Europe's unemployment rate increased once more -- now at 12.2 percent. This is the highest level since data collection on European unemployment began in 1995. Expect new records ahead.
Too bad if you are young and live in Europe. The unemployment rate is above 25 percent for those under age 25 almost everywhere in Europe and is well above 40 percent in places like Spain and Italy (lets not talk about Greece...their data, at this point, is probably suspect).
Meanwhile, the IMF has noticed that taxpayer bailouts mainly enrich hedge funds. Why? Because after sovereign debt collapses in price, hedge funds come in and buy it for 20 cents on the dollar and then sit back to wait for the bailout. So, who wins. The average taxpayer simply transfers large amounts of private wealth into the coffers of rich hedge fund tycoons. Great policy!
It is now dawning on the IMF that restructuring sovereign debt (meaning a controlled bankruptcy) is a far better idea. It puts the losses where the losses belong and doesn't end up using taxpayer wealth to subsidize hedge funds. Wonder what took the IMF so long to understand what has been painfully obvious since this whole process began?
The assumption that Europe's problems were temporary and could be solved by taxpayer bailouts was an absurd assumption. Just one look at European government spending and government revenues would convince anyone with a modicum of common sense that Europe's debts are unpayable. There is no way out by the simple expedient of 'temporary' bailouts. The numbers don't work and the sooner that is acknowledged the better.
Now that hundreds of billions of Euros of ordinary Europeans citizens' wealth has been siphoned off into the pockets of hedge funds by these absurd bailout policies, the IMF shows signs of waking up. It's a bit too late, unfortunately. Europe's problems are now far worse. If Greece has been permitted to default on their sovereign debt four years ago, Europe would now be in a much better place. But, politicians stepped in.
The only way to reform Europe is to begin the process of controlled bankruptcies across the entire Eurozone. It will be painful. But, there is no choice. Europe will end up with either a controlled bankruptcy or an uncontrolled bankruptcy. That's the real choice.
Friday, May 31, 2013
Thursday, May 30, 2013
The Significance of the Smithfield Acquisition
Chinese food giant Shuanhui announced the purchase of Smithfield Foods this week. This is a salient example of a process that has been underway for many years.
If one country has a 40 percent savings rate and another country has a zero percent savings rate, the country with the larger savings rate will, in time, buy all of the assets of the country with a zero savings rate. That process is underway.
The US has had no net savings for several decades. The reason for the absence of savings is twofold: 1) the private sector doesn't save because most Americans see no need; after all, the government guarantees income security and health care into old age (social security, medicare, medicaid); why bother to save (the Obama administration's recent suggestion to begin taxing IRA's provides some additional reasons for Americans to avoid saving); 2) the government sector is a big, big dissaver (that's what fiscal deficits are all about).
But America has investment spending. Who provides the savings for this? Foreigners. Foreigners pay for this by buying up US assets. Every year that passes, Americans own a smaller percentage of American stocks, American housing, American office buildings, etc. Eventually, we will own nothing in this country.
Government policies that actively discourage savings work. They are working now. (Obama policies that actively discourage hiring work as well. They are working now. You get what you encourage and you lose what you discourage).
If one country has a 40 percent savings rate and another country has a zero percent savings rate, the country with the larger savings rate will, in time, buy all of the assets of the country with a zero savings rate. That process is underway.
The US has had no net savings for several decades. The reason for the absence of savings is twofold: 1) the private sector doesn't save because most Americans see no need; after all, the government guarantees income security and health care into old age (social security, medicare, medicaid); why bother to save (the Obama administration's recent suggestion to begin taxing IRA's provides some additional reasons for Americans to avoid saving); 2) the government sector is a big, big dissaver (that's what fiscal deficits are all about).
But America has investment spending. Who provides the savings for this? Foreigners. Foreigners pay for this by buying up US assets. Every year that passes, Americans own a smaller percentage of American stocks, American housing, American office buildings, etc. Eventually, we will own nothing in this country.
Government policies that actively discourage savings work. They are working now. (Obama policies that actively discourage hiring work as well. They are working now. You get what you encourage and you lose what you discourage).
Monday, May 20, 2013
The Significance of the JP Morgan Fight
For the past 100 years, small investors and lower income Americans have been able to invest in public securities and make huge gains. No one with a diversified portfolio of American stocks today has a loss. More remarkable, anyone who has held on for twenty years or more has huge, huge gains. And this same statement is true for nearly all twenty year periods since the 1930s (eighty years ago).
