Friday, November 30, 2012

Nothing But Counterfeit Political Rhetoric And Hauser's Law

Governments will spend as much as the tax system will raise, plus as much more as they can get away with  - Milton Friedman
Politics is nothing but the insidious term applied to those voted into office who spend their time conspiring to find ways to annex economic wealth and redistribute it for their own gain.   Fiat currency is the mechanism used to accomplish this act of legal theft.

What is going on in this country - and has been for the better part of 99 years since establishment of the Federal Reserve - is the slow disintegration of our system.  Just like the accelerating increase in the money supply since 1971 resulting from the final decapitation of the gold standard,  the rate of corruption and legal theft from the middle class has started to rise at a parabolic rate.  This, my friends, is the final stage of the collapse of our country and system.  There is no other explanation for what is happening.  Anyone who refuses to acknowledge that this is happening or admit that what I just described is factual is either hopelessly naive and in denial or tragically ignorant.

I bring this up because here we go again with another wash, rinse, repeat cycle of the debt ceiling circus of a little over a year ago.  That political abortion did nothing more than delay facing the real problem of too much Government spending relative to the amount of revenues annexed by the Government.  The so called "Fiscal Cliff" (FC) is this mythical event that will supposedly automatically slash Government spending and raise tax rates across the board.  Does anyone really think that the politicians will let their ability to spend be reduced like this?  Really?

Occasionally I like to wander over to a blog called The Economic Collapse because the author usually has some nicely written posts with excellent data and factual analysis.   With regard to the FC, he had this to say:
Please keep in mind that the "$1.2 trillion in automatic spending cuts" is not for a single year.  When you break it down, the cuts to spending would be somewhere around 100 billion dollars a year.  And a lot of those "cuts" are actually spending increases that would be cancelled.  So those spending cuts would not really put much of a dent in our yearly budget deficits at all.  LINK  (I highly recommend reading the blog post)
As he explains, the attempt to raise revenues to help cover the spending is more severe than the cuts.  But what everyone needs to remember is that if Government raises tax rates, the best case is that it will be revenue neutral and will more likely cause a tax revenue decline.

This statement is backed by something known as Hauser's Law, which states that regardless of the tax rates, the amount of revenue raised by income taxes is constant at 19.5% of GDP:  LINK  Despite a thorough grounding as an Economics major in undergrad and an MBA from the economics heavyweight University of Chicago, I had never come across Hauser's Law until I read this article in the Wall St Journal: LINK

To add a little analysis to this 19.5% of GDP tax revenue phenomenon, it is also the case that raising the marginal tax rate will most likely cause a decline in GDP (we're talking real, inflation-adjusted GDP here, not the fraudulent Government concocted number).  In other words, regardless of what kind of political "deal" is hatched to enable the massive spending deficit to continue to grow while kicking the catastrophe down the road some more, if marginal tax rates are raised, revenues will decline in an amount likely in excess of any real annual spending reductions.

What we do know is that the Obama Administration is now floating the "trial balloon" idea of permanently doing away with the debt limit ceiling.  Tim Geithner talked about this in a recent interview on Bloomberg TV and yesterday Obama floated an FC resolution proposal which included the elimination of debt ceiling limitation rules.

You see where this is headed?  I don't care what type of rhetorical position is being assumed by Boehner and Harry Reid, they both want to maintain the unfettered ability to confiscate the public's wealth and keep funneling it to their wealthy constituents who put them into office.  The easiest path to this end is to enact a big increase in the debt ceiling limit, which enables the Fed to print up a lot more fiat currency needed to fund that extra debt load.  Make no mistake about it, when this political rhetoric regarding the FC settles, we are going to see a huge increase in the debt ceiling limit AND a massive amount of QE/Govt stimulus.  I will guarantee that outcome.

