Did you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax? Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since. Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old. But there was no fanfare, was there? There was no celebration because the federal income tax is universally hated. Sadly, most Americans just assume that there is no other option to an income tax. Most Americans just assume that it has always been with us and that it will always be with us. This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes. That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year. At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system. But wouldn’t the federal government go broke if we didn’t have a federal income tax? No, actually the truth is that the federal government did just fine before there was an income tax. In fact, the U.S. national debt has gotten more than 5000 times larger since the federal income tax and the Federal Reserve were created by Congress back in 1913. As I have written about previously, the Federal Reserve system was actually designed to trap the United States in a debt spiral from which it could never possibly escape, and the federal income tax was needed to greatly expand the size of the federal government and to soak the American people of the funds necessary to service that debt. But it doesn’t have to be this way. America was once much better off before the income tax and the Federal Reserve were created, and we could easily go to such a system again.
What we desperately need to do is to teach the American people a little history lesson. The truth is that the greatest period of economic growth in U.S. history was between the Civil War and 1913 when there was no federal income tax at all. The following is from Wikipedia…
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.
Sadly, most Americans cannot even conceive of an economy like that. Most Americans cannot even imagine having a nation without a massively bloated federal government and without an unelected central bank centrally planning our financial system.
But you know what?
It worked. In fact, it worked fantastically well.
The period between the Civil War and 1913 propelled the United States to greatness. Just check out all of the good things that Wikipedia says happened for the U.S. economy during those years…
The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.
An explosion of new discoveries and inventions took place, a process called the “Second Industrial Revolution.” Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.
Parallel to these achievements was the development of the nation’s industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
In 1913 Henry Ford introduced the assembly line, a step in the process that became known as mass-production.
But if we didn’t have an income tax, how did we fund the government? Well, we mostly did it with tariffs and excise taxes. The following is from a recent article by Thomas R. Eddlem…
Prior to ratification of the 16th (income tax) Amendment in February 1913, the federal government managed its few constitutional responsibilities without an income tax, except during the Civil War period. During peacetime, it did so largely — or even entirely — on import taxes called “tariffs.” Congress could afford to run the federal government on tariffs alone because federal responsibilities did not include welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party that supplemented federal income via excises on alcohol, tobacco, and inheritances. But before the war, the need for tariff revenue to finance the federal government generally kept the tariff at reasonable levels. During wartime throughout early American history, the Founding Fathers were able to raise additional revenue employing a different method of direct taxation authorized by the U.S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.
So why didn’t we stick with that system?
Well, early in the 20th century the “progressives” and the social planners started to take control in Washington.
And one of the things that “progressives” and social planners love is an income tax. In fact, the second plank of the Communist Manifesto is a “heavy progressive or graduated income tax”.
Of course they promised us that income tax rates would always remain low. And at first they were quite low. The following is from an article by Adam Young…
The presidential election of 1912 was contested between three advocates of an income tax. The winner, Woodrow Wilson, after the ratification of the Sixteenth Amendment, called a special session of Congress in April 1913, which proceeded to pass an income tax of 1% on incomes above $3,000 and applied surcharges between 2% and 7% on income from $20,000 to $500,000.
But once the “progressives” and the social planners get their feet in the door, they always want more.
And we have seen how things have worked out. Today, the American people are being taxed into oblivion.
In a previous article entitled “Show This To Anyone That Believes That Taxes Are Too Low“, I listed dozens of other taxes that the American people pay each year in addition to federal and state income taxes…
#1 Building Permit Taxes
#2 Capital Gains Taxes
#3 Cigarette Taxes
#4 Court Fines (indirect taxes)
#5 Dog License Taxes
#6 Drivers License Fees (another form of taxation)
#7 Federal Unemployment Taxes
#8 Fishing License Taxes
#9 Food License Taxes
#10 Gasoline Taxes
#11 Gift Taxes
#12 Hunting License Taxes
#13 Inheritance Taxes
#14 Inventory Taxes
#15 IRS Interest Charges (tax on top of tax)
#16 IRS Penalties (tax on top of tax)
#17 Liquor Taxes
#18 Luxury Taxes
#19 Marriage License Taxes
#20 Medicare Taxes
#21 Medicare Tax Surcharge On High Earning Americans Under Obamacare
#22 Obamacare Individual Mandate Excise Tax (if you don’t buy “qualifying” health insurance under Obamacare you will have to pay an additional tax)
#23 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income that goes into effect next year)
#24 Property Taxes
#25 Recreational Vehicle Taxes
#26 Toll Booth Taxes
#27 Sales Taxes
#28 Self-Employment Taxes
#29 School Taxes
#30 Septic Permit Taxes
#31 Service Charge Taxes
#32 Social Security Taxes
#33 State Unemployment Taxes (SUTA)
#34 Tanning Tax (a new Obamacare tax on tanning services)
#35 Telephone Federal Excise Taxes
#36 Telephone Federal Universal Service Fee Taxes
#37 Telephone Minimum Usage Surcharge Taxes
#38 Telephone State And Local Taxes
#39 Tire Taxes
#40 Tolls (another form of taxation)
#41 Traffic Fines (indirect taxation)
#42 Utility Taxes
#43 Vehicle Registration Taxes
#44 Workers Compensation Taxes
Yet even with all of these taxes, our local governments, our state governments and our federal government are all absolutely drowning in debt.
In another previous article entitled “24 Outrageous Facts About Taxes In The United States That Will Blow Your Mind“, I listed a number of reasons why our federal income tax system has become a complete and utter abomination that can never be fixed…
1 – The U.S. tax code is now 3.8 million words long. If you took all of William Shakespeare’s works and collected them together, the entire collection would only be about 900,000 words long.
