Tuesday, December 4, 2012 - The Clock is Ticking

The Clock is Ticking

by Sinclair Noe

DOW – 13 = 12,951
SPX – 2 = 1407

NAS – 5 = 2996
10 YR YLD - .02 = 1.61%
OIL - .71 = 88.38
GOLD – 19.20 = 1697.80
SILV - .75 = 33.01

So, President Obama presented an opening offer in the fiscal cliff talks; Speaker Bohener said it wasn't serious and the financial and political reporters passed along the complaint that it was a recycled version of an old plan; before the election those same reporters spent the year passing along the complaint that Obama had no plan. Then Obama complained that the Republicans didn't have a counter offer, and they finally came up with a counter but it didn't have any specifics, but one area is that they want cuts to Medicare, even though before the election they were outraged that Obama was cutting Medicare. The current Republican position seems to be that the fiscal cliff’s instant austerity would destroy the economy, which is odd after four years of Republican clamoring for austerity, and that the cliff’s military spending cuts in particular would kill jobs, which is even odder after four years of Republican insistence that government spending can’t create jobs. And remember, this is all about the debt ceiling and tax cuts and spending cuts.

And the political and financial reporters pass all this stuff on, with a countdown clock ticking in the lower right screen. It’s irresponsible reporting. Mainstream media outlets don’t want to look partisan, so they ignore the BS hidden in plain sight, the hypocrisy and dishonesty. It's a big cliff, taxmageddon scam. This year the Big Apple ball will slowly drop down on Time Square to ring in the destruction of the economy. The Big Pine Cone will drop in Flagstaff and it will fall over the cliff. Malarkey.

Let all this serve as a reminder that the news in this country most of the time doesn't have the sensibility to know when they are being lied to and so they pass along the lies as news. And the whole game is a big masquerade, a three card monte scam. Does anyone recall how the Bush tax cuts were passed? The 2001 cut was passed based on the claim that the government was running an excessive surplus; the 2003 cut on the claim that it would provide an economic boost. Then the surplus went away, and the economy did not perform very well. The worst example was the Campaign to Fix the Debt. You remember the 71 CEOs that went to the White House and said it was imperative to cut Social Security and Medicare. If you have no defense, you have to go on offense.

The 71 Fix the Debt CEOs who lead publicly held companies have amassed an average of $9 million in their company retirement funds. A dozen have more than $20 million in their accounts. If each of them converted their assets to an annuity when they turned 65, they would receive a monthly check for at least $110,000 for life. The Fix the Debt CEO with the largest pension fund is Honeywell's David Cote, a long-time advocate of Social Security cuts. His $78 million nest egg is enough to provide a $428,000 check every month after he turns 65. Forty-one of the 71 companies offer employee pension funds. Of these, only two have sufficient assets in their funds to meet expected obligations. The rest have combined deficits of $103 billion, or about $2.5 billion on average. General Electric has the largest deficit in its worker pension fund, with $22 billion.

That's right, 2 out of 71 major corporations have actually funded their pension plan promises to the people who make the companies run. Only 2 out of 71 intend to fulfill their contractual obligations to their workers. So, what is their big concern? Well David Cote, the CEO of Honeywell says: “We have a significant problem with entitlements. Medicare, Medicaid in - in particular. Those things need to get resolved together. If we could actually develop a four trillion dollar credible market plan that would cause everyone out there to say, wow, we can govern again.”

Got it? If you've underfunded your pension plan, don't focus on that, instead attack the government health care plan. Here's an even better idea; let's broaden the debate on entitlements, by bringing in the fact that state and local governments give away about $80 billion per year to companies as enticements to create jobs that often later vanish. And the federal entitlement programs to big corporations? Five of the corporations whose CEOs signed the Fix the Debt letter paid ZERO federal income taxes on $62 billion in total profits and received $27 billion in tax subsidies over the last four years. Six of the corporations whose CEOs signed the Fix the Debt letter were members of the WIN America Coalition, which lobbied Congress to pass legislation (S.1671) that would allow U.S. companies to dramatically reduce their tax rate on $1 trillion in foreign profits brought back (“repatriated”) to the United States. The measure would reduce the 35 percent corporate tax rate to an 8.75 percent effective tax rate on the repatriated profits. How about we end the corporate welfare to the CEOs in limosines?

