The Effect of Taxes

Under the Eisenhower administration, Ike wanted to balance the budget in the worst way. Which he did. Economically, it was shown that it's is still fiscally sound to run a slight deficient.... SLIGHT.

Oversimplify it, it creates a true stimulus on the economy for growth.

That would be deficit, not deficient.

No, That would be autocorrect.

"person #1 has his $5 dollars back"?

Only until person #1 pays the $1 tax on the 5 dollars he just received from #10.

Receiving repayment of a debt isn't usually income, at least in principal.

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Additionally, the dollar in tax isn't burned. Suggesting that it is somehow removed from the group requires an explanation.

I saw what you did there.

"Receiving repayment of a debt isn't usually income, at least in principal."

Wait just a minute!

I quote you, ": When the first one pays his debt,the second one has to pay income tax on the $5,say $1.So he only actually gets $4 net.So to pay off his debt,he must add $1 to the $4 to pay off the next person.

You can't have it both ways!

Lyn, I am accountable for only the things that I myself write.

A little due diligence on your assumptions is in order.

Sorry, after four or five syllables, the names all start to look alike to me.

OK,let's place a government in the center of the circle.

As long as the government recirculates that tax money within the circle,it stays in circulation.

However,if the money is spent outside of the circle,say,for instance foreign aid that never returns to the circle,then the money does go down a black hole.

So in order to maintain the money supply,the gov'ment simply prints more money,which has less buying power than before.

If the money truly disappeared from the system, yet new money was printed to replace what went down the black hole and thereby maintain the money supply constant, why would the buying power be decreased?

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Truth, as long as the money never resurfaces, then the money supply is constant and there's no inflation or decreased buying power.

Here's another thing to consider. What happens if the so called "lost money" gets invested in say the stock market? Since the price of a stock doesn't effect the bottom line of the company (doesn't change it's profitability), then it doesn't have any effect on the economy, except to make people feel richer (they see their 401K growing). Since the QE isn't helping the economy and it's only making people think they have more money, will people spend more? Will companies buy capital goods or hire more employees? I think that's what we're seeing in the current economy (since the recession).

This is the reason why we're flooded with money, yet the economy is barely moving forward. And what happens when the QE money is pulled back - tightening? Maybe that's why all the major indexes have broken through their trend lines and it seems like the market keeps inching toward a -200 pt move on the S&P. It's how I see it.

Now you've found one of the causes of inflation.

"However,if the money is spent outside of the circle,say,for instance foreign aid that never returns to the circle,then the money does go down a black hole."

But the money is returned in kind, by the nation receiving the foreign aid cutting deals to give the corporations a 'discount' for setting up shop there and/or buying the other nations natural resources.

So the money does come back into the circle, but it only goes to the owners of the corporations (who won't share), in other words, only the rich benefit from the return on foreign investment.

Or what about the money going to "aid" people who cannot work, due to poor education, young pregnancy, too many kids, poor work habits, drug habits, laziness, etc. Is this money also going down the "black hole"

One can say that these people deserve to be fed, have a place to stay, be given medical service, etc. One can also say that these programs only cost our country a fraction of the money spent on our defense. Those are good points and maybe we can do things more efficiently. Wouldn't that be a good place to start.

Here's a good article that shows when the largest increases occurred and who was in charge (President and Congress). The results aren't shocking, but are pretty disturbing. http://www.forbes.com/sites/mikepatton/2015/08/31/welfare-spending-by-president-and-congress-from-1959-to-2014/#23cab1f33e12

In the article, the two questions that should be asked of any program are:

1. Can we afford it?

2. Do we really need it?

Pretty simple, yet when playing politics, everything that your party wants will get a yes to both questions, while everything supported by the other side of the aisle will get a no to one or both questions. Our political system is definitely broken!

As the consequences of American politics are not confined to America, I don't feel out of place in making comment.

It looks like the idea of changing business as usual has enough popular support to make the possibility real.

The panic that one independently wealthy and bold man can create says more to me about the Pavlovian quality of our culture than an indication of rational fear.

Whatever, it's going to be real interesting this time around.

I'm reading an older (2006 ish) book by Trump and Robert Kyosaki (Rich Dad guy). In it, they both say the biggest problem in America is the underfunded Medicare system.

Prior to reading the book, I thought our Federal Deficit was the biggest problem, but now I see that out of control medical costs will cause a huge change to occur. The wealthy will receive top notch medical care and they're going to pay for it. The rest of us will receive sub-standard medical care.

