The Zealous Pursuit Of State-Sponsored Collapse

Authored by EconomicPrism"s MN Gordon via Acting-Man.com,

When Bakers Go Fishing

Government intervention into a nation’s economy is as foolish as attempting to control the sun’s rise and fall by law or force.  But that doesn’t mean governments don’t meddle each and every day with the best – and worst – of intentions.  The United States government is no exception.

From the “When the government helps the economy” collection: Breaking a few eggs while baking the bridge to nowhere omelet. [PT]

 

Over the years, layers and layers of interference by various federal, state, and local agencies have built up like grime on a kitchen window.  The grease shines and smells of something fierce.  The layers of government grime also drip and ooze into every crack and crevice of the economy.

These days, for example, it is impossible to carry out a simple private transaction with your barber or barista without some form of government interference.  Has your barber obtained the required license and paid the obligatory fees to be able to legally taper your neck line?  Has your barista’s espresso bean grinder passed city health inspection?

Is the hot Cup of Joe served in a paper cup of appropriate recycled material composition?  Did the hot beverage exceed the legally accepted temperature standard?  Did state and local governments receive their tax exaction upon payment?

 

The licensing racket – left panel: the basic definition of the racket; middle panel: how long it takes and what it costs to obtain licenses for assorted jobs in the US; right panel: the inexorable growth of rules and regulations. One shouldn’t be surprised that the pace of real economic growth has steadily declined since peaking in the late 19^th century (or if one wants to focus on the modern era, since it peaked not too long after WW2). From money supply inflation to regulatory inflation, Leviathan has undermined the economy at every turn by inflating all the stuff we definitely don’t need more of. The pretense is that this is needed to “protect” us (for instance, last year the police courageously protected the citizens of Georgia from the dangers of an unlicensed lemonade stand by arresting its 14-year old female proprietor). Let us be clear: No-one will be allowed to terrorize the community by running an unlicensed lemonade stand or engaging in the high crimes of dispensing unlicensed manicures and haircuts. [PT] – click to enlarge.

 

When it comes to more complicated matters, where real money’s on the line, government interference is an absolute disgrace.  Did you know that it costs 10 times more to have an appendectomy in the United States than in Mexico?  Is the procedure 10 times better?

Obviously, this is nothing new.  Governments have been regulating and impressing their fingerprints all over commerce since society first granted its leaders the opportunity.  People are so accustomed to it that they accept government intervention as necessary to better their lives.

When it comes to price fixing, wage controls, and dictating oil production, things quickly go haywire.  This is because prices, wages, and resources have their own independent relationships beyond what can be legislated.

When the price of a certain good or commodity is artificially fixed below its natural equilibrium, scarcity and shortages follow.  In short, when the price of bread is decreed below the cost of the wheat that goes into it, bakers go fishing.

The scourge of occupational licensing [PT]

 

Credit Market Intervention

Perhaps the most nefarious of all government intervention, is that which directly affects a nation’s money stock.  Many people don’t recognize its occurrence.  But they do misdiagnose its effects.

Wage stagnation, for instance, is often blamed on greedy executives off-shoring their production.  In reality, this is merely a consequence of a forced monetary regime that inhibits genuine capital formation and earned savings in favor of asset price inflation. Of course, only a complete killjoy would bother scratching below the surface to uncover such minutiae.

Without question, the last decade has brought forth some of the craziest monetary policy experiments in human history.  If you recall, the Federal Reserve dropped the federal funds rate to near zero in December 2008, and kept it there until December 2015 – exactly seven years.

Since then, the Fed has hiked the federal funds rate four times – 0.25 percent each time – bringing the federal funds rate up to 1.25 percent. The Federal Open Market Committee (FOMC) meets on December 12 and 13, and will likely raise the federal funds rate another 0.25 percent.

It is also anticipated that the Fed will raise rates three times in 2018, assuming financial markets and the economy don’t break down before they can accomplish this.

 

Broad true money supply TMS-2 and the federal funds rate – a mountain of money was created, and it is an apodictic certainty that is has not made us one iota more prosperous – quite the contrary. [PT] – click to enlarge.

