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The Internal Revenue Service has just released its latest estimate of the “tax gap” - the difference between what Americans pay in taxes and what they actually owe. For the years 2008 to 2010 (the IRS’s latest data), the annual gap averaged a huge $458 billion. It’s surely higher now.
Gulp.
If everyone religiously paid every penny owed, budget deficits would shrink dramatically. This isn’t about to happen, for reasons I’ll explain in a moment, but first let’s take a closer look at the tax gap.
It represents slightly less than a fifth of the total tax liability. Americans pay the other…

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Last week in Washington, there were two committee hearings that discussed the diminishment of trading liquidity in U.S. capital and financial markets in the wake of the Dodd-Frank Act. One took place at the Commodity Futures Trading Commission’s Market Risk Advisory Committee and the other took place at a House Agriculture Subcommittee. Both events featured testimony of the current diminishment in trading liquidity in a broad range of financial and risk hedging products. Both hearings raised the question of why should Americans care about reduced trading liquidity in U.S. financial and…

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It wasn’t too many years ago that op-eds were being written about Africa and its economic renaissance. In admittedly flawed GDP terms, the continent could claim some of the fastest growing country economies in the world.
As the Wall Street Journal recently described the boom that was in places like Lagos, Nigeria, “Cineplexes, car dealerships and a fast food arms race - KFC and Domino’s, among others, opened here - spoke to the aspirations of the continent’s largest city.” The Journal went on to report that continued growth would have placed Nigeria among the twenty largest country…

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The past few months have seen a flurry of reports on discouraging trends in life expectancy among some of the nation’s struggling populations. Different researchers have emphasized different groups and have tracked longevity trends over different time spans, but all have documented conspicuous differences between trends among more advantaged Americans compared with those in worse circumstances.In a study published in April, Stanford economist Raj Chetty and his coauthors documented a striking rise in mortality rate differences between rich and poor. From 2001 to 2014, Americans who had…

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Republicans have approached the looming fiscal crisis in Puerto Rico with the goal of returning the island to solvency without costing taxpayers any money. Unfortunately, the plans being discussed by the House of Representatives of late will not achieve either goal.Puerto Rico insists (with Treasury’s support) that any legislation to fix their plight include giving a debt haircut to all creditors, even those investors who own the just over billion of secured debt that is backed by the full faith and credit of the Commonwealth. For perspective that’s slightly more than 25% of the island’s…

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Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. On June 23, the United Kingdom will vote to decide whether to quit the European Union, the 28-nation economic bloc with a population of 508 million and a gross domestic product of almost $17 trillion. Let’s not be coy: Leaving the E.U. would be an act of national insanity.
It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U….

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On April 13th, Judge Margaret Sweeney of the United States Court of Federal Claims delivered a decisive blow to the government’s attempts to keep the truth about the Third Amendment under wraps. She unsealed seven documents produced during ongoing litigation challenging the lawfulness of the Treasury’s 2012 decision to sweep all of Fannie Mae and Freddie Mac’s profits. The documents - excerpts of three depositions and four emails - undermine the government’s position that the notorious profit sweep was essential to avoid a “death spiral” in the national housing market. However, the…

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1. There is not a currency war. There is a type of arms control agreement in place. There have been plenty of opportunities for the ECB, the Bank of Canada and the Reserve Bank of Australia to talk down their own currencies in recent weeks and they haven’t. Japanese officials expressed more concern about the sharp appreciation of the yen but have not intervened. The difference between manipulating interest rates and manipulating currencies is the difference between a non-zero sum and zero-sum exercise.
2. There was no secret agreement at the February G20 meeting in Shanghai to drive the…

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If it’s an election season, the left is going to be amped-up in their routine corporation-bashing. When it comes to energy companies, that’s doubly true. But there’s a political menace behind the rhetoric now that many overzealous climate crusaders are engaged - and there may be dangerous political and economic consequences. We’re learning that there’s a trickle-down effect: as high-level officials get more aggressive, lower-level officials feel empowered to “up their game.”The Attorney General of the Virgin Islands made an unprecedented step in subpoenaing the records of a political…

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GDP for the first quarter of 2016 came in at a paltry one-half of one-percent. That sorry showing follows growth of 1.4 percent and 2 percent in the previous two quarters. If such a thing is possible, the already anemic economy is actually getting worse. But even worse than that, the latest GDP numbers reveal a collapse in business investment, the real driver of the economy.
When businesses don’t spend and invest, they don’t hire and cannot offer better-paying jobs. Business investment and wages are two sides of the same mirror. If a company purchases five trucks rather than ten, there are…

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There is a pervasive misunderstanding that individuals who commit crimes simply go away when they are locked up. Nothing could be further from the truth.
Nationwide, even though more than 2 million citizens are incarcerated and in excess of 11 million will serve time in local jails, approximately 95 percent of inmates currently serving time in state prisons will be released one day. And the rate of release is more than 600,000 people per year.
We’ve all heard the stories, and we’re all familiar with the data revealing pervasively high recidivism rates, i.e., people being released from prison…

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When QQE was first announced on April 4, 2013, it immediately stoked fears of retaliation across Asia. In the orthodox view, such unprecedented “money printing” would surely lead to devaluation in the yen and therefore induce a competitive advantage for Japanese exporters. In fact, the Bank of Japan was counting on it, leaving no uncertainty about what it felt would be the primary channel for “stimulating” recovery. As Reuters wrote that day more than three years ago, “Unprecedented easing may also provoke a currency war as other Asian exporters try to stay competitive with a weaker…

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‘But I don’t want to go among mad people,’ Alice remarked.
‘Oh, you can’t help that,’ said the Cat. ‘We’re all mad here. I’m mad. You’re mad.’
‘How do you know I’m mad?’ said Alice.
‘You must be,’ said the Cat, ‘or you wouldn’t have come here.’”
– Lewis Carroll, Alice in Wonderland
I’m struck these days by the duality of investors’ deranged acceptance of current monetary policy as the norm and the herd’s brainless bullish consensus on Apple (AAPL) and its share price and future profit prospects.
Let’s look at both in greater detail:
Monetary Policy in Wonderland
Non-thinking consensus is the…

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Sometimes it doesn’t take the wisdom of Michael Lewis or Warren Buffet to see the underpinnings of the next financial crisis. For the Federal Reserve to contemplate allowing banks to hold state general obligation bonds as a hedge against future financial meltdowns while the Treasury is concomitantly taking steps to weaken the quality of those bonds is a recipe for future disaster.
In the last few months the United States Treasury has been advocating that Congress enact legislation that would allow Puerto Rico–which is not covered by federal bankruptcy law– to escape its debts. Few people…

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The FOMC delivered a statement largely as expected. It upgraded its assessment of the global economy by dropping the reference to risks. It downgraded its assessment of the domestic economy by acknowledging that growth has slowed.
Otherwise is general economic assessment remains little changed. The labor market continues to improve, though growth in household spending has slowed. Housing is stronger though fixed business investment and net exports have been soft (though not as soft as it looked before today’s advance reading of March merchandise trade balance that showed a sharp improvement…

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