My Blog

Category: Business

  • The Fed & Debt Cancelation

    I met a European trader in a bar this week, who brought up the possibility that at some point, the Bank of England might just rip up the UK government debt it has acquired through quantitative easing — just straight up throw it on the fire, and tell the government it no longer owes the money.

    The Bank of England — just like the Fed — has bought a ton of UK government debt as part of its attempt to juice the economy.

    This idea has been going around, and picking up buzz.  …

    As the person I talked to put it: It’s really hard to see what would be so bad about it. Would the entire system of finance collapse? There’s just no reason to think it would.

    Probably the worst thing to come out of it would be inflation. Right now, the Fed or Bank of England “prints” money in QE, but for every $100 injected into the system, $100 in equivalent securities are sucked out and put on the central bank’s balance sheet, so basically it’s a wash. This is why, despite the gigantic expansion of the balance sheet, inflation has been muted and (at least in the US) the trend remains towards disinflation.

    via Business Insider.

    An interesting idea.  Of course the author here, Joe Weisenthal, is absolutely wrong claiming there is disinflation in this country.  Food and energy prices have nearly doubled in the last 4 years.  That cars and machines machines are cheap is only because people simply don’t have the money to buy them.  The government (a/k/a the Obama administration) has so played with the CPI that it’s no longer reflective of how American’s actually spend their money.  Things people need are more expensive today than ever before.

    But what would really happen if the Fed just cancelled the debt?  The truth is that life would go on and the entire financial system would not collapse.  That much is true.

    But there is this thing called inflation that no one, NO ONE, wants to talk about.  Not Obama, not Romney, not Bernanke, not the media.  It’s coming.  Everyone knows it’s coming.  The Fed cannot inject several trillion dollars into the economy and there not be inflation.  The only question is whether we get 4-5% for a few years or we get 9-11%.  The former is desired the latter not so much.

    This is all going to boil down to the velocity of money.  Right now, the Fed has printed so much money that it is still all sitting in the banks.  It has not yet been absorbed into the marketplace.  i.e.  It’s moving rather slowly.  However the banks are the bottleneck when it comes to money.  It takes them a long time to make decisions.  Once the money is clear of the banks it can move much — MUCH — more quickly.

    Right now the Fed is driving with it foot on the gas & the pedal to the floor.  It’s pumping as much money into the system as the system will allow.

    There will come a time when the Fed will have to get off the gas and hit the brakes… hard.

    Cancelling the debt is kinda like cutting the brake line on the car.  I don’t know of any vehicle that is easy to control when driven hard throttle to hard brakes.  It’s certainly going to be much harder to control if you can only downshift because you don’t have any brakes.

     

  • What Drives Corporate Profits?

    In a heady story over the Business Insider today Joe Weisenthal walks us through an analysis as to why corporate profits are so high right now.  It generally all comes down to this chart:

    It shows the various drivers and drags on corporate profitability. So for example, household savings are always a drag on profitability, since that’s money not spent to buy goods. Net investment helps boost corporate profitability, since that investment will flow to the profit line of another corporation. When the government is in a surplus, that reduces corporate profitability, since that means the government is taking in more than it pays out. When the government is in deficit, that boosts profitability.

    As you can see in the chart, what REALLY stands out is the huge explosion of the red area (representing government deficits), helping to drive corporate profits at a time when nothing else is doing the work.

    via Business Insider.

    So what exactly does that mean?  It means that those out there who are complaining about high corp. profits (which by the way drive stock prices up) are not helping the working man should take a look at the root cause of these high profits.  i.e.  Government debt.

    What corporations know is that the current spending levels are unsustainable.  We must stop spending money we don’t have.  As a result of this, government deficits will go down and so will corporate profits.  This is why corporations are trying to save as much cash as they can right now.  Because they know that tough times are coming and today they need to save like they have never saved before.

    Similarly, you should be saving.  We without a doubt have inflation so it makes little sense to hold on to a lot of cash.  But you should be paying down debt and getting your own financial house in order.  Tough times are coming and today you need to save like you have never saved before.

     

  • Obama Illegaly Accepts Foreign Donations

    The Obama re-election campaign has accepted at least one foreign donation in violation of the law — and does nothing to check on the provenance of millions of dollars in other contributions, a watchdog group alleges.

    Chris Walker, a British citizen who lives outside London, told The Post he was able to make two $5 donations to President Obama’s campaign this month through its Web site while a similar attempt to give Mitt Romney cash was rejected. It is illegal to knowingly solicit or accept money from foreign citizens.

    via NYPOST.com.

    This is kinda like Al Gore walking out of the Buddhist temple with a suitcase full of cash and not asking any questions.

    We need an investigation into this.

