Tax Day: Why "Brutus" Thought Taxes Were Brutal

Professor Gary Galles at the Mises Institutes wrote: 

The approach of each year’s April 15 tax deadline reminds us that even if one stretches credulity to believe “taxes are the price we pay for a civilized society,” that doesn’t prove the civilization we get is worth the taxes we are forced to pay. But this issue is far from new. More than two centuries ago, the Antifederalists warned us that the price we would have to pay for government would rise. So as we struggle with our IRS forms, and particularly as we write that check to the Treasury (or file for an extension to delay it), what they said merits recalling.

Antifederalists were particularly concerned that the Constitution gave the national government almost unlimited taxing discretion.

One of the leading Antifederalists was Robert Yates, writing as Brutus. He described federal taxing power as one

that has such latitude, which reaches every person in the community in every conceivable circumstance, and lays hold of every species of property they possess, and which has no bounds set to it, but the discretion of those who exercise it.

In addition,

it will lead to the passing a vast number of laws, which may affect the personal rights of the citizens of the states, expose their property to fines and confiscation. ... It opens the door to the appointment of a swarm of revenue and excise officers to prey upon the honest and industrious part of the community [and] eat up their substance.

Brutus wrote that federal taxation “will introduce such an infinite number of laws and ordinances, fines and penalties, courts and judges, collectors, and excise men, that when a man can number them, he may enumerate the stars of Heaven.” That sounds a lot like what millions of Americans now struggle with each April.

Brutus also predicted how invasive tax collection could become:

This power, exercised without limitation, will introduce itself into every corner of the city, and country — it will wait upon the ladies at their toilet, and will not leave them in any of their domestic concerns; it will accompany them to the ball, the play, and assembly; it will go with them when they visit, and will, on all occasions, sit beside them in their carriages, nor will it desert them even at church; it will enter the house of every gentleman, watch over his cellar, wait upon his cook in the kitchen, follow the servants into parlor, preside over the table, and note down all he eats or drinks; it will accompany him to his bedchamber, and watch him while he sleeps; it will take cognizance of the professional man in his office, or study; it will watch the merchant in the counting-house, or in his store; it will follow the mechanic to his shop, and in his work, and will haunt him in his family, and in his bed; it will be a constant companion of the industrious farmer in all his labor, it will be with him in the house, and in the field, observe the toil of his hands, and the sweat of his brow; it will penetrate into the most obscure cottage; and finally, it will light upon the head of every person in the United States. To all these different classes of people, and in all these circumstances, in which it will attend them, the language in which it will address them will be GIVE! GIVE!

Brutus described the consequences of expansive federal taxing powers. But he was writing only of direct (e.g., excise) taxes and the small federal government they could finance, long before the 16th Amendment made possible a federal income tax in 1913. In its aftermath, Brutus would conclude that he was far, far too optimistic. He would see why Albert Jay Nock described the income tax as a new American revolution, allowing a Brobdingnagian federal government and burdens beyond even his worst nightmare.

Chart of the Day: Americans will Spend More on Taxes in 2016 than on Food, Clothing and Housing Combined!

From Tax Foundation's "Tax Freedom Day 2016 is April 24"

Five Signs that Shows of the US Government's Rapidly Eroding Political Capital Base

The US government’s grip on domestic and international politics seem to be slipping fast.

First, the US financial imperialist plan to isolate and drop Russia from the global financial system has backfired.

From Sovereign Man’s Simon Black: (bold mine)

If Vladimir Putin is remotely capable of laughter (the jury is out on that one…) then he’s probably doing so right now.

Russia is once again Arch-Enemy of the United States. It’s like living through a really bad James Bond movie, complete with cartoonish villains.

And for the last several months, the US government has been doing everything it can to torpedo the Russian economy, as well as Vladimir Putin’s standing within his own country.

The economic nuclear option is to kick Russia out of the international banking system. And the US government has been vociferously pushing for this.

Specifically, the US government wants to kick Russia out of SWIFT, short for the Society of Worldwide Interbank Financial Telecommunications.

That’s a mouthful. But SWIFT is an important component in the global banking system because it lays the foundation for banks to communicate and transfer funds with one another.

