Wednesday, November 10, 2010

A good investment if you can keep from eating them

The first broadside came from the deficit commission came tearing through the aging bulwarks of the American dream. The expected cuts to Social Security and Medicare were there along with a number of other cuts to add window dressing like cuts to the defense budget. But the big guns are the cap on Federal revenue at 21% of GDP and slashing the top marginal tax rate to 23%.

Capping revenue is of course intended to be a self reinforcing death spiral as GDP will continue to shrink with the continuation of the insane rightwing  policies that already have us by the throat. The reason we have the deficits we have now is that GDP has not grown adequately in many years since we no longer produce anything, indeed a big chunk of the GDP comes from Wall Street shuffling tons of paper so that they can skim off the top instead of producing anything of value. They don’t create wealth, they merely steal it from those who do.

Of course the 4 trillion or so that Bush gave away to his rich cronies had something to do with it too. In fact for the top income bracket, who now average 16% in income tax, this group would find the 23% top rate proposed by the (increase the) deficit commission as an increase in taxes if they ever would actually pay that.  Thanks to Bush’s slashing of the tax on capital gains to 15% and loopholes that allow any rich guy to take his salary as capital gains without producing any real increase in capital. The Republicans including the tea baggers want to cut capital gains tax to zero.

The Masters of the Universe at the Wall Street banks have announced that for practical purposes they will simply ignore the new regulations prohibiting proprietary trading. This is the only division in these banks that “makes” money so there is no way they are giving that up. Their lending operations are hemorrhaging hundreds of billions from all the bad loans they created to provide a basis for securitized debt and derivative trading. They would all fold if they had to stand on that alone. They are really zombies, long dead but still staggering about and producing 144 billion in bonuses for their masters (that would be Masters of the Universe to you).

The Federal Reserve has already ratcheted up its money printing operation, originally slated to be 90 billion a month is now going to be 110 billion a month for the first two months. Billed as reducing credit costs for consumers and business to stimulate the economy. Mortgage rates are already at an all time low but try getting a loan as home price continue to fall and credit card companies are not likely to cut interest rates because they are monopolies and don’t need to.

Corporate bonds are already at less than one percent and they are just sitting on the 1.7 trillion they have now. Lending them more at an even lower rate is going to make them invest. They are operating at 80% capacity and have no incentive to expand as long as they can buy cheap from China.

Gold fell back yesterday but is back up over $1400 as the USD is alternately seen a safe haven compared to Euros and as a sucker bet with the Fed printing money. GDP is about 1.2 Trillion per month and the Fed will print 0.11 trillion a month so inflation of the money supply is not going to happen quickly. How ever the only place for the money to go is into commodities so expect your canned goods to appreciate dramatically. That is if you can just keep from eating them.


PitchingDoc said...

You're quote "They don’t create wealth, they merely steal it from those who do" is perfect.

I emailed out about the record-breaking art auction in NYC on Monday, showing the top 1% to be doing just fine:

My Republican friend in NYC continues to write back with statements like "Some people are just more successful than others, that is life."

The right just doesn't get that most of the "wealth" created in the U.S. is no longer REAL as it's all done with paper in the form of hiding debt.

ickenittle said...

When it all bottoms out and destitute Republicans come knocking on my door begging for canned goods-I will remember the charity they have offered to us-and give each a can of friskies super supper- out of the goodness of my heart.(my cat hates super supper)