COMPETING WITH $.69 HOURLY WAGES IN INDIA AND $.74 CENT HOURLY WAGES IN CHINA


Our fearless leader, President Obama has recently said in a speech, that ..." we will emerge from ...this...stronger than ever."

He was saying that due to his STIMULUS package, and the fact that the US Economy will "turn around", it will be stronger than ever.

Too bad that he did not take ECONOMICS 101; he would have known better than to make such a contradictory statement.

Let us do a short analysis of the "prediction" that was made.

The President wants to raise taxes on employers generally;

on the bad oil companies he wants their profits;

on multinational corporations headquartered in the USA he wants to punish them;

raise the FICA tax to infinity; force health insurance coverage and expenses on everybody;

wants soldiers to pay for their own medical treatment; wants to triple the cost of electricity;

wants to bail out only the losers in industry; wants to saddle the employers in costly industries to keep operating with loans from taxpayers;

wants to limit income and levy 90% taxes on excess earnings; wants every business to be unionized;

wants illegal aliens not to be rounded up; wants us all to buy American more costly goods only;

stopped free trade with Mexico in violation of the Treaty;

wants to force GM to make cars that nobody wants to buy; wants to use clean coal (a techology that has not yet been invented;

Need we say more?

How are any of these initiatives going to make the USA stonger?

The workers in the USA, are competing with wages of $.69 cents an hour in INDIA, and $.74 cents an hour in China. How are they going to emerge stronger, exactly?

To be perfectly honest with you, I and all of us, would rather pay $.99 cents for a comb from China or India, than the same comb being manufactured in the USA, by a UNION organized company, with wages and benefits at $75 an hour, and a $10 price for the comb.

So let's get real. We want prices to be as low as possible, that will only happen through global sourcing, which is a natural progression.

TATA MOTORS, an Indian auto manufacturer, just announced that their new car will sell for $1,995 at the dealer.

In the USA, due to the endless mandates, rules, regulations and needless litigation, $1,995 is the price for the airbags in a USA built car.

Again, I would rather buy the INDIAN manufactured car at $1,995, than just an airbag to inflate in the USA for the same amount.

We need to stop focusing on the wage rates, but rather help our businesses compete in the global marketplace on other products.

But instead, our government is consistently suing our most important industies, exporters, etc....they wanted to collapse Microsoft, Exxon, AT & T, the nuclear industry, they want to stop oil exploration and stop coal production.

The government wants to protect industries which operate in unsustainable cost structures, instead opf fostering devevopment of new indusrties that the entrepreneors are so cable of in the USA.

What would happen if the USA levied a simple 10% tax on businesses?

What if they gave out tax credits for employers who hire new employees?

What is a new business paid no taxes for the first 5 years?

Instead, the government is doing everything possible to force businesses to move its production overseas, and then it complains that the production moved overseas.

Let's see, if my worker cost me $.69 cents an hour, or $75 dollars an hour, where will I hire new employees?

Only the government would argue with that....so if we do not wake up soon, we will be paying those wages here, because people will have few options for employment. Learn Chinese...oh wait, you do not have to since Chinese schools are teching English so the next gebneration of Chinese, will be English speaking.

In the next decade, the largest English speaking country in the world will be CHINA.

Can you guess which will be the largest Spanish speaking country in 2050?

GM: GOVERNMENT MOTORS, OR HOW TO SCREW UP A PRIVATE BUSINESS IN 4 MONTHS OR LESS



It was inevitable, so there is no surprise that GM is tanking under the "oversight" of the government. What can the government operate when it tanked its very own cafeteria?

The company needs to change its name to GOVERNMENT MOTORS, the new name for the acronym, GM.

Just imagine what a car designed by the government would look like...????? See above.

We were against the type of forced loans foisted upon this company late last year, since all we saw was in effect a bailout of the union benefits, and we saw no benefit to the company or its stockholders.

It was such nonsense to believe that this company could survive by getting loans, and then it was to have a magical plan for its success that was to be presented in a few months?

Part of the problem was that this was a failed company to begin with.

The Board of Directors of this firm should all be sued and hung out to dry since they have violated their fiduciary responsibilities, and thus maybe the stockholders can recover though their director liability insurance polices, the money lost under the inept leadership of, Nosferatu-aka, Rick Wagoner.

Mr. Nosferatu, came on board in 2000. The GM stock was trading at $70 a share.

This year it hit $1.27. Would you as a board keep the guy responsible?

The GM Board has got to be the dumbest group in history.

Since 2004, the company has not made a profit, and since then has recorded a staggering loss of $82 BILLION.

When would have this inept leader be terminated by a still more inept Board?

One year of losses, two, maybe three? No, they still had no plans to terminate Nosferatu after 5 years of the staggering losses of $82 BILLION!

So, at least he is gone, but so is the company.

It is naive to think that any restructuring other than a total re-make of the employee contracts, as well as the redesign of its cars and a shrinking of the entire business model can accomplish a "turnaround".

If the normal free market forces were allowed to work their usual magic, the company would have entered into a reorganization, it could have changes its contracts, and possibly re-emerged as a new slimmer and healthy business.

There is no way that it can now...unless it takes the steps immediately.

Or it is too late?

With government running the company, mandating what cars to build and at what prices, and with what contracts, will we see a competitive business ready to survive on its own, or just another ZOMBIE, headed by another Nosferatu, the living dead?

Also, it is fair competition for other car makers to have to compete on uneven terms with this out of date dinosaur?

The US government is now standing behind their warranties issued on the sold cars, it is standing behind its sales contracts, and it is forcing the company to build cars that nobody wants to buy, such a tiny dangerous hybrids or cars to be operating using technology that is not yet invented.

PLEASE SOMEBODY STOP THE GOVERNMENT FROM INVESTING OUR MONEY INTO MONEY LOSING ENTERPRISES AND HELP THE FEW PROFITABLE BUSINESSES TO SURVIVE INSTEAD.

Business needs tax incentives, lower taxes and all the tax breaks possible in order to jump start the economy.

Government Motors, needs to make it on its own using the "system" that was designed for that purpose: the Bankrupcy Law.

No investor would ever consider investing in or much less providing a loan to a business as troubled as GM. Common sense says that one invests or gives loans only to a well run profitable business, not a "dog with fleas".

So far, against every known common sense ideology, our government had instead, ONLY given loans or grants or handouts solely to BAD businesses-businesses that would never be granted loans in the free marketplace.

SAME PROBLEMS, SAME DUMB SOLUTIONS; WILL WE EVER STOP REPEATING THE MISTAKES AND LEARN FROM HISTORY?


Sometimes it is so easy to figure out what to do, by just looking at previous mistakes made by others, in a similar situation.

That's easy....don't do what they did, right?

But then again, or educational system does not put much emphasis on history, much less world history so that we do not make the same mistakes by simply looking back at the mistakes made under similar circumstances.

This is advice that should be heeded, according to the problems faced in a previous similar situation as we are experiencing today as stated by a Senator at that previous time:

" The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest we become bankrupt as a country.

People should be forced to work and stop depending on the government for subsistence."

Which Senator said this you ask?

When did he say that?

The answer may surprise you......as this was said to the ROMAN SENATE in 55 B.C., by Cicero pleading with the Roman Senators.

Rome went forward with all the matters outlined and its power waned, its rule subsided as it was eventually burned and sacked by the Huns who were allowed to line on its borders without ever assimilating.

We need to look at history to find the simple answers, too bad nobody remembers their history lesson, so we are bound to experiment with tried and disastrous policies of the past, which failed over and over when the basic principles of good government were forgotten.

HOW EXCESSIVE GOVERNMENT KILLED ANCIENT ROME

Bruce Bartlett

Beginning with the third century B.C. Roman economic policy started to contrast more and more sharply with that in the Hellenistic world, especially Egypt. In Greece and Egypt economic policy had gradually become highly regimented, depriving individuals of the freedom to pursue personal profit in production or trade, crushing them under a heavy burden of oppressive taxation, and forcing workers into vast collectives where they were little better than bees in a great hive. The later Hellenistic period was also one of almost constant warfare, which, together with rampant piracy, closed the seas to trade. The result, predictably, was stagnation.

Stagnation bred weakness in the states of the Mediterranean, which partially explains the ease with which Rome was able to steadily expand its reach beginning in the 3rd century B.C. By the first century B.C., Rome was the undisputed master of the Mediterranean. However, peace did not follow Rome's victory, for civil wars sapped its strength.