The success of the public markets has provided a way for folks without access to financial acumen to take on capital risk and be successful. You would think such markets would be applauded.
Nope.
Here comes the left. First Sarbanes-Oxley was passed to make sure that small companies faces huge hurdles in taking their firms public. Then along came Dodd-Frank, a creature of the Obama Congress, that continued the process of crushing public companies with mounds of mind-boggling regulations.
The final coup d'etat is now underway in the JP Morgan struggle. If "shareholders" force JM Dimon out as Chairman of the Board of one of the most successful companies in world history (a company that has greatly enriched its shareholders), the public will pay the ultimate price.
And, who are these "shareholders" that would topple Dimon? They are the 'agents' who, in theory, represent shareholders -- trustees who run endowments, pension funds, foundations. The vast majority of these folks don't like free markets and seem upset by the prospect of lower middle income folks having a path to wealth through the public markets.
The real shareholders are workers and taxpayers who directly and indirectly provide the funding for these endowments, pensions funds and foundations. They have no say at all. They certainly wouldn't vote to lower their future retirement income, which is precisely the direction their trustees are pursuing. In the name of 'corporate governance reform,' these trustees are destroying the access that ordinary citizens have to public markets.
So, topple Dimon and crush public companies and bend them to your will. That is the plan of the leftists who dominate pension funds, endowments and foundations these days, That ordinary Americans and real shareholders will have to pay the price for this nonsense is the great tragedy.
Ultimately, if the public market can be crushed, ordinary Americans will be forced to look to the government for their retirement, assuming the government has anything left at that point.
The success of the public markets has provided a way for folks without access to financial acumen to take on capital risk and be successful. You would think such markets would be applauded.
Nope.
Here comes the left. First Sarbanes-Oxley was passed to make sure that small companies faces huge hurdles in taking their firms public. Then along came Dodd-Frank, a creature of the Obama Congress, that continued the process of crushing public companies with mounds of mind-boggling regulations.
The final coup d'etat is now underway in the JP Morgan struggle. If "shareholders" force JM Dimon out as Chairman of the Board of one of the most successful companies in world history (a company that has greatly enriched its shareholders), the public will pay the ultimate price.
And, who are these "shareholders" that would topple Dimon? They are the 'agents' who, in theory, represent shareholders -- trustees who run endowments, pension funds, foundations. The vast majority of these folks don't like free markets and seem upset by the prospect of lower middle income folks having a path to wealth through the public markets.
The real shareholders are workers and taxpayers who directly and indirectly provide the funding for these endowments, pensions funds and foundations. They have no say at all. They certainly wouldn't vote to lower their future retirement income, which is precisely the direction their trustees are pursuing. In the name of 'corporate governance reform,' these trustees are destroying the access that ordinary citizens have to public markets.
So, topple Dimon and crush public companies and bend them to your will. That is the plan of the leftists who dominate pension funds, endowments and foundations these days, That ordinary Americans and real shareholders will have to pay the price for this nonsense is the great tragedy.
Ultimately, if the public market can be crushed, ordinary Americans will be forced to look to the government for their retirement, assuming the government has anything left at that point.
Sunday, May 19, 2013
Why IRS Scandals Will Never End?
The tax laws and IRS enforcement efforts are guaranteed to result in political favoritism on a grand scale. Why? Because they are complicated and ambiguous.
The American people do not understand the tax laws in their own country. One suspects that tax specialists don't understand these laws either. That leaves a lot of latitude to regulators. They can pick and choose, as we now know that they did in recent years.
Every so-called tax reform simply puts more complicated things into the tax laws.
The income tax needs to be abolished. There is no generally agreed way to define income (that's the main reason why tax laws are so complex). Even value-added tax concepts suffer from problems of definition.
Better to go to a uniform national sales tax. That could be easily understood by all Americans. The only way a national sales tax could become problematic is if there were exceptions (for food, medicine, etc.). There should be no exceptions.
Imagine how much time and money could be saved by abolishing the IRS and substituting a national sales tax. You can always make equity arguments, of course, but simplicity and transparency would be of enormous benefit to the average American.
We could rent out the IRS headquarters to a charter school.
The American people do not understand the tax laws in their own country. One suspects that tax specialists don't understand these laws either. That leaves a lot of latitude to regulators. They can pick and choose, as we now know that they did in recent years.