If I look back to pre-recession, I know that a phone call to our doctor would give us an appointment in a day or two and if a specialist was needed, it would be at most another day or two. Total bill was $10 (co-pay)

Today, we call our doctor and he doesn't have an opening for a month, so he tells us to go to urgent care if we need to see someone right away. We call urgent care and when they hear we have an HMO, they tell us there's nothing they can do and it'll be a waste of our time. If we do show up, they're just going to send us to the hospital emergency, so we should just go there directly. Now we're waiting with lots an lots of other people who are in the same boat we are. Total cost is around $300 (co-pay)

The quality of service has dropped considerably in the last 7 years and I think it's going to get worse. The current process is getting very expensive for the insurers and they're going to make some new rules to keep us away form the emergency room. Maybe higher co-pays or something like that.

'Is this money also going down a black hole?'

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No. Not in in an economic sense. Money to the poorest segments of society is most quickly spent, i.e. the savings rate is near zero. Ice cream trucks tend to do much better business in poor neighborhoods.

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This is not a comment on what should be done, just pointing out that money gets spent much more quickly when put in the hands of those who don't save.

It does get spent more quickly - they almost never save. Ice cream trucks, liquor stores, cigarette companies, check cashing, 7-11's, buy here-pay here used car lots, furniture stores, etc. You're right that they do make money in lower income areas. And the businesses employ workers, pay rent, pay utilities, buy merchandise and pay taxes. Good for that part of the economy.

The problem I see is that these folks buy a new bedroom set for junior and his brother. They pay for it with their tax return (yes, they get earned income credit, even if they don't work) and the nice shiny MDF furniture gets delivered. The kids jump on it, play tackle football and then things get really rough and the furniture breaks. $999 goes right into the trash can (or in my case, they just leave it in the room or on the side of the house). They keep the mattresses and sleep on the floor.

The family did not receive $999 worth of use from the furniture. We (middle class) paid taxes, so this family could receive their tax return and buy furniture with it. The family really doesn't care, because they didn't work for the money, so if the kids wreck it, who cares. We don't care, because we don't see how the money is wasted (unless you rent to people like this).

I have three trash bags (big black trash bags) full of clothes and blankets from the last tenant. There were so many hangers in the house (the kind that comes with kids clothes). They just left it behind as they raced out the door before the sheriff came to throw them out. Broken toys, bikes, kitchen stuff, a crib, mattresses, furniture. The mom hasn't worked for years and this stuff was all brand new. A pile of cloth bags (the kind you buy at the grocery store) was stuffed in the cabinets. You see, the state requires the stores to give them to low income shoppers for FREE. As a guess, I'd say they paid $3-4K for all the stuff they left behind. It's just a Goodwill donation and more junk in our landfill! To me, that's a big waste remember that this is just one family in one town.

The crap they bought still went back into the economy. It paid wages and taxes for employees at Arron's Rent to Own. Truck drivers, dock workers, toll booth attendants, comptrollers, etc all eventually received a couple cents.

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Is it a shame the stuff they bought was not better quality, longer lasting, used responsibly, etc? Undoubtedly, but that doesn'the mean the money was somehow lost.

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Even considering the products made in China and shipped here to shortly end up in our landfills, it still is far from clear that anything is being removed from the system. We buy China's products of questionable quality and dubious long term value, with what? Our currency....of questionable quality and dubious long term value?

The whole charade of value is as real as anything else so long as the important parties continue to emphatically press the 'I believe' button. What incentive is there to do otherwise?

Well said. Tell me more, you're really holding my interest.

Yes but the money doesn't stop at the government level, it get's spent, reinjected back into the economy which raises your salary that $1 ....The Government isn't a black hole for money, if anything it's a white hole, because they spend more than they make....The Government plans to spend $4.1 trillion dollars this year...

The $283 billion question then, is who the hell is getting all that interest money?

Somebody somewhere, must have an extremely large yacht......

Now yer gettin it

The around 2% interest that is paid keeps pace with inflation, so it's really just a parking place...not a money maker

Repayed to whom exactly? That is still $5.66 billion unaccounted for......& still quite a sizeable yacht!

Let's see, liberal thinking.... at a 29% tax rate... The government just made $14.50 in taxes. Out of that $5.00

Your thinking is on the edges of the famous 'Broken Window Fallacy', first explained by Frederic Bastiat in 1850. It's a notion popular among politicians and mis-educated economists who think the government can create wealth by stimulating the economy. (Keep in mind that dollars, or pound notes, or euros, or yen, etc., are not weatlh, but only a symbol of relative wealth.)

Here's a link: http://bastiat.org/en/twisatwins.html

I'll fix my own damn window and keep the six symbols of relative wealth in my own bank account!

Frederic is a fool!

I saw a state owned truck with a trailer behind it stop and two men got out.

One of them started digging a hole,then moved down the street 50 feet,and started digging another hole.

The second guy came behind,and started filling in the holes.

I asked the guy filling in the holes what they were doing.

He replied that there were supposed to be 3 men on the crew,one to dig the hole,one to insert the tree,and one to fill in the hole.

But Fred was out sick so they had to work without him.

Just because Fred couldn't work today, doesn't mean we couldn't.

And so goes,our money down the hole.

