Value added Tax (VAT) coming to America!

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This time last year, I wrote an article in which I suggested that a goods and services tax might be implemented in America along with a gasoline tax. (see: Your Welcome America)  It appears I may have been a year premature as the idea is now being kicked around Washington.
A Value added tax (VAT) as is witnessed in Europe at around 20% is a scary thought for average Americans who are used to getting many Government perks without having to pay for them.  The Europeans made the mistake of "exempting" many basics such as food and clothing, etc and that is why their VAT is so high.
A 20% VAT would not even be in the cards for the U.S. so you can breathe a short sigh of relief.  However, as I suggested last year, a 2% Goods and Services tax (GST) being placed on "all" goods and services sold in the country, coupled with a further 10% tax on gasoline, would suffice to pull the U.S. out of debt, and propel a green energy sector forward to new heights.
Let's face it folks. Americans have been getting cheap gas for way too long, while the rest of the world pays 2-3 times what the average American pays for their gasoline. A 10% hike won't kill the economy. On the contrary, it will assist the "sea change" in energy policy that is taking place, and must take place. It is a positive and it must be implemented immediately, before market forces force up the price and that 10% goes to private industry instead of the taxpayer.
A 2% GST would be a huge push to pay down national debt.  It would also lay the ground work for a reduction in capital gains, corporate and income tax. Consider this!  Tax payers would receive 2% of every single transaction, from food to clothing, to cars, boats, jewelry, construction materials, and every hour of labor costs. Canadians griped and growled at first too, however it is exactly that GST introduced in 1991 that has allowed Canada to dodge much of the current economic malaise in the world, and why it is the only G8 country that has been "in the black" for 9 of the past 10 years.This tax is way overdue and will help to reduce many other taxes over time that will allow America to once again take the lead in world business.
There will be vicious and virulent opposition to such a tax, just like there was in Canada at the beginning.  It will come from all sides, especially money interests. However, when all is said and done, this is a good idea and it is overdue. It is time for Americans to join the rest of the world. Stop complaining America and get on with it.  Your economy, your dollar, and your place in the world depend on it.
HP

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Capitalism, greed, and the faustian bargain of more liquidity

"Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone" John Maynard Keynes

"The best way to destroy the Capitalist system is to debauch the currency" Vladimir Lenin

As more Billionaires are made, and the current ones increase their wealth in leaps and bounds, in the same year that workers are tremendously punished, and stand to lose their futures, one wonders if Capitalism itself isn't the third system to meet it's fate after National Socialism (Nazism) and Communism. Today, the pure Capitalist system is shown wanting, as never before. Let's call it "Kudlow Capitalism" after CNBC's very outspoken, cheer leader, of the billionaire club, Larry Kudlow. You know, the TV host who never allows anyone with a different slant on Capitalism to talk more than 20 seconds without either cutting them off or talking over their voices. The same guy that is now blaming President Obama for all the troubles, along with Fox news, who now resemble the Nazi propaganda machine of the 1930's

When "investment banks" hoard tankers full of oil offshore, awaiting a rise in oil prices, so as to pounce on the unsuspecting consumer like a cougar, is that good for the rest of the economy? Remember, this is not an oil company that needs storage space for a glut on the market, but an "investment bank"! Should they be allowed to speculate on such a large scale, in such a necessary commodity? Oil speculation is only one example of the "fingers in the cookie jar" mentality of big investment banks like JP Morgan and Goldman Sachs. As I've said before, if the price of oil is $70, you can probably chock up $25 of that price to these types of giant, market moving, speculators. (That's about 36% of the cost of filling up your cars gas tank). No wonder GS has come to be labeled a "Giant vampire squid" smothering the face of society with their tentacles following the smell of money into every orifice.

Several years ago, GS collected a $300,000,000 fee to help the country of Greece essentially fudge the numbers of their national debt. (to allow the lying Greek government to get into the Euro zone by skirting the necessity to disclose it's total debt ratio) Now their bets against that same debt stand to make them even more money. Essentially they gave Greece a reason to burn the house down, then bought insurance against the fire. Is this fraud or just good money management. You decide if they deserve the title of Vultures of Wall Street! (See Bank Bets - New York Times )

Investors in the Euro have already decided, by dumping their Euro's. Greece may yet get bailed out by it's Euro partners, but don't count on it. Why should hard working, prudent Germans, who have recently been told they cannot collect old age security pensions until after age 67, suddenly feel the urge to bail out free spending and freeloading Greeks, who can retire at 60. With Spain Portugal and Italy waiting in the wings for their own rescue, why would Germany and France (who have troubles of their own) even consider it. Greece should be ejected from the Euro zone unless or until they get their sick fiscal house in order, and their bulging debt under some sort of control. Civil unrest will result.

Speaking about sick fiscal policies and massive debt, The United States budget forecasts a $1.7 Trillion dollar debt for this year, bringing total debt to around $14T (depending on which number are crunched) by year end. If America continues to pump liquidity into the system, the storm clouds of 2008 will begin to pail in comparison with those forming over 2010 and beyond. The U.S. Government is now the sole backer of mortgages in the Country through it's control of Fannie Mae and Freddie Mac. If they nationalized those two entities right now, that would add over $5 Trillion to the U.S. Debt book. Add to that the fact that China is owed a big chunk of the United States debt at a time when a trade war with the Country looms large and those storm clouds get darker still. China holds $2 Trillion in their FE account, (including $800 Billion in U.S. debt) has been storing up massive amounts of commodities, is ahead in the production of green energy initiatives and has more than three times the population, so who is best suited to withstand a protracted trade war? Couple all of this with the continuing "gaming of the U.S. system" by the vultures of Wall Street, and the picture for prosperity in the Good Ole U.S. of A is dimming daily.

