Arthur Laffer’s Predictions

Arthur Laffer’s Predictions are right on the money.  There are so few out there that understand how money and taxes really work and he is one of them.  It is time to go to school with Arthur Laffer’s Predictions.

Arthur Laffer is predicting a double dip recession and his prediction is not the only one out there. What is interesting about Laffer’s prediction is that it is based on such a simple principle:  higher taxes retard growth.  Governments simply don’t get it.  If you grow government, which produces nothing, you take capital away from the private sector.  The current cabal of ideologues that have taken over the U.S. government, (here after referred to as the “regime”) have no understanding of how to run a business because none of them have done anything more than hold discussions in the ivory towers of the university system.  They are all academics with no knowledge of how to govern.  Their time is spent expounding on their philosophies how how their utopia should run, not on what is really happening in the world.

Gold is pointing towards the direction that they are taking us.  The direction is not toward the socialist utopia that they envision, but rather toward the fascist state that they want to implement, knowing full well, that while the public suffers, they will be safely in control.  Do what I say, not what I do. What a sad state of affairs the U.S. finds itself in after not quite 2 years of Marxist/Socialist government.

Pay close attention to what Mr. Laffer is predicting because time is running out.  2011 is just around the corner and gold will launch as more sovereign debt issues come to the fore as 2010 winds down.

Tax Hikes and the 2011 Economic Collapse

Today’s corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market.

By ARTHUR LAFFER

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn’t surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the non-taxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it’s also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, “high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994.”

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn’t rocket surgery, as the Ivy League professor said.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush’s tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there’s always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

The bold print is mine to add emphasis. Take the time and re-read this article until you are sure you understand what he is saying.

Are The Regime’s Actions Amateur Mistakes, Or Are They Intentional?

It is my contention, that, contrary to the media and the pundits, this administration is intentionally try to create crisis in order to move their Marxist/ Socialist dream to reality.

Look at the actions taken by the Community Organizer In Chief since he took office.  Right off the bat he opens with the “stimulus bill” which put $750 plus billion to work at growing the government.  There was no stimulus for the private sector that actually creates jobs! Now he wants another $50 billion for the sequel, “Son Of Stimulus” bill.  The first package enabled the regime to take over GM, AIG and Fannie and Freddie  to mention some of the larger acquisitions.

The health care takeover gobbled up 1/6th of the U.S. economy by promising that you could keep your own doctors and coverage and that it would reduce costs.  Now it is evident that both promises were outright lies as the fine print is coming to the fore.

Now add to these insults the BP oil spill.  Tonight the Community Organizer In Chief is going to outline his solutions to the “problem” which are to include the government running $20 billion of BP’s money to pay out claims and the push for “Cap and Trade” so the government can control all of the energy industry.  As a side note he has already suspended drilling and exploration for 6 months, which means 30 to 40 thousand Americans will lose their jobs while foreign nations go right on drilling.

I rest my case. This is not a case of amateur bungling, but rather it comes right out of the playbook, Rules for Radicals by Saul Alinski, the President’s mentor!

The logic is inescapable.  We are staring the 2nd leg of the double dip square in the face and it appears that the Community Organizer In Chief is doing everything that he can to insure that the economy “blows up”.  Create the problem then step in and offer the solution to the problem.

Bloomberg weighs in discussing the “possible” double dip recession.  I would venture to say that the odds of the double dip recession tend to be more “probable” than Bloomberg indicates in this article.

Gold May Surge to Record $1,300 on Double Dip, GFMS Forecasts

June 07, 2010, 10:22 PM EDT

By Aya Takada and Yasumasa Song

June 8 (Bloomberg) — Gold, trading within 1.5 percent of a record, may rally to an all-time high as investors seek a haven for their wealth, including protection from a possible double- dip recession in the global economy, according to GFMS Ltd.

The metal is expected to trade between $1,050 and $1,300 an ounce for the rest of the year, and may rally to as much as $2,000 should the sovereign-debt crisis spread beyond Europe, possibly to the U.S., Chief Executive Officer Paul Walker said in an interview. Gold may also surpass platinum prices, he said.

Gold has increased 13 percent this year as Europe’s fiscal crisis has weakened the euro and rattled global financial markets. Deutsche Bank AG said June 3 that gold may surge to $1,700 as currencies slump, according to Michael Lewis, head of commodities research at Germany’s biggest lender.

“What’s happening in Europe at the moment increases the probability that we will see a double dip,” said Walker, who joined the independent, London-based research company, which produces an annual market survey, in 1995. “The investment case for gold is going to remain robust for the rest of this year.”

Gold reached a record at $1,249.40 an ounce on May 14 and has surged almost five-fold since touching a 20-year low in 1999. The precious metal for immediate delivery was at $1,238.71 an ounce at 8:38 a.m. in Singapore, on course for a 10th annual gain. Platinum traded at $1,520.60 an ounce.

‘Economic Crisis’

“If there is a double dip, it will be a reflection of a long-term economic crisis” and that may be good for gold, Walker said yesterday from Tokyo. Any increase in investment will likely “push gold towards $1,300,” he said.

The euro has tumbled to a four-year low against the dollar amid investor concern that Europe’s debt crisis may engulf Hungary, spreading beyond Greece to Eastern Europe. European finance ministers put the finishing touches yesterday to a rescue fund being backed by 440 billion euros ($524 billion) in national guarantees, seeking to halt the turmoil.

Walker didn’t rule out the possibility that the sovereign- debt crisis may expand from Europe to other regions. That may push gold “significantly higher” than $1,300 an ounce, or by a further $500 to $700, he said.

“If you look at the United States, compared to Europe as a single entity, in many respects the U.S. looks worse than Europe,” Walker said. “The U.S. government has got a budget that is getting worse every hour, every day.”

Still, the dollar is seen by many investors as a reserve asset, while the euro, introduced 11 years ago, is more vulnerable to selling amid the default concerns, he said. The U.S. currency has risen 17 percent against the euro this year.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe “double dip” recession.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn’t take effect until Jan. 1, 1983. Reagan’s delayed tax cuts were the mirror image of President Barack Obama’s delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don’t work until they take effect. Mr. Obama’s experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what’s going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain’t seen nothing yet.

Once again, the bold type is mine for emphasis.  This economy is struggling and the regime is doing everything that it can to keep it down! Gold is going to take off as this situation worsens. Silver will lag initially and then it will out perform by percentage.  Make no mistake about it.

Here is one short piece from the WallStreet Journal that would be pretty funny if it didn’t point out the Fed Chairman’s inability to deal with reality.

More Gold Market Analysis:

• Gold Predictions
• Inflation’s Influence On Gold Predictions
• Gold And Silver Predictions
• Bernanke = Inflation
• How To Put Gold In Your IRA

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