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Archive for the ‘Government’ Category

Here’s A Cheery Thought!

Here’s a cheery thought…

According to the latest daily statement from the U.S. Treasury, the U.S. government had an operating cash balance of $73.8 billion at the end of the day yesterday. Apple’s last earnings report (PDF here) showed that the company had $76.2 billion in cash and marketable securities at the end of June.

In other words, the world’s largest tech company has more cash than the world’s largest sovereign government. That’s because Apple collects more money than it spends, while the U.S. government does not. According to the CBO and U.S. Treasury, if you taxed everyone in the U.S. at 100% tax rate, you would not put a dent into the $14.5 trillion dollar defect. Still don’t think there is a spending problem in Washington?



Written by David Frederick

July 29, 2011 at 9:08 AM

Inflation Actually Near 10% Using Older Measure

As if most informed people didn’t already know this, inflation is on the rise in a big way. Just ask the CEO of Walmart Bill Simon who recently discussed this issue in detail and how it is effecting Walmart’s pricing and revenue projections.  CNBC had a very interesting article on the current rise of inflation regardless of the measure you use (old = 10% and growing, new=6% and growing). Check it out. Below is the CNBC article for your consideration.


Inflation Actually Near 10% Using Older Measure – John Melloy

After former Federal Reserve Chairman Paul Volcker was appointed in 1979, the consumer price index surged into the double digits, causing the now revered Fed Chief to double the benchmark interest rate in order to break the back of inflation. Using the methodology in place at that time puts the CPI back near those levels.

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products, improvements in quality (i.e. iPad 2 costing the same as original iPad) and other things. Backing out more methods implemented in 1990 by the BLS still puts inflation at a 5.5 percent rate and getting worse, according to the calculations by the newsletter’s web site, Shadowstats.com.

“Near-term circumstances generally have continued to deteriorate,” said John Williams, creator of the site, in a new note out Tuesday. “Though not yet commonly recognized, there is both an intensifying double-dip recession and a rapidly escalating inflation problem.  Until such time as financial-market expectations catch up with underlying reality, reporting generally will continue to show higher-than-expected inflation and weaker-than-expected economic results in the month and months ahead.”

The pay-site and newsletter by Williams, an economic consultant for the last 30 years to companies, has gained a cult following among bloggers hungry to criticize Bernanke these days. The mission statement of the newsletter, according to the site, is to expose and analyze “flaws in current U.S. government economic data and reporting…net of financial-market and political hype.”

Investors are anxiously awaiting the release of March’s CPI reading on Friday. The consensus estimate from economists is for an annual inflation rate of 2.6 percent.

“Given ongoing inflation problems with food and the spreading impact of higher oil-related costs in the broad economy, reporting risk is to the upside of consensus expectation,” said Williams, citing a 10 percent jump in gasoline prices in March, in the note.

“While the federal government would have us believe the numbers are rather tame, our own personal gauge leads us to believe inflation is running between 5 percent to 6 percent annually,” wrote Alan Newman in his latest Crosscurrents newsletter that refers to Williams’ statistics.

Newman uses recent comments from Walmart CEO Bill Simon that inflation is going to be “serious” to back up the much higher CPI figures from him and Williams.

“Given Walmart’s sales of $422 billion, we think Mr. Simon has a good idea of what’s in the pipeline,” said Newman.

To be sure, the BLS argues that the changes it has made over the last three decades more accurately reflect a true change in the cost of living. For example, in response to its hedonic adjustments, the BLS web site states, “to measure price change accurately, the CPI must be able to distinguish the portion of price change due to this quality change.

Still, going by recent strong comments from Federal Reserve officials, even members of the central bank must believe inflation is being underreported. Dallas Federal Reserve President Richard Fisher said in a speech last week that the central bank was reaching a “tipping point” as far as changing its policy so it can react to inflation. Maybe Fisher stumbled across Shadowstats.com. The voting member did, after all, mention Volcker in the same speech.

“The need to break the back of that (budgetary debt) spiral is as dire now as was the need for Paul Volcker to break the back of inflation in the 1980s,” said Fisher on April 8th. “As a result of his steadfast determination to press on with exorcising inflation, Mr. Volcker is today among the most respected living Americans and widely considered an exemplar for public servants worldwide.”

Written by David Frederick

April 13, 2011 at 2:09 PM

Faux job numbers could lead to real trouble

Here is a VERY interesting article regarding the manipulation of the U.S. Job numbers and the potential consequences of publishing false numbers. Check it out. I have placed the article here for you to read. Something worth considering. Especially if you have an interest in what the Fed does with interest rates.


