The United States. Default or Hyperinflation?

[DTS Ltd]

This thread is now over a month old. Since the last post, we've had a national election, are several weeks closer to the infamous "fiscal cliff," and our defecit is still growing. Things seem to be getting worse, not better. A year ago I wouldn't have thought so, but it does seem a distinct possibility that we may see hyperinflation AND default in our lifetimes.

The more I dig into this, the less evidence I find that "It will never happen to us." It's a sobering thought, especially if you're concerned for future generations.

I apologize for what you’re about to read

Yikes.

I'm leaning towards there being a hyperinflation and a default, based on what I've read in the Sovereign Man website and other sources. The only thing to do now is to make preparation.

 

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[GlobalWealth]

but I think the Gold standard is dead.

I just came back to this thread after a trip over the last week to Istanbul. I wrote an article about my trip that you may want to read here - The Last Gold-Backed Currency in the World | Asset Protection

In the article I discuss Turkey pushing for a gold standard. Banks now can hold up to 30% of their reserves in gold and banks all over the country are providing gold backed loans.

In Turkey, the people have historically held savings in gold, so the banks providing these gold-backed loans provides an incentive for people to take their personally owned gold and put them into the bank to use as collateral.

This means significantly stronger balance sheets as the gold represents a real asset on the books. The people are doing it too by putting their gold in banks and taking out business and real estate loans. It is a growing trend and the economy in Turkey is booming.

It is not a stretch to imagine other countries following suit. It would be quite easy for China or India to do a similar thing since the savings rate in those countries are very high and gold is highly valued as a store of value.

In China there are even street vending machines where you can buy gold coins and bullion bars. It is mainstream there. In addition China is buying up mining assets all over the world and bringing 100% of the output into China with virtually 0% being exported.

 

[GlobalWealth]

This thread is now over a month old. Since the last post, we've had a national election, are several weeks closer to the infamous "fiscal cliff," and our defecit is still growing. Things seem to be getting worse, not better. A year ago I wouldn't have thought so, but it does seem a distinct possibility that we may see hyperinflation AND default in our lifetimes.

Funny you mention this. I published an article on election day about this topic as well. You can read it here if you want - Happy Parasites Day

My firm has a product that allows you to establish and offshore bank account and gold storage account anonymously. I typically get 1-2 inquiries per day about this product.

On November 7th, I woke up to 62 inquiries, many of them now clients. People are fearful and rightly so.

 

[ChickenHawk]

I typically get 1-2 inquiries per day about this product. On November 7th, I woke up to 62 inquiries, many of them now clients

Wow, that's a huge spike. If I had to guess, I'd bet the vast majority of these people fall into the "Producer" category. If this trend continues, where productive assets and people look for opportunity elsewhere, it can't be be a good sign for the U.S.

 

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[GlobalWealth]

If I had to guess, I'd bet the vast majority of these people fall into the "Producer" category.

My clients tend to be entrepreneurs and investors between 35-55 years old. They are definitely the producers.

If this trend continues, where productive assets and people look for opportunity elsewhere, it can't be be a good sign for the U.S.

This trend has been accelerating over the past few years. Expatriation historically averaged around 200-300 people per year. Over the past 4 years, it has been around 1800-2000 per year. Not a big number, but keep in mind the people renouncing US citizenship are the ones with capital, not your $9/h Walmart employee.

there are significantly more immigrants than emmigrants in the US, but the ones coming in are not the HNW people we need to be attracting. Those are the ones leaving.

Also more companies have moved headquarters overseas in the past 4 years than in the previous 30 years combined. I am personally seeing a massive outflow of capital.

I host 2 conferences per year and speak at a few others and the attendance numbers are growing every event. People are buying real estate, precious metals and investing in businesses outside the US in droves. Not a good trend.

 

[InMotion]

I am personally seeing a massive outflow of capital.

So, where are these producers moving to? Where have you noticed specifically the capital flowing to; Any hot-spots from your observation?

 

[GlobalWealth]

So, where are these producers moving to? Where have you noticed specifically the capital flowing to; Any hot-spots from your observation?

Panama, Singapore, Chile, colombia, China, Hong Kong, Poland, Turkey

 

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[GlobalWealth]

Now, which country out of these would you recommend for greatest number of beautiful women? Do your clients ask?

Tough question - probably either Poland or Turkey.

I've also heard Colombia is fantastic, but I've never been. One of my partners is in Medellin.

But I can tell you from all my travels, nothing compares to Latvia.

 

[Jake]

I just came back to this thread after a trip over the last week to Istanbul. I wrote an article about my trip that you may want to read here - The Last Gold-Backed Currency in the World | Asset Protection

In the article I discuss Turkey pushing for a gold standard. Banks now can hold up to 30% of their reserves in gold and banks all over the country are providing gold backed loans.

In Turkey, the people have historically held savings in gold, so the banks providing these gold-backed loans provides an incentive for people to take their personally owned gold and put them into the bank to use as collateral.

This means significantly stronger balance sheets as the gold represents a real asset on the books. The people are doing it too by putting their gold in banks and taking out business and real estate loans. It is a growing trend and the economy in Turkey is booming.

It is not a stretch to imagine other countries following suit. It would be quite easy for China or India to do a similar thing since the savings rate in those countries are very high and gold is highly valued as a store of value.

In China there are even street vending machines where you can buy gold coins and bullion bars. It is mainstream there. In addition China is buying up mining assets all over the world and bringing 100% of the output into China with virtually 0% being exported.

I don't deny that gold will play a very important role as our financial system breaks free of it's $usd shackles. I don't see gold being a standard or used as a fixed reserve though. Gold is best used as a floating reserve. The ECB marks their gold reserves to market each quarter. A rising gold price does the heavy lifting for them and diminishes debt WITHOUT having to sell their hoard at a fixed price..as a gold standard would have them doing.

That's the problem with the standard. The market wants to lift the price and this becomes a destructive force to your economy. You're trying to give off signals that your currency is strong in gold by fixing the price but all balance sheet will eventually expand. Buying gold from the bank at this point is not only an inflation hedge but an arbitrage opportunity and the stabilizing mechanism(gold) is sucked off of your balance sheet leaving you with no credibility.

Ideally a central bank would like their reserves to bring stability to their economy and books so they can in-turn issue their currency. This is what a floating gold price does. A higher price = more valuable reserves = credibility without giving up your gold too cheaply or at all if you can manage right.

I've seen the gold machines in Dubai before :coolgleamA:



In Thailand gold is also mainstream. There's a gold shop on damn near every street corner with a buy/sell price on the window with a tight spread. They sell 96.5% pure(23Kt) in bars and jewelry form. Jewelry is basically wearable savings around these parts.

 

[WheelsRCool]

KAK,
Actually my view is that we will see both; hyperinflation and default. The US has no other choice at this point but to inflate away the debt. It is politically impossible to reduce the size of govt.

Provided we get the economy growing at a healthy rate again, we can also raise taxes some. Raising them punitively would be bad, but raising them by a reasonable amount (which I know the word reasonable can be arbitrary) would be okay.

We need to close the hundreds of military bases worldwide. Do we really need to colonize the world militarily? But can you imagine getting the politicians to do that when you have Lockheed Martin, Boeing, Northrop Grumman, Raytheon, and others earning billions and lining the pockets of Washington regulars?

I would have to disagree with the notion that we have colonized anywhere right now. The modern U.S. is not a modern equivalent of the British Empire at its height. The U.S. is who underwrites global trade and global security. It's the U.S. that keeps the sea lanes open, that kept the Soviet Union from over-running Western Europe during the Cold War, that to this day keeps a possibly resurgent Russia in check to some degree, that protects South Korea from North Korea, that protects Japan from China (we are obligated by treaty to protect Japan), that prevents China from taking control of Taiwain, and that prevents Iran from closing the Strait of Hormuz where 60% of the global oil supply passes through every day.

