April Is The Cruelest Month

If you walk to work, I’ll tax your feet If you drive to sixty, I’ll tax the street `Cause I’m the tax man. And you’re working for no one but me

The Beatles

On the list of the big changes that took place in the first part of the 20th century must be the imposition of the income tax in America and the creation of the Federal Reserve system. Both of these innovations were put in place before WWI.

The former — the income tax — has got to be one of the most reactionary and oppressive measures ever put in place. It requires the average citizen to spend more of his time in the service of his lords and masters than serfs in the Dark Ages. The latter — the Federal Reserve banking cartel — was set up for the stated purpose of protecting the value of the U.S. currency — which had been almost unchanged for 100 years. Yet, since the Fed’s creation, a dollar bill has fallen to be worth less than a nickel.

In the U.S. consulate building — which is practically hidden from view off the Place de la Concorde — I waited in line to get my passport renewed last week. Against the wall were a number of posters and forms — menacing me with criminal sanctions. Americans are not only required to pay about 50% of their incomes to government when they live in America — they’re required to do so even if they never set foot in the place.

Yet, whilst I was waiting for my passport, at least two women came into the consular office bearing small children in their arms. They were coming to register the children as American citizens. The children, born in France to American women, had the right to become U.S. citizens. Their mothers wanted to make sure that they didn’t miss the opportunity.

What opportunity?

When the income tax law was passed, the tax was applied only to the richest Americans and even then at a rate less than 5%. Opponents argued that the rate would creep up to 10% and maybe even beyond. It would be only a matter of time before tax collectors in America resembled those of King George, whose agents, according to Tom Jefferson, harassed the people and ate out their substance.

But proponents replied that a 10% tax rate in the land of the free was unthinkable. The people would rise in rebellion before that ever happened, they said.

And yet, here we are just a little short of a century later, and looking at the chart of relative tax rates in the “Economist,” we see that U.S. citizens are indeed paying every bit as much in tax as the subjects of King George’s line. In fact, a single person pays less tax in Britain than he does in America.

From my experience, people in Britain and America are harassed about the same amount. But the harassment in America is a little more vicious. Disagreements — between government agents and citizens — are more likely to be worked out in a civil way in Britain. In America, the threat of getting caught up in a criminal procedure – – often for a trifling little infraction of the rules such as failing to file the proper form or not making yourself aware of the latest regulatory fads — is very real.

Every pettifogging bureaucrat imagines himself as the Khan of his domain, ordering people around (for their own good, of course.)

And there is no escape. A Frenchman, if he gets fed up with the cheese in his local restaurants, or the cheeseheads in the mayor’s office, can pack up and leave. Once out of the country his obligations to the motherland come to an end.

This is true of the English, too. Before Margaret Thatcher, tax rates in Britain were so high that many people decided to leave. The Rolling Stones incorporated their band in Holland and moved to the south of France. A legion of actors, scientists and entrepreneurs from Britain arrived in America during those years — because the tax rates were lower and there was more opportunity.

But an American? He is trapped forever. Many Americans live outside the country — as I do. Many never benefit from any of the things American government supposedly offers — such as the Social Security system or police protection or the roads or even the air traffic control system. And yet, they have to pay taxes anyway, subject to treaties, allowances and so on.

Taken all together willy-nilly. The average American spends about half his time working for the government. He gets no benefits that couldn’t be purchased on the open market for a fraction of the price. And to make it worse, he is hectored and lectured about voting, filling in census forms and generally behaving as a docile slave or mental patient.

And where is the revolution? The remarkable thing is that there is so little resistance. A criminal going door to door would encounter at least a few feisty grandmothers with loaded revolvers. Who shoots tax collectors? Or census takers? Or bureaucratic meddlers? Is the bargain Americans have struck with their government so just or so beneficial that it draws few complaints? Or have we become a nation of cowards?

Or is it just a bull market top?

Your servant and patriotic, red-blooded American citizen

Bill Bonner

P.S. America is a unique country. Never a nation. Nor an empire.

Americans are unified by an idea…More about that soon…

*** Buy the dips? Well, the good news is that there are still a lot of investors who want to buy the dip. The market opened up yesterday as it does almost every day following a decline. This is great news, really. Because it means there is still someone you can sell to.

*** What it also means is that the bulls are being worn down slowly — taken out and shot one by one, rather than nuked all at once. That, of course, is subject to change without notice, so watch out.

*** The Dow fell 201 points yesterday. While the Nasdaq was down 92. Each market sustained about the same capital loss — around $160 billion. So the market as a whole lost a bit more than $300 billion.

*** It’s only on paper, though. Well most of it. Stock market wealth disappears when prices go down. But debts don’t. For example, there’s a new credit card on the market — which is connected directly to a home equity line. It’s called “On the House.” How much of the $15 million in stock market capitalization is backed by this kind of credit?

*** The Advance/Decline ratio has returned to its former bear market trend. There were 1,256 advancing stocks yesterday, 1,706 declining ones. There were 33 stocks hitting new highs on the NYSE; 48 hit new lows.

*** Big cap growth favorites — MSFT, CSCO et al. — are getting hit hard. MSFT is below 80. CSCO is at 61 — 25% down from its high. AMZN, the “customer company,” is below 50.

*** Greenspan had some remarkable things to say recently. He told Congress, again, that he would only be able to recognize a bubble after it had exploded. It may look like a bubble and act like a bubble, in other words, but we won’t know for sure if it is a bubble until after it’s passed. That is true of approaching freight trains, too, but it’s still a good idea to get out of the way.

*** Greenspan also told the fools and knaves at the New Economy summit in the White House that “because knowledge is essentially irreversible, much, if not most, of the recent gains in productivity appear permanent.”

Knowledge, says the man who cannot see a bubble, leads to the “reduction of uncertainty. Risk premiums that were associated with many forms of business have declined.”

*** What “knowledge”? The world may be awash in the graffiti information of the Internet. But knowledge? Knowledge is a product of experience, learning and thinking. A few years ago a Fed Chairman could probably tell when there was a bubble. Now he can’t. Knowledge is decreasing. And uncertainty is increasing. You get the feeling that Mr. Greenspan just strings together whatever cliches come his way.

*** Last night I was reading Daniel Defoe’s description of Exchange Alley — London’s Wall Street of the early 18th century — in my copy of “The Great Bubbles” book.

“This Stock-Jobbing in its own nature is only a new invented sort of Deceptio Visus, a Legerde-main in Trade,” he wrote, “so mixed with Trick and Cheat that t’would puzzle a good Logician.” How little things change.

*** Here’s another interesting little item from John Myers: Life expectancy rose 50% in the United States from 1890 to 1940. Since then, it has risen only 12%.

*** The point I have been making is that the real revolution occurred in the first half of the 20th century, not the second half. It is sobering to realize how little things have changed since 1950 — at least in comparison to the preceding years.

*** Even economic progress has actually flattened out, rather than taken off. Real incomes grew at 2% per year from `29 to `73. For the last 30 years, real income growth has been marginal. And now a DR correspondent has written to tell me that a quarter of the workforce in the United States earns $8 an hour or less — not much more than in the Third World.

*** We went out to dinner last night at Fouquet’s on the Champs Elysee. I hadn’t been there since I dined with Harry Schultz several years ago. The renowned restaurant — which exploits celebrity patrons mercilessly — went bankrupt soon after Harry and I left. But I was glad to see that it is back in business.