AMBASSADOR JOHN BOLTON: We Shouldn't Rescue Europe

By Ambassador John Bolton

What we're seeing in Greece is a European problem and it should not be solved by the United States. 
The Greek financial crisis is really a European Union ("EU") political crisis as much as it is economic. European Monetary Union, creating the Euro, was designed to facilitate "ever closer union" as well as to create a common currency. 
Under the Euro, individual EU member governments continued to pursue their own fiscal policies without having to worry about consequences for the values of their national currencies, because everything was masked by the Euro. 
Now, as Greece's unsustainable situation becomes clear, and as others -- Spain and Portugal, for example -- the Euro itself is under challenge. That is not surprising, given the Euro's peculiar status as a currency without a government. 
Now the European union must decide whether to change its structure or save its currency. It will be a painful decision for them to make either way, but they are the ones who created the problem. And they are surely capable of solving it. As a European problem, and very much a political one, it should not be solved by the United States. 
There is no United States interest in rescuing the Euro or European political integration, certainly not with American taxpayer dollars. In fact, the IMF is involved in the Greek rescue package only because the EU, and particularly Germany didn't want all of the responsibility.
That is not a sufficient reason to the U.S. to rescue Europe from its own mistakes.

Competition in Currency

Support Free Competition in Currency Act, H.R. 4248

“Currency, or money, is what allows civilization to flourish,” correctly notes Congressman Ron Paul (R-Texas). There is probably no American citizen who doesn’t understand that statement and who is satisfied with the current state of monetary affairs in this country. The destruction of our money system happened gradually over time until now we're in the middle of a severe economic crisis produced and directed by the Federal Reserve and aided and abetted by the federal government.

The scourge of the hidden tax of inflation -- the increase in the money supply that causes a decrease in valuation -- must be abandoned. Some good first steps toward ending inflation would be to remove the Federal Reserve’s monopoly on issuing money by repealing legal tender laws, to open up the field for competition in coining money by removing restrictions on private mints, and to encourage the use of sound money by abolishing taxes on trading and holding gold, silver, and other precious metals.

Those proposals are contained in the Free Competition in Currency Act of 2009, H.R. 4248, introduced by Congressman Ron Paul (Click on the video image for a 5-minute explanation.). This act would be a major step in restoring sound money and freedom in the market system by providing a choice in currency, and would drastically reduce the Federal Reserve’s ability to control the monetary system.

Almost 2100 years ago!

"The budget should be balanced, the Treasury should be refilled,
 public debt should be reduced, the arrogance of officialdom
should be tempered and controlled, and the assistance to foreign
 lands should be curtailed lest Rome become bankrupt. People
 must again learn to work,  instead of living on public assistance."
           -  Cicero   - 55 BC

New Underground Economy

New Underground Economy

by Richard W. Rahn
The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

Tax revenues are falling far more rapidly at the federal, state and local level than would be expected by the small drop in real gross domestic product (GDP) and changes in tax law that have occurred since the recession began. The currency in circulation outside the U.S. Treasury, Federal Reserve banks and the vaults of depository institutions - that is, the currency held by individuals and businesses - has grown by 13.3 percent in the last two years, while real nominal (not inflation-adjusted) GDP has not grown at all, and real (inflation-adjusted) GDP incomes have fallen by more than 3 percent. With the growth of electronic means of payment and financial service providers, it would be expected that the currency component of GDP would fall, not rise.

The underground economy refers to both legal activities, such as often found in construction and services industries where taxes are not withheld and paid, and illegal activities, such as drug dealing and prostitution.

Countries such as the United States, Switzerland and Japan historically have had relatively small, nonreporting and/or illegal sectors, a typical estimate being 13 percent of GDP.

Most European countries have had somewhat larger underground sectors (typically 20 percent or so) in part because of the desire to escape higher tax rates. Italy and some of the other Southern European countries are believed to have underground sectors that account for 30 percent or more of all economic activity.

I recall an Italian finance minister telling a few of us at a meeting a couple of decades ago that, for policy purposes, he assumed that "the economy was 40 percent larger than what was reported." In some developing countries and/or highly corrupt countries, underground or "off the books" activities are estimated to be as high as 70 percent of all economic activity.

The FDIC report about the size of the unbanked or underbanked sector in the U.S. should be of concern because those who do not use the banking system often have to pay higher fees to cash checks, pay bills (e.g., money orders, etc.), or transmit funds.

People who keep their savings in cash at home rather than in banks make themselves easier prey for criminals and are more likely to lose their money to fire, flood, or just neglect. Not surprisingly, a majority (71 percent) of the unbanked have household incomes of less than $30,000 per year.

There are many reasons people do not have bank accounts. Banks, because of the "know your customer" and other anti-money laundering regulations, make it difficult for nonestablished people, such as the young and transient, as well as legal and illegal immigrants, to open bank accounts.

Also, many of these same regulations are responsible for the rise in bank fees, which are a particular burden for low-income people. You can be sure that every time Congress passes some new law or the IRS implements some new regulation to "get tax cheats," much of the real burden of these compliance costs will fall on those least able to afford it, while those intent on finding their way around it will do so.

