As expected, the euphoria died overnight. On Wednesday, the Dow was up nearly 500 points. Thursday, it fell 23 points.
More and more people are coming to the same conclusion. The bull market is a fraud. And the system is corrupt. And they’re right. But not for the reasons they think.
Here is Number One on the “Capitalism as we know it doesn’t work” hit parade. From Forbes:
Top 0.1% of the Nation Earn Half of All Capital Gains
The top 0.1% — about 315,000 individuals out of 315 million — are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.
It’s crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs.
The reduction in the tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28%. Again 1981, at the start of the Reagan era, it was reduced again to 20% — raised back to 28% in 1987, on the eve of the October 19th — 23% crash in the market. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms — the most “rapidly rising cohort within the top 1 per cent.”
Make no mistake; the battle that is to be fought over the coming attempt to reverse this reduction in capital gains will be bloody and intense.
…the super wealthy plutocrats obtained the largest share of national income — 25% of the nation’s wealth — greater than any other industrial nation in the period of 1979 to 2005.
Pretty soon some enterprising journalist will publish the names and addresses of these super-rich people. Then, lynch mobs will form out in front of their houses.
Not that there is anything wrong with getting rich. And nothing wrong with a 15% capital gains rate. In fact, we rather like it that way. But people are looking for someone to blame for their troubles. And they’re not likely to identify the real culprits. That would take too much time and thought.
So they point the finger at the “rich”…
They’re right, of course. The system is corrupt and degenerate. But it’s not because of the 1% or the 0.1%… Nor is it because the feds passed deregulation legislation. Nor because tax rates are low. Nor because corporate CEOs are greedy. Nor because capitalism isn’t up to the challenge.
But even The Wall Street Journal misses the point. Here’s Number Two on the “Capitalism as we know it doesn’t work” hit parade, an article that explains why China’s economic model is superior to America’s supposedly free market system.
China’s Superior Economic ModelThe free-market fundamentalist economic model is being thrown onto the trash heap of history.By ANDY STERN
Andy Grove, the founder and chairman of Intel, provocatively wrote in Businessweek last year that, “Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems — the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.”
…I was part of a US-China dialogue — a trip organized by the China-United States Exchange Foundation and the Center for American Progress — with high-ranking Chinese government officials, both past and present. For me, the tension resulting from the chorus of American criticism paled in significance compared to reading the emerging outline of China’s 12th five-year plan. The aims: a 7% annual economic growth rate; a $640 billion investment in renewable energy; construction of six million homes; and expanding next-generation IT, clean-energy vehicles, biotechnology, high-end manufacturing and environmental protection — all while promoting social equity and rural development.
Some Americans are drawing lessons from this. Last month, the China Daily quoted Orville Schell, who directs the Center on US-China Relations at the Asia Society, as saying: “I think we have come to realize the ability to plan is exactly what is missing in America.” The article also noted that Robert Engle, who won a Nobel Prize in 2003 for economics, has said that while China is making five-year plans for the next generation, Americans are planning only for the next election.
The imperative for change is simple. As Andy Grove pointed out: “If we want to remain a leading economy, we change on our own, or change will continue to be forced upon us.”
Right! Just what America needs… More central planning. More bureaucrats. More zombies!
One big disappointment during the crisis of ’08-’09 was that you could stand on the corner of Broad and Wall without risking getting crushed by a falling body. There were scarcely any suicides. Few people were disgraced. Even fewer did themselves in.
This can partly be explained by the lack of double-hung windows in lower Manhattan. Fixed glass forces suicidal people off the window ledges and into tawdry bathrooms where they have to slit their wrists ignominiously.
The other explanation is even simpler: the fix was in.
As we keep pointing out, if capitalism had been allowed to do its stuff during the crisis of ’08 and ’09 we wouldn’t be having this conversation. The Dow would probably already be at about 6,000…and the rich would have lost about $10 trillion in bankruptcies, defaults, sell-offs and write-downs. We wouldn’t have the Bank of America or Goldman Sachs to kick around — they probably would have gone out of business.