If the U.S. decides at some point to go all 1920s isolationist, it will probably lead to a situation rivaling World War 1 and World War 2 with all the chaos that would begin. We would also leave all of our fellow free societies at the mercy of the Russians, the Chinese, and the Iranians, who happen to be major global bullies. It is often mentioned about how the U.S. spends more on defense than the next ten nations combined, well regarding that, it's not that everyone else spends a reasonable amount on defense and the U.S. way over-spends, it's because everyone else barely spends anything, as the U.S. protects them. The defense budget also serves a major role in investment in research and development in science and technology that drives our economy by providing research that private industry can then adopt.

We need to completely revamp the tax code. Personally I think we need to eliminate the IRS and income tax altogether as it is immoral to force an income tax at threat of violence - and replace it with consumption tax. A 10% import tax on all goods and a 10% national sales tax would more than cover all necessary govt expenditures.

Would it really? Not saying you're wrong, but would those two taxes really cover all government expenditures?

Tax revenue cannot be raised. Historically tax revenue is around 20% of gdp. No matter the tax rate or policy, it doesn't move much. You can set a top tax rate of 90% and it won't matter. People will find ways to avoid the top rate. Govt has been hard at work for decades trying to close loopholes, but smart people always find a way.

We could raise it. There's a limit, but we could raise it through some additional taxes. If we had to, although it would be a bad idea as government would find ways eventually to mis-spend the money again, we could enact a VAT ("Value-Added" Tax) or a GST (Goods-and-Services Tax). Canada has a small GST, and most other nations have a VAT. The United States has neither. We also could raise, or eliminate even, the cap on the payroll tax and cap the payouts gradually, although this would involve gradually converting Social Security from the current pay-in-get-paid-out-what-you-paid-in system to a full-on form of welfare program for the elderly.

The morons that think you can just raise the taxes on the rich are just delusional. It is class warfare at its finest. The funny thing is the wealthy will find a way to minimize their losses. In most cases the lower and middle class will pay for it anyway in the form of higher prices, higher unemployment, and reduced worker benefits. Its already happening. We are in the middle of it.

Agree here. Raising taxes on the rich won't do it.

The debt is completely unsustainable in the long run. In the short term, we can paper it over. But at some point, China or another country will overtake the US as largest economy. When that happens the world will view that country (China?) as the safe haven and the reserve currency status will be lost and the new country will gain it.

China has a ways to go before becoming the world's largest economy, but even if they surpass the U.S. in the next five or ten years, I doubt that this will make them the reserve currency. China right now lacks enough domestic demand to even drive their own economy, and has not yet experienced a major crash. No one really knows what the true strength of the Chinese economy is. We know the U.S. economy is strong because it is an anchor global demand-wise and it survived a MAJOR crash.

China may well be on the verge of experiencing a major crash, but no one knows. Supposedly, their economy withstood the recession, but that's not true. The Chinese had to enact a massive stimulus via infrastructure and construction building to counter the drop-off in global demand for their products, thus giving the illusion of continued economic growth. But that would be like if the U.S. had a spare couple of trillion lying around and decided to spend it on building skyscrapers. While the construction was occuring, it would give the appearance of a healthy economy, but in reality it would be just that, an illusion.

Demand will fall for US debt. Yields will rise pushing interest rates up. Right now it only takes about a 200bp movement for the US to not be able to afford interest payments on its debt. That is not as big a move as one may think.

The U.S. has a few things going for it though:

1) Our "bad" economy is currently in the state that for years has been the norm for many of the major European economies (about 8% unemployment and 1-2% growth).

2) We produce tons of "stuff," which is very good still, and have potential to produce even more once we get our economy healthy again.

3) We have incredibly low taxes right now. Income tax rates are very low, capital-gains and dividend tax rates are very low, and we have no VAT or GST. So we have a cushion financially in that sense. We are not like the other nations that have large levels of debt and already have high taxes and yet are in worse condition then us.

All of these are why, even with a debt-downgrade, interest rates are at historic lows.

That is the point of default. We are already in a severe inflationary environment. Don't believe the bullshit CPI numbers. Food cost and fuel cost are up dramatically over the past 4 years. Do you spend money on food or fuel?

So yes, inflation, likely hyperinflation and eventually default.

I highly doubt that hyper-inflation or default will ever occur. Governments know a lot more about controlling inflation and its causes now then they did in the past. Default could be avoided by a trifecta of spending cuts, tax increases, and inflation, which would be pretty painful and suck big-time, and hopefully we won't ever come to that, but it could probably ultimately be avoided.

 

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[Jake]

I disagree with nearly everything you posted but for brevitys sake I'll just quote this

We would also leave all of our fellow free societies at the mercy of the Russians, the Chinese, and the Iranians, who happen to be major global bullies

I don't want to break the forum rules so I'll leave my reply to the smiley...

 

[awkwardgenius]

The government is stuck, it can't squeeze its subjects for more revenue

It's sure as hell gonna try though, and fastlaners are the targets. I'm basing my consulting practice around helping business owners avoid the coming onslaught of tax hikes, as well as deal with the implications of policies like the affordable care act.

Will it protect against hyperinflation? No, but that's a whole different monster.

I'm working will small to mid-sized businesses in the mean time to help them avoid being victimized by the government as it becomes increasingly desperate to make ends meet. It's a bit slow going at first, but I think as realities become apparent, services like mine (and there are near-ZERO out there for the little guys...the big multinationals have all the lawyers and tax planners to help them) are going to be critical if you want to remain competitive.

We'll see how long they can stretch out the inevitable, and it's going to be a wild day when the reckoning comes...in the mean time, do your best to protect yourself from the actions of that desperate behemoth heading for the cliff.

 

[GlobalWealth]

Provided we get the economy growing at a healthy rate again, we can also raise taxes some. Raising them punitively would be bad, but raising them by a reasonable amount (which I know the word reasonable can be arbitrary) would be okay.

Not likely to be growing again for at least 20 years. Take a look at Japan circa 1990 and you will find the US is making all the same decisions. Japan has been in an asset deflation, cost of living inflation for over 20 years.

As for taxes, just study a Laffer curve. Tax rate increases beyond a certain point always result in lower revenues. Many US states have already proven that; IL, MD, NY, NJ, and OR to name a few.

I would have to disagree with the notion that we have colonized anywhere right now.

You are completely wrong here. Do a bit of homework. The US has effectively colonized the world militarily. Think not? What happens if South Korea and North Korea go to war? You can bet US warships will be on the scene within hours. As you mention the Strait of Hormuz, what happens if Iran decides to stop passing ships? Yep, US warships onsite within hours.

This colonization has led to the massive growth of the corporate military complex which along with banking and healthcare create a wonderful incestuous relationship inside the DC beltline.

The United States has neither.

Keep in mind, the US federal govt has not vat, but most states do have a sales tax ranging from 5-8%.

We also could raise, or eliminate even, the cap on the payroll tax and cap the payouts gradually, although this would involve gradually converting Social Security from the current pay-in-get-paid-out-what-you-paid-in system to a full-on form of welfare program for the elderly.

LOL - 'get what you pay in'....hahahaha

Biggest ponzi scheme in world history. No SS funds ever get deposited for investment. they all go into the general fund which the DC parasites rob daily to spend as they wish. All SS payouts come from incoming funds from current SS payers. House of cards...

Do we really need to put the least efficient allocator of capital in charge of more capital? Seriously? Bwahahaaha

No one really knows what the true strength of the Chinese economy is. We know the U.S. economy is strong because it is an anchor global demand-wise and it survived a MAJOR crash.

Agreed that we don't know the underlying strength of the Chinese economy, but the weakness of the US economy is very apparent. The Chinese do have a rapidly growing middle class though and that will further grow their domestic demand.

The Chinese are also buying up resource assets worldwide now. They are making smart investments. The US is just taxing its citizens more and more and investing in nothing productive.

China will no doubt surpass the US. No question. 5 years? 10 years? 20? Who knows. But the growth rates and numbers don't lie. The US is the world's reserve currency for only one reason, it is the largest economy with the highest likelihood of debt repayment. Once the US losses the crown, it will also lose reserve currency status.

