Tax the Rich Is A False Cry, We Are Ripping Their Asses With Inflation

When I was 23, I had about $3,000 in savings and most of it I earned while in Viet Nam. So when I see these protesters in the street, that are young, they’re not brimming over with wealth. Saving over a lifetime gives one riches. This is how wealth is accumulated. The Hoi Polloi definition of “Rich,” is a person with enough money that there is no need to work ever again!

The government (Congress) is talking about wage earners who earn a lot of money when they refer to taxing the rich. A family of three or four with two wage earners earning 55K pays no tax; so double that, the rich are 110K and above.

Now let’s figure that John Doe decided to save $600 a month for the rest of his life starting at age 20 after 40 years at 6% he would have $ 1,150,178 or under today’s Bernanke interest rate plan about $353,886 at a 1% rate.

So now, after 40 years of savings, you have over a million in the bank. No need to cash it out, it’s FDIC insured. But while you were collecting interest, the government was printing money for the last 4 years. Inflation is a tax on savings, so in this case, we are taxing the rich/savers. And at 8% inflation, over the last 4 years, that amounts to a 32% tax. It’s invisible, nobody presented you with a bill.

Then we have FDIC insurance. Great little promotional item thought up by FDR. All of the banks by that time that were going broke had already gone broke, so there was no capital outlay for this added bank guarantee. So in today’s world, if your bank gets real sick, there is no reason to go to the bank to withdraw your funds. A run on the bank, puts the bank out of business, this has been averted.

The real neat thing is if you keep your money in the bank for that rainy day ahead that is what the government is counting on. Once retirees start spending their savings, they will burn right through the paltry interest in no time. Those dollars saved way back 60 years ago were hard dollars, and those same dollars valued in today's purchasing power, have been taxed to death by inflation.

Then there is the suggestion that millionaires ought to pay more than 17 percent in taxes. Why more? 17 percent of 100k is 17 thousand dollars and 17 percent of one million is 170K. The percentage paid is the same, but the amounts vary by a factor of 10, plus throw in the 32% inflation tax. I guess what it comes down to is the fact that rich people are incredibly stupid and the voters are incredibly intelligent. There is absolutely no reason to pay an accountant 20k a year to help you pay less in taxes, or is there?

People point to the Bush Tax cut renewal and it cracks me up. If they pass it, it will be called the Obama tax cut. Think for one moment, has there ever been a permanent tax cut? Has Congress been cutting our taxes permanently year after year? Tax Cuts are sunset laws, the law expires at a certain date and Congress conveniently passes a new tax cut, and points out to their constituents that they lowered taxes, talk about exhausting work.

Let’s go back to Eisenhower times and tax the rich at 90 percent. This will satisfy the Hoi Polloi’s demands as to the status quo; and it will end up being nothing more than window dressing. Who would go to work and have the government take 90 percent of their earnings? Of course it might work out as intended for a lottery winner, winning 300 million; they’d end up with 30 million after taxes.

Let’s tax the rich, but understand one thing, if they are smart enough to get rich, they are smart enough to want to avoid paying the additional taxes. Believing that they will have to pay is pure stupidity. The funny thing is rich people behave just like you and I; we try to avoid paying more taxes than we have to. I wonder how dumb that is?

Brick Wall Dead Ahead

The German bond market just had a miserable auction, nobody showed up. And of course the Euro is in fine shape. How many would you like to buy?

The Congressional Super Committee had a senior moment; they lost the cape and the t-shirt with an S on it. It’s no big deal; whatever they forgot to do, wasn’t going to happen until 2013 anyway.

Egypt wants Democracy. I guess General Motors could name a new car “Democracy,” and we could sell it to them. That’s about as close to Democracy as they will ever get. Democracy is a little like a car, the wheels are your social institutions. So far they have the military and Islam, one wants to shoot the occupants, the other wants to load it with explosives.

Syria seems to have a problem with too much press coverage. Fidel Castro had a rather effective solution, a cigarette and a blindfold. To a lot of people in the world, order and stability are more desirable than Democracy.

Tear gas orders for this Holiday season are up. There isn’t a dry eye in the house in Syria, Greece or Egypt. And at UC Davis they are gassing students after they paid tuition. If they weren’t crying about the cost of tuition before they paid it, they were afterwards.

Then there is the deficit, it’s now at 15 trillion dollars. Congress is fighting over raising taxes to pay for all of this, but it hasn’t slowed down the spending. You really have to wonder why the worry to raise taxes or reduce spending, things are running just “peachy keen,” the way they are.

Then we have Freddie and Fannie. Down the street a two bedroom 1 ½ bath is going for $325K. Of course the 4 bedroom 3 bath a block away is going for $355K. The government is going to sell your kids the one for $325 with no money down.

Interest rates have gotten so low that you need to work 80 years before you have enough saved up to retire (if you factor in inflation, double that up to 160 years). I think Bernie Madoff will be getting out of prison about then. California’s CalPERS retirement fund is still claiming that it is earning 7 percent on investments. It kind of shows you where Bush’s “No Kids Left Behind,” found employment. It's a little like a mortuary issuing birth certificates, something has to be out of whack and you’re not sure just what it is.

Unemployment is “under control.” For some reason, the number of mattresses under freeway bridges seems to be on the rise as are the people camping in city parks.

Our leaders reassure us everything is OK; they claim to have saved us from a Great Depression. With Cities going bankrupt for the first time since the 1930’s, you have to wonder, is Obama a used car salesman in disguise? The thing that worries me are the potential Republican contenders, all of them have that used car salesman look.

Have a Happy Thanksgiving everyone.

