Posts Tagged ‘tax revenue’

The stuff revolutions are made of (re-post)

December 5, 2010

I am still on the road. But this post from early 2009 is as topical as ever.

 

The stuff revolutions are made of

By guidoamm

I think it is by now a foregone conclusion that before the end of this year, regardless of what official statistics may show, most countries in the West will have to contend with unemployment in excess of 15% in real terms. It can be argued that at least the USA is already approaching that level and Spain, Greece and Italy aren’t far behind if not alrady at that level too. That in itself is cause for serious concern for governments. As unemployment grows and, necessarily, as the credit market collapses, inflation and demand collapse too engendering lower earnings and therefore lower tax revenue for municipalities, states and the government. As unemployment grows and the ability of governments to raise finance is diminished (rating agencies lowering credit worthyness of sovereign debt), government will have to redirect resources towards maintaining those promises and services the absence of which would more readily indicate that not all is well with the state: i.e. pension payments and any monetary disbursments perceived directly by the public. This of course will drain resources from departments such as the postal service, road works, civil administration, education, forestry services, fire fighting, international aid and so forth. Naturally, this will not be an event but a process whereby services will be gradually curtailed in order to conserve liquidity and pay those direct disbursements to the public. At some point though, something may happen to trigger the anger of the masses. It could be the death of a child because an ambulance did not show up in time or the death of a bunch of passengers on a bus or train due to absence of safety infrastructure or its state of disrepair. The trigger is not what matters; anything will do. What matters is that when unemployment is high, savings are low and prospects hazy, the masses get twitchy and can go on a rampage for any number of reasons. Politicians and administration officials don’t need me to tell them that even in a recession, let alone a depression, maintaining social harmony is a tall order particularly when the shenanigans of the power elite come to light as they inevitably do – that’s because as the tide goes out, you get to see who was swimming naked (think Madoff but count on many more to come out down the road). So, before we get to that stage which, in the current environment, could be as soon as the end of this year, governments will have to do something to shift the attention of the masses and keep them focused on something, or someone, that will be made out to be a threat to their well being. Therefore, unless some very bright government minion comes up with a brilliant solution to kick inflation up the ass and send it soaring again soon, that will be all she wrote folks. War will be upon us sooner than you can imagine.

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Curtailing public spending a precursor to war…

July 30, 2010

Today Greece, tomorrow a nation near you.

As governments tax revenue dwindles and as their ability to borrow is progressively hindered by a slowing economy and rising unemployment, the social promises of the past thirty years cannot be met.

As a result public anger will rise and though initially it may be viewed as a localised phenomenon, eventually as more countries succumb to the same dynamic, social unrest will spread across borders and will ortanize too.

If tax revenue continues to collapse, revolution becomes a distinct possibility.

But it would be most unbecoming to allow revolution to happen anywhere in the West. Revolution is something that happens to banan republics but certainly not in the “civilised” West that purports to be a beacon of morality.

But when simple arithmetics tells you that Greece is only the prologue of what is to come, then what do you do?

Typically, at this juncture with nowhere to turn in order to increase tax revenues, the West engineers large scale conflicts.

http://www.guardian.co.uk/world/2010/jul/29/greek-police-tear-gas-striking-truckers?CMP=twt_gu

Government issues emergency order as fuel shortages strand tourists and disrupt food and medical supplies… […] But hopes of a return to normal were quickly dashed when riot police fired tear gas at thousands of truckers gathered outside the transport ministry this morning.

Deflation…

July 4, 2010

As the debate rages on, both inflationists and deflationists slug it out each poring over reams of data and making the case for their position.

As far as I am concerned, there is only one obvious parameter that cuts through the fog of confusion that reigns in the various monetary/economic measures that can be distorted at will. The one measure that is hard to fudge or distort is this. For as long as tax revenue continues to decline, that is the most glaringly evident sign of deflation. And granted, just like nothing goes straight up or straight down, deflationary pressures too ebb and flow. Nonetheless, the one single metric you can keep your eye on to make heads or tails of what is going on in the economy is tax revenue. For as long as tax revenue declines, it is the clearest sign that the monetary authorities are unable to inject inflation in the monetary system ergo the economy.