Weighing in on the "Faustian bargain" of Keynesian economic theory this week was none other than Conrad Black, in a letter to his old Alma Mater, the National Post (Almost surely written from his jail cell). The audacity of an old Bay Street fraudster, writing about the futility of propping up markets with so much liquidity, while other, bigger frauds are being precipitated upon an unsuspecting public purse, by much bigger "Wall Street" fish, exactly because of the liquidity infusion, was a little comical.

Whether the infusion of money comes from taxpayers (TARP and it's ilk) or from common shareholders, (as in Conrad Blacks case) there is always a vampire squid swimming nearby to latch on and leach every bit of money it can settle it's tentacles upon. Why does the general public always seem surprised when Wall Street Vultures pay out to their executives, over $100 Billion in bonuses for one year of speculation, while the American taxpayer is given a bill that neither they, their children or their grandchildren will be able to pay.

It is said that, "power corrupts and absolute power corrupts absolutely". Since the early 1970's we've been fed the mantra" greed is good" and "free markets can regulate themselves" (greed good - regulation bad - ie: Larry Kudlow and company) and that Government should just get out of the way and let markets regulate themselves. We are now reaping the painful rewards of that mindset. The vultures of Wall Street have proven that "Greed is corrupt, and absolute greed is corruption absolute"! The opposite of greed is not thrift. It is generosity. Generosity is a word completely lost on Wall Street. Vultures aren't generous, indeed they don't really care who they feed upon, but only that they feed.

The crooks settled in and took over the store so long ago that they have convinced the police that they are actually the owners. Only when the real owners return and demand change, will real change occur, but don't hold your breath. Every time that notion takes shape, the crooks rally the troops in Washington and the uninitiated across America, then threaten to close the great Casino, and everyone goes away until it re stocks and re-opens for business again.

Maybe it's time to tear down the Casino and start again!

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As the Chinese Money Monster begins to growl, Uncle Sam reaches for a bone!

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The Great Wall of China was built to keep out invading Mongols. It is not, however, keeping out billions of United States dollars. Those billions started flowing over the great wall, and into the great red business machine, shortly after George Dubya Bush was handed the first United States surplus economy in 30 years. It started when Bush 2 made his first massive tax cuts. It went on for the entire eight years of his presidency, accelerated by an unprecedented second set of tax cuts in a time of war on two fronts, something that no other President had ever done before It continues today, unabated and now, is actually accelerating.

Consequently, the worlds number one engine of growth, the good ole U.S.A. is in more debt than any country in history has ever been. (There may be an exception: Germany after WW1 when the allies demanded war reparations. During the 1920's and 30's, during the resulting hyper inflation, the average German would literally bring a wheel barrell full of German marks just to get groceries. The result was the rise of Hitler and world war 2)

Before last weeks massive sale of United States Debt in the form of Treasury Bills, China had accumulated foreign reserves of $2 Trillion. Of that, $1.6 Trillion was in U.S. Debt for which they made a return (direct payments from the U.S. Treasury) of over $40 Billion dollars last year. I repeat, that was before Tiny Tim went to China to sell another boat load of dollars in June, before last weeks summit (No not the beer summit, the "Chinese Money Monster summit") and it was before this weeks record breaking sale of U.S. Treasury Notes.

There is a saying that, if you borrow some money from the bank, it is your problem, but if you borrow a lot of money, it is the banks problem. In this case, the "bank" is the People's republic of China" which has been buying U.S. Government debt at an alarming rate. The borrower is the average American, their children, and their grandchildren, because it will take at least three generations to pay it back (expect a number of tax increases). The bank (read China) is getting nervous. They are demanding the U.S. provide insurance against a falling dollar to protect their investment. On top of that, there are rumblings that China has a debt problem of it's own as it's many local Governments are utilizing a loophole in their own banking system to siphon off equity from their own banks to pay for services (and graft which is rampant). Those banks will never see that money again.

This summer, as the rally picks up on North American Markets on the back of a sinking dollar, and another Trillion or so in Government largess, Newbie Chinese investors are diving into their own stock markets, driving up stock prices to dizzying heights, and that bubble can only end badly too.

Why would anyone think the Chinese might save the worlds economy? It will be hard pressed to save it's own. They do, however, have some padding. 1.6 Trillion in U.S. dollar denominated debt and the interest on that debt has to be paid from the U.S. Treasury. The Chinese fear they may end up with 50 cent dollars and they could be right. What a mess. The toxic Derivatives debacle perpetrated by the gluttons of Wall Street , is still the 10,000 pound gorilla in the room and no one wants to deal with it.

In this summer of 2009, the pigs at the trough are once again feasting on the unwary. In the mean time, we mere mortals have to decide what to do with our meager retirefunds. I can't tell you what to do, but I am in this summer rally and will remain so for now. September and October may be different. Certainly, 2010 is not looking anywhere near as good as the pundits in government or on CNBC would have you believe. Mr. Kneale of CNBC is calling this "The Great Recovery"! I sure wish he was right, but I fear a handle like "The Great Denial" would be more appropriate. A false economy led by taxpayer dollars, borrowed from friends who arn't friends, doesn't bode well for next year, or for that matter, the next 4-5 years. It may be that, hyper inflation will save America's bacon (heaven forbid)

Meanwhile, there are some great companies doing what they do best, no matter what the circumstances and you should be seeking them out during this rally. But don't take your eye off this bouncing ball. If it bounces too high, It may go right through the floor in 2010. Sorry I can't be more cheerful except to say, enjoy the ride this summer. This roller coaster may be the last good ride for a long time. Remember, when everyone else begins laughing hysterically, and pointing up, it may be time to jump to safety once again. But cheer up, 2015 isn't looking too bad.

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