Warren Buffet is a Hypocrite

Warren Buffet, the CEO of Berkshire Hathaway, one of the world's richest men, the so-called "Oracle of Omaha" for his investing prowess, made the news today by writing in the NY Times that super rich people should be taxed more and that he pays a lower tax rate than the staff that works with him.  

"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent." 

It shouldn't take you long to realize he's talking about a taxable income of $39.88 million, and whether or not 17.4% meets some arbitrary definition of "fair" is not something I care about.  I just want to point out a couple of facts.

First off, anyone at anytime can send as much money as they want to the US treasury through Treasury Direct and they will gladly cash the check. 

Second, note that his taxable income is very different from how much wealth he gained this year. 

According to Forbes, Mr. Buffett’s net worth went up by $3,000,000,000 over the last year.  If he had to realize those gains, even at 17.4%, he would have had to pay $522,000,000.

Whats the matter, Warren?  Cat got your balls?  Why don't you just mail in that $522 million?  No one is stopping you.  Not enough?  You can send in the whole thing.

And speaking of paying less in taxes than he could, he's actively sheltering his money from taxes by pledging almost his entire estate to the Bill and Melinda Gates Foundation.  Now I am completely down with tax deductions for charitable giving, and it's way better in my mind for private citizens to donate to private charities than to pay it to the wildly incompetent Fed.gov in taxes, but I'm not the one writing in the paper that folks need to pay more taxes! 

Doesn't it just frost you how guys like this want someone else to pay more money, but when there's a valid argument they could pay more, they're not exactly breaking down the treasury doors to give their own money?


So which is it, Mr. Buffet?  You're saying rich people should pay more taxes, but you do your best to not pay them yourself.  Do you think other people shouldn't get the tax shelters you do?  

Before you go thinking "The Oracle of Omaha" is some sort of financial genius and must be right about this stuff, remember that just a few weeks ago he was saying the debt ceiling should be eliminated because it's such a distraction.

“All it does is slow down a process and divert people’s energy, causes people to posture. It doesn’t really make any sense,”

Look, I don't care how much Warren Buffet makes and I don't care how much tax he pays.  I don't even really care about how much the CEO of my company makes and it's arguable that might affect me somehow.  I just think it's a futile gesture to tax anyone at more than the existing rates as long as the current spending addicts are in control.  It's like asking the crack addict to cut back while giving them more crack. 

Actually, I think we should tax the poor - although that would go over like a turd in a punchbowl.  I think a fundamental problem in our country is that we are perilously close to that point where enough people don't pay taxes that they can vote for the complete confiscation of the other half's wealth. If everyone gets to enjoy the experience of paying tax, then everyone has some skin in the game of keeping the country intact. 

Have I Ever Said That Warren Buffet is a Stinkin' Hypocrite?

Oh, yeah.  Turns out I have. 

So what prompts the notice today, almost six years later?  Whenever I read about something he has done or said, it always turns out to be that he's either being self-serving, corrupt or just plain wrong, like this time.  There's this piece in Newsweek where Buffet says "Rich People Have Too Much Money".  Newsweek goes on to say Buffet is the second richest man on Earth.  Warren, if you're guilty about having too much money, you could start spreading your money voluntarily.  I understand he does some charitable giving.  So what's he up to?

Buffet complains about something I've also written about here, the stagnation of middle class wages since the early '70s (or before).  Specifically, if wages for working people have been stagnant that long and the uppermost incomes have expanded, you get this:

“If you go to 1982, when Forbes put on their first 400 list, those people had $93 billion. Now they have $2.4 trillion, [a multiple of] 25 for one. This has been a prosperity that’s been disproportionately rewarding to the people on top.”
...
“The economy is doing well, but all Americans aren’t doing well,” Buffett added. “But we have got $57,000 or $58,000 of [gross domestic product] per person. That is a lot of stuff.”

Newsweek chimes in with their own spin:

Since the 1980s, the richest 1 percent of Americans have seen their share of total income roughly double, to 20 percent. Meanwhile, the bottom 50 percent have seen their share decline in a big way, to 12 percent from 20 percent. Inequality in America is now even more pronounced than in China.