1) Our "bad" economy is currently in the state that for years has been the norm for many of the major European economies (about 8% unemployment and 1-2% growth).

Not a good comparison. Most EU countries are falling hard. Unemployment EU-wide now is 11.5%. And that is being carried by the stronger Eastern European countries and Germany. Spain is over 25%, Italy is around 20%. Not good. Not the model the US wants to follow.

Ironically, many of the EU countries are making reasonably smart economic decisions with austerity. Austerity is bad in the short run, but clears the system and gets the country in growth mode quicker.

2) We produce tons of "stuff," which is very good still, and have potential to produce even more once we get our economy healthy again.

Seriously? What stuff? Nearly all cars now are imported. The ones assembled here are made from imported parts. Nearly all electronics are imported. Nearly all clothes and furniture is now imported. Nearly all machinery is imported.

The US has become a service economy. We don't produce anything.

The one bright spot now in the US economy is energy. The US has the capability to become a NatGas exporter over the next couple of years with the new fracking technology that has produced new oil and gas reserves.

This cannot be taken lightly either. this could be huge and could potentially be the temporary saviour of the US economy.

3) We have incredibly low taxes right now. Income tax rates are very low, capital-gains and dividend tax rates are very low, and we have no VAT or GST. So we have a cushion financially in that sense. We are not like the other nations that have large levels of debt and already have high taxes and yet are in worse condition then us.

Here is where you have now lost all credibility. The US has the highest corporate tax rate in the world, and one of the highest personal tax rates in the world. And starting Jan 1, the US will see the largest tax increase in US history.

You compare to China a bit here, so take a look at this. On Jan 1, dividend tax in the US goes from 15% to a max of 43.8%. China just lowered its dividend tax rate to 5%.

Russia has 0 capital gains tax. Singapore and Panama (and many others) have no tax on foreign source income. Estonia has a flat 21% tax on earned income, and no capital gains, dividend, or interest tax.

Ironically, the countries with higher taxes like Norway, Finland and Sweden all include 100% healthcare coverage and large pension plans. Not that I agree with that, but at least if they tax you to death, you get sizable benefits.

The US has by far the most punitive tax system in the world. Estonia's entire tax code is 43k words. The instruction page alone for the US 1040, is about 180k words.

So while the US has the highest corporate tax and one of the highest personal tax rates in the world, they also have the highest cost of compliance of any country in the world.

I highly doubt that hyper-inflation or default will ever occur.

No one ever does....until it does

Default could be avoided by a trifecta of spending cuts, tax increases, and inflation, which would be pretty painful and suck big-time, and hopefully we won't ever come to that, but it could probably ultimately be avoided.

It cannot be avoided. Your solution is the typical Keynsian answer which only leads to a worse event in the future. You cannot avoid the unavoidable forever.

 

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[CommonCents]

Isn't it ironic that we hear from the DC elite that the US has to be globally competitive, but we are least globally competitive in taxes?

 

[WheelsRCool]

Not likely to be growing again for at least 20 years. Take a look at Japan circa 1990 and you will find the US is making all the same decisions. Japan has been in an asset deflation, cost of living inflation for over 20 years.

As for taxes, just study a Laffer curve. Tax rate increases beyond a certain point always result in lower revenues. Many US states have already proven that; IL, MD, NY, NJ, and OR to name a few.

U.S. might end up like Japan, but no way to be sure. Hopefully it won't. I understand the Laffer curve, but too many people have gotten the Laffer curve confused with the notion that any tax increase will cut revenues and any tax cut will increase them. That's not true. Within a certain range, lowering tax rates reduces revenue and raising them increases revenue.

You are completely wrong here. Do a bit of homework. The US has effectively colonized the world militarily. Think not? What happens if South Korea and North Korea go to war? You can bet US warships will be on the scene within hours. As you mention the Strait of Hormuz, what happens if Iran decides to stop passing ships? Yep, US warships onsite within hours.

But how does that constitute "colonization?" The U.S. does not have formal colonies in either of those areas, or anywhere else. Colonies would be if we had puppet subsidiary governments that governed these areas for the economic benefit of the United States. The last of such empires was the Soviet Union, which was an old-fashioned Russian empire. The United States is nothing of the sort. Many countries are our allies however, and we are also obligated to protect certain ones by treaty. As for the Strait of Hormuz, well that's necessary for the global economy period.

This colonization has led to the massive growth of the corporate military complex which along with banking and healthcare create a wonderful incestuous relationship inside the DC beltline.

I agree that the military-industrial complex is large and corrupt, along with banking and healthcare, but, I do not see how that changes the reality of the geopolitical situation. Banking, for example, is a very necessary industry. Very corrupt? It seems so. But we could not do without it. Similarly, saying that the current geopolitical situation that requires a large U.S. military is not denying that the defense industry has a lot of corruption.

Keep in mind, the US federal govt has not vat, but most states do have a sales tax ranging from 5-8%.

I know that certain other countries like Germany are divided into the equivalent of states as well, would be interesting to see if those themselves also have their own taxes.

LOL - 'get what you pay in'....hahahaha

Biggest ponzi scheme in world history. No SS funds ever get deposited for investment. they all go into the general fund which the DC parasites rob daily to spend as they wish. All SS payouts come from incoming funds from current SS payers. House of cards...

Do we really need to put the least efficient allocator of capital in charge of more capital? Seriously? Bwahahaaha

Yes, I was over-simplifying, but SS "on paper," at least, is supposed to be a system where you get paid out what you paid in. That's why the payroll tax is capped. Thing is, what is the alternative? I am guessing there are some, but it needs to be a program with some type of governmental guarantee, as the average person is not smart enough to know how to play the stock market for their retirement and even if they were, the stock market cannot always be trusted, as it can crash.

I know many disagree, but I believe there needs to be some form of old-age pension system in place. Not a system that if you were earning say $300K a year pays you out $300K when you retire, I mean if you want that much, that's up to you to supplement it, but a system that provides a base-minimum of income so you coul survive. Obviously, this would require things like means-testing and so forth as well. If conventional SS ever gets faded out, I imagine such a program could gradually be phased-in to replace it.

China will no doubt surpass the US. No question. 5 years? 10 years? 20? Who knows. But the growth rates and numbers don't lie. The US is the world's reserve currency for only one reason, it is the largest economy with the highest likelihood of debt repayment. Once the US losses the crown, it will also lose reserve currency status.

They once said the same about the Soviet Union. And the Japanese. The numbers could very much lie and the growth rates I wouldn't count on. Plus China has some major problems that the U.S. doesn't have, such as environmental pollution, a rapidly aging population, a shortage of women, massive corruption, and so forth. But the reason the numbers could be lying is that for one, we rely on China to provide the numbers, which could be inaccurate due to corruption on the part of the Chinese, and two, a lot of the so-called "GDP growth" of China may ultimately be fake.

This problem happened with the Soviet Union. The Soviet Union produced a whole bunch of "stuff," but most all of it was junk. But on paper, the Soviet Union looked like it had a decent, growing GDP. Similarly, China right now produces a lot of "stuff," and builds a ton of infrastructure and real-estate that is a major driver of their economy, but a whole lot of it is utter crap (for lack of a better word) build-quality-wise. So their GDP numbers may not be what are claimed. Regarding their growth rate, any younger economy can have a high level of growth. But that is not going to be sustainable. Eventually, it is going to taper off. These projections about China surpassing the U.S. economically in X number of years just assume they will keep growing as they supposedly are.

Not a good comparison. Most EU countries are falling hard. Unemployment EU-wide now is 11.5%. And that is being carried by the stronger Eastern European countries and Germany. Spain is over 25%, Italy is around 20%. Not good. Not the model the US wants to follow.

Ironically, many of the EU countries are making reasonably smart economic decisions with austerity. Austerity is bad in the short run, but clears the system and gets the country in growth mode quicker.