  • Cook County’s New Business Killers, a/k/a Taxes

    Cook County Board President Toni Preckwinkle’s proposed budget calls for a 1.25 percent tax on businesses that buy “non-titled” items like office supplies, equipment, building materials and even artwork from outside the county’s borders.  …

    County businesses would be allowed to purchase these goods up to $2,500 without any penalty, county officials said. The businesses are responsible for self-reporting the purchases to the county’s revenue department. A Preckwinkle spokesman said the county expects most businesses will comply.  …

    The tax is among several initiatives Preckwinkle announced Thursday during a budget presentation, which also called for an additional $1 tax per pack on cigarettes, a 5-cent tax on bullets and an additional $25 tax on gun purchases.

    “We’re proposing (these taxes) to subsidize health care,” Preckwinkle said. “Cigarette smoking is the No. 1 cause of preventable disease and gun violence is incredibly expensive.”

    The cigarette tax is expected to generate $25.6 million additional revenue in the coming year, and the taxes on guns and bullets are anticipated to bring the county an extra $1 million over the course of 2013.

    via Daily Herald.

    Shear insanity.  There are so many problems here it’s hard to know where to begin.

    As to the increase in the cigarette tax… this is a proven loser.  In 2006 the county earned over $200 million annually from cigarette taxes.  Then they doubled the tax.  Revenue fell to around $131 million.  Now she wants to raise the tax again… that’s the worst thing you can do.  If you want more revenue from cigarettes you need to LOWER the tax rate, not raise it.  The problem here is that Preckwinkle, like all Democrats, do not understand or even believe in the Laffer Curve.  They’re honestly just dumb that way.

    How about this tax on bullets?  Well I currently buy a box of 100 rounds out at the Wal-Mart in Villa Park for about $30 + sales tax, or around $33.  Now Preckwinkle wants to add $5 to that box.  Guess what Toni?  I will NOT be buying my ammo in Cook County anymore.  So you’re not going to raise $5 from me… you’re going to lose the $3 in sales tax.  Your “bullet tax” is going to cost the County money…. Lots of money.  Like the cigarette tax, this idea is a net loser.  You know what else, you won’t even be able to claim that I “use” the product (in this case bullets) in Cook County b/c pretty soon all the shooting ranges in the county will go out of business.  So I’ll go shoot in Indiana.  That will be more tax revenue lost.

    Lastly, what is up with this office supply tax?  Preckwinkle actually has the stones to call this tax “pro-business” thinking that people will simply comply and buy all there stuff from within the county.  That’s laughable.  She’s such a fool.  How about this Toni; ya think that someone might just open their business in Will, DuPage, or Lake county instead of Cook County?  Guess what Toni, you just made all the office buildings on the North side of Lake Cook road more valuable than the ones on the South side.  Same goes for 191st Street on the south.  You’re now creating another incentive for people to (a) open their businesses outside the county, and (b) move their businesses outside the county.  This tax will cost many many times more than whatever revenue it brings in.

    Cook County needs new leadership or it’s going to die.

     

  • Real Commercial or a Spoof?

    I honestly don’t know.

    [youtube http://www.youtube.com/watch?v=fJ9Twgif9gM?rel=0]

  • The Fiscal Entitlement Cliff

    The U.S. Census Bureau says 108 million Americans live in households where at least one person participates in a means-tested program. We estimate that 80 million are the primary recipients….

    Since the president took office:

    • Medicaid is up from 46.9 million to 56 million people.

    • Disability beneficiaries are up from 7.5 million to 8.8 million.

    • The food stamp program has grown from 32 million Americans to 47 million.

    Add to that 80 million beneficiaries 40 million Americans age 65 or older on Social Security and Medicare (9 million of the 49 million on Medicare, including some under age 65, also receive means-tested benefits).

    That 120 million does not include the numerous smaller entitlement programs.

    Put them all together, and a number approaching half of the country participates in an entitlement program.

    Now add in the 16 million new Medicaid beneficiaries, thanks to ObamaCare, plus an estimated 12 million people who enter the health insurance exchanges by 2014, where most will receive federal subsidies.

    The budget implications of these programs are huge. For fiscal 2012, America spent $2.2 trillion of its $3.7 trillion budget on entitlement programs — $400 billion less than the $2.6 trillion in gross annual revenues.

    Oh, and interest on the federal debt was $220 billion.

    Thus, the cost of entitlement programs plus interest on the debt are nearly equal to total federal revenues today.

    Virtually everything else the government does is with borrowed, or printed, money.

    via Investors.com.

    I realize that this is all a little hard to understand for a lot of people.  So to put it in easy to understand terms:

    This is like living on a credit card — spending 50% more money than you actually earn — and then dying and leaving the bill for your kids.

