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Post 0

Tuesday, January 14 - 5:46amSanction this postReply
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Anyone see the slope of this curve changing soon?

We are at Jimmy Carter/malaise levels and heading South...









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Post 1

Tuesday, January 14 - 6:22amSanction this postReply
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No, but The Atlantic says "Obama's not to blame." :-)
http://www.theatlantic.com/business/archive/2014/01/no-obamas-not-to-blame-for-our-historically-pathetic-participation-rate/283015/



Post 2

Tuesday, January 14 - 8:59amSanction this postReply
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Merlin:

Love the picture of Obama in that article!

This was confusing to me:

"It shows that young people are working less (because they're in school) and it shows that old people are working more than they used to, but still much less than other workers (because they're retired)."

So, unlike earlier generations, today's old people are working more than they used to because they are retired???? while younger people stay in school at $50,000/yr because they don't want to enter the workforce?

When my oldest son got out of UVA recently, he damn well wanted to enter the workforce.

When I was a young boomer and in school and not working, I was not working less, but today's young who are in school and not working are working less.

Meanwhile, as boomers today -- after having been fleeced their entire working lives by an extra 10% of payroll tax -- may -want- to retire, but can't, they're working -more- than previous generations used to at age explains why the participation rate is dropping to Jimmy Carter 'malaise' levels...

There is a silver lining in this explanation; we should expect an uptick in business at chiropractors, as all this bending over backwards to explain away the dismal results of all this 'the economy' running proceeds full speed ahead, if nothing else.


Here is a competing explanation: young people looking for jobs are working less ... because the economies are on their ass.

Many Boomers who would normally -want to leave the workforce- and be retiring at this point are not because they labored their entire working lives under an additional 10% payroll tax(and thus, had 10% less of their earnings for self-funded retirement assets)and so, are trying to work until they drop. Many more of these who would prefer not to leave the workforce are being forced to leave the workforce ... because the economies are on their ass.

The rate of increase in health care costs is dropping...because the economies are on their ass.

10% or more of coal fired plants in the US have been shutdown ... because the economies are on their ass.

Energy inflation is somewhat in check ... because the economies are on their ass.

The QE/stimulus funny money erupted as inflated stock prices in economies going nowhere...because the economies are on their ass.


regards,
Fred



Post 3

Tuesday, January 14 - 9:22amSanction this postReply
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The graph "shows that old people are working more than they used to, but still much less than other workers (because they're retired)."
Fred, I'll say it differently. The graph shows that old people are working more than they used to, since the bars above the 65-74 age group increase with time. Old people still work much less than other workers, since the bars above the 65-74 age group are lower than those for the 20-24, 25-54, and 55-64 age groups.



Post 4

Tuesday, January 14 - 9:27amSanction this postReply
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From the article:

"The place where we're really missing workers is in the 16-24 cohort, where there's a 4.3-million-person hole."


Ah. That explains the competition in wages for 16-24 yr old workers, to fill that hole.

I mean...their incredibly high unemployment rate, relative to the overall unemployment rate.


Because ... the economies are on their ass.


In the early 70s recession, there really -was- a labor shortage in that cohort; this resulted in wage and price inflation(and a recession that peaked with a real unemployment rate of 6.1%...). But that was because that recession was caused by labor shortage induced stalled economies -- economies trying to roar, unlike the current flaccid things flat on their back.


The economies were lined up itching to market to the young Boomer market-- the leading edge of the pig in the python not quite in the workforce yet, but firmly in the marketed to youth marketplace. The opposite happens at the trailing edge of the pig in the python leaving the marketed to marketplace...


regards,
Fred



Post 5

Wednesday, January 15 - 6:40amSanction this postReply
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Merlin:

This fact of glaring life has me wondering why we expect anything other than chronic economic crisis and low employment:

FED EXP: still struggling to hire people, buy airplanes, provide service. Is limited to 15% debt/equity ratio.

An LTCM: no problem operating with 2500% debt/equity ratios while ... doing nothing but manipulating bets on value-proxies, not value; "running in front of bulldozers and picking up nickles...by the billions."