Yes, that's my point, that what for years was the "norm" for many of the Euro countries is where the U.S. is now. So our "bad" economy is what has been normal for Europeans for years. And while I agree that the general social democratic model the European nations tend to follow is not sustainable, there are some working examples, Germany being one of the biggest. They have a very strong economy, but yet are heavily unionized and have a large social welfare state by American standards. They are also very highly taxed by American standards. And the really interesting thing to think about is that the current state of the German economy is sizeably worse than what it otherwise would be because West Germany had to integrate the very backwards East German economy into it after the Cold War ended.

East Germany's economy was more backwards then what even the worst estimates by experts were. There was a joke that the Soviet Union had the world's most advanced 19th century economy Integrating this in with the modern, prosperous West German economy strained said economy and drove up its unemployment rate. So imagine how Germany might now be if all of Germany had been able to rebuild after WW2 as West Germany did and never had to integrate in an ex-communist economy.

The Germans adhere to what is called a "social market economy" and "Ordoliberalism," which is basically a variant of classical liberalism (being for free-market capitalism, limited government, fiscal conservatism and all that), but one that calls for a strong role for the state to play in terms of ensuring market competition and a strong welfare state (unemployment insurance, old-age pension system, universal healthcare being the main ones), but also fiscal responsibility. Austria also has a strong economy with a sizeable welfare state from what I understand as well, but yet also a culture that believes in hard work, that isn't lazy. Switzerland is very free-market-oriented too.

Seriously? What stuff? Nearly all cars now are imported. The ones assembled here are made from imported parts. Nearly all electronics are imported. Nearly all clothes and furniture is now imported. Nearly all machinery is imported.

The US has become a service economy. We don't produce anything.

The one bright spot now in the US economy is energy. The US has the capability to become a NatGas exporter over the next couple of years with the new fracking technology that has produced new oil and gas reserves.

This cannot be taken lightly either. this could be huge and could potentially be the temporary saviour of the US economy.

This has to be one of the greatest myths about the U.S. economy, that we don't produce anything anymore. The reality is that we are one of the largest manufacturers in the world. For years, we have been the largest manufacturer. It is only very recently, over the past two years, that the Chinese surpassed us, and even then, it's still very close. China is now responsible for about 19.8% of global manufacturing. The U.S. is responsible for about 19.4%. But the huge kicker is that the Chinese do that with 100 million workers while the U.S. only needs 11 million workers in manufacturing. So in a way, the U.S. is still the top dog in manufacturing output.

As for what we produce, we produce a whole lot of stuff that is crucial to the functioning of the global economy, but that you usually won't find on the shelves of your local Wal-Mart or Target store. Low-margin consumer goods like toys, sneakers, PCs, iPods and iPads, consumer electronics, etc...are mostly made overseas, which is what leads to the misperception that the U.S. "doesn't make anything anymore." Combine that with the decline in manufacturing employment (which is separate from manufacturing output) and this view is only compounded. Things made in the U.S. are things such as advanced medical devices and technologies, industrial machinery, machine tools, industrial and military-grade electronics, big things such as aircraft, ships, farming equipment and vehicles, and all sorts of sophisticated componentry and technology for all variety of industries. And American manufacturing and manufacturing workers are the most productive in the world.

Three major additional myths about U.S. manufacturing are that:

1) It is driven by the defense budget: This isn't true, as U.S. manufacturing output greatly exceeds the yearly defense budget, and only a portion of the defense budget is for procurement

2) It is dominated by large businesses: This also isn't true. There are many, many small and medium-sized U.S. manufacturing businesses, along with the large ones everyone knows

3) It relies on the production of a few large, big-ticket items such as jumbo jets and automobiles. Again, this isn't true. Those things are part of it, but there's all sorts of smaller things produced as well that together add up.

U.S. manufacturing is only going to grow stronger in the future because with the new manufacturing technologies, the ability to do sophisticated manufacturing is becoming cheaper and cheaper, and thus more available to smaller companies. Also mass data storage and high-performance computing are also becoming commoditized and cheap, which is allowing small businesses the same capabilities that previously only bigger businesses had.

Here is where you have now lost all credibility. The US has the highest corporate tax rate in the world, and one of the highest personal tax rates in the world. And starting Jan 1, the US will see the largest tax increase in US history.

Our corporate tax rate many companies get out of via loopholes. But I would be fine with a reduction in the corporate tax rate where high to incentivize more companies to come here. We do not have the highest personal tax rates. 47% of the population currently pays no federal income tax, and the higher-earners have loopholes they can exploit. The Obamacare tax will not be the largest U.S. tax increase in history, that is just rhetoric from the right-wing. The reality is that it will be a moderate tax increase on those paying it.

You compare to China a bit here, so take a look at this. On Jan 1, dividend tax in the US goes from 15% to a max of 43.8%. China just lowered its dividend tax rate to 5%.

I am not for raising the dividend tax that high, but that is what happens if/when the Bush tax cuts expire unfortunately.

Russia has 0 capital gains tax. Singapore and Panama (and many others) have no tax on foreign source income. Estonia has a flat 21% tax on earned income, and no capital gains, dividend, or interest tax.

Don't know as much about the others, but capital gains revenue is not a major source of revenue for the Russia government I'd imagine, as their economy is still a good deal socialist and the Russian government relies mostly on commodity exports for revenue.

Ironically, the countries with higher taxes like Norway, Finland and Sweden all include 100% healthcare coverage and large pension plans. Not that I agree with that, but at least if they tax you to death, you get sizable benefits.

Norway gets 20% of their revenue from oil exports, so they're not quite the example many think they are on that. Sweden I know had to partially privatize its healthcare system due to rationing that was occurring. Also, these are small nations population-wise, which makes them much easier to manage.

The US has by far the most punitive tax system in the world. Estonia's entire tax code is 43k words. The instruction page alone for the US 1040, is about 180k words.

No disagreement there. However, Estonia is also only 1.3 million people, so maybe that is why their tax code is smaller.

So while the US has the highest corporate tax and one of the highest personal tax rates in the world, they also have the highest cost of compliance of any country in the world.

Agree on the cost of compliance and corporate tax part.

No one ever does....until it does

True. But the inflation folk have been calling for hyper-inflation for quite awhile now and it hasn't happened. If we had adhered to their policies in the wake of the crisis when the Fed gunned up the money supply to counter the deflation, we'd probably be in a worse economic situation then right now.

It cannot be avoided. Your solution is the typical Keynsian answer which only leads to a worse event in the future. You cannot avoid the unavoidable forever.

Why not? What is there that is going to cause a default anytime soon? The U.S. has many ways it can avoid a default.

 

[Pete799p]

There are so many things that are wrong with the US and society in general right now that things are really looking pretty grim. However there is some light at the end of the tunnel assuming they don't screw it up.

Domestic energy production and fracking is very bullish right now assuming they dont screw it up. (ie create overly elaborate and expensive regulation that no longer makes domestic production for exportation cost effective)

Technology is very bullish right now assuming they dont screw it up. (ie continue to create a hostile business enviroment and lowering the appeal of the US to tech startups) the problem with relying on tech is that generally speaking it is a very geographically independent industry.

Natural resource extraction is bullish assuming they dont screw it up and in fact do something to unscrew it up. With inflationary commodity prices demostic resource production becomes profitable again. Look at gold for example. In many dieing small us towns mines are beginning to slowly start up production again. The big problems are the eviromental costs associated with this business. By the time they pay off the goverment and deal with the rediculously time consuming approval processes it is often no longer profitable. I am not saying destroy the enviroment as I am a very active outdoorsman but I have spent enought time outdoors and working with enviromentalist to understand that it has gotten a bit rediculous. Because of this many industries have been decimated, logging is one of those.

Get rid of GMO garbage, and not for environmental reasons. The fact that the production of roundup ready GMO crops costs more money then its worth and requires goverment subsidy to actually turn a profit to me means that large scale agribusiness right now is a drain on the economy instead of a boost. This coupled with the fact that a large percentage of countries will not even accept our GMO crops, thus limiting our export potential and therefore value means that this GMO monopoly crap really needs to end and bring some really value back to the US.