Free-Market Policies under Augustus

Following the murder of Caesar in 44 B.C., his adopted son Octavian finally brought an end to internal strife with his defeat of Mark Antony in the battle of Actium in 31 B.C. Octavian's victory was due in no small part to his championing of Roman economic freedom against the Oriental despotism of Egypt represented by Antony, who had fled to Egypt and married Cleopatra in 36 B.C. As Oertel (1934: 386) put it, "The victory of Augustus and of the West meant . . . a repulse of the tendencies towards State capitalism and State socialism which might have come to fruition . . . had Antony and Cleopatra been victorious."

The long years of war, however, had taken a heavy toll on the Roman economy. Steep taxes and requisitions of supplies by the army, as well as rampant inflation and the closing of trade routes, severely depressed economic growth. Above all, businessmen and traders craved peace and stability in order to rebuild their wealth. Increasingly, they came to believe that peace and stability could only be maintained if political power were centralized in one man. This man was Octavian, who took the name Augustus and became the first emperor of Rome in 27 B.C., serving until 14 A.D.

Although the establishment of the Roman principate represented a diminution of political freedom, it led to an expansion of economic freedom. Augustus clearly favored private enterprise, private property, and free trade (Oertel 1934: 386; Walbank 1969: 23). The burden of taxation was significantly lifted by the abolition of tax farming and the regularization of taxation (Rostovtzeff 1957: 48). Peace brought a revival of trade and commerce, further encouraged by Roman investments in good roads and harbors. Except for modest customs duties (estimated at 5 percent), free trade ruled throughout the Empire. It was, in Michael Rostovtzeff's words, a period of "almost complete freedom for trade and of splendid opportunities for private initiative" (Rostovtzeff 1957: 54).

Tiberius, Rome's second emperor (14-37 A.D.), extended the policies of Augustus well into the first century A.D. It was his strong desire to encourage growth and establish a solid middle class (bourgeoisie), which he saw as the backbone of the Empire. Oertel (1939: 232) describes the situation:

The first century of our era witnessed a definitely high level of economic prosperity, made possible by exceptionally favorable conditions. Within the framework of the Empire, embracing vast territories in which peace was established and communications were secure, it was possible for a bourgeoisie to come into being whose chief interests were economic, which maintained a form of economy resting on the old city culture and characterized by individualism and private enterprise, and which reaped all the benefits inherent in such a system. The State deliberately encouraged this activity of the bourgeoisie, both directly through government protection and its liberal economic policy, which guaranteed freedom of action and an organic growth on the lines of "laissez faire, laissez aller," and directly through measures encouraging economic activity.

Of course, economic freedom was not universal. Egypt, which was the personal property of the Roman emperor, largely retained its socialist economic system (Rostovtzeff 1929, Milne 1927). However, even here some liberalization did occur. Banking was deregulated, leading to the creation of many private banks (Westermann 1930: 52). Some land was privatized and the state monopolies were weakened, thus giving encouragement to private enterprise even though the economy remained largely nationalized. [2]

Food Subsidies

The reason why Egypt retained its special economic system and was not allowed to share in the general economic freedom of the Roman Empire is that it was the main source of Rome's grain supply. Maintenance of this supply was critical to Rome's survival, especially due to the policy of distributing free grain (later bread) to all Rome's citizens which began in 58 B.C. By the time of Augustus, this dole was providing free food for some 200,000 Romans. The emperor paid the cost of this dole out of his own pocket, as well as the cost of games for entertainment, principally from his personal holdings in Egypt. The preservation of uninterrupted grain flows from Egypt to Rome was, therefore, a major task for all Roman emperors and an important base of their power (Rostovtzeff 1957: 145).

The free grain policy evolved gradually over a long period of time and went through periodic adjustment. The genesis of this practice dates from Gaius Gracchus, who in 123 B.C. established the policy that all citizens of Rome were entitled to buy a monthly ration of corn at a fixed price. The purpose was not so much to provide a subsidy as to smooth out the seasonal fluctuations in the price of corn by allowing people to pay the same price throughout the year.

Under the dictatorship of Sulla, the grain distributions were ended in approximately 90 B.C. By 73 B.C., however, the state was once again providing corn to the citizens of Rome at the same price. In 58 B.C., Clodius abolished the charge and began distributing the grain for free. The result was a sharp increase in the influx of rural poor into Rome, as well as the freeing of many slaves so that they too would qualify for the dole. By the time of Julius Caesar, some 320,000 people were receiving free grain, a number Caesar cut down to about 150,000, probably by being more careful about checking proof of citizenship rather than by restricting traditional eligibility.

Under Augustus, the number of people eligible for free grain increased again to 320,000. In 5 B.C., however, Augustus began restricting the distribution. Eventually the number of people receiving grain stabilized at about 200,000. Apparently, this was an absolute limit and corn distribution was henceforth limited to those with a ticket entitling them to grain. Although subsequent emperors would occasionally extend eligibility for grain to particular groups, such as Nero's inclusion of the Praetorian guard in 65 A.D., the overall number of people receiving grain remained basically fixed.

The distribution of free grain in Rome remained in effect until the end of the Empire, although baked bread replaced corn in the 3rd century. Under Septimius Severus (193-211 A.D.) free oil was also distributed. Subsequent emperors added, on occasion, free pork and wine. Eventually, other cities of the Empire also began providing similar benefits, including Constantinople, Alexandria, and Antioch (Jones 1986: 696-97).

Nevertheless, despite the free grain policy, the vast bulk of Rome's grain supply was distributed through the free market. There are two main reasons for this. First, the allotment of free grain was insufficient to live on. Second, grain was available only to adult male Roman citizens, thus excluding the large number of women, children, slaves, foreigners, and other non-citizens living in Rome. Government officials were also excluded from the dole for the most part. Consequently, there remained a large private market for grain which was supplied by independent traders (Casson 1980).

Taxation in the Republic and Early Empire

The expansion of the dole is an important reason for the rise of Roman taxes. In the earliest days of the Republic Rome's taxes were quite modest, consisting mainly of a wealth tax on all forms of property, including land, houses, slaves, animals, money and personal effects. The basic rate was just .01 percent, although occasionally rising to .03 percent. It was assessed principally to pay the army during war. In fact, afterwards the tax was often rebated (Jones 1974: 161). It was levied directly on individuals, who were counted at periodic censuses.

As Rome expanded after the unification of Italy in 272 B.C., so did Roman taxes. In the provinces, however, the main form of tax was a tithe levied on communities, rather than directly on individuals. This was partly because censuses were seldom conducted, thus making direct taxation impossible, and also because it was easier to administer. Local communities would decide for themselves how to divide up the tax burden among their citizens (Goffart 1974: 11).

Tax farmers were often utilized to collect provincial taxes. They would pay in advance for the right to collect taxes in particular areas. Every few years these rights were put out to bid, thus capturing for the Roman treasury any increase in taxable capacity. In effect, tax farmers were loaning money to the state in advance of tax collections. They also had the responsibility of converting provincial taxes, which were often collected in-kind, into hard cash. [6] Thus the collections by tax farmers had to provide sufficient revenues to repay their advance to the state plus enough to cover the opportunity cost of the funds (i.e., interest), the transactions cost of converting collections into cash, and a profit as well. In fact, tax farming was quite profitable and was a major investment vehicle for wealthy citizens of Rome (Levi 1988: 71-94).

Augustus ended tax farming, however, due to complaints from the provinces. Interestingly, their protests not only had to do with excessive assessments by the tax farmers, as one would expect, but were also due to the fact that the provinces were becoming deeply indebted. A.H.M. Jones (1968: 11) describes the problems with tax farmers:

Oppression and extortion began very early in the provinces and reached fantastic proportions in the later republic. Most governors were primarily interested in acquiring military glory and in making money during their year in office, and the companies which farmed the taxes expected to make ample profits. There was usually collusion between the governor and the tax contractors and the senate was too far away to exercise any effective control over either. The other great abuse of the provinces was extensive moneylending at exorbitant rates of interest to the provincial communities, which could not raise enough ready cash to satisfy both the exorbitant demands of the tax contractors and the blackmail levied by the governors.

As a result of such abuses, tax farming was replaced by direct taxation early in the Empire (Hammond 1946: 85). The provinces now paid a wealth tax of about 1 percent and a flat poll or head tax on each adult. This obviously required regular censuses in order to count the taxable population and assess taxable property. It also led to a major shift in the basis of taxation (Jones 1974: 164-66). Under the tax farmers, taxation was largely based on current income. Consequently, the yield varied according to economic and climactic conditions. Since tax farmers had only a limited time to collect the revenue to which they were entitled, they obviously had to concentrate on collecting such revenue where it was most easily available. Because assets such as land were difficult to convert into cash, this meant that income necessarily was the basic base of taxation. And since tax farmers were essentially bidding against a community's income potential, this meant that a large portion of any increase in income accrued to the tax farmers.