The companies are glad to take government money in the name of job creation. But then they talk about the "free market" when shuttering factories and firing workers. If we're going to be talking about "makers" and "takers," we should broaden that discussion, too.

For all of the noise they make about the federal budget deficit, US companies are not exactly doing much to help. In fact, many of them have been making the problem worse in recent weeks by quickly shoveling cash to investors to take advantage of low tax rates before they rise, potentially costing the government billions of dollars in much-needed tax revenue. All told, companies so far have given shareholders roughly $24.2 billion in special or early dividend payments, potentially saving those shareholders -- and costing the government -- $6 billion or more in taxes. So far, 144 publicly traded U.S. companies have announced special one-time dividends to give cash to shareholders before an expected increase in the dividend tax rate next year, amounting to $21.4 billion. Oracle just made an announcement today; Oracle CEO, Larry Ellison stands to pocket about $200 million. Maybe he can go buy another island.

These are just some of the reasons why these corporate leaders have no credibility when they blather on about "fixing the debt." They bankrolled the politicians that created the debt through a tax system that gave them myriad ways to avoid paying their fair share to support the country. Then they shipped good-paying jobs overseas and depressed the wages of the jobs left behind so that workers had less that they could afford to pay in taxes as well. All in the name of shareholder value.

There is a way to fix the debt, but it is not their way.

Meanwhile, there are some problems with the economy that have been moved to the back burner, or even off the stove. Don't forget; people got no jobs, or they have part-time work, and people got no money, or not enough money, or they're buried in debt, mortgage debt, student loan debt. Of course, if we actually did worry about growth and did something about it, that would go much further toward reducing the deficit than cuts to social programs. "The boom, not the slump, is the right time for austerity.” 

 Maybe we should invest in the country. Maybe we could invest in infrastructure, maybe we could invest in education. Maybe we don't have as big a financial crisis as a crisis of innovation. There is a serious innovation crisis, the consequences of which will be with us long past the financial crisis. In 1950 we got the transistor, in 1960 we got the integrated circuit and in 1970 we got the microprocessor. Not much lately, (and those were all minor compared with Bessemer, internal combustion and electrification). Nobody's footing the bill for the big breakthroughs, we're not getting the big breakthroughs. Looks like we starved that beast!

Maybe we should all tune out the fiscal cliff nonsense for a while, and stop believing the insanity that the deficit will eat us whole and swallow our little children. The fiscal cliff is an artificial demon. Even though we've known the deadline was approaching, it wasn't until after the election that the fiscal cliff narrative took over the media discourse. One all-consuming narrative ended, and another instantly took its place.

Each day we move closer to "the cliff," the media will breathlessly report on how the White House and Republicans are defiantly squared off against each other. The debate the country should be locked in right now isn't about the fiscal cliff and the deficit but about how to grow the economy; how to employ people in productive jobs; and the only way to grow the economy is to grow the debate beyond the artificial playground the politicians and the corporate welfare queens would have us believe the game is being played. 

Tuesday, November 27, 2012 - Economic Data, Geithner's Cliff, Greek Bailout, Warren's Pitch, Blankfein's Irony

Economic Data, Geithner's Cliff, Greek Bailout, Warren's Pitch, Blankfein's Irony

by Sinclair Noe

DOW – 89 = 12,878
SPX – 7 = 1398
NAS – 8 = 2967
10 YR YLD -.02 = 1.65%
OIL - .45 = 87.29
GOLD – 7.60 = 1742.80
SILV - - .13 = 34.15

Durable goods orders leveled off in October, mainly because of slack demand for automobiles and airplanes and a reversal in defense orders. Most other manufacturers saw an uptick in demand; so, conditions aren't getting worse; they aren't getting better either. Or at least that is how it looks at first blush. Overall orders for durable goods were virtually flat in October, but factoring out the volatile defense and transportation industries, so-called core capital orders jumped 1.7% last month to mark the strongest gain since May.