2 – According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements. Imagine what our society would look like if all that time was spent on more economically profitable activities.
3 – 75 years ago, the instructions for Form 1040 were two pages long. Today, they are 189 pages long.
4 – There have been 4,428 changes to the tax code over the last decade. It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.
5 – According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.
6 – Our tax system has become so complicated that it is almost impossible to file your taxes correctly. For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household. All 46 of them came up with a different result.
7 – In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household. All five of them came up with a different result.
8 – The IRS spends $2.45 for every $100 that it collects in taxes.
10 – When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.
11 – Residents of New Jersey pay $1.64 in taxes for every $1.00 of federal spending that they get back.
12 – The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.
13 – According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.
14 – Warren Buffett had an effective tax rate of just 17.4 percent for 2010.
15 – The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.
16 – Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.
17 – The United States has the highest corporate tax rate in the world (35 percent). In Ireland, the corporate tax rate is only 12.5 percent. This is causing thousands of corporations to move operations out of the United States and into other countries.
18 – Some tax havens are doing a booming business in setting up sham headquarters for U.S. corporations. For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.
The wealthy have become absolute masters at avoiding taxes, and the poor are not able to pay much.
So who always gets squeezed?
The middle class does.
No matter what our politicians promise us, the hammer is always brought down on the middle class.
And now, according to The Huffington Post, the IRS says that it can even read our old emails without a warrant to make sure that we are paying all of the taxes that we should be…
The IRS apparently interprets that authority very broadly, the documents show: as long as you’ve stored your email in a cloud service like Google Mail, and as long as those emails haven’t been deleted after a few months, the agency thinks it doesn’t need a warrant to read them.
The idea of IRS agents poking through your email account might sound at the very least creepy, and maybe unconstitutional. But the IRS does have a legal leg to stand on: the Electronic Communications Privacy Act of 1986 allows government agencies to in many cases obtain emails older than 180 days without a warrant.
That’s why an internal 2009 IRS document claimed that “the government may obtain the contents of electronic communication that has been in storage for more than 180 days” without a warrant.
It should be noted that the IRS is claiming that it does not use emails “to target” specific taxpayers, but notice that they are not promising not to use old emails against taxpayers once they are officially being audited or investigated…
“Contrary to some suggestions, the IRS does not use emails to target taxpayers. Any suggestion to the contrary is wrong.”
In any event, the truth is that we have one of the most complicated and one of the most intrusive tax systems in the history of the world.
Don’t the American people deserve better?
What do you think?
Should America go back to a system where there is no income tax and no Federal Reserve?
Please feel free to share what you think by leaving a comment below…
View full post on The Economic Collapse
Silver Prices Before the Monetary Collapse
Has the silver market been pricing in the coming collapse?In a word, no!
Markets dominated by the impulses of real people largely no longer exist. The machines have taken over, as bots read the news and respond rapidly with large transactions.
No matter how volatile world markets will get, remember that there will be more Cyprus-type events, more Quantitative Easing programs, more denials of the importance of inflation, more threats from Central Banks to remove liquidity, more mining sector failures and more bubble callers designed to influence mainstream investor opinion.
COMEX Dominates Metals Pricing
Prices for physical precious metals still move based on the COMEX futures price action. If silver futures rise, physical prices go up, and if futures fall, physical prices drop. Furthermore, just like always, silver’s price action typically depends on the monthly event cycle.
For example, trading in silver is always heavy around the COMEX options expiration dates, as professional option traders actively rebalance their portfolios to remain delta neutral.
Furthermore, several key events tend to provide intuitively positive news for the precious metals. These include the release of the FOMC Minutes, speeches or testimony by Fed Chairman Ben Bernanke, Presidential press conferences, and the various jobs reports that are dominated by theNon-Farm Payrolls data release.
Hedge funds have reduced long silver exposures and seem to be maintaining a short bias.Commercial shorts have reduced their net positions.
Overall, it seems that the silver market has reached a likely bottom for now. This has nothing to do with deflation, inflation, bond markets or currencies. It is instead all about the paper trade.
Deflationary Fears and Silver Demand
Economies tend to naturally go through periods of deflation and inflation as they weaken and then strengthen. Long term silver investors should beware of the futility of focusing on this cycle to forecast demand for silver.
U.S. government budget deficits are running $1.2 trillion per year, and unfunded liabilities are increasing at rate of $6.9 trillion a year. In just a few years, the Medicare system will be bankrupt, thereby adding another $1 trillion per year to this deficit. Budget deficits will only grow from here.
The deflationist’s theory has always been that when pushed into a corner, the politicians will make the tough choices and implement the necessary budgetary cuts, but they will not.
The deflation argument might seem correct until the day that the inflationists are proven right, and the whole thing spirals out of control in the blink of an eye. This traumatic event will most likely take the form of a currency crisis and an international crash in the U.S. Treasury market.
How Silver Looks Now
Industrial demand for silver might well decrease in future as cheaper replacements like Graphene are found.Nevertheless, if that happens, the chronically undervalued silver market would probably go right back to focusing on the unresolved problem of this mountain of outstanding sovereign debt.
In a weak economy, people start questioning the creditworthiness of those who have taken out existing loans that they may not be able to repay.
The global economy will eventually experience the same sort of severe financial crisis that the United States experienced in 2008, in which manyfinancial institutions would have failed had the U.S. government not stepped in with truckloads of just printed bailout money. Government intervention in businesses seems to have now become a regular occurrence.
Remember, silver is just a commodity until the day that the increasingly tenuous paper currency based financial system finally unravels. Then it will once again becomehard money, and investors who want to preserve at least some of their wealth through such a crisis will wish they owned it.
