There is little doubt that higher taxes, fees, tickets, and penalties will be headed our way, as this is always govt’s “solution” for mismanaged budgets. Chicago’s “solution” for rampant debts (that have caused credit downgrades) is a steady increase in taxes, which have caused people and businesses to leave the city and state. Now they are proposing a 30% increase in property taxes, and “appreciation bonds” that pay no interest, a ploy that even Puerto Rico deemed too risky. Cities and counties across the nation will be targeting property taxes to fund the ever-increasing public sector and public pensions. As previously discussed, raising taxes on illiquid real estate during a cycle of higher interest rates that will last for decades will certainly reduce the demand for real estate. Since real estate is the biggest investment for Americans, Europeans, and Asians, the global deleveraging process is going to be very painful for homeowners, resulting in many walking away from their homes, just as they did in Rome.
London will impose a hefty tax on foreigners that have bought property in the city. Washington just raised the gas tax by 7 cents per gallon. France is paying informants to confiscate wealth, and the capital controls imposed on Greek citizens to prevent them from taking control of their own assets is grinding the economy to a halt. How brain-dead does a politician have to be to not realize that people and businesses can move, taking their purchasing power and jobs with them? I guess the answer is – as long as brain-dead voters keep believing that the solution is more govt, which always results in more fraud, abuse and mismanagement. Fortunately, there are limits to the madness, which the world will see as the sovereign defaults start in earnest after 9/30/15.
The Greek businesses discussed in the article above, that can’t pay for raw materials because they can’t get access to their funds, had many months if not years of warnings that capital controls were coming. Only economic ignorance kept these Greek businesses in their banking system. If one does not understand how an economy prospers to raise the living standards for all, then how can they understand the interconnectivity of a world economy and how govt’s desperate need for cash is shutting down global commerce? Maybe they could just ask themselves, once govt has it all, then who will make the goods and provide the services on which they depend?
As business activity declines and deflation sets it, how are govt’s going to continue to spend at an increasing rate? Of course, govt’s incompetence, hubris, and inability to reform will cause it to try to get blood from a stone; but these efforts, as witnessed in Greece and Puerto Rico, only make the problem worse. This is the peak in govt that will start to spread on 10/1/15.
Puerto Rico and Greece are going to be higher profile defaults that will hit the headlines before the end of the year, followed by Spain, Portugal, Italy, France, and then on to Japan and finally the US. The default issue, which is directly linked to the economic problems are all due to the same thing – excessive debt, or more precisely, excessive debt payments, caused by govt promising what is impossible to deliver and gullible citizens believing the BS because it benefits them. Did the mother’s of progressives ever teach their kids that there is no such thing as a free lunch? Will these believers in big govt continue to ignore the warning signs until the wrath of govt overspending finally decimates their lives?
I don’t know what causes people to ignore the reality of math. Is it procrastination or a left-brain / right-brain thing where some people simply don’t like doing math or examining consequences as long as the intentions are good? Businesses that can’t print debt to cover their ignorance, learn the consequences of irresponsible good intentions much quicker than govt. For example, Wal-mart employees learned that there are consequences for a $15 minimum wage, as thousands will be laid off to maintain their razor thin margins. Even the CEO of Gravity Payments, who guaranteed everyone a $70K salary, learned that good intentions often have predictable consequences.
Karl Denninger provides a short tutorial that succinctly explains, not only the math behind our coming debt bomb, but also the math behind our so-called “economic prosperity”. When rates decline, as they have been doing since the Jimmy Carter high, it enables debtors to refinance an increasing amount of debt for the same payment, which is exactly what our govt did. In our debt-based economy, more debt means more money chasing fewer goods, resulting in the 2% inflation target of the Fed. If the inflation also results in increased wages (and tax receipts), then the old debt can be paid down with inflated dollars. This method of trying to reduce the debt burden on the backs of savers and consumers was the Fed’s preferred method for reducing WWII debt. Most of the Fed Governors, and many others that benefit from debt creation, think this same recipe can be followed now, even though rates are almost zero and there is no ability to roll-over debt at lower rates.
What is about to become obvious is that rising rates will mean that the cost of rolling-over debt becomes increasingly greater, which forces govt’s (that refuse to reform) to increase the cost on its citizens until the economy deteriorates enough to produce civil unrest and wars. Govt’s understand their predicament, but instead of reforming, which would reduce their perks and power, they dig in their heels, forcing citizens to comply and punishing anyone that would speak out against their draconian policies – as they are doing in Spain right now.
