Recently in Economics Category

The world economy - China

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A very thoughtful observation from al fin next level:

China’s Decline Hits Positive Feedback Territory
Chinese economic growth continues to decline and it is feared China might even suffer a major recession because of the continued economic problems.
__ Source

Positive Feedback Decline in China?
Slower growth in China means slower growth for the rest of the world…. with the headwinds from cooling global growth China’s economy is likely to weaken further before growth stabilizes in the second half of the year.”

You see the cyclic nature of China’s predicament: A slowing economy in China causes a slowing of economies in the rest of the worldAt the same timea cooling of the global economy is likely to further weaken China’s economy. A simple, straightforward positive feedback cycle of decline.

Read the whole thing - China needs us more than we need China. The trade war is working.

Well crap - restaurant closing

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Not just any restaurant - my very favorite one in Boston. Durgin Park
From the Boston Business Journal:

Durgin-Park to serve last customer
One of Boston's most historic restaurants is closing its doors.

Right now, Durgin-Park in Faneuil Hall is still open for business. There are no signs the place is closing. But the workers have been told their last shifts will be next week, and now, many disappointed customers are trying to get in their final meals.

Like an under-cooked steak, long time customer Jonathan Berg says the news is leaving a bad taste in his mouth.

"This is another passing of a great institution," said Berg.

Rachelle Mazzone is Durgin-Park's bartender and says dozens of long-time workers were told the restaurant would be closing next weekend. She was told it's no longer profitable.

A bit more about the place:

Outside, the restaurant's slogan proudly hangs above the entrance, reading, "Established Before You Were Born." Inside, it's a blast from the past. The menu has traditional "Yankee cooking," like prime rib, clam chowder, Boston baked beans and shepherd's pie.

Since 1827, the business attracted faithful diners and tourists to its Faneuil Hall location, winning several culinary awards. And the wait staff was always encouraged to be rude — in a good way.

"When you saw the same people everyday, you were like, 'Joe, eat your beans. Harry, eat your hot dog, get away from me.' Nothing offensive, though," said Mazonne.

You read that correctly - it opened its doors in 1827 and was owned by the same family until they sold out in 2007. I went to college in Boston (Boston U - Marine Biology) and dropped out when personal computers became a thing. Durgin Park seated you at long tables and I was sitting next to a couple who were discussing their work with an IP21 photomultiplier tube (a very sensitive light detector). I was taking some astronomy classes and had been working with the same RCA IP21 tube (PDF) and I introduced myself and we had a wonderful conversation. Turns out that the guy worked for New England Aquarium and asked me if I was interested in volunteering and helping him out with his project. Got hired full-time soon after and had a wonderful five years there.

Durgin Park was about five blocks from the Aquarium so I had lunch there often. It is another victim of the higher minimum wage movement as well as the gentrification of what was once a working district. Really sad to hear this.

The falling stock market - not ours

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The DOW has been tanking recently - this is a bear market and we need to suck it up and ride it out. These happen. Turns out that this is not just us - from the South China Morning Post:

Shanghai’s stock index ends 2018 as the world’s biggest loser as trade war, slowing Chinese economy weigh on confidence
Shanghai’s stock benchmark ended 2018 as the world’s worst market performer for a second year, falling 24.6 per cent over 12 months as an unprecedented trade war between China and the United States weighed on the Chinese economy and crimped corporate earnings.

The city’s key stock index closed the year at 2,493.90, while the benchmark on the smaller Shenzhen bourse fell 33.2 per cent during the period to 1,267.87. The combined capitalisation of the two exchanges fell by US$2.4 trillion to 43.3 trillion yuan (US$6.3 trillion) during the year, overtaken by Tokyo as Asia’s largest equity market.

Bear markets are just an adjustment and the only thing you can do is to ride it out.
Software developer John McAffee said it best a month ago:

General Motors decline - an analysis

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Interesting insight into GM's slide into oblivion from Investors Business Daily:

GM Layoffs: A Tragedy Caused By Embracing Government Subsidies, Not Markets
General Motors' decision to close four U.S. plants and lay off 14,700 workers, 15% of its domestic workforce, is an economic tragedy. And it might have been avoided if GM had listened to the market, rather than the Obama administration.

During and after the financial crisis, GM decided to do the government's bidding in exchange for billions in subsidies. At one point, the federal government owned more than 60% of its shares, costing it more than $50 billion. By the time it sold the shares in 2013, U.S. taxpayers had an $11.2 billion loss.

How's that working out for GM now? Not very well.

GM's CEO Mary Barra, who took over the company in early 2014, reshaped the company's offerings to please the Obama White House's leftist auto czars, as did her predecessor. Barra has bet the company's future on electric cars and other less-popular offerings, instead of what people want.

Much more at the site - the author takes an honest look at electric coal burning automobiles and why they simply are not selling except for those who want to virtue signal. The article also mentions this:

Gov't Failure
It never works as expected. It can't. The government, despite delusions to the contrary, can't possibly know what people want and need. Yet, a perpetual leftist dream remains an economy run and funded by government "experts."

We see that in the Obama administration's decision to subsidize GM during the financial crisis by investing tens of billions of taxpayer dollars in its stock and propping up money-losing operations. By ignoring the supply-and-demand signals of the marketplace, it only made GM's problems worse.

More specifically, it led to GM committing itself to the unprofitable electric car market, one of President Obama's pet projects. At one point, Obama even vowed to buy a Chevy Volt when he left office. He didn't.

A good read and a cautionary tale for those who advocate big centralized government.

Reading the market - the Chevrolet Volt

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Looks like General Motors is hitting the skids. They should read their customer base better to see what people are buying instead of trying to "nudge" us to purchase vehicles that fit the narrative.

From Breitbart:

Watch: Six Years Ago Obama Promised to Buy a Chevy Volt. Now It Is Dead
Six years ago, President Barack Obama promised to buy a Chevy Volt after his presidency.

“I got to get inside a brand-new Chevy Volt fresh off the line,” Obama announced to a cheering crowd of United Auto Workers activists. “Even though Secret Service wouldn’t let me drive it. But I liked sitting in it. It was nice. I’ll bet it drives real good. And five years from now when I’m not president anymore, I’ll buy one and drive it myself.”

Now it looks like Obama will not get his chance to make good on the promise. General Motors announced Monday that it would cease production of the hybrid electric plug-in Volt and its gas-powered sister car the Cruze. The announcement came as part of a larger restructuring by the car company as it seeks to focus production around the bigger vehicles in favor with U.S. consumers.

