OUZILLY, France – Little change in the markets yesterday.

We are in the middle of vacation season. Who wants to think too much about the stock market?

Not us!

Fake Money, Fake Capital

Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system.

His proposals are nothing new – simplification… fewer brackets… eliminate loopholes for rich people.

But he also targeted the “carried interest” exemption.

“Carried interest” – or “carry” –  is a term used in the financial industry to refer to what is essentially a performance bonus.

The exemption allows Wall Street money managers to count earnings as capital gains. This helps them keep more money in their pockets. (Capital gains are taxed at a rate of 23.8%. Labor income is taxed at a rate of 39.6%.)

“Carry” is a compliment to the whole figmented system.

The capitalist financial world functions largely on credit, not capital. The earnings represented by “carry” take it one step further.

They are usually earnings on fake money, borrowed by speculators who think they are investors, and invested in gambles only made possible by the fake money system. Then the managers earn a bonus and treat it as though it were a capital gain.

Fake money. Fake savings. Fake interest rates. Fake capital. Fake capital gains. 

Special Treatment

Mr. Trump’s proposal rests on the idea of fairness.

If a plumber or an accountant has to pay income tax on a bonus, shouldn’t a private equity fund manager, too? 

On the other hand, the system is riddled with special treatment.

One man gets a break because he invests in solar power. Another gets a break because he decides to retire. Still another uses a loophole to avoid paying taxes on his grandchildren’s college expenses. 

But even with their loopholes, generally speaking, rich people pay more taxes than poor people. One person pays millions of dollars in taxes; another pays nothing at all.

Mr. Trump says many Americans will pay “zero” under his plan. 

Fair?

Depends on what you mean by “fair.”

If “fair” means treating all people the same, the tax system is unfair. But if “fair” means treating people differently according to whatever cockamamie scheme presidential hopefuls and the Parasitocracy come up with, “carry” is no more unfair than anything else.

But the tax system is duct tape for the Parasitocrats: With it they can fix almost anything.

Clinton Cash

Two things have appeared recently that help us understand how it works. 

One is a documentary called Clinton Cash. It describes how the Clinton Foundation is used to funnel cash to the Clintons and their cronies. 

The insiders make tax-free contributions to the Clinton Foundation. The foundation returns the favor. It sponsors a feel-good media campaign and, say, a visit to the Congo – both ostensibly to help rid Africa of poverty.

Former Secretary of State Hillary Clinton arranges talks with the local potentates. Then former president Bill Clinton is paid as much as $750,000 – the highest speaking fee we’ve ever heard of – to give a platitude-packed talk.

Backs are mutually scratched. And the insiders – often in the mining or construction business – end up with a very rich deal in a very poor country.

We know one of these insiders personally. Nice guy. Smart guy. He knows how the game is played and plays it well. 

News = Propaganda

Meanwhile, the New York Times reports that private, tax-exempt “think tanks” are also part of the Parasitocracy.

They are supposed to be independent; that’s why contributions are usually tax-free. But there is nothing shocking about the examples the Times presents. In fact, they are just what you’d expect.

A corporation makes a contribution to a think tank. The thinkers then prepare research… organize an event… provide “expert” testimony – all designed to help the insiders get what they want.

Want to do a development project on government property…?

Want to sell drones to the feds… or to foreign governments…?

Want to build more aircraft carriers even though Navy strategists and private analysts regard them as unnecessary or obsolete…?

Hey, you need a think tank on your side. And if you can’t buy one… start one yourself.

Journalists are too lazy and too dull to bend over and look under the propaganda. In any case, it is the last thing readers want.

So, the next thing you know, you’ll see headlines in the newspapers: “Brookings Experts Say Development Plan Would Aid City”… “U.S. Needs More Aircraft Carriers, Say Experts”… “Israel, Saudi Arabia to Get More U.S. Drones”…

The public has no other point of reference. Propaganda is the same as “news.” Self-interested opinion cannot be distinguished from fact.

And the Parasitocracy – as far as the casual observer can tell – may as well be Hillary Clinton’s description of the government.

