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“Still Can’t Find That Pitchfork, Can You?”

Saturday, December 16, 2017 14:09

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How you’d expect informed, concerned Americans to act…

“Still Can’t Find That Pitchfork, Can You?”

by Karl Denninger

“Corporate balance sheets have never been in the condition they are now, but most of this is a fraud. Virtually all of the so-called “growth” has been in buybacks and (to a lesser extent) dividends. The problem with buybacks is that into ramping prices they are a terrible long-term deal. They make some sense in the depths of a crash, but of course nobody has the cash to do it during a crash.

When debt financed it’s even worse because history says that corporate debt is never paid off, only rolled over. In point of fact non-financial companies did not decrease their total debt levels (as measured by the Fed Z1) even during the depth of the financial crisis of 2007-2009. This of course means that debt:equity levels go vertical as soon as the ramp in equity price stops.

I remind you that while buybacks increase earnings during good years (by reducing the divisor) they also increase losses during bad ones. People forget this because, well, there haven’t been any bad ones recently. That will end and when it does it will provide a gross amount of acceleration for the decline in equity prices. In fact, it’s not going to be gasoline poured on that fire, it’s going to a mixture of diesel fuel and ammonium nitrate…. See Galveston for what will come of that.

But on top of this we now have the real screw job in the tax bill. Hedge fund managers will get a roughly $20-25 billion a year (that’s about $250 billion over the budget period) in additional tax breaks through the so-called “Carried Interest” loophole.

This is raw theft. This “loophole” is really no such thing. The capital gains rate exists for those who put their own capital on the line and risk it. If you manage someone else’s money then it’s their money at risk and you are performing a service. This is clearly a W2 employee or 1099-contractor act and thus is wage income. But, no, it’s not in the tax code due to gamesmanship and the so-called tax reform does not stop this. It would have been very simple to add the following to the tax code on capital gains: In order to take a capital gains tax rate your own personal capital must be at risk in the transaction.

Americans, except for the 0.01%, have every reason to find their pitchfork and use it over this. That particular provision, may I remind you, would almost close the gap in funding that the bill creates by repealing the “individual mandate.” The “individual mandate” is and always has been a fraud. But getting rid of one fraud only to enhance a second is not a net positive – at best it’s neutral and in this case it will cost-shift over $20 billion a year from working-class people to the ultra-rich with 8-digit+ annual incomes.

What’s worse is that the money-printing (by Treasury, which I remind you is where it all traces back to – always – not The Fed) will further destroy ordinary Americans when it comes to their so-called “zero inflation” lives. Asset price, medical and educational cost inflation will continue to advance and you cannot outrun the second and third with the first unless you are already in the 0.1%. While I remind you that the medical cost-ramp problem is one that I’ve analyzed now since the 1990s and my latest projection is just around the time of the 2020 elections this may in fact move the day forward by another year or so.”

“$10 says not one American gets off their ass and finds
their pitchfork over this act of raw theft.”

- https://www.theburningplatform.com/

◆

Americans react as expected… And so it is.

A Comment by Jim Quinn, “The Burning Platform: “I love Denninger’s ability to be outraged day after day and his continuous rage against the machine. I’ve lost that fire. After nine years of this, I’m burnt out. I no longer have that passion driving me. What will be will be.”

Me too, Jim, despite my best efforts, me too…

Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2017/12/still-cant-find-that-pitchfork-can-you.html

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