Archive for April, 2005

Our Friend the Fed (April 25, 2005)

Posted in Federal Reserve, Gold Standard, Greenspan, Housing on April 25, 2005 by

(Part one of a two part series; part two appeared on February 7.)

(The Fed meets on May 3)

Montesquieu, a French guy who is sort of a founding grandfather, developed this notion to create three separate but interconnected branches of government – the executive, the legislative and the judicial.  His intellectual kids, the founding fathers, were keen on the ideas.  However, there was considerable disagreement and no agreement regarding the fourth branch of government – the economic.  (Shortly after the big gathering in ’87, the boys gathered again in ’91 and sagely addressed the concerns of the Fourth Estate in special interest legislation known as Amendment Uno.)

Later, in 1913, under the administration of someone who now would be known as a tax and spend liberal, a measure was passed to take a little money from all of us and another bill was passed to determine how much money we got to play with to begin with.  The Internal Revenue Act of 1913 (as amended) has gotten traction, although the 16th Amendment is not a household concept.  The activities and agendas of the scheming group of bankers who constitute the fraternity known as the Federal Reserve have never been adequately incorporated into our constitutional democracy.

The bankers establish monetary policy.  This is where most people turn to the racing form.  Monetary policy determines everything.  Put the racing form down and listen.  However, there is no constitutional blue print to guide the bankers.  Some of their tools are goals; some of their goals are tools.  The fellows who work with the Fed have not made news because they prudently stay out of the news.  They say it is okay to be rich, but it is not okay to be famous or infamous.  Few of them get involved with showgirls, at least not publicly, or wear collars that are not button-down, at least not publicly.  However, their actions make the news and determine the news.

What they do determines what we get to do.  The economy was slumping some time ago.  The jobs were going overseas and the stock market was going down the drain.  Many people who own houses (and vote) found that others coveted their houses.  Housing prices for existing stock went up.  The homeowners’ stocks had gone down, but they felt good that their housing stock had gone up.  The Fed flooded the economy with money by setting a low Federal Funds Rate and left us all, yup, awash in money.  There were also more people who needed and/or desired a house or a bigger house or an even bigger house, so more were built.  Low interest rates were a way of salvaging the American economy.  The homes were built on American soil, driving up the price of American soil owned almost entirely by Americans.  The homes were built with products made largely in America or Canada (wood, synthetic wood products).  The homes were built here in America by Americans, albeit a few who are categorized as “illegals” even though they are building America.  The one thing that Americans can do well here in America (and foreigners cannot do here in America) salvaged the economy.  And left us with a lot of big homes.

At what cost?  Low interest rates exacted a cost.  Many members of the Greatest Generation (they were) cobbled together a very comfortable retirement from 1) their employers who at one time actually provided adequate defined-benefit plans, 2) their government that at that time provided adequate social security benefits, and 3) themselves via interest payments from savings or bonds or other fixed-income investments.  The Great Triumvirate sustained them.  In a pinch, these good people retired comfortably by selling the home they purchased in 1953 and spent their last years bass fishing at the cabin.  The mortgage interest deduction rewarded them during their productive years; the $250,000 exemption from income on the sale of a personal residence protected the usufructs of their efforts and good fortune.  It was a good time in a good country.

What about all of those individuals who relied primarily on interest payments to finance their retirement?  Prudent personal financial planning and the insistence of the actuarial tables dictated that these seniors get out or stay out of risky investments as they got older and instead invest in regular interest-generating fixed income instruments.  However, they got little for their money and their efforts in recent years.  If they were fortunate enough to pay off their house and later sell it and if they could also could rely on 1) and/or 2) above, they could live comfortably in the smaller house.  Seniors without 1) and/or 2) above may strain to live modestly.

However, why not set the Federal Funds Rate at ten percent instead of one percent?  The old folks would receive more interest, although there may be restrictive pressure on growth.  Those who demand a return to the gold standard seek a standard, although the metal does not set standards.

The Fed had been allowed to operate under a loose alliance without congressional oversight (or with congressional oversight?).  For decades, the Fed addressed monetary policy and avoided fiscal policy.  The Fed’s current helmsman has been opining on fiscal policy of late.  Admiral Alan “Enron Award for Distinguished Public Service” Greenspan is adrift.  The Fed is the most significant player setting the course and speed for the economic ship of state.  There is no constitutional rudder to guide them.  The statutory helm is loose.  Incorporating the Fed into our constitutional scheme of democratic government is one of the challenges today.

Death and Taxes: $10 M and 33 1/3 % (April 18, 2005)

Posted in Economics, Entitlements, Estate Tax, Taxation on April 18, 2005 by

(Now that the taxes are filed, it is time to deal with death)

Ben F., the key and kite guy, observed that there are two certainties in life.  Americans are so arrogant that they believe they are entitled to repudiate their mortality, although they do not believe they are entitled to pay for the effort.  Now the Congress wants to repudiate life’s other certainty, the payment of taxes upon death.  Is there no certainty in life?

Estate taxes (E taxes) are paid on the loot before anyone gets their paws on it.  Most Estate taxes are paid to the Feds, although the states will need to reach into the pot and grab a handful to survive in the near future.  Inheritance taxes (I taxes) are paid by the individuals after they get their paws on the lucre.  Most Inheritance taxes are collected by the states, although the Feds savor taxing any income from any source.

Contrary to the suggestions of their phalanxes of lawyers, lobbyists, lackeys, accountants and publicists, the rich often never paid tax on large chunks of their bounty.  Those who can afford almost anything should be afforded the opportunity to be first-class citizens.  Getting by on $10 million per couple and 66 2/3 % of the remaining stash is fair and balanced.  Anything below ten million per couple should be exempt; anything over should be taxed at 33 1/3 %.  A typical $20 M estate would yield $16 2/3 M for the kids.  That is the definition of fairness.  Fooling around with life’s certainties is foolish.  And improvident.

The “Ownership State” and “Bush, Inc.” (April 11, 2005)

Posted in Bush, Economics, Politics on April 11, 2005 by

The “ownership state” is a movement to establish a very small cadre of Republicans who own the ship of state, and everything else.

Also marketed as the “ownership society,” the “Raw Deal,” or the “Malignant Society.”

Bush, Inc. (Ticker Symbol: BuSh), a multinational corporation incorporated offshore, offers publicly traded preferred shares affording one who can afford it an opportunity to make a pure play to “own America.”  Individuals, but only very wealthy individuals, can acquire an interest in the enterprise in various dollar denominations marketed as “Rangers” and “Pioneers” and “Cattle Rustlers” and “Robber Barons” and “Inside Traders.”  Bush, Inc. has successfully fooled the public into believing that ordinary citizens can acquire a share of America, but they offer no common stock.

Karl Rove, winner of the J.P. Goebbels Propaganda Award for 1999, for 2000, for 2001, for 2002, for 2003 and for 2004 and a finalist for 2005, is the CPO (Chief Propaganda Officer) and scrivener of the prospectus.  Call for the prospectus which does not include investment objectives, risks, charges, expenses or other information.  Operators are standing by.  Read and consider the prospectus carefully before investing.  Past performance can be used to predict future performance.  As with any prospective investment, take the time to do some additional research.  Note that many Officers and Board members stand for retention election next November.  A change in management is the only way to bring about change.

USA PATRIOT ACT (April 4, 2005)

Posted in Bush, Civil Rights/Civil Liberties, Law, PATRIOT Act, USA PATRIOT Act on April 4, 2005 by

USA PATRIOT ACT – Undermining and Subverting America by Perverting All Time-honored Rules To Interrupt and Overcome Tyranny

What more needs to be said?