While shoppers were watching their pennies this holiday season, I was grinching over the relationship between the Fed and the big banks as reminiscent of the abusive relationship between Ike and Tina Turner – bail them out then beat them up with an onslaught of massive fines. According to a global banking study by the Boston Consulting Group, legal claims against the world’s leading banks have reached $178 billion since the financial crisis, with heavy fines now seen as a cost of doing business, a cost ultimately born by shareholders with no banking employees or executives facing charges for wrong-doing.
All these fines do little to deter wrong-doing in the future while taking money out of the hands of those saving for retirement and give it to the government to spend with zero accountability.
I spoke at FreedomFest in Las Vegas… in July… yes, know my pain. On my way out from my talk my dear friend Richard Rahn, (the infamous one-eyed economist) grabbed me and introduced me to the lovely Emerald Robinson so that we could talk about the recently enacted Foreign Account Compliance Tax Act aka FATCA and its impact on expats as I split my time between the U.S. and Europe.
I recently was in studio in New York, speaking with Neil Cavuto on the latest scandal facing President Obama’s Administration over the treatment of Veterans by the VA , involving alleged deception about the waiting time for treatment at veterans hospitals. While it would be easy to say that this is the fault of an incompetent administration, the reality is this is simply another example of why the size and scope of government ought to be limited. Today the federal government is simply to big to succeed!
Earlier this week I appeared on the Rick Amato Show with my writing partner, Chris Versace. We discussed the FCC’s recent statements concerning regulating conservative media, somehow justifying regulating freedom of speech. We also discussed the IRS Scandal concerning Lois Lerner’s refusal to testify and claims that her emails have been lost.
In the second segment we discuss how the horror of the sequester resulted in the loss of all of one job! Government math strikes once again, reporting a decrease in the rate of increase as a cut. Using that logic, if over the past year I’ve been gaining 2 pounds a month and this month I only gained one pound… well then I’ve lost weight!
Earlier this week I spoke with Graham Ledger on the recent Toyota and GM recalls. So far this year, automakers have recalled about 9 million vehicles in the U.S. If that pace continues, the nation would break the record of 30.8 million recalled vehicles set in 2004.
Toyota’s recalls come as rival GM recalls 2.6 million small cars for defective ignition switches the company links to at least 13 deaths. Of those, 2.2 million are in the U.S. As that crisis unfolded, GM announced recalls of another 3.4 million U.S. vehicles.
Toyota’s latest recalls were announced before the company even developed specific repairs. They come two weeks after the Justice Department skewered the Japanese automaker for allegedly covering up problems that caused unintended acceleration in some cars starting in 2009. Toyota agreed to pay $1.2 billion to settle that case, but federal prosecutors can resurrect a wire fraud charge if the company fails to comply with the terms of the settlement.
The bigger picture is that Toyota’s cars are hardly unsafe. For the 2001-04 model years, for example, Toyota and Lexus accounted for five of the 12 models with the lowest death rates per driver year, and zero of the 12 with the highest. But the company is a multinational whose bottom line depends on a return to good publicity and putting legal troubles behind it in the huge U.S. market.
Is all this a triumph for safety? Or in the case of Toyota, have aggressive federal prosecutors seized on relatively minor missteps to stampede an image-conscious company into a big payout?
As for GM, the bankruptcy and government bailout complicate the feasibility of class action lawsuits.
While clearly the deaths linked to the GM defects are horrific and worthy of much furor. We’re also seeing a trend in enormous government crackdowns on the private sector with enormous fines that lead one to question the utility and purpose of such aggressive actions.
