Category Archives: Economy

Online Retailers Lose State Tax Subsidy, by Wolf Richter

Online retailers will now have to collect the sales taxes their brick-and-mortar competitors have to collect. From Wolf Richter at wolfstreet.com:

Up to $13 billion in 2017. Brick-and-mortar gets some relief. Consumers not amused.

The US Supreme Court ruled today that states may require out-of-state online retailers to collect sales taxes on merchandise they sell in that state. The decision overturned its 1992 ruling – Quill Corp. v. North Dakota – that had blocked states from compelling retailers with no “physical presence” in that state to collect sales taxes. At the time, two years before Amazon was founded, the internet was dogged by “worldwide wait” dialup, and the idea consumers would buy everything from shoes to couches on the internet was remote.

The 1992 ruling eventually gave a huge boost to out-of-state online retailers in that they received a consistent state tax subsidy with every sale that their in-state and local competitors – brick-and-mortar and online alike – did not receive. At first, online retail was just a minor sideshow, but after a quarter century of booming, it has become the place to be, and the squealing from all sides about the tax subsidy has been deafening for years.

It amounts to big bucks. The Government Accountability Office estimatedthat state and local governments could have collected between $8 billion and $13 billion in sales taxes in 2017 “if states were given authority to require sales tax collection from all remote sellers.”

In today’s ruling, authored by Justice Anthony Kennedy, the Court sided with South Dakota, which had passed a law in 2016 that required large out-of-state online retailers to collect sales taxes on merchandise sold in the state. Online furniture retailer Wayfair, along with Overstock.com, and online electronics retailer Newegg sued to block the law and won in lower court.

To continue reading: Online Retailers Lose State Tax Subsidy

Advertisements

This former trillionaire is flat broke, by Simon Black

Holding on to wealth can be harder than acquiring it. From Simon Black at sovereignman.com:

It’s hard to imagine, but today is actually Sovereign Man’s 9th birthday.

Nine years ago, on June 19, 2009, I sent out the first ever Notes from the Field email.

To commemorate the occasion, I thought I’d republish that first article… because I think it still captures the challenges we face, as well as the boundless solutions ahead of us.

I hope you enjoy.

=====

William “Bud” Post is flat broke.

He has dealt with lawsuits, jail time, bankruptcy, and now lives on food stamps.

It seems strange to think that he used to be a multi-millionaire… but it’s true. In 1988 he won $16.2 million from the Pennsylvania lottery (valued at $30 million in today’s increasingly worthless money), and Bud became drunk on his own wealth.

You’ve probably heard similar stories—the struggling, working class lottery hopeful hits it big in the Powerball only to return to the trailer park, broke, within a few years.

In irresponsible hands, wealth can evaporate faster than Nancy Pelosi’s approval ratings… and the lottery winners like Bud generally make bad decisions.

They become careless and foolish with their wealth, spending enormous sums of money on opulent consumer goods, gambling trips, and nights in the champagne room.

Banks line up to provide them with generous lines of credit that they blow on useless toys or handouts to a fawning entourage.

At the height of this bubble, someone like Bud has fame, wealth, power, friends, women, houses, yachts… but no foundation for the future.

Each trip to the ATM is a missed opportunity to make a smart decisions… but Bud never cared. He thought the money would last forever. He thought the banks would always give him a loan. He thought his friends would never leave him.

Then one day Bud went to the ATM and found that his balance was ZERO. He went to the bank for a loan and was declined. The money was gone. His friends had disappeared.

The lawsuits started rolling in. Suddenly poor Bud found himself with absolutely nothing but distant memories of drunken consumption.

Sound familiar? It should. Bud is the United States of America.

America hit the lottery after World War II. We had defeated the Germans, nuked the Japanese, and remained the only developed country in the world that had not been devastated by the war. The US instantly became the richest kid on the block, and like Bud, spent the next several years in an alternate universe devoid of rational thinking.

To continue reading: This former trillionaire is flat broke

America’s Debt Dependence Makes It An Easy Economic Target, by Brandon Smith

Can a nation whose nominal debt is over $20 trillion and unfunded liabilities somewhere between $150-200 trillion bre considered strong? No. From Brandon Smith at alt-market.com:

There is a classic denial tactic that many people use when confronted with negative facts about a subject they have a personal attachment to; I would call it “deferral denial” — or a psychological postponing of reality.

For example, point out the fundamentals on the U.S. economy such as the fact that unemployment is not below 4% as official numbers suggest, but actually closer to 20% when you factor in U-6 measurements including the record 96 million people not counted because they have run out of unemployment benefits. Or point out that true consumer inflation in the U.S. is not around 3% as the Federal Reserve and the Bureau of Labor Statistics claims, but closer to 10% according to the way CPI used to be calculated before the government started rigging the numbers.  For a large part of the public including a lot of economic analysts, there is perhaps a momentary acceptance of the danger, but then an immediate deferral — “Well, maybe things will get worse down the road, 10 or 20 years from now, but it’s not that bad today…”

This is cognitive dissonance at its finest. The economy is in steep decline now, but the mind in denial says “it could be worse,” and this is how you get entire populations caught completely off guard by a financial crash. They could have easily seen the signs, but they desperately wanted to believe that all bad things happen in some illusory future, not today.