If tax revenue is declining, it follows that states are unable to meet their salary and financial obligations. Thus:

http://www.reuters.com/article/idUSTRE6604DY20100701

U.S. state and local governments employ around twice as many workers as the country’s manufacturing and construction sectors combined, so the switch to layoffs risks swelling already high unemployment in the United States.

“I can confirm that states are now moving to layoffs they had hoped to avoid,” said Philippa Dunne, who polls state leaders for the economic newsletter she co-edits, the Liscio Report. “To me, this is terrible timing because private hiring remains anemic, so piling on state and local layoffs is dangerous.”

The excerpt above is actually interesting on two fronts. First, it highlights one of the inherent consequences of artificial inflation pumping; that is, that in a fiat monetary system inflation gradually overwhelms all economic metrics till it becomes a goal unto itself. Thus along the inflationary trajectory, government progressively becomes the largest actor in the economy. Second, the excerpt provides evidence of waning state revenue which is the sign of declining inflation if not its absence.

It is inevitable… (end of the inflationary cycle)

April 27, 2010

Two Chicago state reps: Bring in the National Guard

http://www.chicagobreakingnews.com/2010/04/state-reps-want-to-fight-violence-with-national-guards-help.html

For as long as the authorities can induce credit and monetary inflation into the system, the debt load can be expanded thus the state can appear to be able to meet its obligations like social security expenditure or unemployment benefits or interest on its sovereign debt for example. During this period of time, alarmists keep warning that unfunded liabilities will eventually bite the state in the ass. However, the day on which the state gets bitten in the ass is at some unspecified point in the future. And for as long as inflation is running on a positive trend, that day can be postponed.

Inflation can be kept on a positive trajectory by various means. However, inflation is an exponential dynamic thus whatever means are employed to keep it on a positive trend, will necessarily need to be ever more drastic than previous attempts.

Since globally today we are all pretty much on a US$ fiat monetary system based on floating exchange rates, we all have to contend with an inflationary dynamic that is 100 years old; that is since the inception of the modern Dollar in 1913. During this time, inflation has stalled twice; once in the late 20s and once in the late 60s. Both periods were characterized by excessive debts and excessive industrial capacity. However, whereas the crisis of the 20s can be reasonably argued resulted in WWII, the crisis of the 60s resulted in the assimilation of the then major currencies into the US$ (abrogation of Bretton Woods and adoption of floating exchange rates). In turn, inflation was then stoked by assimilating other currencies via globalization.

Today, inflation has hit the wall once again.

Unless someone somewhere comes up with a brilliant idea to kick-start the inflationary cycle, this time around the resolution will likely take the form of a global conflict.

The reasoning for this dark prediction is as follows. Fiat money is predicated on inflation. In the absence of inflation, fiat money has no reason for being and the ability of the state to spend liberally (on social, scientific or military ventures for example) is hindered. Thus inflation is the conditio-sine-qua-non of opting for a fiat monetary system.

That being the case, the state has a vested interest in maintaining inflation on a positive trajectory. But, inflation is exponential in nature thus it is necessarily limited. The rub is that the point at which the state can no longer induce inflation is the point at which social costs are rising but tax revenue is declining. Since this is also the point at which the state can no longer expand debt (the Fed has been the single largest buyer of its own sovereign debt in the past year… yup! That’s: the Fed issued and purchased its own sovereign paper albeit through primary dealers to whom it gives money free of charge anyway), declining tax revenue and rising social costs spell sovereign bankruptcy.

At the social level, that is an explosive juncture. The end of the inflationary cycle, is sure to bring civil unrest and, eventually, revolution.

The trouble is that whereas in the late 60s we had room for maneuver and we could feed the US$ monetary pyramid from the bottom by assimilating new currencies, this time around, in the absence of any other currency of significance that we can bring in on the US$ fiat monetary system, the options are few and well defined.

In order to be able to restart the inflationary dynamic we must absolutely write-down debt and deplete industrial and commercial capacity. Nothing else will do.