Statistics: Posted by yoda — Fri Mar 22, 2013 10:17 am
View full post on opinions.caduceusx.com
Aaron Ross Powell
Today the Washington Post published a front page story about changing intepretations of the Second Amendment. The piece begins with a lecture by professor Don Kates.
In 1977 at a Denver hotel, Don Kates paced a conference room lecturing a small group of young scholars about the Second Amendment and tossing out ideas for law review articles. Back then, it was a pretty weird activity in pursuit of a wacky notion: that the Constitution confers an individual right to possess a firearm.
“This idea for a very long time was just laughed at,” said Nelson Lund, the Patrick Henry professor of constitutional law and the Second Amendment at George Mason University, a chair endowed by the National Rifle Association. “A lot of people thought it was preposterous and just propaganda from gun nuts.”
More than 35 years later, no one is laughing. In 2008, the Supreme Court endorsed for the first time an individual’s right to own a gun in the case of District of Columbia v. Heller. The 5 to 4 decision rendered ineffective some of the District’s strict gun-control laws. And Justice Antonin Scalia’s majority opinion echoed the work of Kates and his ideological comrades, who had pressed the argument that the Second Amendment articulates an individual right to keep and bear arms.
Kates–a liberal, civil rights attorney–published a seminal 1983 Michigan Law Review article arguing for an individual right interpretation of the Second Amendment, the same intepretation the Supreme Court endorsed 25 years later in District of Columbia v. Heller. Kates saw the crucial connection between civil rights and the natural right to self-defense–a connection most of his peers continue to miss.
Over at Libertarianism.org, you can watch one of Kates’s Constitutional jurisprudence changing lectures. Just two weeks back, we posted a talk he gave in 1989 on the history of gun ownership in America and the historical implications of the right to self-defense.
View full post on Cato @ Liberty
Sure, everybody’s a Rand Paul fan this morning, from the Heritage Foundation to the Huffington Post. Well, maybe not President Obama, John Brennan, and Harry Reid. And alas my good friends at the Wall Street Journal editorial board. But still, a wide array across the political spectrum. Me, I was a Rand Paul fan back in 2010. Indeed, I blogged this picture from Kentucky’s legendary Fancy Farm picnic:
And a couple of weeks later on “The McLaughlin Group” I noted:
In Kentucky, the Democrats are calling Rand Paul an extremist. Rand Paul is responding by calling his opponent a Democrat. In the end, the voters will be more scared of a Democrat.
But even before that, I’d written up Paul’s Republican primary victory with this graphic illustration:
And I’d pointed out that Washington’s neoconservative establishment – from Dick Cheney to David Frum, Mitch McConnell, and Rick Santorum – had campaigned hard against Paul in the primary, and been soundly repudiated. They ran some nasty ads against Paul, and his Democratic opponent kept up the attack in the fall. And again the voters saw the attacks on “radical” Rand Paul and voted for him.
So anyway, I’m happy today to welcome all the new fans who made #StandWithRand a number one topic on Twitter last night. And let’s hope they all stick around, and keep trying to rein in the president’s authority to incarcerate and even assassinate American citizens on American soil.
View full post on Cato @ Liberty
Reckless money printing by Federal Reserve Chairman Ben Bernanke has pumped up the Dow to a brand new all-time high. So what comes next? Will the Dow go even higher? Hopefully it will. In fact, it would be great if the Dow was able to hit 15,000 before it finally came crashing down. That would give all of us some more time to prepare for the nightmarish economic crisis that is rapidly approaching. As you will see below, the U.S. economy is in far, far worse shape than it was the last time the Dow reached a record high back in 2007. In addition, all of the long-term trends that are ripping our economy to shreds just continue to get even worse and our debt just continues to explode. Unfortunately, the Dow has become completely divorced from economic reality in recent years because of Fed manipulation. All of this funny money that the Federal Reserve has been cranking out has made the wealthy even wealthier, but this bubble will not last for too much longer. What goes up must come down. And remember, a bubble is always biggest right before it bursts.
Fortunately, it looks like an increasing number of people out there are starting to recognize that the primary reason why stocks have been going up is because of the Fed. Just check out this excerpt from a recent article by the USA Today editorial board…
The Federal Reserve’s purchases have driven interest rates to near zero. This has stimulated the economy but not without cost. Savers, particularly older ones trying to live on income from their investments, are starved for safe options. They’ve been forced into stocks, which is one reason the market has been acting as if it’s on steroids. Further, with borrowing costs low, Congress and the White House have less incentive to rein in the national debt. Rock-bottom interest rates have also distorted markets.
The best indication that the Fed’s bond-buying purchases are pushing stocks up artificially is that investors run for cover whenever there is a hint that the Fed might change course, as happened recently. On Monday, billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told CNBC that markets are on a “hair trigger” waiting for signs of change from the Fed. The market is “hooked on the drug” of easy money, Dallas Fed President Richard Fisher told Reuters.
Fisher’s comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.
Those sentiments were echoed by Gordon Charlop, a trader at Rosenblatt Securities, during a recent appearance on CNBC…
“The Wizard of the Fed, Ben [Bernanke], has done a great job propping up the market, but the question is how does the wizard move the pin from the balloon without blowing the whole thing up?” said Charlop. “This is getting out of balance and he’s got to figure out a way to justify the levels that we’ve gotten to and draw back on some of the stimulus.”
Of course, in the end, the bursting of this bubble is going to be very messy.
The Fed has dramatically distorted the market in an attempt to make things look good, but now the financial markets are completely and totally addicted to easy money. Is there any chance that the Fed will be able to take away that easy money without causing disaster?