 

Concurrent with the Fed’s interest rate raising efforts, they’ve also begun to reduce their balance sheet.  They’re selling some of the roughly $3.6 trillion in Treasury and mortgage-backed securities purchased as part of their Quantitative Easing program. This reversal of the Federal Reserve’s Quantitative Easing program reduces the pool of available credit in the financial system.

It doesn’t take much imagination to visualize the effect this will have on an economy and financial markets that are wholly addicted to cheap and abundant credit.  So where does the GOP’s tax bill fall within this landscape?

 

The Zealous Pursuit of State-Sponsored Collapse

Here we turn to David Stockman, former Director of the Office of Management and Budget under President Reagan.  Stockman’s more than four decades of in-the-trenches experience, study, and contemplation of taxes, budgets, and deficits, and how these all influence and affect the economy, is unrivaled. As he explains:

“All tax cuts are not created equal.  Their impact for good or ill depends on: (1) which taxes are cut; (2) how the revenue loss is financed; (3) when they occur in the business cycle; and (4) how they impact that nation’s underlying fiscal posture.

 

“Our point today is that the GOP gets an “F” on all four components of the test.  That’s because a deficit-financed tax cut is never a good idea, but is especially counter-productive if done late in the business cycle in the face of a structural deficit that is high and rising (owing to inexorable demographic pressures on entitlement spending); and in the teeth of an unprecedented cycle of monetary contraction, which is exactly what the Fed’s interest rate normalization and balance sheet shrinkage (QT or quantitative tightening) amounts to.”

 

David Stockman, former budget director in the Reagan administration – which he quit when it ignored his admonishments on its massive spending. [PT]

 

To clarify, if you’ve been out of school for a while, “F” stands for fail.  Most notably, financing tax cuts with money borrowed from the future is doomed to fail.  Hence, the great GOP tax cuts represent but another fail milestone in the zealous pursuit of state-sponsored collapse.

 

As an aside, since last week, when we declared buying bitcoin above $11,000 to be an action for idiots, bitcoin has spiked up above $19,000.  That represents more than a 70 percent increase in just one week.  Nonetheless, we stand behind our claim.  We also stand behind our claim that sometimes idiots get rich – click to enlarge.

 

We should point out that the spike to $19,000+ in BTC was confined to the Coinbase exchange, where a huge premium developed during the trading day. It was not replicated at any of the other exchanges, where BTC peaked just below $16,000. This is mainly a sign of inefficiencies at said exchange (BTC routinely trades at a premium there, but it is usually much smaller). It took a while for arbitrageurs to bring the premium back down, but they succeeded eventually. [PT]

 

"It Won't Pass" - Larry Fink, Warren Buffett Blast Trump's Tax Reform Plan

In the week that’s passed since the White House unveiled its tax-reform plan, Republicans and Democrats have expressed their reservations about the proposal, particularly after an analysis from the non-partisan Tax Policy Center suggested that taxes would rise over the coming ten years for most members of the middle class if the proposal were passed into law.

Wall Street, for the most part, has ignored these criticisms and US stocks have continued to climb to ever-higher record highs - even after two industry luminaries joined a growing chorus of skeptics warning that tax reform may not pass by year end.

Both Warren Buffett and Blackrock chief Larry Fink have spoken out against the administration’s proposal, echoing the most trenchant criticism of the bill. Namely, that it’s overly generous toward corporations without doing enough to help the middle class, according to Reuters.

With the White House and top Republicans in Congress already on the defensive over claims the plan would not cut taxes for many middle-class Americans, Buffett and BlackRock Inc Chief Executive Larry Fink suggested in separate interviews that the corporate rate may not have to be cut as deeply as proposed.

“We have a lot of businesses... I don’t think any of them are non-competitive in the world because of the corporate tax rate,” Buffett, the chairman and CEO of Berkshire Hathaway Inc told CNBC.

Meanwhile, Fink, who was rumored to be on Hillary Clinton’s short list of Treasury Secretary candidates, echoed Republican Sen. Bob Corker’s criticisms by admitting that he’s nervous about how the bill would impact the deficit, while adding that if the administration insists on incorporating the elimination of deductions for state and local taxes into the final bill, that the measure would almost certainly fail.  

Fink predicted tax legislation would not pass if it includes a proposal to eliminate a popular deduction for state and local tax payments.

“I don’t believe we’re going to get tax reform if there is the elimination of deductibility of state and local taxes,” he said.

