Category Archives: Economics
The Motley Fool: How Much GM Truly Stole From American Taxpayers
General Motors (NYSE: GM ) figures its re-entry into the S&P 500 club will be quite soon, even though the company is still in the early stages of its turnaround. There’s no denying that the U.S. automotive recovery is going well for Detroit. It’s only been a few years since the ugly recession, financial collapse, and ensuing bailouts for two of Detroit’s Big Three, the exception being Ford (NYSE: F ) . And all three companies have gained market share this year in the U.S. at the expense of Japanese rivals Toyota (NYSE: TM ) and Honda (NYSE: HMC) . GM just recorded its 13th consecutive profitable quarter, so the nearly $50 billion that taxpayers like you and I funded to save GM was a huge success. Right?
Wrong.
Most people don’t realize how much GM actually took from taxpayers, and how little it’s given back. If I told you GM has repaid only $6.7 billion out of the $49.5 billion in loans it was given, would you be surprised? If I told you the expected loss to the U.S. Treasury of roughly $12 billion isn’t even a fraction of the real cost, would you believe me? If not, you might be in for a nasty surprise.
Bailout by the numbers The Treasury plans to exit its entire holdings of GM by next April. By the end of this past March, the government had reclaimed just over $30 billion of its investment, leaving a substantial loss. While the government says it didn’t anticipate making a profit from saving the auto industry, the other $419 billion in TARP funds were 94% recovered — making GM a big loser. At today’s GM stock price, the Treasury looks to lose between $11 billion and $12 billion, unless the stock price changes drastically.
Yet that number doesn’t tell the whole story.
Consider that the only true loan GM received from the U.S. government was for $6.7 billion at 7% interest, which it has since repaid. The majority of the nearly $50 billion was in stock purchases by the U.S. Treasury at a price that GM didn’t lose money when recently rebuying shares.
Also consider that GM was “gifted” tax losses from the “Old GM” corporation in amounts of $45 billion. What that really means is the “New GM” can write off current profits up to that amount and not pay taxes on it. That’s a complete joke, in my opinion.
Think of it like this: GM took our tax dollars to save its company, and then after turning 13 quarters of profit, it still isn’t paying a single income-tax dollar. Are you kidding me? News flash: My recent taxes cost me and my wallet a bundle, and I didn’t turn billions in profit.
Too often, people assume that since GM received nearly $50 billion in taxpayer funding, and when people hear that GM has fully repaid its obligations, we assume that means it repaid the said $50 billion. That couldn’t be further from the truth. GM has merely paid its initial pure loan of $6.7 billion with interest, and rebought some of its own shares from the Treasury — often at a cheaper price. Most of us taxpayers don’t even realize Ford paid an effective tax rate of 26% in 2012, compared with 0% for GM — a complete joke to Ford, which didn’t take any of our taxpayer dollars.
Bottom line You’ll see in my disclosure that I own stock in both Ford and GM. But I own stock in both for completely different reasons. I believe Ford has excellent management and is way ahead of GM in operating efficiency and global consolidation of platforms — helping it create net income off lower revenue. It’s also way ahead in creating value and quality in segment trends dominated by fuel efficiency — not to mention that its F-Series has been the best-selling truck for 36 years.
——
Click below for the full article.
Reason.com: Free Markets Are More Important Than Safety Regulations
California and Texas officials have been having an ongoing tit-for-tat over which of the nation’s two mega-states is the better place to live and do business – something that has become a proxy issue for the broader philosophical debate over the proper size and scope of government.
In California, Democrats control every state constitutional office and have an iron grip on the Legislature, where they always propose new regulations and seek new ways to secure additional tax revenues. In Texas, Republicans are dominant and Gov. Rick Perry has spent time in San Diego and other California cities luring businesses to the Lone Star State, which prides itself on a low tax burden and more manageable level of regulation.
The rhetoric often has gotten silly, especially given that both states are part of a nation that is highly taxed and highly regulated. Most of the differences are around the margins. Nevertheless, Democrats here pretend that businesses aren’t leaving and that the common critiques of $150,000 pension deals for public employees, sky-high tax rates and punitive bureaucracies are a right-wing, Koch-funded plot to turn the Golden State into Bangladesh.