By contrast, the Augustinian system was far less progressive. The shift to flat assessments based on wealth and population both regularized the yield of the tax system and greatly reduced its "progressivity." This is because any growth in taxable capacity led to higher taxes under the tax farming system, while under the Augustinian system communities were only liable for a fixed payment. Thus any increase in income accrued entirely to the people and did not have to be shared with Rome. Individuals knew in advance the exact amount of their tax bill and that any income over and above that amount was entirely theirs. This was obviously a great incentive to produce, since the marginal tax rate above the tax assessment was zero. In economic terms, one can say that there was virtually no excess burden (Musgrave 1959: 140-59). Of course, to the extent that higher incomes increased wealth, some of this gain would be captured through reassessments. But in the short run, the tax system was very pro-growth.

The Rise and Fall of Economic Growth

Rome's pro-growth policies, including the creation of a large common market encompassing the entire Mediterranean, a stable currency, and moderate taxes, had a positive impact on trade. Keith Hopkins finds empirical support for this proposition by noting the sharp increase in the number of known shipwrecks dating from the late Republic and early Empire as compared to earlier periods (Hopkins 1980: 105-06). The increase in trade led to an increase in shipping, thus increasing the likelihood that any surviving wrecks would date from this period. Rostovtzeff (1957: 172) indicates that "commerce, and especially foreign and inter-provincial maritime commerce, provided the main sources of wealth in the Roman Empire."

Hopkins (1980: 106-12) also notes that there was a sharp increase in the Roman money supply which accompanied the expansion of trade. He further notes that this expansion of the money supply did not lead to higher prices. Interest rates also fell to the lowest levels in Roman history in the early part of Augustus's reign (Homer 1977: 53). This strongly suggests that the supply of goods and services grew roughly in line with the increase in the money supply. There was probably also an increase in the demand for cash balances to pay taxes and rents, which would further explain why the increased money supply was non-inflationary.

During the early Empire revenues were so abundant that the state was able to undertake a massive public works program. Augustus repaired all the roads of Italy and Rome, restored the temples and built many new ones, and built many aqueducts, baths and other public buildings. Tiberius, however, cut back on the building program and hoarded large sums of cash. This led to a financial crisis in 33 A.D. in which there was a severe shortage of money. This shortage may have been triggered by a usury law which had not been applied for some years but was again enforced by the courts at this time (Frank 1935). The shortage of money and the curtailment of state expenditures led to a sharp downturn in economic activity which was only relieved when the state made large loans at zero interest in order to provide liquidity (Thornton and Thornton 1990).

Under Claudius (41-54 A.D.) the Roman Empire added its last major territory with the conquest of Britain. Not long thereafter, under Trajan (98-117 A.D.), the Empire achieved its greatest geographic expansion. Consequently, the state would no longer receive additional revenue from provincial tribute and any increase in revenues would now have to come from within the Empire itself. Although Rostovtzeff (1957: 91) credits the Julio-Claudian emperors with maintaining the Augustinian policy of laissez faire, the demand for revenue was already beginning to undermine the strength of the Roman economy. An example of this from the time of Caligula (37-41 A.D.) is recorded by Philo (20 B.C-50 A.D.):

Not long ago a certain man who had been appointed a collector of taxes in our country, when some of those who appeared to owe such tribute fled out of poverty, from a fear of intolerable punishment if they remained without paying, carried off their wives, and their children, and their parents, and their whole families by force, beating and insulting them, and heaping every kind of contumely and ill treatment upon them, to make them either give information as to where the fugitives had concealed themselves, or pay the money instead of them, though they could not do either the one thing or the other; in the first place, because they did not know where they were, and secondly, because they were in still greater poverty than the men who had fled [Yonge 1993: 610].

Inflation and Taxation

As early as the rule of Nero (54-68 A.D.) there is evidence that the demand for revenue led to debasement of the coinage. Revenue was needed to pay the increasing costs of defense and a growing bureaucracy. However, rather than raise taxes, Nero and subsequent emperors preferred to debase the currency by reducing the precious metal content of coins. This was, of course, a form of taxation; in this case, a tax on cash balances (Bailey 1956).

Throughout most of the Empire, the basic units of Roman coinage were the gold aureus, the silver denarius, and the copper or bronze sesterce. The aureus was minted at 40-42 to the pound, the denarius at 84 to the pound, and a sesterce was equivalent to one-quarter of a denarius. Twenty-five denarii equaled one aureus and the denarius was considered the basic coin and unit of account.

The aureus did not circulate widely. Consequently, debasement was mainly limited to the denarius. Nero reduced the silver content of the denarius to 90 percent and slightly reduced the size of the aureus in order to maintain the 25 to 1 ratio. Trajan (98-117 A.D.) reduced the silver content to 85 percent, but was able to maintain the ratio because of a large influx of gold. In fact, some historians suggest that he deliberately devalued the denarius precisely in order to maintain the historic ratio. Debasement continued under the reign of Marcus Aurelius (161-180 A.D.), who reduced the silver content of the denarius to 75 percent, further reduced by Septimius Severus to 50 percent. By the middle of the third century A.D., the denarius had a silver content of just 5 percent.

Interestingly, the continual debasements did not improve the Empire's fiscal position. This is because of Gresham's Law ("bad money drives out good"). People would hoard older, high silver content coins and pay their taxes in those with the least silver. Thus the government's "real" revenues may have actually fallen. As Aurelio Bernardi explains:

At the beginning the debasement proved undoubtedly profitable for the state. Nevertheless, in the course of years, this expedient was abused and the [fn2]century of inflation which had been thus brought about was greatly to the disadvantage of the State's finances. Prices were rising too rapidly and it became impossible to count on an immediate proportional increase in the fiscal revenue, because of the rigidity of the apparatus of tax collection.

At first, the government could raise additional revenue from the sale of state property. Later, more unscrupulous emperors like Domitian (81-96 A.D.) would use trumped-up charges to confiscate the assets of the wealthy. They would also invent excuses to demand tribute from the provinces and the wealthy. Such tribute, called the aurum corinarium, was nominally voluntary and paid in gold to commemorate special occasions, such as the accession of a new emperor or a great military victory. Caracalla (198-217 A.D.) often reported such dubious "victories" as a way of raising revenue. Rostovtzeff (1957: 417) calls these levies "pure robbery."

Although taxes on ordinary Romans were not raised, citizenship was greatly expanded in order to bring more people into the tax net. Taxes on the wealthy, however, were sharply increased, especially those on inheritances and manumissions (freeing of slaves).

Occasionally, the tax burden would be moderated by a cancellation of back taxes or other measures. One such occasion occurred under the brief reign of Pertinax (193 A.D.), who replaced the rapacious Commodus (A.D. 176-192). As Edward Gibbon (1932: 88) tells us:

Though every measure of injustice and extortion had been adopted, which could collect the property of the subject into the coffers of the prince; the rapaciousness of Commodus had been so very inadequate to his extravagance, that, upon his death, no more than eight thousand pounds were found in the exhausted treasury, to defray the current expenses of government, and to discharge the pressing demand of a liberal donative, which the new emperor had been obliged to promise to the Praetorian guards. Yet under these distressed circumstances, Pertinax had the generous firmness to remit all the oppressive taxes invented by Commodus, and to cancel all the unjust claims of the treasury; declaring in a decree to the senate, "that he was better satisfied to administer a poor republic with innocence, than to acquire riches by the ways of tyranny and dishonor."

State Socialism

Unfortunately, Pertinax was an exception. Most emperors continued the policies of debasement and increasingly heavy taxes, levied mainly on the wealthy. The war against wealth was not simply due to purely fiscal requirements, but was also part of a conscious policy of exterminating the Senatorial class, which had ruled Rome since ancient times, in order to eliminate any potential rivals to the emperor. Increasingly, emperors came to believe that the army was the sole source of power and they concentrated their efforts on sustaining the army at all cost.

As the private wealth of the Empire was gradually confiscated or taxed away, driven away or hidden, economic growth slowed to a virtual standstill. Moreover, once the wealthy were no longer able to pay the state's bills, the burden inexorably fell onto the lower classes, so that average people suffered as well from the deteriorating economic conditions. In Rostovtzeff's words, "The heavier the pressure of the state on the upper classes, the more intolerable became the condition of the lower" (Rostovtzeff 1957: 430).

At this point, in the third century A.D., the money economy completely broke down. Yet the military demands of the state remained high. Rome's borders were under continual pressure from Germanic tribes in the North and from the Persians in the East. Moreover, it was now explicitly understood by everyone that the emperor's power and position depended entirely on the support of the army. Thus, the army's needs required satisfaction above all else, regardless of the consequences to the private economy.

