announces one job to be available: to hang posters in the city. Ricci needs a bicycle to be eligible, but he had pawned his and doesn't know how to get the money to redeem it.
Other men try to cut in and offer their services, but are told that since they are "in a different category", like bricklayer, they cannot apply.
Ricci promises to fulfill the condition and is told to go to the employment office to get his work permit.
In the background, you can see almost new apartment buildings without running water.
Yet, there is no work available. Except for all the work that obviously needs to be done.

At about the same time, in Germany, people didn't ask for permits. The resulting "economic miracle" created so many jobs, that people from all over Europe and especially Turkey, had to be solicited to move to Germany to work there.

End The Fed

The establishment of the Federal Reserve in 1913 has never created any benefit.  

Instead, it only facilitated increased leverage in the banking system which finally led to its bankruptcy in 1933.

Contrary to its initial promises, it has destroyed the value of the Dollar and pledges to continue to do so.

The Fed is not a creation of the free market, but instead is an instrument of central planning.
As the current bankruptcy* shows, even though Greenspan and now Bernanke manage to sound very educated, they clearly don't know what they're doing.
To get rid of the Fed is not only "practical", it's imperative.
This doesn't require an act of Congress: All it requires is to let people decide what they want to use for money, what they want to denominate their contracts in.
If competition becomes legal, the Fed will wither away on its own.

*bankruptcy: a)default by not being able to pay creditors as payments become due and only paying a fraction of claims.
This was done in 1933 when creditors were offered only 0.03 ounce of gold instead of the 0.05 ounces that were promised before.(not to mention that US persons had their gold confiscated altogether!)
b)default by not being able to pay creditors as payments become due and instead printing up the needed funds (counterfeiting).
This is the route taken now, as it has been done since 1971.

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Europe Descends

Just a little observation: European "welfare" states have functioned in the past because notwithstanding legislative craziness, people would feel free to disregard laws as they were not enforced.
Italy is rumored to have tax rates that exceed 100% of incomes (all added together), but hardly anyone would pay any.
Now that debts have risen and in many countries exceed yearly GDP, Italy (for example) suddenly insists on enforcement of tax laws. At the very same time, it has become almost impossible to hide funds in Swiss bank accounts.
As a result, economic activity will be further hampered and Greece will have been just the first state to seek bankruptcy protection!

Taxing Questions Indeed: How Much Do We Pay ?

First off, here's the article that got me pondering:
http://www.dailyfinance.com/2011/10/25/surprise-heres-where-your-tax-dollars-go/
I believe the opinion expressed in it matches the average mindset of those who consider themselves politically informed. Let's go straight to the website mentioned, that is supposed to give you straight facts on where your tax money goes: The White House!

http://www.whitehouse.gov/issues/taxes/tax-receipt

Look ! You can enter your income and other data and receive a detailed receipt showing how much you pay and where your money is spent. If you don't have your own data handy, you can choose from a dropdown box.Let's see, the highest income choice offered is $80,000, married with 2 kids.

When you look at your "receipt", you may come to the (desired) conclusion that everything is fine with the world. You may feel that you're getting a decent value in exchange for your taxes.The President himself tells you that you're paying less than 12.5% of your income for retirement and medical care  and all the other things that only the government can provide. Great deal - and if it were true, I might want to get in on it.

Alas, we'll have to make some adjustments:

1. Your social security tax is not $6,120, but double that amount: $12,240. The other half has been deliberately hidden from your view by subscribing to the myth that you employer pays that share. That amounts to a falsehood, a deception.
Your sensible employer will pay the market value for your efforts, then deduct all the taxes, fees and levies it needs to remit to the government, and pay the balance to you. It does not matter what names those levies were given.

2.  You left your credit card on the kitchen table, and while you were out, the feds decided to not only increase your credit limit, but also to charge more than $20,000 to it. Yes, that is your share of the debt that the federal government incurred in your and your childrens and future generations name, to fund current operations. That too, is a tax. You don't get the bill right now, but you know that you are going to get it !

Suddenly, that deal doesn't look quite as enticing as before. Instead of paying $9,983, your bill comes to $36,103. Ahh, but wait, there's more: A family of 4 represents a "preferred customer" to the IRS. What happens when your kids move out? Your bill increases from $36,104 to $40,540.
Should you become single, your bill increases further to $45,990.

Good, now that only covers the income tax and social security taxes. Then there are the excise taxes like gas, tobacco, alcohol and fees too numerous to mention.

Ok, you think that I'm being unfair by imposing the cost of the debt on the middle class. You think, that the "rich" should and will pay that part. Unfortunately, you can kill the rich, you can eat the rich, you can take all of their property, but you can never tax them! You see, the rich don't need income, like the rest of us. They have all they need and paying taxes to them becomes voluntary. They can afford the best lobbyists, the best tax attorneys, they know which country offers them the best deal. What is more, if you raise tax rates, even ordinary people will work less and rather enjoy life more than paying taxes.
What happened to the last grand scheme to "force" the rich to pay their fair share? Do you remember it? Right, the AMT (alternative minimum tax). Who's paying it now? Right, the middle class!