The Volt and the Cruze were two of the signature achievements of the partnership between the Obama administration and General Motors following the auto-industry bailout. Although the Volt was long-planned by GM executives, it received a lot of support from the administration. Obama described the Cruze as “the car of the future.”

Both cars reflected the policies of the Obama administration but never really caught on with the car-buying public. They initially enjoyed a brief bout of enthusiasm from consumers but this was short-lived. Particularly after the price of oil fell dramatically, American consumers moved on to larger vehicles such as SUVs.

Heh - follow the narrative instead of the numbers and you will get burned. Always. I love my Toyota Highlander and my Ford Truck.

Looks like the stock market is making an overdue correction - four headlines this morning - clickable links to the stories:

It's called a bubble. These form, grow beyond sustainability and pop spectacularly. Nothing new.

John McAfee sums it up with this wonderful tweet:

Light rail in New Mexico

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Light rail works in dense urban areas - Seattle, New York, Boston, San Francisco. Less dense areas like Portland and Albuquerque, New Mexico? Not so much. It is a very visible public works project and has a certain "cool" cachet but it is a money pit. From The AntiPlanner:

Riding the Rail Runner
After speaking about Romance of the Rails in Albuquerque Friday night, I took advantage of a day off between engagements to ride the New Mexico Rail Runner to Santa Fe and back. This train is costing the state close to $800 million in capital costs including interest (which works out to annual payments of about $30 million a year) plus another $30 million a year in operations and maintenance costs, while it is bringing in slightly more than $2 million a year in fares. The federal government also recently gave the state another $30 million to install positive train control.

I love it - $60 million dollars spent each year and it brings in $2 million of income. What doofus signed off on that? A bit more:

Average weekday ridership in 2017 was 2,825, which means 1,413 round trips. Ridership peaked in 2011 and has declined by 37 percent since then. This compares with Albuquerque bus ridership, which peaked in 2012 and has since declined by 25 percent, and transit ridership nationally, which peaked in 2014 and has since declined by 8 percent.

Due in part to low ridership, the Rail Runner uses more energy and emits more greenhouse gases per passenger mile than driving an average SUV. This is typical for most commuter-rail lines that started up in the last two decades or so.

They could sell off the land and the equipment and still come out multiple hundreds of millions of taxpayer dollars in the hole. Way to go bureaucrats!

The AntiPlanner is a great website. From their About page:

Welcome to the Antiplanner, a blog dedicated to ending government land-use regulation, comprehensive planning, and transportation boondoggles.

The end game of socalism

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A couple of headlines - they link to the stories:

Naaaa Nicky - it is not Colombia. It is not 'financiers' in the US. It is the failure of socalism - the end game and your citizens have had enough. SImply that - they have had enough of your incompetent management.

Venezuela used to be the richest nation in South America. It has excellent crop lands and used to export food. Now it has to import food. It has the world's largest known reserve of oil but, since Maduro nationalized the oil business, the ability to pump and refine oil seems to have slipped through their fingers.

The Vezuelan Bolivar used to be about four to one with the US Dollar. Take a look - this is what socialism brings:


You spend everything and then, when you run out, you run the printing presses and spend that not knowing that this act will cause inflation. We are seeing the results of inflation on the order of what happened in the Wiemar Republic before WW-II.

Never underestimate a businessman. President Trump seems to be winning the trade war with China after only a few weeks. From India's Focus World News:

Chinese Economy: China Dethroned By Japan As World’s Second Biggest Stock Market
NEW DELHI: China just lost its ranking as the world’s number two stock market.

After a Thursday slump, Chinese equities were worth $6.09 trillion, according to data compiled by Bloomberg. That compares with $6.17 trillion in Japan. The US has the world’s largest stock market at just over $31 trillion.

China’s stock market overtook Japan’s in late 2014, then soared to an all-time high of more than $10 trillion in June 2015. Chinese equities and the nation’s currency have taken a beating this year amid a trade spat with the US, a government-led campaign to cut debt and a slowing economy.

“Losing the ranking to Japan is the damage caused by the trade war,” said Banny Lam, head of research at CEB International Investment Corp. in Hong Kong. “The Japan equity gauge is relatively more stable around the current level but China’s market cap has slumped from its peak this year.”

Much of their GDP is based on export. Curtail that and they will come to heel very soon. Make America Great Again!!!

Say goodbye to Dodd-Frank

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One of the most pork-laden poor excuses for legislation to ever get voted into law. The Dodd-Frank bill was 2,300 pages long and was brought into being after the financial melt-down of 2007. It replaced the Glass-Steagall act of 1933 which prevented public banks from offering investment (risky) services to their customers and vice versa - brokerages were not allowed to act as banks. It was 37 pages long! The passing of the 1999 Gramm–Leach–Bliley Act (GLBA) pulled the teeth of Glass-Steagall and was the root cause of the 2007 financial meltdown.

Today, no more - excerpted from President Trump's statements yesterday:

Remarks by President Trump at Signing of S. 2155, Economic Growth, Regulatory Relief, and Consumer Protection Act

. . . 

Since its passage in 2010, Dodd-Frank has dealt a huge blow to community banking. As a candidate, I pledged that we would rescue these community banks from Dodd-Frank — the disaster of Dodd-Frank — and now we are keeping that commitment, and all of the people with me are keeping that commitment. Incredible group of people.

Dodd-Frank’s complex and costly regulations gave large banks an unfair competitive advantage at the expense of neighborhood banks all over the country. Since Dodd-Frank’s passage just eight years ago, 20 percent of small banks have been put out of business — they’ve disappeared — while banks that were considered “too big to fail” — we’ve heard that many time, “too big to fail” — had the resources to comply with Dodd-Frank’s brutal maze of costly regulations. And maybe we’re going to have to start looking at that also for the larger institutions because they also are put at a disadvantage in terms of loaning money to people wanting to open up businesses. So perhaps we’ll be taking a look at that. Many small banks were forced to shut down.

He also touched on the overall economy and unemployment in general:

Today’s legislation is the next step in America’s unprecedented economic comeback. There’s never been a comeback like we’ve made. And one day, the fake news is going to report it. (Laughter.) But that’s okay — you’ve been very nice, actually today. You’ve been extremely nice.

Republicans in Congress passed the biggest tax cut and reform in the history of our country. We passed and signed a record number of bills terminating job-killing regulations. In the history of our country, no President — whether it’s four years, eight years, or sixteen years, in one case — has ever passed more regulation cuts. And these were necessary cuts, because we’re leaving necessary regulations. Regulation is fine, but it’s got to be reasonable. And that’s what we’ve done.