Eliminating the state and local tax deduction would raise about one-quarter of the $4 trillion in revenues that some Republicans say they need to prevent tax cuts from creating a massive increase in the federal budget deficit.

Buffett, who’s a well-known advocate for progressive taxes on the wealthy, said that eliminating the estate tax would be a “terrible mistake” that unnecessarily benefits rich people.

Watch CNBC"s full interview with Warren Buffett from CNBC.

Fortunately for the market, Republican leaders are reportedly backing away from the proposed elimination of the SALT deductions – a measure that would impact some 40 million tax-paying Americans.

But even if Republicans ultimately decide against eliminating the SALT deduction, they will still need to find some other way to pass tax reform without massively blowing out the deficit. To be sure, the administration has maintained that revenue lost from corporate-tax cuts will be partly offset by closing loopholes for special interests.

But no matter what form, or forms, the bill ultimately takes, it’s chances of passing are far from assured. And while stocks have so far (mostly) ignored these nagging doubts, challenges to the market’s sanguine outlook are growing increasingly frequent.

Earlier this week, David Stockman, the Reagan administration"s director of the Office of Management and Budget, told CNBC earlier this week that Wall Street is "delusional" for believing it will even be passed.

And earlier today, Bill Blain posited that deficit hawks like Corker would ultimately kill the reform effort.

In its analysis, the TPC found that by 2027, taxes would rise for roughly one-quarter of taxpayers, including nearly 30 percent of those with incomes between about $50,000 and $150,000 and 60 percent of those making between about $150,000 and $300,000. Meanwhile, 80% of the benefits would accrue to the top 1% of taxpayers.

The market greeted Republicans’ failure to repeal and replace Obamacare as investors quickly retreated back inside their bubble of complacency.

At the time, market strategists reasoned that it’d be easier for the administration and the Republicans’ Congressional leadership to rally support for tax reform. This no longer appears to be true.  

And with the Fed preparing to begin the arduous process of reducing its balance sheet next month, the market is quickly running out of excuses to keep stocks bid. 
 

What If Every Person Paid An Equal Share Of The Military Budget?

Authored by Ryan McMaken via The Mises Institute,

Government employees and their apologists like to lecture Americans about how "freedom isn"t free." And indeed it isn"t. In recent years, the US military establishment has cost the American taxpayer around $700 billion per year. Thanks to the hard work of the American taxpayer, the US military - and other "defense" agencies such as the Department of Homeland Security - the US government is the most well-funded in the world. In spite of numerous ongoing interventions worldwide, casualties in the US military are low thanks to highly-advanced technology funded by - you guessed it - the American taxpayer. 

Now, for the sake of argument in this article, we"ll just assume that the full $700 billion per year has something to do with actual defense. This is a highly debatable notion, of course. As more astute observers have noted in the past decade, it is not at all clear that the trillions of dollars spent in Iraq and Afghanistan have done anything at all to augment security in the United States.

We"ll also conveniently ignore the catastrophic failures of our extremely-well-heeled American security states, such as those on September 11, 2001. 

Source: Office of Management and Budget, Table 4.1

All of that aside, we still find that American taxpayers are toiling mightily for their alleged freedom.

For this, reason, I"ve noted in the past that rather than the taxpayers thanking military personnel for their service, things should be the other way around: 

The taxpayers should be regularly approached on the street by soldiers and other government agents saying things like: 

There is no doubt that $700 billion is a lot of taxpayer money. But just how does this total break down on a per-person basis?

Well, if we divide $700 billion by the 320 million people in the United States, the per-person total comes out to $2,187 dollars. That"s for each man, woman, and child. 

But that"s not the real total. We also need to add in the substantial amounts paid in interest to service a debt that has largely been run up to finance military spending. To be conservative, let"s say that one-fifth of the interest goes toward servicing war debts.

That brings us up to $2,300 per person, per year.

Now, of course, these costs are not spread out evenly among all taxpayers. The relatively high-income households pay more than low-income people when it comes to federal taxes. 

So, military personnel should especially be thanking higher-income taxpayers for their service. 

But, if American were taxed evenly for military costs, that would mean that a family of four would be paying $9,200 per year for "defense." After all, children need military defense, too, and somebody has to pay for it. Why not their parents? 