But, of course, the moral beacons that our leaders are, rather than coming out and telling it like it is our governments are feverishly at work to build straw men in the form of “foreign evils”. Thus the dark prediction that rather than face the music and admitting the limits of the Western monetary (ergo socio/economic) models, they will throw us into a global conflict. And this one, as I never tire to reiterate, is a conflict that is just around a corner – 2013/2015

In terms of building straw men, nothing would be better suited than another false flag event. In this regard, I’ve come across this today:

http://www.veteranstoday.com/2010/04/24/gordon-duff-stage-being-set-for-dirty-bomb-false-flag/

You may think Gordon Duff is hysterical and delusional but history is on his side. When our governments need something to happen, they will make it happen by hook or by crook – look up the Opium Wars, Pearl Harbor, Bay of Tonkin, My Lai as well as, very likely, much more recent events…

And here you go… (curtailing public spending as precursor to war)

April 9, 2010

As the now famous series of Curtailing Public Spending as Precursor to War on this blog progresses, poster “Eldorado” on the VOY forum brings this nugget to our attention:

http://www.wkyc.com/news/local/news_article.aspx?storyid=133951&catid=3

Excerpt (emphasis added):

JEFFERSON — In the ongoing financial crisis in Ashtabula County, the Sheriff’s Department has been cut from 112 to 49 deputies.  With deputies assigned to transport prisoners, serve warrants and other duties, only one patrol car is assigned to patrrol the entire county of 720 square miles. […] Ashtabula County Common Pleas Judge Alfred Mackey was asked what residents should do to protect themselves and their families with the severe cutback in law enforcement. “Arm themselves,” the judge said. “Be very careful, be vigilant, get in touch with your neighbors, because we’re going to have to look after each other.

And that’s exactly the type of thing you don’t want to do when a crisis is developing. That’s because if the “authorities” should not be able to pull us out of this crisis anytime soon, not only will you have a lot of angry people on your hands but you’ll have a lot of angry people that are armed… not a good thing…

Now read the following article:

http://news.yahoo.com/s/ap/us_concealed_weapons_arizona

Excerpt:

PHOENIX – The Arizona House voted Thursday to make the state the third in the nation to allow people to carry concealed weapons without a permit, sending the governor a bill that would allow Arizonans to forego background checks and classes that are now required.”

See! This is the thing. Events rarely happen in isolation. Rather, what happens is that a series of seemingly unrelated occurrences eventually coalesce into something greater than the sum of its parts.

As the economic crisis develops, tax revenue declines just at the time that social costs are rising. If at the same time the monetary authorities find it difficult to induce inflation into the system as is the case today then government has no choice but to curtail public services and, eventually, terminate some programs.

However, as the inevitable abuse of power, scandals and malfeasance gradually come to light (i.e. AIG, Goldman Sachs, Fannie Mae, Lehman…) students, the unemployed, the destitute, the marginalized and then, eventually, the employed, the retired and the elderly will not take kindly to the new juncture.

So, before mobs start roaming the streets looking for some politician or banker to lynch, we’ll have us our war… the global one this one…because I can guarantee that no main stream politician in the West can ever even countenance the idea to take responsibility for what is happening. Much better to build straw men of evil foreigners and religious nuts that ostensibly threaten our liberty… so that when the shit hits the fan, we can just whip the mobs up into a murderous frenzy and pack them off to the front to fight for their presumably desirable way of life…

… and so the wheel turns…

Gold looking awfully alluring still and ever more…

A bon entendeur…

Eh! No sooner am I finished typing the above that AP reports the following:

http://news.yahoo.com/s/ap/20100409/ap_on_go_co/us_congress_threats

I wish I was wrong but I have to tell you guys this. You better brush up on your self sufficiency skills… sooner rather than later…

The crux of the problem

February 23, 2010

Zero Hedge reports what in my opinion crystallizes the count-down to a global war as a means to get out of a funding jam that, despite the several dozen Trillion Dollars our governments have shoveled into bank coffers, is clearly not solvable with the traditional policy tool of excess spending.

http://www.zerohedge.com/article/visualizing-black-hole-state-revenues

That graph is the breakdown of government income.