On February 18th, I spoke with Charles Payne and Julie Roginsky on Fox Business’ Cavuto show about the headlines claiming that Obamacare aka the Affordable Care Act (ACA) will harm jobs. We had a lively debate, which was surprising given that the three Sports Illustrated models gracing this year’s cover were waiting in the green room, an understandable distraction for many! Got me thinking that perhaps I ought to entertain the idea of becoming the first “bikini economist.” No sure that my supply curves would stimulate like claims around QE, but I digress…. For all the administration’s protestations that the ACA isn’t going to harm jobs, their own actions show they know it is. In a press briefing last week Treasury officials made it clear that firms will be required to certify to the IRS under penalty of perjury that ACA was not a motivating factor in their staffing decisions. So… to protect your company from the increase in costs from ACA you must swear that you are not trying to avoid the impact of ACA. But I thought this wasn’t a problem for jobs? If it has no impact, why the Orwellian oath? To be fair, the CBO doesn’t exactly say that jobs will be lost, but rather that ACA discourages work, particularly for those at the lower end of the income scale, in that you get bigger subsidies the less you make. Talk about a poverty trap! When did rewarding people for NOT trying to improve their circumstances become the American dream!? What kind of senseless drivel has the national conversation descended into when Jay Carney assures us that rather than “disincentivizing” these subsidies allow people to “pursue their dreams” without having the terrible burden of working. And just who is paying for these people to pursue their dreams? Oh right, those who STILL WORK! What about their dreams? Their desire to pursue other leisure activities? I guess it is OK to put those on hold so that they can involuntarily support the pursuit of dreams for those who choose to not work! Oh, and wait a minute! I thought this was all supposed to be good for the economy. Now how in hell does having fewer people working or having people work less grow the economy? So far the ACA gives us three little gems
The employer mandate discourages hiring. No point in arguing that fact since firms now have to certify that it didn’t alter their staffing decisions!
ACA delivers $1 trillion in tax increases . What does Congress do when it wants less of something, like smoking tobacco or using fossil fuels? Tax it! So again, can’t argue that this is a negative for growth.
Now the CBO acknowledges that the $2 trillion in subsidies discourages work, but hey, how great is it to pursue leisure interests at the expense of your fellow taxpayer?
Well… at least you get to keep your insurance if you like it.
On February 13th, at I must add the ungodly hour of 6:30am PST, I spoke with Stuart Varney on Fox Business concerning the dismal state of income levels in the United States. According to the US Census bureau, median household income is just over $51k, which is about where it was 20 years ago! We also just learned that real disposable personal income has fallen by 2.7% from a year ago, the biggest collapse since the semi-depression in 1974! American income levels have been stagnant for over 20 years.
On top of weak income levels, the employment situation continues to be of great concern. US unemployment rate is now at 6.6%, but this measure has become relatively meaningless as it no longer accurately describes what is happening in the work force. A more descriptive measure is the labor force participation rate, meaning the proportion of the population either employed or looking for employment as a percent of the population. That number is down at 63%, a level we have not seen since 1978! If the labor force participation rate were still at pre-crisis levels, the unemployment rate would be closer to 13%. Some argue that the decline in the labor force participation rate is primarily driven by the inevitable retirement waves of the baby boomers. However, the chart below illustrates that baby boomers are in fact participating in the work force at a higher rate than in decades, for women we are at all-time highs.
With income struggling, it should come as no surprise that savings levels are well below what they ought to be for a financially healthy country. The IRS’s most recent Quarterly Statistics of Income Bulletin is for the 2010 and 2011 tax filings, so it is a bit dated, but nonetheless, very insightful as to trends. According to the release 145.6 million taxpayers were eligible to contribute to an individual retirement account (IRA) in 2010, but only 3.5 million actually did so and of those that did, 62% were over 49 years old. Uh oh! Only 2.4% of those eligible to contribute to their IRAs did so. The average account value is only $92,000 and only 27.6% of all tax filers even have an IRA. Lastly, that wee bit of spending spree we experienced in December? With income struggling, that was funded by consumers dipping into their piggy banks to the tune of $46 billion causing the personal savings rate to fall from 4.3% to 3.9%, the lowest since January 2013.
On February 10th I spoke with Neil Cavuto on how NSA surveillance affects international communications.
I work internationally, dividing my time between San Diego, California and Italy. I sometimes advise on deals that have involving high-profile, publicly traded companies and the actions my clients take are significant enough to affect the market. Now whenever you are talking about large amounts of money, someone will always find information valuable.
So… aside from the obvious obscene Constitutional violations by the NSA, their spying has a material effect on how we now communicate, specifically on how non-American entities conduct their business with Americans and with each other. The world has been put on notice that communications, which in anyway interest the US, are subject to interception by an agency that has shown it doesn’t have its house in order and its use of that information is uncomfortably vague.