It’s a network protocol of sorts. Whenever a bank in Pakistan does business with a bank in Portugal, the funds will clear through the SWIFT network.

According to the SWIFT itself, they link over 9,000 financial institutions worldwide in over 200 countries, which transact 15 million times per day.

Bottom line, being part of SWIFT is critical to conducting business with the rest of the world. And if Russia gets kicked out of SWIFT, it would be a disaster.

Now, SWIFT is technically organized as a ‘Cooperative Society’ and governed by a board of directors.

There are 25 available board seats, and each seat is allocated for a three-year term to a specific country.

The United States, Belgium, France, Germany, UK, and Switzerland each hold two seats. A handful of other countries hold just one seat. And of course, most countries don’t hold any seats at all.

Here’s what’s utterly hilarious—

On Monday afternoon, not only did SWIFT NOT kick Russia out… but they announced that they were actually giving a BOARD SEAT to Russia.

This is basically the exact opposite of what the US government was pushing for.

Awkward…

But this story is even bigger than that.

Because at the same time that the US government isn’t getting its way with SWIFT, the Chinese are busy putting together their own version of it called CIPS.

CIPS stands for the China International Payment System; it’s intended to be a direct competitor to SWIFT, and a brand new way for global banks to communicate and transact with one another in a way that does NOT depend on the United States.

We’ll talk about CIPS in more details in a future letter. But in brief, it addresses some serious weaknesses, inefficiencies, and technological challenges of SWIFT.

And it should be ready to go later this year.

Make no mistake, this is the beginning of the end of the US dollar’s global hegemony. It’s time to stop hoping that it won’t happen and time to start preparing for it.

Second, against US wishes, UK decides to join China’s Asian Infrastructure Investment Bank

From the Financial Times (bold mine) 

The Obama administration accused the UK of a “constant accommodation” of China after Britain decided to join a new China-led financial institution that could rival the World Bank.

The rare rebuke of one of the US’s closest allies came as Britain prepared to announce that it will become a founding member of the $50bn Asian Infrastructure Investment Bank, making it the first country in the G7 group of leading economies to join an institution launched by China last October.

Thursday’s reprimand was a rare breach in the “special relationship” that has been a backbone of western policy for decades. It also underlined US concerns over China’s efforts to establish a new generation of international development banks that could challenge Washington-based global institutions. The US has been lobbying other allies not to join the AIIB.

Relations between Washington and David Cameron’s government have become strained, with senior US officials criticising Britain over falling defence spending, which could soon go below the Nato target of 2 per cent of gross domestic product.

Third, the first open spat over Ukraine between the US-NATO and Germany

From Sputnik International (bold mine) 

German Foreign Minister Frank-Walter Steinmeier has told his US counterpart John Kerry that it is too early to take any pride in the western strategy towards the Ukraine crisis, just days after accusing the US of "dangerous propaganda" over Ukraine.

Steinmeier, speaking on a visit to the US, said to Kerry at a joint press conference in Washington: "It is far too early to pat our shoulders and take pride in what we've achieved."

His comments come days after an official in German Chancellor Angela Merkel's offices had complained of US Air Force General Philip Breedlove's "dangerous propaganda" over Ukraine, and that Steinmeier had talked to the NATO Secretary General Jens Stoltenberg about him.

Fourth, the average Americans see the US government as the most important problem.

From Gallup.com

Americans continue to name the government (18%) as the most important U.S. problem, a distinction it has had for the past four months. Americans' mentions of the economy as the top problem (11%) dropped this month, leaving it tied with jobs (10%) for second place

Though issues such as terrorism, healthcare, race relations and immigration have emerged among the top problems in recent polls, government, the economy and unemployment have been the dominant problems listed by Americans for more than a year.

The latest results are from a March 5-8 Gallup poll of 1,025 American adults.

Finally, actions speak louder than words (demonstrated preference), record Americans have been ditching US passports.

From CNBC.com (bold mine)

According to the latest data from the Treasury Department, spotted by Andrew Mitchel at the International Tax Blog, a record 3,415 Americans renounced their citizenship in 2014. That was up from the 2,999 in 2013 and more than triple the number for 2012.

You can read the list of individuals who renounced here.