 

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[CommonCents]

The problem is now for the US is policy direction. They are largely using class warfare treating the economy is one fixed size, and only fighting over smaller and smaller slices of pizza. Regulation and taxation are acting to shrink the pizza smaller and smaller. The correct policy is growing the pizza from a small one to an extra large one, where potential slices are much bigger for everyone. I had hoped Herman Cain would have used this analogy. Why settle for a small pizza when you can have a piece of an extra large?

 

[GlobalWealth]

Isn't it ironic that we hear from the DC elite that the US has to be globally competitive, but we are least globally competitive in taxes?

In a globalized economy, like it or not tax rates play a big role in decision making. The US was at the forefront of tax competition in the early 80's under Reagan, but since then we have stopped being competitive out of arrogance.

Many countries around the world are lowering tax rates and liberalizing their economy while the US seems to be going in the wrong direction for about 20 years.

 

[Kak]

Isn't it ironic that we hear from the DC elite that the US has to be globally competitive, but we are least globally competitive in taxes?

AHHHHHHHHHH I am basking in the glory of this post. Please, everyone, speed this man!

 

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[GlobalWealth]

But how does that constitute "colonization?" The U.S. does not have formal colonies in either of those areas, or anywhere else. Colonies would be if we had puppet subsidiary governments that governed these areas for the economic benefit of the United States.

That is exactly what is happening. There are far too many stories and I've got better things to do that provide examples, but there many 'behind closed doors' deals that happen with smaller countries in exchange for US military bases.

Keep in mind that a US military presence in a country means less expense on the home country to defend itself. Not to mention the enormous economic benefit to that country having a US base there. These countries were colonized militarily through economic benefit. Don't get hung up on the label of "colony". The net effect is the same.

Banking, for example, is a very necessary industry. Very corrupt? It seems so. But we could not do without it.

We do need banking, we we don't need central banking. Therein lies the corruption...too much power, too few hands.

Similarly, saying that the current geopolitical situation that requires a large U.S. military is not denying that the defense industry has a lot of corruption.

Does the current geo-political situation require a large military? Or does the large military create the unrest?

Panama has no military and yet they have no one bombing them and no wars to fight. Switzerland has a small military that protects its home nation and invades no one. Norway's military is about the size of Chicago's police department and yet they seem to have no attackers.

And yet the US who continually bombs other countries as way of exerting power (more colonization and expansion of the global military complex) keeps having security concerns?

I know that certain other countries like Germany are divided into the equivalent of states as well, would be interesting to see if those themselves also have their own taxes.

Not in Germany, and none others that I'm aware of.

Thing is, what is the alternative? I am guessing there are some, but it needs to be a program with some type of governmental guarantee,

Do a google search for New Zealand and Chile's private pension plan. they took their SS equivalent and privatized it a few years ago. They are producing excellent returns (relatively of course) for their pensioners.

They once said the same about the Soviet Union. And the Japanese.

Look a little farther back than the history you can remember. Great Britain was formerly the world superpower. Italy, Spain, and even China have held that title as well in history. The only thing that is 100% given is change.

Plus China has some major problems that the U.S. doesn't have, such as environmental pollution, a rapidly aging population, a shortage of women, massive corruption, and so forth.

China's median age is younger than the US at 35 years vs 37 for the US. In China there are 1.13 males for every female born, but I'm not exactly sure how that creates a problem demographically. Maybe I'm just too ignorant to understand. The Chinese fertility rate is about 1.55 children per female while the US fertility rate is about 1.8.

I don't see this a big issue since China already has over 1b in population. The US would have to reproduce for several hundred years to reach a similar population.

Actually, any fertility rate below 2.1 suggests a declining population. Therefore the only way to increase population is thru immigration. Both China and the US have very tough immigration laws making it difficult for foreigners to come live.

But the reason the numbers could be lying is that for one, we rely on China to provide the numbers, which could be inaccurate due to corruption on the part of the Chinese, and two, a lot of the so-called "GDP growth" of China may ultimately be fake.

You are most likely correct here to some extent, but the sheer mass of it cannot be ignored. China is investing in resources with cash earned from exporting bobble-head jesus dolls to us by the container-load; and we're buying them all up. Their middle class is growing and buying stuff taking over the need for a strictly export market. China is buying up world assets with cheap US dollars.

They have a very strong economy, but yet are heavily unionized and have a large social welfare state by American standards.

Germany is in huge trouble. They are continually bailing out the other EU failed states to basically save their own a$$. The state owns WAY too much sovereign debt from countries like Spain, Italy, and Greece that will all eventually default and crush Germany. Germany is a farce right now. They are a joke. They're like a melted M&M, still tough on the outside, but all gooey on the inside. Btw, net taxes are higher in the US than Germany, but the US sees less social benefits.

This has to be one of the greatest myths about the U.S. economy, that we don't produce anything anymore.

Good job on the stats, but they are a bit misleading. I do agree that the US is the most efficient manufacturing country able to produce the most from the least. That is due to technological innovation that happened over the past 60+ years. The problem is that this is beginning to taper off and die as many companies are no longer interested in expanding R&D in a constantly changing political and economic environment.

A huge amount of the manufacturing is in the defense industry. The 2012 US defense budget comes in around $1.4T, or nearly 10% of GDP. That's a very large number. Certainly not all of this is manufacturing, but a very large percentage of it is.

As previously mentioned, the increase in natgas and oil reserves has increased the need for equipment for drilling. This will create a boost to the manufacturing industry.

Our corporate tax rate many companies get out of via loopholes.

100% true. And many of those loopholes involve those companies moving overseas to avoid punitive taxation. Not good for US workers.

But I would be fine with a reduction in the corporate tax rate where high to incentivize more companies to come here.

Actually corporate taxes should be completely eliminated. Companies only raise taxes and pass on the cost to consumers, so in essence the corporate tax is just another tax on consumers. It would be much more efficient to eliminate it altogether and implement a fair or flat tax on the people.

We do not have the highest personal tax rates. 47% of the population currently pays no federal income tax, and the higher-earners have loopholes they can exploit.

Tax rates and tax payers are not the same thing. The US does have one of the highest personal tax rates in the world (I didn't say the highest). You are correct that 47% pay no NET income tax, but I wasn't discussing that, I was discussing tax RATES.

True the HNW people can exploit loop-holes, which as previously stated only adds cost and inefficiency to tax compliance. At my last company I estimated I spent 30% of my time dealing with compliance issues. By compliance, I also mean the exploitation of these loopholes. Imagine how much more value I could have added to my clients and employees if I didn't deal with this?

In many countries this stuff is a non-issue. The US has by far the worst tax code in the world. Even if you work through all the loopholes to avoid the tax legally, you are still looking at hours of research and $300/h for a competent tax planner to minimize your bill.

The Obamacare tax will not be the largest U.S. tax increase in history, that is just rhetoric from the right-wing. The reality is that it will be a moderate tax increase on those paying it.

I'm not only talking about Obamacare. I am also talking about the expiry of the Bush tax cuts.

But speaking of Obamacare, I spoke to a friend of mine the other day who runs a company with about 500 employees. I used to sit on his board so I'm pretty familiar with the company. He is in the service business and most of his workers are low wage ~$12/h. They are almost all fulltime.

After meeting with his benefits/insurance rep a couple of weeks ago he was informed that his health insurance cost was going up over 80% starting in 2013 due to Obamacare legislation. His choice was virtually wipe out all profit, or add 130 workers and cut them all to 28 hours per week. He cut them all and is adding workers.

Now no one will get company paid health insurance. Problem solved.

Don't know as much about the others, but capital gains revenue is not a major source of revenue for the Russia government I'd imagine, as their economy is still a good deal socialist and the Russian government relies mostly on commodity exports for revenue.

