Tuesday, December 10, 2013

Alan Grayson: Lies, Tax Fraud and Deceit

Lies, Tax Fraud and Deceit (Originally Published 11/03/2009)

My theory is that Alan Grayson is a liar, a fraud, and a tax-cheat. Who is this guy? How did he really obtain his wealth? It’s certainly worth further investigation in light of the following.

Summary:

  1. Roll Call lists Alan Grayson’s largest asset is a claim against Derivium Capital, the now bankrupt Ponzi scheme, in the amount of $34 million.

  2. Central Florida Politics lists Alan Grayson as the Derivium Capital scams most frequent customer.

  3. Roll Call lists Grayson’s net worth at $31.12 million. Grayson’s only other asset is said to be a trust fund worth $5 to $25 million.

  4. Roll Call states that Grayson founded IDT Corp. in 1990. However, Wikipedia.org states that IDT was founded by Howard Jonas in 1990. An article from January 9, 1992, in the New York Times, entitled, “Hot-Wiring Overseas Telephone Calls”, backs up the fact that the company was founded by Howard Jonas, not Alan Grayson.

  5. Per taxprophet.com, the IRS has targeted Derivium Capital’s loan transactions as taxable events.

Questionable Issues:

  1. If Alan Grayson was not the founder of IDT Corp., then how did he obtain $29 million worth of stock between the years 2000 and 2005?

  2. Since Alan Grayson was not the founder of IDT Corp., then why did he lie on his Congressional disclosure?

  3. What was the cost basis of the stock which Alan Grayson sold to Derivium Capital for $26 million?

  4. Did the IRS investigate Alan Grayson, and if so, how much was determined that Grayson owed in back taxes?

  5. Did Alan Grayson voluntarily amend his tax returns to report the sale of stock to Derivium Capital?

  6. What did Alan Grayson know about Derivium Capital at the time of the transaction?

  7. Did Alan Grayson knowingly profit from an illegal Ponzi scheme?

Excerpts:

Rep. Alan Grayson (D-Fla.) $31.12 million

The Florida lawmaker’s largest asset stems from an apparent financial mistake. Grayson lists a claim valued at $25 million to $50 million against Derivium Capital. The now-bankrupt firm managed a Ponzi scheme in which investors, including Grayson, could turn over stock to Derivium in exchange for cash loans and redeem the value later if the stock prices increased. A South Carolina court ruled earlier this year that Derivium shareholders were collectively owed about $270 million in lost profits and that Grayson’s share would be about $34 million. In addition to that claim, Grayson, an attorney who founded the telecommunications company IDT Corp. in 1990, lists a trust valued at $5 million to $25 million. The same trust was previously Grayson’s largest asset, with a value of $25 million to $50 million when he filed a candidate disclosure form in November 2008.

Scam’s Most Frequent Customer

Between 2000 and 2005, Grayson was the most frequent participant in Derivium’s “90-percent stock-loan” program, transferring about $29 million in stocks to Derivium and promptly receiving 90 percent of it – about $26 million – back in cash as “stock loans,” according to his court filings. In that sense, he lost only about $3 million out of pocket. But Derivium had promised to pay Grayson profits on his stocks, if they appreciated enough over the three-year loan period to cover the amount of his “stock loans” plus interest. And Grayson picked some lucrative stocks. His $34 million in damages is based on the profits he should have received on stocks that rose in value – had Derivium not run out of cash and filed for bankruptcy.

Derivium Loan Update: IRS Targets Derivium Loan Transactions

Introduction: IRS has targeted taxpayers who have engaged in loan transactions through Derivium Capital by sending them Preliminary Notices, in late January, 2007, stating that the Derivium loan transaction may be a "tax avoidance" device. In essence, IRS claims the Derivium loan transaction is really a taxable sale of securities at the time taxpayers received the proceeds, rather than a bona fide loan. IRS has an audit project underway in Sacramento, California, involving Derivium-type loans.

How It Works: In general, Derivium arranged loans for 90% of the value of a stock for an initial 3-year period at a compounded interest rate of approximately 10%. The loan is non-recourse, which means that at the end of the loan term, if the borrower cannot repay both principal and interest, the lender forecloses on the stock in full payment for the loan. The borrower has the option of rolling over the loan at maturity for an additional fee.