The latest flare-up centers on a Sacramento Bee cartoon in which Perry says “Business is booming in Texas.” It then shows the recent, tragic fertilizer plant explosion in West Texas. Cartoons are rarely subtle, and the message here is that Texas’lower-regulation climate is responsible for a blast that killed 14 people and injured 200. Gov. Perry penned an angry letter to the editor.
——
Click below for the full article.
http://reason.com/archives/2013/05/10/free-markets-are-more-important-than-saf
Peter Schiff Owning a Panel on C-SPAN
Business 2 Community: U.S. Dollar to Become the Next Yen?
In its latest meeting minutes, the Federal Reserve said it will continue with quantitative easing, creating $85.0 billion in new money monthly, in order to bring economic growth to the U.S. economy. (Source: Federal Reserve, May 1, 2013.)
The Federal Reserve, once again, didn’t provide any clear indication as to when it will end the quantitative easing; rather, the central bank stated it will continue to do the same “until the outlook for the labor market has improved substantially in context of price stability.” (Source: Ibid.)
The Federal Reserve has already increased its balance sheet to over $3.0 trillion, and if it continues its quantitative easing at this pace, its balance sheet will balloon even more, possibly even reaching $4.0 trillion—or even $5.0 trillion—in a very short period of time.
This is troublesome news, dear reader. The more money created out of thin air via quantitative easing, the more the fundamentals of the reserve currency, the U.S. dollar, deteriorate.
As I have mentioned in these pages before, we only need to look at the Japanese economy to see quantitative easing is not a viable option for us.
The Japanese currency has plummeted since the Bank of Japan revved up its quantitative easing. Just look at the chart below of the Japanese yen compared to other major currencies in the global economy; it seems as if the currency has fallen off a cliff. If we keep up with all this money printing, the U.S. dollar may eventually look the same!
Chart courtesy of www.StockCharts.com
A falling U.S. dollar will drag down the buying power of Americans even further, as they are already struggling to keep up with their expenses. What we could purchase for $1.00 in the year 2000 now costs us $1.35. (Source: Bureau of Labor Statistics, last accessed May 3, 2013.)
I have yet to see any real economic growth in the U.S. economy as it was promised when quantitative easing was first introduced after the financial crisis. Quantitative easing is working to make big bank balance sheets strong and to create inflation, but I don’t see any economic growth being created by it.
I am looking at the Japanese economy as the best example of a country failing with long-term quantitative easing and what might be next for the U.S. economy and the dollar due to all this newly created money.
—-
Click below for the full article.
http://www.business2community.com/finance/u-s-dollar-to-become-the-next-yen-0486009
Ron Paul on Gold: No One Knows Value; I’m Buying
Reuters: Fed holds steady on stimulus, worried by fiscal drag
The U.S. Federal Reserve said on Wednesday it will continue buying $85 billion in bonds each month to keep interest rates low and spur growth, and added it would step up purchases if needed to protect the economy.
Expressing concern about a drag from Washington’s belt-tightening, the Fed described the economy as expanding moderately in a statement that largely mirrored its last policy announcement in March. Fed officials cited continued improvement in labor market conditions and did not change their description of inflation, saying it should remain at or below the central bank’s 2 percent target.
But policymakers reiterated that unemployment is still too high and restated their intention to keep buying assets until the outlook for jobs improves substantially.
“Fiscal policy is restraining economic growth,” the U.S. central bank’s Federal Open Market Committee said in its policy statement at the close of its two-day meeting. “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.”
Some economists were surprised that the statement did not contain a clearer acknowledgement of a recent weakening in the economic numbers.
Until recently, analysts had expected the Fed to buy a total of $1 trillion in Treasury and mortgage-backed securities during its ongoing third round of quantitative easing, known as QE3, with expectations the Fed would start to take its foot off the accelerator in the second half of this year.
Now, things are looking a bit more shaky.
—-
Click below for the full article.
http://www.reuters.com/article/2013/05/01/us-usa-fed-idUSBRE94003X20130501
Forbes: GOP’s Dave Camp: Why Not Put All Federal Employees Onto Obamacare’s Exchanges?
