Beneath The Surface

Inflation and Devaluing the Dollar Does NOT Lead to American Prosperity

A couple days ago, my idol - Larry Kudlow - highlighted the effects of inflation and how it is destroying the dollar.

A stable reliable dollar is a cornerstone of prosperity in out nation. As a matter of fact, continued inflation of the world’s reserve currency is an inflationary tax hike and will affect food, retail gasoline, imports and will ultimately impoverish our nation.

• The dollar has fallen 2% against the Euro this month.
• The dollar index has fallen 4.8% since Sep. 21 Fed meeting
• The following commodities/indexes are up: Industrial prices, imports agriculture, CRB foodstuff, raw material, and oil
• The Fed has made it very clear that they want higher inflation and is determined to print more money
• Weak dollar is not good for manufacturing because domestic companies are paying higher prices for imports
• As the world’s reserve currency, we have an even higher obligation to maintain the value of the US dollar
• A weak dollar will lead to high inflation, high interest rates, and a tax hike on all US consumer

(Source: cnbc.com)

Learning the Lessons of the Great Depression Could Have Mitigated the Impact of the so called Great Recession

• During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007. The economy is growing at only about a third of the rate of previous postwar recoveries from major recessions.
• In addition to our stagnant growth (which lags behind the EU, UK, G-7, and OECD) the United States has also led in biggest drop in unemployment figures since 2007.
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• In 1938 (decade after the crash), US industrial production had declined by 20% in comparison to its 1929 peak, whereas there was growth in UK and Italy by 10% and12%, respectively. 
• During this period individual taxes rose from 24% to 79% and corp taxes rose to 15% from 11%, however tax revenue declined during this period. (1 billion to 527 million)
• “The relations between the leaders of business and the Administration were uneasy, and this uneasiness accentuated the unwillingness of private enterprise to embark on further projects of capital expenditure which might have helped to sustain the economy.” - League of Nations’ assessment of FDR’s policies towards business.
• “Now, gentleman, we have tried spending money. We are spending more than we have ever spent before and it does not work … I say after eight years of this administration we have just as much unemployment as when we started … and an enormous debt, to boot.” - Henry Morgenthau, FDR’s Treasury Secretary 

(Source: The Wall Street Journal)

“If You Like Your Insurance You Can Keep It. Period!” Oh really??

• McDonald’s Corp. just reported that it may be forced to cancel its current coverage for 29,500 employees as a result of ObamaCare.
• Why? Because the new mandates will make its plans “economically prohibitive” and cause “a huge disruption” unless it gets a waiver.
• Given it high turnover (75%) and young workforce (nearly half are <25), McDonald’s uses a low-cost, low-benefit insurance known as “mini-med”.
• Mini med covers most medical services but generally have an annual deductible or benefit cap between $1,000 and $10,000. Unlike more comprehensive plans, there’s no catastrophic coverage.
• However, Dems hate mini-med; they classify it as “underinsurance”
• So what we will continually see is the choice is between relatively affordable coverage that isn’t as generous as Democrats think it should be and dumping coverage entirely

(Source: The Wall Street Journal)

Potential Tax Hikes in 2011 are Affecting Business Decisions

• Worries over whether Congress will extend some of the expiring Bush-era tax breaks are emerging as important factor in many investors’ and businesses’ decisions.
• President Barack Obama has been proposing to allow taxes on dividends and capital gains to rise to 20% from the current 15% for households with incomes of more than $250,000. But many Dems are favoring to let it rise to as high as 39.6%
• Stock prices of utilities recently have appeared to be factoring in the possibility of significantly higher dividend taxes next year.
• Some companies are pumping up dividend payments this year to beat the possible 2011 tax increase, and their shares have rallied.
• Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment.
• A July analysis by Barclays Capital suggested that increasing taxes on investment income, as many Democrats advocate, could trim about 9% off the S&P 500 index.
• While dividends are getting most of the attention, wealthy investors also are facing big incentives to realize capital gains by selling assets.

(Source: The Wall Street Journal)