Category: Economics

Economics is more fundamental than Politics

  • Can we afford Tax cuts? How about spending cuts?

    Some scoff at the idea that the US government could balance the budget without rolling back “the Bush tax cuts.” But not so fast: even IF all 9 major categories of cuts were re-instated (estimated 300 billion dollars worth), that would be a small fraction of the current annual deficit (over 1 trillion dollars), and also less than the interest currently being paid on the national debt.

    Assume there are only three ways to recover: 1. Increase income (taxes), 2. inflation and, 3. reducing spending.

    The three largest categories of spending are (in order) 1. Department of Health and Human Services, 2. Defense, 3. the aforementioned Treasury

    Even aside from the risk of capital flight, tax revenue is a limited finite resource. Inflation is currently being tried, and is risky to the stability of the economy. That leaves reigning in spending. It really is the only way. Reduce entitlements, and reduce involvement in expensive foreign wars.

    Let me elaborate a little on the Estate Tax. Imagine a small sleepy rural town, filled mostly with retirees. “Mostly” in this case is a sort of euphemism, since it could never really be more than 50% since retirees are mainly consumers, therefore need to be surrounded by a younger “staff” to produce goods and services. Now lets simplify as a town of 100 people, say 50 retirees and 50 “young” people. The retirees have on average $2 million a piece in the local banks, while the younger set’s average net worth is negative $100,000 (mostly due to home mortgages.) Now assume that the estate tax is re-instated (it was temporarily repealed in 2010) and now big chunks of money are taxed away out of this small community every time a retiree dies, eventually causing the local banks to be over-leveraged. People talk about WalMart sucking the money out of a town–its nothing like the Federal Government via taxation. Now in the case of my hypothetical community, one could argue that new retirees will move in to replace the dying ones. True, but this doesn’t leave much room for the community capital base to grow, especially since a decimated inheritance is more likely to be split up among [out of state] heirs. Especially if Grampa’s cabin has to be sold to pay the taxes. But if it wasn’t taxed, it might be more likely that one of his heirs would move into it and stay in the community.

  • Buying Silver as Activist Investing for JP Morgan Crash

    According to the National Inflation Association, JP Morgan is “short 30,000 silver contracts representing 150 million ounces of silver. This is one of the largest concentrated short positions in the history of all commodities, representing 31% of all open COMEX silver contracts.” This could leave JP Morgan exposed if people go out and buy physical silver in large numbers.

    Mike Krieger and Max Keiser have an idea for attacking the weak underbelly of the seemingly invincible too big to fail banks and market manipulators … all at the same time.

    Specifically, they say that if everyone buys just 1 ounce of silver, it will force JP Morgan – a giant manipulator of the silver market – to cover its short positions, and drive it out of business.

    Explanation of how silver buys might hurt JP Morgan Chase
    :
    http://www.washingtonsblog.com/2010/11/crash-jp-morgan-buy-silver-show-too-big.html

  • War On The Middle Class

    If the estate tax is re-instated, then Obama’s administration will have presided over the single largest tax hike in the histiry of the U.S.

    If you don’t think too hard about it (presuming you are a young whelp not knowing any better), a tax on anything over $1,000,000 (that’s one million dollars) sound like reasonable redistribution from the “rich” to, um, “society.” But to many retirees who bought houses in the 1960’s for $30,000 and have saved up consistently since then, a million dollar estate is common. Divide that by a few kids, and each of them by a few grandkids, and you tell me: Wouldn’t letting the heirs keep “all” of their share of that money stimulate the economy quite meaningfully?

    Just like corporate taxes and regulations, only the largest can afford the specialist accountants and lawyers to defend them. Meanwhile, the middle class gets routinely decimated.

    references:

    http://www.frumforum.com/the-tax-that-started-the-tea-party (and my comment)

    http://www.physiciansnews.com/finance/405.html

    http://wills.about.com/od/understandingestatetaxes/a/estatetaxchart.htm

    http://www.usatoday.com/money/perfi/taxes/2010-07-21-estatetax21_CV_N.htm

  • Is Mercury A Danger In CFL bulbs?

    Questions about compact fluorescent light bulbs:

    1. how much mercury is in a CFL bulb vs. how much is safe exposure, vs. how much may be generated by electrical power plants

    2. how to dispose of a CFL bulb when it is burnt out or broken?

    non-mercury-related, but still important questions:

    3. isn’t it wasteful to throw away the transformer along with the CFL bulb?

    4. when does the increased cost of a CFL (upfront manufacturing costs) break-even with the energy savings?

    5. should CFL vs. incandescent usage/sales be regulated and/or mandated? Or should we simply allow the competition in the free market economy to decide?

    More reading: 5 Ways to Stay Safe from Mercury in CFLs at http://www.thedailygreen.com/green-homes/eco-friendly/cfl-mercury-safety-460124

  • silver/gold ratio says buy silver

    Good article at SilverSeek.com about the historical ratio between gold and silver.

    http://news.silverseek.com/SilverSeek/1257377703.php

  • Four classes of how to spend money

    There are four ways in which you can spend money.

    You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.

    Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.

    Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!

    Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.

    – Milton Friedman, libertarian,
    in a 2004 interview