While some may see taxes as the main reason to flee, that's only part of the story. The big policy change that's causing people to give up their American citizenship is FATCA, the Foreign Account Tax Compliance Act.

It may sound wonky. But the act requires foreign banks to reveal any Americans with accounts over $50,000. Banks that don't comply could be frozen out of U.S. markets. And Americans overseas—even those who never lived in the U.S. or have a tangential connection here—are now under far more pressure to file detailed tax returns and pay U.S. taxes on their overseas income.

The program was designed to catch more wealthy overseas tax cheats. But one of its unintended consequences is that those Americans are simply giving up on being Americans.

And as part of this exodus, Americans in Asia have also been dumping their citizenship, from Asian Investor.net

A fast-rising number of Americans based in the region are disposing of their US citizenship, citing increasing difficulty of managing their financial affairs due to growing regulatory demands.

I have posted about FACTA here. 

So underneath those record stocks have been a progressing US political entropy. Yet what happens if the US suffers a recession or another financial crisis?

Americans are Ditching Citizenship in Record Numbers, Part 3

The more desperate a government is as to apply more punitive Financial Repression measures via higher taxes, more regulations and mandates, inflation and etc…, the more we should expect the productive segment of the society to flee. I previously noted how Americans have been ditching their citizenship in record numbers here and here

Here is an update from the Wall Street Journal (hat tip Zero hedge)

Last year saw a record for expatriations by U.S. taxpayers, exceeding by two-thirds the previous high set in 2011.

According to the Treasury Department, 630 individuals renounced their U.S. citizenship or ended their long-term U.S. residency by turning in their green cards during the fourth quarter.

The fourth-quarter figure brought to 2,999 the total number of expatriations for 2013. The previous record was 1,781 in 2011, said Andrew Mitchel, a tax lawyer in Centerbrook, Conn., who tracks the data.

The Treasury is required by law to publish a list of the names of expatriates quarterly. The list doesn't indicate when people expatriated or why. It also doesn't distinguish between people giving up passports and those turning in green cards.

Mr. Mitchel attributed the surge to increased awareness of the obligation to file U.S. tax returns, the increasing burden of compliance and the fear of large penalties for failure to file U.S. returns.

"Above all, fear seems to be driving this increase in expatriations," Mr. Mitchell said.

And if the productive segment of society leaves, who is going to do the investing? And if the number host declines, where will political parasites get their sustenance?

Regime Uncertainty: Why a French Economic Recovery is a Mirage

I recently pointed how France serves a critical example of the many parallel universes—or detachment between asset prices and economic reality—operating today, as consequence from the politicization of the markets.

Yet the mainstream rationalizes (or misrepresents) such dynamics as ‘economic growth recovery’.

While government statistics may show ‘growth’, real world developments in France suggests otherwise.

From this excellent article by Telegraph’s Anne Elizabeth Moutet (hat tip LewRockwell.com) [bold mine]

A poll on the front page of last Tuesday’s Le Monde, that bible of the French Left-leaning Establishment (think a simultaneously boring and hectoring Guardian), translated into stark figures the winter of François Hollande’s discontent.

More than 70 per cent of the French feel taxes are “excessive”, and 80 per cent believe the president’s economic policy is “misguided” and “inefficient”. This goes far beyond the tax exiles such as Gérard Depardieu, members of the Peugeot family or Chanel’s owners. Worse, after decades of living in one of the most redistributive systems in western Europe, 54 per cent of the French believe that taxes – of which there have been 84 new ones in the past two years, rising from 42 per cent of GDP in 2009 to 46.3 per cent this year – now widen social inequalities instead of reducing them.

Three  observations here:  

One, taxes have begun to affect the public’s confidence level and opinion of policies. 

Second, taxes induce social inequalities rather than reducing them, which goes contrary to the outcome conceived by populist politics of 'social justice' redistribution. 

And third, the increasingly repressive  tax regime has forced many capitalist out of France or has turned them into ‘tax exiles’.