Are you sure that happened for real, and wasn't just a bit from a stand-up comedian? The punch-line's way too good.

I would have expected the workers to 'leapfrog' down the street, disturbing the ground just enough to make it LOOK like a hole was dug and filled in, finishing the job quickly, and then finding a bar to hang out in and drink while 'running out the clock' on the time scheduled for the job.

No Joke!

I was filling up my car when this occurred,and when I finished filling up,I asked them about it.

Can't make this sh-t up.

If I could,I would be a stand up comedian.!

Forgot to mention they had bundles of seedlings on the back of the trailer.

I guess they had to work overtime when Fred got back to work.

Maybe they took turns laying out sick,to get more O.T., I don't know.

And was the tree planted in the excavated hole before the man filled the hole in?

(Keep in mind that dollars, or pound notes, or euros, or yen, etc., are not wealth, but only a symbol of relative wealth.)

If I recall the bank notes are not actually wealth or money, but Promissory Notes. In essence IOU's. As is stated on all UK Pound notes, the Bank promises to pay the bearer..... So if the bank reneges on the promise the assumed worth or wealth is in fact zero or the amount they now wish to promise you. Therefore, any IOU's from a bank can be changed by a bank at any time to suit their favour and their assumed value of the promissory note.

Exchange rates are perfect examples of this promise of value. Therefore the $5.00 initial value owed will fluctuate around the remaining 9 persons resulting in gains and losses resulting, in a false economic debt or profit for each person.

Maybe in Africa they have it right, wealth is measured in cattle, goats, sheep, owned.

Forgot about law of the jungle

Guess I must be prejudiced

The jungle is only a stone throw away. Prejudice: mayhaps.

It works just like friction in a machine. The less the friction, the better the machine works.

I don't know how your tax system works where you live, but here in Australia, we only pay tax on our net profit, not our gross income.

So if #1 pays #2 the $5, and then #2 pays that $5 to #3, that is considered an expense and is deductible against the income. Therefore for #2, $5 in and $5 out results in no profit and no tax payable, and that continues down the line.

Once it gets to the end of the line, there may be tax payable if there is any profit made.

It makes no difference if the payments/deductions are for services rendered or product supplied - Gross income minus gross expenditure and any other allowable deductions equals tax payable at your marginal rate

Even with GST/VAT, outgoings are deducted from incomings before any tax is paid, or a refund is made if it has been pre-paid

OP doesn't state if the "transactions" were really claimed as income or they all transpired in the "grey" economy. The later is tax free(avoided) unless one is caught.

You are right and have half the problem outlined. The other half is the currency itself. Consider the the currency was created from nothing in the first place by fiat. The $5 is a deficit right out of the gate, and so, the taxes are an addition to the inflation of the currency. Inflation happens to price, not the value of the currency. The currency's value deflates as prices inflate.

If the currency is sound money, ie gold or silver, and not a value created from nothing, then, you have a deflationary economy. The money in circulation gains value as it circulates. It is the same equation but in a reverse polarity.

The same $5 buys and pays for more each time it is used. Prices go down and the $5 buys more and more as it moves around. Taxes are fixed in price relative to the currency, so if the currency is real and positive value in the system, and is limited in it's extent, then prices must drop to keep up with the momentum of the medium of exchange through the circle of the economy. The same weight of currency has to represent the value of more and more exchange. The $5 moves around the circle and gains more and more buying power as it goes.

What you wrote is that $5 circulated around the group to repay debt. Since it's repaying a debt, there will be no income tax, unless interest was earned. So in reality, all that's happened is that money has moved around. There is no inflation created in this scenario. I'll make another post to explain inflation and buying power of money.

The flipside of this is how the debt occurred. The debt could've been from a number of reasons; borrow to pay for for a purchase, borrow to pay for a service, borrow to pay taxes, borrow to repay other debt, etc. Most of these do create income taxes and some even have sales tax tied to it, however the activities also created income and profits - good for the economy.

Inflation simplified.

Assume that there is $1T in circulation. This $1T buys goods for residents and businesses (the amount of goods are fixed). The government decides to "print" another $100M (out of thin air). Now there's $1.1T in circulation for only $1T worth of goods and services. To get back to equilibrium, the price of the goods and services has to go up 10%. You don't get any extra goods for the money, but you're now paying 10% more.

The way this does work for us is if we get a pay increase of 10%. Then based on our new income, we receive the same amount of goods as before they printed money.

Putting more cash into circulation doesn't always result in inflation.

Most major economies indulge in this practice (called "quantitative easing") in order to increase the velocity of circulation to ward off recessionary effects.

Provided the banks also increase their lending in a rational manner, it can work well with no inflationary effects.

The extra cash can be strategically withdrawn once the desired result has been achieved

Very true, but I was giving as simple a definition of inflation as possible.