  • CTA Scam Sucks Millions in Taxpayer Funds

    It is after all the Chicago way.

    The CTA has potentially inflated by up to $150 million the federal taxpayer money it received since as far back as 1982 by “fraudulently over-reporting” the number of miles CTA buses travel while in service, according to a new report by a little-known watchdog group.

    In its report, titled “A bus tour of Chicago-style fraud,” Washington-based Cause of Action alleged that CTA officials reaped millions in extra federal money that the agency was not entitled to by improperly including “deadhead,” or out-of-service bus miles, along with funding-eligible revenue bus miles when applying for money from the Federal Transit Administration.  …

    But Cause of Action, which said it based its findings on “insider audit information” from six years ago, said the CTA likely continues to get away with its inaccurate mileage reporting, with the knowledge of the U.S. government, because of the transit agency’s political connections stretching from Chicago to Washington.

    It cited the clout of Valerie Jarrett, who is senior adviser to President Barack Obama and also a former chairwoman of the CTA (1995 to 2003), and Robert Rivkin, general counsel at the U.S. Department of Transportation. From 2001 to 2004, Rivkin was general counsel at the CTA.

    Officials at Cause of Action said they brought the matter to the attention of the U.S. Department of Transportation inspector general, the U.S. attorney general and Congress, but no action was taken.

    via Chicago Tribune.

    Surprise Surprise Surprise!!

    The good citizens of Chicago are naturally shocked and appalled that Valerie Jarrett and other stooges of The Machine have engaged in taxpayer fraud. Shocked and appalled.

    This sounds like a Qui Tam lawsuit in the making.  Someone going to get on that?

     

  • Google Data Centers — Photos and Comments

    Very cool photo tour of some of the stuff behind the scenes at Google data centers.

  • Bus-Only Lanes Hurt Everybody

    CTA super-express buses that will operate on 21-mile stretches of Ashland and Western avenues will have the benefit of using full-time bus-only lanes, under a still-evolving concept the transit agency and the city will present this week at three open houses, starting Tuesday.

    via  Chicago Tribune.

    This is just an extension of the ongoing war on vehicles & one of the dumbest ideas ever.  It makes no sense to make life more difficult for cars; which just so happen to be how most people get around.  Why punish the majority for the minority?  Some people literally must drive b/c they have to take children to school before work or otherwise travel on routes not covered by public transit.

    Damen in one lane.  Halsted is one lane.  California is one lane.  It makes no sense to destroy the only two North-South arteries.  Between the bike lanes and the center islands it is getting impossible for vehicles to get around.  This includes police, fire, and EMS vehicles as well.

    Lastly, what is the problem trying to be solved here?  That buses travel more slowly in traffic is not new.  It’s been that way since the invention of buses.  People on buses however can read, play with their phones, talk on the phone, send txt messages, and do all sorts of things that people in cars cannot (safely) do.  This is the advantage of taking the bus over the car… that, and the cost.

    Chicago can be a great great city.  Truly world class.  But it will not become so by declaring war on vehicles which the majority of people use to get around.

  • U.S. Postal Service is Dying, Why You Should Care

    The USPS has been teetering on the brink of bankruptcy. A key reason was a 2006 law that required the postal service to make annual payments of about $5.5 billion for 10 years to pay for future retiree health benefits.  …

    In the three months that ended June 30, the agency reported net losses of $5.2 billion.

    via CNN.

    People like to point out why the post office is suffering a slow cancerous death.  eMail, electronic bill pay, faxes, etc.  But that’s all garbage.  The U.S.P.S. is dying because it failed to meet the realities of the marketplace and because it overpays it’s workers,  a/k/a  bad management.

    Compare the USPS which LOST $5.2 billion in the 2Q 2012 to UPS which made $1.12 billion in the same period.  Or FedEx which made $459 million in the 3 months ending 08/12.

    Years ago I read Jim Rogers‘ book Investment Biker.  In it he tells the story of being in the USSR and mailing some packages back to the UK.  Long story short, the communist government charged less to mail letters and package than it cost.  This was because it was popular with the people.  The people wanted to be able to send letters cheaply and the government obliged.  But it was but one example of several (cited in the book) showing how and why the USSR would fail.  A government cannot continue to offer services for less than what they cost.

    No entity can continue to offer services for less than their cost.  The USPS is not exception.  It must either figure out how to charge enough for the service it provides or get out of the business.  But right now the taxpayers are on the hook to massive amounts of USPS debt.  That’s not right.

    Lastly, you should care… greatly.  The government is now just starting to take over the nations health care.  It too will be run with the same level of efficiency and forward thinking as the USPS, or maybe the State of Illinois DMV.

    Health care in this country will follow the USPS in bankruptcy.  And that’s not going to be good for anyone.