There are only a few ways that this current scenario can play out. The following is what Stanley Druckenmiller recently told CNBC…
“I don’t know when it’s going to end, but my guess is, it’s going to end very badly; and it’s going to end very badly because, again, when you get the biggest price in the world, interest rates, being manipulated you get a misallocation of resources and this is going to end in one of two ways – with a malinvestment bust which we got in ’07-’08 (we didn’t get inflation). We got a malinvestment bust because of the bubble that was created in housing. Or it could end with just monetizing the debt and off we go in inflation. So that’s a very binary outcome – they’re both bad.”
What the Fed has done to the money supply in recent years has been absolutely unprecedented. Just check out how our money supply has skyrocketed since the last financial crisis…
So what happens when the amount of money in an economy rises rapidly?
Well, if I remember Econ 101 correctly, that would mean that prices should go up.
And that is exactly what has happened. And since most of the money that the Fed has created has gone into the financial system first, it should not be a surprise that we have seen a bubble in financial assets.
In a previous article that I wrote last September, I warned that QE3 would cause stocks to go up…
So what have the previous rounds of quantitative easing accomplished? Well, they have driven up the prices of financial assets. Those that own stocks have done very well the past couple of years. So who owns stocks? The wealthy do. In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans. Those that have invested in commodities have also done very nicely in recent years. We have seen gold, silver, oil and agricultural commodities all do very well. But that also means that average Americans are paying more for basic necessities such as food and gasoline. So the first two rounds of quantitative easing made the wealthy even wealthier while causing living standards to fall for all the rest of us. Is there any reason to believe that QE3 will be any different?
Of course not.
So will stocks continue to go up indefinitely?
As I have also written about previously, the money printing that the Fed is doing right now is not nearly enough to stop the mammoth derivatives crisis that is coming.
A derivatives crisis was one of the primary reasons for the financial crash of 2008, but most Americans still have no idea what derivatives are.
They can be very complex, but I think that it is easiest just to think of them as side bets.
When someone buys a derivative, they are not buying anything real. They are simply betting that something will or will not happen.
For example, if you bet $100 that the Chicago Cubs will win the World Series this year, would you be “investing” in anything real?
Of course not.
Well, it is the same with most derivatives.
Today, Wall Street has become the biggest casino in the entire world and trillions of dollars of very reckless bets have been made.
In fact, most Americans would be absolutely shocked to learn how exposed to derivatives some of our largest financial institutions are. The following is an excerpt from one of my previous articles entitled “The Coming Derivatives Panic That Will Destroy Global Financial Markets“…
It would be hard to overstate the recklessness of these banks. The numbers that you are about to see are absolutely jaw-dropping. According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives. Just check out how exposed they are…
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
When the derivatives crash happens, there won’t be enough money in the entire world to fix it.
So enjoy this little stock market bubble while you can.
It will end soon enough.
And of course stocks should not be this high in the first place. The underlying economic fundamentals do not justify these kinds of stock prices whatsoever.
A recent CNN article noted that the last time the Dow hit a record high that unemployment in the U.S. was much lower…
Consider this. When the Dow hit its now old record high back in October 2007, the economy was still in good shape — although it was just a few months away from the beginning of the Great Recession.
The unemployment rate in October 2007 was 4.7%. In January of this year, the unemployment rate was 7.9%.
And that same article also pointed out that GDP growth and housing prices were also much stronger back in 2007…
Gross domestic product grew 3% in the third quarter of 2007. Revised figures from the government last week showed that GDP in the fourth quarter of 2012 rose a scant 0.1%. But I guess that’s good news considering the first estimate showed a 0.1% decline.
And despite all the hoopla about the steady recovery in the housing market over the past year, real estate is still in a bear market. The most recent level of the S&P Case-Shiller 20-City Home Price Index, one of the most widely watched gauges of the health of housing, is still 24% below where it was in October 2007.
We have never even come close to recovering from the last economic crisis. Most Americans seem to have forgotten how good things were back then, but a recent Zero Hedge article included some more points of comparison between October 2007 and today…
- Dow Jones Industrial Average: Then 14164.5; Now 14164.5
- Regular Gas Price: Then $2.75; Now $3.73
- GDP Growth: Then +2.5%; Now +1.6%
- Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
- Americans On Food Stamps: Then 26.9 million; Now 47.69 million
- Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
- US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
- US Deficit (LTM): Then $97 billion; Now $975.6 billion
- Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
- US Household Debt: Then $13.5 trillion; Now 12.87 trillion
- Labor Force Particpation Rate: Then 65.8%; Now 63.6%
- Consumer Confidence: Then 99.5; Now 69.6
And of course anyone that reads my site regularly knows that the U.S. economy has been in a state of persistent decline over the past several years.
Just consider the following data points…
-The percentage of the civilian labor force in the United States that is actually employed has been steadily declining every single year since 2006.
-In 2007, the unemployment rate for the 20 to 29 age bracket was about 6.5 percent. Today, the unemployment rate for that same age group is about 13 percent.
-Median household income in America has fallen for four consecutive years. Overall, it has declined by more than $4000 during that time span.
-At this point, an astounding 53 percent of all American workers make less than $30,000 a year.
That is the other side of the Fed’s insidious money printing. Incomes in the United States are going down, but the cost of living is skyrocketing. This is squeezing millions of Americans out of the middle class…
When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.
Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband’s 112-mile daily round-trip commute to his job as a pharmacist.
Perhaps you can identify with this. Perhaps your paychecks are about the same as they used to be back in 2007 but the cost of living has gone up dramatically since then.
I wish I could tell you that things were going to get better, but unfortunately there are all kinds of indications that things are about to get even worse for the U.S. economy. If you doubt this, just read this article and this article.