In the following article linked in the ZH piece above, you are presented with the reality of the situation. That is, state revenue is dwindling and unemployment figures are massaged by gargantuan borrowing to pay for unemployment insurance.

http://www.postandcourier.com/news/2010/feb/22/states-had-to-borrow-31b-for-jobless-pay/

Here is a peek at state revenue expressed in % change yoy

FRED Graph
The question in my opinion is this. If unemployment keeps rising and tax revenue therefore keeps declining, what happens when states will no longer be able to borrow more in order to pay for unemployment insurance?
Banks are making obscene profits not two years after they willingly and deliberately brought themselves to the brink of extinction and had to be saved for the good of humanity. If banks are so healthy why are our governments still allowing them to disregard mark to market rules? If the health of banks is so paramount to the well being of society, why is unemployment still rising? And why is state revenue still declining? And why is the Money Multiplier at multi decades lows?

The litmus test of economic health

December 31, 2009

This is the one metric that cuts through all the bullshit. Revenue! In this case, state revenue.

For as long as government revenue, better known as tax revenue, is declining, it means the economy is in decline. What declining tax revenue also means, it means that your income is declining too. How else can tax revenue decline if not when the revenue of society is declining?

Here is the feedback loop –

1 . Declining tax revenue, means necessarily that social expenditure must be curtailed and, in some cases, discontinued.

2 . Declining revenue at personal level, means less disposable income thus less consumption.

3 . Less consumption means increasing unemployment.

4 . Increasing unemployment requires more social expenditure.

5 . Go back to point one. There is not enough money for social expenditure.

A world war is abrewing.

http://online.wsj.com/article/SB126212283240009387.html?mod=WSJ_hps_sections_news

Excerpts:

“Sales taxes declined 9% to $70 billion in the third quarter compared with the year-ago period, the Census Bureau said. Income taxes plunged 12% to about $58 billion. Together, sales and income taxes make up roughly half of state and local tax revenue. […] The third quarter was the fourth consecutive quarter in which tax collections were below year-ago levels. Through the first three quarters of 2009 state and local tax revenues totaled $875 billion, nearly 8% below the $951 billion collected in the first three quarters of 2008. In the same period, federal receipts were down nearly 19%.”

If local and state taxes are declining, then Federal tax revenue is declining too.

Declining Federal revenue means that in order to maintain the same level of expenditure on the military, on public works or on health care for example, the Federal state must borrow more than the year before.

But since it is now established fact that international creditors are unable to lend much more to the USA because, like the USA, they have to face-up to their own problems in the form of decreasing tax revenue, then the USA will have to carry on buying its own bonds from itself.

That is what currency debasement is all about.

You can let the main stream press, the pundits and government tell you that things are improving and that it looks like we’re coming out of this depression. The one and only metric that tells you whether we are or we aren’t is revenue. For as long as revenue is declining, we’re only going down.

Curtailing public spending…. a precursor to war

December 11, 2009

http://www.telegraph.co.uk/finance/financetopics/budget/6781890/Severe-cuts-in-public-services-revealed.html

Following the Government’s pre-Budget report on Wednesday, the independent Institute for Fiscal Studies said Labour’s pledges to increase spending on schools and hospitals will mean that all other Government departments will face “severe cuts” in their budgets.

Yesterday, Mr Daling claimed that spending in other areas, apart from the ‘ring-fenced’ sectors of schools, health and police, would be “flat” after 2011.

But the real cuts, starting in 2011, could be as high as 19.2 per cent, the IFS said, predicting “a severe squeeze on public services”. Areas affected will include defence, higher education, transport and housing.

As the various and sundry stimuli packages passed in the past 12 months fail to ignite inflation, tax revenue declines accordingly. However, as the depression grinds on, social costs are rocketing up and we are still intent on expanding our military ventures.

Something has to give.

That something, will be public spending. But deflationary depressions typically last several years thus bringing about the insolvency of the most profligate debtors.