Squirrel Economics 101

This will be familiar to a few of you, it is a reprint from two years back. I'm having a little writers block. I should be back on track by Friday.

Imagine a group of squirrels saving nuts for winter and depositing them in a bank (one nut one credit in their account). Let’s imagine that a truck pulls up and helps themselves to 80 percent of the nuts. The bank now has a problem. It can’t cover all of the deposits. But notice, if there isn’t a run on the bank, there is no real problem. Squirrels are depositing and withdrawing nuts with no problem.

In this little example even if there was some form of bank insurance, what ever it was, it could not replace the nuts (their winter food supply). The amount left for all of the squirrels is pretty much set to the 20% remaining plus net deposits made until winter. In this case, there is no inflation (you cannot print the squirrels food supply). The squirrel has no idea of the life or death consequences of what the bank has done until winter arrives (retirement).

The real estate market is the truck that pulled up to our personal savings and looted the bank. In this case, we have government insurance to “make us whole again.” The money taken was spent. Notice that every dollar deposited had to be worked for (a squirrel nut).

Labor created some product. By not consuming this nut and saving it, you were putting this towards retirement consumption. The money from the boom (real estate loans) was spent on many lavish toys and is forever gone. Now we have financial institutions with only 20% of capital left. In actuality, there is only 20% of product produced left (the nuts). The rest has been consumed. It is rather academic whether or not the government prints more money to make us w(hole) again.

We have a choice, leave the banks with the 20% which will buy the 20% of produced product left or we print enough money to restore everyone’s bank balance.

I am sure this little analogy could get me shot again or could be picked apart easily. I present it as an illustration of how money relieves us from the bother of having to barter for services and goods. Once you accept the convenience of money vs bartering, the concept of just printing it, is the equivalent to stealing.

So if you are a squirrel, “It’s grab your nuts and run!"

Euro Crisis Mismanagement

Italy and Greece are financially insolvent and their governments are in a real mess. Austerity programs are being forced on both countries, and their citizens are not very happy about the coming cuts.

The money was borrowed and spent. When you read the papers, there is a mention that if Greece and Italy were to default, it could take other countries with them. At this point, you have Germany and France stepping in to rescue their fallen comrades.

The real question not being asked, is who loaned all of the money for this drunken orgy? Germany and France come to mind, not to mention a few State retirement funds. What is happening here is the same as Jingle mail in the US. It’s a little like buying a million dollar home with no money down and you lose your job. A bank that does too many of these finds themselves out of business real quick.

The problems in Italy and Greece are rather obvious. Problems in France and Germany are nonexistent, if they can get Greece and Italy to make their "house payments." Here in the US, everyone thinks that the Government is trying to bail out the homeowner and that is just not the case, they want them to continue paying their outrageous mortgages, with minor modifications. This keeps the banks paper current and on the books as written with no markdowns.

The big players in Europe, France and Germany financed these unsecured loans. The European banking system faces ruin, if and when the PIIGS stop paying. To say that the banks lose in this case, is rather an understatement, it is their depositors that take the hit. The banks only loan your money, and if they lose it all, that’s life. Look for problems at Deutsche Bank and Societe Generale.

Everyone knows the PIIGS are broke and that is no big deal. What's not realized, is that the people in trouble, aren't the deadbeats, but rather the bank depositors that had funds to loan. The loans will not be repaid, but that is less than obvious with all of these proposed repayment plans.

Nobody is going to go to prison over this, being incredibility stupid or optimistic and running a bank, is not against the law. The question you need to ask is your money safe in a Euro bank? The answer; "Not Sure," could start a run on the Euro. Retirement could be further away than you envisioned.

The Greeks Are Being Had

Greek Prime Minister George Papandreou has struck a deal with ministers to step down and hand power to a negotiated coalition government if they help him win a confidence vote on Friday . . . . The source said Papandreou admitted he had made a mistake in calling on Monday for a referendum on a bailout package

If you read between the lines, the other nations said to him, “how dare you end the game when we have agreed to anti the money up for you to play?” PM Papandreou was born in the USA of Greek parents. I’ve listened to a few interviews he has given and he impresses me as someone who wants the best for Greece and is quite in tune to what will happen next.

The referendum would have avoided a collapse of the Greek government. If the Greek electorate made the decision, the chance of revolution was slim. You made your bed, now sleep in it. The trouble is, Greek politics are so corrupt, that the masses will not tolerate the austerity measures for long. Europe has rewritten Greece’s loans. Greece is going to pay for things already consumed for the next 10 years. The lenders want their money. It’s a little like going a restaurant, and discover you owe for all of those that ate before you.

The other interesting fact is that the IMF is involved in this mess. The most powerful man on the board of Governor’s is Tim Geithner with 17 percent of the vote. And the way it works, if Tim says no, the no’s have it. We have had the Fannie and Freddie Mae fiasco, what’s a little Greece to fry it all in? The Germans and the French are not going to bail out the “lazy Greeks.” They are the ones owed the money. So with an IMF bailout, the Germans and French don’t take the big hit, the US---AKA IMF (Daddy big bucks) does.

The Chart below shows who's in charge at the IMF, kind of a FYI thing.

Greek Prime Minister George Papandreou tried to save Greece by telling the creditors to go fly a kite and it should have worked out at an acceptable level for the Greek citizens. The new austerity measures pose a serious choice for Greece; pay retirement benefits or pay the debt? The military will end up taking over the government and their youth will abandon the country for jobs in other lands.

The real question to ask is: “Where is the REAL money coming from to pay for all of this?” I don’t have a clue. It’s a little like trying to hustle a hooker for a payday loan. What do you have that she needs—absolutely nothing!