Faux Job Numbers Could Lead To Real Trouble


Last Updated: 12:54 AM, April 12, 2011

Posted: 12:00 AM, April 12, 2011

Deception is a dangerous thing. You never really know when a lie may turn on you.

Take, for instance, the Labor Department’s annual springtime boost in the faux jobs market. While it’s nice that the government thinks there is an employment boom coming, this won’t be a good development if that boom turns out to be imaginary yet still causes the Federal Reserve to prematurely tighten credit conditions.

Let’s start from the beginning.

Early this month Labor reported that 216,000 new jobs were created in March. It was better than Wall Street expected.

But the figure included 117,000 jobs that the department thinks, but can’t prove, were created by newly formed companies that might not even exist. In fact, the department is getting so optimistic about the labor market that it increased this imaginary job count from just 81,000 in March, 2010.

As I’ve been telling you for months, the spring always causes the Labor Department to goose its job-creation numbers. And maybe sometime in the future this process will be warranted. But during 2009 and 2010 these springtime assumptions — which are officially called the Birth/Death Model by Labor — led to major errors in the annual job count.

The next three months should be doozies. In April 2010, the Labor Department guessed that 188,000 jobs were created by these newly formed, maybe nonexistent companies; last May’s total job number was jacked up by a 215,000 guess, and June got an artificial boost of 147,000 jobs.

This year, Labor will likely be inserting even bigger faux job totals for each of those three months. In other words, you still might not be able to get a job in the real world, but there should be plenty of fake jobs for the newspapers to write about and the politicians to brag about in speeches. Why should you care?

If you are just a regular person reading this column you should be appalled that Washington has trouble getting its numbers right. But wait, there’s more. Interest rates have already been rising because (and I don’t need to tell you this) inflation is a problem. Mortgage rates, for instance, have moved three-quarters of a percentage point higher over the past six months. And that’s without the Federal Reserve purposely tightening credit conditions. The next three months’ job figures — if they are as strong as I think they will be — could give the Fed a compelling reason to, at the very least, end the money-printing operation it calls Quantitative Easing. And it may even have to start talking about raising interest rates. That won’t be good news for either bonds or stocks, the latter of which have been on a truly unbelievable ride upward. Remember the first investment advice you received (probably from your mom or dad): if it’s too good to be true, be suspicious. It’s gonna get exciting especially when you see what happens by summer. (But that’s for a future column.)

Is the federal government like one of those hoarders you see on TV? It buys into projects and programs (resulting in a clutter of $12 trillion in debt) but is pained when it needs to get rid of just $39 billion of those programs. The government is a mess — just like the homes you see on TV. And the picture isn’t going to get any prettier when someone, at some time, tries to get the government’s house in order. – Home sales are still plunging, and prices are going down, down, down. Well, maybe it’s time to listen to John (that would be me). Change the rules on retirement plans so the American people can rescue the ailing real estate industry, which, by the way, will take a decade to fix if left on its own.

Let people withdraw a relatively small percentage of the $15 trillion in retirement funds to purchase real estate. Give them a tax break — maybe even a big one. And smack Wall Street down when it voices the inevitable opposition to this plan. (Remember, the money I’m proposing to be used for this idea is now in retirement plans mainly invested in Wall Street products.) Maybe it is time for a plan that’s reasonable and doesn’t risk bankrupting the nation or ruining our currency.

Ya know, I’m just thinking out loud.



Written by David Frederick

April 12, 2011 at 8:23 AM

China ‘to overtake US on science’ in two years

As many of you who have followed my blog know, I am very skeptical of China politically and economically which is why I find this latest article from the BBC interesting. In it, the BBC asserts based on a report from the Royal Society, an eminent organization, that China is on course to overtake the US in scientific output possibly as soon as 2013 – far earlier than expected.

What the BBC and the Royal Society dont mention with clarity is that they are basing their “output” measure on “white papers” and other technical documentation. The output of White Paper’s and technical documents is not the true measure of one’s scientific or innovation leadership. Particularly with the Chinese who are know to steal, copy and plagerize just about anything they can get their hands on. Don’t believe me? Just ask the Russians.

What is note worthy is that I don’t believe China currently posses the “innovation gene”…yet. Where the U.S. has this as part of our DNA. This is why the U.S has been the worlds leader in innovation, science and technology advances for two centuries. What does this mean in regards to China? Well, I believe they will find new and different ways to innovate, acquiring their own “Innovation Gene”.  As long as the U.S., EU, Japan, and others outsource their manufacturing to China, the Chinese will eventually figure out how to innovate through a method called Lead User Innovation (for more on this search MIT Professor Eric Von Hipple).