Home prices rose in September for the sixth straight month. The S&P/Case-Shiller 20-city composite posted a non-seasonally adjusted 0.3% increase in September to reach the highest level in two years, following a 0.8% gain in August. Home prices were up 3% from September 2011 for the largest annual percentage growth since July 2010.

In the latest Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York reports that non-real estate debt jumped 2.3% to 2.7 trillion, with increases in student loans, auto loans, and credit card balances. Overall consumer debt shrank $74 billion to $11.3 trillion as mortgage debt decrease more than $120 billion. Nearly a quarter of a million people had a foreclosure tacked onto their credit reports.

Late last year, total student debt outstanding surpassed $1 trillion for the first time. New data released today shows 11% of student loans were 90 days or more past due in the third quarter, up from 8.9% in the previous quarter and 8.8% a year prior. Students who graduated with a Bachelor’s degree this spring left school with roughly $28,700 in student debt, up 31% from five years ago. And in many cases, borrowers who’ve fallen behind on loans dropped out of college. Those borrowers are four times more likely to default on student loans than those who graduate.

Consumer confidence rose in November to the highest level in more than four years. The Conference Board’s confidence index climbed to 73.7, the highest since February 2008, from a revised 73.1 reading the prior month.

The percent of respondents expecting more jobs to become available in the next six months increased to 20.3, the highest since February 2011, from 19.7 the previous month. The share planning to buy a house within the next six months jumped to 6.9 percent, the most in data going back to 1964. The previous all-time high was 5.5 percent.

Even as consumers are feeling more confident, business sentiment has been stagnating as the year-end deadline for automatic fiscal tightening approaches.

The Obama administration has a way to blunt about half of the fiscal cliff’s economic fallout for 2013, even if Congress stays deadlocked: Freeze paycheck withholding levels. Treasury Secretary Tim Geithner has the authority to set withholding, whether or not tax rates increase. He has said Congress should act to extend current rates for most taxpayers. A freeze could keep $10 billion per pay period in taxpayers’ pockets and prevent a loss of 1.5 percent of monthly gross domestic product.

The move would make sense, especially if by late December a congressional deal to avert the tax-rate increases set for January looks probable though isn’t completed. The tax code gives Geithner broad latitude to set withholding tables. The statute says only that he must set the tables in a manner consistent with the purposes of withholding and the income tax rates. It doesn’t prescribe specific numbers or a specific relationship between withholding and the underlying rates. Geithner has indicated he would prefer to see a deal come out of Congress rather than have to test the Treasury's powers.

The White House has tapped the Treasury secretary as its lead negotiator in deficit-reduction talks with Congress, giving Mr. Geithner about a month to help cut a deal before $500 billion in tax increases and spending cuts begin in January—and before his long-planned departure from the administration. Yes, Geithner has said he'll stay on at Treasury until a deal gets done but you have to imagine he's itching to get out of Washington and sign a lucrative deal to sit on the Board of Directors of one or more mega-banks, so if you think he's going to let people fumble around and screw up his liquidity event, well, think again.

President Obama is scheduled to meet with small-business owners at the White House today and plans to travel to a toy factory in Pennsylvania on Nov. 30 to build public support for his approach to averting the fiscal cliff at year’s end.As Congress returns to Washington this week to confront the fiscal dilemma, many Republicans who long dismissed any tax increase as unacceptable say now they are willing to consider higher revenue -- so long as Democrats accept cuts in entitlement programs as part of a deficit-reduction deal. So far, talks between Obama and congressional Republicans haven’t yielded any significant progress. Even with the changes in rhetoric and the willingness to work together, neither side has offered a plan that moves off their pre-election position.