Why French politicians resort to increasingly repressive taxes? The article continues

By 2014, France’s public expenditure will overtake Denmark’s to become the world’s highest: 57 per cent of GDP. In effect, just to keep in the same place, like a hamster on a wheel, and ensure that the European Central Bank in Frankfurt isn’t too unhappy with us, Hollande now needs cash. Technocrats, MPs and ministers have been instructed to find every euro they can rake in – in deferred benefits, cancelled tax credits, extra levies. As they ignore the notion of making some serious cuts (mooted at regular intervals by the IMF, the OECD and even France’s own Cour des Comptes), the result can be messy.

The answer is that the French government has been growing immensely far faster than the real economy. 

And instead of promoting productive enterprises, the government has resorted to bigger confiscation of the resources from the private sector.

So the political class (parasites) benefits at the expense of their shrinking (private sector) hosts who are now pushing back.

And taxes influence people’s incentives and the corollary, people’s action. The article again gives a lucid example

Take last year’s famous 75 per cent supertax, on individuals earning over one million euros a month. This has still not been implemented. First, it got struck down by France’s Constitutional Council on a technicality. Leaks suggested the rate would fall to 66 per cent. They were confirmed, then denied. Hollande eventually vowed that the tax would be paid by the targeted individuals’ employers, for daring to offer such “obscenely” high salaries. This has just been approved by the National Assembly, and must still pass the Senate. So far, it is only supposed to apply to 2013 and 2014 income, but no one knows if the bill will be prolonged, killed or transformed.

What we do know is that this non-existent (so far) tax has been the clincher that sent hundreds, possibly thousands of French citizens abroad: not just “the rich”, whom Hollande, during his victorious campaign, said he personally “disliked”, and who now are pushing up house prices in South Kensington and fighting bitterly over the Lycée Charles de Gaulle’s 1,200 new places; but also the ambitious young, who feel that their own country will turn on them the minute they achieve any measure of personal success…

“It’s not only that people don’t like to be treated like criminals just because they’re successful,” says a French banker friend who has recently moved to London. “But this uncertainty in every aspect of the tax system means it is impossible to do business: you don’t know what your future costs are, or your customer’s. You can’t buy, you can’t sell, you can’t hire, you can’t fire.”

This is a wonderful example of what Austrian economist Robert Higgs calls as the regime uncertainty or [bold mine]

a form of uncertainty related to the public’s—especially the private investors’—confidence in the future security of private property rights, which can be impaired by future regulatory changes (e.g., Dodd-Frank and Obamacare regulations), court decisions, administrative twists and turns, tax increases in various forms (e.g., Obamacare penalties enforced through the income-tax system), monetary-policy changes that threaten the dollar’s purchasing power and distort the allocation of credit, and personnel changes in the government’s corps of executives, judges, and assorted capos.

The likely effects of 84 new taxes and more coming plus a battery of regulations are...

First, these promotes insecurity of the French property rights regime “don’t like treated like criminals”, 

Second, such obscures economic calculation “you don’t know what your future costs are, or your customer’s” and 

Finally the same policies obstructs or impedes on the economic coordination process “You can’t buy, you can’t sell, you can’t hire, you can’t fire”

With an environment like this, real economic activities will shrivel as political consumption lords over private sector production. 

Diminishing real output means lesser taxes, bigger deficits (as above) and increasing reliance on more debt to fund current political spending programs

French government debt has now reached 93.5% of the statistical gdp according to countryeconomy.com. I suspect that this could be larger as statistical economy tends to inflate output.

So again while French politicians and their cronies benefits, the rest of the nation suffers—thus the wider incidence of inequality (as consequence of political inequality)

There will be a point where creditors will come to question on the quality of French debts, which I believe should be sooner than later. 

So no matter the recent 'sanguine' reaction by the French stock-bond market or how government statistics say “growth”, unless the French government realizes that economic growth emanates from productive enterprises, and not from confiscation, the French economy will remain in stagnation if not in depression.

Even ECB president Mario Draghi recently admitted of the limitations of central bank interventions. As quoted by Reuters:(bold mine)

The ECB has done as much as it can to stabilise markets and support the economy. Now governments and parliaments need to do all they can to raise growth potential.

Monetary policy cannot create real economic growth. If growth is stalling because the economy is not producing enough or because firms have lost competitiveness, this is beyond the power of the central bank to fix.

Well said.