If you want to protect your hard-earned wealth from this mess you need to start moving as much of your wealth as possible OUT of the system and in to physical gold and silver.  This current pullback in the market is the perfect time to start doing that.  Given that November was the biggest month this year for gold eagle sales by the U.S. Mint, I would say a few more people are starting to understand why - et tu, Brute?....Have a great weekend


  1. Did you say counterfeit?

    Goldman Sachs Loves the Shadow Banking System

    According to an article in Counterpunch by Mike Whitney, the creation of money has become privatized via the shadow banking system. The staff of the Federal Reserve Bank of New York have written a report on Shadow Banking (Pozsar, Adrian, Ashcraft and Boesky). They "expect shadow banking to be a significant part of the financial system, though almost certainly in a different form, for the foreseeable future" (page 26).

    This Report never mentions the fraud that brought the financial system to its knees. Instead it uses obfuscating euphemisms to describe the causes of the crisis, words like "fragility," "times of stress," "risk," breakdown" and "credit-risk free" to temper the descriptions of the Shadow Banking System (SBS). Though the fraud lay thick and deep in the CDOs and CDS that are part of the SBS, the authors acknowledge only that it "played a quantitatively important role in the run-up to the financial crisis." That description is the equivalence of Pilate washing his hands in water and claiming innocence while everyone else is declared guilty!

    The SBS contains a "Cash" and a "Synthetic" component. The authors would rather that SBS not be a pejorative term, but when you picture Blankfein salivating while he thinks about the possibilities for wealth transference by securitizing Social Security, Medicare and Medicaid (if they are ever privatized,) we know SBS is not a laudatory place.

  2. WSJ recently put the debt including the cost of unfunded liabilities at over $80T. Some other commentators have called this figure conservative suggesting it approaches $100T.

    When you factor in the derivatives black hole of counterparty obligations at some ridiculous figure of some $600-$1200 quadrillion (yes we can gainfully stop the counting on that one) you understand that this congressional noise is nothing more than "bickering on the Titanic".

    "If you want to protect your hard-earned wealth from this mess you need to start moving as much of your wealth as possible OUT of the system and in to physical gold and silver." that's simply stated indeed. man the life boats.

  3. What a country we live in ! Most of the citizens are asleep and couldn't care less. They would rather be glued to their televisions, ipads, and other forums that keep them from facing anything that resembles logic.

    It's really no use - just chalk it up to most of the American populations insightfulness to be equal to a box of rocks in their preparedness for what lies ahead.

  4. thanks for putting that Elway clip back up Dave!

  5. Dave, Check this out if you have not already read about it on Rubino's wesite;

    Original source;

    The money quote; "And it’s not just China. Central banks in general are buying. Until 2011 central banks were selling gold but in the last two years hardly any are selling and many are buying. I’ve been doing this for 35 years and last month made my first sale to a central bank."

    1 kg Lunar Dragon... aka Jim H

  6. Mailbox

    This is THE big joke of Keynesian economic theory and Central Banking, and very few actually ‘get it’ (although you can bet our privately-owned and for-profit FED does, since they are in on it).

    - It’s also one of the reasons they hate precious metals like vampires hate garlic.

    While the career politicians prance about in their clown shoes and red rubber noses quacking about "the fiscal cliff" and are obediently parroted by the MSM and FTV charlatans, this is something they do NOT want to talk about or want anyone to even ‘think’ about.

    This is actually very simple. Look at the two lines on this chart.

    - The blue line reflects the falling purchasing power of the Dollar. From the creation of the FED when one Dollar was worth one Dollar to today, when one Dollar is really only ‘worth’ 3.8 cents.*
    - The red line represents rising prices over time. This is the inflation the professional liars say does not exist.
    - The turning point is pretty clearly indicated in the 1970′s. This is one trend that is NOT your friend!

    It has been said before, but is worth repeating:

    - It isn’t that the value (price) of Gold has gone UP. It has not. It is the value (purchasing power) of paper fiat that has gone DOWN.