A large family, say one with four children, would be paying $13,800. 

Given that the median household income in the United States is $52,000, this is no small amount. 

If we"re so concerned about Americans knowing that "freedom isn"t free" it might be best to move toward a fee-for-service model. In that case, Americans would be acutely aware of how much they"re shelling out for the military. On the other hand, were households faced with a $9,000 "defense" bill every year, they might be less inclined to thank someone else for spending all that money. 

Taxation Via Regulation

None of this includes the many non-monetary ways that Americans are taxed to support the military establishment and its employees. We could also include as “taxation” the destruction of privacy in the name of “fighting terrorism.” Thanks to the USA PATRIOT Act, among other pieces of legislation, Americans are subject to many violations of their Fourth Amendment rights in the name of “protecting” freedom. 

The many abuses and excesses of American airport security under the TSA are a form of taxation as well. Every time an American taxpayer is forced to miss a flight, has property confiscated, or is generally treated like garbage by the TSA, this is an additional cost imposed.

Border controls impose many costs as well. Americans are now routinely subjected to extensive searches and seizures at the border, as border agents rifle through personal effects, seize phones, and subject taxpayers to hours of questioning upon re-entry.

Moreover, in the name of security, the US can close off Americans from access to foreign resources. This occurs when the US imposes trade embargoes or other trade restrictions in the name of security. When an American wishes to buy goods from a person in a “restricted” country, or wishes to sell goods to a person in the same country, that cuts the American off from using her or her private property in a peaceful manner.

A similar problem occurs when the US denies entry to persons who have been invited into the US by American taxpayers. When a taxpayer invites a friend or colleague into the US — but then that friend or colleague is denied entry — this imposes yet another cost on American taxpayers.

None of these costs show up in tax bills, of course. But they exist.

All the while, we’re being told that these restrictions, embargoes, searches, domestic spy operations, and bans are all necessary to protect freedom and security. That may or may not be true. But even if they are true in some cases, let’s stop pretending that they’re not imposing a significant cost on those who are supposedly receiving a gift from government agents who are “serving” the American public.

This isn’t to say that defense of property — including human persons — is something that need not be done. Of course security is an essential service in any society. This is true even when monopolistic government agencies co-opt security services.

But, this doesn’t make security services special. Food production, energy production, and home construction are all essential services. Nevertheless, we’re not told to run up to farmers and oil workers and roofers and thank them for their “service.” But, we’d notice a lack of food, housing, and energy immediately, were those workers to disappear. Moreover, try running a military without food and gasoline. You’ll quickly find it’s rather difficult.

White House Reveals Budget Deficit Will Be $250 Billion Greater Due To "Mistake"

On Thursday, we first discussed that in its latest monthly budget report for the month of June, the US Treasury reported a massive outlier that has largely been ignored by the general press: in June total US government spending hit $429 billion, the biggest one-month outlay on record, and 33% higher than the $323 billion spent a year ago.

As explained,  the main reason for the outlier print was that outlays increased by roughly $60 billion in "other" items relative to baseline because the Treasury revised up its estimates of the subsidy cost of student loans, and to a lesser extent housing, it guarantees. And, as we further noted, based on the CBO revisions, "it appears that the deficit for the fiscal year, which has three months left, will be in the $650 billion to $700 billion range, if not even higher, mostly due to the surge in "subsidy costs of housing and student loans" guaranteed by the Treasury."

This was troubling: as we stated "what the unexpected surge in government spending means is that quietly and mostly behind the scenes, the student debt bubble has begun to burst, and the Treasury is "provisioning" for it in real time, with all US taxpayers once again on the hook."

There was more: while outlays surged, revenue growth failed to keep up...

...which taken together led to our conclusion that "while many analysts had a deficit base case for fiscal 2017 at roughly $575BN (the year ends on Sept 30), the CBO recently revised its projection for the fiscal 2017 up by $134 billion to $693 billion. Most of the CBO revision reflects weaker than expected revenues, which means it will be even more surprised when it finds out what is going on with outlays."

As it turns out we were right, because just one day later, the Director of the Office of Management and Budget, Mick Mulvaney, warned that the budget deficit for Trump"s first two years in office will be nearly $250 billion higher than initially estimated "due to a shortfall in tax collections and a mistake in projecting military healthcare costs," according to Reuters.