Americans Are Ditching Citizenship in Record Numbers, Part 2

As I noted last May, the rate of wealthy Americans renouncing on their citizenship due to deepening political repression and the prospect of higher taxes, has been accelerating. Facebook co-founder Eduardo Saverin and celebrity Tina Turner embodies this hastening trend. 

Amazingly, despite the stiff or the punitive exit tax or expatriation tax, the rate exodus has nearly doubled from 670 from the first quarter to last quarter's 1,131.

Sovereign Man’s Simon Black explains:

A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though I was able to procure an advanced copy).

This is a HUGE jump.

Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over SIX TIMES higher.

Not to mention, it’s 66.5% higher than last quarter’s 679 renunciations.

This brings the total number of renunciations so far this year to 1,810.

While still embryonic, it’s difficult to ignore this trend– more and more people are starting to renounce their US citizenship.

After all, the number of people who renounced citizenship this past quarter is roughly the same as the number of people who renounced for the previous four quarters COMBINED.

"Nationalism" losing its luster… Again from Mr. Black

This movement shouldn’t be that surprising for a species that began as nomadic hunter gatherers, or for a society that was founded by foreigner settlers in search of a better life.

Yet, in a rather anomalous twist, the emotional ties we have for our passports are incredibly strong.

It doesn’t matter where you’re from– the United States, Sweden, New Zealand, or Venezuela… many people all over the world are inculcated from birth with a sense that their country is ‘better’ than all the others.

We grow up with the songs, the flag waving, and the parades until the concept of motherland becomes deeply rooted in our emotional cores.

Not to mention, when so many of our friends and neighbors unquestionably fall in line, it’s a powerful social reinforcement that only strengthens the bond.

We come to view our nationalities rather ironically as a big piece of our core individuality. I am an American. I am a Canadian. I am an Austrian. Instead of– I am a human being.

It has taken decades… centuries even… to reach this point. So the fact that more and more people are making the gut-wrenching decision to ditch their US passports is truly a powerful trend.

Indeed, we are all human beings regardless of the supposed social divisions caused by race or geographic boundaries.

And if we are to talk about “race”, as I earlier pointed out, we are all “Africans” by genetic origins (mtDNA and paternal Y-chromosome). 

To quote National Geographic’s lead scientist Spencer Wells on the National Geographic-IBM’s Genographic Project

You and I, in fact everyone all over the world, we’re literally African under the skin; brothers and sisters separated by a mere two thousand generations. Old-fashioned concepts of race are not only socially divisive, but scientifically wrong.

(italics mine)

The mental concept of nationalism signifies a legacy of the tribal hunter-gatherer age. Then, the dearth of division of labor and trade made man’s survival entirely dependent on the limited scope of land which sustained them, thus, social bonds among tribes and neighbors were forged to resist against intrusions by marauders. Tribalism set stage for the 'nationalist' order.

Yet as trade or voluntary exchange or markets expanded, the importance of territorial boundaries has vastly been diminished. In essence, trade knows of no boundaries. It is the politicians who create such borders and barriers to trade.

And in the understanding of the potential loss of usufruct and privileges from wangling resources from the citizenry, the political class resists such dynamic by selling "nationalism" as a way to maintain the status quo by curbing people’s ability to freely transact with each other.

Modern day nationalism represents no more than the populist justifications that bequeaths to the political class the power to tax and the power to extend political control over their respective constituents in the name of “feel good” pseudo- social belongingness.

And why are Americans are exiting? Back to Mr. Black:

So what’s driving it? Taxes… and the search for liberty.

For many, their tax bills constitute a financial breaking point. Particularly for people who spend most of their time outside of the United States and are constantly hamstrung by worldwide taxation and information disclosures, the burden for many of them has just become too much to bear.

The US government figured this out some years ago and began charging an exit tax to certain high income / high net worth expatriates seeking to renounce.

This applies to anyone whose average US tax liability over the last five years was about $150,000 (the equivalent of roughly $500,000 in taxable income in 2012 dollars), and/or has a net worth of at least $2 million on the date of expatriation. Curiously this net worth figure does not adjust with inflation.

The ironic thing is that in the “Act of July 27, 1868″, the United States Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.”

Yet I would expect that as the number of expatriates continue to grow, this exit tax will become more and more onerous as the government tries to trap people, and their wealth, in the country.