People also avoid having bank accounts because they are vulnerable to asset seizure, judgments, levies, etc. Increasingly, bankers and others who provide financial services are forced by governments to spy and snitch on their own customers, and this is a real turnoff for many people, which causes them to find other ways of maintaining financial privacy.

Many studies have shown that when people believe the taxes they are required to pay are reasonable and the political leaders tend to spend their tax dollars wisely, tax compliance rises, and vice versa. In the United States, there is increased evidence that many tax dollars are not being spent wisely and are often used to pay off political cronies.

Over the past year in particular, the public has become aware that many in Washington who advocate higher taxes and argue that everyone has a responsibility to pay taxes are themselves not complying with the tax laws and regulations.

When you have a secretary of the Treasury and the chairman of the House Ways and Means Committee (the tax writing committee) accused of cheating on their taxes, it greatly undermines the moral authority of the tax collectors, making the common citizens feel like chumps and, hence, much more willing to try to legally avoid or illegally evade taxes themselves.

The evidence is unambiguous; governments cannot increase tax compliance and decrease the size of the underground economy by ever increasing and more onerous regulations.

It is no accident that those governments that allow their citizens a high degree of personal and financial liberty, including financial privacy, and spend taxpayer dollars wisely, honestly and competently, have much smaller underground sectors than corrupt and oppressive governments. Washington, take note.

National Recovery Act- 1934

This came out of the History column from todays local paper the Gazelle.
"Careful search of National Recovery Act codes reveals little of value
in them to any industry except those monopolistic
privileges which are incompatible with a capitalistic system based on
free enterprise and which ought never to have been granted unless it
were contemplated to make a transition from free competitive capitalism
to state capitalism."
Dr. Charles Roos, former director of research for the national recovery act.
Assailing the Recovery administration, minced no words in an almost
unqualified attack on the code system, Dr. Roos called the NRA "the
greatest hoax ever perpetrated on industry or labor."

Reminds me of todays recovery "stimulus package"

Fix The Banking System In 4 Steps

By Dylan Ratigan

I spoke today on the Morning Meeting about the four steps the government could take to fix the U.S. banking system and stop the ongoing and expanding corruption of our country. These simple solutions come from the litany of people that I speak with who seek to change the mega-casino our government has built during the past 10 years back to one built on investors, innovators and workers creating things that benefit society.  Unfortunately, our current leaders want to take the easy road of sustaining the casino economy with what I like to call the Magic Money Machine.  Except as with all magic, there's actually a trick; in this case, it is a large bill that will be left to those of us unfortunate enough to still be around when it comes due.  Here are the four pieces of regulation that taxpayers should be demanding from their leaders:

1. Inject transparency, primarily to bring almost $600 trillion of crooked insurance scams to the forefront.  Force almost all swaps onto exchanges, not just the 20% as current proposed reform does.

Secretary Geithner, Chairman Frank and Chairman Dodd are protecting the last of the Wall Street secret money-making schemes. They don't want to force transparency on this market because it would disclose the fraud this massive bank scheme is -- a taxpayer subsidized secret insurance market which sells cheap insurance to hedge funds, power and food and energy companies, and makes for huge profits at banks and insurance companies. Insurance and idle speculation in secret is a brilliant way for banks and other financial services companies to make money (who doesn't want to collect insurance premiums every month for something you'll never have to pay for?!) And a great way to make oil, food and electricity company CEOs richer as they pay less for their insurance. One problem -- they are all surfing on the taxpayers back to the tune of $24 trillion at risk last I checked -- and the U.S. government is the one letting them do it. Still. Now bigger than ever.

2. Demand capital to back Wall Street's gambling.

In Vegas, you need to have actual money to gamble. Your own money. It's crazy, but true. Even today, in many cases more than ever, U.S. banks use America's FDIC insured safe deposits to fund their own mad bonus-seeking speculation. Once the banks blow through that -- they borrow from the biggest money printing house in the world, the U.S. Federal Reserve to do the same thing. This is truly insane. The banks and their traders keep the upside. You, the taxpayer, keep the downside. No one else in the world can pay themselves billions to take infinite risk with little or no money down, except a big bank CEO. And we thought they were good at their jobs making all that money, when all they did was rig the game using our government to do it.

3. Enact a tax-code to encourage long-term investment and discourage short-term profit. Fortunes should not be made in minutes but over years through the creation of value to society.

  

As long as the easiest way for a man or woman to make money is to spend their day clicking for dollars, why would they bother doing all the work of investing in the long-term economic development of private business in America? Tax code in general should encourage investment, jobs, and innovation in America and discourage idle speculation as the easiest way for a college kid to get rich.  There are sensible ways to use tax policy to encourage this that do not hamper liquidity.

4. Break up the Too Big To Fail banking institutions. Start with Goldman Sachs and J.P. Morgan. Right Now.

      

How do you expect any other business to compete with the chosen few who are guaranteed profits? The more risk they take, the more they make. Why do you think they invented a fake $600 Trillion secret derivative market in the first place? Bigger bonuses baby. All upside. No downside. Thank you Uncle Sam. Thank you Secretary Geithner.