Yes, the Dow is at an all-time high. But do you want to know what else has hit an all-time high up in New York?
The following is from a recent report in the New York Times…
An average of more than 50,000 people slept each night in New York City’s homeless shelters for the first time in January, a record that underscores an unsettling national trend: a rising number of families without permanent housing.
And apparently families and children have been hit particularly hard over the past year…
More than 21,000 children—an unprecedented 1% of the city’s youth—slept each night in a city shelter in January, an increase of 22% in the past year, the report said, while homeless families now spend more than a year in a shelter, on average, for the first time since 1987. In January, an average of 11,984 homeless families slept in shelters each night, a rise of 18% from a year earlier.
Of course New York is far from alone. There has been a surge in homelessness all over the United States. In fact, at this point more than a million public school students in the United States are homeless. This is the first time that has ever happened in U.S. history.
But the Dow just hit a record high so we should all be wildly happy, right?
Hopefully we can get more Americans to understand that the “prosperity” that we are enjoying right now is just an illusion. It isn’t real. It is a bubble created by reckless money printing by the Fed and reckless borrowing by the U.S. government. If you can believe it, the U.S. government borrowed another 253 billion dollars during the month of February alone.
The Fed and the U.S. government will continue to engage in this kind of reckless behavior until the bubble eventually bursts.
So what should all the rest of us do?
We should be feverishly preparing for the hard times that are coming. As Daisy Luther recently wrote about, one of the most important things to do is to create an emergency fund. Instead of going out and blowing your money on the latest toys and gadgets, set some money aside so that you will have something to live on if the economy crashes and you suddenly lose your income.
Just remember what happened back in 2008. Millions of Americans suddenly lost their jobs, and because many of them had no financial reserves, a lot of Americans suddenly could not pay their mortgages and they lost their homes.
So put some money away in a place where it will be safe – and that does not mean the stock market.
Jim Cramer of CNBC and a lot of the other talking heads on the financial news channels are trying to encourage ordinary Americans to jump into “the bull market” right now and make some money, and many people will take their advice.
But the truth is that a bubble is always biggest right before it bursts.
This bubble is awfully big right now, and I don’t know how much larger it can possibly get.
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“Sunlight Before Signing” was President Obama’s 2008 campaign promise to put all bills Congress sent him online for five days before signing them. It was a measurable promise that I’ve monitored here since the beginning of his first term, and I will continue to do so in his second.
It was the president’s first broken promise, and in the first year he broke it again with almost every new law, giving just six of the first 124 bills he signed the exposure he promised.
With his first term concluded last month, we can now assess how well the president did with Sunlight Before Signing. Compliance with the promise got better, but it’s still not great. The president gave 413 of 665 bills five days of public review (and one he acceptably did not give five days due to emergency).
The easy bills almost always got five days review—few bills to rename post offices haven’t gotten sunlight. But more important bills often didn’t. Recent examples are the controversial FISA Amendments Act Reauthorization and the “fiscal cliff” bill.
|Number of Bills||Emergency Bills||Bills Posted Five Days||%|
Would five days of public review have magically produced transparent government? Of course not. But imagine if the president had implemented and enforced his five-day promise from the beginning, and with every law.
Some segments of the public would have developed an expectation that bills slated to become law were available in a single place for their review and comment. That would have produced a small, but important, increment of transparency and public oversight of government.
Whether implemented in Congress or at the White House, a “hold” on final passage of legislation would have changed the “upstream” behavior of legislators not wanting to be caught inserting earmarks or parochial amendments that could take down a bill. Without Sunlight Before Signing in the first year, and with sunlight withheld from key bills, that blend of government process amenable to oversight and public capacity for oversight has not materialized. So we labor on, without the sunlight we could have had.
In a way, Sunlight Before Signing is emblematic of the president’s transparency efforts overall. They have had the form of transparency, but not the substance. This is not for lack of interest or effort. In my paper, “Publication Practices for Transparent Government,” I documented some of the efforts the Obama Administration leveled at transparency, especially in the first half of his first term. The paper was intended to help the transparency community better communicate to governments what it is we want.
But the challenge of producing transparent government coincided with fading urgency, as the Obama Administration collectively got comfortable with power. Transparency is the demand of the outsider, and the incentive structures predict that a presidential administration will walk away from transparency promises as it recognizes that transparency produces constraints on action.
So I feel justified in giving the transparency mantle to the House of Representatives in my paper “Grading the Government’s Data Publication Practices.” After promising great transparency strides, the Obama administration has faltered. The House promised less, and controls far fewer organs of government, but it has delivered modest gains. I often have credited House Republicans—they do control the House—but House Democrats support transparency, and they deserve credit for participating in the House’s forward movement.
And that movement appears likely to continue. At a meeting held by the House Clerk’s Office last week, staff of the Government Printing Office and the Clerk’s Office shared developments such as newly available bulk downloads of House bills and the House Committee Repository, which has committee schedules, relevant documents, and soon—we hope, tantalized—committee votes.
Committees do so much to shape legislation. Having committee vote data available in usable formats will be a large step forward for transparency.
Senate bills are not available in bulk because apparently nobody has asked GPO to publish them that way. (I’ve just signaled an easy way for the Senate to improve its transparency.)
We don’t have the same view of a bright transparency horizon from the Obama administration. There is still no machine-readable government organization chart. (I made a fun pitch for just that at a recent Advisory Committee on Transparency event on Capitol Hill.) The Sunlight Foundation found recently that reports of spending obligations on USASpending.gov failed in terms of consistency, completeness, or timeliness 94.5% of the time.
I’ve seen few signs that any important forward motion on transparency is coming from the administration. But the president can always produce transparency progress in short order by making it a priority. Publish well-structured data going to the heart of transparency: the deliberations, management, and results of the executive branch of government.