Unemployment has reached its lowest level in nearly two decades. African American unemployment has reached its lowest level in history. And the same thing for Hispanic unemployment — lowest level in history. Women — lowest level of unemployment in 19 years. Small business optimism has never, ever been higher, according to polls and charts.

As a small business owner, I am seeing the results of this Presidency and am really liking what I see. MAGA

From The Washington Times:

April was best month in history for U.S. budget, according to CBO figures
The federal government took in a record tax haul in April en route to its biggest-ever monthly budget surplus, the Congressional Budget Office said, as a surging economy left Americans with more money in their paychecks — and this more to pay to Uncle Sam.

All told the government collected $515 billion and spent $297 billion, for a total monthly surplus of $218 billion. That swamped the previous monthly record of $190 billion, set in 2001.

CBO analysts were surprised by the surplus, which was some $40 billion more than they’d guessed at less than a month ago.

Analysts said they’ll have a better idea of what’s behind the surge as more information rolls in, but for now said it looks like individual taxpayers are paying more because they have higher incomes.

Overall tax income is higher despite the tax cuts - Arthur Laffer first wrote about this when he developed his famous Laffer Curve

The product is slick but they lose money with each one sold - they depend on government handouts subsidies to survive. From Soverign Man:

More hilarious facts about Tesla from a hedge fund manager who’s short the stock
A few weeks ago, we shared a note about Tesla from the hedge fund Vilas Capital Management. The firm, which is short the shares, said “Tesla is going to crash in the next 3-6 months.”

I received an update from Vilas this morning explaining why they’re even more bearish on Tesla today. The firm pared its short positions after the recent selloff. And Telsa now comprises about 98% of their short book.

Clearly Vilas thinks Tesla’s reckoning is imminent.

Spiffy product - they definitely catch the eye when you see one but still, our taxpayer dollars at work. Time for the market to level things out a bit.

From Bloomberg:

A Stalled Las Vegas Resort Is Now a Go Thanks to the Tax Overhaul
For New York developer Steven Witkoff, the tax overhaul signed today by President Donald Trump will have an immediate effect: he’s plowing ahead with his plan to develop the stalled Fontainebleau resort in Las Vegas.

“Now, we’re not going to be patient,” Witkoff said in a phone interview. “We’ve basically pressed the ‘go’ button to do everything necessary to finish design on the project and take down a construction loan.”

As soon as it became clear to Witkoff that the bill had a good chance of clearing both houses of Congress, he began seeking financing for as much as 60 percent of the estimated $3 billion in development costs, he said. He plans a resort with 4,000 rooms, a casino and a restaurant on the property, purchased for $600 million in August, more than seven years after billionaire Carl Icahn acquired it out of bankruptcy. The project will create 6,000 hotel jobs and 5,000 construction jobs, Witkoff said.

Emphasis mine - trickle down works. It has before and it will again. The nattering elites just need to get the fsck out of the way as the economy comes roaring back to life...

To every thing there is a season

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It is interesting spending time in Seattle. I lived here for about 20 years but moved out to my farm 15 years ago. Now, the city has changed so very much and the traffic and congestion reflect this. Property values are way up - really wish I had kept my property in Seattle and gotten a loan for the farm - oh well...

It seems that some cities are shrinking in size - and it is not just the progressive cess-pits like Detroit or Baltimore. From Time Magazine:

These Cities Have Already Reached 'Peak Millennial' as Young People Begin to Leave
Millennials flocked to U.S. cities over the past decade, but in some places, the migration appears to be reversing. After years of growth, the population of millennials in Boston and Los Angeles has fallen since 2015, with more young people leaving the cities than arriving last year, according to the latest Census data. And millennial growth has slowed in large hubs like Chicago, New York and Washington, D.C.

Dowell Myers, professor of demography at the University of Southern California, first suggested in 2015 that cities would begin to see declines in millennials. With the largest birth group turning 27 this year, Myers says it’s only a matter of time before millennials head to the suburbs for more space.

To see which cities have reached “peak millennial” — a term Myers coined —we analyzed a decade of Census data through 2016. We found that while tech hubs like San Francisco and Seattle are still drawing young people, large East Coast cities, like New York and D.C., are fast approaching peak millennial, with plateauing populations of those born between 1980 and 1996. And then there are cities like Boston, which already appear to have reached their peak. Boston lost roughly 7,000 millennials in 2016, after a record high of 259,000 the previous year.

Another interesting metric is the U Haul cost to go from one city to another and back again - often quite different dollar values. I talked about that here back in August of this year.

UPDATE: Just read this story from The Idaho Statesman:

Idaho officially earns the title of nation’s fastest-growing state, Census Bureau says
Idaho’s population increased enough in the past year to earn us the title of nation’s fastest-growing state, according to data released Wednesday by the U.S. Census Bureau.

Writing at his blog:

The Darkest Hours
The Tax “Reform” bill working its way painfully out the digestive system of congress like a sigmoid fistula, ought be re-named the US Asset-stripping Assistance Act of 2017, because that’s what is about to splatter the faces of the waiting public, most of whom won’t have a personal lobbyist / tax lawyer by their sides holding a protective tarpulin during the climactic colonic burst of legislation.

Sssshhhh…. The media has not groked this, but the economy is actually collapsing, and the nova-like expansion of the stock markets is exactly the sort of action you might expect in a system getting ready to blow. Meanwhile, the more visible rise of the laughable scam known as crypto-currency, is like the plume of smoke coming out of Vesuvius around 79 AD — an amusing curiosity to the citizens of Pompeii below, going about their normal activities, eating pizza, buying slaves, making love — before hellfire rained down on them.

Whatever the corporate tax rate might be, it won’t be enough to rescue the Ponzi scheme that governing has become, with its implacable costs of empire. So the real aim here is to keep up appearances at all costs just a little while longer while the table scraps of a four-hundred-year-long New World banquet get tossed to the hogs of Wall Street and their accomplices. The catch is that even hogs busy fattening up don’t have a clue about their imminent slaughter.

The centerpiece of the swindle, as usual, is control fraud on the grand scale. Control fraud is the mis-use of authority in applying Three-Card-Monte principles to financial accounting practice, so that a credulous, trustful public will be too bamboozled to see the money drain from their bank accounts and the ground shift under their feet until the moment of freefall. Control fraud is at work in the corporate C-suites, of course, because that is its natural habitat — remember that silver-haired CEO swine from Wells Fargo who got off scot-free with a life-time supply of acorns after scamming his account-holders — but their errand boys and girls in congress have been superbly groomed, pampered, fed, and trained to break trail and cover for them.