Will China be a bigger player in the innovation of new technologies, scientific advances, etc….. yup. Maybe not in 5 years or even 1o. But the Chinese are smart, resourceful, adept and willing to learn and grow. More importantly, they have the financial and political systems in place to hit innovation really hard over the next 25 years.

Probably the most important issue when looking at the Chinese and their innovation growth potential is that they are patient. They can afford to wait and do it right. Through decades of practical and effective reverse engineering, the Chinese will acquire the skills they need to start applying process frameworks to their ideas and then China will be a major player in both development and manufacturing. This will cause huge financial, technological, political, geopolitical, economic, military and product development issues for the rest of world.

The writing is on the wall for the rest of the world. Step up and get moving or get plowed over by China.  No one should under estimate the potential the Chinese have to compete on the global stage of ideas. Its not enough for just MIT, Harvard,  Stanford, and other research universities to carry the weight of scientific output and innovation leadership. We need a culture of innovation and the means and diverse resources to continue to lead, otherwise we will find ourselves in perpetual catch up mode. Check out the BBC article here!


Written by David Frederick

March 29, 2011 at 1:37 PM

Japan’s Disaster Sparks Serious Tech Supply Shortage Concerns

As if Japan didn’t have enough problems. Its economy may take decades to recover. But the related consequences on a global scale for technology and consumer electronics could equally devastating. Components such as memory chips and liquid crystal displays that are used in consumer electronics ranging from smartphones to televisions will likely be in short supply in the weeks ahead. This could have huge supply and economic implications for companies like Motorola, Apple, HTC, Samsung, Vizio, Sony and many others both in OEM and Retail.

I remember back several years ago when a memory chip manufacturer’s facility in Taiwan caught fire and burn to the ground. That single event raised the price of RAM to huge levels. In the current case, Japan is home to several memory chip makers, including Elpida Memory Inc. and Toshiba Corp., the world’s second-largest NAND flash memory chip producer by revenue after Samsung Electronics Co. of South Korea. Obviously, this is a very volatile industry with a select group of manufactures, most located in Japan, Taiwan, or Korea.

To underscore my point, “We expect phenomenal price swings and large near-term shortages as a result of this earthquake,” said Jim Handy, an analyst at Objective Analysis. “Over 40% of the world’s NAND flash … are manufactured in Japan. It doesn’t take a large production decrease to cause prices to increase dramatically.” All I can say is what a mess. Humanitarian crises, energy crisis, economic crisis all on unprecedented levels and that’s just in Japan. The fragile world economy can not sustain huge hits like this without major economic repercussions. I fear, we are only at the beginning of the economic aftershock of this catastrophe for both the people of Japan and the world.

The WSJ has a very interesting article on this topic. Check it out here!

Written by David Frederick

March 15, 2011 at 10:07 AM

The End of the Dollars Reign

The end of the U.S. dollar’s reign as the world reserve currency. This issue has been of strong interest to me for the past 5 years. Why? Because of the cataclysmic impact it would have on U.S. Businesses, the U.S. economy, and ultimately you and me and our families. Let me break this down in a very simple way.

  1. The U.S. dollar is currently and for roughly the last 50+ yeas has been the world’s reserve currency.
  2. This means when Non-U.S. businesses want to buy, import, export, or sell things globally, they have to first purchase U.S. Dollars in which to conduct the transaction. this is expensive for them.
  3. When global companies price products for the global markets i.e. OPEC, they do so in U.S. Dollars.
  4. There are many reasons for this – stability of the dollar, the track record of the U.S. of honoring its debt, treasure bonds, U.S. economic strength, etc.
  5. A huge advantage of being the United States is that since our currency is the standard, we do not have to purchase U.S. dollars to conduct business in the U.S. or globally. We don’t have to include huge risk and fluctuations of world currencies in our business transaction, the U.S. consumer is not directly subjected to global currencies fluctuations on a large daily scale. We don’t have to sell dollars to buy Yuan, Peso’s, etc. and absorb the currency difference and then sell or buy in Yuan’s, etc.
  6. This is one of the perks of being the worlds largest economy and economic leader….. until now.