How does that happen, and what is the justification? Because that nonsense isn't restricted to the Vegas or Wall Street hustlers rolling the dice and playing the game: it now is backed by the US Treasury. In service of what, other then self-interests of a connected few? Certainly not 'the Economy.'

Why does this nation tolerate carcass-carving maggots running free in our banking/financial system?

Main Street might be slow on the uptake, but its getting ever more clear we are living in a carnival run by carny hucksters.

Would an LTCM exist if limited to 15% debt-equity?

No. Our first hint that maybe such shouldn't exist.

What enables a 25:1 debt-equity ratio? Their need?

We can say, 'because banks were willing to lend them the money.' OK. Then why wasn't the Treasury willing to let those same banks eat it when they fucked up? The discipline of targeted pain is what is missing on the current economic game; the pain needs to be targeted at the -perps-, not shared with the victims.

Yes, individual pension plans and asset accounts would have taken a hit ... to the precise extent that individual pension plans and asset accounts were exposed to the faulty perps. Heads would have been -directly- placed on pikes.

The 'economic crisis' of 2008 was, the 'crisis' felt by those perps. They squirmed. Well sure they did; it was their heads headed for the pikes. Like that jackass Paulson clinging to his hundreds of millions.

Heads some few win. Tales we all lose.

Good for the few. Not so great for the nation.

No ethical reason at all to obey the laws in this out of all control circus. None. Other than, brute force and fear. That is the broken tribe where we live today.





Post 6

Wednesday, January 15 - 7:21amSanction this postReply
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Fred,

FedEx limits itself to a 15% debt/equity ratio.

Have you read The Creature from Jekyll Island: A Second Look at the Federal Reserve?
http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/091298645X

If not, I bet you'd enjoy it. The following is a BookTV show about it.
http://www.booktv.org/Program/13741/Book+TV+at+FreedomFest+G+Edward+Griffin+The+Creature+from+Jekyll+Island+A+Second+Look+at+the+Federal+Reserve.aspx

(Edited by Merlin Jetton on 1/15, 7:50am)




Post 7

Wednesday, January 15 - 10:47amSanction this postReply
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Merlin:

RE: FED EXP and debt-equity:

Fed EXP CEO Fred Smith widely quoted in WSJ article lamenting the relative ability of product/service based busineses ability to leverage vs. pure financial 'industry.'

This is what I was referring to:

http://online.wsj.com/news/articles/SB122488966230768509

Widely reported:

Example:

Supply Chain News: FedEx’s Fred Smith Agrees US Needs to Return to a “Product Economy"

Tax Policies are Unfair to Asset-Heavy Businesses, He Says; Would have Bought More “Triple Sevens”


The Wall Street Journal article said Smith “views the heroes of the U.S. economy as the companies that actually produce real goods and services. He sees the Wall Street collapse as an inevitable byproduct of investment bankers building multitrillion dollar debt pyramid structures.

In an recent interview with the Wall Street Journal, legendary Federal Express founder and CEO Fred Smith covered similar ground to the ideas offered by SCDigest editor Dan Gilmore in his recent column Back to the Product Economy?

In the interview, Smith crisply summarized how things have become so out of whack in the financial sector versus the rest of the product economy that has to play by traditional rules.

"Rather than in our business, where you have to have a dollar of equity for 10 cents or 15 cents of debt, it's exactly the opposite in the financial sector where you have one dollar of equity for 10, 25, 50 times risk," Smith said.

regards,
Fred



Post 8

Wednesday, January 15 - 11:24amSanction this postReply
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Fred,

Thank for the link to the WSJ article. I am confused by what Fred Smith said. "We've got to reduce the taxes on equity. Let companies expense their capital purchases." (1) The next paragraph is about the high U.S. corporate tax rate, "about 38%" versus Germany's 25%. (2) Companies do expense their capital purchases; it's called depreciation.