A deal is on the table (because, oh yes, favorable bloggy-blogs from Jim Harper are a huuge bargaining chip): If I get a machine-readable federal government organization chart, the Sunlight Before Signing thing is forgotten.
In the meantime, here is the president’s Sunlight Before Signing compliance, law by law, for everything sent his way by the 112th Congresses.
[Brackets indicate a link from Whitehouse.gov to Thomas legislative database]
* Page now gone, but it was either directly observed, evidence of it appears in Whitehouse.gov search, or White House says it existed.
‡ Link to final version of bill on impossible-to-find page.
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I am looking forward to President Obama’s State of the Union speech tonight. He’s got his work cut out for him. There is a crisis of confidence in the United States of America. Will he be able to soothe this sentiment, even a bit? We’ll see.
Much of America is looking at itself and it doesn’t like what it sees. Liberal, conservative, or other, it’s hard to find anyone but the most partisan hack who says things are going well.
Unemployment is rampant across the board. The middle class has become a caste eternally mired in debt servitude. The poor have thrown their lot in with a government which has promised to provide for them. The rich, the truly rich, expand their wealth as connections become even more important in an economy which is less and less dynamic. Where opportunities for advancement for the average person are fewer and fewer. Crony capitalism reigns.
The young have narrowly supported this president. But the policies of the past 4 years have done little to help the young. The people who are in their 20s right now for the most part have no understanding of the burden which is being placed squarely on their shoulders. Where are the calls to limit Social Security? Where are the calls to limit Medicare? Where are the calls to liberalize the economy so that small business can grow again? (And create jobs.)
As someone who is young enough to identify with many coming out of school, but old enough to have started a business and spent 10 years is sales, it is frustrating to see that many young people have defaulted to an expanding state. Not that anyone (aside from Ron Paul who was and is hugely popular with the youth) has offered the young a viable alternative to an all encompassing state.
Yet young people aren’t happy either. Youth unemployment is at higher levels right now than at any time since the Great Depression. Many young people have huge piles of debt which are holding them back. Perhaps a student loan bailout is in the cards. Maybe that’s the hope.
Hope. Forward. Debt. Drones.
It is official now, the drone kill list hit the mainstream last week when a white paper detailing the case for killing US citizens without trial was leaked.
The president has ordered the death of at least 1 US citizen. The enemy combatant’s son was killed in the process. Without a trial. Without even judicial oversight. Nothing but a nod from the president.
This has even rattled some of the president’s advocates. This is not the sort of thing presidents are allowed to do. There are limits even on his authority. It seems a pretty clear violation of the Constitution.
But hey, it’s only the Constitution right?
The rule of law appears to be ebbing away and it seems there is no way to stop it. Laws are created when it suits. Laws are ignored when it suits. A 2 tiered level of governance has emerged. Most Americans understand that they are part of the lower tier.
We used to make fun of countries which didn’t hold their leaders accountable. Where the law was for show only. Now we appear to be slipping down that very muddy path.
Washington DC has grown in wealth since the turn of the century at an amazing rate. In the wake of the September 11th attacks in 2001 the government went on a spending binge beyond the ongoing regular gluttony. Then after the financial crisis, Washington went on yet another binge built on top of the September 11th binge. The state has expanded and stretched even deeper into our lives.
The rest of the country has become a client of DC. Flyover country. That’s what many Washingtonians, New Yorkers, and Californians refer to America as. A land of hicks which needs to be tamed and taxed.
A large number of Americans look back at Washington with resentment. What many folks stand for is not valued any longer by their government. People don’t believe that DC has their interests in mind at all. Many people fear that their leaders don’t even know what their doing. Or even worse, that they do.
And there is a broad feeling in flyover country that the DC class will do what it needs to feed itself and to consolidate power. It has no interest in the “little people,” the clingers to their guns and God, except to the extent that that these people will get in the way of a greater agenda.
There is deep alienation in middle America. There is fear. There is even sadness. A cloud stretches across the sky for many Americans. The vibrant country most of us have grown up with sees little sun right now.
Certainly there are those who still believe however, who still hope.
Thousands and thousands gathered to celebrate the second inauguration of president Obama. So not everyone lacks confidence. Indeed there are many who have great expectations for the next 4 years.
I do find it interesting though that many who appear to have the most confidence in the current direction of the country do, not because the American experiment based on liberty and free enterprise is expanding and flourishing, but because it is being curtailed.
But I have to think that even the most optimistic, pro-government person gets a bit wobbly once they learn of the National Defense Authorization Act.
The NDAA grants the president the right to literally throw American citizens into a dungeon, forever, without access to a lawyer, without outside communication, forever.
That this president has also assassinated US citizens should also everyone pause, I don’t care who you are.
The loss of the rule of law is not “progress” my progressive friends. All Americans can be confident in that sentiment.
The post Before The State of the Union Speech: A Crisis of American Confidence appeared first on AgainstCronyCapitalism.org.
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The financial planers of the rich were very busy leading up to the ball drop on New Years Eve. Everyone from George Lucas to families with long ailing patriarchs had to make some tough decisions. (In the latter case whether to take great grandpa off of life support.)
Al Gore sought to sell Current TV before the January 1st deadline but failed to do so. Goldman Sachs, the ever savvy crony capitalists were smarter. They awarded their bonuses early.
The CEO of Goldman Sachs Lloyd Blankfein, who often visits the White House, and has long supported the President, came out last year for increasing the tax rate on those who make over $250,000. But he made sure that his bonus was paid out ($4 MM) before the deadline hit.