For the past week, GOP lawmakers have been falling over themselves to move away from Grover Norquist, pied piper of low tax rates on rich people. Tennessee Senator Bob Corker said that he was not “obligated on the pledge,” and Georgia Senator Saxby Chambliss followed suit, telling a local TV station that he cares “more about his country” than a “20-year-old pledge.” Likewise, South Carolina Senator Lindsay Graham declared that he would violate his promise for the good of the country, only if Democrats will "do entitlement reform."

On the face of it, this is both high-minded and politically realistic. The Norquist pledge is a bad idea; it hampers legislators as they attempt to solve a series of fiscal problems. And it's pretty clear that Obama campaigned for higher taxes for the top income earners, and he won. You could read these statements as a declaration that some Republicans, at least, are ready to work with the president.

Unfortunately, you’d be wrong. As loud as Republicans have been about bucking the Norquist pledge, none have actually signaled support for higher tax rates on the rich. Instead, they’ve turned the conversation toward closing loopholes as a way of raising revenue. And in the case of Lindsay Graham, the pre-condition for cooperation is for Democrats to support Bush-era tax rates, minus the loopholes, or at least a couple of loopholes.

This is the opposite of cooperation, and a sign that Republicans are still committed to keeping tax rates low on the rich. The only difference, now, is that they’ve decided to stay quiet about it.

Meanwhile, European finance ministers say they've worked out a deal to nurse Greece back to financial health. The ministers cut the rates on bailout loans, suspended interest payments for a decade, gave Greece more time to repay and engineered a Greek bond buyback. The country was also cleared to receive a $45 billion loan installment in December. Greek bonds rose.

The ECB chipped in by steering profits from its Greek bond holdings back into the rescue program. National governments will funnel their share of the profits to Greece’s bailout account, getting around rules that bar the politically autonomous central bank from directly lending to the state. The batch of measures will help pare Greece’s debt from 190 percent of gross domestic product in 2014 to 124 percent of GDP in 2020, a target set by the IMF as its condition for continuing to fund a third of the Greek program. One IMF concession was to raise that target from 120 percent.

While the financing pact rewarded the government’s budget cuts and steps to overhaul the economy, Greece will have to deliver on its commitments to earn each payout. Doubters questioned whether Greece can stomach further economic discipline and whether the bond buyback will generate enough savings. A shortfall would put outright debt relief back on the agenda.

Don't celebrate the Greek deal for long. Currency traders certainly didn't celebrate long; there was a quick rally in the euro, then it slipped. Spain is thinking about asking for a bailout. And did you notice that Britain just named a Canadian as it's top central banker? The new governor of the Bank of England will be Mark Carney, currently governor of the Bank of Canada. Carney is to take over for Mervyn King in June, when King’s term ends. Carney helped lead the Canadian economy through perhaps the best performance of the major Western nations during the crisis itself; there were no major failures of Canadian banks at a time when their international counterparts were falling like dominos, and the economic downturn in Canada was relatively mild.

Meanwhile, while we've all been looking elsewhere Argentina's credit rating was cut by Fitch Ratings, which said a default is probable after a US judge ruled the country can’t make payments on its restructured bonds unless it pays holders of defaulted debt by Dec. 15. So, now there is speculation that Argentina will halt payments on performing bonds rather than pay the holdouts on the old bonds. In other words, there might be defaults.

Warren Buffett has been talking about the fiscal cliff. Yesterday he published an op-ed piece in the New York Times. This morning he was interviewed on NBC and he said the ability of some of the highest earners to avoid federal taxes shows why laws should be changed so the wealthy pay more. Buffet said: “They were the moochers, and they paid zero,” and “The way they get at them is a minimum tax and it’s very simple to do.”

Buffet's idea is to set a minimum tax on incomes above $1 million, and among the 400 with the highest incomes in the US in 2009, the average income was about $200 million, and that six people in that group paid “nothing at all.”

