Monday, October 18, 2010

Ignorance is bliss and it keeps corporate profits up

Stocks were up today on news that US factory output was down in September pointing to further weakening in the economy. It seems counter intuitive that the market would be up but Wall Street is of course completely detached from Main Street, it operates more like a financial derivative and they are selling short on America. The worse that the economy gets then the more likely the Fed will start printing money and Wall Street is licking its chops.

Inflation of the USD has Korea worried that they are too heavily invested in dollars and they are considering buying a sizable amount of  gold with dollars. They are a bit late coming to the party and hold by far the least amount of gold for an economy of their size. The price of gold was down slightly today just the same.

US corporations are said to have 1.6 trillion in cash on their books waiting for the stock market to crash so they can buy their own stock really cheap or that of their smaller rivals. But they have a problem, more than a trillion of this booty is in overseas banks where they are evading US taxes. They have done so much of this legalized tax dodging (which contributes to the trade deficit) that some are on the verge of having cash flow problems.

There are reports that some companies have more than 75% of their cash overseas and effectively out of reach, of course they could bring it back anytime by paying the US tax. This could run as much as 35% and generate a several hundred billion for the US Treasury and they can‘t have that. They’ve been appealing to the Government to give them another tax holiday like bush did but Obama has been telling them not a chance.

You see the whole conservative mindset that the government is too big and spends too much starts to unravel if government is run by people who aren’t trying to destroy it. There are several cash flow problems that were created by the Republicans. The big three are that corporations avoiding taxes by parking money overseas, the rich are evading taxes by using Swiss banks and local tax revenue has been decimated by the Depression the Republicans caused.

Total government spending local, state and Federal has not recently increased at any faster rate than it has over the last thirty years but GDP growth has fallen off even though the population continues to grow. Even adding to this increased social safety net demand doesn’t increase overall spending disproportionately.

The simple fact is there hasn’t been any massive growth of government, no huge infrastructure projects and no massive aid programs for the poor. Home owners have gotten almost no mortgage relief, nothing has been done for small business or for small farmers (what small farmers?) Social Security continues to languish even as the country ages and the Republicans keep chanting that it’s broke and needs to have benefits slashed if not done away with entirely no matter how absurd that idea is.

Obama is not spending money at anywhere near the rate that Reagan spent borrowed money to pull the country out of the recession that Reagan caused. These problems aren’t insurmountable but require the application of real numbers, real facts and real economic theory. Conservative talking points where black is white, liberals are the enemy and if we give all our money to the top 1/10 of one percent then we’ll all be rich, just doesn’t work.

Today’s mystery: if ignorance is bliss, why are tea baggers so angry?