I would like to add that aside from taxation and political repression, financial intrusion has been compounding to the incentives of Americans to exit.

The US is the only country who taxes her citizens on a worldwide basis. This means offshore Americans are taxed twice—one in the country where they operate, and second by the US government.

Yet the US government will expand the dragnet of taxation and of the intrusion of financial privacy via the Foreign Account Tax Compliance Act (FACTA).

FACTA will force Americans to disclose to the US government all foreign held financial accounts and will force domestic banks operating under the FACTA framework to share information with the US Internal Revenue Services (IRS)

So FACTA essentially will undermine the supposed 'sovereignty' of other governments as US policies now dictate (by virtue of what seems as a foreign policy erected on the premise of 'might is right') on domestic politics.

The jurisdictions covered by FACTA has now expanded to include about 83 countries, which includes, Germany, Israel, Singapore, Malaysia, Taiwan, Thailand and the Philippines.

So far only the Swiss government appear to be resisting the US overlord's FACTA framework and where Swiss banks have reportedly been shunning accounts of American citizens.

So deepening political interventions, the prospects of bigger taxes and loss of financial privacy, as well as, economic uncertainty via monetary policies, appear to motivate wealthy Americans to opt out. 

And as the taxpayer base of the US erode, the fragile fiscal balance of the US will increasingly operate under duress from the growing mismatch between revenues and expenditures. A looming debt based welfare crisis will further this trend.

Despite heavy exit taxes, the growing 'opt out' option is increasingly a disturbing sign, not only for the US political economy which should have a leash effect on the world, but importantly for the US dollar standard.

Cartoon of the Day: State of California Celebrates Phil Mickelson’s British Open Victory

From rn-t.com:

Of the approximately $2.16 million winnings over the last two weeks from his victories at the British Open Championship and the Scottish Open, Mr. Phil Mickelson, winner of 42 events in the PGA Tour including 5 major championships, will get to keep approximately only $842,000 or 39% of the total earnings as the United Kingdom, Scotland and California take the (61%) rest of his earnings, according to Breitbart.com.  

Updated to add: Here is Thomas DiLorenzo via Lew Rockwell Blog on zero income tax Florida resident native Californian Tiger Woods compared to Phil Mickelson the latter incidentally has put his $7 million California abode on the market

US Part Time Jobs: Obamacare and Regime Uncertainty

Dr. Ben Bernanke and his team at the US Federal Reserve appears to be in a quandary over the surge of part time jobs.

From the Bloomberg:

The number of workers holding full-time positions fell in the U.S. in June as part-timers hit a record after rising for three straight months, according to the Bureau of Labor Statistics household data. Part-time employment has been outpacing full-time job growth since 2008. Economists cite still-tough economic conditions as the root cause, with some saying President Barack Obama’s 2010 health-care law exacerbates the trend.

U.S. Federal Reserve Chairman Ben Bernanke told a House committee July 17 that policy makers consider underemployment, which includes part-time workers who want full-time jobs, one of the gauges of labor-market strength…

The number of part-time employees in June rose by 360,000, the Bureau of Labor Statistics reported, based on its survey of households. Full-time workers fell by 240,000, erasing much of the gains from April and May. The share of Americans who work part-time for economic reasons, meaning they can’t find full-time jobs or because their hours have been cut, is 78 percent higher than in December 2007, when the 18-month recession began.

So what the mainstream sees as “strong” economic growth has been founded by part time jobs.

The charts above from Zero Hedge shows of how part time jobs came at the expense of full time jobs last June.

Importantly, much of the new jobs comes from the low wage segments of the service industry, particularly leisure and hospitality, retail trade and education,  health and other temp jobs, as observed by  the Zero Hedge.

Talk about economic "vigor".

Asked whether Obamacare has contributed to the part time jobs, from the same Bloomberg article (bold mine)

“It’s hard to make any judgment,” Bernanke said when Stutzman asked if the Patient Protection and Affordable Care Act’s mandates are slowing the economy. Bernanke said that it has been cited in the economic outlook survey known as the Beige Book, which the Federal Open Market Committee considers in assessing the economy.