Considering that the West is the self proclaimed holder of the moral high ground and that, through the IMF, World Bank and sundry gravy-train agencies, we are the ultimate arbiters of fiscal and monetary discipline to every one else but ourselves, do you really believe any Western country could likely declare insolvency and repudiate sovereign debt?

If you do, then we have nothing to worry about. Spain, Greece, the UK or even the USA will very likely declare insolvency in the next few months. We tighten our belts, we lose a bit of weight, we go back to manual labor in the fields, we’ll sell all the superfluous trinkets we’ve accumulated in the past thirty years but we’ll be ok.

But if like me, you know that no Western government could possibly admit to bankruptcy without simultaneously admitting to be no better than your garden variety Mugabe, then what do you think the solution would be?

Budget deficit for new fiscal year…

December 10, 2009

http://www.reuters.com/article/idUSN0418093920091204

The federal budget has been battered by the worst economic downturn since the Great Depression of the 1930s, as tax revenues have plunged and spending on safety-net programs like unemployment insurance have skyrocketed.”

In an economy that is 80% consumer driven, where there are no savings, and where debt burdens are at historic highs, contracting credit spells doom for the retail economy hence doom for asset values thus doom for tax revenue.

So, unless someone should be able to turn around the debt creation dynamic to anything resembling the average trend of the last decade, inflation is pretty much dead.

No inflation = bankruptcy of government

Bankrupt Western governments will not and cannot admit to insolvency.

So, watch-u-gonna-do…

World war by 2012/2015

Deflation – employment, wages, tax revenue

October 15, 2009

Few are ready for a bout of deflation. Even fewer understand the consequences of a deflationary recession which at this point is probable will turn into a depression.

In an unchecked fiat monetary system, inflation progressively becomes the ultimate and only goal. Towards the end of the inflationary dynamic, credit creation expands exponentially till inflation overwhelms the GDP number. The natural result is that financial value progressively runs away from intrinsic value at an accelerating rate. However, when the underlying economy no longer generates sufficient revenue to service the debt, then asset liquidation is the only solution.

Asset liquidation causes a decrease in nominal wealth, thus in earnings. Decreasing earnings have a double effect: they are responsible for lower tax revenue for the state and they cause layoffs. In turn, layoffs put more pressure on the state in two ways: first because unemployed people pay less taxes but need more state services and second because unemployed people consume less thus generating less revenue for the private sector and, yet again, less revenue for the state and more layoffs.

http://www.nytimes.com/2009/10/14/business/economy/14income.html?_r=2&hpw

In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression.

http://www.summitdaily.com/article/20091013/NEWS/910139995/1055/RSS01

Colorado voters approved an adjustable minimum wage in 2006. Supporters of that amendment said they did not intend for wages to fall, but the provision allowing it to fall was crucial to its passage. They have pointed out employers of the estimated 50,000 to 70,000 Coloradans making minimum wage are free to leave wages flat.

http://www.baltimoresun.com/news/maryland/baltimore-city/bal-md.ci.pension14oct14,0,7605979.story

An unusual pension benefit for police and firefighters could cost Baltimore $164.9 million next year, nearly double what the city is now paying and a figure that the city’s finance director says taxpayers cannot afford. […] Pension costs for the roughly 5,800 retired police and firefighters are soaring at a time of deep budget problems. The city recently forced employees to take five unpaid furlough days, laid off workers and halted capital projects to chop $60 million from its current budget. Declines in projected tax revenues and cuts from the state prompted cuts. Another round of budget reductions is expected early next year.

For all intents and purposes, most people alive today, particularly in the West, have lived in an inflationary environment that has caused a steady rise in the cost of living. Few can contemplate an environment of falling wages and reduction of public services let alone the discontinuation of some public services that we have come to take for granted.

When the streets of Western capitals will be teeming with unemployed, homeless and angry citizens, a world war will be the only way our politicians will be able to maintain a grip on power. It has happened before. There is absolutely no reason why it should not happen again this time around. Deflationary busts are stealthy, insidious even if all too predictable.

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