With the collapse of the money economy, the normal system of taxation also broke down. This forced the state to directly appropriate whatever resources it needed wherever they could be found. Food and cattle, for example, were requisitioned directly from farmers. Other producers were similarly liable for whatever the army might need. The result, of course, was chaos, dubbed "permanent terrorism" by Rostovtzeff (1957: 449). Eventually, the state was forced to compel individuals to continue working and producing.

The result was a system in which individuals were forced to work at their given place of employment and remain in the same occupation, with little freedom to move or change jobs. Farmers were tied to the land, as were their children, and similar demands were made on all other workers, producers, and artisans as well. Even soldiers were required to remain soldiers for life, and their sons compelled to follow them. The remaining members of the upper classes were pressed into providing municipal services, such as tax collection, without pay. And should tax collections fall short of the state's demands, they were required to make up the difference themselves. This led to further efforts to hide whatever wealth remained in the Empire, especially among those who still found ways of becoming rich. Ordinarily, they would have celebrated their new-found wealth; now they made every effort to appear as poor as everyone else, lest they become responsible for providing municipal services out of their own pocket.

The steady encroachment of the state into the intimate workings of the economy also eroded growth. The result was increasing feudalization of the economy and a total breakdown of the division of labor. People fled to the countryside and took up subsistence farming or attached themselves to the estates of the wealthy, which operated as much as possible as closed systems, providing for all their own needs and not engaging in trade at all. Meanwhile, much land was abandoned and remained fallow or fell into the hands of the state, whose mismanagement generally led to a decline in production.

Emperor Diocletian's Reforms

By the end of the third century, Rome had clearly reached a crisis. The state could no longer obtain sufficient resources even through compulsion and was forced to rely ever more heavily on debasement of the currency to raise revenue. By the reign of Claudius II Gothicus (268-270 A.D.) the silver content of the denarius was down to just .02 percent (Michell 1947: 2). As a consequence, prices skyrocketed. A measure of Egyptian wheat, for example, which sold for seven to eight drachmaes in the second century now cost 120,000 drachmaes. This suggests an inflation of 15,000 percent during the third century (Rostovtzeff 1957: 471).

Finally, the very survival of the state was at stake. At this point, the Emperor Diocletian (284-305 A.D.) took action. He attempted to stop the inflation with a far-reaching system of price controls on all services and commodities. [10] These controls were justified by Diocletian's belief that the inflation was due mainly to speculation and hoarding, rather than debasement of the currency. As he stated in the preamble to his edict of 301 A.D.:

For who is so hard and so devoid of human feeling that he cannot, or rather has not perceived, that in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control the very winds and weather from the movements of the stars, and, evil that they are, they cannot endure the watering of the fertile fields by the rains from above which bring the hope of future harvests, since they reckon it their own loss if abundance comes through the moderation of the weather [Jones 1970: 310].

Despite the fact that the death penalty applied to violations of the price controls, they were a total failure. Lactantius (1984: 11), a contemporary of Diocletian's, tells us that much blood was shed over "small and cheap items" and that goods disappeared from sale. Yet, "the rise in price got much worse." Finally, "after many had met their deaths, sheer necessity led to the repeal of the law."

Diocletian's other reforms, however, were more successful. The cornerstone of Diocletian's economic policy was to turn the existing ad hoc policy of requisitions to obtain resources for the state into a regular system. [11] Since money was worthless, the new system was based on collecting taxes in the form of actual goods and services, but regularized into a budget so that the state knew exactly what it needed and taxpayers knew exactly how much they had to pay.

Careful calculations were made of precisely how much grain, cloth, oil, weapons or other goods were necessary to sustain a single Roman soldier. Thus, working backwards from the state's military requirements, a calculation was made for the total amount of goods and services the state would need in a given year. On the other side of the coin, it was also necessary to calculate what the taxpayers were able to provide in terms of the necessary goods and services. This required a massive census, not only of people but of resources, especially cultivated land. Land was graded according to its productivity. As Lactantius (1984: 37) put it, "Fields were measured out clod by clod, vines and trees were counted, every kind of animal was registered, and note taken of every member of the population."

Taxable capacity was measured in terms of the caput, which stood for a single man, his family, his land and what they could produce. [12] The state's needs were measured in terms of the annona, which represented the cost of maintaining a single soldier for a year. With these two measures calculated in precision, it was now possible to have a real budget and tax system based entirely on actual goods and services. Assessments were made and resources collected, transported and stored for state use.

Although an army on the move might still requisition goods or services when needed, the overall result of Diocletian's reform was generally positive. Taxpayers at least knew in advance what they were required to pay, rather than suffer from ad hoc confiscations. Also, the tax burden was spread more widely, instead of simply falling on the unlucky, thus lowering the burden for many Romans. At the same time, with the improved availability of resources, the state could now better plan and conduct its military operations.

In order to maintain this system where people were tied to their land, home, jobs, and places of employment, Diocletian transformed the previous ad hoc practice. Workers were organized into guilds and businesses into corporations called collegia. Both became de facto organs of the state, controlling and directing their members to work and produce for the state.

The Fall of Rome

Constantine (308-37 A.D.) continued Diocletian's policies of regimenting the economy, by tying workers and their descendants even more tightly to the land or their place of employment (Jones 1958). For example, in 332 he issued the following order:

Any person in whose possession a tenant that belongs to another is found not only shall restore the aforesaid tenant to his place of origin but also shall assume the capitation tax for this man for the time that he was with him. Tenants also who meditate flight may be bound with chains and reduced to a servile condition, so that by virtue of a servile condemnation they shall be compelled to fulfill the duties that befit free men [Jones 1970: 312].

Despite such efforts, land continued to be abandoned and trade, for the most part, ceased (Rostovtzeff 1926). Industry moved to the provinces, basically leaving Rome as an economic empty shell; still in receipt of taxes, grain and other goods produced in the provinces, but producing nothing itself. The mob of Rome and the palace favorites produced nothing, yet continually demanded more, leading to an intolerable tax burden on the productive classes. [13]

In the fifty years after Diocletian the Roman tax burden roughly doubled, making it impossible for small farmers to live on their production (Bernardi 1970: 55). [14] This is what led to the final breakdown of the economy (Jones 1959). As Lactantius (1984: 13) put it:

The number of recipients began to exceed the number of contributors by so much that, with farmers' resources exhausted by the enormous size of the requisitions, fields became deserted and cultivated land was turned into forest.

Although Constantine made an effort to restore the currency, subsequent emperors resumed the debasement, resulting in renewed price inflation (West 1951). Apparently, Emperor Julian (360-63 A.D.) also refused to believe that the inflation was due to debasement, but rather was caused by merchants hoarding their stores. To prove his point, he sent his own grain reserves into the market at Antioch. According to Gibbon (1932: 801),

The consequences might have been foreseen, and were soon felt. The Imperial wheat was purchased by the rich merchants; the proprietors of land or of corn withheld from the city the accustomed supply; and the small quantities that appeared in the market were secretly sold at an advanced and illegal price.

Although he had been warned that his policies would not lower prices, but rather would exacerbate the shortage, Julian nevertheless continued to believe that his policy worked, and blamed complaints of its failure on the ingratitude of the people (Downey 1951).

In other respects, however, Julian was more enlightened. In the area of tax policy, he showed sensitivity and perception. He understood that the main reason for the state's fiscal problem was the excessive burden of taxation, which fell unequally on the population. The wealthy effectively were able to evade taxation through legal and illegal measures, such as bribery. By contrast, the ordinary citizen was helpless against the demands of the increasingly brutal tax collectors.

Previous measures to ease the tax burden, however, were ineffective because they only relieved the wealthy. Constantine, for example, had sought to ease the burden by reducing the number of tax units--caputs--for which a given district was responsible. In practice, this meant that only the wealthy had any reduction in their taxes. Julian, however, by cutting the tax rate, ensured that his tax reduction was realized by all the people. He also sought to broaden the tax base by abolishing some of the tax exemptions which many groups, especially the wealthy, had been granted by previous emperors (Bernardi 1970: 59, 66).

