Earthside Comments: Of course, a huge reason for the economic reverse that is looming its ugly head larger and larger at us everyday, is because there are wealthy, powerful people who are addicted to money.
You don't have to begrudge successful folks their fair due to know that using power and influence to change the rules for their own benefit -- at cost to everyone else -- is wrong. Yet it is quite clear that the scandal behind the subprime and debt crisis is exactly that: fraud, abuse, exploitation and theft by the 'leaders' of mega-transnational corporations.
Unfortunately, just knowing that the Bush cronies, the corporatists and the governing class have created this financial miasma is not going to stop it from spreading and getting 'stinkier' ... as some of the news links and analyses below show.
Link: When Business Barbarians Take Hostages | David Sirota/Denver Post
As a central villain in the famous book "Barbarians At the Gate," Henry Kravis has become one of the world's richest mavens of private equity — the Wall Street sector that buys up companies, breaks them apart and sells their assets. In 2006, Kravis made $450 million, or more per hour ($51,000) than the average American household makes in a year. Incredibly, his wealth puts him right within the average for executives in this largely unregulated industry that oversees about $400 billion in annual business. Brutes like Kravis haven't amassed such treasure by playing nice.
During their takeover rampages, they often crush workers and leave communities for dead. And now, as we've seen over the last month, when the tax man comes calling, these barbarians start taking hostages.
Congress, you may have noticed, is trying to prevent the alternative minimum tax (AMT) from hitting the middle class. This tax was originally designed to prevent billionaires like Kravis from using creative accounting to avoid paying any taxes whatsoever. However, the AMT did not adjust for inflation, and so the tax now threatens to hammer millions of ordinary Americans.
To prevent this unintended consequence without adding to the national debt, Congress has to find about $50 billion. That is roughly the amount stolen each year through a tax loophole allowing those like Kravis to pay a lower effective tax rate than the servants who tend to his 26-room Park Avenue penthouse. Instead of paying the 35 percent income tax rate, private equity managers are permitted to pay the 15 percent capital gains rate on most of their earnings. They are also allowed to use offshore corporations to shelter their income from taxes. ... MORE on this Outrage
Link: Consumer Inflation Accelerates in November | MarketWatch
Consumer prices rose 0.8% in November, led by higher prices for gasoline, the Labor Department reported Friday. This is the fastest pace of consumer inflation in more than two years.
But energy wasn't the entire story. Prices of apparel, drugs, and airline fares also spiked.
As a result, core inflation, which excludes food and energy prices, rose 0.3%, the biggest gain since January.
The figures raise concern that inflationary pressures are increasing, and could limit the room for the Federal Reserve to cut interest rates to counter the expected economic slowing over the next few quarters.
Link: Libor Fails to Drop From 7-Year High; Crunch Persists | Bloomberg
The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets. ...
... "It's not going to help us find an exit to this crisis," said Cyril Beuzit, head of interest-rate strategy at BNP Paribas SA in London. "These measures aren't going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news."
Link: The Impending Destruction of the U.S. Economy: Part 1 | Morgan Housel/The Motley Fool
We U.S. citizens enjoy a magnificent and prosperous economy the rest of the world can only envy. Employment is humming along, inflation is tame, and the lines inside Starbucks everywhere remain annoyingly long. Despite a number of hiccups this year, the stock market is still just a rock's throw from another all-time high.
But we're coming up on a bend in the yellow brick road, and going 'round it could cause the party lights to go dark quickly. That could change everything about the way we and future Americans live. Sound scary? It is. ... MORE
Link: The Impending Destruction of the U.S. Economy: Part 2 | Morgan Housel/The Motley Fool
In part 1, we took a look at the causes of the current tug-of-war between forces that will fight over lower and higher interest rates in the coming days of our American economy.
To recap, here's our problem: Americans spend much, much more than they probably should and rely heavily on debt to fund their purchases. A huge amount of this debt is funded by foreign investors who enjoy the relative stability of American markets. As a result, we have an enormous account deficit -- nearly $800 billion per year.
With this massive account deficit comes a weakening dollar. With a weakening dollar, foreign investors will begin to demand higher interest rates to make their investment in the American economy worth their while. Sounds easy enough! But we have that pesky problem of our current real estate and credit disruptions that could place our economy in a tailspin and, hence, require lower interest rates to bail us out. Who is going to win this battle? ... MORE
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