The post Goldman Sachs, Al Gore, Seek to Minimize Taxes Before Increases, Goldman does, Gore Fails appeared first on AgainstCronyCapitalism.org.
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Central banks must switch off the printing presses before it’s too late
Only a year to go now. Ben Bernanke, chairman of the US Federal Reserve, has let it be known that he won’t be seeking a third term once his present one expires in January 2014, and few can blame him.
One possible defence of QE is that it at least buys time for governments to engage in debt reduction and structural reform to redress imbalances and increase potential growth Photo: Alamy
By Jeremy Warner8:50PM GMT 09 Jan 2013
The last seven, crisis-ridden, years would already have completely finished off a lesser man. The poor chap must be exhausted.
It is perhaps still too early to be passing judgments on his reign, but on one level it certainly doesn’t seem so bad, given the challenges faced. Bernanke has arguably done better than central bankers in Europe, Britain and Japan in terms of his crisis response. US GDP is back above pre-crisis levels, unlike the UK, and is continuing to grow at a reasonable, if quite modest, rate.
Having avoided the fiscal cliff, Congress still has to confront the separate debt ceiling. This will involve the same sort of “end of days” media frenzy we saw around the cliff, but ultimately a deal will be done and the US economic juggernaut will move on.
The negative impact on confidence of these stand-offs seems to be much exaggerated. In fact, the US economy continued to create jobs at quite a pace right through the supposed uncertainty of the fiscal cliff negotiations.
How much of this is down to the genius of “helicopter Ben” is, of course, another matter. One quite powerful contributor to recent growth has been the “fracking” gas revolution, which is delivering cheap energy worth perhaps as much as 1pc of GDP a year to the US economy. There’s no objective way of measuring the extent to which aggressive money printing by the Fed has contributed to the US turnaround.
Inflation reform to hit pensioners 09 Jan 2013
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Capping welfare benefits is the moral thing to do 08 Jan 2013
The general assumption, confirmed by a number of self-serving Federal Reserve working papers, is that it must have done, since America avoided a repeat of the Great Depression and now seems to be mending quite rapidly.
Whatever the truth, one thing is for sure. It is really quite hard to justify further rounds of money printing given the evident recovery that is now taking place. Even so, Mr Bernanke has indicated he’ll keep the printing presses at full throttle at least until unemployment sinks below 6.5pc. This is a mistake, with some possibly quite malign unintended consequences for both the US and world economies.
Like others, I was a strong supporter of the initial burst of “quantitative easing”, both in the US and the UK, when it seemed a very necessary tool for combating the collapse in the financial system and the accompanying, violent, contraction in credit.
And by targeting the “toxic” loans of failing banks for asset purchases, the Fed seems to have practised a rather more effective form of it than we saw in either Britain or Europe. As Bluford Putnam, chief economist of CME Group, has argued in a paper for the Review of Financial Economics, buying up these assets has helped the US banking system rebuild capital and liquidity much more rapidly than has occurred in either the UK or Europe, enabling a return to balance sheet growth.
In Britain, by contrast, QE has almost exclusively targeted government debt, which has been very helpful to the Government in helping to fund a still burgeoning fiscal deficit at very low interest rates — and in keeping the bankers in bonuses — but has failed to restore health to the banking system and seems increasingly ineffective in stimulating demand in the real economy. We’ll reserve judgment on “funding for lending”.
Meanwhile, the European Central Bank largely spurned asset purchases altogether and instead focused on long-term liquidity facilities. Solvency issues in the European banking system have therefore remained substantially unaddressed, preventing meaningful economic recovery.
Even so, the injection of central bank liquidity seems to have done a relatively good job in preventing catastrophe. Yet whether QE can continue to be justified after the financial system has been stabilised is much more questionable. The trouble is that today the purpose of QE is no longer really that of depressing interest rates or preventing a collapse in the money supply, but that of attempting to support aggregate demand.
Growing concern over mountainous public debt has left governments increasingly reliant on the supposed miracle remedies of monetary policy to restore economic growth. Monetary policy has become the only game in town, so much so here in Britain that the Government has elevated faith in the easy money policies of the Bank of England to cult-like status. Britain has blazed the trail, the Prime Minister once boasted, as “fiscal conservatives but monetary activists”. Regrettably, and perhaps predictably, the cult of QE has failed to deliver the goods.
Of course, it is possible that things might have been even worse without it, but the longer it goes on, the less likely this seems, and meanwhile some quite counterproductive long-term consequences are starting to emerge.
Some of the wider adverse consequences of QE have been brilliantly elucidated in a paper for the Dallas Federal Reserve by William White, former economic adviser at the Bank for International Settlements. Since Mr White was one of the few monetary gurus to have accurately highlighted the dangers of the credit bubble when it was still possible to do something about it, his analysis deserves some attention. His main conclusion is that there are limits to what central banks can do, and that monetary stimulus has essentially already hit the buffers. The consequences of persisting are therefore quite likely to be negative from here on in.
These negatives include misallocation of capital likely to prove quite harmful to growth in the long run. For instance, easy money encourages banks to keep existing debtors afloat even though they might be insolvent, thus denying credit to new businesses and younger households. This “evergreening” of long standing debtors creates an army of weak, zombie-like customers.
What’s more, QE results in some very undesirable distributional effects. Those able to afford it are charged higher interest rates than otherwise, while debtors are constantly favoured over creditors. The previously profligate are rewarded, and the thrifty are punished, creating moral hazard on a grand scale. Easy money in response to a crisis can also generate serial bubbles, with each action setting the stage for a later crisis.
But perhaps worst of all, it encourages governments to do nothing. One possible defence of QE is that it at least buys time for governments to engage in debt reduction and structural reform to redress imbalances and increase potential growth.