Much more at the site - Kunstler is a bit of a muck-raker but his economic chops are first-class. The Bitcoin bubble is just one of many bubbles out there. Time to be very conservative and hold your cards closer vest. Sure, there is money to be made but the gamble is just too great - the markets are too volitile.

Betting the farm house - Bitcoin

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It's a bubble folks - now this is just plain stupid. From CNBC:

People are taking out mortgages to buy bitcoin, says securities regulator
Bitcoin is in the "mania" phase, with some people even borrowing money to get in on the action, securities regulator Joseph Borg told CNBC on Monday.

"We've seen mortgages being taken out to buy bitcoin. … People do credit cards, equity lines," said Borg, president of the North American Securities Administrators Association, a voluntary organization devoted to investor protection. Borg is also director of the Alabama Securities Commission.

And from Tyler Durden at Zero Hedge:

It's Official: Bitcoin Surpasses "Tulip Mania", Is Now The Biggest Bubble In World History
One month ago, a chart from Convoy Investments went viral for showing that among all of the world's most famous asset bubbles, bitcoin was only lagging the infamous 17th century "Tulip Mania."

One month later, the price of bitcoin has exploded even higher, and so it is time to refresh where in the global bubble race bitcoin now stands, and also whether it has finally surpassed "Tulips."

Conveniently, overnight the former Bridgewater analysts Howard Wang and Robert Wu who make up Convoy, released the answer in the form of an updated version of their asset bubble chart. In the new commentary, Wang writes that the Bitcoin prices have again more than doubled since the last update, and "its price has now gone up over 17 times this year, 64 times over the last three years and superseded that of the Dutch Tulip’s climb over the same time frame."

That's right: as of this moment it is official that bitcoin is now the biggest bubble in history, having surpassed the Tulip Mania of 1634-1637.

It will crash - we do not know when but it will crash. T and I have been talking about investments and financial strategy for our future - Bitcoin is nowhere near the picture.

Puerto Rico - an idea for rebuilding

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Great idea - from Benjamin R. Dierker writing at the Foundation for Economic Education:

How Puerto Rico Can Rebuild and Become the Hong Kong of the West
After a particularly devastating hurricane season, Puerto Rico has an uncertain future. Already mismanaged and saddled with debt, the island territory now faces the virtually insurmountable task of rebuilding its infrastructure and economy. But amidst the rubble and heartache lies one of the greatest opportunities in the modern era not just to rebuild, but to reimagine the possibilities for economic and political freedom.

Two simple but powerful steps taken by Congress could hasten recovery and redefine the trajectory of the island’s future. First, the United States should assume all of Puerto Rico’s outstanding bond debt. Second, in exchange for debt assumption, the federal government should establish the island as an Economic Freedom Zone. Within a year, these reforms would help rebuild Puerto Rico; within a decade, they could rebuild our conception of the free market in the Western Hemisphere.

Benjamin talks about Economic Freedom Zones and what they can do:

The second step of the proposal is the establishment of an Economic Freedom Zone, which would set off an explosion of growth. The zone would flatten or suspend numerous taxes and regulations, prompting an immediate increase in productivity. The less restricted environment with more available resources would open the doors to investment and real estate development. Velocity of money would increase at the same time as new money is infused and invested into the economy, as relatively wealthier locals combining with aide workers, construction crews, and business investors spend on the island economy.

Suspending or streamlining environmental regulations would allow expedited construction on essential infrastructure projects, and needless economic hindrances like the Jones Act would finally be dissolved. Serving as a case study on microeconomics, the federal minimum wage would be suspended to allow private actors to negotiate their wages during the rebuilding effort. The government would no longer rob the worker of his bargaining power by mandating a price floor on labor.

Taking inspiration from Hong Kong and Singapore, governance from a lean, honest, and efficient local government, combined with openness to international investment and trade, will allow Puerto Rico to capture business that would be regulated away in the States – if they were allowed to get off the ground at all.

Sounds like a win/win scenario. The US 'enjoys' one of the highest corporate tax rates in the world. We need to change this.

Nothing much on the intarwebs

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Been surfing around the usual places but nothing catches my eye tonight except for this:


Yes, I realize that 20,000,000,000,000 is just another big scary number. I was just as worried when it was at 19 Trillion for so long.

To give you an indication of the size of this number. If you were given 20 Trillion dollars and you had to spend $10,000 every second of every day, it would take you 3,805 years to accomplish this. Government spending is out of control and this debt will simply be passed on to our children and grand children. They will be pissed at us and for every reason.

Turns out the classical economists (Austrian School) were right all along - raising the minimum wage kills jobs. From Axios:

Study: Higher minimum wages bring automation and job losses
As of the start of the year, 19 U.S. states had raised minimum wages, dramatizing a long simmering debate: Do minimum wages kill jobs, and make the working class worse off in the end? Or do they simply make them a little richer, with little or no loss to overall employment?

In a new paper, economists Grace Lordan of the London School of Economics and David Neumark of UC Irvine parse 35 years of census data and come down on the worse-off side: For lower-skill jobs like bookkeepers and assembly-line workers, they say, higher minimum wages encourage employers to automate — according to their calculations, a $1 increase can cost tens of thousands of jobs nationally.

Minimum wage was never intended to be a sustainable income. It is the responsibility of the worker to improve themselves and make themselves more valuable to their employer. Then, the employer will be justified in paying them more money. It is as simple as that.

One of the key problems with the Democrat party is that they spend their life in a bubble and deal with perception, optics and narrative. This is why they had their collective asses handed to them last November. Seven months later, this is the best they have come up with. From Axios:

Dems want to rebrand as the economic party
Senate and House Dems, after an intensive process spanning seven months, on Monday will unveil a new economic agenda, Axios has exclusively learned, meant to counter the perception that Democrats are only the anti-Trump party, with no message of their own.

Top Dems see the new message as the key to turning things around after their losses in the presidential race and this year's House special elections.

An opening theme/frame: "excessive corporate power and its impacts."

Pollster Geoff Garin writes in a memo kicking off the project: "[T]he Democratic policies related to curbing excessive corporate power that are being highlighted in the first day of the rollout have real resonance with voters and are strongly supported by a significant majority of Americans."

The agenda's big idea: "Too many families in America today feel that the rules of the economy are rigged against them. Special interests have a strangle-hold on Washington — from the super-rich spending unlimited amounts of secret money to influence our elections, to the huge loopholes in our tax code that help corporations avoid paying taxes."

"If the government goes back to putting working families first, ahead of special interests, we can achieve a better deal for the American people that will raise their pay, lower their expenses, and prepare them for the future."