Neither Buffet nor Newsweek nor CNBC (the link about China) ever mention the central reason (pun intended) for the widening separations between the top and bottom earners: the central banks.  In the US, the Federal Reserve has deliberately and very actively worked to raise stock and housing prices.  In an honest stock market, a process called "price discovery" takes place: buyers and sellers determine the true price of assets.  That died in the 2008 recovery measures.  They may have believed they were helping and not hurting, but the results are the same: they've broken the information pathways in the economy.  (It's illegal, by the way, to manipulate securities prices, but nobody screamed as the Fed goosed up stock and bond prices, boosting total capitalization of both assets by as much as $20 trillion.  Well, nobody screamed except those of us who believe in real money and are opposed to Keynesian, centrally planned economies.)

In an honest market, the decision to invest your money is a big decision.  Stock buyers want to make sure the company is well managed and going to pay a return on investment.  As long as there's a firehouse-supply of money available, it becomes a momentum game.  Buying causes more buying.  Excitement causes more excitement.  Millisecond trading algorithms and "Flash Boys" trade on nothing else; they don't know or care if the company is going to be returning dividends in six months, they just care if the price is higher later.  When the bubble is expanding and money is free, it's easy to believe.  If someone had a little bit of money years ago and could take advantage of the low cost money to buy equities with, they made more.  If every bit of money went to groceries, things for the kids, keeping the lights on and all the other problems the rest of us face, well, we didn't make more in the markets. 

This frenzied trading is part of the hypertrophy of finance I talked about last May; the situation created by the central banks in which the GDP of the US is traded every three days; $600 Million per second.  This is where the wealth transfer "from main street to Wall Street" (God, I hate that term) is taking place.  When you can show that since 2007 trade in physical goods and services increased 36 % while currency trading increased 160 %, it's easy to see which sector is making money. 

The reason I hate the term "transfer of wealth from main street to Wall Street" is that it hides what's really going on.  It implies Wall Street is taking money from the people on Main street.  To begin with, Wall Street isn't benefiting from this at all, if "Wall Street" is used in the sense of the stock markets.  A handful of very big banks are benefiting from this, and it's all being carried out by the central banks at the behest of the governments.  If those banks are traded on Wall Street, their share price may go up because of this, but aside from brokerage fees, higher bank share prices are the only benefit Wall Street gets.  Calling those big banks "Banksters" - a cross between bankers and gangsters - also misses the point.  Everything they're doing is not only completely legal, it's completely pushed by the governments.  When the root cause of your problem is big government and central banks, blaming your problems on Wall Street, or "the rich", as Warren Buffet is doing, is only helping to perpetuate the problem and going to get innocent people hurt.

It's insane to be opposed to the problems caused by big government and ask for more government to fix them.  That's Bernie Sanders and virtually every name I hear on the left in one sentence.     

End the Fed, go back to real money, and the "income inequality" problems will fix themselves.

New Corruption, Same Old Fascism

I just watched the best investigative report I've seen in ages.  The story is now online at The Blaze.  Like a Grand Unified Theory in physics, it pulls together various things that appear unrelated and explains them as portions of one big jigsaw puzzle.

Let me start out with a disclaimer: I've already written a few times that (1) I think Warren Buffett is a stinking hypocrite and (2) the so-called "Buffett Rule" is just a political wedge ploy designed to peel off groups of voters into Stupid or Evil party votes.  I have not specifically called him a criminal crony capitalist; that's tonight's mission.

Did Buffett Help Obama Kill Keystone Pipeline to Reap Financial Gain?

Let's start, as Beck did, with the run up to the election of the resident.  Buffet was courted by both John McCain and BO.  For reasons that we didn't know at the time, Buffet sided with Obama.  When Buffett claimed his secretary pays more tax on her income than he does - a blatant lie, deliberately conflating dividend income with ordinary income - that was the opening round.  This was done as a favor for the Marxist's divide and conquer strategy, a tactic that will be used until the election, that story link is one day before my column on the topic was posted August 15, 2011: late last summer.  Before this date, November of 2009, Buffett's Berkshire Hathaway bought up rest of the Burlington Northern Railroad that they didn't already own.  Just a coincidence, for sure. 

