Daily Digest

Daily Digest 7/24 - Widespread Drought Is Likely to Worsen, Why You Pay Too Much In Taxes

Tuesday, July 24, 2012, 5:19 PM


Why You Pay Too Much In Taxes (Thomas C.)

Pulitzer prize winning reporter David Cay Johnston reports that - in 16 states - giant companies pocket your "state income taxes".

This includes foreign corporations.

Workers are never informed that their "state income taxes" are being pocketed. And states often refuse to make this information public, claiming that it is "proprietary information".

Spanish Bond Yields Soar (dons)

In bond trading Monday, the yield, or interest rate, on 10-year Spanish government debt reached a peak of 7.51 percent, its highest level since the euro currency was established in 1999. The rate, a basic measure of the government’s borrowing cost, ended the day at 7.43, still well above the 7 percent level that many analysts fear could eventually shut Spain out of public markets and force it to seek a bailout.

Federal Government's Debt Jumps More Than $1T for 5th Straight Fiscal Year (Dana T.)

Prior to fiscal 2008, the federal government had never increased its debt by as much as $1 trillion in a single fiscal year. From fiscal 2008 onward, however, the federal government has increased its debt by at least $1 trillion each and every fiscal year.

Romney to Fundraise with London Bankers Implicated in LIBOR Scandal (Dana T.)

Wall Street and the financial sector have already contributed $37.1 million to Romney's campaign coffers (versus President Obama's $4.8 million), according to the latest June Federal Election Committee (FEC) filings.

Message to Europe: It's Time For Your Bank Holiday (Thomas C.)

Anecdotal reports suggest that the various attempts to shore up banks’ condition with phony financials and vast theft of public money are coming to an end. Despite these stopgaps, banks are still struggling, in many cases taking steps to delay or prevent withdrawal of funds. This amounts to a sort of soft default, which may progress soon to a hard default.

If the Gold Standard Scares You, How About a Parallel Currency Option? (Thomas C.)

Most countries in the world have some sort of currency link, formal or informal, with major international currencies, to maintain stable trade conditions. This link might be a fixed system, like Hong Kong’s currency board, or it might be a more casual arrangement, such as Russia’s unofficial policy of maintaining the ruble in a stable band compared to the dollar or euro.


CNOOC to buy Nexen for $15.1 billion in China's largest foreign deal (ScubaRoo)

CNOOC is offering $27.50 cash a share for Nexen, which has oil sands operations in the Canadian province of Alberta, shale gas in the province of British Columbia and extensive exploration and production holdings in the North Sea, Gulf of Mexico and offshore West Africa.


Widespread Drought Is Likely to Worsen (dons)

The government has declared one-third of the nation’s counties — 1,297 of them across 29 states — federal disaster areas as a result of the drought, which will allow farmers to apply for low-interest loans to get them through the disappointing growing season.

Global Warming's Terrifying New Math (Ali S.)

This idea of a global "carbon budget" emerged about a decade ago, as scientists began to calculate how much oil, coal and gas could still safely be burned. Since we've increased the Earth's temperature by 0.8 degrees so far, we're currently less than halfway to the target. But, in fact, computer models calculate that even if we stopped increasing CO2 now, the temperature would likely still rise another 0.8 degrees, as previously released carbon continues to overheat the atmosphere. That means we're already three-quarters of the way to the two-degree target.

Security hawks should be freaked about population growth (Thomas C.)

Lots of idle young guys add up to lots of trouble. And with the Taliban and many other men opposing education for girls and basic rights for women, the prospects for female empowerment and widespread family-planning programs in Afghanistan are looking grim. After all, women’s rights are key to slowing population growth.


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David Stockman on ""the monetary Politburo of the Western world"

ZH has an intriguing interview of David Stockman by Alex Daley of Casey Research, "The New Economic Collapse Video: It makes uncomfortable but urgent viewing", http://www.zerohedge.com/news/david-stockman-capital-markets-are-simply-branch-casino-central-bank :

This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract... The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

And cutting right to the chase:

The Fed has taken its balance sheet to $3 trillion. That's enough for the next 50 years. They don't have to do a damn thing except maybe have a discount window that floats above the market, and if things get tight, let the interest rate go up. People who have been speculating will be carried out on a stretcher. That's how they used to do it. It worked prior to 1914. That's the first step: abolish the Open Market Committee. Abolish discretionary monetary policy.

Let the Fed, if you're going to keep it – I don't even know that you need to do that, but if you are going to keep it – be only a standby source. As Badgett said (Walter Badgett, the great 19th-century British financial thinker): provide liquidity at a penalty rate to sound collateral.

Now, that's what J.P. Morgan did in 1907, in the great crisis of 1907, from his library. He didn't have a printing press. He didn't bail out everybody. He didn't do what Bernanke did and say: "Stop the presses, freeze everybody, and prop up Morgan Stanley and Goldman Sachs and all the rest of the speculators." The interest rate, the call-money interest rate, which was the open-market interest rate at the time, some days went to 30, 40, 70% – and they were carrying out the speculators left and right, liquidating margin debt, taking out the real estate speculators. Eight or ten railroads went bankrupt within a couple of months. The copper magnates got carried out on their shields.

This is the only way a capital market can work, but it needs an honest interest rate. And we have no interest rate, so therefore we solve nothing and we have the kind of impaired, incapacitated markets that we have today. They're very dangerous, because they're all dependent on twelve people. It is what I call "the monetary Politburo of the Western world," and they are just as dangerous as the Politburo in Beijing or the Politburo of memory in Moscow. [bold mine]


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