Nevertheless, the revenues of the state remained inadequate to maintain the national defense. This led to further tax increases, such as the increase in the sales tax from 1 percent to 4.5 percent in 444 A.D. (Bernardi 1970: 75). However, state revenues continued to shrink, as taxpayers invested increasing amounts of time, effort and money in tax evasion schemes. Thus even as tax rates rose, tax revenues fell, hastening the decline of the Roman state (Bernardi 1970: 81-3). In short, taxpayers evaded taxation by withdrawing from society altogether. Large, powerful landowners, able to avoid taxation through legal or illegal means, began to organize small communities around them. Small landowners, crushed into bankruptcy by the heavy burden of taxation, threw themselves at the mercy of the large landowners, signing on as tenants or even as slaves. (Slaves, of course, paid no taxes.) The latter phenomenon was so widespread and so injurious to the state's revenues, in fact, that in 368 A.D. Emperor Valens declared it illegal to renounce one's liberty in order to place oneself under the protection of a great landlord (Bernardi 1970: 49).

In the end, there was no money left to pay the army, build forts or ships, or protect the frontier. The barbarian invasions, which were the final blow to the Roman state in the fifth century, were simply the culmination of three centuries of deterioration in the fiscal capacity of the state to defend itself. Indeed, many Romans welcomed the barbarians as saviors from the onerous tax burden.

Although the fall of Rome appears as a cataclysmic event in history, for the bulk of Roman citizens it had little impact on their way of life. As Henri Pirenne (1939: 33-62) has pointed out, once the invaders effectively had displaced the Roman government they settled into governing themselves. At this point, they no longer had any incentive to pillage, but rather sought to provide peace and stability in the areas they controlled. After all, the wealthier their subjects the greater their taxpaying capacity.

In conclusion, the fall of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation, and over-regulation. Higher and higher taxes failed to raise additional revenues because wealthier taxpayers could evade such taxes while the middle class--and its taxpaying capacity--were exterminated. Although the final demise of the Roman Empire in the West (its Eastern half continued on as the Byzantine Empire) was an event of great historical importance, for most Romans it was a relief.

__________________________________


© Pictures of Rome courtesy of Rome.info


The author is a Senior Fellow with the National Center for Policy Analysis.

References

Bailey, M.J. (1956) "The Welfare Cost of Inflationary Finance." Journal of Political Economy 64(2): 93-110.

Bernardi, A. (1970) "The Economic Problems of the Roman Empire at the Time of Its Decline." In Cipolla, C. (ed.) The Economic Decline of Empires, 16-83. London: Methuen.

NEW MEANING OF MARKET TERMINOLOGY-REFLECTION OF THE TIMES



Ok, we all need a little levity for all that doom and gloom, so here it is, go ahead and add your own meanings too.

It's time to update the meaning of all those acronyms and well known "market" and investor related terms to the market situation TODAY.

Here are the updated meanings of "OLD" terms, so as to bring them up to date:

CEO- Chief Embezzlement Officer

CFO- Chief Fraud Officer

VALUE INVESTING- The art of buying a stock at the low point, and selling out lower.

BULL MARKET- Random and irrational market movement up, to bring in fools to buy a stock.

BEAR MARKET- Time during which the kids get no allowance, wife gets no presents and husband gets no..... (you figure it out).

P/E RATIO- Percentage of market investors wetting their pants.

BROKER- What my broker has made me (you).

STANDARD & POOR- Life for all for now, and especially those AIG bonus recipients.

STOCK ANALYST- The guy who just downgraded the best stock you owned.

STOCK SPLIT- What your ex and the lawyers do with your remaining assets.

FINANCIAL PLANNER- A person with a disconnected phone.

REFINANCE- Something you do over and over until you get a bailout.

MARKET CORRECTION- The name for the day you get back into the market.

CASH FLOW- The movement your money makes going down the toilet.

YAHOO- A stock market investor, a 401K owner, believer in the STIMULUS actually working.

WINDOWS- What you jump from if you bought YAHOO stock at $240 a share.

CAPITAL GAINS- What happens to your capital, when the government gives you some.

WORKING CAPITAL LOAN- Where you work to get capital to finally qualify for a loan.

ABL LENDING- All but lost, asset based loans definition before foreclosure.

BANK LOAN OFFICER- someone who now wants to know if you actually exist.

LBO- Loosing big by over-borrowing.

ESOP- Employees stopping of pay.

BUYOUT- Your planned buy of the business you work for is now" out".

NYSE- Real meaning: "Now Your Savings Eliminated".

BIG BOARD- The size of the plywood on the boarded-up windows of local businesses.

SENIOR DEBT FINANCING- Term used to borrow money from your elderly parents.

PETRO DOLLARS- The value is now similar to "PEDRO DOLLARS".

EU- Europe Underwater.

GM- "Gimme, more".

CHAPTER 10- The amount of chapters you have to read before the bankruptcy chapter.

BAILOUT- What you do with any stock that gets one of these.

TOXIC ASSET- The term for your mortgage loan at your bank.

PRIME RATE- The lending rate that does not apply to you.

BANK LENDING RATE- The amount a pawn-shop charges for lending you money.

LIBOR -Last Income Before Orderly Liquidation.

FED FUNDS- Dollars which were fed to hungry banks who did not want them.

AIG- Authorized Income Gobbler.

SECRETARY OF THE TREASURY- Someone in the secretarial pool, at the Treasury.

FANNIE and FREDDY- Your crazy aunt/ uncle who lost $2 trillion dollars, and did not know it.

BARNEY FRANK- Barney the dinosaur, coming clean on his opinions on Larry King Live.

OPEC- Overblown Pompous Energy Cabal

CLEAN COAL- Two words that are not related to each other.

WIND ENERGY- A term similar to "hot air".

TRADERS- See, "traitors".

ALTERNATIVE ENERGY- A type of energy that does not yet exist on EARTH.

and finally, one of our favorites,

INSTITUTIONAL INVESTORS- Investors, now institutionalized in a nut house.

Please feel free to add some of your own favorites.

GOODBYE, DOLLAR, HELLO WHAT????, DROPPING THE DOLLAR AND WORLD PRESTIGE


It was inevitable; the value of the dollar as a world reserve currency is now in jeopardy as a result of the mindless social engineering and tinkering with the worlds most robust economy, and economic engine.

Think of it this way: if there is a lot of something, anything-apples, wheat, corn, oil, DOLLARS, its market value drops.

Well, our government is at work creating a plethora, an oversupply of DOLLARS created though the deficits and all the related out of control programs.

There will be dollars increasing by leaps and bounds all over, and as their supply becomes worth less, since if everyone has dollars, why would their value go up?

What this means is that today, if you want to buy something for $100, next month or next year, someone will want to get $110 for that same item since there are dollars everywhere.

Oh, that may also be $120 or $150, depending on the demand of the product which itself will carry a perceived value by consumers. It is sort of like the supply of $50 tickets to the world series....when there are no more tickets, it takes more dollars to buy one $50 ticket.

If the perception becomes that the dollar will fall in value, vendors, producers of goods and services will will demand to get more of the dollars for their product, as they perceive it having less value.

That is called inflation, that destroys the value of your savings, that destroys the value of your labor-the salary you get buys less goods and services as prices for everything go up.

It only gets worse.

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

What this means is that sometime in the future, if you want to get that cuddly toy from China, the one your three year old is screaming for, you have to possibly buy it in "Chindollars" (I made that name up), or whatever, and pay the exchange rate for that new currency. Your dollar is now at the mercy of the other currency's value.

It still gets worse.

All foreign trade, all purchases of oil, foreign goods etc., will then also be settled in the new currency, which will be converted from the dollar, or you have to buy it, by selling your dollars.

Now what happens, when all the parents in america have to buy 50 million cuddly toys using Chindollars?

THEY HAVE TO SELL THE US DOLLARS TO DO SO, that's what!.

What happens when a lot of people have to sell something, like their US DOLLARS to get Chindollars?

You got it; it GOES DOWN IN VALUE.

So, that is your short lesson to watch for the future value of the dollar.

I read that the administration said that "we will emerge from this stronger than ever!".

Now how exactly will this action make the USA or its currency, the DOLLAR, stronger than ever?

VACANT MALLS, OFFICE BUILDINGS, INDUSTRIAL REAL ESTATE; THE NEXT BAILOUT OF REAL ESTATE AND INSURANCE COMPANIES ONCE AGAIN


Did you ever go to a mall where a few stores stood empty?

Did you get that funny feeling passing by the stuttered widows or "fake" window displays in the vacant store announcing that the merchandise in the window was from another, still open store?

Near my home is a mall like that.

Last year most of the interior stores have thinned out, with the anchor stores were still standing, but the interior of the mall was an echo chamber.

There were less and less shoppers other than those going directly to the anchor stores and then exiting out to the parking lot.

Not one of the closed stores has opened up as another chain store, nobody wants to open up a store, a boutique....nobody wants to take a chance on a new business in that mall.

I wondered how that mall owner was going to pay the mortgage on that property?