One big problem I see with the last round of QE is that the money went into the economy and much of it isn't being used to improve the economy. I don't know the exact numbers, but a large part has been used to invest in the stock market - this provides very little to the growth of the economy (velocity of money).

I also don't see the government pulling back the QE money they've printed, though I could be wrong.

Not to nit-pick, but if you add $100M to $1T you get $1.0001T, not $1.1T.

$1T = $1,000,000,000,000

$100M = $100,000,000

$1.0001T= $1,000,100,000,000

$1.1T = $1,100,000,000,000

Your point is still valid.

Not nit-picking, just clarification

You're right. My mistake.

In response to your question, the buying power of money decreases when the government prints more. There is an offset to this, if everything is working properly.

If the population is growing (people having babies and immigration), then the new people will be able to work and provide service in exchange of money. The money system has to grow, because more services are being performed (more work is being done). Even with a family having a baby; in 18 years that baby will be providing service to the economy - he's working.

When people don't provide service for the money they receive, then the system starts to break down. When the government creates programs for people to provide no service, but they receive income (government prints money), then we have a problem. A country full of people on the government dole will self destruct (Portugal, Italy, Greece and Spain), unless there are extensive natural resources, which can be sold to pay for the people on the dole - think of Saudi Arabia or Alaska.

And you do make a good point about when government gets too big and inefficient - money paid in taxes doesn't return the same benefit of goods and services from the government. In the US, we hit that point years ago and we're in trouble. I was at the Reagan Library a couple weekend ago and there's a section displaying Reagan's push for a smaller, more efficient government.

I got a little off track. What I meant to say is that taxes are not bad and are actually needed for a country to function properly. For this to work, the government must remain efficient and not waste the tax money.

Someone posted that the government adds money to the economy (adds more money than the taxes collected), which is true. The problem is that it's done very inefficiently - they're paying too much for the benefits provided.

I know as little about The Dismal Science of economics as the next guy. It is, however, my conviction that all bets are off for classical economic models.

The more complete the data picture, the better the understanding, but we all want privacy and confidentiallity.

Wasted = friction is simplistic. Wasted could simply mean legal title to wealth completely divorced from its creation. The wasted bux don't disappear, but recirculate.

One cynical view is that ALL human society is a pyramid of extortion. This can go smooth and easy or not so much.

It is also my conviction that if you don't have rule of law, you don't have anything.

If each person was in debt because they had no money of their own, then paying the debt off in the circle as you said would leave no debt but still each person has no money - so who do they borrow from when they want some more money - yes from #1 when ho gets his money back. So they all end up in debt again

Actually if tax was deducted each time then #10 wont get much.

If you play Monopoly, then change the tax box as you pass GO to a refund. That speeds the game up. You'll be owning hotels in no time. With a bit of luck you get ahead of the game and collect rent from other less lucky players (it is far more profitable for you to be in jail) (you avoid paying rent) - some players soon mortgage their property or sell it to other players - losing the ability to earn rent - but travel the board and get made bankrupt when landing on some expensive properties (that you have just sold) - eventually the bank runs out of money as well - and one player ends up wiping the board. To keep the game going you need to print some more money

Just juggle the 'tax' box between pay and refund (and the amount) to see what effect it has on the game.

Nicely put...

In the late 70's to mid 80's, we had double digit inflation and prices were going up very quickly. I remember people paying 15% for a home mortgage or auto loan. That's absurd, but our country was an economic mess.

Inflation doesn't necessarily hurt folks who live forever, if they're invested properly. Inflation does hurt folks who invested in low return, fixed income, "safe" vehicles which were purchased when rates were modest.

I know some people where were suckered into buying an annuity before the recession. Typically, they would've been a poor investment, however since the going rate was pretty high (pre-recession), they actually were in great shape post recession. It's not because their "broker" saw into the crystal ball and saw that the economy was going down the toilet and rates would remain low for a long time - it's because they got lucky. Annuities line the pockets of brokers better than most "traditional" investments.

I really like how you put things! It makes one heck of a lot of sense and you are correct that most engineers/scientists struggle with the concept of money and investments. I think it's because there's no logic behind it. How can a logical person understand the "fairness" in someone being able to push a button and $85,000,000,000 comes out of nowhere (monthly QE thrown into the economy after the recession). From a logical mind, how can one comprehend this? There's no linearity. No charts. No graphs. Nothing that makes sense.

Here's something that I've noticed historically. At the end of the last term of a two term President, the powers that be decide to rape our country and line their pockets. Starting with Reagan and the S&L - some people made a fortune selling junk bonds. Next in line was Clinton and his decimation of the .com stocks - somebody was selling this junk on the way up and you know they made a boatload of money. Then W and the banking crisis - fed by unrealistic real estate valuations and the bonds (CMO's and CDO's) they sold to the greedy investors.