Note: Derivium has filed for bankruptcy and its client list has become public, thereby providing IRS with a road map of taxpayers who engaged in the loan transactions. Derivium is no longer in business.

Tax Consequences: IRS challenges the transaction and maintains a sale occurred in the initial year of the transaction on the following grounds:

  1. The taxpayer was obligated to transfer the stock to Derivium, but repayment was optional because the purported loan was non-recourse to the taxpayer.

  2. Taxpayers eliminated the risk of loss.

  3. Principal payments are prohibited during the entire term of the transaction.

  4. Legal title to the stock was transferred to Derivium.

  5. The stock was treated as belonging to Derivium.

  6. Derivium sold the stock to fund the transaction.

When the loan matures and if the borrower does not repay it, the lender forecloses on the security (the stock) and the borrower has a taxable event at that time. The stock is treated as sold for the full amount of principal and interest outstanding. Thus, the borrower has a gain equal to the difference between the sales price (the full amount outstanding on the loan) and the borrower's basis in the security. The gain will usually meet long-term capital gain requirements under federal law and be taxed at 15%.

Sources:

http://centralfloridapolitics.com/2009/07/10/rep-alan-grayson-loses-millions-in-ponzi-scheme/

http://www.taxprophet.com/archives/Derivium_loan_2007_update.shtml

http://www.rollcall.com/features/Guide-to-Congress_2009/guide/38181-1.html?page=4#alangrayson

http://www.nytimes.com/1992/01/09/business/hot-wiring-overseas-telephone-calls.html

http://en.wikipedia.org/wiki/IDT_Corp.

http://innovation.cqpolitics.com/cq-rollcall/richest_members_of_congress_2008

Wednesday, November 27, 2013

Pozole Day

Last Sunday:

Honey, what is this?

“Pozole.”

Yeah, but what is it?

“Since maize was a sacred plant for the Aztecs and other inhabitants of Mesoamerica, pozole was made to be consumed on special occasions.”

Oh!

“The conjunction of maize (usually whole hominy kernels) and meat in a single dish is of particular interest to scholars because the ancient Mexicans believed the gods made humans out of masa (cornmeal dough).”

Huh?

“According to research by the National Institute of Anthropology and History and the Universidad Nacional Autónoma de México, on these special occasions, the meat used in the pozole was human.”

Say what?

“After the prisoners were killed by having their hearts torn out in a ritual sacrifice, the rest of the body was chopped and cooked with maize. The meal was shared among the whole community as an act of religious communion.”

What the...?

“After the Conquest, when cannibalism was banned, pork became the staple meat as it “tasted very similar”, according to a Spanish priest.”

Similar? Okay, what kind of meat is in this?

“Chicken.”

Oh, okay.

Reference: http://en.wikipedia.org/wiki/Pozole

Saturday, November 9, 2013

U.S. Labor Force Declines by 720K

October Unemployment Manipulation

- By: Larry Walker II -

The big story out of the October household survey was the decline by 720,000 in the headline labor force, which largely reflected the loss of longer-term unemployed into the broader U-6 unemployment measure.

In fact, since January 2009, the U.S. Labor Force has only grown by 607,000. Yet, over the same period, 11,034,000 persons have been removed from the labor force (see chart above). Once removed, such are neither counted as employed nor unemployed, each amounting to the equivalent of zero-fifths of a person in terms of modern governmental accounting.

In Manipulation 101: The Real Unemployment Rate, we learned that as the size of the labor force erodes, the unemployment rate artificially declines. So let’s recall how the unemployment rate is calculated. The unemployment rate is calculated by dividing the number of unemployed persons by the size of the labor force:

[ (A) Total Unemployed / (B) Labor Force = (C) Unemployment Rate ]

Thus, the official unemployment rate of 7.3%, as reported by the Bureau of Labor Statistics (BLS) on its November 8, 2013, Employment Situation Report, was calculated as follows:

However, when the 720,000 longer-term unemployed which were removed from the labor force in October are added back, the real unemployment rate actually rose to 7.7% (shown above). And, if we were to add back all long-term unemployed workers, removed from the labor force since February 2009, the real unemployment rate would be 13.4% (also shown above).