There is also another denial tactic I see often in the world of politics and economics, which is what I call “paying it backward.” This is what people do when they have a biased attachment to a person or institution and refuse to see the terrible implications of their actions. For example, when we point out that someone like Donald Trump makes destructive decisions, such as the continued support of Israel and Saudi Arabia in Syria and Yemen, or the reinstatement of funding for the White Helmets in Syria who are tied to ISIS, Trump supporters will often say “Well what about Obama?”

This is a game of shifting accountability. Is one person worse than the other? Possibly. I say give it time and make notes. However, the negative decisions of one politician we don’t like do not diminish the negative decisions of another politician we might like. They should BOTH be held accountable.

To continue reading: America’s Debt Dependence Makes It An Easy Economic Target

China’s Oil Trade Retaliation is Iran’s Gain, by Tom Luongo

Starting a trade war is like dropping a bomb, you never know what’s going to blow up. From Tom Luongo at tomluongo.me:

I’ve told you that once you start down the Trade War path forever will it dominate your destiny.

Well here we are.  Trump slaps big tariffs on aluminum and steel in a bid to leverage Gary Cohn’s ICE Wall plan to control the metals and oils futures markets.   I’m not sure how much of this stuff I believe but it is clear that the futures price for most strategically important commodities are divorced from the real world.

Alistair Crooke also noted the importance of Trump’s ‘energy dominance’ policy recently, which I suggest strongly you read.

But today’s edition of “As the Trade War Churns” is about China and their willingness to shift their energy purchases away from U.S. producers.  Irina Slav at Oilprice.com has the good bits.

The latest escalation in the tariff exchange, however, is a little bit different than all the others so far. It’s different because it came after Beijing said it intends to slap tariffs on U.S. oil, gas, and coal imports.

China’s was a retaliatory move to impose tariffs on US$50 billion worth of U.S. goods, which followed Trump’s earlier announcement that another US$50 billion in goods would be subjected to a 25-percent tariff starting July 6.

It’s unclear as to what form this will take but there’s also this report from the New York Times which talks about the China/U.S. energy trade.

Things could get worse if the United States and China ratchet up their actions [counter-tariffs]. Mr. Trump has already promised more tariffs in response to China’s retaliation. China, in turn, is likely to back away from an agreement to buy $70 billion worth of American agricultural and energy products — a deal that was conditional on the United States lifting its threat of tariffs.

“China’s proportionate and targeted tariffs on U.S. imports are meant to send a strong signal that it will not capitulate to U.S. demands,” said Eswar Prasad, a professor of international trade at Cornell University. “It will be challenging for both sides to find a way to de-escalate these tensions.”

But as Ms. Slav points out, China has enjoyed taking advantage of the glut of U.S. oil as shale drillers flood the market with cheap oil.  The West Texas Intermediate/Brent Spread has widened out to more than $10 at times.

WTIC-Brent-Spread

By slapping counter tariffs on U.S. oil, that would more than overcome the current WTIC/Brent spread and send Chinese refiners looking for new markets.

Hey, do you know whose oil is sold at a discount to Brent on a regular basis?

Iran’s.  That’s whose.

To continue reading: China’s Oil Trade Retaliation is Iran’s Gain

Italy challenges the Western order, by Frank Sellers

Italy doesn’t like its debt, its immigrants, or the EU, and thinks perhaps Europe’s ought to loosen up towards Russia. This is all contrary to the EU playbook. From Frank Sellers at theduran.com:

With a massive influx of immigrants from across Africa and the Middle East, and growing poverty, Italy voted in a populist government representing policies which would seem to virtually overturn the postwar European order.

The austerity measures which have been imposed upon the Italian people have pushed more and more of them down into poverty, with the poverty rate doubling over the course of the past decade.

Relative to migration, Italy is one of the Southern European countries taking the brunt of the migrants who are flooding into Europe by the thousands, helped along by various NGOs which seek to alter the demographic makeup and economic and political order of Europe under the guise of humanitarianism.

The present economic metrics tend to perceive the profits of multinational corporations as a gauge of the health of the economy, rather than the economic situation on the ground level, faced by the Italian citizen. All of these and more are things which this new government has a view towards radically changing.

To combat Austerity, which may be tossed out the window, the option on the table is to review treaties to which Italy is partied which impose or advise them. Rather than gutting the population for the money which the government needs in order to cover obligations to multinational financial interests, a proposal was broached of launching a universal basic income, reduction in the pension age, as well as a flat tax system.

