What’s going on with our political system? The major media outlets are so excited today… the DOW ended on an up note last week and climbed an additional 497 points Monday. Good news, yes? The stock market is good news for large institutional holders and major trading houses, but what does this mean for the average Joe? I’m not so sure a rising stock market is going to help the average wage earner out of the problems we are having.
Companies are continuing to lay off employees and lose money. Unemployment is hovering around 8.5%, with even the most conservative estimate stating that it may very well reach 10% before mid year. Corporate earnings reports are down. Companies are bleeding cash and many have stated they will be out of cash reserves within the next few months. Spending on travel and tourism declined last year for the first time since 9/11.
The White House has announced a new round of bail outs (excuse me, initiatives) to help the auto parts industry. Who or what industry is next? Where in the world will this end? In light of the huge public outcry and congressional indignation over the AIG bonuses, the House passed the “Bonus Tax Bill” imposing a 90% surtax on any bonus granted to an employee that makes over $250,000 per year and is employed by a bank or institution that received $5 billion or more from the governments financial rescue program. Just remember you heard it here first… see the last two paragraphs of my blog: “Let’s Bail Them All Out”.
Here is what is scary about this proposed surtax: first, it is retroactive to December 31, 2008, and second, for recipients that live in high tax jurisdictions (like New York) having to pay state and local income tax, the effective amount of this tax can be 102% or more. That is bad enough, but this is an even worse precedent: the government (if this surcharge passes the Senate and is signed into law) will have made a tax RETROACTIVE or “ex post facto” (Applied retroactively: applying to events that have already occurred as well as to subsequent events).
The following information is from an archaic and seldom used document called the U.S. Constitution:
Section 10 - Powers prohibited of States
No State
shall enter into any Treaty, Alliance, or Confederation; grant Letters of
Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold
and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility. (bold and italics by me)
http://www.usconstitution.net/const.html#A1Sec10
Now, I am no Constitutional scholar but I can read history and understand the original intent of our founding fathers. With the magic of the internet I can also find other things, like James Madison’s comments in the Federalist 44:
“Bills of attainder, ex-post-facto laws, and laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation. The two former are expressly prohibited by the declarations prefixed to some of the State constitutions, and all of them are prohibited by the spirit and scope of these fundamental charters. Our own experience has taught us, nevertheless, that additional fences against these dangers ought not to be omitted.”
Oops, guess our congressmen missed that one!
http://thomas.loc.gov/home/histdox/fedpapers.html
The U.S. Government is taking one more step towards centralization of power and control over all aspects of business. This move is in direct violation of the very Constitution our President and Congress swore to uphold. WHERE IS THE OUTRAGE? What’s next, an “Equalization of Opportunity Law” or “Anti Dog Eat Dog Rule?”
If you want to read an excellent essay printed today in the Wall Street Journal: “The Bonus Tax Is Just Plain Stupid” click here:
http://online.wsj.com/article/SB123776600113009243.html
All this is very disconcerting but what really concerns me is what the Treasury is doing to our money. I stated in my blog “Gaining Security and Losing Freedom”, the Federal Reserve is debasing our money to the extent that major U.S. debt holders are becoming very wary, especially the Chinese. I wrote earlier that the Chinese were asking for assurances from the USG that the U.S. would not devalue our currency and risk their (China’s) investments. The U.S. is the oldest and most stable government in the world and that we are still the safest haven in times of economic turmoil.
That works until we purposely debase our own currency. At that point we lose the faith and confidence of the entire world. Since the Fed’s announcement last week they were buying $300 Billion of U.S. Treasuries (they called it “quantative easing” ??) the euro is on track for the largest one week gain over the dollar since the Euro was introduced in 1999. Currency investors are continuing to pull out of the dollar. The Fed is still counting on international investors to buy the dollar based upon its safe haven status. How long can this last?
China currently holds over $2,000 Billion (yes thousand billion) of foreign exchange reserves in U.S. dollars and is rightfully concerned, to the extent that they are now putting forth the idea of a new international reserve currency in a global fund managed by the IMF. It’s been said that China would not risk its economic future by going against the dollar.
http://www.ft.com/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac.html?nclick_check=1
Frequent commenter to this blog John Galt (who is John Galt?) sent me a personal email that stated:
“Now Allen, you do realize who owns the majority of our debt? China. Now let me ask you this, what happens in the future if China decides to call in their payment? Logic tells you China wouldn't do that. In fact I've heard this from pretty much everyone. But it seems to me that many people aren't familiar with China's history and the fact that they often make decisions based on pride rather than logic. So what am I getting at? If a country sells off their debts in the form of bonds, then fails to make payment, I believe the country that bought the bonds could legally declare that an act of war.”
I’m not sure about the act of war, but JG’s statement about China’s history is right on target.
In the book “A Splendid Exchange: How Trade Shaped the World” by William Bernstein, the author gives a detailed description of how China ruled the entire Indian Ocean trade with ships as big as our modern aircraft carriers. Within 10 years they were not even a concern for the Portuguese traders. Why? China’s xenophobic rulers decided that the trade was endangering their culture, so they discontinued it.
Arguably, China had the opportunity to rule half of the known world, and let it go just to prove a point. I have no doubt that China’s concern is not with the opinions of the rest of the world, it is all about their own self interest (it’s always about me).
Keep an eye on this battle, it is far from over…
Hey, one last thing, check this out. In the midst of a worldwide depression (oops, I mean recession) a new automaker is moving into the U.S. market:
http://www.mahindrana.com/
I thought you might just want to know!
With regards,
Allen
Information contained herein is deemed reliable but not guaranteed.
http://voicecafe.blogspot.com/
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