  7. Consider, also, that since the establishment of the Federal Reserve (money for nothing and your chicks for free), the United States has been perpetually at war and society in upheaval (not that these things didn't exist prior to 1913, but there's a lot less peace in the world since that foul entity came in being and the crises are coming faster and more furiously). To wit: World War 1, the speculative mania of the '20s, a Great Depression, World War 2, the Korean War, the Cold War, Vietnam, the Cuban Missile Crisis, endless wars and skullduggery in Iraq, Egypt, Libya and the entire Middle East, Afghanistan, recessions, housing/equity booms and busts, the War on Terror (the "Forever War"), millions on food stamps, millions more without gainful employment or any hope of it and all kinds of crap I haven't mentioned and tons more of crap I'll never know about.

    Mucho crappola in the world, and more coming down. Get gold/silver.

  8. Dim sum bond sales double as new elite back global yuan

    Dim sum bond sales by Chinese borrowers surged to a four-month high in November as the country’s new political elite signalled a commitment to making the yuan a global currency.

    Beijing Capital Land, the developer whose shares have risen 94 per cent this year, led a doubling of yuan-denominated debt sales in Hong Kong to 5.5 billion yuan (US$883 million) this month. That’s the most since companies sold almost 6.7 billion yuan in July. Corporate dim sum returned 6.6 per cent this year, compared with a loss of 3.2 per cent last year, while similar- maturity domestic company securities returned 4 per cent, according to Bank of America Merrill Lynch indexes.

    Chinese companies increased sales of dim sum notes after the country’s new leaders committed to opening the economy, the yuan strengthened to a 19-year high and borrowing costs fell to the lowest in eight months. Vice Premier Li Keqiang, set to take over as premier in March, pledged last week to liberalize exchange rates, while Party General Secretary Xi Jinping said in his inaugural speech he will open the economy further.

    “Supply of dim sum bonds will increase because of the push to internationalise the yuan,” said Wee-Khoon Chong, Asia rates strategist at Societe Generale in Hong Kong. “There isn’t as much of a yuan-appreciation story so investors will be assessing issuers on their merits. On the other hand, there is no depreciation risk.”

    The pace of currency reform is set to accelerate, according to Paul Mackel, HSBC Holdings’s head of Asian FX research and Ju Wang, a senior Asian FX strategist at the bank. Full convertibility is likely within five years, they wrote in a research note dated Nov. 29.

    “We believe internationalisation of the renminbi is a clear direction and policy of the government,” said Samson Lee, head of debt capital markets at BOC International, a unit of Bank of China, referring to the yuan by its alternative name. “The change of government maybe slowed things down a little recently, but I think in the longer term it’s definitely going in that direction.”

    Reform of convertibility will be the next step in the overhaul of the exchange-rate system, Zhou Xiaochuan, China’s central bank governor, said at a conference in Beijing Nov. 17.

    “We are going to realise it, we are moving in this direction, we need to go further, we will have some deregulation,” Zhou said.

    The government plans to increase the Renminbi Qualified Foreign Institutional Investor Programme by 200 billion yuan from 70 billion yuan, Guo Shuqing, chairman of the securities regulator, said November 11. The system allows investors to put yuan raised offshore into mainland markets.

  9. Robert Wiedemer: Awaiting The Aftershock

    Bob Wiedemer, author of the best-seller The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy, regards the 2007 puncturing of housing market prices and the 2008 financial market swoon as the precedents to two much larger and much more dangerous bubbles.

    These more pernicious threats are the dollar bubble ("printing money") and the government debt bubble ("borrowing money"). While both are expanding at a sickening pace, in the near term they deceptively make things seem much better than they are.

    But, like all bubbles, they are unsustainable. And when these collapse, they are going to take the entire financial system, and very possibly the currency, with them (a.k.a. the "aftershock")

    Bob predicts the rupture of both these bubbles will most likely happen in the next 2-4 years and accelerate astonishingly rapidly once it begins. Part of the reason for this is that the Fed, now boxed in by its committed course of action, will print like mad to slow the process down -- which ultimately will serve instead as fuel for the fire. This will be the point at which the Fed loses control of interest rates.