So, now we're sitting in the last year of our current administration and what's overpriced now? The stock market is high, but not as high as in 1999, so I don't think it's going to get taken out. Real estate loans? Nah - they've been pretty conservative and the pain is still too fresh from 2008. Bonds? Hmmm. The 10 and 30 year are awfully expensive now. Or what about those countries with negative rates? I have a feeling something big is going to happen. I'm just trying to figure out what it is and how to play it.

Don't forget that Statisticians are re known for manipulating figures to say what they want you to see.

http://money.howstuffworks.com/how-much-money-is-in-the-world.htm

And by the time one takes into account UCC laws, the money and taxes gained and lost amounts to more than one realises.

https://www.law.cornell.edu/ucc

(Sorry,No, the Insert Hyperlink does not operate on this side of the world).

Good links. Thanks for sharing!

You sure are not lacking in historical perspective.

Portfolios ( portfoolios? ) north of your border also lost on average about a third of their "value" after 2008, despite no banking crisis whatsoever.

Every time I think about joining vs. beating, CCR's " It Ain't Me " starts playing in my head, but I will agree that just standing around waiting for the hammer to come down is highly unsatisfactory.

There is logic behind how that train got rolling down the track, just not apparent with so much unknown. If you can manage to get on board, I'll bet there's room for one more.

The logic is that people wanted to make money. Some were okay making a little, while others wanted to make a lot.

I read that book by Sorkin, "Too Big to Fail" a few years ago. Great read and I think it's pretty accurate. At the end, I think the banks, hedge funds, our government and the rest of the world leaders wanted the problem fixed and I think there were a lot of "behind closed door" agreements made - most we probably won't hear about.

I did watch an interview with Bob Benmosche on Bloomberg. If you get a chance, watch it. About a year after the interview, he passed away from cancer. He seemed like a really nice guy.

Not quite right auto.... The banking crisis came to light under bushy administration, but the seed for this failure started under Clinton adminisation with the directive of everyone should have a home (wether they could afford it or not) driving up real estate values with nothing but demand that was backed up with easy loans, that was secured with basically nothing but the upward spiral real estate market which was artificially high (due to the easy loans) to back it up.

And when the crash happened, those easy loans weren't so easy to pay back, all the mortgages were under water.

Now the point that I'm trying to get across here is, what may sound like a great idea to help your fellow man, fails in the long run, especially when dealing within the fiscal banking.

those "EZ loans caused the crash" excuses are stories the banksters tell, so that you'll be angry with the pols and the poors and overlook how the suits and the swells took all of our money. And, they stole it fair and square.

Nobody went to jail because no laws were broken. Anything that isn't forbidden is allowed.

The one, simple cause of the financial crisis was the repeal of glass steagall at the end of the last century. These were the regs that we always heard the pols campaigning for decades to be deregulated.

Glass steagall prevented retail banks from investing deposits in anything riskier than A rated debt. It was one of those FDR rules passed in 1933 to keep us from repeating depression history but, certain interests finally ended its control.

In less than a decade, all of our banks had been looted.

Wall Street $$wafen sales engineers mined this new vein of customers and as they say on the Street, "Packed their ass with sand." The sales troopers all cashed their commission checks, tho. (A fraction of a point on a trillion is a lotta commas on a check.)

By the time the system collapsed, all of the money in the world ($50T) was bet on one side of the table and was covered by only a trillion dollars, or so, on the other.

Dodd-Frank tried to patch this hole in our banks but, our dysfunctional central government hasn't implemented these rules yet.

It a lot more complicated then that.... ... i.e. people were buying houses they couldn't really afford. That was the start.

Where the crash actually started was the selling of debt.

And just because no one went to jail,... yet..... doesn't necessary mean no laws were broken. Companies were held liable and fined.

And this has farther reaches then just banks. Because of the selling of debt. The department of Department Of Justice is currently prioritize individual prosecutions on Wall Street. This we agree.

I also agree about the deregulations. When sectors are not regulated... such as the financial sector, there are people that will push beyond the envelop for the profit. Some just barely skirting around laws.... some not.

I personally felt that back in the late 90's with the dot com boom. and the doors opening up for the common man to invest in the stock market with tools such as *etrade and Ameritrade, Wall Street was just licking their chops at the fresh meat with cash.

As far as naming names, that can be easily done on who gamed the system.

You are right - there are many reasons for the crash and, yes -- people should not buy stuff they don't need for more money than they can afford to pay back. The time value of money is the root of all evil, to paraphrase St. Paul.

Debt has always found a secondary market, since the dawn of time. Credit is an agricultural idea and predates the invention of money.

Fannie mae & freddy mac were originally quasi government creations to provide liquidity for housing markets by making a market for housing debt. FDR started 'em.

Just as our Federal Reserve System provides liquidity to our money markets by making the market for USA debt.

Debt is another commodity, just like wheat or oil or copper.

You mentioned earlier about getting angry. This is what I got angry about. And what I meant by easy loans.

