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Relentlessly asking the right questions is a long term career, mostly because no one ever knows the right answer on a regular basis.
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Posted: 19 Sep 2010 05:46 PM PDT It's no secret that Illinois, New Jersey, and numerous other states have massively underfunded pension plans. The problem is far worse than it looks because of ridiculous assumptions like 8% or higher returns. Moreover, states like Illinois, Texas, Rhode Island, and Ohio have gone one step further by recently adopting actuarially unsound methods specifically designed to disguise the mess. The New York Times tackles the issue in The Illusion of Pension Savings Earlier this year, Illinois said it had found a way to save billions of dollars. It would slash the pensions of workers it had not yet hired. The real-world savings would not materialize for decades, of course, but thanks to an actuarial trick, the state could start counting the savings this year and use it to help balance its budget.Problem is Now The problem is now. The only way to have savings now is to reduce benefits now. Three states have acted now, at least in small ways. Colorado, South Dakota, and Minnesota all recently reduced pension benefits. All three states face legal battles. Please see Uncharted Territory" in WA; Calpers Bargains with Schwarzenegger; "Fairy-Tale Promises" in NJ; "No Choice" in NY; Lawsuits in CO, SD, MN over Pensions for a partial list of the big mess we are in, and what a few states are doing about it. Illinois, along with Texas, Ohio, Rhode Island, New Jersey, Arkansas, and for that matter every state but those three, are at best dealing with the current problem by making small changes that will matter 30 years from now. The math does not work. $3 Trillion Deficit According to a report by the American Enterprise Institute, public pensions are underfunded by more than $3 trillion. Please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State? for details. Changing rules for new pension plan participants is a small step in the right direction, but even getting rid of them entirely would not cure the $3 trillion deficit today. As always, Illinois refuses to tackle this massive issue, instead seeking solutions to hide the severity of its problems. Texas, New York, California, and New Jersey are not much better. Hopefully the SEC will have something more to say about never-ending foolishness to mask the huge and growing public pension problems. Whether that stirs any brain waves in Springfield, Illinois or any other state capitols is unfortunately another matter. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Posted: 19 Sep 2010 03:06 PM PDT Inquiring minds are interested in 2011 tax policy changes that will affect sellers of merchandise on eBay. John R writes .... Starting next year Paypal will have to start reporting to the IRS. The selling limits will be 200 items or $20K before they report. This tax change was part of the '08 stimulus.New Form 1099-K will debut for 2011 tax year John is discussing eBay Sellers and Tax Changes Tax time is upon us again, and this year the IRS has a bit of a warning for eBay sellers: next year you'll be on the hook for the taxes you owe.Government Crackdown on Trinket Sellers How many hobbyists like John will just say the hell with it? If enough do, it could impact eBay's earnings. Imagine selling 20 items a month, earning a few hundred dollars a year or less in profit, and having to spend time and money keeping track of all the costs associated with the effort. I am not trying to justify non-payment of taxes, I am simply looking at this from a practical standpoint. Corporate Earnings Reported to Shareholders vs. Corporate Earnings Reported to the IRS Just for grins, take a look at big corporation earnings reported to shareholders as compared to earnings as reported to the government. Which one is fiction and which one is real? Is either legitimate? I doubt it, and in opposite directions. If I am correct, where should government be spending its time and energy? Loopholes for the Little Guy vs. Loopholes for Large Corporations Every conceivable loophole, no matter how small, is closed for the little guy, while major corporations have tax avoidance loopholes worth hundreds of billions of dollars. For example, multinational corporations get to defer profits on taxes held overseas. Adding insult to injury, there have been semi-regular "tax holidays" where corporations get to repatriate offshore accounts at low rates, to the major advantage of large corporations and huge disadvantage of small US based corporations. Such policies encourage the flight of jobs and money from the US. So, here we go again, cracking down on the little guy in attempts to pick up pennies to balance the budget, ignoring hundreds of billions of dollars over the years to large corporations. Campaign Bribes and Tax Policy Please note that I am in favor of lower corporate taxes as long as it is done fairly (right now multinationals and large corporations have huge advantages) and as long as we can afford it. Instead, we have a system that rewards capital flight, rewards job flight, and punishes small businesses relative to larger corporations. This mess happens because lobbyists for large corporations write our tax code, with politicians taking campaign contributions (bribes) in return for the favor. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Sunday Funnies 2010-09-19 Understanding Taxes Posted: 19 Sep 2010 01:18 PM PDT Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
America's Lost Decade - Another One in Progress Now Posted: 19 Sep 2010 12:48 AM PDT The US used to point the finger at Japan's "Lost Decade" saying "It won't happen here." But it did. Median wages are nearly 5% lower in real terms than in 2000, the poverty rate is at a 15 year high, and the S&P 500 is about 20% lower than it was a decade ago. Pleased consider the Wall Street Journal article Lost Decade for Family Income The downturn that some have dubbed the "Great Recession" has trimmed the typical household's income significantly, new Census data show, following years of stagnant wage growth that made the past decade the worst for American families in at least half a century.Lost Decade Lowlights