Fast forward to this year.  The Transcanada Keystone XL pipeline is, in review, a projected pipeline that has been in the approval cycle for over three years.  This pipeline is intended to bring oil from the tar sands of Alberta, Canada to the Gulf of Mexico (map source)

Last fall, this seemed like a "done deal".  The State Department had approved it, EPA approved it, everyone approved it.  In fact, the greens were complaining that the process went so smoothly that someone had to be corrupt.  Then the President killed the project. 

Now that oil has to go somewhere.  It may go to China via tankers loaded on ports in British Columbia, but it also may be used in the US and go to those refineries on the Gulf Coast.  But more and more, it looks like instead of pipeline the oil will be going by (wait for it) ... Warren Buffet's Burlington Northern Railroad.  How convenient! It allows Obama to appeal to his watermelon socialist base, help keep the price of oil from dropping too much (also clearly an aim of the Obama administration), and it will pour money into Buffett's empire. 

Now there's more corruption to this tale than this, and I recommend you read the whole thing (and watch the videos).  It appears that Nebraska senator Ben Nelson is up to his ass... up to his Ben Nelson in this, too.  See, Senator Nelson owns millions of dollars worth of Berkshire Hathaway stock and has acted to protect both Buffett's and his own money.  It makes sense - having more stooges along the way who will make money from this will help Buffett manipulate the congress as he needs to. 

So what this looks like is Warren Buffet made a deal with Obama promising to help Obama win reelection by helping with the class warfare, if Obama would force the oil from the pipeline onto rail tankers that he owned.  Classic Washington "I'll scratch your back if you scratch mine" corruption. 

Citibank Questioned at Shareholders' Meeting - Come up BSing

It's almost unfolding as you'd expect.  According to TTAG - The Truth About Guns - at Citicorp's annual shareholder meeting, they had their feet held to the fire for the way they impose on gun businesses.

Justin Danhof, General Counsel for the National Center [for] Public Policy Research and Free Enterprise Project posed a simple question. “Can you tell us – your investors – exactly how much money we stand to lose because of this decision, and explain why you have this right while Warren Buffet has this wrong?”

I say "almost as you'd expect" because Justin Danhof isn't from one of the mutual fund companies who are actively managing money for millions of Americans; his letterhead says, he's the General Counsel and Free Enterprise Project Director for The National Center for Public Policy Research.  He's interested, but it's not his job to be optimizing return on every penny.  Still, he's asking the right question: what makes you think you'll get me better returns on my investments than Warren Buffet and Berkshire Hathaway - who have made lots of millionaires over the years?  Buffet famously said,

“I don’t believe in imposing my political opinions on the activities of our businesses,” he said. It was the second time he stated his position. Earlier in 2018, he stated it just as clearly. “I don’t believe in imposing my views on 370,000 employees and a million shareholders. I’m not their nanny on that.”

Unfortunately, Citibank CEO Michael Corbat is either a moron or liar (not that he can't be both) because he really gave some stupidity for his answers.

Corbat said Citigroup’s policy to discriminate against firearms manufacturers and retailers who refuse to abide by their policy of instituting age-based gun bans – deny a right to keep and bear arms by a legal adult – wasn’t a Second Amendment threat, rather a “good practice.”

Corbat tried to couch it that they would only do business with retailers who conduct full background checks and no financing for companies who use loans to convert legal firearms into illegal firearms.

If it sounds confusing, it’s because Corbat purposefully was aiming to do so.

Since the readership here is generally quite aware of the laws for buying and selling guns, I don't need to quote the next paragraph from TTAG - but I will, with emphasis added.  The important point is that Corbat is either lying about what their practices are or he's too stupid to know he's asking them to do what they already do.  Again, not that he can't be both lying and stupid.

All federally licensed firearms retailers are required by federal law to conduct an FBI background check at the point-of-sale before they can transfer a firearm to a consumer. This is done each and every time. This is not a “best practice,” it’s the law which the industry supports.  Also, no firearms manufacturers use any money – lent, invested or earned – to convert legal firearms into illegal ones. It’s a quick way lose a manufacturing license and head to prison.