The problem first emerged in late May, when Mulvaney submitted the OMB"s first spending plan to Congress. It now appears that, as Thursday"s data confirmed, the projections were overly optimistic and on Friday Mulvaney said the deficit projected for the current fiscal year has increased by $99 billion, or 16.4 percent, to $702 billion, a miss which was virtually in line with what we calculated two days ago. It doesn"t stop there, however, and Mulvaney said that for 2018, the deficit will be $149 billion more than first expected, increasing by 33 percent to $589 billion.

In other words, a budgeting "mistake" just shy of $250 billion.

In an amusing twist, AP added that the White House kept its budget report to a bare-bones minimum and cast blame on "the failed policies of the previous administration" although whether this gambit of "blaming Obama" for budget errors, even as the president is all too happy to take credit for the market"s all time highs, will work remains to be seen. 

As Reuters further adds, the figures come as the administration is facing "widespread doubts among economists and analysts that it can erase government deficits largely by boosting economic growth and changing laws like the Affordable Care Act. ACA reform is facing a difficult path in Congress, and the Congressional Budget Office on Thursday said the administration"s growth and deficit reduction plans were optimistic."

Worse, it means that far from balancing the budget, as the Trump administration had hoped to do over the next decade, the budget will drift well wide of even the latest "optimistic" CBO projections, which saw Trump"s proposed budget cutting on the baseline number by a cumulative 33% over the next ten years.

And while spending took a back seat in Mulvaney"s letter, he blamed the bulk of the budget shortfall this year and next on lower-than-expected tax collections. Specifically, individual and corporate income taxes and other collections for this year are expected to be $116 billion less than the administration anticipated in May. Tax receipts in 2018 are expected to be $140 billion less than initially estimated.

We also touched on this two days ago when we said that "one theory explaining the shortfall in revenues reflects taxpayers delaying the recognition of income in 2016, anticipating tax cuts this year. That revenue should eventually be recovered" however as we cautioned, this may be an overly optimistic scenario, and the underlying reality may be that tax receipts are set for a structural decline as US workers and corporations earn less, and as a result, remit less in the form of taxes. According to the Mulvaney letter, it was this more adverse case, that is emerging as the likely explanation.

The OMG chief did touch on spending, which he said in 2017 would be $17 billion less than expected, and would have been even lower if not for the use of "erroneous outlay rates" used in estimating costs of health programs for the U.S. military, i.e., another mistake, and one which did not take into account the surge in subsidy costs for student loans, i.e., the marking-to-market of student loan writeoffs and discharges which the government will be forced to do over the coming years as the student loan bubble bursts.  Furthermore, costs for the defense health program will be $19 billion higher in 2017 and $9 billion higher in 2018 than initially expected. As a result, overall spending in 2018 will rise by $10 billion; our calculations suggest the final number will be substantially greater.

There is still a chance that the latest budget "mistake" will be rectified: the latest estimates are "based on existing law and do not include any proposed changes to health, welfare or other programs" however with virtually all policies proposed by Trump halted by the gridlock in Congress, it is unlikely that many, if any, proposed changes will be implemented.

Trump Budget Cuts Hit As State Department Imposes New Hiring Freeze

In an effort to support President Trump’s plans to cut the State Department budget by about one-third in fiscal year 2018, Secretary of State Rex Tillerson has imposed a new freeze on hiring.

As a reminder, President Trump instigated an across-the-board hiring freeze in his first days as President, then lifted it in April in favor a more "surgical freeze."

Mick Mulvaney, the director of the Office of Management and Budget, described the new stay on hiring as a more "surgical" freeze than the first.

"This is a big part of draining the swamp," he said. "Really what you"re talking about doing is restructuring Washington, D.C., and that is how you drain the swamp, so this is a centerpiece of his campaign and a centerpiece of his administration."

But now, as Bloomberg reports, it appears the planned budget cuts are being prepared for as an emailed memo sent to State Department staff calls for immediate freeze to “all position upgrades, reorganizations, and lateral reassignments,” according to a copy of the document seen by Bloomberg.

Memo sent June 27 bars creation of any new positions including "senior advisors, envoys, chiefs of staff"

“These restrictions are necessary and prudent to insure we do not permit additional position and grade level growth at a time when the Department is undergoing reform and restructuring."