It would be good to remember that these are the morons who caused the nation debt to skyrocket over the last eight years. Two things:

  1. - the national debt is paid either by us or by our children. The Federal government makes little money outside of tax revenues.
  2. - In only six months, President Trump has added about four trillion dollars to our economy.

Tell me again, who is good for the economy and for working families?

Quote of the year

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What with all of the fake news and other narratives being spun by the left and their handmaidens, the mainstream media; this bears a mention:

"There is no better means of reducing a fallacious variety of thought to absurdity than to let it live itself out completely."
-- Carl Menger

Carl Menger was a very interesting person - he founded the Austrian School of economics. His thesis: On the Origin of Money torpedoes Karl Marx's central tenet - that there is a fixed pool of capital in the world and that social inequities arrive from this pool being inequitably distributed.

In reality, capital (and its proxy: money) is fungible and can be created and destroyed.

An analysis of minimum wages

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I don't think that these researchers were looking for this data - from Zero Hedge:

Harvard 'Shock' Study: Each $1 Minimum Wage Hike Causes 4-10% Increase In Restaurant Failures
A 'shocking' discovery was made when a pair of researchers at Harvard Business School decided to analyze the impact of higher minimum wages in San Francisco on restaurant failures...hint: they went up.

Entitled "Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit", this latest study on the devastating consequences of minimum wage was conducted by Dara Lee Luca and Michael Luca and concluded that each $1 increase in the minimum wage results in a roughly 4-10% increase in the likelihood of a restaurant going out of business.

In this paper, we investigate the impact of the minimum wage on restaurant closures using data from the San Francisco Bay Area. We find suggestive evidence that an increase in the minimum wage leads to an overall increase in the rate of exit.

This paper presents several new findings. First, we provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit, although statistical significance falls with the inclusion of time-varying county-level characteristics and city-specific time trends. This is qualitatively consistent but smaller than what Aaronson et al. (forthcoming) find; they show that a 10 percent raise in the minimum wage increases firm exit by approximately 24 percent from a base of 5.7 percent. Differences in sample and specifications may account for the differences between our study and theirs.

Much more at the site - anyone who was surprised by this data needs to leave the confines of their bubble and experience real life for a while.

Raise taxes beyond a certain point and say goodbye to your revenue creators - it is that simple. From Farm and Ranch:

Kubota moves headquarters to Texas
Kubota Tractor Corporation unveiled its new North American headquarters building in Grapevine, Texas, today in a special ribbon cutting ceremony with Governor Greg Abbott, Masatoshi Kimata, President and Representative Director of the Kubota Group, along with State and local officials and supporters from the Grapevine community who all helped to usher in a new era for the company.

The company’s move to Texas from Torrance, Calif., is the most significant change it has undertaken in its successful 45-year history in the U.S., where it has introduced over the years a full line of iconic orange tractors, construction equipment, lawn and garden equipment and utility vehicles.

“Today is an important day for Kubota as this new building is both a testament to our commitment to the future growth of our business in the U.S., and our pledge of being a socially responsible corporate citizen and active business partner with the great state of Texas and the City of Grapevine,” said Mr. Masato Yoshikawa, President and CEO of Kubota Tractor Corporation, at today’s ceremony. “As a new employer to the area, our hope is to continue to attract talent from the local community with this open environment, state-of-the art workplace and continue our long-term growth strategy to strengthen the Kubota brand in the U.S.”

Kubota has invested more than $50 million in the three-story, environmentally-friendly office building, which totals 193,000 square feet, and includes an onsite research and development facility, and is designed to maximize work efficiencies and conserve resources in alignment with Kubota’s global brand statement, “For Earth, For Life.”

Buttercup the Tractor is a Kubota. I also own several other pieces of Kubota equipment and love them all - well engineered and well built. Glad to see them escaping the socialist hell-hole of California.

Unclear on the concept - Jerry Brown

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California officials to unveil huge transportation deal, new fees
California drivers would face higher prices at the pump and new vehicle registration fees under a $52 billion plan announced Wednesday by Gov. Jerry Brown and California legislative leaders to repair the state’s aging roads and bridges and improve public transportation.

Saying the deal isn’t perfect but long overdue, Brown insisted that California cannot keep ignoring its transportation infrastructure or continue borrowing money to fix it.

Some more:

The deal was more than two years in the making and could be voted on by the Legislature as soon as next week. It would raise $5.2 billion a year for 10 years by increasing the vehicle registration fee by $25 to $175 depending on the value of the vehicle, hiking gas and diesel taxes, and creating a fee on zero-emission vehicles.

The sales tax on gas wouldn’t change, but the excise tax on distributors — a cost passed down to drivers — would rise. Under the deal, the state’s gas excise tax, which is currently 18 cents, would increase by 12 cents per gallon to 30 cents.

Additionally, the excise tax on diesel fuel, used by the commercial trucking industry, would increase by 20 cents a gallon to 36 cents. The diesel sales tax also would rise to 5.75 percent from the current 1.75 percent.

Electric and hybrid-vehicle drivers, meanwhile, would pay a new $100-per-year fee beginning in 2020.

So in other words, Governor Brown is adding incentive for businesses to move from California to more tax-friendly states. And no word about defunding his precious little choo-choo train:

California's bullet train is hurtling toward a multibillion-dollar overrun, a confidential federal report warns
California’s bullet train could cost taxpayers 50% more than estimated — as much as $3.6 billion more. And that’s just for the first 118 miles through the Central Valley, which was supposed to be the easiest part of the route between Los Angeles and San Francisco.

A confidential Federal Railroad Administration risk analysis, obtained by The Times, projects that building bridges, viaducts, trenches and track from Merced to Shafter, just north of Bakersfield, could cost $9.5 billion to $10 billion, compared with the original budget of $6.4 billion.

Time to check the U-Haul index again:


Yup - exactly twice as expensive. There are so many more U-Haul trucks departing California than arriving, the market makes the rental that much more valuable - plus, they have to keep shuttling the trucks back for more people to rent.

Our National Debt

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Great if unsurprising news - from Joe Hoft writing at The Gateway Pundit:

In First 2 Months in Office: Trump Reduced Debt by $100 Billion – Obama Increased Debt by $400 Billion
On January 20th, the day of President Trump’s Inauguration, the US Debt stood at $19,947 billion. As of March 16th, the most recent date for US debt reporting, the US Debt stands at $19,846 billion. President Trump has cut the US Debt burden by over $100 billion and 0.5% in the first two months since his inauguration!