“One thing that we hear in the commentary that we get at the FOMC is that some employers are hiring part-time in order to avoid the mandate,” Bernanke said. He added that “the very high level of part-time employment has been around since the beginning of the recovery, and we don’t fully understand it.”

For the official whose opinions and decisions moves the global financial markets and likewise plays a significant role in influencing activities on the main street and on the global economy, “we don’t fully understand it” looks really very reassuring. This means that “we don’t fully understand it” has been the basis of all grand experimental policies being conducted by the FED.

[As a side note: Dr. Bernanke applies the same concept on gold prices, stating that “Nobody really understands gold prices and I don’t pretend to understand them either” but curiously has the audacity to make conclusions on gold prices based on his “non-understanding”]

I believe that the crucial changes in the character of US employment has been related to the record cash pileup by US non-financial corporations

As the Wall Street Journal noted in June, (chart from creditwritedowns.com)

The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963.

Both variables, the reluctance to invest (as expressed by huge cash holdings) and the change in the character of the US labor force, have been products of regime uncertainty. 

Regime uncertainty as defined by Austrian economics professor Robert Higgs represents the “pervasive lack of confidence among investors in their ability to foresee the extent to which future government actions will alter their private-property rights”

On whether Obamacare has been responsible for such trend changes, Dr. Bernanke’s adroitly fudges the issue by referring to “the beginning of the recovery”.

The reality is that the Patient Protection and Affordable Care Act (PPACA) or the Affordable Care Act(ACA), popularly known as Obamacare was signed into law in March of 2010, basically “the beginning of the recovery”. 

Some provisions of the said law has been slated for January 2014 and the rest in 2020 according to Wikipedia.org  [Update: The US house of representatives has just voted to delay the implementation of the Individual mandate]

As I pointed out in the past, Obamacare comes with 21 new or higher taxes.

And small businesses are the main sector that appear to be hardly affected.

Small businesses have been the heart of the US economy. According to the National Small Business Association, 

-Small business represents 99.7 percent of all employer firms.

-In 2010, there were an estimated 27.9 million small businesses in the U.S.—5.9 million with employees and 21.4 million without employees.

-Small businesses employ about half of the country’s private sector workforce.

- Small firms accounted for 64 percent or 9.8 million of the 15 million net new jobs created between 1993 and 2011.

Yet from a recent survey conducted by the US Chamber of Commerce, “unease around Obamacare appears to be increasing among small businesses” according to the Huffington Post.

In a survey conducted by National Federation of Independent Business (NFIB) last June, small business optimism continues to be plagued by taxes and government regulations and red tape

As the NFIB chief economist William Dunkelburg wrote (bold highlights mine)

The economy remains “bifurcated”, with the big firms producing most of the GDP growth with little help from small business. That balance is shifting, but unfortunately because larger firms are losing ground, not because small business is growing faster. Housing and energy are helping, and that does involve a lot of small businesses but the rout in housing was so severe that there are now supply constraints developing in new home construction due to lost capacity that cannot be easily reconstituted. Home prices are now increasing at double digit rates. Consumer net worth is allegedly doing well due to stock prices and house prices rising. But the quantity of items held, real wealth (houses, cars, fractions of a company owned), is not increasing that fast, just the prices. Been there, done that.

While US government sponsored surveys or the US Federal Reserve of Philadelphia and Minneapolis says that only a small portion has been affected by Obamacare, circumstantial developments (part time jobs and high cash by non-financial corporations due to reluctance to invest) says otherwise.

Nonetheless, “Big firms producing most of the GDP growth with little help from small business” has been a common feature in today’s QE-ZIRP based global financial economy where monetary policies have been engineered to buoy asset markets (stocks, real estate) via credit fueled destabilizing speculations (bubbles).

The reality is that the Dr. Bernanke's policies has substantially been responsible for these. FED easing policies combined with Obamacare and the increased regulatory mandates (the Federal Register is now over 81,000 pages long. Obamacare has 906 pages, Dodd Frank has 849 pages) and aside from a surge in taxes (US tax code now 72,000 pages) all contributes to the uncertainty over the investor’s property rights, hence the lack of commitment to invest and the corresponding changes in the hiring and employment dynamic.