In response to this week’s brouhaha regarding attempts by members of Congress to avoid having to enroll themselves and their staff members in Obamacare’s health insurance exchanges, Michigan Republican Dave Camp, Chairman of the House Ways and Means Committee, has offered a new proposal: Why not put all federal employees on the exchanges? It’s an attractive idea, but it has some downside: it would dismantle a popular model of market-based health reform.
“If the ObamaCare exchanges are good enough for the hardworking Americans and small businesses the law claims to help, then they should be good enough for the president, vice president, Congress, and federal employees,” said Camp’s spokeswoman in a statement.
The political principle is straightforward, but it would come at a price. Putting all federal employees on the exchanges would obliterate the most market-oriented insurance program run by the government, the Federal Employee Health Benefits Program, or FEHBP. Indeed, the FEHBP has long been considered a model for market-based reform of the Medicare and Medicaid programs.
In the FEHBP, employees get to choose amongst a wide variety of plans offered by private insurers. The employer–the government–then subsidizes about three-fourths of the cost to the employee. The employee can choose a more generous or expensive plan if he wants, but he has to pay for a portion of the difference in price, and vice versa. As a result of this approach, FEHBP plans have organically evolved to contain the benefits and financial features that consumers want. By contrast, any minor change to Medicare requires an act of Congress.
Obamacare’s exchanges are closer in concept to FEHBP than traditional Medicare, but the exchanges heavily constrain the ability of plans to alter their design as consumers’ preferences evolve.
—
Click below for the full article.
US News: What Gen X Doesn’t Know About Social Security
Members of Generation X, those born between 1965 and 1976, are planning to collect Social Security at an average age of 65, according to a recent survey. But that could be a mistake. Gen Xers won’t qualify for the full Social Security payments they have earned until age 67. Those who sign up for Social Security at age 65 will get permanently lower payments for the rest of their lives.
The Social Security full retirement age at which you can claim the entire benefit you have earned is 67 for everyone born in 1960 or later. Gen Xers who sign up for Social Security at age 65, as 29 percent plan to do, will see their monthly payments reduced by about 13.3 percent.
A GfK Custom Research North America survey of 1,000 adults ages 36 to 47 commissioned by the MetLife Mature Market Institute found that 18 percent of Gen Xers plan to claim Social Security benefits as soon as they are eligible at age 62. But workers who sign up at this age will see their payments reduced by 30 percent. For example, a worker who would be eligible for $1,000 per month upon retirement at age 67 would get just $700 per month is he signs up for Social Security at age 62. Another 16 percent of people in their late 30s and early 40s simply don’t know when they will start receiving Social Security benefits.
—
Click below for the full article.
Forbes: Congress Seeks to Opt Out of Participating in Obamacare’s Exchanges
As Obamacare was winding its way through the Senate in 2009, Sen. Chuck Grassley (R., Iowa) slipped in an amendment requiring that members of Congress, and their staff, enroll in Obamacare’s health insurance exchanges. The idea was simple: that if Congress was going to impose Obamacare upon the country, it should have to experience what it is imposing firsthand. But now, word comes that Congress is quietly seeking to rescind that provision of the law, because members fear that staffers who face higher insurance costs will leave the Hill. The news has sparked outrage from the right and left. Here’s the back story, and why this debate is crucial to the future of market-based health reform.
Sen. Grassley’s original idea was to require all federal employees to enroll in the exchanges, instead of in the Federal Employee Health Benefits Program, where most gain coverage today. Indeed, a previous Senate Finance Committee amendment proposed putting members and staffers on Medicaid. But “fierce opposition from federal employee unions” sank Grassley’s effort, and he had to water his amendment down to only apply to Congress and congressional staff.
Staffers grumble about being stuck on the exchanges
Ever since Obamacare became law, this has been a source of grumbling among the congressional staffers I talk to. One aspect of the Grassley amendment is that it originally appeared to exempt staffers who worked for congressional committees, and congressional leadership, because those staffers didn’t work for specific Members of Congress. (My understanding is that the Office of Personnel Management has since clarified the regulations to include all staff, including committee and leadership.)
—
It is always fascinating when politicians pass unconstitutional laws that are supposedly good enough for the people but not good enough for them. Click below for the full article.