In Danhof's letter (pdf warning), he accuses Corbat of not meeting his fiduciary duties to shareholders, but merely following the lead of the liberal media:

The company joins a list of corporations following the liberal whim of the moment and not looking out for the best interests of long-term shareholders. CNBC talking head Andrew Ross Sorkin has been pressuring banks and credit cards to take a stand against gun rights. But you don’t work for the interests of a liberal journalist. 

Corbat wouldn't commit to how much money this policy has cost Citibank, merely saying, it hasn't “cost us a meaningful amount of money.”  This is debatable, and there are details at the original article.  

Like the rest of us, CEOs are never 100% right or wrong.  This is a wrong decision on the part of Corbat, or the Board of Directors.  Is it the only wrong decision?  Doubtful, but I don't know.  Citibank stands out especially because they're only in business today due to taxpayers bailing them out in 2008.  As their way of thanking taxpayers, Citi is making sure to deny 2nd amendment rights to taxpayers that are "too young" in their view.  It's none of their Citi's damned business.  If the gun store is following all applicable state and federal laws, that's all they need to know.  

You know I'm dedicated to free market principles, and the right principle here is for the Mutual Funds and other Citi stockholders to hold Corbat responsible for a stupid decision.  Hopefully, word of this will get around and increase the chance they get rid of Corbat and get a saner CEO in place.  Which is why I'm passing the word around.

Shining Some Truth On Taxes

The class warfare rhetoric has stepped up to front and center this week, with the president saying, "if asking the rich to pay their fair share is class warfare, I accept that".  Since the call for the Buffet Rule when the "American Jobs Act" was released (ever notice how bills are always named the exact opposite of what they do?) tax "fairness" has been bandied about in a virtually 100% fact free tone. 

Mr. President, if the secretary and Warren Buffet pay the same tax, that's a flat tax.  I really doubt that's what you want, but if you do, I could be on your side (assuming you don't want a flat 100% rate).  As Kerodin and others say (I agree), if it's wrong that Buffet pays 15% on capital gains while his secretary pays 35% on ordinary income, let's drop her tax rate to 15%, too.  Of course, in reality and as you readers know, Buffet is paying tax on income from money that was already taxed at around 35%, so he's paying closer to 50% tax.  But let's not let facts get in the way of good story, shall we? 

It was reported this summer  that we have crossed an economic Rubicon: more than half the population pays no tax (federal income tax, that is).

"But right now, the fact (is) that according to the Committee on Joint Taxation, 51 percent -- that is, a majority of American households -- paid no income tax in 2009. Zero. Zip. Nada. … Actually, to show how out of whack things have gotten, 30 percent of American households actually made money from the tax system by way of refundable tax credits -- the Earned Income Tax Credit, among others. So 51 percent of American households paid no income tax in 2009, but 30 percent actually made money under the current system." (emphasis added - GB)

Mind-bogglingly, Zerohedge wrote last March (and I covered with more details) about these 30 percent who make a profit off the tax system that "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.  And if that wasn't enough, here is one that will blow your mind:

"If the family provider works only one week a month at minimum wage, he or she makes 92 percent as much as a provider grossing $60,000 a year."

The fate of the country is sealed, assuming the 51% of the population who pay no taxes shows up for every election, the percentage of people paying income tax will go down until the country collapses.  If it hasn't already, anyway.

It is fundamental evil party talking point, parroted in this BS Footprint link by Elizabeth Warren, that the Bush tax cuts for the rich cost us trillions of dollars.  A few minutes of internet research will show that on a percentage basis, the lowest income brackets benefited more from those tax cuts than the rich.  We'll surely fix things by letting them expire in 2013, right?

The current six rate brackets of 10%, 15%, 25%, 28%, 33% and 35% will be replaced by five new brackets with the higher rates of 15%, 28%, 31%, 36% and 39.6% 

Note that the lowest bracket tax rate goes from 10% to 15%, or a 50% increase in their taxes.  The highest bracket goes from 35 to 36.9%, or 5.4%.  The lowest income people will be hit the hardest.  In this analysis from the Tax Foundation, you can see how the share of tax liability went up for the top quintile, and down for all of the others under the Bush cuts.

Note that the top quintile pays 81.0% of the entire tax burden of the country. 