I was working at a large company, mid 90's, we were working overtime and have been for the time I was there, about 4 years and hire new people. We mentioned to a new fellow that we were on overtime for a few years and there was only one time we went to regular 40 hour week was once for barely 2 weeks.

After a few months, he announce he just bought a house, it was more than a house than he needed... but with the over time, the bank said that should be a problem.... (his words) This confuse me as well as irritated me.

For one thing, I told him, you don't take a loan out based on over time, the over time can end very abruptly.... (That's why they (the company) kept us undermanned in the first place). You take a loan on you base wage or salary.

What pissed a lot of his co-workers off, including myself, he started to blame everyone because he understood overtime was a given...

With in (20 weeks, we were dropped to a 40 hour week that lasted for about 4-5 weeks. This guy was sweating, And blaming everyone for his fiscal predicament.

He even went to the managers to ask for a raise, because with what he was making, he couldn't meet his fiscal responsibility.

This really PO'ed everyone off, Only because he couldn't keep his mouth shut.

What gets me, this easy money as I call it (loans that were basically unsecured because they were buying houses worth less then they were paying so basically the mortgage was underwater) is happening again, in the form of student loans.

Borrowing easy, low interest loans for degrees that once you do get the degree is unsustainable.

But there is something about the financial system, I always thought it was pretty dam fragile.... at least I used to think that.

'in the form of student loan', raises a question from here. Do kids in your part of the world get paid to be at school and stay at school?

Sweden and the UK pay kids to say at school and they can also take out student loans. Payable with interest at the days end and only payable when they find a job. And, of course adults can take out student loans to study.

A friend on mine son gets SEK3200.00 p.m (US$375.00) to stay at school and by changing school he gets a higher 'wage' tax free. Two days per week schooling for 4 hours each day.

Off the track, but your comment on student loans prompted this question. Curious to hear an answer as I find this bizarre.

I don't have much time right now, but not everything is a loan.... In the case of a parents death, their survivor benefits from social security, as well as grants. Where I live in the state of Wisconsin, these grants gets applied to the schools tuition. But I beleive they can be also to students discretionary, such as living expenses...

I have an appointment now, I'll try to get back later tonight in more detail.

I glad you got through it with the typo's.... Such as the bank said it shouldn't be a problem with the over time.

And I'll reiterate what I mentioned before. I always thought that the banking institution was pretty delicate, as in if a bad loan was made, the amount of money that had to be made to work to cover that bad loan was quite large.

But how the banks got out of that, I now question that.

"...it shouldn't be a problem..." I love this expression!

It nearly brought my downfall. My house had to be used as security for a bank loan and a 'routine' method of allowing further loans. Selling my house - "...it shouldn't be a problem..." - because it was an absolutely last resort thing.

It's a long complicated story. I got into further debt due to a profitable contract being delayed. In all innocence I went to the bank for an increase in overdraft, for which they asked for an audited set of current accounts. Embedded in which was a debt for late payment of a last year's company and personal tax demands due for immediate payment.

From which they became alarmed and refused an increase, and worst, immediately froze the existing overdraft, leaving no means of paying suppliers and the tax.

The taxman now threatening to call in the bailiffs initially to slap a restraint order on all my goods (which included those purchased for the future delayed contract), then to take them and sell them to clear the tax demand.

Except the assets of the company were absolutely worthless on the open market (that only had significant value when converted to profitable products) for my specialised customers, meaning no money to pay me and my personal tax, with the debt then falling on my personal assets - my house!

The bank now wanting their overdraft repaid - by selling my house! The 'last resort' hidden behind "...it shouldn't be a problem..." - was the very first weapon they intended to use to get their money back.

Interesting was the mechanism that ensured the bank got their money back. The taxman would call in the receiver to wind the company up, then issue a bankruptcy order on me. The bank didn't have to do anything being a preferred creditor - except wait.

My saviour in many respects was the taxman. He said if I paid part of the tax bill when the next customer paid me, he would wait until the profitable contract had been completed for the balance. He saw that although the tax debt was due immediately it would take months to get his money by forced action, and since the problem was precipitated by premature panic action by the bank. They could have extended the overdraft (well within the asset value of my house) but chose not to.

So "..if they want their money back, let them call in the receiver, let them do their own dirty work, instead of hiding behind the taxman" he added "They're too fond of doing this!".

Anyway that was not the end of the matter. I paid in the cheque when the customer paid, and drew a cheque to pay the taxman, but too my horror it bounced. The bank kept the money to reduce the overdraft.

The taxman was not too happy, but instead taking action against me, he almost apologetically accepted responsibility by saying he should have warned me that the bank might do it. So he waited.

We completed the contract, paid off all our debts, changed banks, refused to use our house as security, stayed in the black - but never trusted banks again.

