We favor a public insurance plan simply because it is embarrassing for the most powerful country in the world, and the richest, supposedly, to have so many people go without health care. The numbers are skewed and the real uninsured number, for legal Americans, is somewhere in the area of 8 to 10 million people, perhaps as high as 15 million depending on who you listen to, but the ways our wonderful government are considering to fund it is just stupid.

They are considering another tax on the wealthiest of Americans to pay for this. This would be on top of the already promised tax increase Obama campaigned on. The problem that these idiots have not thought of is what happens when high income earners disappear or are substantially reduced? We know things are tough and we know or understand that many feel that the tax system does favor the rich, and it might to a certain degree, but we need the rich as much as they need us.

How about this, let’s just assume you make $250K a year and your tax rate increases to 40% not including state taxes. You will now be paying $100,000 to the government every year and if we add in state taxes you would be paying another 9% or another $23,500. That means you would be paying $135K a year in taxes and bringing home $116,500 a year.

Now if we use the same numbers but add another 5% tax to fund health care then the numbers really stink. In fact, you would be adding another $12,500 a year in taxes and we are not even including the AMT, alternative minimum tax, of 16%. Now include health insurance, retirement or 401k savings and other miscellaneous taxes and fees and you are bringing home next to nothing.

Where is there incentive to earn more money under this proposal? To be a good citizen and fund everyone else’s health insurance? Simply put, this is not fair and will cost jobs and reduce productivity.

Not only that, but what happens when inflation hits? When inflation first hits it is painful and in response we will then have wage inflation so people can live. This is typical during high inflationary times. Now, we will have much higher living costs and your income will increase, perhaps to as high as $250,000 a year and then you would be paying those taxes, does this sound fair now? Of course not.

If you think this could not happen you are wrong. It already happened in the late 70’s and has happened all around the world already. Your income will increase but its buying power is reduced to nothing during inflationary periods. This new tax or taxes do not take this into account.

Now, if inflation does not occur, which is unlikely, then people will not want to earn more money because there is no point. What would happen then? They would have to reduce the definition of “rich” down to a level where they can collect these taxes, perhaps to $150K a year or lower even. The unintended consequences is that many more people moving forward will have to pay more in taxes which is not good.

This is also something that cannot be undone as well. If you think the government can run insurance programs correctly, think again. I can point to Medicare and the National Flood Insurance program as 2 great examples of mismanagement, mis pricing and general stupidity.

Once they enact this, if they enact this, then how could they ever undo it? They can’t so you better be prepared to pay more in taxes and you should be careful what you wish for as you just might get it.

The great American ripoff is growing.

They aren’t, especially for the FDIC which handles failures on Friday nights. So far this year we have had 53 failures, and a small Wyoming bank failed tonight called the Bank of Wyoming, compared to only 25 banks last year. That is pretty surprising to many in America as the failure rate is up 110% in failures in 2009 and it is only July.

This is more embarrassing than anything else simply because we have thrown so much money at these banks and they are still failing. Most of the failing banks rely upon “hot money” which basically means they attract deposits through retail investment advisors through syndicated CD’s. This hot money pays more than typical CD’s and the broker or advisor also gets paid, depending on maturity it can be anywhere from $.50 – $5 per thousand or higher.

The hot money was then used to loan to construction loans or other higher returning loans because the money had such high carrying costs banks needed to take more risk to make this hot money growth plan work. As you already know real estate and the riskier loans basically all failed or had very high rates of failure. So, banks with high hot money flows are having a very bad time and are more likely to fail. I used to sell these products to investors and why not? They were FDIC insured and beat the banks rate by at least 50 bps or more.

There you have it, Fridays are fun for the FDIC, I guess, and failures are on the rise. Chances are we will see many more banks fail over the next 1-2 years. Like i said, this is more embarrassing than anything else, but still a problem to some extent.

There is talk about investigating the Fed and to do an audit. The media is saying it is politicizing the Federal Reserve, that’s bull. The idea is to make sure the people who print and LOAN us our money, and is a private organization, is following the rules.

Frankly, our founding fathers would be ashamed that we have the Federal Reserve, let alone taxes and the Patriot Act. We need to make sure that the organization who is the lender of last resort and the US’s own bank, is following the basic rules.

Guess what, they probably are not. We deserve to know what the Fed is doing and how they are doing it, regardless of the unintended consequences, which are few if any. I full support investigating and auditing the Federal Reserve and to accuse the investigation with politicizing the Fed is the biggest piece of yellow journalism I have seen in a long time. If you do not understand the difference between investigating and politicizing an organization you should just shut up.

I don’t know about you, but I could understand why countries are concerned over our debt. The one sure thing about projects, especially government projections, is that they will be wrong and much higher.