And while the migrant policy is still evolving, it has had a view towards repatriating the migrants which are already within Italy’s borders. Italy has already flexed its will on the migrants issue over refusing a ship full of migrants port in Italy, forcing it to set sail for Spain.

Foreign policy aims at softening the approach towards Russia by eliminating sanctions and by putting the focus on improving relations, benefitting Italy both by allowing a resumption of trade, and the perspective of Russia’s will and capacity to help get a handle on the situation in the Middle East, which is part of what prompts the migration issue, due to the region’s instability.

What this could mean is that an already strained relationship between Italy and the EU could be put to the test, or altered in a significant manner if these proposals are put into play after the fashion in which they were introduced during the elections cycle.

To continue reading: Italy challenges the Western order

Could Big European Banks Drag the World Economy Down? by Peter Schiff

The European banking sector may be where the next financial crisis starts, but all of the world’s banks have assets and liabilities far in excess of their capital, and they are all interlinked, so once the crisis starts it will spread quickly. From Peter Schiff at schiffgold.com:

Humans are by nature somewhat myopic. We tend to focus primarily on what is right in front of us and filter out things further removed. As a result, we can sometimes overlook important factors.

As Americans, we generally devote most of our attention on American policy. We follow political maneuverings in Washington D.C., study the Fed’s most recent pronouncements and track the US stock markets. But we also need to remember there is a whole wide world out there that can have a major impact on the larger economy and our investment portfolio.

One factor that could potentially rock the world economy that a lot of American may not be aware of is the mess in the European banking system.

In a recent podcast, Peter Schiff talked about the impact the European Central Bank could have on the economy. Mario Draghi’s comments indicating he plans to hold interest rates at zero for another year roiled the markets. But that’s not the only issue facing the eurozone. As economist Dr. Thorsten Polleit noted in a recent article published by the Mises Wire, many euro banks are in “lousy” shape.

So what? you might ask. Well, the European banking system is huge. It accounts for 268% of gross domestic product (GDP) in the euro area. If the sector collapses, that’s bad news for the broader world economy.

One of the biggest problem children in European banking is Deutsche Bank. As of March 2018, the German giant had a balance sheet of close to 1.5 trillion euro, accounting for about 45% of German GDP. Polliet described this as an “enormous, frightening dimension.”

Beware of big banks — this is what we could learn from the latest financial and economic crises 2008/2009. Big banks have the potential to take an entire economy hostage: When they get into trouble, they can drag everything down with them, especially the innocent bystanders – taxpayers and, if and when the central banks decide to bail them out, those holding fiat money and fixed income securities denominated in fiat money.”

To continue reading: Could Big European Banks Drag the World Economy Down? 

The Eagle, the Dragon, and the Bear, by Robert Gore

Does Trump recognize the limits of US power?

Trump’s new world order comes straight from The Godfather. There are three global powers: the US, Russia, and China. None of these powers can militarily defeat either of the other two, and even an alliance among two of them would have trouble defeating the third.

Like Don Corleone, Trump is dividing up the larger territory into smaller, great-power controlled sub-territories. He is tacitly recognizing Russia and China’s dominance in their own spheres of influence, and holding them to account in their territories. The implicit agreement among the three is apparently that each power will, in their, “sphere of influence…enforce peace.”

Trump’s New World Order,” SLL 3/20/18

In one week President Trump confirmed that his first concern is the United States, that he has what may be a workable vision for its place in the world, and he loathes globalism and the globalists. A good measure of his efficacy is the outrage he generates. By that measure, that week was his finest hour…so far.

Europe won’t have a seat at Trump’s great-power table. Its welfare states are addicted to their handouts, deeply in debt, rely on uneven trade arrangements with the US, and have below-replacement birth rates. They are cowed by Soros-sponsored propaganda—Immigration is the answer!—and haven’t shut off the immigrant invasion. Refusing to spend on their own militaries, they’ve used what they save on defense to subsidize welfare spending and state bureaucracies.

They’re ignoring a lesson from history: nations that rely on other nations for their defense generally come to regret it. Instead, they’re wedded to the globalist acronyms: NATO, EU and UN. They have frittered away their power and their glory—Europe’s heritage and civilization—opting for overrun masquerading as assimilation by dogmatic and implacable foes.

Trump is all about power and despises weakness. There isn’t always strength in numbers. A confederation of weaklings doesn’t equal strength, especially when the weaklings’ premises and principles are fundamentally wrong. Strongest of the weaklings is Germany, a trade powerhouse but a US military vassal. It’s hard to say if Trump’s dislike of Angela Merkel is business—she’s one of the world’s most visible and vociferous proponent of globalism, or personal—it’s always her way or the highway. Probably both, and it looks like Germany may finally be rejecting her way on immigration.