Quote of the Day: Only the IRS (taxman)

Only the IRS can attach 100% of a tax debtor's wages and/or property.

Only the IRS can invade the privacy of a citizen without court process of any kind.

Only the IRS can seize property without a court order.

Only the IRS can force a citizen to try his case in a special court governed by the IRS.

Only the IRS can compel the production of documents, records, and other materials without a court case being in existence.

Only the IRS can with impunity publish the details of a citizens debt.

Only the IRS can legally, without a court order, subject citizens to electronic surveillance.

Only the IRS can force waiver of statute of limitations and other citizen's rights through the threat of Arbitrary assesment.

Only the IRS uses extralegal coercion. Threats to witnesses to examine their taxes regularly produces whatever evidence the IRS dictates.

Only the IRS is free to violate a written agreement with a citizen.

Only the IRS uses reprisals against citizen and public officials alike.

Only the IRS can take property on the basis of conjecture.

Only the IRS is free to maintain lists of citizen guilty of no crime for the purpose of harassing and monitoring them.

Only the IRS envelops all citizens.

Only the IRS publicly admits that it's purpose is to instill fear in the citizenry as a technique of performing it's function.

This is from former US House of Representative of Idaho George Vernon Hansen. Sourced from the Liberty-Tree.ca

The confiscatory power of the taxman applies everywhere. 

The Economist: Why Americans Love the IRS

The Economist’s sarcastic takedown of the the US tax agency the IRS: (bold mine)

WHEN Barack Obama fired the acting head of the Internal Revenue Service (IRS) earlier this month, he doubtless hoped to quell the hullabaloo about its seemingly partial treatment of applications for tax-exempt status from conservative groups. The IRS selected for extra scrutiny groups whose names included conservative buzzwords, such as “tea party”, “9/12” and “patriot”. Republicans accuse the taxmen of persecuting anti-tax groups. The IRS’s defenders insist that a few low-level functionaries simply made a clumsy attempt at an administrative short-cut. But the main reason why Americans dislike dealing with the IRS is not, however, the bureaucrats’ fault. Congress keeps making the tax code more complex. It is now 4m words long, and has been changed over 4,000 times since 2001. Americans spend 6.1 billion hours a year complying with it—enough work to keep over 3m people employed full-time without producing anything. Nearly 90% of filers pay for help with their returns. The cost of all this is equivalent to 15% of the tax raised says the Taxpayer Advocate, an ombudsman. Yet change may be a long time coming. Politicians usually balk at taking on the myriad vested interests which all ferociously defend their favourite tax breaks, says Bill Gale of the Brookings Institution, a think-tank. For that reason, he argues, “tax reform is always the bridesmaid and never the bride”

To give a better picture of what the bold highlights mean

US Tax code ballooned from 400 to 72,000+ pages

Here is the basic 1040 tax form

More tax laws equals more tax breaks which serves as rewards to the politically favorite vested interest groups.

Cato’s Dan Mitchell tells us more “why the IRS bureaucracy deserves scorn”.

• It has thieving employees.
• It has incompetent employees.
• It has thuggish employees.
• It has brainless employees.
• It has protectionist employees.
• It has wasteful employees.
• And it has victimizing employees.

As Chief Justice Marshall once wrote

The power to tax is the power to destroy.

Quote of the Day: Negative Real Rates: The Biggest Legal Robbery ever in Human History

The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate or 1%. The difference is 3%.

This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.

This is from former Morgan Stanley economic analyst Andy Xie at the Marketwatch arguing that gold remains the ultimate hedge against the inflation thievery.

Mr. Xie’s fascinating article comes with his take that the sharp decline of gold prices will be temporary and gold will “rise to new heights soon”. This is because the masses will gravitate to gold because it is “the best weapon for the little guy to fight central banks that help a few to rob many.” 

Yes, the transfer of reserves from Wall Street to the physical real gold market will be the main driver of this, overtime. The physical gold market will also expose all the manipulative schemes by the Wall Street-government cabal.

He also says that people shouldn’t be deceived by the objection that “gold doesn’t bear interest”, because “paintings or antiques don’t bear interest either”. Mr. Xie concludes, “When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.”

Gold, indeed is the best weapon against the government rapacity.