Very wrong about Russia. I live in Eastern Europe and have many Russian clients. I also travel to Russia on occasion. They are very entrepreneurial and business is booming there. They have no capital gains tax, so of course it isn't a big source of revenue - it's 0 revenue. Flat tax of 13%, which when enacted in 2001 resulted in a 25% increase in tax revenue. Businesses are being privatized and Moscow is now home to the highest number of billionaires of any city.

Sweden I know had to partially privatize its healthcare system due to rationing that was occurring.

True, which also increase quality and lowered cost. Ironic how getting this out of govt hands improved the situation...

No disagreement there. However, Estonia is also only 1.3 million people, so maybe that is why their tax code is smaller.

This is a common misunderstanding. Whoever said you need to have a bigger tax code just because you have a bigger population. There is nothing that prevents the US from adopting a simple tax code like Estonia...oh...except for the lobbyist groups run by CPA, Intuit, private universities granting accounting degrees, H&R Block, etc.

But practically, there is nothing that should prohibit the US from doing something similar. Its just politically impossible. No one in DC wants to give up their H&R Block paid for Lexus.

But the inflation folk have been calling for hyper-inflation for quite awhile now and it hasn't happened.

Not yet in hyperinflation. But food costs are up nearly 30% in 12 months. Fuel cost is up over 100% in 4 years. Unless you don't use fuel or food, everyone in the US has seen a dramatic increase in cost of living.

If we had adhered to their policies in the wake of the crisis when the Fed gunned up the money supply to counter the deflation, we'd probably be in a worse economic situation then right now.

If we didn't bail out BofA, Citi, GM, Chrysler, AIG, et al, we would have been in worse shape....for awhile. But then the shit would have flushed and we would be able to return to growth. As it is, we are making all the same stupid choices Japan did starting in 1990, which has resulted in 2 lost decades.

Iceland and Latvia are both examples of cutting cost (austerity) and letting the shit flush (allowing failure). They saw a very hard 2 years and now are both growing at very strong rates.

Why not? What is there that is going to cause a default anytime soon? The U.S. has many ways it can avoid a default.

Default is unavoidable at this point. It's mathematically impossible. Your answer seems to be inflate it away, but sooner or later you run out of creditors to buy your trash debt.

China and Japan were previously the 2 largest holders of US Treasuries. Now the Federal Reserve is. Why? Because no one else wants the garbage. It's artificial demand. King Ben waves his magic wand and voila, $40B/m appears to buy up all the bad mortgages (MBS) from his pals at BofA, Citi, GS, etc.

The US can avoid default, for awhile. But not forever.

I look forward to the day. Then I can grab up cheap assets.

 

[WheelsRCool]

That is exactly what is happening. There are far too many stories and I've got better things to do that provide examples, but there many 'behind closed doors' deals that happen with smaller countries in exchange for US military bases.

Keep in mind that a US military presence in a country means less expense on the home country to defend itself. Not to mention the enormous economic benefit to that country having a US base there. These countries were colonized militarily through economic benefit. Don't get hung up on the label of "colony". The net effect is the same.

Would have to disagree. A colony is supposed to enhance the economy of the colonizing country. The U.S. form of "colonization" detracts from the economic value of the home country. It means the U.S. subsidizing the rest of the world, indirectly in the sense that what they don't have to spend on defense they can spend on their social welfare states, and directly in that the money that goes to funding the bases then gets spent by the soldiers in the country itself, thus stimulating said country's economy at the U.S.'s expense.

We do need banking, we we don't need central banking. Therein lies the corruption...too much power, too few hands.

What would be your alternative to central banking? The gold standard? I disagree with the gold standard and see central banking is one of those necessary evils as I see it.

Does the current geo-political situation require a large military? Or does the large military create the unrest?

I can see where you're going with that and what you believe, I suppose we will have to agree to disagree there, but my belief is that the geo-political situation requires the military. I do not believe for one second that if we were to pull our military out from everywhere, that global peace would increase, and the likes of Russia (who loves to bully Ukraine, Poland, and Czech Republic), China (who wants to re-take Taiwan by force and can, it's the U.S. right now that's stopping it, likes to bully Japan, oppresses Tibet, and has bullied the Phillippines so much that they've begged the U.S. to re-open our naval base in the region, which we are doing), Iran (who are the largest state-sponsor of terrorism along with other things), and North Korea (who would easily over-run South Korea if there was no U.S. presence there), would just sit idly by and do nothing.

Panama has no military and yet they have no one bombing them and no wars to fight. Switzerland has a small military that protects its home nation and invades no one. Norway's military is about the size of Chicago's police department and yet they seem to have no attackers.

...because they all benefit from the security umbrella that is provided by the United States. Switzerland also is a bad example for two reasons I'd say:

1) Switzerland, due to their geography, is nearly impossible to invade. That is one reason why they have never been invaded.

2) They're a major financial center for the world's wealthy. No dictator wants to attack the country where he has banking.

And yet the US who continually bombs other countries as way of exerting power (more colonization and expansion of the global military complex) keeps having security concerns?

Who does the U.S. "continually bomb?" And yes, there are constant security concerns. That other nations don't deal with them in nearly the same degree doesn't mean that they do not exist. Iraq was a mistake, but even then, it was still a brutal dictator who got overthrown there.

Do a google search for New Zealand and Chile's private pension plan. they took their SS equivalent and privatized it a few years ago. They are producing excellent returns (relatively of course) for their pensioners.

Will do. However, do their plans have a government guarantee in the event of a crash?

Look a little farther back than the history you can remember. Great Britain was formerly the world superpower. Italy, Spain, and even China have held that title as well in history. The only thing that is 100% given is change.

But they were all formal empires, not the modern form of superpower that the U.S. is. Great Britain lost their empire due to World Wars 1 and 2. They also hurt themselves economically by Labour Party trying to implement socialism for much of the 20th century. Also, I am not saying that the U.S. will remain on top forever, but I do not see it as certain to say that China is just going to eat our lunch either.

China's median age is younger than the US at 35 years vs 37 for the US. In China there are 1.13 males for every female born, but I'm not exactly sure how that creates a problem demographically. Maybe I'm just too ignorant to understand. The Chinese fertility rate is about 1.55 children per female while the US fertility rate is about 1.8.

I don't see this a big issue since China already has over 1b in population. The US would have to reproduce for several hundred years to reach a similar population.

Actually, any fertility rate below 2.1 suggests a declining population. Therefore the only way to increase population is thru immigration. Both China and the US have very tough immigration laws making it difficult for foreigners to come live.

China's one-child policy and their policy of killing female babies has led to a shortage of women in the country from what I understand. They also have a huge aging population that is going to hit them soon.

You are most likely correct here to some extent, but the sheer mass of it cannot be ignored. China is investing in resources with cash earned from exporting bobble-head jesus dolls to us by the container-load; and we're buying them all up. Their middle class is growing and buying stuff taking over the need for a strictly export market. China is buying up world assets with cheap US dollars.

Yes, in criticizing China, I do not mean to imply it is not a major economic power. I just don't buy that it is as powerful as many are suggesting.

Germany is in huge trouble. They are continually bailing out the other EU failed states to basically save their own a$$. The state owns WAY too much sovereign debt from countries like Spain, Italy, and Greece that will all eventually default and crush Germany. Germany is a farce right now. They are a joke. They're like a melted M&M, still tough on the outside, but all gooey on the inside. Btw, net taxes are higher in the US than Germany, but the US sees less social benefits.

I agree that they are exposed to the failing EU states, however so is the United States to some degree. I would have to disagree that Germany is any farce. They have a solid economy that produces lots of stuff. They call it the Mittelstand, referring to the large body of small to medium-sized businesses in Germany that produce highly-engineered and finely-crafted products. They also have some major large companies, ranging from Siemens to Mercedes-Benz of course.

How are net taxes in the U.S. higher than in Germany?

