U.S. Central Bank
Pay-Per-Mile Tax Will Make Every Road a Toll Road
If you thought all the talk about taxing the rich meant the government would not be reaching deeper into the pockets of most Americans, then you haven't heard about the pay-per-mile tax.
It hasn't happened yet. But Congress is considering a new way of taxing American drivers that would charge them per mile instead of the current 18.4 cent-per-gallon gasoline tax they pay now.
A new study by the U.S. Government Accountability Office (GAO) says that such a pay-per-mile tax, also known as a vehicle-miles-traveled tax (VMT tax) or ObamaMiles, would cost the average American motorist at least $100 more per year than the current gasoline tax.
The problem the federal government faces is that the annual gasoline tax revenue of $34 billion has fallen far below the $78 billion required to maintain the country's highway system.
The Real Villain is the One Behind the Curtain in the Libor Scandal
There's nothing like pulling back the curtain on the fraud that's center stage in the Libor manipulation scandal and finding the levers are really being pulled by central banks.
It's not about the banks doing what they did. The revelation is this: Central banks are the biggest impediment to free markets and the reason capital markets have become casinos.
And until the tyranny of their grip is broken, the majority of public investors are going to rightfully sit on the sidelines and long-term economic growth will be impossible.
The Libor scandal is just a sideshow. There's nothing new there.
Banks manipulated Libor (the London Interbank Offered Rate), the benchmark for over 800 trillion dollars in interest rate-sensitive loans and financial instruments, to jack up profits on trading positions they held.
Bankers scheming, lying and cheating for bigger bonuses at the expense of anyone in their way…that's news?
No, but here's the real inside scoop…
Fiscal Cliff: Bernanke Urges Congress to Take Action
U.S. Federal Reserve Chairman Ben Bernanke on Tuesday once again reiterated Congress' need to prevent the economy from succumbing to the "fiscal cliff" that as of now will hit taxpayers and the country in 2013.
The fiscal cliff refers to the numerous tax increases and steep spending cuts slated to go into effect Jan. 1, and will throw the already struggling U.S. economy back into a recession.
In his semi-annual monetary report to the U.S. Senate, the chief voiced his concerns. What was missing though was what Congress should actually do to hammer out a budget deal that would prevent a fiscal cliff.
"I don't have a specific recommendation, other than to think not just about the individual policies, but of the collective impact. Congress is in charge here," Bernanke said.
What I Wish Ben Bernanke Knew About Japan
I've called Japan my "other" home since 1989 and in that time I've seen it change in ways that ought to scare the pants off you.
I say that not to ruin your day, but because I fear we are headed down the same exact road as long as Ben Bernanke and his central banking buddies think it's easier to print money than actually stimulate real growth.
In doing so, they are re-creating Japan's "Lost Decades" here at home with years of smoldering, piss-poor growth as our destiny.
Yet it doesn't have to be that way. We can still choose a different path.
Here are 10 lessons from Japan I would share with Chairman Bernanke right now if I sat down with him:
1) All the cheap money in the world won't matter if banks hoard it and customers don't want it. You could lower interest rates to zero and it won't make a difference. Japan tried this to no avail. At this point, low rates are hardwired into the Japanese business system to the extent that any increase whatsoever is likely to cause a massive wave of corporate and personal bankruptcies. Don't let that happen here. You still have a chance to prevent this.
2) At some point somebody has to take the loss. You cannot pretend that the debt you've advanced is performing any more than the Japanese have. No matter how much money you inject into the system, the deleveraging process will continue until excess credit is bled out of the system one way or another. Defaults happened with alarming regularity before Central Banks tried to stave them off. There have been literally hundreds in Eastern Europe, Africa, Asia, and Latin America over the centuries. Spain and France failed six and eight times each in the 16th century alone.
3) Trying to manage any singular crisis will only result in a much bigger one down the road. The longer you prop things up, the worse they're going to get and the more consolidation you will see. Five of the 10 largest banks in the world were Japanese in 1990. Today the only bank to make the cut is 5th on the list (the Japan Post Bank Co. Ltd according to Bankers Accuity).
4) When politicians find it easier to borrow money than make hard policy decisions, they will because they prefer their short term re-election prospects over the long-term economic interests of the country. Japan has had 15 Prime Ministers in the last 12 years. Granted, their system works a little differently than ours, but continual reshuffling diminishes the effectiveness of any solution. Take advantage of the situation and act decisively before our elections risk a reset. You're supposedly apolitical. Prove it by acting with conviction instead of giving us more FedSpeak.
The U.S. Lies About Inflation: Here's The Inflation Secret The Government Doesn't Want You to Know
Is anyone else having deja vu?
In 1973, the U.S. economy had:
- Record oil prices (check).
- A stock market crash (check).
- And jaw-dropping inflation (check).
Sound familiar? Yep, brush off your bellbottoms. The 70s are back.
And soon even Bernanke's shell games won't be able to hide the truth. After years of the Fed's loose money policy, inflation is biting back. And it's going to get ugly.
The government could stop inflation in its tracks if it would make some hard decisions. But if it doesn't, there are still proven ways to protect yourself from inflation. (For specific anti-inflation recommendations, take a look at the latest Money Morning special presentation right here.)
Is Gold Money?… Don't Ask Ben Bernanke, Examine the Federal Reserve
If you really care about your financial future, here's something you need to know.
It's about a story that received almost zero coverage from the mainstream press. I can't say that I am surprised.
It involves gold.