Another "tax on equity" in my view is that dividends paid on common stock are not deductible, whereas interest is always deductible. As for reducing leverage by financial companies, an idea would be to scale down the tax deductibility of interest. An example would be the first $X is 100% deductible, the next $Y is 75% deductible, and so forth. Even better would be to link the scale down breakpoints to how much equity the corporation has.



Post 9

Thursday, January 16 - 5:25amSanction this postReply
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Merlin:

I don't think he was trying to deliberately conflate the two issues (debt/equity and government tax policies.) I think he was lamenting one, and then the other. They kind of get mixed up only by their juxtaposition in that article.


By expense he means 'in the same year the cost is incurred' which is not what depreciation is.

regards,
Fred



Post 10

Thursday, January 16 - 5:51amSanction this postReply
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By expense he means 'in the same year the cost is incurred' which is not what depreciation is. (Fred)
Aha, and the following corroborates it.
Frederick W. Smith, chairman and chief executive of Fedex Corp.

1. “Allow businesses to accelerate depreciation of capital purchases more quickly. The Institute for Policy Innovation has estimated that every dollar in tax cuts for business depreciation adds about $9 in GDP growth. Over the past 60 years, there’s been a strong correlation between domestic job growth and business investment. Any policy that permanently allows businesses, particularly manufacturers, to expense capital purchases in the year they are made will go a long way toward putting more investment funds—and consequently more jobs—into the marketplace.”
http://www.humanevents.com/2010/08/05/business-leaders-explain-how-to-create-jobs/
I don't suppose he would advocate such expensing for GAAP accounting. :-) I also assume it would make a difference between the tax treatment of buying capital equipment versus leasing it that many would dislike.



Post 11

Thursday, January 16 - 6:38amSanction this postReply
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Merlin:

Here is the issue with depreciation.

Capital that must be depreciated is not expensed (deducted from gross earnings to calculate net taxable earnings) in the same year the expense is incurred. Instead, it is 'expensed' (currently) over 3,5,7,10,15, or 20 years.

I say 'currently' because our government tax policies are ephemeral quicksand, and disinterested carrot/stick/string puller/pushers far over the horizon are forever scooting from their Disneylands of Ivy subsidy directly to string pushing central from where to painlessly 'run the Economy...' by endlessly tweaking the out of all control and inscrutable tax code.

A stilted example: a small company operates and realizes net income of 100,000. The owner may want to invest 100,000 of these earnings as business capital to expand his business. But he can't easily do that, because he can't expense the full 100,000; he can only depreciate a portion of that in the first year, meaning, he will owe taxes on the non-depeciated amount in the current year, which reduces the earnings available to him for immediate investment. He would have to borrow money or raise additional capital, basically, to pay the taxes, in order to spend the entire 100,000 of earnings on new capital. So maybe he invests half those earnings in normal economies(or, during crashed economies, maybe he invests none at all until he sees an actual opportunity to do so.)

If he was able to expense the full amount the first year, then more of his current earnings is available for capital expansion and he goes out into the economies and spends money on new capital...creating jobs not only in his business, but in the capital equipment mfgrs who are getting his current business.

What happens in year two? He has placed new capital in service and expanded his business. He is more likely to increase his taxable earnings. In year two, he has no deductions for that capital. He expensed it in year one. If it is generating new earnings for him, those new earnings are not shelterable by his capital expense and he will pay tax on them. He may also be paying more payroll tax because he expanded his business. He may also spend more on new capital in the second year, deferring realizing his earnings as spendable taxed profit.



If he realized earnings as spendable profit, he is taxed. If he spends it on capital, his ultimate tax is deferred but is larger in the future, however, his actions expand economic circulation and increase taxes by increasing circulation.

So, Smith is arguing for expense rather than depreciation to grow the economies. By encouraging business to expand their business, the result is, increased spending on capital equipment, more jobs building capital equipment, and more jobs using capital equipment.

King Consumer is not being encouraged to consume when they are being layed off and placed on the dole. King Consumer is being encouraged to consume when his job is secure and the company he is working at is expanding, not contracting or being driven overseas.