Good job on the stats, but they are a bit misleading. I do agree that the US is the most efficient manufacturing country able to produce the most from the least. That is due to technological innovation that happened over the past 60+ years. The problem is that this is beginning to taper off and die as many companies are no longer interested in expanding R&D in a constantly changing political and economic environment.

A huge amount of the manufacturing is in the defense industry. The 2012 US defense budget comes in around $1.4T, or nearly 10% of GDP. That's a very large number. Certainly not all of this is manufacturing, but a very large percentage of it is.

Thanks, but again would have to disagree, the defense budget is not $1.4 trillion. For 2011, the budget was $687 billion (this includes the base budget and the budget for "Overseas Contingency Operations," i.e. operations in Afghanistan and so forth). The 2012 budget was $645.7 billion. The requested budget for 2013 is $613.9 billion. Defense procurement for 2012 was $120.58 billion. Defense procurement for 2013 is requested at $108.5 billion. So defense is not anywhere near a primary driver of American manufacturing in that sense. Defense as a percentage of both the GDP and the federal budget are at historical lows, and that is even when it was gunned up to fund the wars in Iraq and Afghanistan.

I agree on the part about companies becoming reluctant to engage in R&D spending.

As previously mentioned, the increase in natgas and oil reserves has increased the need for equipment for drilling. This will create a boost to the manufacturing industry.

Yup.

Actually corporate taxes should be completely eliminated. Companies only raise taxes and pass on the cost to consumers, so in essence the corporate tax is just another tax on consumers. It would be much more efficient to eliminate it altogether and implement a fair or flat tax on the people.

Provided the flat/or fair tax would work the way it is theorized, I think I'd be open to it. I need to read more about it.

Tax rates and tax payers are not the same thing. The US does have one of the highest personal tax rates in the world (I didn't say the highest). You are correct that 47% pay no NET income tax, but I wasn't discussing that, I was discussing tax RATES.

True the HNW people can exploit loop-holes, which as previously stated only adds cost and inefficiency to tax compliance. At my last company I estimated I spent 30% of my time dealing with compliance issues. By compliance, I also mean the exploitation of these loopholes. Imagine how much more value I could have added to my clients and employees if I didn't deal with this?

In many countries this stuff is a non-issue. The US has by far the worst tax code in the world. Even if you work through all the loopholes to avoid the tax legally, you are still looking at hours of research and $300/h for a competent tax planner to minimize your bill.[/quote]

I agree here. The U.S. tax code most definitely needs some over-hauling.

I'm not only talking about Obamacare. I am also talking about the expiry of the Bush tax cuts.

But speaking of Obamacare, I spoke to a friend of mine the other day who runs a company with about 500 employees. I used to sit on his board so I'm pretty familiar with the company. He is in the service business and most of his workers are low wage ~$12/h. They are almost all fulltime.

After meeting with his benefits/insurance rep a couple of weeks ago he was informed that his health insurance cost was going up over 80% starting in 2013 due to Obamacare legislation. His choice was virtually wipe out all profit, or add 130 workers and cut them all to 28 hours per week. He cut them all and is adding workers.

Now no one will get company paid health insurance. Problem solved.

Yes, I have heard of this happening here and there, the Obamacare unmployment bomb it's being called, and if it occurs, I think that will give some real vindication to the Republicans and Libertarians regarding their claims that Obamacare will be a large drag on the economy, but I'm still giving the program the benefit-of-the-doubt to see if this really happens en masse or not. Rhetoric has been too charged on both sides and it can be hard to find out the truth.

Very wrong about Russia. I live in Eastern Europe and have many Russian clients. I also travel to Russia on occasion. They are very entrepreneurial and business is booming there. They have no capital gains tax, so of course it isn't a big source of revenue - it's 0 revenue. Flat tax of 13%, which when enacted in 2001 resulted in a 25% increase in tax revenue. Businesses are being privatized and Moscow is now home to the highest number of billionaires of any city.

Yes, but the Russian economy is still pretty statist in many ways. Russia is not known as any booming economic center of opportunity right now. It's possibly getting there, but at the moment there is still heavy state interference in the economy and the protection of property rights is still weak.

This is a common misunderstanding. Whoever said you need to have a bigger tax code just because you have a bigger population. There is nothing that prevents the US from adopting a simple tax code like Estonia...oh...except for the lobbyist groups run by CPA, Intuit, private universities granting accounting degrees, H&R Block, etc.

But practically, there is nothing that should prohibit the US from doing something similar. Its just politically impossible. No one in DC wants to give up their H&R Block paid for Lexus.

I see.

Not yet in hyperinflation. But food costs are up nearly 30% in 12 months. Fuel cost is up over 100% in 4 years. Unless you don't use fuel or food, everyone in the US has seen a dramatic increase in cost of living.

How is fuel cost up? Fuel is $4.00 approximately here in Upstate, NY, which is identical to where it was in late 2008.

If we didn't bail out BofA, Citi, GM, Chrysler, AIG, et al, we would have been in worse shape....for awhile. But then the shit would have flushed and we would be able to return to growth. As it is, we are making all the same stupid choices Japan did starting in 1990, which has resulted in 2 lost decades.

Would have to disagree. Allowing those major financial institutions to fail in combination with allowing two major industrial giants like GM and Chrysler to fail would have led to credit freezing up in the economy and innumerable jobs being lost. Ben Bernanke, one of the most accomplished scholars on the history of the Great Depression, told President Bush that if we did not bail out the financial system, we'd end up with a depression worse then the Great Depression. I am all for the free-market letting enterprises fail if they are not large enough to wreck the economy in the process and if they got into that situation by their own volition, but GM and Chrysler were not failing due to just being lousy companies. They were failing due to a combination of the UAW's demands, high-priced gasoline, and the financial crisis and thus lousy economy. Letting such large companies, of which many smaller sub-industries rely on, fail (when it's not even their fault) would have been disastrous and might well have set us significantly back from being able to return to growth as one major sector of the economy would have been devastated while another would have been nearly destroyed completely. We would then be dependent on foreign financial institutions.

Regarding the financial institutions, the question is how to make it where they are large enough to continue to service American companies, but small enough to not be too big to fail.

Iceland and Latvia are both examples of cutting cost (austerity) and letting the shit flush (allowing failure). They saw a very hard 2 years and now are both growing at very strong rates.

Iceland has a GDP of about $14 billion, and had to get $10 billion from the IMF in order to stabilize its currency and financial sector. Latvia also received extensive assistance from the IMF and the EU in exchange for adhering to austerity measures. So I don't know if I'd say those countries just "allowed failure."

Default is unavoidable at this point. It's mathematically impossible. Your answer seems to be inflate it away, but sooner or later you run out of creditors to buy your trash debt.

China and Japan were previously the 2 largest holders of US Treasuries. Now the Federal Reserve is. Why? Because no one else wants the garbage. It's artificial demand. King Ben waves his magic wand and voila, $40B/m appears to buy up all the bad mortgages (MBS) from his pals at BofA, Citi, GS, etc.

The US can avoid default, for awhile. But not forever.

I look forward to the day. Then I can grab up cheap assets.

The Federal Reserve has been the largest holder of U.S. debt for many years now. China and Japan are the largest foreign holders of U.S. debt. That's another misconception many people have, that China "owns all of our debt." They don't, they just are just the largest foreign holder of it. I would have to disagree that we will default for the reasons stated in my previous post.

 

[WheelsRCool]

This is all I needed to know about you. Completely brainwashed... I am contemplating ignore list because this kind of mindless thinking (if you can call it that) just pisses me off.

Mindless? How is disagreeing with the notion that the U.S. is headed for default "mindless?" Just because one doesn't agree with your argument doesn't mean they are being mindless. No, it doesn't mean that the U.S. can just keep running a huge deficit like there's no tomorrow, but the U.S. is not the Weimar Republic either.

 

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[Kak]

It is not about disagreeing. It is about being ignorant. You have no grounds whatsoever to argue that viewpoint. Cut out ALL discretionary spending and we will still not have enough revenue to finance the legal obligations very soon.

