One Year Later

Happy birthday to the stimulus package after one year and one day. (Don’t forget the TARP, also.) Just a few of today’s headlines that I’m sure will not make VP Biden’s report of “stimulus success.”

The Congressional Oversight Panel: “A significant wave of commercial mortgage default would trigger economic damage that could touch the lives of nearly every American.”

Realty Trac: “Year over year mortgage borrower delinquency was up about 50%.” "The forecast for the number of foreclosures in 2010 is three million homes.”

Treasury Department: “U.S. government runs a deficit for the 16th straight month.” "Three million foreclosures on the horizon, only 116,000 borrowers have mortgage modified in the past year.”

Labor Department: “11.8 million people collecting some type of unemployment, 14.8 million people officially classified as unemployed. Undetermined amount of how many people have stopped looking for work.”

The Pew Center on States: “States liability for pension, healthcare, and other retirement benefits, $3.35 trillion. Funding capability $2.35 trillion.”

Now, consider this:

Tao Te Ching - Chapter 57 (written in approximately 5th century BC)

“Run the country by doing what’s expected.
Win the war by doing the unexpected.
Control the world by doing nothing.
How do I know this?
By this.”

“The more restriction and prohibitions in the world
The poorer the people get.
The more experts a country has
the more of a mess it’s in.
The more genius the skillful are
the more monstrous their inventions.
The louder the call for law and order
the more thieves and con men multiply.”

“So a wise leader might say
I practice in action and the people look after themselves.
I love to be quiet and the people themselves find justice.
I don’t do business and the people prosper on their own.
I don’t have wants and the people themselves are un-cut wood.
(Naturally virtuous.) Today’s libertarian might say: the government
that governs best is the one that governs least.”

Next, consider this:

14th century Arab genius Ibn-Khaldun:

“In the early stages of the state, taxes are light in their incidence, but fetch a large revenue. In the later stages, the incidence of taxation increases while the aggregate revenue falls off.”

“This is because the state, as it rests on a religious basis, will exact only dues provided for by Islamic law such as the benevolence contributions, plan tax, and pool taxes whose rates are low and fixed. Now, where taxes and imposts are light, private individuals are encouraged to engage actively in business. Enterprise develops because businessmen feel it worth their while in view of the small share of their profits which they have to give up in the form of taxation, and as business prospers…the total yield of taxation grows.”

“As time passes and kings succeed each other, they impose fresh taxes on their subjects, farmers, peasants, and other subjects to taxation; sharply raised the rate of old taxes to increase their yield; and impose sales taxes…until taxation burdens the subject and deprives them of their gains. People get accustomed to this high level of taxation because the increases have come about gradually without anyone being aware of who exactly it was who raised the rates of the old taxes, or imposed the new ones.”

“But the effects on business of this rise in taxation make themselves felt. For businessmen are soon discouraged by the comparison of their profits with the burden of their taxes, and between their output and their net profits. Consequently, production falls off, and with it, the yield of taxation.”

“The rumors may, mistakenly, try to remedy this decrease in the yield of taxation by raising the rate of taxes. This process of higher tax rates and lower yields (caused by the government’s belief that higher rates result in higher returns) may go on until production begins to decline, owing to the despair of businessmen and to affect population. The main injury of this process is felt by the state, just as the main benefit of better business conditions is enjoyed by it.”

“From this you must understand that the most important factor of making for business prosperity is to lighten, as much as possible, the burden of taxation.”

As it was thousands of years ago, so it is today.

Till next time,

Bill


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A disclaimer: None of the content published on billtatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Let the Games Begin

Last month, I wrote “One Man’s Opinion,” a list of events that I thought would occur in 2010. Number two on that list is as follows: Several municipalities could declare bankruptcy, and several states, led by California and New York, may be in technical default. I believe expenses will continue to outpace tax revenues, and April 15th will be D-day. Havoc could be the word for the municipal bond market.

This morning, Bloomberg announced that the state capital of Pennsylvania (Harrisburg), is entertaining the decision to declare bankruptcy, their last resort. This would make bondholders part of the creditor group, and we all know what happened to the GM and Chrysler bondholder creditor group. Good luck. I knew this was coming, but thought later, rather than sooner.

Let the games (begin) continue.

Till next time,

Bill


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A disclaimer: None of the content published on billtatro.com constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers or their affiliates will advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the content published as part of BillTatro.com may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.