That’s what crises are for…to separate fools — especially rich fools — from their money. The rich lose much more money than the poor…because they have so much more to lose.
Remember our zombie theory.
Everybody wants wealth, power and status. (The rich are just better at it.)
They want to get it in the easiest possible way.
And the easiest way is to take it away from someone else.
That’s what government does. It allows the rich to get rich…supporting their stocks and real estate holdings with artificially low rates and expandable paper money. Then, when the rich go too far, it bails them out with even lower rates and even more ersatz paper money. The rich get their dividends; the politicians get their sinecures and campaign contributions; the middle classes lose their jobs, their houses, and their standards of living.
The masses never even try to figure this out. They only know that the game is rigged against them…and they get angry.
In anticipation, the government prepares to deal with its revolutionaries just as it deals with “insurgents” in Afghanistan or Iraq. The military, you will remember, is not learning how to win real wars. It learning how to hold down ‘terrorists.’ Today, the terrorists are in the Middle East. Soon they will be in the Midwest. Here’s the Business Insider:
The New National Defense Authorization Act Is Ridiculously Scary … Fellow entrepreneurs, Americans, anyone who still cares about this country at all — this is a must read: By the end of this week, the US government very likely will have the power to lock up US citizens for life at Guantanamo Bay or other military prisons — without charge and without trial. This means that, in the near future, a controversial Twitter post, attending a peaceful protest, or publishing an anti-Congress critique or anti-TSA rant on Google+ could land you “indefinite detention” for life, in the wording of the bill. No access to a lawyer, no access to trial.
Yes, dear reader, corruption leads to discontent. Discontent leads to rebellion. Rebellion leads to repression.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
So it`s the end of the Daily Reckoning then is it? Have no fear my American friends, us non-citizens have had to live with the risk of the no-recourse legality of being kidnapped sent to Guantunomo and locked up indefinitely for several years already.
First: Propose a deficit-cutting plan that matches the scale of our problem — one with substantial tax reform and revenue increases, a gasoline tax, deep defense cuts and cutbacks to both Social Security and Medicare.
Second: Offer a plan in which the wealthy have to pay their fair share and more, because they’ve had a great two decades. But everyone, including the middle class, has to contribute something. This has to be a national effort.
Third: Offer a plan that is aspirational. It would not just be a roadmap to balancing the budget but to making America great again through reignited economic growth.
-THOMAS L. FRIEDMAN
HOPE and CHANGE, indeed.
HA HA HA HA
Those OWS goobers won’t know what hit them.
I read that column in the WSJ the other day without first noting the byline, about halfway through I wondered, who is this idiot? It was Andy Stern, president of the SEIU the biggest government employee union, that explains everything. Apparently he is a great admirer of the Chinese government and believes we should emulate them. I hope his column gets wide distribution so cognizant voters everywhere can take note of his lunacy.
If Andy Grove doesn’t mind I would like to wait another 5-10 years to evaluate the Chinese model. If they are ruling the world economically then I guess we may be able to conclude that building ghost cities and bullet trains and consumer products with safety issues is the way to go.
I remember when we were told we should be emulating Japan. WRT handling the banking crisis too bad we ultimately did.
Corruption leads to discontent. Discontent leads to rebellion. Rebellion leads to repression.
Not so sure I agree with your analysis of capital gains taxes however. If lower rates lead to greater disparity in wealth, how can you be ambivalent about whether the tax rate being lowered is a good or bad thing?
Would seem patently obvious to any casual observer that to the extent that the system is rigged in favor of the rich to begin with, there ought to be some check and balance to level the playing field. If not through tax policy, then how do propose the problem be addressed?
Or is revolution and the subsequent slaughter that would surely ensue something you have no problem with accepting as inevitable?
We have C&B out the …. They are called statutes, regulations, administrative orders, court rules and they exist at every level of our government. City, County, State and Federal with a litany of alphabet agencies for “enforcment”. C&B is just more pigs feeding at the trough.