Unfortunately, this time is not being well used. To the contrary, QE has become an excuse for doing nothing and carrying on as before in the Micawber-like hope that something will turn up. By allowing governments to borrow more cheaply, it also positively encourages irresponsible spending. Oh, what a tangled web we weave…
Statistics: Posted by yoda — Thu Jan 10, 2013 1:27 am
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Geithner Said to Plan Departure Before Debt Ceiling Deal
By Hans Nichols – Jan 3, 2013 6:00 PM MT.
.Geithner Said to Plan Exit Before Debt Talks
Treasury Secretary Timothy F. Geithner finds himself in a familiar position: eager to resume life outside government and facing contentious negotiations with Congress over raising the federal debt ceiling.
Jan. 3 (Bloomberg) — U.S. Representative Scott Rigell, a Virginia Republican, talks about the debt ceiling and need for spending cuts and the outlook for John Boehner’s re-election as speaker of the house. Rigell speaks with Hans Nichols on Bloomberg Television’s "In the Loop." (Source: Bloomberg)
The last time he was in this predicament, in June 2011, President Barack Obama persuaded him to stay. This time, Geithner has indicated to White House officials he wants to carry through with his plan to leave the administration by the end of this month, even if a deal on the debt limit isn’t in place, according to two people familiar with the matter
Geithner’s departure would increase pressure on the president to name his successor at Treasury. White House Chief of Staff Jack Lew remains the leading contender for the Treasury job, according to the people, who requested anonymity to discuss the private talks.
Geithner, 51, is the only remaining member of Obama’s original economic team and was a key figure in the taxpayer- funded bailouts during the 2008 financial crisis. He’s also had a principal role in negotiations with Congress on the budget deal and in past deliberations over the debt ceiling.
Because Lew’s experience in financial markets is thin, Obama may seek to name a Wall Street executive as deputy Treasury secretary, the people said.
While Lew, 57, worked as a managing director for Citigroup from July 2006 until the end of 2008, he’s spent most of his career in government. He has served as director of the Office of Management and Budget for both Obama and President Bill Clinton. Prior to that, he was an aide to the late Tip O’Neill, former speaker of the U.S. House.
Administration officials had approached American Express Co. (AXP) Chief Executive Officer Kenneth Chenault about joining Obama’s second-term cabinet, possibly as Treasury secretary. Chenault has indicated to the administration he isn’t interested in leaving the private sector, according to one of the people, and a spokesman said he plans to stay at the company.
“Ken has no plans to leave American Express,” said Michael O’Neill, a spokesman for New York-based company, declining further comment.
A White House spokeswoman, Amy Brundage, declined to comment on personnel matters. Jenni LeCompte, a Treasury spokeswoman, also declined to comment.
Obama will have several top administration jobs to fill as he begins his second term.
He’s already nominated Senator John Kerry to replace Hillary Clinton as secretary of state. Lisa Jackson, the head of the U.S. Environmental Protection Agency, announced on Dec. 27 that she will step down. Obama also will be choosing new secretaries of defense and commerce, U.S. trade representative and Central Intelligence Agency director.
The administration’s next battle will be over the government’s debt limit as soon as next month. After reaching an eleventh-hour budget deal that averted more than $600 billion in tax increases and spending cuts earlier this week, Republicans in Congress have said they will use the debate over raising the $16.4 trillion debt ceiling to force concessions from Obama on spending and entitlement programs.
“This is a pressure point; we should use it,” Republican Representative Scott Rigell said on Bloomberg Television today. “I want Democrats to help us on this. We’re all in this together. We can’t continue to spend at this rate.”
Obama on Jan. 1 said he wouldn’t bargain over the debt ceiling and warned that the consequences of not raising the government’s borrowing authority “would be catastrophic.”
Geithner told Congress on Dec. 31 that the U.S. hit its statutory debt limit, necessitating emergency steps announced last week to keep funding government operations and avoid default. By relying on the “extraordinary measures,” Geithner has said Treasury can create about $200 billion of “headroom” to avoid a possible default.
The next Treasury secretary will have a major role in negotiating the debt limit deal with Congress, said Ann Mathias, director of Washington research for Guggenheim Securities LLC.
“Washington is turning from taxes to spending, which will dominate the view for the next quarter,” Mathias said in an e- mail. For the Treasury secretary, completing a deal “will take an enormous amount of his, or her, time and involve the same back and forth between tables that we saw during the tax deal.”
Republicans, as well as some of the president’s allies, say Obama will have little choice about the link between the budget and the debt-ceiling debate.
February will bring negotiations over cutting spending and funding the government, along with the debt limit, said Peter Orszag, Obama’s first Office of Management and Budget director.
“Whether the debt limit is technically included in the negotiations or not therefore doesn’t really matter,” he said in an e-mail. “A deal will have to be struck over other spending items anyway, and part of the ultimate deal will have to be an increase in the debt limit.”
Geithner told the president in June 2011 that he wanted to leave the administration and return to New York. With the European debt crisis threatening global growth and a fight over the debt ceiling looming, the president persuaded him to stay through the end of his first term.
Since then, Geithner has made no secret of his desire to leave his post as soon as possible.
In a Nov. 16 interview for Bloomberg Television’s “Political Capital With Al Hunt,” Geithner said he will stay in his post until Obama’s inauguration, and he brushed aside suggestions that he might stay longer if a successor isn’t confirmed by then.
He said he’s “very confident that we’re going to get enough done in these next few weeks” and that Obama will “have a successor in place so I’ll be able to go off and do some other things.”
To contact the reporter on this story: Hans Nichols in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Steven Komarow at email@example.com
Statistics: Posted by DIGGER DAN — Fri Jan 04, 2013 7:58 am
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