Economist Michael Stroup, of Stephen F. Austin State University, has analyzed tax rates and the amount of "progressivity" (that is, the rich pay "progressively" more) of the tax system (pdf here).  The Tax Foundation reports the US has the most progressive system in the world, even more than those European social democracies which the president wants to make us more like.  Stroup presents this interesting plot: 

Here's how the plot works:  Increases in the size of the area between a 45-degree line and the curve (Area A) indicate greater income inequality.  Greater distance between the red and blue curves (Area B) indicate the difference between income and taxation.  The more the red curve is below the blue, the more progressive the tax system:

If everyone paid the same proportion of his income in taxes, the tax curve would lie perfectly on top of the income curve.

If the poor paid a larger share of their income in taxes than the rich, the tax system would be regressive and the tax curve would lie above the income curve.

However, since the rich pay a larger share of their income in taxes than the poor, the tax curve lies below the income curve.

While this is a snapshot for 2004, Stroup writes:

Over time, the share of taxes paid by the rich has grown more than their share of income. For example, between 1986 and 2004:

The income share of the top 1 percent of taxpayers rose 7.7 percentage points, from 11.30 percent to 19 percent of total income.

The share of income taxes paid by the top 1 percent rose even more, by 11 percentage points, from 26 percent to 37 percent of total income taxes paid.

In the years since this was written the percentage of the tax burden paid by the top 1% of earners has increased, to approximately 40%; 42% according to some sources.  The Tax Foundation provides this data:

The simple fact is that every single tax policy change by both parties has led to a more progressive tax, where the rich pay a larger percentage of the tax burden than before.  This has been particularly true for Republican laws like Bush's "Tax Cuts for the Rich" - or Reagan's before him.

The most important reason for the increasing progressivity of income taxes is that virtually every Republican tax bill over the past 25 years has taken more and more people off the tax rolls. Democratic opponents inevitably point to the lowering of the highest tax rates as a “giveaway to the rich.” They conveniently ignore the fact that in lowering the rates, these same tax bills also widened the base. By allowing fewer deductions, exemptions and loop holes, the bills exposed more income to taxation. More importantly, if people at the bottom of the income ladder are completely taken off the tax rolls, the burden of the tax system will shift to those at the top, no matter what rates they pay or what deductions they take.

Getting into discussions with the evil party is a waste of time; they will never tell you what the "fair share" of their income folks should pay.  A couple of weeks ago, congresscritter Jan Schakowsky famously told an interviewer "you don’t deserve to keep all" of what you earn, yet refused to specify how much was fair.  In her world, and all of the evil party, what you earn belongs to society first and they will decide how much you're allowed to keep.

This idea needs to be eradicated. 

Elizabeth Warren's Bad, Stupid, Unconstitutional, Idea

It's no secret that Elizabeth Warren has been proposing a Wealth Penalty, um, Success Penalty, OK: Wealth Tax.  No surprise from the twit who told a group of factory owners "you didn't build that" years ago while working for Obama.  She's resurrected that argument during this campaign.  Like all good communists, she wants to punish anyone who has been successful and redistribute the money she takes.  I'm sure that's after skimming some off.

Warren proposes to tax the wealth of people over $50 Million at 2%, increasing that to 3% for wealth over $1 Billion.  There's a very important word in there: wealth.  This isn't an income tax for people who get paid over $50 M/year or $1B, this is a tax on whatever they own.  Say they own a nice house, a couple of cars, some nice jewelry or a boat or RV or all of the above.  The value of their properties will assessed and they'll be taxed.  We're not necessarily talking about just money in a bank or investment vehicle, or a mansions, we're talking about anything that a deeply envious legislature would consider material wealth: which would be everything.   

Thinking farther down this road, those assets were bought with money that has already been taxed.  The items themselves probably were subject to sales taxes as well as an array of other taxes, state and federal.  They've probably been taxed more than one time.  She proposes to tax them forever.  2% this year, 2% next year, 2% the year after that and so on, in perpetuity. 