I understand, you went to the bank to increase the amount on your operating loan, for your business, not so much to cover the overdraft....... I've run into this also. My banker apologize because he didn't realize and confess, he started off with a too small of an amount for an operating loan... He should have listened to me, It was in my business plan.

But, when I started my business, (Design and Fabrication of process equipment) I put up a 3-1 ratio of collateral as security for every $1,000.00 I borrowed, I put up $3,00.0 worth of security as collateral.... or I should say, signed over as a guarantee.

What blew my gasket, I had dated a girl, whose brother (no good brother) bought a house... He then borrowed money to put up a garage and workshop. which only got as far as hauling in a little fill. He then proceeded to squander the rest.

He then passed away at the age of 45 years old, and my old girlfriend (as opposed to new... we were then friends actually) was the executor of his estate. She had worked out a deal with the bank... the bank actually lost out close to $50,000.00 on a house that was with $140,000.00 at best. How does this happen?

As she explained, the bank was pissed, but there was nothing there to cover. He did have a trust fund, where he had won a law suit, but that didn't cover it.

Again, How does that happen?

Someone once said:If you owe the bank $1000 dollars,and can't pay it back,you are in trouble.

If you owe the bank $1,000,000 and can't pay it back,the bank is in trouble.

Ironic,but true.

Phoenix, thanks for sharing that information with us. I think we have all had something like this happen at our office, though maybe not as bad as what happened in yours.

I think the important thing our government should look at is how to prevent this from happening again. This will require them to look for the signs and stop it before the bubble gets too big.

As for we regular folks, we aren't going to be able to enact new laws to protect our country, so I think we should learn from it and to make sure we don't become part of the problem. As a businessman, I also see another important thing we can do - to figure out what happened and to keep an eye out for investing opportunities.

and there's an ancient adage among banksters, "The little guy is always wrong."

Why? "They always run out of money." Regulations protect the public.

Some markets are not open to little guys, for their protection. The securities traded in these markets are exempt from regulations and can only be bot & sold by investors who are big enough to know better. Credit Default Swaps are one of this sort.

Non exempt securities have strict disclosure regs and leverage limits to protect the public. Exempt security customers enjoy no such regulations to limit their maneuvers.

The retail banks were particularly suited to be patsies in this market because they had only recently been deregulated and were fresh meat for the hedge fund managers.

The CDS market became corrupted by the bad money of tainted collateral. CDS were written to cover other CDS until they were stacked 50 layers high. All credit stopped overnight and we crashed.

Bad money drives out good, is another adage.

Nice response that says it better than the point I was trying to get.

The CDO/CMO market was a time bomb waiting to happen. They stacked one on top of the other, salted it with a little A paper, maybe a little B paper too. Then sold it to "investors" looking for a higher rate of return than those "safe" investments.

I read that the first wave of CDO's/CMO's was actually pretty good paper (maybe 2004 ish). The loans were good quality and there was good backing behind it. Then the buyers asked for more - make that, they DEMANDED more. So the lenders (mortgage banks) were told to loosen up a bit and write more loans. 80/10/10, 90/10, 85/15, etc. New CDO's/CMO's were created with creative, new tranches. Of course all of them were "good" investments for your school district pension fund! Then the cry for more loan! Hire more mortgage brokers! Pick out the kids out of high school and send them to a "training" class. Grocery store clerks! Secretaries! Tellers! Sell, sell, sell! 95/5 is good, negative am - go for it! Pick a pay! You bet! Housing prices flew, CDO's/CMO's were parceling junk and calling it A paper. I had friends who got caught in it and were making 200-400K/yr as a mortgage broker. Real estate agents were fighting for listings. Flippers were making lots of money! I sold more Escalades, H2's, Mercs, BMW's, Porsche's and Navigator's to these high fliers.

I believe it started with Bear Stearns. I think they were shoved down WAMU's throat (or JP Morgan). If my memory is right, Lehman fell on weekend. I think our gov't was trying to shove it down Barclay's throat and they backed out in the last second. So Lehman fell and the UK bond world stopped. Countrywide and Merrill were shoved down BofA's throat! We bailed out AIG - we had to, since they were the largest insurer. GM and Chrysler; Fannie and Freddie. BofA, Chase, Citi, Wells - they all took money. It was all that could be done to stop an inevitable bank shut down - which would've crushed our economy and I believe we would've been shot into a full blown depression.

I agree that repealing Glass-Stegall was the reason. If you think about what a bank should be - a public utility for money (borrowing and storing). They had no business buying and selling risky collateralized debt. They're gambling with money that's not theirs.

If people are told that it's their right to own a house, but there's no mechanism for them to do so, then it's just another set of propaganda. I believe it's up to our leaders to "protect" the citizens from doing harm to themselves. Someone who can't pay his mortgage will become a drain on our society and they'll feel bad and live with a huge amount of stress - not good for them or us.

Sorry, a little long winded, but I was on a roll!

