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The Stimulus Package and the Magic $170 Billion Where Does $170 Billion Magically Come From?
— Nathan Lewis President Bush proudly signed off on a $170 billion stimulus package last week. Congress willingly approved. The two peacefully joined hands for the first time since they surmised to free Mesopotamia. This time, however, they focused their do-gooder righteousness on the struggling American consumer. In a last-ditch effort to avoid the big “R,” Washington procured no less than $300 ($600 in most cases) for every man, woman or child who earns a paycheck or receives Social Security. Mr. Market smiled. The cadence of the buy-now-pay-later American generation lives to see another day. Morality aside, dear reader, you must forgive us for spoiling the fun. But from where exactly does this $170 billion magically come? The last time we checked, Congress doesn’t produce widgets for Chinese consumption. It doesn’t sell government land. Nor does it rent its legislative acumen to some chaotic third-world country. It’s up to its ears in debt. The latest budget promises only to borrow much more. So where exactly did Congress find $170 billion? We assume the deal went something like this… The U.S. Congress turned to the U.S. Treasury. The U.S. Treasury turned to foreign buyers (China). Foreign buyers should (and will) require a higher rate of return for holding a depreciating fiat currency. But they shrugged. They knew that money would make its way back to China through a Wal-Mart near you. So they acquiesced. They lent Hank more money. Meanwhile, the juice keeps running. ********************************* The Winning Strategy Behind the 14 Greatest Stock Market Performances Joseph Kennedy, father to U.S. president John Kennedy, famously used the “paddle strategy” to launch his family fortune with a $1 million haul, in the thick of the massive market crash in 1929. Market legend Jesse Livermore used the “paddle strategy” to get so rich, he used to commute to Wall Street every morning on his 300 foot yacht. In a single afternoon the “paddle strategy” made him over $250,000. A year later, Livermore used it again to make another $3 million. And again, during one of the worst bear markets in U.S. history, he used this technique again to make his biggest haul yet — nearly $100 million. That’s nearly $1.14 billion in today’s dollars. You can use it today to possibly do even better… Check it out here… ********************************* Unfortunately, before long, Washington will receive a bill. It’s postmarked “Beijing.” Government opens the little white envelope to find it owes the Chinese $170 billion big ones, plus interest. It sighs… So once again, Congress will turn to the U.S. Treasury. The Treasury balks. Chinese loans aren’t an option. Hmm… It scratches its head. Then, like a child playing one parent against the other, Congress runs down the street and knocks on the other benevolent banker’s door. But “Helicopter Ben” squirms. Lower rates inject more money, he muses, but there’s only one way that money will make it to Washington’s bank account. The endgame: Congress must tax. At first, Washington turns to tariffs. “Tax the foreigners,” it shouts. “Secure our borders! They’re the ones who stole your jobs… They’re the reason we’re in this whole mess!” China grimaces. Projection doesn’t work. It waves its finger like a parent whose cookie-obsessed child comes home with a toothache. “Tread lightly,” Beijing warns. “More than a trillion or so American IOUs don’t need a new home, do they?” Uncle Sam agrees. He’s left with no option. He must now tax every man, woman and child who received a check. If that weren’t enough, every $300 handout will now require $330 in return. Unfortunately, Americans are tapped out. They were told to spend their windfall, not save it. The magical $170 billion now sits in a Chinese sovereign wealth fund. In return, 50-inch plasma TVs, flawed diamonds and a fresh coat of paint adorn the American landscape. So Washington turns its guns on another time-tested villain: The rich. It preys on John Q. Public’s fear and greed… It vilifies the top 1%. “Make them pay,” it screams. The rich…they’re the ones to blame. The masses quickly jump on board. A button-down, neatly tucked family of four adorns the balcony for the State of the Union. The legislators gasp. The president puts forth a multibillion relief package. Congress applauds. “Save the middle class,” it cheers. The spin machines anxiously assemble outside the great hall. They crave their pound of flesh. They eagerly ingest the doctrine spewed inside. They pontificate about the great command. Ratings rise. By spring, big business and big money get slapped with the so-called “relief” tax. And like the Chinese, big business gives a grimace. It’s seen this trick before. It’s no dummy. It passes the tax like a hot potato. Prices rise. Consumption wanes. Before long, production falls. Eventually, cutbacks ensue. Workers lose jobs. More Americans unknowingly join the button-down, neatly clad family of four. So it goes… ********************************* Penny Stocks Beat the Pants off of Large-Cap Stocks Year In and Year Out On Jan. 20, 2006, shares of China Technology Development Group (CTDC: NASDAQ) traded for just $2.18 per share. Most investors had never heard of this tiny company, but CTDC was poised for an amazing run. Between Jan. 20 and Feb. 2, shares rose from $2.18 to $12.15. That’s a 457% rise in TWO WEEKS! Check this report out today, and I’ll send you four more just like this one, that you can get in before their amazing runs… But, you’ll have to hurry. You don’t want to miss your chance… Click here… ********************************* The point, dear reader, is this: Efforts to tax the rich prove counterproductive. In a cruel twist of fate, Nathan Lewis, author of Gold: The Once and Future Money, points out:
Analogous patterns can be seen in both the ‘20s and the ‘60s. “In 1921,” Lewis notes, “the top tax rate was 73%, and by 1926, it had fallen to 25%. In that period, the percentage of tax revenue paid by those with incomes over $100,000 (about $1.75 million today) rose from 28.1% to 50.9%. The percentage of tax revenue paid by those with income under $25,000 fell from 40.1% to 14.5%.” Britain also shared a similar experience during the Thatcher administration. You see, higher taxes discourage higher production. Fewer widgets mean fewer sales and fewer jobs. Fewer sales slips and W-2s equal less tax revenue. Meaning, passing the buck to the top 1% not only shrinks the overall size of the pie, but this misguided public policy also forces the middle and lower classes into paying more. “What a country wants to make it richer,” economist John Stuart Mill wisely surmised, “is never consumption, but production.” Unfortunately, we have it backward. We base progress on consumption. If we can’t afford more, well, then we’ll borrow more to keep the party going. But eventually, the music must stop. And the cleanup won’t be easy. But to the magic moneymakers in Washington, that’s someone else’s problem. As Bill Bonner points out in his latest book, Mobs, Messiahs and Markets:
Ahh, the beauty of politics. Until next time, P.S.: Whether or not you agree with the Stimulus Plan, the real question is: How are we supposed to make money in times like this? I think you’d agree that it’s not in the U.S. That’s why I tell my Free Market Investor readers to look elsewhere. I am currently sitting on one of the best ways to invest in the growing markets of Asia. I just finished a report on it, and you should to check it out here… Editor’s Note: As always, you can send any questions or concerns to us at jim@pennysleuth.com. |
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| Christopher has spent the last two years doing investment research primarily focused on emerging markets, specifically China and Hong Kong. <click here for full bio> |
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