Mindless.



Sent from my SPH-L710 using Tapatalk 2

 

[The-J]

The US economy is not improving because of bad policy and even worse politics. The guys in charge have no idea and no interest in helping our current situation: they are simply fulfilling their parties self-interests in order to gain more money and more power for themselves. Politics as usual, which is why it's a disallowed topic on this forum.

Don't listen to economists or cable news. They get paid to make shit up.

 

[CarrieW]

I havent finished this thread yet, but alot of what your talking about with the hyperinflation and eventual default is discussed in the thing I tried to get everyone to watch before....except they predict this for more then just currency(its currency food and fuel as one previous poster said)

linking just in case anyone wants to reconsider watching it.

https://www.thefastlaneforum.com/current-events-sports-off-topic/41823-pyramid-crisis.html

k I am off to read the rest

 

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[ChickenHawk]

I think a lot of people are in denial. Either that, or they're asleep at the wheel, lulled by American Idol and cheese doodles.

Sad to day, but our nation is acting like a big ol' Sidewalker right now -- living beyond its means, choosing short-term comfort over long-term prosperity, instant gratification over real progress, the illusion of prosperity over real value. It's like we've got this huge credit card, we spend like crazy until it's maxed it out, and then raise the limit, "just 'til I get over this bump..." But living large on credit is never a good idea.

Whether the result is hyperinflation, default, or some combo, this can't end well. Such things never do.

 

[mohawkdcg]

In addition to hyperinflation or default, it is also possible to have deflation or just plain inflation at this point. Plain inflation between 1% and 3% is what the Federal Reserve is struggling to hold but they are battling against deflation not inflation at this time.

The value of the GDP equals the money supply times a velocity of money factor that represents how fast money is cycling through the economy. So both money supply and velocity affect what the dollar can purchase. Deflationary factors that affect either the money supply or the velocity of money are often ignored in the 'printing money' is guaranteed to cause inflation argument.

Some deflationary factors are debt deleveraging from credit and loan payoff or default that reduces money supply. Reduction of productive capacity increases unemployment and reduces consumer spending affecting money velocity and supply. Increasing savings by individuals and companies and decreasing lending by banks both affect velocity of money. Reduction in prices such as housing reduces supply.

The trends are large with the potential to spike as they did in 2008 so the Fed must continue to stimulate massively to stay out of the deflation zone. If or when these deflationary forces drop off or reverse, the Fed will need to turn on a dime and stop stimulating or we may over-shoot into a hyper-inflationary condition.

 

[GlobalWealth]

Would have to disagree. A colony is supposed to enhance the economy of the colonizing country.

You can disagree, but you'd still be wrong. You are too hung up on your HS history teacher's definition of colonization. In a sense, that HS teacher is correct. The US did open up military bases in Germany post WWII for economic reasons. Nothing like printing dollars out of thin air to pay your buddies at no-bid government contractors for reconstruction and infrastructure projects.

The economic benefit was there, just not for you and I. I was for the govt cronies. It always is. The colonization also solidifies trade agreements with the colonized country. How many tariffs do you think the US paid to Germany for exported goods post WWII? Not much. Check, economic benefit for the parasite.

What would be your alternative to central banking? The gold standard? I disagree with the gold standard and see central banking is one of those necessary evils as I see it.

It always amuses me to hear people speak of the gold standard as if it were a relic. For thousands of years it provided a medium of exchange and a store of value (ie. money). It continues to do so to this day. Think not? As the Turkish how they have been paying for their oil imports from Iran lately. Yep, you guessed it - gold.

China is buying up mining properties all over Africa and S. America that mine all sorts of precious and industrial metals. Do you think they just want to be the world's jewelry king? Nope. They are boosting their reserves in gold because they know the USD is doomed. That is also why they are reducing their USD reserves on a monthly basis. Ironically their gold reserves grow every month....hmmmm....Silly Chinese.

Take a look at a chart of the value of a USD over the past 150 years. Funny thing is that it was relatively stable (aside from the WWII debacle) for well over 100 years, until 1971 when Nixon took the US off the gold standard. Then the value of a USD dropped like a lead balloon at a birthday party.

Fiat currency only works when people trust the underlying payer. That trust shows that the USD has lost over 90% of its value since the creation of the Federal Reserve. The numbers don't lie.

...because they all benefit from the security umbrella that is provided by the United States.

Thank goodness the US has colonized the world, now everyone can feel safe....

2) They're a major financial center for the world's wealthy. No dictator wants to attack the country where he has banking.

So what a sec, are you saying that a relatively stable economy that provides economic value and minds its own business would be safe from wars?

Who does the U.S. "continually bomb?" And yes, there are constant security concerns. That other nations don't deal with them in nearly the same degree doesn't mean that they do not exist. Iraq was a mistake, but even then, it was still a brutal dictator who got overthrown there.

Is that a serious question? Maybe you haven't noticed the unprovoked wars in Iraq and Afghanistan. I suppose the Serbians about a decade ago weren't REALLY bombed. Gotcha.

Will do. However, do their plans have a government guarantee in the event of a crash?

....let me google search that for you...

But they were all formal empires, not the modern form of superpower that the U.S. is. Great Britain lost their empire due to World Wars 1 and 2. They also hurt themselves economically by Labour Party trying to implement socialism for much of the 20th century.

That was just fun to read right there. Good humor indeed.

"They were empires, not a superpower"... "They lost power due to wars"... "They hurt themselves implementing socialism"....

Wake up my friend, wake up.

China's one-child policy and their policy of killing female babies has led to a shortage of women in the country from what I understand. They also have a huge aging population that is going to hit them soon.

China does not have an aging population issue as previously mentioned. Their median age is less than that of the US at 35 years. Maybe you are confused with Japan as their median age is now 46.

How are net taxes in the U.S. higher than in Germany?

In Germany, you taxes cover many social services not provided in the US, healthcare for example. The net tax rate is a bit higher in the US when you factor in these things.

In addition, German citizens are not taxed in Germany while abroad, while American pay tax on worldwide income regardless of where they live.

Thanks, but again would have to disagree, the defense budget is not $1.4 trillion.

According to the CBO it is.

but I'm still giving the program the benefit-of-the-doubt to see if this really happens en masse or not. Rhetoric has been too charged on both sides and it can be hard to find out the truth.

There are some other large companies like Sears and Darden restaurants that have already announced they will drop company healthcare plans and reduce hours to under 30/week. It's already happening.

Yes, but the Russian economy is still pretty statist in many ways. Russia is not known as any booming economic center of opportunity right now. It's possibly getting there, but at the moment there is still heavy state interference in the economy and the protection of property rights is still weak.

You clearly have never been to Russia.

How is fuel cost up? Fuel is $4.00 approximately here in Upstate, NY, which is identical to where it was in late 2008.

According to gasbuddy . com and eia . gov, in November 2008 regular fuel national average was $1.86/g.

Ben Bernanke, one of the most accomplished scholars on the history of the Great Depression

Quoting one of the world's most prolific parasites to me is like using a whore as a reference on your job application to become a priest. I cannot comment here as you seem too far gone. I can only hope you pick up some books to educate yourself on another viewpoint.

The Federal Reserve has been the largest holder of U.S. debt for many years now.

Not true. Both China and Japan owned more US debt than the Fed until last year.

 

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[GlobalWealth]

Either that, or they're asleep at the wheel, lulled by American Idol and cheese doodles.

Speed++ for the most coherent post on this thread yet.

 

[GlobalWealth]

Plain inflation between 1% and 3% is what the Federal Reserve is struggling to hold but they are battling against deflation not inflation at this time.

The 1-3% target is a joke. They removed food and fuel cost from CPI. Who here doesn't use fuel or food? Anyone. Both are up dramatically over the past few years and they are both big parts of everyone household expenditures.

The reality is that we are in an asset deflation, but cost of living inflation. Sure, housing and other assets are down in value, but your cost of living is going up and at the same time income is dropping (down 8.5% since 2008).