Every so-called tax reform simply puts more complicated things into the tax laws.
The income tax needs to be abolished. There is no generally agreed way to define income (that's the main reason why tax laws are so complex). Even value-added tax concepts suffer from problems of definition.
Better to go to a uniform national sales tax. That could be easily understood by all Americans. The only way a national sales tax could become problematic is if there were exceptions (for food, medicine, etc.). There should be no exceptions.
Imagine how much time and money could be saved by abolishing the IRS and substituting a national sales tax. You can always make equity arguments, of course, but simplicity and transparency would be of enormous benefit to the average American.
We could rent out the IRS headquarters to a charter school.
Thursday, May 16, 2013
Meanwhile, On The Government Front
According to President Obama, we need more government.to provide 'fairness' for the American middle class. The latest series of scandals -- Benghazi, the AP snooping situations, and the IRS targeting of conservative groups, should serve to show why government is not likely to be the solution to the problem of getting the economy going again.
Government scandals are not new and are certainly not limited to the Democrats. Republicans are just as willing to bend government to their will as the Democrats. That's why government is not the proper place to put our trust. Our trust should belong in the free market, not in the bureaucrat, who may have another agenda.
Regulators can have a will of their own and it is very hard for the average citizen or company to fight them, especially when the regulators are willing to bend the law.
Free markets don't have political biases. Free markets are all about individuals trying to make a better life for themselves and their families through their own efforts.
Government is about taking from one person by force and giving to another. Those on the receiving end typically vote for politicians willing to do pretty much anything to demonize their opponents. Again, Republicans are just as likely to do this as Democrats.
Health care and pretty much every other endeavor should be provided in the free market. The government should butt out. By having medicare, medicaid and Obamacare, the US virtually guarantees that health care will be doled out according to the whims of the ascendant political party and the losers will pay and suffer the indignities of a disastrous health care system.
A good example of this is education. Look where government employees and politicians get their education. Then compare that to where the children of the middle class get their education. This is the outcome you get when government is providing the service.
Pretty much the same applies to all of the provisions of government services. The free market delivers best. The government, ultimately, is mainly a purveyor of corruption. Witness the current plight of the Obama Administration.
Government scandals are not new and are certainly not limited to the Democrats. Republicans are just as willing to bend government to their will as the Democrats. That's why government is not the proper place to put our trust. Our trust should belong in the free market, not in the bureaucrat, who may have another agenda.
Regulators can have a will of their own and it is very hard for the average citizen or company to fight them, especially when the regulators are willing to bend the law.
Free markets don't have political biases. Free markets are all about individuals trying to make a better life for themselves and their families through their own efforts.
Government is about taking from one person by force and giving to another. Those on the receiving end typically vote for politicians willing to do pretty much anything to demonize their opponents. Again, Republicans are just as likely to do this as Democrats.
Health care and pretty much every other endeavor should be provided in the free market. The government should butt out. By having medicare, medicaid and Obamacare, the US virtually guarantees that health care will be doled out according to the whims of the ascendant political party and the losers will pay and suffer the indignities of a disastrous health care system.
A good example of this is education. Look where government employees and politicians get their education. Then compare that to where the children of the middle class get their education. This is the outcome you get when government is providing the service.
Pretty much the same applies to all of the provisions of government services. The free market delivers best. The government, ultimately, is mainly a purveyor of corruption. Witness the current plight of the Obama Administration.
Wednesday, May 15, 2013
Are You Still Unhappy With Wall Street?
Those who invest in the US stock market have nothing to complain about. Stocks are on a tear in 2013 and have produced returns north of 8 percent annually over the past 100 years. What else does that well?
It has been almost impossible to avoid a lush retirement if one simply salted away money into an index fund regularly over the past 40 years.
So why do you continue to hear that Wall Street cannot be trusted and why do Congress and the Administration continue to try to crush Wall Street under a sea of litigation, regulation, and hyperbole.?
Will we really be better off without Wall Street? The average American has had the rare ability to simply plump his money down into an index fund and retire in splendor ($ 2,000 salted away in an IRA annually produced over $ 2 million in 40 years). I guess this kind of independence is too much for politicians to bear.
No one who has ever purchased an index fund at any time in history and still owns it today has a loss. In fact, it would be hard to find anyone who hasn't made an enormous amount of money in their index fund.