Warren's plan has been written by ... (wait for it) ... a couple of economics professors from the University of California at Berkeley.  (Who else but professors?  From where else but the People's Republic of Berkeley?)  They have said the wealth penalty will raise $2.75 Trillion over its first 10 years.  You probably know I hate guesses like that.  Are they assuming linear distribution at $275 Billion/year, or some growth in revenue so little collected now and more collected every year to year 10?  Could they be considering a decrease in collections over the decade so less is collected over the years, which seems likely to me since the wealth will be bled off by this tax - which is the purpose of the tax, after all.  Personally, I don't believe any of it.  Predictions about revenues from tax increases are virtually always wrong.

The first problem is that this unconstitutional.  Unless it says so in the constitution, they can't just tax whatever they want.  We have private property in this country.  The founders considered and rejected the idea of an income tax; you'll recall it took constitutional amendment (the 16th in 1913) to get an income tax allowed.  This is like an ex post facto income tax.  A tax on income you earned and have been taxed on several times already.  Certainly changing the laws about taxing property one owns after they acquired things is an ex post facto law.

As I talked about in my piece on The Dems Childish View of Wealth yesterday, it will also affect the market values of everything that's considered an asset.  If a billionaire fund manager like Warren Buffet has to sell off part of his Berkshire Hathaway holdings to pay his taxes, that could substantially lower the cost of the shares, hurting everyone who holds shares.  It could cause or exacerbate a market correction, affecting everyone who's not a millionaire or billionaire but simply trying to save money and get some earnings on it, unlike having it in a bank. 

You know that one of the hallmarks of new taxes is that those getting taxed adjust their lives to pay less tax.  Which is why you also know that incomes from taxes never quite agree with predictions (particularly from the Congressional Budget Office - who has said nothing about this one).  If a billionaire can reduce his tax burden by transferring assets to their favorite charity, look for lots of that to happen.  It's hard to imagine people preferring to pay tax than to pay money to their favorite charities.  At least, I've never met anyone who'd rather pay taxes. 

Look for a lot of confusion and hassle about valuations of these estates.  That's a glaring hole in the narrative.  If you think that everyone will agree on valuations, you've never been to an auction - or watched an episode of PBS' Antiques Roadshow.  Expect large numbers of lawsuits over this. It seems to me, and I've never seen this detail, that if one is being taxed on the value of their property that the value shouldn't be expected to remain the same and could go up or down.  Annual appraisals for things that aren't publicly traded, like their houses, cars, and so on? 

This is a really bad idea, poorly studied, virtually certainly unconstitutional.  As always, it will hurt people other than the rich that Warren wants to hurt.  Its only selling point is it appeals to the deeply envious primary voters she's selling it to.  

Life on Planet Broke

I wanted to comment on the SoTU address by the Hawaiian Kenyan, but I find it's hard to beat Mark Steyn at turning a phrase.  Mark posts The State of our Union is Broke at National Review Online.

Had I been asked to deliver the State of the Union address, it would not have delayed your dinner plans:

“The State of our Union is broke, heading for bankrupt, and total collapse shortly thereafter. Thank you and goodnight! You’ve been a terrific crowd!”

Hey - I'll be here all week.  Remember to tip your waitress!  Go read.

It's amazing the whole Buffet Rule nonsense has been dredged back up, like the zombie that is, as if increasing taxes on the richest few people in America would matter as much as a fart in a mitten (to borrow a quote in a comment at Sipsey Street).  I have this nasty habit of being grounded in reality, and while I've talked about this before, let's hit the bullet points.

• The whole issue is pure hypocrisy, and Warren Buffet is stinking hypocrite himself.  The real tax rate Buffet is paying is closer to 50% than the 15% the president quotes.  That's from 35% when it was regular income and 15% as dividend earnings.  Our tax code is written to encourage investing in businesses by taxing your capital gains at less than the ordinary income rate.  Whether or not that's a good thing, and I believe it is, is completely independent of raising tax rates on millionaires and billionaires (where millionaire has been defined as earning more than $250,000).
• The tax rate is different from the percentage of income you pay as tax due to our "progressive" tax system.  The rates are a step function; for the first step of income, you pay a lower percentage tax than on the last dollars you earn.  Over 97% of the population pays less than 12% of their gross in taxes.  In fact, about 50% don't pay anything, and some make more in government benefits than they pay, leading to a decrease in lifestyle if they work harder and earn more. 
• If fed.gov took every penny of the combined wealth - not just their income - of the Forbes list of the Richest 400 in America and reduced them to paupers, you'd end up with $1.5 trillion, which is not quite enough to pay for one year of our deficit ($1.56T).  (source)

