Category Archives: Capitalism

07.31.13
by

OpenMarket.org: Detroit Bankruptcy Focuses Attention on Public Pensions

For people watching it from afar, the bankruptcy of Detroit — the biggest municipal bankruptcy in American history — may have brought a sense of relief in the fact that they live somewhere else. But it’s also brought needed public attention to the state of city finances around the nation. While Detroit is an egregious case of municipal incompetence, corruption, and mismanagement, its problems are not unique.

In fact, one of the drivers of debt that brought the Motor City to its knees is common among states and cities: defined benefit pension plans, which guarantee payments independently of the level of the plan’s funding. This week’s cover story in The Economist brings some needed attention to the problem:

Most public-sector workers can expect a pension linked to their final salary. Only 20% of private-sector workers benefit from such a promise. Companies have almost entirely stopped offering such benefits, because they have proved too expensive. In the public sector, however, the full cost of final-salary pensions has been disguised by iffy accounting.

Pension accounting is complicated. What is the cost today of a promise to pay a benefit in 2020 or 2030? The states have been allowed to discount that future liability at an annual rate of 7.5%-8% on the assumption that they can earn such returns on their investment portfolios. The higher the discount rate, the lower the liability appears to be and the less the states have to contribute upfront.

Even when this dubious approach is used, the Centre for Retirement Research (CRR) at Boston College reckons that states’ pensions are 27% underfunded. That adds up to a shortfall of $1 trillion. What is more, they are paying only about four-fifths of their required annual contribution.

On a more realistic discount rate of 5%, the CRR reckons the shortfall may be $2.7 trillion. A similar calculation by Moody’s, a ratings agency, reckons that schemes are 52% underfunded.

This is a huge problem. But to effectively address it requires knowing how big it actually is. That is easier said than done, given that much of the underfunding is the result of fuzzy math that has resulted in discount rates based on overly optimistic investment return projections.

——-

Click below for the full article.

http://www.openmarket.org/2013/07/31/detroit-bankruptcy-focuses-attention-on-public-pensions/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Openmarketorg+%28OpenMarket.org%29

07.26.13
by

1787 Network: Is Detroit Our Starnesville?

Detroit reminds me of a quote from the Grail Knight in Indiana Jones and the Last Crusade, “He chose poorly.”  In the movie the evil bastard who “chose poorly” shrivels up and turns to ancient ruins because of his “enlightened” choice, so too has Detroit. Indy who didn’t choose poorly did not suffer the same fate.  Just like in the movie those who “chose wisely” don’t suffer the same fate, nor should they.

Detroit is the manifestation of those who “chose wisely” going Galt. It is precisely the condition and outcome that result from the reality of implementing the utopian ideas of so called progressives.  Detroit mirrors Starnesville, a car-manufacturing city that became a ghost town after experimenting with socialism. You can read about it in Ayn Rand’s 1957 novel “Atlas Shrugged.”

The federal government and tax payers from the other 50 states should under no circumstances bail out Detroit. It should be allowed to go bankrupt.  The citizens of Detroit should be allowed to suffer the consequences of their choices: specifically their voting decisions.  It is the citizens of Detroit who are at fault for Detroit’s demise not the rest of the nation. Every single voter in Detroit who voted for politicians who expanded the government of Detroit is responsible.

Let’s hope Detroit isn’t the indicator that Starnesville was in the novel.  In Atlas Shrugged, the demise and failure of Starnesville was the harbinger of the collapse of the entire society.  Detroit and its current bankrupt condition is the direct result of who the people of Detroit elected.  Those who were disproportionately taxed and had to pay for the utopian ideas of the elected leaders, when it was obvious that their vote for responsible government and free enterprise were ineffective, voted with their feet; they moved.  The auto industry built plants in Kansas, Alabama, Georgia, Kentucky, etc. they quit building and expanding in Detroit. The empty wasteland of factories in Detroit is evidence of the reality of implementing enlightened ideas of the statist leftists.  The voters of these states, who elected people that created laws and an environment more inviting to auto manufactures than Detroit and Michigan did, are not responsible and should not have to bail out the voters who embraced the empty promises of Democrats.

——

Click below for the full article.

http://1787network.com/2013/07/is-detroit-our-starnesville/7203

05.19.13
by

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.

http://www.fool.com/investing/general/2013/05/19/how-much-gm-truly-stole-from-american-taxpayers.aspx

05.14.13
by

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

05.06.13
by

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!

U.S. Dollar to Become the Next Yen? image xjy japanese yen philadelphia index1

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

05.05.13
by

What is the right fix to social security? Is there one?

—-

The above chart is taken from the article “Is Obama’s New Index the Right Fix for Social Security?” from the Wall Street Cheat Sheet’s website, which can be viewed below.  It does start one to question just what has Social Security become and how should we fix it?  (If it should be fixed).

http://wallstcheatsheet.com/stocks/is-obamas-new-index-the-right-fix-for-social-security.html/?a=viewall

05.05.13
by

AP: Are you a tax cheat if you shop online tax-free?

Buy anything on the Internet lately without paying sales tax? In all but a few states, you’re probably a tax cheat.

That’s right, even if Internet retailers don’t collect sales tax at the time of the purchase, you’re required by law to pay it in 45 states and the District of Columbia.

Here’s the problem for states: hardly anyone pays the tax, and there’s not much states can do about it.

The Senate is expected to pass a bill Monday making it easier for states to collect sales taxes for online purchases. Some of the nation’s largest retailers are rejoicing. But small-business owners who make their living selling products on the Internet worry they will be swamped by new requirements from faraway states.

“It’s a huge burden for a company like ours,” said Sarah Davis, co-owner of Fashionphile.com, a California-based company that sells high-end pre-owned handbags and purses. “We don’t have an accounting department, we’ve got my father-in-law.”

Davis started the company in 1999 and now runs it with her brother-in-law. They have 26 workers and three stores, in Beverly Hills, San Diego and San Francisco. Last year, Fashionphile.com did $10 million in sales, the vast majority of it online, Davis said.

Fashionphile.com sells bags directly from its website and on eBay. The company collects sales taxes from customers who live in California, but not from people who live in other states, Davis said. Under the law, states can only require stores to collect sales taxes if the store has a physical presence in the state.

That means big retailers, such as Wal-Mart, Best Buy and Target, with stores all over the country collect sales taxes when they sell goods over the Internet. But eBay, Amazon and other online retailers don’t have to collect sales taxes, except in states where they have offices or distribution centers.

—-

Yet another story of MORE TAXES, MORE GOVERNMENT, and MORE HARM to small businesses.  How original!  Click below for the full article.

http://news.yahoo.com/tax-cheat-shop-online-tax-125303228.html