It is “all of us.”

Regards,

Signature

Bill

Market Insight


By Justin Spittler, Editor, Casey Daily Dispatch


Corporate debt levels have exploded…

Since 2007, U.S. companies have borrowed more than $10 trillion in the bond market.

That’s a faster pace than during the dot-com bubble… and before the 2008 financial crisis.

Foreign corporations are also borrowing like there’s no tomorrow.

Over the past decade, emerging market corporate debt has jumped fivefold.

This has led “bond king” and fund manager Bill Gross to warn that the global economy is getting close to its breaking point. Business Insider reports:

The credit-fueled economy is running out of steam, and central banks can continue with their easing but doing so will distort the markets. These two realities, Gross said, will eventually lead to disaster and terrible returns for investors unless there is serious GDP growth pickup.

And Bloomberg:

Nominal growth, according to the fund manager, needs to reach 4% to 5% in the U.S., 3% to 4% in Europe, and 2% to 3% in Japan or the global economy “devolves into Ponzi finance, and at some point implodes.”

Last quarter, the U.S. economy grew at an annual rate of just 1.2%. Europe is growing at just 1.6%. And Japan is growing at just 1.7%.

In other words, it would take a miracle for the global economy to avoid a complete meltdown.

We encourage you to take shelter in gold immediately…

Gold is real money. It has preserved wealth for thousands of years.

And unlike paper money, its value isn’t tied to a government or central bank.

Editor’s Note: Investing legend Doug Casey just released a presentation on his “Casey Method.” It’s something he’s rarely discussed in public. But you can get a sneak peek at the secret formula he’s used to make huge profits in every gold boom since the metal began trading in 1975. Watch here now.


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“Bond King”: I Don’t Like Stocks or Bonds at These Prices
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Why Hillary Could Start World War III…
In a private interview, Bill Clinton’s former classmate talks U.S. politics, his personal encounters with the Clintons, and why he thinks Hillary is more likely to start World War III than Donald Trump…


Mailbag

In yesterday’s Diary, “Good Money and Bad Money,” Bill took on the ideas of former hedge fund manager and economist Warren Mosler. And it’s gotten readers thinking…

The only reason to accept currency in the marketplace is so you don’t have to put a pig in your pocket when you go shopping. Pigs are neither easily transportable nor easily divisible when you wish to exchange one for other goods or services.

As long as the Fed tries to pass off their currency as having value, and the general gullible population will accept that premise, all is right with the world.

Let one small hiccup occur, say the failure of a counter party to a transaction decides that the currency is not an acceptable mode of compensation, and the whole charade falls apart. Wealth always was land, goods and to a certain extent services. Anything else is a mirage.

– William C.

Guys like Mosler and the global central bankers including the fed have no ammo left except to buy with fake money. Eventually only the markets can clean up the mess so let’s make it the biggest show of fiscal fireworks in the history of the world. Go Mosler.

– John B.

Its boggles my mind to think that those men regard Fed notes as money. You call them bad money; I say they aren’t money at all. They are a bank issuance of debt.

Money and a note for money cannot be the same thing. When government issues paper that it calls money subject to its own discretion and forces you to accept it that is nothing but the administration of slavery. Mister Mosler is selling nothing less.

– Mike R.

Thanks for mentioning Gilder’s recent book [The Scandal of Money]. It made for an enjoyable read. And it is fun to see you playing with the ideas in your recent writing. 

But what if Chris Lowe is right? If money is largely a matter of faith, Chris is probably correct that we have placed our faith in the government. Our recent efforts to elect a new high priest may lend support to this notion. 

– Chris J.

I’m glad to see Bill addressed Warren Mosler today, but I’m unhappy to read him employ an ad hominem fallacy in doing so.

Lots of smart people foolishly think they can manage everyone else’s affairs better than those individuals can, but that doesn’t mean every word coming out of their mouths is wrong.

Statements are either facts or falsehoods – right or wrong. They do not depend on the person making them. The reliability of the speaker should affect only how closely you analyze those statements.

– Kyle B.