After inquiring further, I learned that this mall is owned by a large mall owner who is attempting to negotiate a better deal with its creditors, and has troubled assets on its balance sheet; other similar malls.

I learned that RETAIL SPENDING accounts for 70% of all consumer spending, and that 25%-30% of that accounts for the Holiday sales.

The better restaurant has closed, the only food in the food court is still being served by a McD's, and several questionable food operations staffed by various foreigners who apparently own the places, hocking their specialty foods, many of which I could not pronounce.

The marry go round still operates, although often with one child on it going around and around to create the impression of some type of activity.

Tracking the ownership schematic....this mall owner is being financed mostly by debt that is owned by.....SURPRISE.......large insurance companies, most of which have not yet been bailed out by the government.

In fact, most malls, and commercial office buildings, are financed owned or in some type of JV project with insurance companies, who have done well over the years in owning such projects or being involved in financing them.

What happens though when the project does not generate enough cash to pay its mortgage loans?

It gets foreclosed, and the lender own it, that;s what happens.

GE is about to publish all the real estate it owns or is about to own...that will be the tip of the iceberg of the total coming to a head.

This is how it works: consumers who have been living off their credit cards, start running out of available credit....by the Christmas sales season this year, their credit lines will be tapped by financing the purchases of day old pastry, food and utilities during the year, leaving little to spend on another shirt or a third TV set for the house. Also, those 29.9% rates on the cards will now appear to be a larger charge than most of the purchases they made to date.

Retailers will be reeling from the lack of spending.

Malls will be getting notices from their tenants of leaving at the expiration of the leases, and many tenants, if not all the tenants remaining, will want a reduced rent, since the expectations of the mall traffic did not materialize. In addition, the percentage leases that many mall owners get from the revenues generated, will decline as well thus generating less and less rental income.

The mall will go into foreclosure, and will be owned by the insurance companies that now also are not generating any income from their foreclosed properties sufficient to cover their costs.

Since 70% of consumer spending is retail, the retailer will pace less orders for goods throughout the entire world, especially in the US, since goods produced here are more expensive.

This entire domino effect will now result in less retail sales (this includes cars), translating to less factory orders, resulting in less needs to transport the goods, resulting in more layoffs in the transportation sector and the industrial real estate sector which now houses those factories, resulting in more layoffs of factory workers, etc., etc......

Who gets to foreclose on those empty warehouses and industrial buildings?

You guessed it, insurance companies and other lenders for these types of properties who are financed by insurance companies.

Are you seeing where this is going?

If you thought the $175 billion given to AIG was a lot, just start adding up the total defaults and losses by the rest of the insurance industry holding all these other loans!

Will they be bailed out too?

Make sure that you life insurance is being offered by a well rated company....and watch for the next "bubble", to blame for the recession, the greedy financing of the real estate industry, part 2, the commercial real estate markets, since many of them were more leveraged than most of the individuals in the sub-prime category.

STOPPING FREE TRADE, VIOLATION OF AGREEMENTS, NOTHING NEW FOR NEW GOVERNMENT; BUT THERE IS A COST-TO ALL OF US!


Well here we go again.

It is said that every day that Congress is in session, we lose some of our rights and liberties...it's worse than that, this year we also lose a lot of money-$1 billion a day was spent by Congress so far this year!

The new administration has now openly, and with impunity violated and abrogated its obligations under the NORTH AMERICAN FREE TRADE AGREEMENT with Mexico, by closing access to deliveries by Mexican trucking companies who can deliver on the same truck directly to customers, without off loading at the border, then re-loading and having the goods cost more to deliver.

Safety was never the issue since the Mexican trucking companies have proven themselves to have a better safety record than American companies.

Why is this administration hell bent on abrogating contracts? First with the AIG employees, that they agreed to (now claiming that they did not read THE CONTRACTS FIRST). DO THEY NOT HAVE ANY LAWYERS WORKING FOR CONGRESS, AND ARE THEY NOT ALMOST ALL LAWYERS ANYWAY?

Now they just decide to pander to the Teamsters and cancel an international Agreement. That does not speak well for the word of America.

What will they simply decide to cancel next?

They are trying to cancel mortgage agreements for debtors, they are trying to cancel employer secret ballots, they even unilaterally wanted to cancel the agreement that the VA hospitals and health care would be provided to sick and wounded soldiers-they were to pay for their war injuries themselves!

Who are these people that have been elected?

Are they all idiots?

The administration has said things like,"we will emerge from this recession stronger than ever."

Huh? How does that work?

You first weaken the country's industry though stupid actions like the violation of the NAFTA agreement with Mexico, and now already Mexico has retaliated by slapping 89 exports to Mexico from the USA with tariffs.

Goods from 40 states will be affected, some $2.4 billion worth of trade, possibly destroyed.

Is this a way to keep jobs in America?

Hey is there nobody with any brains left in Washington, D.C.?

Now all these sellers will certainly face instant competition from foreign sources that will easily replace those goods, and probably at a lower price since the added tariffs will add from 10% to 45% to our goods cost.

This action virtually guarantees lower employment in America.

So how are we going to recover, and come back even stronger through this action?

Look at what will be affected-table grapes, 45% duty, Christmas trees from California and Oregon, New York will lose its $250 million a year business of precious metals jewelry shipped to Mexico, Wisconsin's scrap battery industry ships $120 million worth, and 40 other states will suffer the loss of $2.4 billion in trade.

The sponsor of the bill, North Dakota Senator Byron Dorgan, just ruined his state's oil seed export business, as 80% of its production goes to Mexico.

These exports represent jobs, jobs that the administration says it want to save-how exactly is this going to save them?

Rest assured too, that once buyers substitute suppliers, it will not be easy if at all to get these sales back.

Hopefully, this foolish notion of abrogating contracts will end...so that we can survive the CHANGE that was voted for for America.

When the world starts to think that America's word is nothing, they can violate any contracts they choose, we will be surprised to learn than there are many contracts out there that can also be violated by other countries that will affect the USA.

For all our sake, please watch what you CHANGE...some CHANGE is downright stupid.

NO ENTREPRENEURS, NO RECOVERY FOR THE ECONOMY



It is a fact that almost all new jobs are created from NEW firms and those that are less than 5 years old.

So, how is that formation of new firms going this year...as a means of calculating how many new jobs may be created?

So far this year, new incorporations are OFF BY 50% from the prior year. That is so far, at least .

Let's evaluate all the compelling reasons why an entrepreneur would form a business this year.

Ummm, I think....yea, maybe due to...., ????

It seems that I can not find an inducement to do so that is right at the tip of my tongue.

All I can think of is that taxes for entrepreneurs are going to be increased to pay for all the other people who are not working, or can not pay the mortgages for their houses, or their credit cards, or are illegally here and need free health care.

So as an entrepreneur, heaven forbid that he makes a profit as a reward for all the hard work, then he needs to pay, and pay and pay for everyone else's failures.

Just to add more crazy ideas from our government, our President's home state of Illinois, is proposing, in the middle of a recession a 50% increase in the State income tax. And these guys get paid for what?

This is NOT a way to jump-start the economy, DUH!

If these new businesses are not formed, and if their formation runs at this rate, there can not be a recovery, since there will be no new places to get work.

Old line, old established firms are firing, not hiring.

Even the firms that are being bailed out, are being forced to fire people, not pay them bonuses, and otherwise are becoming less attractive places to work.

Furthermore, entrepreneurs are people who have typically tapped into their savings or their investments to get the initial capital to start a business. So with the market decimating about half of everyone's investments, the urge to start a new business has been thwarted by the very fact of having less available capital to do so.

There are less businesses being formed, because there is less money to do so.

There is also a lot less credit to do so due to the diminished FICO scores or potential borrowers.

So between the lack of investment capital, and the lending restrictions by banks and other lenders, there will be less business formation and expansion, thus less of a chance for that instant recovery predicted by Ben Bernanke, and other future crystal ball readers.

What we are seeing, for the first time in my life at least is a Washington, D.C., full of business advisors, advising businesses how to operate, what products to make (car industry forced mandates for instance), how much CO2 to throw off, or how many times a cow can belch.

It seems that people who for the most part have never owned a business, never risked money to start one, never employed anyone on their own, exempted themselves from all rules and regulations applicable to all businesses, are now in charge of everyone else's business.

Now that is certainly a way toward financial disaster, and NOT a recovery.

No entrepreneurs, no recovery....write that down, pass it on to your favorite Senator and Congressman.

YOUR TAX DOLLARS AT WORK, NOT WORKING AGAIN-SENATOR CHRIS DODD IS A DUD!


We all expect incompetence and stupidity from our government officials, and we are never disappointed, as usual!