By comparison, under President Obama, the US Debt burden increased by more than $400 billion after his inauguration through March 19th 2009, his first two months in office. Obama increased the US Debt by 3.9% during this time period and signed the trillion dollar ‘Stimulus’ bill which is widely considered a colossal failure and waste of US tax dollars as well. The failed ‘Stimulus’ was the major piece of legislation in Obama’s first year leading to Obama’s first year deficit of $1.4 trillion. Overall Obama doubled the US Debt during his Presidency and set records for highest deficits and the largest debt increase by any President ever.

An excellent start - get that puppy under control so our children will not have to deal with our profligate overspending.

California - circling the drain

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That they are even considering this is just plain nuts - from California's Los Angeles Times:

Here's what would it take to give California students a debt-free college education
California could help students get through college without debt — but at a hefty potential cost of $3.3 billion annually, a new state report says.

The report by the state Legislative Analyst’s Office laid out different ways the state could help students at the University of California, California State University and California Community Colleges cover both tuition and living expenses.

The analysis comes as concern rises over spiraling student debt, which has topped $1 trillion nationwide. Worries over college costs also have deepened among some families since UC regents approved a tuition increase last week and Gov. Jerry Brown proposed phasing out the state’s Middle Class Scholarship program for new students beginning this fall. Cal State University trustees also are considering a tuition increase.

Where is this money coming from and what is to prevent the snowflakes from squandering this boon on useless 'xxxx' Studies degrees instead of STEM

The cost of raising the minimum wage

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From Ohio's The Columbus Dispatch:

Wendy’s to install ordering kiosks in 1,000 stores this year
Last year, the kiosks were coming. It didn't take them long to get here.

Wendy's plans to install self-ordering kiosks in 1,000 of its stores — about 16 percent of its locations — by the end of the year.

And the reason:

Trimm said the kiosks accomplish two purposes: They give younger customers an ordering experience that they prefer, and they reduce labor costs.

A typical store would get three kiosks for about $15,000. Trimm estimated the payback on those machines would be less than two years, thanks to labor savings and increased sales. Customers still could order at the counter.

And some numbers:

"Last year was tough — 5 percent wage inflation," said Bob Wright, Wendy's chief operating officer, during his presentation to investors and analysts last week. He added that the company expects wages to rise 4 percent in 2017. "But the real question is what are we doing about it?"

Wright noted that over the past two years, Wendy's has figured out how to eliminate 31 hours of labor per week from its restaurants and is now working to use technology, such as kiosks, to increase efficiency.

As labor prices rise, something has to give. Profit margins are minimal in fast food and if they raised the sale price of their food, they would see a reduction in sales.

Work - wages and nations

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Willis Eschenbach is one of the more fascinating people on the web - would love to sit down to dinner with him sometime. He posted an essay about Mexican labor and really nails it. From his website:

Work Americans Won’t Do
I keep hearing that the reason that we need workers from Mexico and Central America to pick our crops is because working in the fields is “work that Americans won’t do”. I say that that sentence is chopped off in midstream.

How do I know that’s only half a sentence? Because that was the first work I ever did. I worked summers all through high school. My first job was in 1961, when I was 13 years old and weighed about 120 pounds (55 kg) soaking wet.

I just looked it up, and at the time, the Federal minimum wage in current dollars was $8.12 per hour. The California minimum wage was $9.34 per hour. Interesting, not a lot different from today.

In current money, on my first job I made two dollars and forty-four cents an hour. I worked ten hours a day, bucking hay in the fields. It was totally illegal for me to be doing the work for several reasons. First, I was too young to be working at all. Then I wasn’t being paid overtime for over eight hours per day. Plus I wasn’t making minimum wage. I thought then, and still think, that those laws were asinine. I was overjoyed to have a job. I said screw the laws, and I took every penny I earned home and gave it to my single mother.

Read the whole thing and the comments as well. Good stuff and explains a lot.

Crap - RIP Hans Rosling

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From the Beeb:

Hans Rosling: Data visionary and educator dies aged 68
Hans Rosling, a Swedish professor of global health and well-known public educator, has died aged 68, his Gapminder foundation has announced.

Mr Rosling was diagnosed with pancreatic cancer a year ago and died in Uppsala, Sweden.

He was known for lively presentations that used data and animation to explain global development in a compelling way.

His Gapminder co-founders said that they would continue to fight for "his dream of a fact-based worldview".

Here he is talking about world poverty, immigration and gumballs:

From The Times of London:

Britain has world’s top economy
Britain ended last year as the strongest of the world’s advanced economies with growth accelerating in the six months after the Brexit vote, it was revealed yesterday.

Business activity hit a 17-month high last month, meaning that the economy grew by 2.2 per cent last year — more than the six other leading nations, including the US, Germany and Japan.

Far from slowing after the referendum in June, as predicted by the Treasury and Bank of England, growth appeared to have improved. GDP grew at 0.3 per cent and 0.6 per cent in the first two quarters of last year, compared with 0.6 per cent and an estimated 0.5 per cent in the final period.

as predicted by the Treasury and Bank of England  - sounds like they need to get some new management over there. The low-level clerks are probably fine but the top-level management seems to not be able to see the forest for the trees. Someone needs to be there who doesn't live in a bubble. The data was there, they just chose to ignore it.

Time for the rest of Europe to follow and let those un-elected bureaucrats in Brussels go back to making chocolate and cheese.

More people living inside a bubble

Only this time, they are betting with (and losing) other people's money - from The Wall Street Journal:

Hedge Fund Horseman Capital Suffered Huge Loss on Trump Victory
The flagship hedge fund at Horseman Capital Management Ltd. was one of the world’s worst-performing hedge funds last year, posting a big loss in the wake of Donald Trump’s U.S. election victory.

London-based Horseman runs about $2 billion in assets. Its main $1.7 billion Global strategy fund lost 24% through Dec. 28, according to numbers sent to investors in an email and reviewed by The Wall Street Journal.

And their strategy?

Global strategy fund manager Russell Clark had been running huge bets against stocks, according to letters to investors, and was hit by the sharp rally in markets fueled by Mr. Trump’s victory.

The fund’s largest bet was against U.S. stocks, while it was also positioned for eurozone and Japanese stocks to fall, according to the fund’s latest letter to investors.

Last year’s loss, to Dec. 28, is one of the biggest in percentage terms chalked up by a hedge fund in 2016, according to data seen by the Journal. Hedge funds on average were up 2.5% last year to Dec. 29, according to data group HFR. The fund had been a top performer globally in 2015 and during the credit crisis, according to performance numbers seen by the Journal.

Horseman didn’t respond to requests for comment.

didn’t respond to requests for comment - no shit Sherlock. I would be crawling under the rug if I did not see that coming. They should have had a heads up with the Brexit vote. The people outside their boardrooms are fed up and they are making their displeasure known loudly. I wonder if anyone at the firm saw the coming Trump presidency and tried to warn the bubble-dwellers.