Thanks to requests by Bloomberg News under the Freedom of Information Act, the Federal Reserve has revealed unprecedented details concerning the personal holdings of its regional bank presidents.
What they found is nothing short of stunning …
Ben Bernanke on Gold
But let me back up a little.
There's an exchange between Fed Chairman Ben Bernanke and Congressmen Ron Paul you need to hear first.
During a monetary policy report delivered to Congress last summer, Congressman Ron Paul asked Bernanke if he thought gold is money.
After a clearly uncomfortable pause Ben said, "No. It's a precious metal." [By the way, if you haven't seen Ron Paul questioning Bernanke about gold, click here. It's already had over half a million views.]
Paul went on to ask Bernanke why it is then that central banks hold so much gold. Bernanke answered that it was simply a tradition.
Well, congrats Ben, you did get that one right, just for the wrong reasons. (Deep down, you surely know the true reasons).
The fact is gold has been a monetary tradition for millennia.
Nearly 2,000 years ago Aristotle laid out what characteristics make for good money. According to Aristotle:
- It must be durable.
- It must be portable.
- It must be divisible.
- It must be consistent.
- It must have intrinsic value.
So it's no accident that the most common basis for money – in all of human history – has been gold.
You might want to reread that: the most common basis for money – in all of human history – has been gold. It's no accident.
After all, only gold meets all five of those requirements for sound money.
It is only in the past century that fiat money has supplanted gold or gold-backed currencies on a worldwide basis.
What makes today's central bankers and their system of printing fiat currencies and setting interest rates so special? It is hubris and nothing more.
Fiat currencies are just a relatively recent, and failing, experiment in economics. So much so, it's become exceedingly dangerous to hold them of late.
How Much Cash Should You Hold?
As you might imagine, I receive a lot of questions from readers around the world and right now the question I'm being asked most frequently is, "How much cash should I be holding?"
There's no right answer, but given the extraordinary times we're living in, I think the more interesting thing to consider is "what to do with it?"
But first things first. Let's talk about how much cash may be appropriate, then address what to do with it.
Traditional Wall Street thinking holds that cash is a drag that actually holds you back. The argument, particularly in a low interest rate environment, is that cash actually produces a negative real return because it really isn't "earning" anything while it burns a hole in your pocket and gradually loses ground to inflation.
I have a problem with this argument in that it's based primarily on the assumption that there's nothing better down the road.
I believe cash is key when it comes to providing the flexibility needed to safeguard wealth or capitalize on new opportunities – even now.
Not to make light of the current situation in Europe or our woes here in the United States, but the way I see things you can either ignore the problems and hope they go away in which case your cash is a dead asset, or you can learn how to deal with the uncertainty and profit from it in which case your cash is an asset.
If you're retired, holding something on the order of two to five years of living expenses is prudent. That way you can plan for regular expenses like insurance, medical bills, a mortgage if you've got one, and investing. Especially investing.
Now, if you're still working and have a regular paycheck, you can take some risks and hold less cash on the assumption that future income will offset the risks associated with a lower cash "buffer" on hand. A generally accepted rule is six months, but I think given today's economy 12-months worth of expenses is more appropriate.
Either way, the goal is the same – to have enough cash on hand that you don't have to spend money you don't want to at an inopportune time nor sell something when you don't want to.
For somebody in my situation, I think having about 20% of my investable assets in cash is about right.
If that strikes you as low in today's markets with all the risks they harbor, bear in mind I also use trailing stops religiously and I'm prepared to go to cash if things roll over. If you aren't disciplined or aren't prepared to be as nimble as the markets require, perhaps a more conservative 40% to 60% is appropriate. Maybe more.
Once you've decided what level of cash is appropriate for your particular situation, you can get to the bigger question of what to actually do with it.
This is where things get really interesting because even cash can be tweaked for better performance.
Bonds can be a Cash Alternative (For Now)
As long as interest rates remain low, core bond funds may make more appropriate "bank" accounts. At the very least, they can make good complements to the usual savings, checking and money market funds most Americans have already established.
Now, I can already sense the snarky e-mails heading this way telling me I have lost my mind or don't understand the risks associated with rising rates.
I haven't. Rising rates will make bonds tumble, and bond funds – with very few exceptions – will lose money.
But consider this: The chronic state of economic misery that we live in now may be with us a while. That's going to help keep interest rates low because the government believes – wrongly I might add – in stimulative economics that don't work and have never worked in recorded history.
More to the point, the U.S. Federal Reserve, for example, has announced that it's going to keep rates near zero through 2013. To me this is a near picture perfect repeat of the "Lost Decade" in Japan, which now is actually entering its third lost decade. We're on the same path.
The uncertainty could drive investors to bonds and actually make rates fall still lower from here, as hard as that is to imagine.
Federal Reserve Report: Central Bank's Record $82 Billion "Profit" is a Red Flag Warning
If the record $81.7 billion in profit that the U.S. Federal Reserve reported for 2010 was turned over to taxpayers directly, there's no doubt it would have some "stimulus" benefit – after all, a $270 check for every man, women and child in the United States ain't chicken-feed.
But since that money actually just "disappears" into the coffers of the U.S. Treasury, it does very little good for anybody.
Still, since the pretax earnings of Goldman Sachs Group Inc. (NYSE: GS) never got above the $12 billion mark, it's worth taking a closer look at the Fed's reported profits to see just what's going on – especially since we taxpayers will be called upon to bail out the central bank, once the inevitable losses arrive.
And once you take the time to investigate, you'll quickly realize two things – this "profit" isn't what it seems. And you should be worried – very worried – about what's to come.