Back to the introduction and the article that got me rolling:. Invariably, when taxes are discussed, you will hear: Schools, roads, firefighters, courts and the police.
These functions, though, are paid for by local and state taxes! (90% of them)

Let me conclude this dismal venture into reality by mentioning that this families share of the federal debt now comes to over $200,000. Recent trend: Increasing by about 10% every year!

PS: Here's another link to a video that sheds more light on the topic of "taxing the rich":
http://www.youtube.com/watch?v=661pi6K-8WQ&feature=share

Bubbles ? Are There Any ?

Headline during testimony of Ben Bernanke before Congress today:
"Does not see any bubbles in the economy at the moment".
The highly educated, super smart cream of the crop could not see the stock market bubble in 2000. They could not see the housing bubble in 2006. Now, 6 years later, everything is just fine again, right ?

What makes a bubble ? What are the telltale signs that give them away ?
When people pour money into investments that guarantee to lose them money. Especially, if they do so with borrowed funds.
The investment that fits that criteria today is bonds, government bonds. When someone buys a 10 year Treasury Note, they are guaranteed a 1.9% return. Inflation though, is running at least at 3% according to the government. According to this source though, it's running at least at double that rate:
http://www.shadowstats.com/
Whoever you want to believe, some statistician or your own wallet, if you entrust your hard earned monies to the government for 10 years, you will be paid back less than you have now.
Ok, that's sign number one for a bubble. What about leverage ? Yes, that applies as well. Indeed, if all the debt being sold was only sold for cash, it would mop up the money supply fairly fast, but government debt is SAFE, so you can borrow about 95% of your purchase.
What can possibly go wrong?

What makes this bubble possible? The promise of the Fed to keep rates at zero percent through 2014. Can they do that ? What if this bubble bursts and long term rates start to go up rapidly ?
No problem: Just print more money to purchase the bonds with, thereby supporting prices and ending the fall ?
Then people might start selling the Dollar, for fear that all that new money will push its value down ?
Then what ?

Two Kinds Of Entrepreneurs

There are the ones driven by money and power, the paper pushers who revel in reading up on regulations and find schemes on how to squeeze a buck or two out of the system.
Than there are the self-driven individuals who enjoy creating new things, love solving problems and HATE dealing with paperwork.
As a consumer, as a citizen, you like the second kind. But, as laws and regulations become ever more time-consuming to deal with, who will you get more of ?
In my travels, I have often met very unique individuals who were working on groundbreaking ideas, who then ended up using those ideas just for themselves. They were not willing to put up with the bureaucracy necessary to offer their products to others. This is very unfortunate, since you never know what distance an idea can go unless you try it.
On the other hand, there are the ones who take on the challenges, only to be brought down by those, who use the thicket of regulations to their own competitive advantage.
Watch the 1988 movie "Tucker, a man and his dream" to spend a very entertaining 2 hours and also gain a better understanding of the latter point.

Political Dictionary

Compromise: Some want to get the deficit to zero, some want it to be 10% of income.
In real life, compromise would be perhaps 5% deficit, in Washington it's15% instead.

Some want to reduce spending by 10%, some want to increase spending 10%.
Real life compromise: spending stays the same.
In Washington, spending increases 15%

Getting things done:
In real life, you mow the lawn, redo the kitchen or build a house.
In Washington, more laws and regulations are made to complicate your life without any commensurate benefit.

Politicians:
I see them as blowhards who have not the faintest knowledge on the things they're trying to regulate,
some see them as wise stewards of our nation.

Some are very educated and intelligent, some are fairly dumb. It appears that those of lesser intelligence often have better mass-appeal.
Everyone, though, is vain. No-one wants to admit to mistakes that have been made and that alone is the most important reason why the political class is so detrimental to our well being.

The more intelligent are the more dangerous, because they have even more difficulty admitting to their failures.
The problem with that? Nothing is learned from failed policies and they are instead amplified, as if what failed on a smaller scale will somehow succeed on a bigger one.

Take a look at this chart:

In 1939 there were 504 pages of "code", now it's more than 71,000 !
How many times were we promised a simplification?

Adherents of constitutional, limited government, libertarians, are often labeled anarchists. In my view, what you see depicted in this chart though, represents anarchy.
The law is the constitution. But when Congress is able to enact anything they want, without regard to the supreme law, that is indeed anarchy.

Even only 25 years ago, the IRS tried to maintain the illusion of constitutionality by speaking of "voluntary compliance" with the income tax law. This pretense has been given up, of course.
When 93 of 100 senators vote to give the president the authority to detain citizens without charge or trial, by the military, or an indefinite duration, that is anarchy.
When whistleblowers get tortured and locked up for life, while the murderers he exposed get a slap on the wrist, should I feel safe to write this anymore ?