    Wiedemer is fairly confident that the Fed is well-aware of this dire probability, but finds itself increasingly stuck to avoid it. At this point, the major financial markets (stocks, bonds, housing) are so dependent on Fed liquidity that any efforts to withdraw the punchbowl will send prices lurching downwards, threatening the weak global economy. It's now a binary choice between damned-if-it-does and dammned-if-it-doesn't.

    As Chris summarizes, the Fed's main strategic consists completely of "hope". It's backup strategy? "Panic"

  10. Financial scandals and their cost take center stage

    A revolution—or perhaps, more accurately, a reformation—is now under way: a full-scale assault on what Bank of England Deputy Governor Paul Tucker called the "cesspit" in the City. This has come as a terrible shock to many City workers who believe they lead blameless lives of tireless devotion to clients.
    But it wasn't just the "casino bankers" in the fixed-income divisions who lost their moral bearings. Few parts of the City weren't compromised, aided by London's famously "light touch" regulatory regime that often seemed to favor the industry over its customers.
    There were the commission-hungry retail bankers guilty of misselling; the investment bankers who gamed the listing rules to bring emerging-market companies with appalling governance to the London market, often targeting passive investment funds; the executives who colluded in the vast escalation of boardroom pay; the fund managers, whose excessive fees—often deeply embedded—for mediocre performance ate into their clients' savings; the hedge funds that paid inflated commissions to secure access to market-moving information the moment—or was that the moment just before?—it was published; the auditors who signed off on aggressive accounting treatments knowing lucrative consulting contracts were at stake; the lawyers whose clever ruses enabled companies to operate at the outer limit of the law, not least in their tax affairs.

    Of course, this reformation will have real world consequences. Implicit in the unwinding of the bezzle is a redistribution of wealth from finance to businesses and savers.

  11. Gold And The Potential Dollar Endgame Part 2: Paper Gold, What Is It Good For?

    Leveraged systems are based on confidence – confidence in efficient exchanges, confidence in reputable counterparties, and confidence in the rule of law. As we have learned (or should have learned) with the failures of Long Term Capital Management, Lehman Brothers, AIG, Fannie & Freddie, and MF Global – the unwind from a highly leveraged system can be sudden and chaotic. These systems function…until they don’t. CDOs were AAA… until they weren’t. Auction Rate Securities were great ‘cash management’ vehicles…until they weren’t. “Principal Protected” Convertible Notes underwritten by Lehman Bros were like CDs…until they weren’t. Paper Gold is just like allocated, unambiguously owned physical bullion…until it’s not.

  12. Vulture Funds and Justice.

    Americans like to portray themselves as moral and fair and their nation as a place where justice and the rule of law prevails. But abroad American corporations have operated as colonial powers. As have ours in Europe. Global corporations, American and European, operating in poorer nations especially, expect to buy those whose compliance they need and simply ignore laws they don’t like. Expensive lawyers can tie up any objections in pointless and endless legal battles for a fraction of the benefits that came from breaking the law. They have become used to being above the law. The US citizen, especially I think, has been either largely ignorant, thanks to the best efforts of the US media to keep them that way, or has just not cared.

    When BP polluted the Gulf Coast of The USA there was widespread outrage at BP’s corporate arrogance and guilt. And quite right too. BP deserved everything thrown at it and more. But where was the outrage and press campaign over Conoco? Or for that matter over Union Carbide in Bhopal. Thousands died in Bhopal and the US response, governmental as well as corporate, was to fly the Union Carbide chief out of the country and stonewall all enquiries.

    Now however US corporate power, led by financial power, is bringing those habits back home. The rule of law? What happened to the robo-signing fraud? Swept aside or talked till it died. What happened to all those threatened court actions from all those State Attorney Generals? Not a lot. What happened to the cases brought against Citi, or Goldman or JPMorgan or Wachovia or even HSBC? Mostly token fines and no-admission-of-guilt settlements.

