Category Archives: The Fisc

Government Is Not Essential

Another so-called government shutdown, otherwise known as the “Washington Monument Strategy.” The idea is to close all the government services that taxpayers actually want to use, while leaving everything else running and paying all the government employees for not working as usual (although some paychecks will be delayed).

So your vacation in a national park? Your new passport? Forget them. Your tax payments, though – send them in.

“However, the impact of a shutdown right now is limited to agencies that do not have finalized appropriations — and those agencies represent less than [a quarter] of total government spending,”

Here We Go Again

Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit. […]

And although the conclusion to which my investigations lead, that expansion of credit cannot form a substitute for capital, may well be a conclusion that some may find uncomfortable, yet I do not believe that any logical disproof of it can be brought forward.

— Ludwig von Mises, The Theory of Money and Credit, 1934, 2009 edition

Fair Tax

There’s much whining that Trump’s tariffs are going to be paid by the U.S. consumer in the form of higher prices for imported goods.

That’s right. And that’s a good thing. Trump has lowered income taxes and needs another source of revenue to compensate. Tariffs, in effect, are a form of consumption tax.

Back in 2009, I blogged my recipe for diverting the nation from the financial disaster now awaiting us. I fear that it is too late, but the first bullet on my list was:

Rebuild the nation’s balance sheet by encouraging savings and penalizing consumption. The primary tool for doing this would be the replacement of the income tax with a consumption tax.

Unfortunately, it is far too late. But replacing income tax with consumption tax is the right thing to do. And yes, I am aware that penalizing consumption will, well, reduce consumption. That’s OK, especially if it reduces the number of huge testosterone-fueled black pickups.

Deflation Watch

ECRI chimes in – I told you so.

The plunge in oil prices, which dropped below $50 this week, blindsided many businesses and investors. But the inevitable decline was foreshadowed months ago by a downturn in commodity prices, as measured by ECRI’s Industrial Price Index (IPI) which was previously known as the JoC-ECRI IPI*…….

…..Oil price inflation has now plummeted to a 32-month low – its worst reading since early 2016 (bottom line). But industrial commodity price inflation, as measured by the IPI, has already dropped to a 33-month low, and is still falling (top line), signaling continued downside risk for oil price inflation.

Close To The Event Horizon?

From ECRI’s Lakshman Achuthan:

Notably, the combined debt of the US, Eurozone, Japan, and China has increased more than ten times as much as their combined GDP [growth] over the past year.

Remarkably, then, the global economy—slowing in sync despite soaring debt—finds itself in a situation reminiscent of the Red Queen Effect we referenced 15 years ago, when tax cuts boosted the US budget deficit much more than GDP. As the Red Queen says to Alice in Lewis Carroll’s Through the Looking Glass, “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Nashville Cats

Nashville voters just rejected a $5.2 billion transit spending plan.

Why on earth would you spend that kind of money on transit, which is ill-suited to an urban sprawl like Nashville, when autonomous vehicles are about to drastically change the face of urban travel?

Quite apart from the capital investment, public transit is very expensive to operate because it depends on public employees who are granted an effective monopoly over travel in the city. So they can charge what they like – and they like a lot. Just go look at the pay and benefits for BART employees.

Yes, there are situations like New York, London and other major cities where the city simply could not function without the subway. And that’s because the subway has its own right of way that adds valuable capacity. Buses don’t do a thing except clog up the roads.

Nashville voters had their reasons and I don’t know what they were, but they have dodged a bullet by avoiding investing in yesterday’s technology – that was anyway notoriously ineffective except in providing political contributions.

Voting With Their Feet

In 2017, Illinois lost a net 33,703 residents, the largest numerical population decline of any state.

“We could handle the cold, avoid the crime and pay the tax. But the government turned on us (property, income, sales, parking, red-light/speed cameras, bags, soda). Never-ending. Tired of paying for everyone else’s retirement before mine,” said one respondent.

I guess he hadn’t run into the vehicle impound program yet.
Per WSJ:

In the years to come, millions of people, thousands of businesses, and tens of billions of dollars of net income will flee high-tax blue states for low-tax red states…..

For years blue states have exported a third or more of their tax burden to residents of other states. In places like California, where the top income-tax rate exceeds 13%, that tax could be deducted on a federal return. Now that deduction for state and local taxes will be capped at $10,000 per family.

Consider what this means if you’re a high-income earner in Silicon Valley or Hollywood. The top tax rate that you actually pay just jumped from about 8.5% to 13%.

Of course, as the pain of lavish pension plans really starts to kick in, the tax burden will become greater still.

Chicago

Chicago is ground zero for the Obama/Clinton school of Democrat liberal politics. Chicago is Obama’s home town and current mayor Rahm Emanuel was his chief of staff.

So it should be a great place to live, right? Wrong.

No need to re-iterate the shootings, the disastrous finances, the corruption. It is just that, for sheer nastiness, it is hard to beat this.

Byrd had run afoul of Chicago’s aggressive vehicle impound program, which seizes cars and fines owners thousands of dollars for dozens of different offenses. The program impounds cars when the owner beats a criminal case or isn’t charged with a crime in the first place. It impounds cars even when the owner isn’t even driving, like when a child is borrowing a parent’s car.

This civil asset forfeiture idea, originally invented to strip drug dealers of their assets as part of the “War On Drugs,” is a massive abuse of the rights of innocent people. It is a good reminder of the fact that government is a parasite that sucks the blood from the rest of us. And yet people keep voting for more of it. Talk about the triumph of hope over experience.

Silver Tsunami

The title is the name that has been coined for the government pension crisis that is unfolding. I have discussed this at length for quite some time, so here is a collection of current articles.

San Francisco Chronicle

Investment Research Dynamics

New York Times

Wirepoints.com

 

Credit Impulse

The credit impulse isn’t the sudden urge to borrow – it is the additional income and concomitant spending that results from an increase in aggregate debt. Spending capacity = net income + credit impulse. Credit impulse (annual) = current debt amount – year ago debt amount. Not complicated.

The credit impulse is how easy money creates economic expansion as economic entities – households, corporations, governments, etc. are able to spend more than they earn.

The downside is that, sooner or later, the entities reach the limit of their ability to borrow. The credit impulse disappears and the economy shrivels. Incomes diminish and defaults begin as entities can no longer service their debt. Credit becomes very difficult to obtain, lenders fail as capital losses mount and the economy accelerates downhill as the credit impulse goes negative as borrowers are unable to roll over their debt.