Buffett’s tax bill for 2010 was about $6.9 million, or 17 percent of taxable income, he wrote in the Times last year. He said that’s a lower rate than the other 20 employees in Berkshire’s office in Omaha, Nebraska, and that the wealthy benefit from favorable treatment of capital gains and dividends, compared with wages. Buffett’s salary is $100,000 a year, so most of his income comes from capital gains and dividends at the lower tax rates. Buffet says raising the top tax rates won't dampen economic growth and would not scare off critical investment for job creation, however it would "raise the morale of the middle class."

Buffet was asked about a recent quote from Honeywell CEO David Cote who told Meet the Press that he and others like him were feeling a lack of confidence in the political process, so much so that the uncertainty was making them keep their money on the sidelines and preventing them from making additional investments, including hiring. Buffet said: "At Berkshire Hathaway, we're investing 9 billion in plant equipment, a record, breaking last year's record. It's always uncertain."

So, Buffet sounds optimistic, and he seems to be talking common sense, and then he broke from message and says he thinks Jamie Dimon, the CEO of JPMorgan Chase would make a great replacement for outgoing Treasury Secretary Geithner. And what sounded good, suddenly sounds like the insane ravings of a lunatic.

Of course Buffet isn't the only high profile corporate lunatic CEO trying to sway public opinion on the deficit negotiations. Several executives have formed a group called “Campaign to Fix the Debt” and they know a few tricks of deficit reduction because they have received trillion in federal defense contracts, subsidies and bailouts, as well as specialized tax breaks and loopholes that virtually eliminate their corporate tax bills, and sometimes result in refunds.

The CEOs are part of a campaign run by the Peter Peterson-backed Center for a Responsible Federal Budget, which plans to spend at least $30 million pushing for a deficit reduction deal. During the past few days, CEOs belonging to what the campaign calls its CEO Fiscal Leadership Council have barnstormed the media, making the case that the only way to cut the deficit is to severely scale back social safety-net programs -- Medicare, Medicaid, and Social Security -- which would disproportionately impact the poor and the elderly. Leading the charge: Goldman Sachs' Lloyd Blankfein and Honeywell's David Cote.

As part of their push, they are advocating a "territorial tax system" that would exempt their companies' foreign profits from taxation, netting them about $134 billion in tax savings. Three of the companies -- GE, Boeing and Honeywell -- were handed nearly $28 billion last year in federal contracts alone. Many of the companies recommending austerity would be out of business without the heavy federal support they get, including Goldman Sachs and JPMorgan Chase, which both received billions in direct bailout cash, plus billions more indirectly through AIG and other companies taxpayers rescued. To hear them tell, the 2008 financial crisis was caused by Social Security and Medicare, not by banksters.

In an interview yesterday, Goldman Sachs chairman and CEO Lloyd Blankfein said Social Security "wasn't devised to be a system that supported you for a 30 year retirement after a 25-year career." (who works only 25 years?) The key to cutting Social Security, he said, was simply a matter of teaching people to expect less: "You're going to have to do something, undoubtedly, to lower people's expectations of what they're going to get, the entitlements, and what people think they're going to get, because you're not going to get it."

Following Blankfein's evening news appearance on Monday, Cote, the Honeywell CEO was interviewed and he said essentially the same thing that Blankfein did. Cote recommends cutbacks in Medicare and Medicaid, but when it comes to the tax obligations of corporations, he's clear about what he wants: corporate tax rates at zero.

At Honeywell, Cote practices what he preaches. Between 2008-2010, the company avoided paying any taxes at all. Instead, the company got taxpayer-funded rebates of $34 billion on profits totaling nearly $5 billion.

So, the Campain to Fix the Debt sends out Lloyd Blankfein of Goldman Sachs to tell us that we need to expect less from Social Security, and David Cote of Honeywell to tell us that we have to slash Medicare and Medicaid; the council says we have to make drastic cuts to “entitlement programs” and what they call “low-priority spending”.

Just in case your thinking about casting a vote for the Academy Awards, consider this: Blankfein and Cote lay out this drivel without the least sense of irony or self-awareness; it is a remarkable performance.