The ex-presidential candidate, exuding gravitas in his manner of speaking, tacked on 11 pages (count them-11 pages) of pay restrictions into the stimulus bill.

As usual, Mr. Dodd, never making a real living in the real world, chose to reward incompetent an non-motivated slackers instead of those employees who can actually pull the "stimulated companies" out of the toilet.

His pay restrictions limit bonuses severely, while allowing unlimited salaries. WOW, what a genius that Mr. Dodd appears to be! stop those performance bonuses dead in their tracks.

So let me see if I understand his proposed reward program for the troubled companies getting federal handouts of every type.

Let's use the example of a trader at Morgan Stanley, Goldman Sachs...or wherever for instance.

The trader makes the firm $100 million in trading profits, and to reward him for this phenomenal effort, the firm wants to pay him a 5% bonus on top of his base $250,000 salary. After all he made them $100 million in profit....5% even sounds cheesy, cheap.

Heck I would pay my trader 50% as a bonus if he made me $100 million.

Yet, scrooge...I mean Mr. Dodd, does not understand this concept of rewarding top performers.

Under his proposed plan, that trader could at most get more than 1/3 of his pay as a bonus. So this trader would get $332,500 as his reward for making $100 million for the firm!

So the firms that need the help the most, to succeed and pay back the government loans or handouts, can not possibly reward great results....they are limited by Senator Dudd...I mean Senator Dodd, with his ridiculous slacker plan.

What his plan would allow however, is to pay any slacker of the firm's choosing a salary of UNLIMITED amount, say $50 million a year whether there was performance or not!

Under this plan, all good traders, rainmakers, performers would immediately leave the troubled companies that need them the most, for those companies (competitors) who will reward good performance; thus leaving the worst companies to fend for themselves.

Good idea Senator, where did you get that idea from, a slacker?

It gets worse...I mean funnier.

Senator Dodd, also mandates that TARP recipient companies can take clients to lunch at only those establishments identified by no less than "the Secretary of the Treasury...", otherwise it may be deemed to be an excessive lunch and not reimbursable.

Great, you now need to call the Secretary of the Treasury and leave him a message with his secretary that he call you back as soon as possible because you want to go to either Wendy's, McDonald's or the Four Season's Dining Room. Could get back you you as soon as he finishes a meeting with the President....you'll be waiting for the call.

Nice...Senator....you are really doing well for the taxpayers....really saving them money.

So, again, we have your government at work....screwing things up and doing it with a straight face.

TAXPAYER BIG CORPORATIONS MOVING TO SWITZERLAND, SO MUCH FOR THE ADDED TAXES TO BE COLLECTED IN THE USA


That did not take long.

Big profitable international corporations are discovering that they can save on the taxes that they pay by moving to another country-Switzerland.

It appears that the various towns there set their own tax rates and the smart ones have a 9.5% tax rate for instance for companies that mostly do business outside Switzerland.

So let's see...if I was a corporation, do I want to pay 35%, 39% or more in federal taxes, plus more in state taxes, and more in various employment taxes, carbon taxes, global warming taxes, etc..... or instead pay 9.5% ? DUH!

So, now not only is the economic slow down/recession/depression, etc., going to continue, but the chances of recovery are even less of a glimmer, as solid profitable businesses domicile outside the USA, while the country only maintains the remnants of failed enterprises such as GM, Chrysler which are all money losers, non-payers of taxes.

They make no money, thus they pay no taxes. Worse yet, in accordance with tax laws, they would have a TAX credit for prior taxes paid and will have loss carry-forwards to offset any future profits to the extent of the losses!

Thus even if they become profitable, they will not pay any taxes for years.

In today's economic global business model, countries should do everything possible to attract and support profitable global businesses to domicile in the USA, instead of chasing them away.

Instead, the government warns all successful profitable business domiciled here, that new taxes are coming, new mandates, new higher operating and compliance costs of every type as well.

In addition, the government supports a union supported mandate to literally force arbitrators to set employment terms and benefits on businesses through a new mandate allowing union recognition in every business.

So far, at least two former Communist high ranking politicians from formerly failed communist/socialist states (such as Mr. Putin of Russia), have advised the USA NOT TO RAISE TAXES BECAUSE THAT WILL STIFLE BUSINESS.

They aught to know best, their economic systems imploded! Imagine that, former communists advising the USA, not to try their failed economic model.

Our country is now going towards economic disaster models that have failed time and time before all over the world.

See the article below:

By Sam Cage

ZUG, Switzerland, March 12 (Reuters) - The tidy towns and mountain vistas of Switzerland are an unlikely setting for an oil boom.

Yet a wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.

In a country with scant crude oil production of its own, the virtual energy boom has changed the canton or state of Zug, about 30 minutes' drive from Zurich, beyond all recognition. Its economy was based on farming until it slashed tax rates to attract commerce after World War Two.

It still has a chocolate-box old town with views over a lake to the high Alps, but is now surrounded by gleaming corporate offices -- including commodity trader Glencore and oil refiner Petroplus -- shopping malls and housing developments.

Local authorities say about 13 percent of full-time jobs in Zug canton are in the raw materials sector.

Over the past six months companies including offshore drilling contractors Noble Corp and Transocean, energy-focused engineering group Foster Wheeler and oilfield services company Weatherfield International have all announced plans to shift domicile to Switzerland.

"Switzerland has a stable and developed tax regime and a network of tax treaties with most countries where we operate," Transocean Chief Executive Bob Long said in a statement in October, when it announced its move. "As a result, the redomestication will improve our ability to maintain a competitive worldwide effective corporate tax rate."

Guido Jud, head of Zug's tax office, said about 1,200 companies had set up shop there in 2008 -- in line with the long-term average, though it is difficult to assess how many of those are foreign companies until they file tax returns.

Swiss cantons are free to set their own tax rates. For example in Zug, corporate tax is about 16 percent but can fall as low as 9.5 percent for companies that do most of their business outside Switzerland. That compares with an average global corporate tax rate of 25.9 percent, according to consultancy KPMG.

"One trend that we see is that particularly Bermuda-based companies are now moving to Switzerland," said Martin Frey, a partner at law company Baker & McKenzie. "That may only partly be obviously for tax reasons, but also for security reasons and the fact that the Obama administration may go after them."

CORPORATE APPEAL

The moves come as the Alpine country is under pressure to stop providing a haven to rich individuals who have been illegally dodging taxes: the U.S. political climate could be contributing to the corporate relocations as authorities seek to crack down on tax avoidance and boost their own revenues.

A bill introduced in the U.S. Congress in March targeting "offshore tax dodges" by individuals and companies names Switzerland among tax havens for evaders.

Offshore tax abuses cost the U.S. Treasury an estimated $30-60 billion in lost revenues from corporation tax, plus $40-70 billion from individuals, according to the office of Senator Carl Levin, who is sponsoring the bill.

Switzerland holds around $2 trillion of estimated global undeclared assets, according to the Boston Consulting Group. Revenue generated from this could be squeezed as a U.S. probe of its biggest bank UBS dilutes banking secrecy.

Yet analysts say the Swiss, whose GDP in 2008 was about 530 billion Swiss francs ($460 billion) according to the International Monetary Fund, are less likely to meet opposition to the low-tax regimes that draw foreign companies: these are deemed less harmful tax avoidance, rather than evasion.

"They are still making some money by having lower taxes on companies," said Lee Sheppard, contributing editor to Tax Notes, a tax journal based in Washington DC.

"But they're not ever going to be making the amount that other governments are annoyed about losing."

Analysts note that because Switzerland has its own tax treaty with the United States, blacklisting it at a corporate or individual level could cause unproductive diplomatic incidents.

Low-tax jurisdictions like Bermuda or the Cayman Islands look more vulnerable because they have less diplomatic clout, which is prompting some companies to head for Switzerland.

The European Commission, the European Union's executive body, has said the tax regimes in cantons like Zug, Schwyz and Obwalden are a form of state aid: it wants Switzerland to end favourable treatment of foreign-earned profits.

Switzerland, which is not a member of the EU, denies the cantons' special status violates its free trade deal with the bloc and rejects negotiations with Brussels on fiscal matters.

But it has pledged to consider some other company taxation regulations the EU has objected to, such as the status of foreign companies, aiming to ensure these go beyond thinly staffed headquarters to invest and create jobs in Switzerland.

CONTINUING TREND

Baker & McKenzie's Frey thinks more companies will shift to Switzerland, and Zug's Jud also highlighted the country's neutrality and reliability as an attraction to energy companies who do business in less stable countries.

"We are not reckoning on an unusually strong boom, but a continual and sustainable growth on the scale of the last few years and decades," Jud said.

