The banking broohaha

 

Let me explain this banking confusion if I may. Imagine you have only a stash of long-term bonds to live on.  But then you have creditors knocking at your door demanding to be paid for this or that.  Since you bought the bonds, the government has raised the interest rate rapidly and now your bonds discount, that is they are worth far less, because market expects more interest.  You will have to sell your bonds at a loss in order to pay all the people making a run on your funds.  That’s the dilemma that banks like SVB and Signature and New Republic are having as people make a run on their bank.  And because they have to sell everything at a loss, they are essentially bankrupt.  But another larger bank says, “No, we have money to pay the run.  We could take you over with a merger.  Thus we don’t have to sell your bonds—just keep them until they have matured and return their original principle.  The troubled bank has value.”  But federal government refused to allow these offers of merger.  They want to bail out bonds of the troubled bank, thus becoming the Hero.  Political stunt  But then, gov’t has to treat everybody alike and bail out every bank. This will add trillions to the national debt and spur more inflation.  And bail outs green-light banks to make even riskier investments.  Buy Junk Bonds! And it ‘nationalizes’ banking where everyone is dependent on the government.  Clearly, bail outs should be the last resort when all else has crashed.

            Obama did a similar thing in 2010. His first act was to bail out auto companies with gov’t loans. Chrysler and GM took them. Then 2 months later, the sly Prez called the loans which of course the auto guys couldn’t pay, so he forced them into gov’t-in-charge bankruptcy, nationalized under a car czar.  This was exactly Mussolini in 1922! Apparently the Car Czar discovered gov’t couldn’t run an auto plant, however, so they gifted a majority ownership to the UAW and sold Chrysler to Fiat, the nationalized auto company of Italy.

A HIDDEN STORY OF HOW YOUR TAXES WILL CHANGE NEXT YEAR.

 

IRS will require 1099K’s be issued for all purchases over $600 next year.  This has been the formal requirement by the feds ever since Obamacare, but if one’s accounting is faithful, it makes no difference in federal revenue, thus has rarely been don by businesses for small purchases.  It applies only to business transactions. But with the 87,000 new agents, IRS now wants to require it for all transactions over $600.  This will generate a mountain of paper with almost every transaction of certain businesses required to provide a 1099. The reason this came about with Obamacare was that it was perceived as a way to pay for it. But then IRS quickly yelled uncle because of the tons of paper that would be coming their way. 

            Whywas this part of Obamacare? Democrats believe that most small businessmen, tradesmen and farmers are crooks hiding income. After all, they vote 90% Republican. A small subset of them actually are petty tax cheats. By requiring 1099s Dems hope to find  more money.  But think about this.  If a return and accounting are honest, the 1099 (a note to the govt that you’ve paid someone some money) is unneeded.  It generates zero federal revenue. 

            So in 2023 if you go to Walmart and buy a TV for $601, will you have to remit a 1099 to Walmart? Yes, if any portion of its use is for business. A car repair? Yes, if the car is used for any deduction or business. (Keep your fuel receipts handy too.) What if you mow your neighbor’s lawn while he’s gone and he mows yours in return?  Technically, you are both engaged in a service business and must record fair market value for the services.  But of course, it will be hard to catch people doing such things. And what if a business buys something for nominally $601 and agress to 2 payments of $302? Then there is no 1099.  Do you see how this gets complicated? Is a staggering burden for small biz?

            The fed govt dreams of block chains.  That is, a crytodollar being used.  There will be no cash allowed.  Instead of transactions being secret, by lack of ID like they are in current crypto currencies, everyone’s business will be viewable by govt.  But we aren’t there yet.

            Think of the consequences of 2023.  A voter rebellion may be in store. Or bartering may occur.  Currently, stuff gets bartered—say, a dozen eggs for a haircut—by some very small players, often on welfare or with no visible means of support.  The origin of currencies came when a guy went to town with his load of firewood to barter for something else like flour.  It’s very cumbersome to haul your load of wood around town.  So a guy with a warehouse says, “Park it in my warehouse and I’ll give you a note to say you own so much wood.”  You could then go to the miller and agree on a rick of wood for a bushel of flour.  You give a claim note on your load, and he gives you one on his load of flour in the warehouse. And you both go to claim your stuff.  But maybe he needed milk more than firewood and traded the firewood note to a dairyman.  Eventually people got to the point where they were trading their notes.  And who verified the purchases? The guys sitting in the town square on benches “banks”.  They were often Jews making coins out of gold.  So notes and coins became a currency.  And states or businesses also made their own currencies from ancient times.  Multiple odd currencies were found all the way up into the 1950s. What would happen if the mafia wanted secret transactions after crypto dollars were put in place?  They’d devise their own secret notes/currency.  And maybe others would like handling this new “cash” so they would also trade mafiabucks.  In fact, this might happen even without crypto dollars, simply because govt has made the system too burdensome or too surveilled. 

            2023 is going to be an interesting year. 

Explaining LIz Truss

 

NOBODY, BUT NOBODY SEEMS ABLE TO EXPLAIN THE LIZ TRUSS AFFAIR. It’s easy.  Britain has inflation almost as high as ours.  Their central bank, Bank Of England, like our Fed dithered when it started.  And the British govt spent a lot on aid due to lockdowns which set off the inflation.  The Conservative party tossed their leader, Johnson, over scandals.  They elected (only party officials vote) Liz Truss.  She was insistent on a Reaganesque revival—low taxes, lower regulations.  But that is only half the equation when you have too much money and too few goods.  Less taxes/regs help the economic gains which will provide more revenue dollars eventually, but the Brits want no part of reducing too much money.  They like their welfare state and don’t want cuts in govt spending. And BOE waffled to take the hard steps in tightening the money supply.  So the pound is cheap, has gone lower, from $1.20 per pound to about $1.15.  The announcement of lower taxes without anything else, caused the pound to plummet on markets to about $1.06.  That means the banks would get loans paid back in cheap real costs, and lose money.  And international banking is a huge industry in London where the Conservative party has it’s greatest strength.  The howls were immediate from the elites of the party and they ran her out of the prime minister job.  She tried to stem the problem by announcing that only the lower taxes to the poorer classes would be in her program, cancelling the upper bracket cuts.  She fired her finance minister.  But in the end, she was drummed out of office and she resigned today.

            If our media people understood the fundamentals of how inflation must be fought, they would have been able to tell this simple story.  Instead they carry all the tit-for-tat and commentary from Britain and Brit migrants on our tube.  

            Reagan had a similar trouble selling his low taxes.  Everybody said it would result in more deficits. But he included de-regulation, and the fed had raised interest sky-high, to 18%.  In the end, RR’s borrowed idea from Laffer of getting more revenue from lower tax rates (because people were hiding their income from taxes) actually worked and worked in spades to the chagrin of Democrats and astonishment of establishment R’s who had called it Voodoo economics. The name Reaganomics was meant as a slur by the media and Dems.  Instead it became a rallying cry for R’s even down to this day.