What started all this was a signal; that signal was from the economies. It was that small businesses 100,000 in net earnings. The signal was 'do more of what you were doing, the economies have rewarded it with your net earnings -- income over expenses/cost.' Whereas the message of depreciation is literally 'not so fast.'

What is the government doing with depreciation vs expense? It is the government saying 'We would rather tax the smaller seed corn today than tax the larger crop tomorrow. We need to accelerate taxation, not growth in the economies. We are short term hawkish on taxes, growth be damned. And to justify out immediate swipe at the seed corn, we will drum up our own fantastic theories about farming and call it a day.'

What happens in the other scenario? He doesn't buy new capital. He pays taxes on the full 100,000 in earnings. He takes his net and puts it away. No business expansion. No new capital equip mfg business. No new jobs. No new taxes in year two. But the upside is, the federal government took those taxes and responded to no signal at all, throwing away 500 million on a Solyndra, which was rewarded with the message 'do less of this, the economies punish it.'

The function of government meddling in the economies is to distort signal with pet Soc. grad school theories backed up by guns. Distortion and displacement.


regards,
Fred



Post 12

Thursday, January 16 - 6:58amSanction this postReply
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Fred, I followed and agree with your post 12. But it is all about tax accounting for purchasing capital equipment, and there are more issues -- leasing capital equipment and GAAP accounting (my post 10). We don't need to discuss them more; I just wanted to acknowledge them.



Post 13

Thursday, January 16 - 7:17amSanction this postReply
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Merlin:

Sometimes I hear people complain about business expense 'write-offs' as in, 'they can just write that off.'

The self-employed hear that and hear cluelessness.

Sure, anyone can have a 100,000 'write off.' All they need to do is come up with a 100,000 in earnings, spend it on new equipment, and then they can have a 'write-off.'


People(not you)sometimes talk about expense/depreciation as if it was a little 'gift' given to businesses by the taxpayers. As if businesses got to both expense -and- depreciate equipment. It is either/or. I don't know how many folks not in business realize that.

Businesses also 'write off' payroll expenses. They get to do that by ... paying payroll expenses. If someone wants the 'benefit' of writing off payroll expenses, then all they need to do to avail themselves of this 'benefit' is to ... pay payroll.

C Corps pay taxes on net earnings. When they distribute what's left, their shareholders pay taxes on the distributions they receive. S Corps pay no taxes, but their shareholders pay taxes on their apportioned share of the S Corp earnings; in effect, S Corps get taxed at their shareholders highest marginal rate on their earnings. In that sense, they are taxed like sole-proprietorships, but are structured like corporations, and are limited to small businesses. I switched from C to S back in the mid-80s.

For some reason(it comes down to petty resentment of employees of their employers and the need in this universe to go to work)non-business owner participants in our economies often vocally resent business owners, including, the self-employed, even though they should feel free. We graduate into the 13th grade of life and are forced to get a job. We walk down the street and see things we'd like, but there are these prick business owners who insist on charging us for what we want. Every time we hear about a business 'making money' and not being taxed into oblivion for having the audacity to charge us for what we see and like and want, we grouse. We grouse when they provide jobs and squeeze all the profits out of our virtuous hides, and we grouse when they don't provide jobs and squeeze all the profits out of our virtuous hides. We have a child-like belief that the government will provide us all cushy do nothing non profit jobs with great benefits and miraculous pension benefits without taxing some ruthless bastards somewhere actually running uphill in this universe. And, so on.

It is a fools errand to try and paint modern tribal politics as anything much deeper than that; the irrational wants and wishes of tribal children balanced against those who stand in their way of just grabbing what the want.

regards,
Fred



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Post 14

Thursday, January 16 - 7:32amSanction this postReply
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Yep, many people are as clueless about "write-offs" as Kramer and Seinfeld.

You Tube Link

(Edited by Merlin Jetton on 1/16, 11:54am)




Post 15

Thursday, January 16 - 11:45amSanction this postReply
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Perfect.



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