The petty thieves are hanged..the great ones are elected to office.

I remember around 2009 or so, Goldman was under investigation for their part in the CDO mess. The project was called ABACUS and the huge hedge fund, Paulson was involved with Goldman. Goldman sold the CDO to their clients while Paulson was betting against it (shorting with swaps - insurance). The crazy thing is that the tranches were selected by Goldman and Paulson.

The assumption is that Paulson set the whole thing up to fail. They had Goldman sell the CDO's and Goldman sold it using the reputation of Paulson as a backer. Goldman denies knowing that Paulson was shorting the CDO.

This one was a really messy CDO - they called it a synthetic CDO. It's a very complicated way of building layers of debt and repayment on top of each other. Kind of like a house of cards - when the bottom one goes, the rest of the house falls - or if a layer above goes, then all the debt above it goes.

Guys, you should really listen to what Goo is saying.

I'd like to add that it wasn't just the home buyers, who got screwed. The school district pension funds in Sweden, the local credit unions (setting up a wholesale mortgage business with savings from credit union members), good people who were suckered into leaving a safe job for the big money of mortgage brokering, the elderly looking for a higher return on their money (to pay for living expenses) and so on and so on.

That's why all this QE has been flooding into the financial markets and even after 7+ years, the economy still hasn't recovered yet. Most people don't realize that we were hours away from a world financial meltdown. If it would've happened, every one of us may have been unemployed!

Actually I thought we were, who said we weren't?.... what is going on is just an exchange. in my case what I experienced.

I agree, it wasn't only the home buyers. The ripple affected all the markets. Not just financial markets

A lot of people shouldn't own homes. Some have the means to pay the mortgage, but lack the discipline to stop spending and to have a financial buffer (savings, assets or other loans). Others don't have the means to do it and they should never try. While others can't be patient and jump into something before they're financially ready.

Here's an interesting fact. Most small businesses fail, due to lack of capital. For those who've owned a business, you know there are up cycles :) and down cycles :( If you don't have the money to weather the storm, then when it comes, you're out of business. You could have the best product, provide the best service or give the best advice, but when the downturn comes, you must have reserves.

The same concept holds true for we regular people, just the same as businesses - only on a smaller scale.

When I was on the farm, I recall, we purchased a new Massey Ferguson Tractor in 1980.... @ 21% interest. As well as rebuilding a barn after a fire that was a total loss. Looking back, how we actually did it, what were we thinking. But thinking about it. We all were doing it, and it was the smarter fiscally managers that would survive.... which was most with the key being never to give up....

The annuity concept is fine in principle, a good way for a guaranteed income for life. Trouble was anyone investing in a pension fund in the UK had to convert the fund to a compulsory annuity on retirement that paid out an absolute minimum. Just about the worst safe return on capital imaginable - and guaranteed to remain low.

All blamed on people living longer - but actually caused by rip-off fund management fees and a Govt raid on funds. They are not compulsory in the UK now.

Rates have not improved much though, they are still low - blamed on a loss of new savers in pension funds - but still due to rip-off fees. The Govt pays lip service to this.

Lets face it, £1b creamed off a fund in pay and bonuses generates a personal tax take of £450m from brokers. The same money payed out to basic savers generates £200m if that.

....I could go on for hours....

The scourge, the necessity, the benefits, the inevitability of taxation -

http://www.taxanalysts.com/www/freefiles.nsf/Files/Yablon2010_8_Power2Tax.pdf/$file/Yablon2010_8_Power2Tax.pdf

Not on the list, but uttered, as I recall by one of our founders, "The power to tax is the power to create", it being repeated, as I recall, by FDR many times during the Great Depression.

I was reading a report by the Beacon Hill Institute comparing the tax plans of Cruz and Trump. In it they had a nice graphic which, as I understand it, is typical of ones used frequently to address tax issues. The graphic shows the flow of money (arrows from one block to another) in the economy of a country.

It seems obvious to me, that if the arrows going from the Households and Firms blocks to the Taxes block of the Government were not there, then Households would have more money to spend on domestic and international G&S (Goods & Services) and to investment.

That then means that the government has no money coming in for it to invest, provide jobs or buy G&S.

So the real questions are:

1. What is the right amount of investment, hiring, and buying of G&S for the government to do.
2. How much waste or inefficiency is there in citizens sending money to the government for it to do things for its citizens compared to the citizens do it for themselves?

From a different angle, having paid our taxes, how does it cost more money for the public service departments to provide their service.

For instance, as an example, a major motorway accident is said to cost us £1m for the fire, police, ambulance, breakdown and motorway repair departments etc, to clear up the mess.

Would we be £1m better off if the accident hadn't happened?

But how? - apart from some extra materials (probably in stock and already paid for) like new crash barriers and petrol for the vehicles to and from site, it would cost us the same if they all sat in their offices doing nothing.

Puzzled.