As I reported earlier this year, in Black Unemployment Rate Closer to 37.9%, there is an alternative to the federal government’s phony reporting. Shadow Government Statistics publishes a more accurate measure of unemployment based on pre-1994 BLS methodology. The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994.

In other words, the SGS Alternate Rate adds millions of long-term discouraged workers back to the BLS estimate, which only includes short-term discouraged workers. In case you didn’t catch that, this means the BLS has eliminated long-term discouraged workers (i.e. those who have been without a job for so long that they haven't bothered to look for work in more than 12 months) from official unemployment statistics since 1994, thus distorting the true employment situation.

Accordingly, although the Bureau of Labor Statistics boasts of an official U-3 unemployment rate of 7.3%, and an official U-6 rate of 13.8%, the real unemployment rate, based on pre-1994 BLS methodology, has actually increased from 18.3% in January 2009 to 23.5% as of October 2013 (shown above).

Of course the Chief of the White House will simply continue to repeat something like, ‘Now that we’ve fixed (i.e. effed up) the nation’s health care system, it’s time to finish fixing (i.e. effing up) the economy.’

“How long, O LORD? Will you forget me forever? How long will you hide your face from me?” ~ Psalm 13:1 (ESV)

Related: #unemployment #manipulation

Thursday, October 31, 2013

Health Insurance for Under $50 per Month?

“If it sounds too good to be true, it usually is.” ~ Better Business Bureau

- By: Larry Walker, Jr. -

According to the U.S. Department of Health and Human Services (HHS), there are 7.2 million uninsured Americans ages 18 to 34 years, living in single-person households in 34 states. And, of that total, 2.9 million are eligible to buy health insurance on either federal or state partnership insurance marketplaces. And among those 2.9 million, 1.3 million, or 46%, could pay less than $50 a month for a “Bronze Plan”.

Hmmm. That sounds, well, too good to be true. Let’s see, 1.3 million times $50 equals $65 million per month, or $780 million per year. Sounds like a good deal… for insurers that is, since the balance of the monthly premium, perhaps another $50 or more, will be subsidized by taxpayers, and the risk of actually paying out any benefits, after high deductibles, co-payments and co-insurance levels are met, is next to nothing. What’s a Bronze Plan anyway, a worthless policy that covers nothing?

Generally speaking, the Bronze Plan is intended to have the lowest premium of the 4 new categories of plans (Bronze, Silver, Gold, and Platinum) but charge the highest out-of-pocket costs for healthcare services. For people without employer sponsored insurance, the Bronze plan is the minimum health insurance plan which satisfies the Affordable Care Act’s health insurance mandate.

What HHS doesn’t tell you is that Bronze Plans are designed so that policy owners wind up paying 40% or more of covered healthcare expenses in the form of out-of-pocket fees, and that’s over and above the cost of the plan’s monthly premium. Although out-of-pocket expenses for individuals are expected to be capped at $6,350, keep in mind that this amount is reset each calendar year.

Out-of-pocket expenses include fees like deductibles, copayments, and coinsurance. Different plans will approach the 40% or more that policy owner’s will pay in various ways, so it is important to research the financial details of a specific plan before deciding which one to purchase. For example, a person who has frequent medical expenses may want a Bronze Plan with a lower deductible, because they will be required to pay at least that much of their annual health care expenses – in full.

Look over the following examples of Bronze Plans, and then we’ll define the terms and discuss Example #2 in more detail.

Deductible - A deductible is the amount you pay for health care services before your health insurance begins to pay.

Coinsurance - Coinsurance is your share of the costs of a health care service. It’s usually figured as a percentage of the total charge for the service. You pay coinsurance after reaching your annual deductible.

Co-pay - A co-payment, or doctor’s visit fee, is a fixed amount you pay for a health care service, usually when you receive the service. The amount can vary by the type of service. You may also have a co-payment when you get a prescription filled.

Example #2: Okay, so let’s say the New York Bronze Plan (shown above) costs a young person $50 per month. What will he or she receive in return for this premium?

Well, since the annual deductible is $3,000, that means the insurance company won’t pay out a solitary dime, until after the insured pays the first $3,000 in annual health care costs. Then, once this $3,000 annual deductible has been met, the policy only covers 50% of the cost of doctor’s visits (co-pay), and 50% of the cost of all other medical services (co-insurance). It’s not until the insured reaches the annual out-of-pocket limit of $6,350 that the policy kicks in and pays all remaining expenses in full.