Census Bureau Charts Here are a few select charts from Income, Poverty, and Health Insurance Coverage in the United States: 2009, Issued September 2010. click on any chart for sharper image Real Incomes 1967 to 2009 Real income for most groups is back to 1996 levels, a couple years higher for Asians. Poverty Rates 1959 to 2009 In general, the chart shows the "War on Poverty" was a failure regardless of what political party was in office. The odd pair of Clinton and Nixon did the best, while Carter and George W. Bush the worst. Reagan and George H. Bush both had roller coasters ending about where they started, while Ford essentially experienced a flatline. Since the start of the "War on Poverty" in 1964, President Johnson did the best in absolute terms. However, a war on poverty via a "Guns and Butter" policy including an insane War in Vietnam can hardly be considered a success. Ironically, and as is typical of government programs, we made far better progress before the "War on Poverty" started. Since then, some 46 years later, we are just about where we started. Descent Into Poverty The Minneapolis Star Tribune reports on a Descent Into Poverty For Millions Ramsey County human services planner Jim Anderson didn't need Thursday's census report to know that poverty has climbed sharply since the economy collapsed in 2008.Nikkei Monthly Chart For the Japanese Nikkei Index it has been two lost decades going on three. S&P 500 Monthly Chart For the S&P 500 it has been one lost decade going on two. Given the structural problems in the US, there is no strong reason to think this decade will be much better than the last. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
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Let's assert that marketing works.
The money and time and effort we put into marketing goods and services actually works. It gets people to change their minds. It cajoles some people into buying and using and voting for things that they otherwise wouldn't have chosen. (If it doesn't work, save your money).
If it works, then, are you responsible for what happens after that?
If you market cigarettes aggressively, are you responsible for people dying of lung cancer?
I think there are two ways to go here:
1. You're not responsible. The marketer is like a lawyer representing the obviously guilty client. Everyone is entitled to a lawyer, and it's up to the jury to decide. The lawyer's job is to do the best she can, not to decide on the outcome. Market the best you can and let buyers take responsibility.
2. You are responsible. Your insight and effort cause people to change, and without you, that change would never happen.
I'm not sure there's a middle ground. Either we should applaud the folks lobbying on behalf of causes we despise, the pornographers selling products that degrade our society and the politicians spinning and lying to get elected (because all these people are doing is giving us a choice for which we're responsible) or we should take responsibility for stuff we sell.
My take: if you're not proud of it, don't sell it.
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Posted: 18 Sep 2010 04:17 PM PDT Here is an email from Robert who is wondering about the Fed's ability to inflate, and the consequences if they try. Robert writes ... Hello Mish,Fed's Primary Mission Failed Hello Robert First off, congratulations for understanding the Fed's attempt at producing inflation has failed. Many do not see it that way, but it depends on the definition of inflation, and an understanding of what the Fed is really attempting to do. The Fed's primary goal is not to get prices to rise (regardless of what they say), but rather to get banks lending, consumers spending, and businesses hiring. The Fed and Congress have failed on all three scores. One Sided Policies The Fed did not produce inflation, but there is a huge price to pay to pay for the Fed's One sided policies.
One needs to look at things not just from the recent "stabilization" of banks, but as an ongoing affair that has killed the middle class. Inflation was running rampant (in terms of credit in general and mortgage lending in particular). Wages did not keep up with prices and people plowed into assets as a means of savings. The bailouts did not produce inflation, but the middle class bailed out the banks and got nothing in return but higher taxes, fewer services, and looking ahead, years of stagnation. Moreover, the bondholders (such as China, Japan, and PIMCO) were made whole, while the homeowners are still mired in debt. Adding to the misery, banks lord it over on homeowners with total nonsense about the morality of walking away. We will all suffer the consequences of these one sided moral-hazard policies for a decade to come. Quantitative easing, bailouts, extend-and-pretend schemes, and the alphabet soup of lending facilities all have very real consequences. Near-term or intermediate-term (a few years out) inflation are not likely in the mix, but the distortions caused by the Fed and Congress will still affect us for a decade to come. Those distortions (caused by one-sided policies that favor banks and the wealthy) have killed and will continue to kill the middle class. Robert, that is what you sensed, even if you could not put your finger on it. Those who missed it should read Myths About "What's Economically Important" for a discussion about how and why credit, not prices is the key to the mess we are in. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
Posted: 18 Sep 2010 02:24 AM PDT The Star-Telegram reports Fort Worth pension bubble will blow up in our faces. To understand why Fort Worth's pension system is such a financial disaster, look at one month's list of recent retirements.This is what it always comes down to: corrupt politicians pandering to public unions to win votes for reelection. Moreover, the result is always the same, greedy public unions wanting to raise taxes to pay for their exorbitant wages and benefits. Fort Worth is now bankrupt. The only solution is to fire the city manager, declare bankruptcy, and resolve the issue of benefits in court. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. |
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