We Are All Terrorists Now. Bush, Obama, McCain and the rest of the slimeballs who act as though they deplore dictators really are jealous of them. Bush’s war on terror was not to remake the dictator lead middle east like America. Just the opposite. It was designed to turn America into a dictatorship of the elite.
And then there is the voice in the wilderness, the call to sanity, the call to restore your freedom, liberty,and fiscal sanity. As we are looking at Commie China who only got rich because of the overspending of welfare/warfare empires in Europe and America we forget to return to the principles and foundation that made our country great to begin with. If we could return to the foundational values of what our country has been founded on and the constitution we would solve our own problems. Our government has been so twisted over these last 100 years by Liberal Progressives ideas. This has become accepted as the norm today. This is the disease killing our country. Dr. Ron Paul has been fighting for 30 years about these same issues, who will listen to the voice in the wilderness, the voice of sanity and reason and not the voice of propaganda and madness?
Greetings Ron, Right on! If that is really u,it sounds like u? Keep up the gr8 work,u know U BB JR and alot of the DR writers r the ones 2 change this gone astray Empire. But were 2 far down the road, 2 corrupt, and 2 very broken 2 ever b fixed. Basically the Zombies,Special intrest grps,etc etc etc who r gonna out# us soon,and a good part of them r in the “Media” just don’t want us 2b fixed!(fair & Balanced! Ru kiddin me!!!) And the “Everyday People” who do care r just gettin 2 tired,fed-up,disgusted,disgruntled,and broken up,with everythin. And havein 2 have 2 work,2 goin nowhere jobs! Just 2 keep up with family,inflation,and taxes,that they just don’t care anymore. I think they call that apathy? And thats how the Zombies Win!(Shame on us!) So we must accept the faith that is in front of us! And realize that the best days of this Empire r bhind us! Does it break my heart 2 have 2 say this! With out a doubt!!! I’m an American 4 watt ever thats worth these-days? *S* PS if we could return 2,Doc,i think u already know the answer 2 that! Yesterday,all our troubles seemed so far away,and now it looks as thought there here 2 stay! Oh I b. Well u know how the rest goes… PPS i’ll c everybody @ Club Gitmo someday,livein on the systems 1/4! If thats how its all gonna go down? Happy Holidays 2 all.
BB said “The reduction in the tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth.”
This policy has been a failure since Ronald Raygun was drooling in the White House. Repeating the same thing over and over again, and expecting a different result. Isn’t that Einstein’s definition of “insanity” ??
I still want to know what are all those tunnels the Chinese are building and what is in them? Besides that I do feel good that Frank Luntz is terrified. That’s a good thing for a slime bag word smith with a bad hair piece.
At 10, I thought life was a battle between good and evil.
At 20, I thought it was a race of the fittest.
At 30, I thought it was a race between science and nature.
At 40, I thought I was winning.
At 50, I realize I was right when I was 10.
Capitalism is one vote per dollar, Democracy is one vote per person.
Is America more capitalist or more democratic?
Which is better? Better for whom?
“Which is better? Better for whom?”
Which offers a better hope to get laid here and now?
CAPITALISM DEMANDS COMMON SENSE LAWS BE FOLLOWED
Socialism demands regulations
regulations ALLOW $$$ to go to the lawmakers for more favors
A violation of the law puts the accused into the legal system of the judge and jury
A violation of regulations puts the accused in front of congress
At least it is warm in Cuba. If they really wanted to punish us they would send us to Minnesota. I wonder if Castro can pull some strings and let us play baseball while we are there?
Obviously capitalism, enough dollars can get anyone laid. Works faster than alcohol.
The American economy is a planned economy as the government carries out the orders given to them from the powerful wealthy establishment. This is the new Gilded Age and the masses are being controlled and exploited.
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Income inequality in the U.S. has reached epic proportions. So much so that "1%" is no longer just a simple fraction. Now it's now much more than that, used as a pejorative symbol of excessive wealth and the greed of the American upper class. Marc Faber explains why this is unfair, especially as regards U.S. tax laws. Read on...
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