Notably, the memo added that exceptions may be considered for a “national security, life safety” or “public health situation."

Trump Executive Order: For Every New Regulation, Two Must Be Revoked

January 30, 2017   |   admintam

(ZHE) President Trump has signed an executive action to revoke two regulations for every one enacted, or as officials told AP, that they are naming the new directive a “one in, two out” plan. Federal agencies will need to revoke two regulations for every new regulation they request, and the White House will review the proposal, according to administration officials.

The order sets a budget of $0 for new regulations in 2017 and the administration will set a regulation budget each year, the official said on customary condition of anonymity. Military and national security regulations are exempt.

“This will be the biggest such act that our country has ever seen. There will be regulation, there will be control, but it will be normalized control,” Trump said as he signed the order in the Oval Office, surrounded by a group of small business owners.

Trump’s latest executive action will prepare a process for the White House to set an annual cap on the cost of new regulations, a senior official told reporters ahead of the signing. For the rest of fiscal 2017, that cap on new regulations would be $0, the official said on customary condition of anonymity.

Trump signs new executive order: “We have to knock out two regulations for every new regulation” https://t.co/d1RGYmgCzB

— NBC News (@NBCNews) January 30, 2017

Here are the key highlights in the order compiled by Axios, as per the text released by the White House:

• Whenever an agency proposes a new regulation, it has to identify “at least two” previous regulations to be repealed.


• For all new regulations, “the total incremental cost … shall be no greater than zero.”


• If there are new costs, they have to be offset by eliminating costs in “at least two prior regulations.”


• The process will be directed by Mick Mulvaney, who’s set to become the next director of the Office of Management and Budget.


• If a new regulation wasn’t already listed on the “Unified Regulatory Agenda” — a list of rules in the works — it can’t be issued, “unless otherwise required by law” or unless Mulvaney says it’s OK.


• The limit applies to fiscal year 2017, which is already underway.

As Reuters adds, major regulations are typically reviewed by the White House’s Office of Management and Budget (OMB) before they are issued. That review will continue under this new measure, but agencies will also have to identify what two regulations will be repealed to offset the costs of any new rule. The new order does not require that the repeal of the two regulations be done simultaneously with the release of additional rules, the official said.

“This vests tremendous power and responsibility in the OMB director to ensure the president’s direction in how we manage this across the government,” the official said.

This means that Trump’s pick to lead the OMB, budget hawk Mick Mulvaney of South Carolina, will have critical say on any US regulatory spending and “pork” going forward.

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This article (Trump Executive Order: For Every New Regulation, Two Must Be Revoked) by Tyler Durden originally appeared on ZeroHedge.com and was used with permission. Tune in! Anti-Media Radio airs Monday through Friday @ 11pm Eastern/8pm Pacific. Help us fix our typos: edits@theantimedia.org.

President Trump Continues to Troll the Left Over Inaugural Crowd Size

For reasons beyond the scope of rational thinking, during confirmation hearings today for The Office of Management and Budget, Senator Jeff Merkley, shill from Oregon, produced a photograph from Obama"s 2008 inauguration and compared it to a sparsely populated Trump one -- which was taken in the morning before the crowd had filled in, and asked Mick Mulvaney which crowd size was larger.

Much to the delight of the chimped out media on the left, Mulvaney said Obama"s crowd appeared to look larger.

Ben Wehl from Politico was practically masturbating to the thought of Obama"s crowd size in an article published today about the ordeal.

Alas, Trump, the consummate troller in Chief that he is, had to fuck with them -- twisting the knife inside of their soulless bodies -- ever so slowly, divinely, taking to Twitter to thank a photographer for sending him a picture of the inauguration -- which clearly showed a much larger crowd than the one being shilled around by the media-fags.

A photo delivered yesterday that will be displayed in the upper/lower press hall. Thank you Abbas! pic.twitter.com/Uzp0ivvRp0

— Donald J. Trump (@realDonaldTrump) January 24, 2017

The media"s response to being checkmated in such a glorious fashion was to nitpick over a small oversight by the photographer.

Shills have to shill. They haven"t a choice.

Can we simply get this behind us, for the sake of unity, and admit that Trump did, indeed, have a much larger crowd than Obama?

Content originally generated at iBankCoin.com