But maybe for 2012 a whole new Forbes 400 of Saudi princes and Russian oligarchs will emigrate to the Hamptons and Malibu and keep the whole class-warfare thing going for a couple more years

• If fed.gov took every single penny of income from everyone who earns over $10 Million per year, you'd get $240 billion - enough to run the government for 18 days.  If they took every penny of income from everyone with an income of over $250,000, the money would be gone in under 200 days.  It wouldn't pay for the current spending programs for a year, let alone add all the programs they want.  For a refresher, watch Bill Whittle's excellent video.

Or, as I've said many times,  It's The Spending Stupid!  We can not and will not get out of this mess until spending is scaled back to being supportable with tax revenue, which is historically around 18% of GDP.  It really needs to be scaled back closer to 15%, and we need to run surpluses as far as the eye can see. 

As I've done before, I like Steyn's conclusion so much, I'll use it here.  (I did say to RTWT)

There are times for dreaming big dreams, and there are times to wake up. This country will not be going to the moon, any more than the British or French do. Because, in decline, the horizons shrivel. The only thing that’s going to be on the moon is the debt ceiling. Before we can make any more giant leaps for mankind, we have to make one small, dull, prosaic, earthbound step here at home — and stop. Stop the massive expansion of micro-regulatory government, and then reverse it. Obama has vowed to press on. If Romney and Gingrich can’t get serious about it, he’ll get his way.

2013 Is Looking Pretty Shaky

WRSA links to this post by Amity Shlaes on the parallels between what we see for 2013 and 1937 under FDR.  1937 was the Depression Within The Depression, part of the reason the US calls it The Great Depression and the rest of the world just thinks of it as The Depression. (Her home on the web)

I've read her book "The Forgotten Man", called the "finest history of the Great Depression ever written" by Steven Hayward of the American Enterprise Institute.  Naturally, Paul Krugman hates it because she presents evidence that FDR's policies didn't end the depression.  Amity is one of a few genuine experts on the Depression.  If she's talking about things in that period, I'm listening. 

There's that whole theatrical song and dance going on in DC about the "Fiscal Cliff".  Not to say there's not going to be effects from it, but it currently appears to be all about politics.  I'm inclined to agree with the viewpoint that the administration would be perfectly happy to go over the cliff as long as they can get it all blamed on the Stupid party.  Think of it this way, they've arranged a no-lose scenario; if the Stupid party caves on tax increases, it's like George H.W. Bush's famous "read my lips" cave, "OK, we'll raise taxes now and come back later to cut spending" which never happened.  The ability to run on a promise to cut taxes gets severely compromised.  And if the Stupids don't cave and everything goes "over the cliff", the Evils first blame everything on the Stupids, then pass "Middle class tax reform" in the spring, with their solid majorities.  Win-win-win for the Evils. 

(Eric Allie at Townhall)
Taxes are going up, no matter who you are.  Obamacare is just getting started.

Back when that stupid story about "Warren Buffet pays less tax than his secretary" was in the news, I said,

"...if it's wrong that Buffet pays 15% on capital gains while his secretary pays 35% on ordinary income, let's drop her tax rate to 15%, too. "

DC to the rescue.  They not only didn't cut her taxes to the 15% dividend rate, they raised dividend taxes to 43% (for the top brackets - like Warren is in)!  

It's so crazy, that the Bernank all but announces QE4 and nobody says anything about it!   Remember the announcement, just a few months ago, that they would buy $40 Billion in bonds per month, ad infinitum?  They increased that to $85 billion/month at today's meeting.  And nobody says a word...

At this point, it's impossible to know what the big picture will look like for next year.  I expect a more serious recession.  I only know one thing: I sure don't see any signs that we're moving in any directions to avert fiscal collapse. 