Some companies in Europe have even taken steps to ensure that their communications do not get routed through any servers that they believe the NSA may observe. Of course we really have no idea just how pervasive the NSA’s program truly is, so an overabundance of caution is required.
So now, when I am outside the US and I send an email to the US, I have to first think of which account to send it from based on what I’m saying and whom I’m sending it to. When placing calls from outside the US to firms with whom we work in the US, I am conscious that someone may be listening and cannot trust what they may do with what they hear. What if I place a call from somewhere like Dubai or have a conference call on with someone from there to a financial institution in the US? Does that raise any red flags for the NSA? Would someone then listen to that call? I have to think about how to protect information that cannot be released before we are ready, which adds more friction to the system. That is not exactly helpful in an economy that is struggling. Why make it harder for us to work done?
On May 22nd, I spoke with Graham Ledger on Wealth TV about the horrific show the Senate put on in an attempt to shame Apple for not voluntarily paying more in taxes than it required by the tax code by implying inappropriate corporate behavior.
The U.S. Senate has been hosting a sham of a hearing to try and publicly berate Apple for not paying “it’s fair share” of taxes despite the reality that Apple is in full compliance with tax law. The government has not even once suggested that Apple has in any way violated the tax code. To try and publicly shame a company that is in full compliance with the law is an embarrassment and a blight on the legitimacy of our political system.
The supposed crime is that the company has not voluntarily paid more than required by law to pay and has taken advantage of the tax code, enacted by the very group hosting this charade, to the benefit of its shareholders, employees, suppliers, and all the ancillary individuals and organizations that benefit from such a successful company. The federal government apparently would prefer that Apple voluntarily take money away from American investors, retirement funds etc and give it to the government to spend. Apple does far more good for the American economy with every dollar it generates than the federal government ever could.
Apple should not pay taxes on income generated outside of the U.S. That income is already subject to foreign taxes. It is ridiculous that the U.S. would try to argue that another sovereign charges too little in taxes, thus Apple ought to pay more.
To the extent that Apple is using the tax code in order to minimize its taxes by shifting U.S. income into foreign income, the U.S. should be taking a long, hard look at how uncompetitive the U.S. corporate tax rate has become and review the Laffer curve. By lowering the U.S. corporate tax rate, multinationals would find less value in such techniques, which would likely raise the amount of taxes collected.
I was beyond thrilled to see Rand Paul call the Senate to the floor for the atrocious nature of this hearing.
On February 26th Lenore Hawkins joined Neil Cavuto to discuss the apoplectic fits of politicians and the media all over the country concerning the sequester, which represents a rather small decrease in the increase of government spending. Yes you read that correctly, if the sequester actually occurs, government spending will still be higher in 2013 than in 2012, unless the powers that be do something.
Wall Street is still experiencing a great many layoffs and as a bellwether of the economy, this should get some attention. With record high profit levels, how is this happening? Profit margins are up, but gross revenues are well below their highs, thus the profits are coming from cost-cutting.
The U.S. financial sector expanded dramatically over the last hundred years in both relative and absolute terms. During the mid-nineteenth century the sector fluctuated between around 1% and 2.5% of GDP, rising above the higher range twice in our history. The first time the sector spiked as a percent of GDP was unsurprisingly in the early 1930s, reaching almost 6% of GDP, only to then drop to 2% of GDP in the early 1940s. By 2006, the sector represented 8.5% of GDP, so a contraction in employment here is, while unsurprising, painful for the economy and particularly for those losing their jobs.
According to a report by the State of New York Comptroller, the state has added 8,500 jobs since the financial crisis, but lost 28,300, recovering only about 30% of the jobs lost.
The number of shares traded on major U.S. exchanges this year is down 7.2%, which is likely to fuel additional reductions in headcount.
Overall national employment is still dismal, according to the January employment report.
The number of unemployed rose from 12.2m to 12.3m.
Long-term unemployed represents 38.1% of those unemployed, a staggering percentage.
The average duration of unemployment is now 35.2 weeks.
The teenage jobless rate is even worse as 23.4%.