MONEY 86 - THINGS

THIS IS MY 86^TH BLOG ON UNDERSTANDING MONEY TOOLS

Let me start out with an explanation. I call my blog Understanding Money “Tools”,  it could have been Understanding Money “Things”.  I thought that “tools” was a practical application for topics discussed where “things” is pretty broad, and also mundane.

We’ll hit two topics in this blog. The first has application in today’s world; where we are headed, the second is more from a historical, interesting note.

In the latest blogs we looked at tremendous private and public sector world debt, and how this has happened with the World Central Banks and our Federal Reserve printing unheard of amounts of money.  Because of this situation we’ve looked at the possibilities that should occur down the road, these being inflation, and a tightening of money with a liquidity problem, thus the inabilities to pay debts.  Now, let’s look at the world in terms of how we obtain our world gross domestic products in relationship to exports.  No conclusions will be handed out as I am wrong more than right these days! (A good example of that statement is the day the Feds raised interest rates on December 16, 2015. The stock market should have reacted with a downward trend, the DOW closed up 245 points, go figure.)

If the G-20 countries are going to continue with economic strength the strongest being the US, China, Germany and a couple others, we need to see where the money for goods comes from and what percentage is from exported goods. It is no hidden news that almost every country has weakened in the past few years and many in downright financial trouble. If a country can “self-sustain” there are fewer variables. If a country relies on selling product around the world, the variables increase….makes sense?  Even though the USA is not in great shape with the weakened middle class and so little savings by the average person, we are in better condition than many.  Exports account for 13% of our Gross Domestic Product.   The strongest country in the European Union, Germany, has two opened ended variables, these being the estimation of costs with current immigration, and secondly their exports make up about 45% of their GDP.  If the world doesn’t buy their premium goods, they could be in trouble. I thought China would have been comparable or above Germany, but it is not close at about 23%.  China has such a growing middle class absorbing goods and services they are way behind Germany in this respect.

There are a whole “slew” of countries in the 30% range on exported goods, some being Russia, Italy, Britain, and France.  I would have thought Japan was quite high, but it isn’t at about 15% along with Brazil at 12%.

I recently noticed Germany has hired 8500 teachers to teach their immigrants German. I surmise that part of the immigration intent is to create a false internal economy supported by taxpayers. This will help absorb a tremendous amount of goods and services, lowering the economic need to export as much; it is estimated that Germany’s commitment to the immigrants will cost $1 trillion US over time.  Also, this will keep their Euro circulating within Germany. To a lesser degree perhaps the same may be true for the immigration to the USA. It is good for basic business essentials; everyone needs housing, clothing, food and medical/pharmaceuticals.

Except for nationalism many traits of Fascism have developed here and around the world. Fascism was started by Mussolini in Italy, then adopted by Hitler in Germany and Franco in Spain in 1947. In the US with the economic collapse in 2007-8 the government selected which commercial banks and Wall Street investment banks would survive and which would not be “bailed out”. Certain large companies were given government “hand outs” including money for expansion in foreign countries. Down goes Democracy and the rights of the middle class, and the financial burden lies with the middle working class.

The next topic concerns our Constitution and taxation. This came to me via a book I recently read, but thought it so interesting that I would relate the highlights to you.

Up until 1913 there were no Federal Income Taxes. Two important dates here are 1909 and 1913. 1909 was the writing of the 16^th Amendment to the Constitution permitting the Government to have the ability to Federally tax the people of this country. It took until February, 1913, for the states to ratify the Amendment (Ratify: to sign or formally consent).  Many of the politicians at the time were Republicans and didn’t think the required number of states, 36, would make it law. President Taft, a Republican, was president when written. The tax would have been very low at about 5% and only affect a few very rich.  Thomas Woodrow Wilson, a Democrat, won the presidential election in 1912 and a more liberal point of view was taking shape. (Don’t forget that 1913 was also the year we started the Federal Reserve Bank and system.)

Here is the kicker.  Was the ratification legally binding, and is the 16^th Amendment law?  Many people have contested the legitimacy of the Amendment and lost.  There were a few things that happened with the ratification process bringing question; one was the number of states needed and secondly a couple states changed the writing and format of the ratification.  Any changes were against the law; two states in question here were Kentucky and Tennessee.

People and companies have lost in court over contesting federal taxation. The court/judicial system right to the top is caught, and can’t do anything but stand behind the ratification. Can you imagine if it was overturned the amount of tax dollars, plus interest, that would need to be returned to all the people and companies; trillions!

In regard to this topic you might find it interesting to look into Haym Salomon who was a broker and helped finance the Revolutionary War converting French loans to cash, and supposedly lending to the War efforts, including some personal money.  You will find a memorial to him in Philadelphia, Pennsylvania.  He stands out with the next person I address.

One individual who contested that he owed taxes was Andrew Mellon, Treasury Secretary from 1921 until 1931. He was very wealthy and an advocate of low or no taxes, questioning the validity of the 16^th Amendment.  A grand jury declined to indict, although a fight over personally owed taxes with the US Government and his adversary President Roosevelt continued until after his death in 1937.  His lawyers and heirs won all legal actions. Andrew Mellon believed that we might also owe Mr. Salomon money all the way back to the Revolutionary War.

I hope this blog including a brief bit of history was of interest.