But, give Obama some time. Besides bludgeoning Wall Street into submission, his administration has sounded the first bugle in its war against IRAs.
Look for more of this. Obama will leave no stone unturned in his war against America's middle class. The war against Wall Street is designed, one supposes, to prohibit the average American from funding his retirement safely and force more Americans to fall back onto the US government for their retirement.
It has been almost impossible to avoid a lush retirement if one simply salted away money into an index fund regularly over the past 40 years.
So why do you continue to hear that Wall Street cannot be trusted and why do Congress and the Administration continue to try to crush Wall Street under a sea of litigation, regulation, and hyperbole.?
Will we really be better off without Wall Street? The average American has had the rare ability to simply plump his money down into an index fund and retire in splendor ($ 2,000 salted away in an IRA annually produced over $ 2 million in 40 years). I guess this kind of independence is too much for politicians to bear.
No one who has ever purchased an index fund at any time in history and still owns it today has a loss. In fact, it would be hard to find anyone who hasn't made an enormous amount of money in their index fund.
But, give Obama some time. Besides bludgeoning Wall Street into submission, his administration has sounded the first bugle in its war against IRAs.
Look for more of this. Obama will leave no stone unturned in his war against America's middle class. The war against Wall Street is designed, one supposes, to prohibit the average American from funding his retirement safely and force more Americans to fall back onto the US government for their retirement.
Friday, May 10, 2013
Jamie Dimon's Lament
Shareholders will vote soon. Right. Wrong. Shareholders typically have no idea that they are shareholders. Shareholders' agents -- pension funds, endowments, foundations, money managers -- these folks vote the shares, acting as agents for shareholders.
What do these agents think? They think that capitalism is fundamentally flawed and that corporations spend too much time seeking profit opportunities. Instead, public companies should be more concerned with 'activism.'
How does this help the ultimate shareholders? It makes them poorer. Retirement income is lowered and assets are frivolously wasted by the so-called agents.
But, what do the agents care. It doesn't affect them in the slightest.
In the name of corporate governance reform, these 'agents' are trying to impose an outside (of the company) Chairman of the Board for Citigroup, replacing Jamie Dimon and pushing Dimon to a subsidiary role. This would recreate the corporate governance structure that prevailed at Enron (and others) before they famously slid into a scandalous bankruptcy.
JP Morgan is one of the best performing large financial institutions in the world. Shareholders have been richly rewarded for the past five years by owning stock in JP Morgan. So, what to do?
Make a mountain out of a mole hill out of a $ 6 billion hedging loss by the great whale! What a waste of time! That loss did not keep JP Morgan from producing huge income and income growth, even in the same time period as the $ 6 billion loss!
So, what's the right answer? Decapitate JP Morgan. Maybe, we can create another Enron.
The move to replace JP Morgan as Chairman is anti-shareholder. If successful (and it will be ultimately), it will weaken JP Morgan, make retirees poorer and less able to cope financially, and enrich politicians and wealthy social activists (and their foundations and endowments). It will also serve to continue to undermine free markets and common sense.
What do these agents think? They think that capitalism is fundamentally flawed and that corporations spend too much time seeking profit opportunities. Instead, public companies should be more concerned with 'activism.'
How does this help the ultimate shareholders? It makes them poorer. Retirement income is lowered and assets are frivolously wasted by the so-called agents.
But, what do the agents care. It doesn't affect them in the slightest.
In the name of corporate governance reform, these 'agents' are trying to impose an outside (of the company) Chairman of the Board for Citigroup, replacing Jamie Dimon and pushing Dimon to a subsidiary role. This would recreate the corporate governance structure that prevailed at Enron (and others) before they famously slid into a scandalous bankruptcy.
JP Morgan is one of the best performing large financial institutions in the world. Shareholders have been richly rewarded for the past five years by owning stock in JP Morgan. So, what to do?
Make a mountain out of a mole hill out of a $ 6 billion hedging loss by the great whale! What a waste of time! That loss did not keep JP Morgan from producing huge income and income growth, even in the same time period as the $ 6 billion loss!
So, what's the right answer? Decapitate JP Morgan. Maybe, we can create another Enron.
The move to replace JP Morgan as Chairman is anti-shareholder. If successful (and it will be ultimately), it will weaken JP Morgan, make retirees poorer and less able to cope financially, and enrich politicians and wealthy social activists (and their foundations and endowments). It will also serve to continue to undermine free markets and common sense.
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