That was then, this is now

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The press on Trump's bringing jobs back to America - from Don Surber:

President Trump proves the press wrong again

And segueing to today:

Now the real reality check.
From the Associated Press:

Japanese electronics company Panasonic and U.S. electric car maker Tesla said Tuesday they plan to begin production of photovoltaic cells and modules at a factory in Buffalo, New York.

The two companies said they finalized an agreement calling for Tokyo-based Panasonic to pay capital costs for the manufacturing. Palo Alto, California-based Tesla made a "long-term purchase commitment" to Panasonic.

Cautionary words - the FED

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They have the power to crush our economy just in time for Donald Trump's terms in office.
From Nathan McDonald writing at Sprott Money:

Will The FED Deliberately Crash the Economy to Defeat Donald Trump?
Gold and silver have been beaten and battered with the recent FED hike rate announcement, even though it is only a pathetic 0.25% - scarcely anything that will stop the avalanche of fiat money and inflation that is plaguing the world over.

What is causing even more of a correction in precious metals is the news from Janet Yellen and her peers in the FED that states there will be three more hikes upcoming in 2017!

This is a complete reversal of the FED's past policies under President Obama, in which they have done everything possible to keep this bogus "recovery" afloat, if you can even call it that.

And the possible crash?

For years, the FED has weaved a net of confusion over the markets, acting bearish and then dovish in the same sentences. This, as I have highlighted many times in the past, has been purely to confuse the public and keep them in a constant state of unknowing.

Yet, perhaps this time is different? One thing that has changed is the fact that President-Elect Donald Trump will soon be taking office, despite the wishes of the financial overlords and elites.

This of course includes the FED and as I predicted all last year, the FED would not do anything with interest rates until the election results were concluded, not wanting to hurt the chances of Hillary Clinton winning, and not wanting to crash the economy on Obama's final stretch in office.

Now, they can act and use the FED as a weapon. The best, last hope that the elites have of defeating Donald Trump is to destroy his first four years in office.

If they are able to orchestrate a new crash in the markets, then they will be able to blame the forthcoming disaster on Donald Trump, even though its occurrence has nothing to do with him.

I believe that this is going to be their best plan of action, if they want to destroy the spirits of Trump's supporters and I believe this is exactly how they plan on bringing him down. Now, all that we can do is inform the public as best as we can, wait and see, prepare ourselves by investing in precious metals and seeing how the situation resolves itself.

Prepare for the worst, but hope for the best.

If this is what happens, their fingerprints will be all over it and it will not take President Trump long to prosecute those involved. A big show trial will convince the American people who it was that landed them into these straits.

From The Seattle Times:

Trump expected to pick billionaire investor Wilbur Ross as commerce chief
President-elect Donald Trump is expected to select as commerce secretary Wilbur Ross, a billionaire investor who became known as the “king of bankruptcy” for buying, restructuring and selling off steel-makers and other fading industrial companies, officials on the transition team said Thursday.

Makes a lot of sense - except for the 0.1% banksters, businesses are hurting and to get someone to turn things around will greatly help the economy. A bit more:

Ross, 78, an economic adviser to Trump’s campaign whose fortune is estimated by Forbes to be $2.9 billion, is aligned with Trump on trade. He says the United States must free itself from the “bondage” of “bad trade agreements,” and he has advocated threats of steep tariffs on Chinese goods. Ross, chairman of the private equity firm WL Ross & Co., has also pressed for cutting the corporate tax rate to 15 percent, from 35 percent, and reducing taxes and regulations on energy companies.

And this is not an unknown precident:

If confirmed by the Senate, Ross would succeed another wealthy campaign donor at the helm of an agency charged with promoting U.S. commercial interests and trade around the world. Penny Pritzker, President Barack Obama’s commerce secretary, is a billionaire entrepreneur who was an early financial backer of Obama and is an heiress to the Hyatt Hotels fortune.

Unlike Trump and Ross, Pritzker has been a leading proponent of forging new free-trade agreements. One of her top priorities was the completion of the Trans-Pacific Partnership, a 12-nation accord that Trump has promised to scrap.

Works for me - nice to return to the Laffer Curve. Cut the tax rate and watch the tax revenue soar.

Spotted today - from Zero Hedge:

Just Spotted In Front Of The New York Fed
Three months later, the shredders are back...


... and this time they are joined by a friend: a van belonging to a professional demolition and dismantling service, which incidentally is parked right in front of the NY Fed's master cargo door which among other places, leads to NY Fed's gold vault.


Things must be getting serious if just using BleachBit won't fix it.

I love the BleachBit comment - some wine flew out my nose. They are probably shredding the IOUs from all the gold they stole after 2008. Adults in the room NOW!

Readers will know that I follow the Baltic Dry Index as a good measure of our economic health. This is the cost to ship an intermodal container from Point A to Point B. It has been very low over the last eight years or so. If there is no demand for goods, there will be less goods shipped and the cost to ship goods will drop (lower demand for a resource means lower cost to consumer).

Peter Grant writes at Bayou Renaissance Man and also follows the economy including measurements like the Baltic Dry. He posted a great one today - long, lots of links and well worth reading. One of his commenters posted a link to railroad car traffic - this is just as bad. From Captain Capitalism:

What the Railroad Tells Us About the Economy
The economy ever since 2006 has been "Meh."
When historians and academics look back at Obama's economic performance, they'll say "meh."
We never left the recession as far as I'm concerned and with economic growth BARELY outpacing population growth our increases in standards of living has been "meh."

And since "meh" isn't exciting, I moved onto other things.

But then I hear whispers and rumors, sayings and speakings, and an increasing amount of them are about the economy. And the economy is no longer "meh" like it has been since 2008, but things are not looking too good. Oil prices are down (not just on supply concerns, but demand concerns). The Baltic index is down, showing a global slow down. And then a little birdy in the railroad biz I know said to look at rail car traffic. And 2016 it is very much down.


Please note that they are jerking our chain a little bit - look at the Y Axis. It starts at 480 and not zero. Comparing December 2015 (estimated 480) with December 2014 (estimated 530) we see a drop of about 10% - significant but not earth shattering. Still, railroad traffic is taking a big hit and it is also a good proxy for our poxy economy.

About Hanjin shipping - close to home

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I posted yesterday about South Korean's Hanjin Shipping declared bankruptcy and is in a state of shutdown until the lawyers figure things out. There is one of their ships in limbo up north of here.