Productive, tax paying citizens are fleeing Puerto Rico, just as they have in Greece, as bribed politicians enforce austerity to pay back the banksters and bond holders. Eventually, the reality of imprudent lending prevails in defaults once the tax base has either left or is crushed under the weight of economic and emotional depression. The IMF has conveniently recognized this reality in Greece, as it is refusing to participate in another bailout of Greece. I say “conveniently” because the IMF knows it is impossible for Greece to pay back any bailout loans, and it is looking further down the road to when it’s SDR-issued currency will be the world’s next reserve currency, cementing their jobs, perks, and power.
Govt largess is collapsing under the weight of debt and interest, and no amount money printing, austerity, intentional neglect, or ignorance is going to solve the problem. The sign posts of Detroit, Stockton, Greece, Puerto Rico, Chicago, etc., are all around us. As the sovereign defaults pick up steam in a couple of months, the challenge for the citizens of these countries will be to resist the promises (lies) of totalitarian regimes that point the finger at minorities and foreign boogeyman, that often leads to wars in order to distract the masses so blame can’t be focused on govt. Our shot across the bow could easily come on Oct 1st, when the fiscal year begins without raising the debt ceiling, which would result in a govt shutdown. Congresses solution – go on a month-long summer recess.
The blame is and always should be focused on govt. However, the voters that don’t hold politicians accountable, produce a govt so full of hubris and a sense of invisibility that they never reform. What ever happened to Colin Powell for lying to the UN, or all the others that fed us the lies about WMD’s and the false war in Iraq that destroyed thousands of young lives. Who does the Right parade out every time there is a faux crisis of our own making, like in Ukraine or Syria? It’s always the same war mongers that benefit from the military industrial complex, with the commanding presence of the Dick, Cheney, getting the majority of the air time, quickly followed by McCain and in-the-closet Lindsey.
What is happening to Hillary Clinton for lying about Benghazi and the gun running to the Syrian rebels that became ISIS or her personal server and destroyed emails? Not only is she not in jail, but she is the preferred presidential candidate of the Democratic establishment. Although, things may be worse for Hillary than they appear, as the establishment looks to be hedging its bet by forcing “Walter” Biden to run. Who knows, maybe Bernie or Joe might be made to explain the difference between a Democrat and a Socialist. The list is long of the overlooked abuses and neglect by those in govt, and all of that blame falls on the voters – just as it will the Greek voters if they don’t throw PM Tsipras out on his ear for ignoring the referendum vote of the people.
In the US, the people are told it is corporate cronyism that is destroying the country, when in reality it’s govt cronyism that is the problem. Not only do the govt regulators never investigate or prosecute their govt brethren, they make sure they don’t even have to sweep the abuses under the rug by making sure investigations never even get started. The most recent example is from our top law enforcement agency, you know, the one that won’t prosecute the gun running ATF or TBTF banksters. In this example, the DOJ is demanding the Inspector General (IG) obtain permission from the agencies it is supposed to police. Really? This nonsense is about as insane as the people that keep thinking govt is on their side. Let’s get one thing straight, govt is on govt’s side, but that will not stop the sheeple from voting for Hitlary, Biden, Bernie, or Bush.
Anyone that doesn’t have their head up their *ss understands that the political cartel is the problem. So, why do so many of these people still look to the establishment for solutions? At least Trump supporters know that solutions are not to be found with career politicians that would sell their souls to keep from having to compete in the real world.
The establishment on the right is just as putrid, as they sell the war on terror to sell the abuses of the unPatriot Act, and especially the liberty and economy destroying NSA. The sick irony is that the so-called protectors of free-market capitalism are directly destroying the free-flow of capital by not reigning in the NSA’s hunt and confiscation of capital. If you don’t understand the NSA is all about finding money for a broke govt under the cloak of fighting terrorism, then you have allowed yourself to be hoodwinked. There is a reason liquidity is at 1950’s level. The economic espionage of the NSA and capital killing actions of Congressional acts like FATCA are shutting down the world economy.
Govt malfeasance is everywhere and because of the interconnected economy, it affects us all. For example, the committed budgets of major oil producers like Saudi Arabia are suffering in a major way as oil prices decline, which forces them to pump more to maintain the same revenue requirement. This deflationary death spiral is reaking havoc on the citizens of these countries, as their govt’s go after them instead of reforming.
In Europe, The German-lead EU is committed to austerity, and the fact that Herr Merkel wants to run again in 2017 means they will ride this economic-killing horse all the way to the glue factory. German policy has been dictated by the hyperinflation fears that produced Hitler, and US inflation policy has been mistakenly driven by the Great Depression. Both are driven by economic and historical ignorance that are destined to destroy their societies once again. It doesn’t matter if it’s Germany, Saudi Arabia, the city of Chicago, or the USA; govt’s will do what is best for govt at the expense of their citizens. What govt official or presidential candidate is in favor of reducing the size of govt?