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Monday, August 26, 2013

How Deep Does It Go?? (Taxes, Debt, Fed & China)

As we start another week of repetitious & meaningless financial news, we see the market is up a tiny bit based on as an AP header puts it, "Data Ease Fed Concern"

Whewwie.. ~wipes brow

Now that we got the irrelevance out of the way, let's focus today's posting on a topic that matters..

Money and Income Tax..
People don't like paying taxes..  

The wealthy and middle class feel they pay too much.. Would much prefer 'flat' taxes where everyone including the poorest of the poor pay their supposed 'fair share'..

The working class and the poor know that the wealthy always come out ahead but never have the power to do anything to change the tax laws since no politician ever sincerely courts their vote..

And everyone bitches and complains about where their tax dollars go.. or are 'wasted'... Some hate all the money the government pays out to help the poor and indigent and unemployed..  Others hate the money spent on war..  
Some others may hate the fact we give billions away yearly in foreign aid...

The disgusting religious bigots will always latch themselves on to the fact we give taxpayer $$ annually to Israel and conveniently forget to mention we also send tax dollars to Afghanistan, Iraq, Egypt, Jordan, Philippines, South Africa, Ethiopia, Uganda and even the Palestinian Authority among others..

Hell, we even give foreign aid to Mexico who politically correct or not to say, have destroyed millions of good paying jobs in the last 20 years via NAFTA...

Yep..  Everyone feels some level of frustration as to where their precious money is going and how its being used..
But there's a little bit of 'good' news..   Well its not good at all.. More like sarcastically 'good'.. nonetheless...

In all likelihood your money is going to none of that.  If your tax dollars are going to anything, chances are 100% of it is going towards paying creditors...

Let us explain..

Last month the US government spent out $307 billion in total in expenditure to keep the nation running..  It did this while collecting $172 billion in tax revenue...
$307B - $172B = a deficit of $135 billion

So the US government Borrowed $135 billion from creditors to stay afloat last month..  And will do so this month.. and next..

The interest alone on the national bebt is $200 Billion

This is why we never have been able to pay down on the debt.. Merely try to pay down the deficit...
And here's the simple way to understand the two.. we've used this example before:

You have a credit card-- you owe $20K... that's your debt..  The monthly payments are $750.. that's your deficit.

Now let's focus on that national debt a moment.. 

Months have passed and it still hasn't been raised..  All that's happened is clever accounting by the Treasury to ensure we never went above the $16.7 trillion threshold while the politicians got to frolic around for their summer holidays..
At some point between mid-Oct and mid-Nov, something needs to be done or we will go Kaput..  No worries though.. our leaders are good at bluster and filibuster then at the last second they agree to some increase enough to kick the ball 9-12 months...

Ever wonder how its decided who gets paid if there was a financial crisis and we simply couldn't afford to pay out all our obligations?

This past May, the House of Representatives passed a law deciding who gets paid if the debt ceiling is not raised and what the pecking order was for meeting financial responsibilities...
In case you wonder who got the #1 spot, maybe this will help you out..   the House called the legislation the "Pay China First Act"

So China and all other creditors get paid First..  This includes the Fed.  They are a private entity remember that gets to use government money to lend and spend..  

That means, yes...  The Fed took taxpayer money (they created it out of thin air which everyone's on the hook for later, bought US Treasuries which is how we 'sell' our debt and raise running capital, then they get repaid with taxpayer money at a profit...

And in times of fiscal crisis, they have priority over every other bill to be repaid..
In addition this is why the US will never voluntarily default.. it would be sabotaging its own entity the Fed...

Assuming there's anything left, the next financial obligation to fulfill on the pecking order is Social Security which is then followed by Department upkeep and so on...

See how messy and confusing it gets..   It doesn't stop there..

China's economy is in steady decline.. Don't let mainstream and financial news fool you.. it is..  Its heavily in debt and suffering from among other things, the fact we're not buying its crap in as great a number as pre-recession..
So what happens if they collapse..

One idea being floated around astonishingly is the Federal Reserve... yes, our Fed recapitalize their government by buying up their debts..  

Not just any debts.. the US debts they're holding onto.. over $3 Trillion to this point..

Let us repeat this slowly because it is so astonishing and few outside inner circles are acknowledging this potential reality if China's economy truly crashes:
A private bank with a 'Federal' name whose sole function is to protect the banks and who already use taxpayer dollars to buy up US debt then profit off interest while never being responsible for paying the principle...

This entity would purchase a portion of the T-bills held by China.. maybe half a Trillion dollars; maybe more.. And thus US taxpayer money helps keep our economic and political enemy afloat while the Fed ultimately becomes our primary creditor...

The banks would truly be running the world if they aren't already..
They don't teach this in college folks..  This is all on the 'hush-hush'...

No, nothing Snowden-like.. No laws broken and no privacy infringed..  

We're just providing some true "inside baseball" as the expression goes and trying our best to do so in language and concepts that are easily understandable and relatively quick to grasp..

This is why we stand out at A&G and appreciate the growing support..