In 1980, this nation elected a president who, to the world, held all these views that I espouse here. There was great hope that anarchy could be stopped and reversed. But, this great president made a huge mistake: He made compromises and in the end, nothing had changed in this nations march toward the all-powerful, all regulating, state.  As a percentage of GDP, the debt had doubled, while the IRS code went from about 26,000 pages to 34,000 pages.

Ron Paul: Gaining Unexpected Followers:

Just on November 23rd, I posted here on how Dr.Paul's idea of a return to gold as money is derided as "lunatic" by mainstream economists.
Guess who decided to join the lunatic fringe? Newt Gingrich!
Just google "gingrich gold" and you'll see many appropriate links. Here's one :
http://www.nysun.com/editorials/gingrichs-gold-group/87666/

But wait, there's more! Remember when RP proposed to slash 1 trillion Dollars in spending from the budget in just the first year? THAT surely disqualified him as a serious candidate, right ? Pundits all over claimed that it would lead to a collapse of the US economy. Ahh, well....
Here comes Rick Santorum, needing to outdo Dr. Paul, promising to cut 5 trillion in 5 years.
http://blogs.wsj.com/washwire/2012/01/05/santorums-top-goals-5-trillion-in-cuts-entitlement-overhaul/

Thank you guys for the wonderful, if belated, endorsement of Dr.Paul. Needless to mention, only Dr.Paul has the proven integrity, the record to show, that he can actually be trusted to keep his promises once elected.

The Other Side Of The Trade:

"U.S. stocks are trading at their cheapest levels since at least 1990 based on the most commonly used valuation metrics, including price-to-earnings and price-to-book ratios, as well as dividend yield, according to Bespoke Investment Group. This realization will lift the S&P 500 Index by 11 percent to 1,400 this year or maybe more, according to the research firm’s 2012 outlook report."


(complete link to article here: http://www.cnbc.com/id/46102636

Let's see who will be better off one year from now!

Stocks ? Why I'm Not Buying:

Warning: I have not personally researched the majority of S&P 500 stocks, my arguments are based on the few companies that I actually had the time to analyze in more detail.

I read it all the time: stocks are incredibly cheap and especially with interest rates as low as they are, you cannot go wrong buying.
I'm not buying, and here is why:
1. When the price/earnings ratio for the S&P is calculated, only earnings are considered. When companies make losses, their "earnings" are not subtracted from the total.
2. Companies report "earnings from continuing operations" and tell analysts that losses from discontinued operations should be disregarded. It's equivalent to me trading IBM with a nice profit but trading US Steel incurring large losses and then taking an oath not to trade US Steel again. The loss on my US Steel trades is disregarded and only my profit on IBM counts. I still made a loss overall, but to the casual observer, it appears I made a profit.
3. Industries invent their own accounting yardsticks, like FFO (Funds From  Operations) for Real Estate Investment Trusts (REITs) and present those as "earnings". Again, the casual observer/investor who is getting his info from the likes of "Yahoo" is tricked into believing that his REIT is profitable when it is actually losing money according to GAAP ( Generally Accepted Accounting Principles). The difference between the two measures is that FFO does not account for depreciation. The REIT industry likes to make you believe that real estate improvements do not lose value and do not become obsolescent. Yet commercial real estate is not much different from other ventures, like manufacturing facilities.
4. Government contracts, subsidies and incentives can make an industry look very inexpensive based on reported earnings, yet those subsidies are at risk to be cut and can turn a seemingly profitable industry into a basket case almost overnight. Recent Examples? Ethanol producers and solar companies.
5. Interest rates can only go up from here. When they do, stocks will lose their comparative income advantage.

Why It's Getting Worse

A hundred years ago, what I'm writing now was self-evident.

What is the essence of a good person? Someone who produces more than he consumes. Why? Because that is the only way someone can give away anything: By making more than he consumes himself.
With honest money, savers get rewarded. They achieve individual Liberty and prosperity for all, as the savings will be invested to improve the lives of everyone.

When money becomes dishonest, when it becomes inherently worthless, it destroys the savers. It instead rewards those who live beyond their means. For the longest time, we (me included) believed that we could outfox inflation by buying assets on credit and come out ahead. Many who followed this belief have now been bankrupted by the collapsed real estate bubble.

Instead of encouraging savings, fake money has rewarded consumption. Real wealth has disappeared. For a while, it appeared, on paper, that we were getting richer: In reality, wealth and incomes declined.

Instead of reversing course and learning from our mistakes, those in power are determined to accelerate in the same direction. The predictable outcome? Our money will truly be worthless: Savers and retirees will be destitute, unemployment will rise, and the only people to make money will be those who are connected to the government.
We have seen this scenario play out too many times in the 20th century: Destitute people will call for a "strongman", a dictator, to set everything right again.

Can we avert the precedence set by Germany in the 30s, South America in the 80s, Yugoslavia, Russia, Zimbabwe ?

At this moment, we are still enjoying a most incredible lunacy: Record low interest rates as inflation has already taken off. The German government sold 6 month paper at a negative yield last week.
This, in my view, represents the mother of all bubbles.