Companies say Switzerland's attractiveness as a corporate location goes beyond tax to include easy and efficient transport, a high quality of life high and well-trained staff.

In the current climate, the attractions for the companies that move clearly outweigh one drawback: by making the switch they potentially sacrifice inclusion in stock market indexes such as the closely watched benchmark Standard & Poor's 500.

"In the past and most recently with Transocean, Standard & Poor's has ruled that the process of redomesticating to Switzerland renders a company 'ineligible for continued inclusion' in the S&P 500," said Macquarie Research analyst Angie Sedita in a note.

In buoyant times, inclusion in such indexes has offered access to equity capital. But the S&P 500 has fallen more than 50 percent since October. (Additional reporting by Braden Reddall in Houston; Editing by Sara Ledwith) ($1=1.158 Swiss Franc)

$50 TRILLION LOSS OF FINANCIAL VALUE WORDWIDE!!!!


The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report.

Asia excluding Japan probably lost about $9.6 trillion, while the Latin American region saw the value of financial assets drop by about $2.1 trillion, said Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. The report didn’t give a breakdown of asset declines in other regions.

“The loss of financial wealth is enormous, and the consequences for the economies of the world will unfortunately commensurate,” said Loser, now the Latin American president of strategic advisory firm Centennial Group Inc.. “There are serious economic and political stumbling blocks that may well cause the recovery to be costly and slow to consolidate.”

Some of the world’s biggest financial companies including Lehman Brothers Holdings Inc. and Merrill Lynch & Co. have collapsed as banks and other financial institutions reported almost $1.2 trillion of losses and writedowns since the start of 2007. Global stock markets lost about $28.7 trillion in 2008, and another $6.6 trillion has been wiped from the value of world equities in 2009.

“Poor macroeconomic and regulatory policies allowed the global economy to exceed its capacity to grow and contributed to a buildup in imbalances across asset and commodity markets,” Loser said. “The previous sense of strength and invulnerability is now gone.”

Global Recession

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday. Its assessment is more pessimistic than an IMF report in January predicting 0.5 percent global growth this year.

Developing nations will bear the brunt of the contraction and they will face a shortfall of between $270 billion and $700 billion to pay for imports and service debts, the Washington- based World Bank said.

“This crisis is the first truly universal one in the history of humanity,” former IMF Managing Director Michel Camdessus said at an ADB forum in Manila today. “No country escapes from it. It has not yet bottomed out.”

Growth in 2009 may drop by half in developing and emerging countries, and a recovery in the global economy may only begin late this year or in early 2010, Loser said. Developing nations, which mostly escaped the earlier effects of the credit crisis, are facing more problems as the downturn worsens, the report said.

‘Mounting Difficulties’

“Emerging economies were initially able to absorb the initial impact of the crisis on account of the considerable progress in recent years in consolidating economic performance,” Loser said. “This group of countries is experiencing mounting difficulties. Policy makers will thus need to find a balance between economic stimulus and financial stability.”

Asia is likely to recover with “vibrant” growth once the crisis recedes in 2010, Manu Bhaskaran, the Singapore-based head of economic research at Centennial Group, said in a separate report for the ADB released today. South Asia’s growth prospects “remain good,” he said.

“Asia is mainly suffering a cyclical slowdown because of problems in the developed economies, it is not suffering a structural economic breakdown,” Bhasakaran said. “There is no reason to think that the growth engines that have been unleashed in many parts of Asia are likely to weaken.”

Capital Flows

Net capital flows to emerging markets may fall to $165 billion this year, from $470 billion in 2008 and a record $930 billion in 2007, Loser said, citing estimates from the Institute for International Finance. Net flows to emerging Asian economies may drop by 80 percent from the peak in 2007, he said.

Protectionist measures by countries to prevent a deeper fallout from the global downturn won’t work, Loser said.

“There is no room for denial or populist policies,” Loser said. “Otherwise the crisis will become even deeper and harder to reverse.”

IS THERE ROOM FOR MORE LOSSES? IT SEEMS INEVITABLE THAT THE LOSSES WILL CONTINUE AND THAT THIS WILL CERTAINLY BE A YEAR TO REMEMBER.


STOPPING JOB CREATION, ANOTHER GREAT IDEA FROM THE FEDS, GIVING INTO UNIONS


We all know someone who is or was a union member.

My dad was one when he worked as a machinist in a machine shop in Chicago. He did not choose to be one though; he HAD to become one since the business he worked in was a "union shop."

Since that time in the early 1960's, union membership as a percentage of employed people had dwindled due to expansion of the number businesses in the country, and the decline of the forced "union shop".

Being a "UNION SHOP" has come to mean high labor costs, or lack of a profitable enterprise due to the excessive costs of labor in that enterprise.

Unions were needed, when workers had 7 day work weeks and no overtime pay and no benefits.

However, today, their hard fought labor benefits, are for the most part responsible for the decline of every industry in which they are pervasive.

Take for example the auto manufacturing industry in America.

The fully loaded labor cost per employee is realistically over $75 an hour; and that's regular time pay. That calculates to $3,000 per week; and $156,000 per year.

In order to not hire new employees, and thus add to a long term financial burden to the company, in times of added business, the auto companies would have the present employees work overtime at 1.5 times that wage, thus a cost of $234,000 a year, per employee!

To put this simply, think about this example:

You go to the Starbuck's store, and the barrista working mixing your exotic coffee, is getting paid $234,000 a year. What price would be the price for your cup of coffee?

Oh, and there can not be just one person, there would be 2 or 3 or four people needed to staff that store, plus a manager, at presumably an even higher price-assume $275,000.. That would mean a staff cost of $743,000 to $1,211,000 for that little store.

Rest assured that there would be NO such store in existence, nor would they ever be started.

Well this phantom business, this coffee store will never be seen again if the government and union backed EMPLOYEE FREE CHOICE ACT, a top legislative priority for the new administration is approved into law.

The ACT, in short would allow employees at a business, simply to sign cards requesting that the employees who are in the majority signings such cards, now be represented by a Union.

There is no more need for a secret ballot, nor employer lobbying.

Now, that is not bad compared to a planned provision in the bill that would have a government arbitrator set the contract terms for a business if the parties could not agree after 120 days!

So now the government and the Unions would be running every business in America deciding what wages and benefits would be paid in every company.

Do you believe that this ACT as proposed would be a stimulus to the economy, by mandating work terms?

Some of the best and brightest people, those in technology companies, those in manufacturing would be jobless. Every entrepreneur who wants to start a business would think twice about doing it. Every existing business would question its ability to continue to effectively compete with others.

THE EMPLOYEE FREE CHOICE ACT would be the employee FREE TO BE UNEMPLOYED ACT.

If history considers the Great Depression to be a bad time for America, it will look like a vacation compered to this great country being brought down to its knees with this great new goverment idea.

There is no country in the world stupid enough to have such a regulation to stifle free enterprise and the formation of new businesses, as well stifling every existing business.

New multi-billion dollar investments have been made by foreign companies such as Toyota, Nissan and Mercedes Benz in building auto manufacturing plants with NON-union labor.

Those companies have not asked for loans from taxpayers, those companie have put up their own non taxpayer capital to exist. If they did not have the opportunity to attract labor at a rate attractive to starting their business in America, they would not have built their plants here.

The woder about a free eneterprise system is that nobody is FORCED to work anyplace, at a salary or wages that they do not find appopriate or attractive. They are fre to change jobs for another job that they like better, or offers better pay.

Is it the desire of the government to now madate that employees get a certain pay scale and benefits...?

What about equality in pay? Do all the coffee shops pay the same?

That happened in the old Soviet Union and its eastern Block countries. I know how that worked first hand having visited there during the late 1970's.

Everyone was equally "employed".

If you worked at a candy store (candy store #2073) for instance, your pay was the same if you worked in another retail shop. All emplyees were equally bored. The service was non existant and the products as well.

Nobody cared about their job, and they and no way to make more money except by cheating the employer---they would keep their job no matter what.

Everyone wanted to make more money. The government finally allowed free enterprise to start by allowing private businesses to compete with the state controlled ones.

The private ones offered lower wages with the hope of better ones when business improved. Guess what happened?

Today there ane no government owned candy shops, and everyone makes the wages that are market based. The countries have all prospered.

Now in America, we are about to make all pay equally dismal. Slackers or performers will be paid the same "union mandated" wage. Just like the educational system, as a perfect example.

Is this going to be good for America?

Think about it...as an employee you will not be able to be paid more...the contract will forbid that. as an employer, you will be forced to pay slackers the same as motivated employees.

Worst of all, kiss that $1 value meal goodbuy.
 
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