    For decades too many citizens of the United States and Europe have turned a deaf ear to injustices as long as they happened to someone else and might have benefited ‘our’ interests. But those ‘interests’ have become used to being above the law and are importing their habits back home. Now it will be the American and European people who find it is one rule for the global companies and banks, and another for ordinary citizens.

  13. Wall Street finds a foreign detour around U.S. derivatives rules

    (Reuters) - Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world's $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators' efforts.

    U.S. banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.

    The rules, a result of Washington's Dodd-Frank reforms, aim to prevent financial catastrophes in the over-the-counter (OTC) market - a huge, opaque market which is partly blamed for felling Lehman Bros in 2008 and fuelling a global financial crisis.

    The banks' solution is to route trades via their non-U.S. affiliates - subsidiaries with their own separate balance sheets, often in London - rather than the parent banks. It is a detour that could eventually be shut down by foreign regulators, but for now offers shelter from the U.S. regulatory storm.

    "What we are seeing now is a gamesmanship dance in which firms do whatever they can to avoid regulation, which is an age-old phenomenon," said Thomas Cooley, a professor of economics at New York University's Stern School of Business.

  14. George Papandreou's mother 'linked to €550 million Swiss bank account'

    Margaret Papandreou, whose son George served as the country’s prime minister during the height of the Eurozone crisis, is said to be on the “Lagarde list” of Greek citizens with fortunes hidden in Switzerland.

    The list of alleged tax evaders, named after Christine Lagarde, the head International Monetary Fund (IMF), has caused deep resentment as Greece struggles with austerity.

    Mrs Papandreou, whose late husband was also a prime minister, denied the allegations reported in two Greek newspapers yesterday.

  15. No point in reading all this negative bullshit anymore. There is nothing done about it. Change the rhetoric to positive action.

    The point about the precious metals is that someone else is in charge of the trend and it's not the vocal goldbugs - it's what some refer to the invisible hand - ie the same people with deep pockets who control both directions.

    Most "broken records" have lost their credibility - Hathaway was the last one. Insisting that this is the supercharge and the this is the moonshot and Dec will be the big delivery month. And once again it's a damp squib. The algos and deep pockets can make it go anywhere. The Aug2010 silver run was also orchastrated. We can see that the rises are quick and sharp and then there are weeks and weeks of a downtrend. That doesn't show to be a strong constant chug. The miners are especially useless.

    It's best not to read all the crap any longer - both ways - the MSM and the alternative media fear mongering. Every day you get bombarded by war assertions, collapse stories.

    It's this bunker mentality has taken hold on the web.

    Gata's Murphy is the most dangerous of them all - his Wynter Benton style which says soon there is this stuff coming out about silver because his rich buddies say it is. What bullshit, unfortunately Turd Feurgeson has been swept up by the same crap. Leading the sheeple to become better sheeple.

    The precious metals will go up when they want it to go up!! I hope that will be understood soon.

    1. The US futures market for gold opened in January 1975, and by the late 1970’s, a gold company could take a loan, denominated in ounces of gold, at a much lower rate than they could take a traditional cash loan. Originally referred to as “mine finance” (Guy, 2012), bullion banks could offer lower rates of interest on loans tied to physical gold as they didn’t have to compensate for the rapid loss of purchasing power in fiat-currency denominated loans. By 1987, the London Bullion Market Association was incorporated. This collection of dealers and banks developed guidelines for clearing arrangements, options, and the development of the Gold Forward Option Rate (GOFO) – furthering the development of bullion banking. “Paper Gold” was born.

  16. Here is a good article of what the majority thinks....

    After the fiscal cliff there will be something else.... Now we have had QE3 announced and Obama re-elected - what now - Fiscal Cliff and then..
    Heck the fiscal Cliff is worse for Gold than for anything else.

    Idiots are now mentioning QE4 - the credibility is sliding to shit from the gold bugs.

    Have you lately seen the XAU / Gold ratio - and for how many years have you tried selling your miners to the sheeple.