From Canada's CBC:

Giant container vessel stuck in Prince Rupert, company in receivership
One of the world's biggest shipping companies has filed for receivership — leaving one of its vessels stuck in Prince Rupert.

South Korea's Hanjin Shipping Co. Ltd. filed for bankruptcy protection today, causing chaos for thousands of customers around the world.

And north of here?

One of its ships, the 255-metre long Scarlet, entered the Port of Prince Rupert at 10 p.m. PT on August 30, and is now in an assigned anchorage.

Port spokesperson Michael Gurney said under normal circumstances, the ship would go directly to the terminal for unloading, but it has not been handled because of the uncertain situation.

And the cargo:

"Nothing's happening with any of the cargo, and this is all back to school merchandise, Christmas merchandise, beginning to come in now and unless the terminal is paid to unload the ship — and it needs to be paid by a carrier that's now entering bankruptcy — then the cargo's not going to get moved," he said.

There is about a six month lead time between the initial order, manufacture, shipping, distribution and retail for any given item. This is why Halloween stuff started appearing on shelves two months  ago and Christmas stuff will be showing up right after Halloween is over. Not knowing how long this impasse will last could drive up scarcity and therefore prices of anything coming in from Asia. If you are looking at purchasing a durable good (laptop, hard drive, television, clothing, appliance, vehicle, etc...) this fall, consider shopping for it now.

From the Washington Examiner:

Debt to reach highest level since 1950 this year
The national debt this year will jump to the highest level since 1950 relative to the size of the economy, the Congressional Budget Office reported Tuesday.

The agency projected that the debt held by the public will rise 3 percentage points to 77 percent of U.S. gross domestic product by the end of fiscal year 2016 in September.

Debt has not hit that ratio since 1950, when the government was still in the middle of paying down the debt it incurred paying for World War II.

The National Dept is approaching $20 Trillion Dollars and showing zero signs of slowing down. It was $10.6 Trillion when Obama took office.

Just to get a sense of scale for how large one trillion is, if you had one trillion dollars and spent $1,000 (One Thousand Dollars) each and every second, the money would last for a little over 31 years (31.709)

An observation - economic depression

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I was following some links down a chain of unrelated topics and ran into this Wikipedia article: Great Depression in Australia - it happened in 1929 and was in part triggered by worldwide downturn that triggered the USA depression of 1929.

So I am reading along  and come on the following:

... Australia, unlike the United States, did not embark on a significant Keynesian program of spending to recover from the Depression. Nevertheless, the Australian recovery began around 1932.

From depression to economic recovery in three years?

For giggles, I looked up the following: Great Depression in the United States

Here it is:

The market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth and personal advancement.

Emphasis mine - and the money quote:

The economy reached bottom in the winter of 1932–33; then came four years of very rapid growth until 1937, when the Recession of 1937 brought back 1934 levels of unemployment.

Australia, not implementing any Keynesian programs, was on the road to recovery by 1932. The stimulus that the USA implemented prolonged our downfall and created an economic bubble which ran from 1933 through 1937. The bubble burst (as bubbles must always) and we were back to square one in 1937. The depression did not fully end until 1941.

And people still think that John Maynard Keynes is a genius? It is old-school Austrian economics for me - that works. During a depression (or recession for that matter), the last thing we need is for the Government to spend money.

Just wonderful - municipal bonds

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I have my savings in municipal bonds through a mutual fund (they buy many bonds and spread the risk). Stocks are too volatile for my liking and local governments will always be issuing bonds for various projects. The earnings from these investments are exempt from Federal Income Tax. Now, Obama is seeking to change this.

From Forbes:

Ending Tax Breaks On Municipal Bonds Shifts Burden To The Rest Of Us
Better check that portfolio: the Obama administration is continuing to push for limits on the tax exemption of municipal bonds. The plan was tucked away in the President’s budget introduced in April but hasn’t attracted much public attention – until now, when it appears that the cap may actually happen.

Traditionally, municipal bonds have attracted investors because the interest income is tax exempt for federal income tax purposes. Depending on the investment, the interest income may also be exempt for state and local income tax purposes. There’s a reason for the exemption: municipal bonds are generally private investments in state and local government projects like schools, hospitals, water projects and roads and the federal government has an interest in encouraging those kinds of investments.

Here’s how it works. Suppose a local government needs money. Typically, it can: (1) cut spending; (2) raise taxes; or (3) borrow money. Since the first two options are often impossible or not palatable, borrowing money is generally the most appealing. But even in the pre-”too big to fail” bank era, banks don’t generally hand over giant checks to cities and towns that might already be struggling to pay bills. Instead, the city or town borrows money from the public with the promise to pay the loan back over time with interest. That loan is called a municipal bond.

Tax exempt:

The interest has traditionally been exempt from taxation – a tax break that dates more than 100 years. In Pollock v Farmers’ Loan & Trust Company, 157 US 429 (1895), the Supreme Court held that the federal government had no power under the Constitution to tax interest on municipal bonds.

They are talking about capping the rate at 28% - that is a lot of money! Here is the problem:

And I know what you’re thinking: who cares if the rich have to pay a little more? You should care. And here’s why.

Think back to what I said before about why we have municipal bonds in the first place: it’s to encourage private investment in public projects. Those funds are used to build our roads, improve our schools and fund our emergency responders; schools alone accounted for nearly one-third of state and local infrastructure expenditures financed by private investment over the last ten years. We should want to encourage that investment. If we don’t, go back to beginning of the piece: what are the options now? Cut spending (meaning, realistically, those projects don’t happen) or raise taxes (yes, on the rest of us).

A higher tax bill on municipal bonds means that affected investors – those than can afford to shop around – will necessarily seek out other options. They’ll look to find investments that pay out at a higher rate to make up for the higher bite. The result? Instead of money going to public projects – repairing bridges, fixing dams, funding schools – it will go to Apple. Or Netflix. Or Coca-Cola. Or Citi. Is that what we want? There are already plenty of incentives to invest in the private sector; we shouldn’t erase incentives to encourage private investment in the public sector.

The author closes with:

I know that the tax cap on municipal bond interest feels like an easy bump in revenue. But it’s far from painless. Scaling back an exemption available to taxpayers for more than 100 years won’t just result in collecting more dollars. It will alter incentives for private investors to have a stake in public projects and it will make borrowing for those projects more expensive for state and local government. That isn’t bumping revenue: it’s merely shifting it around. And it affects all of us.

My investment is just a couple hundred thousand but it is the money I live on and plan to live on for the next forty years. Taxing this - potentially at 28% - would cripple my finances. I would be forced to move to the stock market and spend a lot more time managing these funds as the market shifted.

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