Source data can be found here Table 7:1

Consumer confidence got pummeled in its last survey. I take all of these numbers with a grain of salt because most are shaped to make things appear better than they are, but if this is how they can shape them to look more favorable then we are in real trouble.

The index fell to 64.6 from 70.8 in June, the index has averaged 89% since 2001. The added pressure of negative market returns, declining home values, unemployment and the prospect of higher taxes is weighing on the US consumer. It was only a matter of time before it all caught up with people.

However, next week I expect financial earnings to be impressive, albeit on the low side, as the SEC basically threw out mark-to-market rules. Essentially, all the bad news that would be coming out is postponed until losses are so bad they cannot be hidden any longer.

Great video response to Dennis Kneale from Karl Denninger who only got 1:24 of air time, 10 times more than we had, but still got cut off before any substance could be reached. Thanks Karl for getting further than we did. I guess I should have merely called him an idiot instead of a super dip shit, but dip shit is more of an appropriate name for him. Watch the video below.

This is major news. You can forget China’s talk on supporting the dollar as the reserve currency. It is clear that they are saying on thing and doing another so this may mean they are going to send us a message, probably through a treasury boycott. What is surprising, kind of, is France is backing them on this statement.

You have to ask yourself if you blame them? The dollar has slipped in the last few years so all those treasuries central banks bought are worth less to them now. Why would they wish to continue to lose money? The long-term slide of the dollar is clear and will continue, based on the technicals and fundamentals.

We are stuck, there is nothing the Fed can do to strengthen our currency at this point. Well, that is not 100% true, they can raise interest rates, but that would crush our economy. We have too much debt and we are going to issue more and without higher interest rates the dollar will slide downwards.

There was only 2 ways the US could get out of this debt anyhow. They could be honest and default, not make interest payments or they could print their way out. They chose option 2 which is a huge problem. Now we will have a deep recession, may be a depression, with higher prices. This is nuts and a major problem for us.

Here is the CNBC story:

China called on Thursday for reform of the reserve currency system at a meeting of world leaders in one of its most direct attacks on the dollar’s global dominance.

Chinese State Councilor Dai Bingguo did not specifically name the dollar at talks between the Group of Eight rich nations and G5 emerging powers, but he was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates.

France also unexpectedly called for a currency discussion and moving toward a “multimonetary” system, though Britain warned any debate should be reserved for the long term to avoid destabilizing markets in the midst of a global recession.

China’s ideas for changing the system had previously been mentioned in reports by its central bank, but had never been voiced in a speech by such a high-ranking political leader.

“We should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies’ exchange rates and promote a diversified and rational international reserve currency system,” Dai told the summit in Italy, according to a statement read by Foreign Ministry spokesman Ma Zhaoxu.

Dai made his statement to a meeting including British Prime Minister Gordon Brown, U.S. President Barack Obama and the leaders of Japan and the European Union, whose currencies are often held as part of countries’ foreign exchange reserves.

There is no question on whether the comments represented those of of China’s top leadership, the spokesman said.

“China’s position on reserve currencies has had different interpretations, but I can tell you that what I have just quoted is the most authoritative standpoint of the Chinese government,” he said.

This is a fairly large development considering CIT does a lot of financing in the corporate area and consumer goods. If the FDIC thinks they are too risky what do they have on their books? This is going to be a continuing problem since we are having a credit crisis, still.

Clearly liquidity is not an issue and since the Fed cannot create credit and since banks cannot go into bankruptcy these problems will persist. However, the fact that CIT is being turned down may be a positive as the administration and the government will finally see that if a company does go under it is not the end of the world.

Bloomberg Story Here

FDIC Said to be Unwilling to Back CIT Debt on Risk (Update1)

By Caroline Salas and Pierre Paulden

July 9 (Bloomberg) — The Federal Deposit Insurance Corp. is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lender’s credit quality is deteriorating, according to people familiar with the regulator’s thinking.

The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk, said the people, who declined to be identified because the application process is private.

The federal agency is continuing talks with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. CIT’s measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.

CIT, the century-old lender to 950,000 businesses, became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. The New York-based lender has reported more than $3 billion of losses in the last eight quarters, faces $10 billion of maturing debt through 2010 and hasn’t had access to the corporate bond market in more than a year, according to data compiled by Bloomberg.

Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.

There is strong language in this video and while i do not agree with violence he does make some good points. I believe he is as angry as I am over the current situation and our politicians. Check it out:

Do you see something wrong with this guy? Admittedly, I know nothing about baseball and never heard of this guy until yesterday. It seems unlikely that he is as successful as he says he is, especially when you hear his story and what he said and how he said it, it just looks sketchy.

The kicker is I guess he is selling investments to athletes to guarantee income, but he is filing bankruptcy. How ironic. I have to say that I do not know anyone who is 111-0 in the options market, but hey thats just the people I know. Anyhow, check out the video and see for yourself.