    1. Financial Firms Have Been Hollowing Out America for Decades -- Now We're on the Verge of a Debtpocalypse
      40 years of austerity politics have hollowed out the heartland, as financial wizards of Wall Street gobbled up ever more of the nation's resources.

      For the last 40 years, prosperity, wealth, and “progress” have rested, at least in part, on a grotesque process of auto-cannibalism -- it has also been called “dis-accumulation” by David Harvey -- of a society that is devouring its own.

      The FIRE Next Time

      Meanwhile, for more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. Between 1980 and 2005, profits in the financial sector increased by 800%, more than three times the growth in non-financial sectors.

      In those years, new creations of financial ingenuity, rare or never seen before, bred like rabbits. In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them. A whole new species of mortgage broker roamed the land, supplanting old-style savings and loan or regional banks. Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry. A hedge fund manager put it bluntly, “The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around.”

      Here, instead, is the fable we’ve been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by “financial engineers.” Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity!

    2. Not sure why the majority thinks that gold is a "risk asset". It's the only asset I know of with no counterparty risk-- literally, the only "no-risk asset". That article can say whatever it wants, so long as USA, Japan, Euroland, China, etc continue to print money at light speed in the race to the bottom for their currencies (and their people-- thanks douchebag politicians!!!) there is only one way for gold to go in the long run.
      I work in the exploration business-- there are so many dud companies out there that don't know what they are doing and just waste shareholder money. They deserve for their stock to go to its intrinsic value (0). Rick Rule has talked about this a bit recently. Most of the juniors are garbage but if you sift through them there are a lot of diamonds out there that can be had for a very good price/ valuation.
      You buy public opinion articles by CNBC as being gospel, you are a sheeple!
      Justin From Canada


      I find myself more amazed than ever at the ability of those in power to lie, misinform and obfuscate the truth, while millions of Americans willfully choose to be ignorant of the truth and yearn to be misled. It’s a match made in heaven. Acknowledging the truth of our society’s descent from a country of hard working, self-reliant, charitable, civic minded citizens into the abyss of entitled, dependent, greedy, materialistic consumers is unacceptable to the slave owners and the slaves. We can’t handle the truth because that would require critical thought, hard choices, sacrifice, and dealing with the reality of an unsustainable economic and societal model. It’s much easier to believe the big lies that allow us to sleep at night. The concept of lying to the masses and using propaganda techniques to manipulate and form public opinion really took hold in the 1920s and have been perfected by the powerful ruling elite that control the reins of finance, government and mass media.

      Peddlers of Propaganda

      “Great is truth, but still greater, from a practical point of view, is silence about truth.” – Aldous Huxley – Brave New World

      America’s corruptible politicians, greedy corporate chieftains, criminal banking overlords, and despicable media manipulators all learned the sordid lessons of mass propaganda from the masters. Our willingness to lie and be lied to set us up to be manipulated by those who understood the mass psychology of a nation. Goebbels and Hitler were heavily influenced by the father of propaganda – Edward Bernays. He and his disciples are professional poisoners of the public mind, exploiters of public foolishness and ignorance, and never allow truth to interfere with a good story. What master manipulators realized is that it is easier to change the attitude of millions than the attitude of one man. By analyzing and understanding the process and motives of how the group mind works, the invisible government has been able to manipulate and regulate the masses according to their will without the masses knowing they are being managed. Bernays described this elitist view of the world in 1928:

      The super-rich elite believe they are more intelligent, more capable of managing the affairs of state, masters of the financial world, and chosen to decide what is best for the masses. In reality, they are egocentric, psychotic, power hungry, myopic, self-serving ravenous vultures, feasting upon the carcass of a once great nation. Truth is inconsequential and irritating to their plans for world domination and control. Therefore, no truth will be forthcoming from any organization or person that is associated with the existing political, economic, financial or social order. Every bit of information that is permitted into the public realm has been vetted, manipulated and spun for public consumption. The public does not like bad news. They do not like hard facts. They do not like to think or do math. They want to be spoon fed mindless sound bites and happy talk. The oligarchs need to keep the masses sedated and subservient while they continue to plunder and pillage, so all data is massaged to provide a happy ending.