What Financial Armageddon Will Look Like

Like many people who think that financial hard times are coming, I have wondered if I'd recognize it was happening early enough to not be trapped by it.  That has led me to think about what it will look like when it happens.  It's not like the several days worth of warnings we get from the hurricane center, I think.  Will there be warnings, or will it happen all at once?  If you're away from home on a business trip, what are the chances you'll get back?  Is there something in particular to watch for, knowing that if you see it, it's time to get back home, or to lock down the shutters?  If you're planning to bug out to a retreat somewhere, but can't live there full time, how will you know when it's seriously time to get moving?

Let me begin by saying … I don't know for sure.  These are my best guesses based on years of studying this, with feedback and correction from reading others' thoughts. 

What would be the first indication that the poop was entering the fan's cage?  One of the most reliable warning signs would be a crisis in commodity prices.  As I remarked below, in The Economic Collapse is Inevitable - Government Collapse is Optional  the first sign would likely be a spike in the price of gold of 10 or 20% - more than $120 at today's prices.  The likely cause could be the economic minister of handful of places: say, China, the EU, Saudi Arabia, or Japan, coming out and saying they've lost faith in the dollar as the global exchange medium, and are switching to other things.  This has already happened in private.  China has been quietly getting rid of US bonds, using their vast resources of trade-unbalance dollars to buy gold mines, copper mines, aluminum mines and so on.  Brazil, Russia, India and China have started working toward the development of a substitute for the dollar, a "basket of currencies" called the BRIC - an acronym for those countries.

Another possible cause is if someone like Dr. Evil, George Soros, or a neutral but highly regarded investor like Warren Buffet, were to announce he had lost faith in the dollar and was getting out of it (Soros has all but said this already) it could cause a crash in the dollar.  Soros was involved in the collapse of the British currency and could conceivably push ours off the cliff.  Just as he justified being a NAZI collaborator who turned in fellow Jews for money by saying, "if I didn't do it, someone else would have", Soros probably feels someone is going to become incredibly rich by collapsing the dollar, so it might as well be him.  

And it could happen, basically, by accident.  The high speed trading that goes on now results in hundreds to thousands of trades per second.  What if a software bug causes it?  What if an oil tanker runs aground in the Houston channel, where all the American gasoline refineries are, or if the depots in Saudi Arabia are finally successfully attacked by Al Qaeda, causing the price of oil to spike?  Something causes a spike in a commodity, like oil or even copper.  The software that runs all of the trading in the markets today would then start selling other assets to convert to cash and take advantage of the commodity spike.  Treasury bonds get dumped, and since the Fed depends on a constant amount of that debt to fund the US, the Fed will then buy them.

It's important to note that during the minutes to half hour or so that this is going on and spiraling out of control, no human may witness it to intervene and stop it. 

Kitco.com, one of the reliable sellers of precious metals, has an app for the iPhone that can get you the spot price of gold and a handful of other data on demand.  If you're at a desktop computer, you can check their website directly for the metal prices.  I believe they still give away a little app that sits in the Windoze task bar and reports those prices.  I check my iPhone app several times during the normal workday.  If gold spikes sharply, I'm literally going to get sick, so taking off sick won't be a lie. 

So what do you do?  Hopefully, you're prepared to "hunker down" at home or have plans for a getting out of Dodge, and a place to go that's ready for you.  This is the time.  It will be worth your time to hit the ATM and get as much out of your account as you can.  Cash might be handy to have to buy commodities - food, water, anything you need to fill your refrigerator and ammo shelf.  Top off your gas tank, and get food.  At this point, the stores will probably have the normal weekday crowds and there will be no unusual lines because only a very few people will know what's going on. 




How long it will be until real problems, like runs on stores, start?  I think that's harder to know.  It might take days for this to propagate to the rest of the market.  On the other hand, with virtually instantaneous linkage of banks around the world, money can be gone very quickly, and it might only take hours for stores and gas stations to start raising their prices.  Here in Florida, I've heard the law prohibits changing gas prices more than once a day.  Ferfal talks about periods in Argentina where store clerks went through the stores changing prices several times a day.  You read of constant price increases in Weimar Germany.

Prep time is over, the sh*t has just hit the fan. 

(Note while I was thinking about this and preparing the entry, I found this blog entry that has many of the same ideas, including a possible root cause.)