Trump clearly relished snubbing her and her G-6 buddies, particularly boy toys Trudeau and Macron, who may actually believe his bone-crushing handshakes intimidated Trump. When you’re paying for a continent’s defense and you’re giving them a better deal on trade than they’re giving you, that’s leverage, and Trump knows it. He’s not intimidated.

US Atlanticists have used that leverage to cement Europe into the US’s confederated empire. That Trump is willing to blow off Europe suggests that he may be blowing off empire. America’s imperialists equate backing away from empire with “decline,” but such a sea change would be the exact opposite. Empires require more energy and resources to maintain than can be extracted from them. They are inevitably a road to ruin.

Nothing is as geopolitically telling as Trump leaving Europe’s most “important” heads of state early to meet with the leader of one of Asia’s most impoverished backwaters. Europe’s time has passed, the future belongs to Asia. Barack Obama’s “pivot” to Asia may look like the same recognition, but it was not. That pivot was designed to encircle China diplomatically, economically, and militarily. That thinking persists among much of the US military, but Trump may have something different in mind.

China has its problems. Much of its economy, especially its financial sector, is state-directed, despite the capitalistic gloss. There will be a reckoning from its debt binge. The repressive social credit system typifies the government’s immoral objective: keeping China’s people compliant but productive drones. However, enforced docility and innovation—the foundation of progress—mix as readily as oil and water, and theft of others’ innovations can’t fill the void.

Notwithstanding its issues, China is a major power and is not going to be encircled or regime changed by the US. The Belt and Road Initiative (BRI) it cosponsors and finances with Russia is the centerpiece of a basket of initiatives designed to further those countries’ influence and leadership within Eurasia and among emerging market countries. BRI is an apt symbol of the movement towards multipolarity, with competition shifting from the military to the economic and commercial sphere.

Trump tacitly accepts Russian and Chinese dominance in Eurasia. However, Trump doesn’t give without receiving; he’s going to extract concessions. Number one on the list is North Korea and its nuclear weapons. We’ll probably never know what has gone on behind the scenes between Kim Jong Un, Xi Jinping, and perhaps Vladimir Putin, but Kim may have received an offer he couldn’t refuse. Both China and Russia would be well-served by a Korean peninsula free of nuclear weapons and US troops. Whatever transpired, Kim came around. Trump ameliorated any potential humiliation, journeying to Kim’s neck of the woods, laying on an inspirational movie video, and flattering the North Korean leader and his country. Kim the farsighted leader may be able to reach a deal; Kim the browbeaten puppet couldn’t. If he tried, he’d probably be deposed, always a danger for dictators.

As global competition moves from military to economic, Trump is also going to make sure he tilts, as much as possible, the rules of that competition back towards the US. There are the existing trade arrangements with Europe, Canada, and Mexico that he’s willing to blow up, presumably to obtain better arrangements.

China is in a league of its own when it comes to gaming trade, and it’s getting the Trump treatment as well. Much of the Chinese “advantage” stems from Chinese overcapacity, fueled by below market interest rates in China and around the globe. Trump can’t do much about that “advantage.” The low-interest regime will eventually crash and burn, but it’s going to take a depression to clear overcapacity in China and elsewhere.

Innovation and intellectual property are America’s one indisputable comparative economic advantage. It will be a tough nut, but Trump is bent on curbing China’s acquisitions, by fair means and foul, of US know how. If he succeeds it will slow, but not stop, the Chinese economic juggernaut. It has millions of smart, well-educated, industrious people who will continue to fuel indigenous innovation (notwithstanding state-enforced docility).

Three realities confronted Trump when he assumed office. The US empire is unsustainable, so too is the trajectory of its spending and debt, and the government is fundamentally corrupt. It would be foolish to bet Trump doesn’t understand these issues and the linkages between them.

“Trump’s New World Order”

If Trump has recognized that first reality and is implementing Don Corleone’s spheres of influence concept, he may get some breathing room to address the intractable second and third realities: the trajectory of US spending and debt, and the fundamentally corrupt government. On the debt, all the breathing room in the world isn’t going to save him. The US keeps adding to principal, which is compounding at rising rates. Cutting imperial expenditures would help some, although transfer payments are the biggest enchilada. To make even the first step on the thousand mile journey to solvency, however, the US government will have to run a bona fide surplus for many years. That prospect is not on the horizon.

As for corruption, thousands of articles by bloggers and commentators, including SLL, may have less instructional value for the populace at large than one simple demonstration: most of America’s rulers and its captive media are speaking out against a peace initiative, not on the merits of the initiative itself, but because Donald Trump was one of its initiators. That tells those Americans who are paying attention all they need to know about their rulers and their captive media. Whether they do anything about it is another question.

You Should Be Laughing At Them!

Amazon Paperback

Kindle Ebook