  17. Risky bonds tie schools to huge debt

    About 200 districts in California may have to pay as much as 10 to 20 times the amount borrowed.

    Two hundred school districts across California have borrowed billions of dollars using a costly and risky form of financing that has saddled them with staggering debt, according to a Times analysis.

    Schools and community colleges have turned increasingly to so-called capital appreciation bonds in the economic downturn, which depressed property values and made it harder for districts to raise money for new classrooms, auditoriums and sports facilities.

    Unlike conventional shorter-term bonds that require payments to begin immediately, this type of borrowing lets districts postpone the start of payments for decades. Some districts are gambling the economic picture will improve in the decades ahead, with local tax collections increasingly enough to repay the notes.

    CABs, as the bonds are known, allow schools to borrow large sums without violating state or locally imposed caps on property taxes, at least in the short term. But the lengthy delays in repayment increase interest expenses, in some cases to as much as 10 or 20 times the amount borrowed.

    The CABs enable schools to borrow wantonly without violating state or locally imposed caps on property taxes, at last for now. The long delays in interest payments can result in increased interest expenses of 10 or 20 times the amount borrowed. The practice has been banned in one state, but California has borrowed liberally through the scheme

    “They are terrible deals,” California Treasurer Bill Lockyer said. “The school boards and staffs that approved of these bonds should be voted out of office and fired.”

    The school system won’t, in the end, be who is on the hook to pay back the loans; that’ll be left for homeowners. For that reason, the CABs are dragging down property prices where they are known to have been used.

    The Newport Mesa Unified School District in Orange County issued $83 million in long-term notes in May 2011. Principal and interest will total about $548 million.

    "This is part of the 'new' Wall Street," Lockyer said. "It has done this kind of thing on the private investor side for years, then the housing market and now its public entities."

  18. Forget Fairness, Let’s Talk About Stupidity

    So no, the economy isn't fair and you can make a pretty strong case that it's gotten less fair, but that fact alone will never sway those in power.

    So instead of lamenting the lack of fairness, let's talk about the stupidity of this hollowing out of the middle class in this country, year after year, with bought and paid for legislation and preferential tax treatment.

    Henry Blodget demonstrated last night how, while corporate profits have never been higher, the wages paid to workers at these same corporations have never been lower. While corporate profit margins just hit a 70-year high, have a glance at wages as a percentage of GDP:

    Corporations haven't magically learned a new secret to profitability, they've just found a workaround to the need for a living wage in this country.

    In the meanwhile, over at The Atlantic, Derek Thomson shows how, while tax rates for the median household in America have dropped by 7% since 1980, tax rates for the very wealthiest households have dropped by double, roughly 14%:

    fairness aspect is irrelevant - since when in the history of human civilization did wealthy people not make the rules so that their advantages would be assured? It is only when they go to far that there is a reset, a turning point like the beheading of French monarchs and the storming of the Bastille. Episodes like those are the exception, not the rule, which is why they're so memorable in the first place. 99% of the time, the rich get richer and there is very little turnover in their ranks. Fine.

    But the stupidity of having such an obviously unbalanced economy is the more important discussion we should be having right now. The corporations are every bit as vulnerable to the disappearance of the middle class as the middle class is itself.

  19. In the second half, Max Keiser talks to Ned Naylor-Leyland of Cheviot Asset Management about the fishy smoke signals blowing at the LBMA regarding silver contracts and about the debate between inflation, deflation, hyperinflation actually being a debate about the final denouement of paper currencies. Ned also reveals that the LBMA is about ten times larger than the Comex and that BBC’s flagship programme, Panorama, had interviewed him and Andrew Maguire about silver manipulation and yet have never aired the episode.