With China and India becoming huge economies, # 2 and #3 respectively behind the U.S.,  it is predicted by many that in the next 10-20 years, China will surpass the U.S. and then in 10 years further, India will surpass China as the worlds largest economy. Already with huge deficits in the U.S., inflation creeping in, the cost of U.S. goods going up across the board, things are already precarious. If the U.S dollar was to be devalued further by say 20% and/or the world decides to use multiple currencies as the currencies reserve i.e. Chinese Yuan’s or Euros instead of OR in addition to the dollar, things could get real bad for a fragile U.S. economy and the impact on U.S. business and consumers could be cataclysmic.

The cost of everything we do, build, buy, sell, earn, etc. would sky-rocket to a proportion unimaginable. No this isn’t a doomsday prediction. Its reality. Already, China, Russia, France, Brasil, the World Bank, OPEC and others are all calling for and openly discussing moving away from the U.S. dollar as the worlds currency reserve. This is real folks and will most likely happen in the next 5-10 years. I personally believe the EURO and Yuan need some time to mature structurally and get its act together, but it’s coming. China and the EU are taking measures to shore up their currencies to be a viable competitor. Even having competition and multiple world currency reserves could have huge impacts for the U.S. and its people and businesses. When you look at a $14+trillion-dollar U.S. deficit, uncontrolled spending, major entitlement issues like social security, medicare, pensions, etc. unresolved and bankrupting the country, states and local governments, etc. we have our work cut our for us in the U.S. The last thing we need is a major impact to our currency status. That could be the one thing that knocks the U.S. over the tipping point of economic collapse i.e. restart and rebuild mode. The impact of that is almost unimaginable. Who will bail us out? China? No way.

Check out this related article from the WSJ where several economists from UC Berkeley discuss this very issues. Personally, I think they understate the impact to the U.S. economy, but it is a good read. Check it out here!



Written by David Frederick

March 3, 2011 at 10:20 AM

120 Days to Go Until the Largest Tax Hikes in History

As an advocate of small business, I wanted to share some disheartening, disastrous and upcoming issues that will affect you and your business. Check this article out from Ryan Ellis.


In just 120 days, the largest tax hikes in the history of America will take effect.  They will hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families.  These will all expire on January 1, 2011:

Personal income tax rates will rise.  The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed).  The lowest rate will rise from 10 to 15 percent.  All the rates in between will also rise.  Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates.  The full list of marginal rate hikes is below:

– The 10% bracket rises to an expanded 15%

– The 25% bracket rises to 28%

– The 28% bracket rises to 31%

– The 33% bracket rises to 36%

– The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income.  The child tax credit will be cut in half from $1000 to $500 per child.  The standard deduction will no longer be doubled for married couples relative to the single level.  The dependent care tax credit will be cut.

The return of the Death Tax. This year, there is no death tax.  For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million.  A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The top capital gains tax will rise from 15 percent this year to 20 percent in 2011.  The top dividends tax rate will rise from 15 percent this year to 39.6 percent in 2011.  These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare.  Several will first go into effect on January 1, 2011.  They include:

The Tanning Tax.  This went into effect on July 1st of this year.  It imposes a new, 10% excise tax on getting a tan at a tanning salon.  There is no exemption for tanners making less than $250,000 per year.

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Brand Name Drug Tax. Starting next year, there will be a multi-billion dollar tax assessment imposed on name-brand drug manufacturers.  This tax, like all excise taxes, will raise the price of medicine, hurting everyone.

Economic Substance Doctrine. The IRS is now empowered to disallow perfectly-legal tax deductions and maneuvers merely because it judges that the deduction or action lacks “economic substance.”  This is obviously an arbitrary empowerment of IRS agents.

Employer Reporting of Health Insurance Costs on a W-2.  This will start for W-2s in the 2011 tax year.  While not a tax increase in itself, it makes it very easy for Congress to tax employer-provided healthcare benefits later.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.  The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million.  These families will have to calculate their tax burdens twice, and pay taxes at the higher level.  The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000.  This will be cut all the way down to $25,000.  Larger businesses can expense half of their purchases of equipment.  In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place.  The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others.  Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available.  Tax credits for education will be limited.  Teachers will no longer be able to deduct classroom expenses.  Coverdell Education Savings Accounts will be cut.  Employer-provided educational assistance is curtailed.  The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Until this year, a retired person with an IRA could contribute up to $100,000 per year directly to a charity from their IRA.  This contribution also counts toward an annual “required minimum distribution.”  This ability will no longer be there.

Read more: http://www.atr.org/days-thebr-largest-tax-hikes-history-a5370##ixzz0yTa0UW2U

Written by David Frederick

September 3, 2010 at 10:19 AM