I hate to break it to you, but this alleged, under $50 per month, health insurance policy will actually wind up costing the poor sucker who buys it around $3,600 per year ($3,000 deductible + $600 premiums), or $300 per month, before it pays out a single dime in benefits. It will cost even more for plans with higher deductibles, and may wind up costing as much as $6,950 per year ($6,350 annual limit on out-of-pocket expenses + $600 annual premiums), or $580 per month, if ever actually utilized for a substantial amount of qualifying health care expenses.

Then there’s the question of which expenses such a plan actually covers, if any, once its benefits do kick in. Who in the hell knows the answer to that? Since the government's official website is lacking in detail, even when it's working, apparently you have to buy it first, in order to find out. Yeah, just call the toll-free number and blindly sign up. I guess it’s better than nothing, although not by much in my opinion. On this earth you get what you pay for, but the cost of nothing is generally free.

The bottom line: Don’t expect much from a health insurance plan costing less than $50 per month. If it sounds too good to be true, it usually is.

References:

How do deductibles, coinsurance and copays work?

Insurance for the young could be less than $50 a month

Bronze Plan – Affordable Care Act (Obamacare)

Related:

The Social Security Bust Fund - Opt Me Out

#Obamacare

Wednesday, October 23, 2013

The Third Conception: Growing the Debt

From an Extreme Radical Independent Centrist

- By: Larry Walker II -

In his 1943 study entitled, The New Philosophy of Public Debt, U.S. economist, founder and 1st president of Brookings Institution (1927-1952), Harold G. Moulton expounded on the two conflicting debt philosophies of that era. First was the traditional view, that “a continuously unbalanced budget and rapidly rising public debt imperil the financial stability of the nation.” And, second, the new conception of the day, that “a huge public debt is a national asset rather than a liability and continuous deficit spending is essential to economic prosperity of the nation.”

At the conclusion of Moulton’s study, it was determined that under the latter theory, continuous deficit spending would lead to constant money printing, and thus runaway inflation, culminating in depression. And, the only way such inflation could be curbed would be through the use of totalitarian methods of control.

“We should have to control wage rates and farm incomes; we should have to regulate corporate earnings; we should have to control investment; we should have to ration commodities; we should have to control rents; we should have to license foreign trade; we should have to supervise, and possibly close, the security and commodity markets. Given regimentation of virtually every phase of economic life, the process of inflation might be held in leash.”

However, even advocates of continuous deficit spending rejected such totalitarian control policies, as did the entire nation. Thus following World War II the new philosophy was cast aside, and the United States’ Debt-to-GDP ratio, which had increased from a modest 45.4% in 1941, to a peak of 122.0% in 1946 at the close of the Second World War, was eventually reduced to just 31.8% by 1981 (see chart above).

Jumping forward to today, we find the nation’s debt-to-GDP ratio once again above 100%, currently resting at around 106.5%, as we are lectured by Potus 44 on a completely new conception of public debt. At an Oct. 8, 2013 press conference, Potus 44 broke away from the two prevailing philosophies, debated in Washington D.C. for more than 70 years.

He proffered that there really is no such thing as a debt ceiling, and that even if there were, raising it would not increase the national debt. He declared, “Raising the debt ceiling is a lousy name, which is why members of Congress in both parties don't like to vote on it, because it makes you vulnerable in political campaigns.” He continued, “Raising the debt ceiling does not increase our debt. It does not grow our deficits. It does not allow for a single dime of increased spending. All it does is allow the Treasury Department to pay for what Congress has already spent.”

Under what we shall term the Third Conception, what federal law calls the debt ceiling is likely just a misnomer, for raising this alleged ceiling won’t increase the nation’s debt, nor increase budget deficits, nor allow for even a single dime of increased spending. In other words, according to Potus 44, scholars of bygone days, including those who once favored unlimited government borrowing and spending, were misguided. Come to find out, there really is no national debt, and even if you choose to call it such, it carries no negative consequences, no matter how high it should climb.

So what are we to make of this? Could it be that the totalitarian control policies required to keep inflation in check are already secretly in place? Or have we drifted so far from reality that we no longer believe what we see with our own eyes? In Budgeting 201: An Immediate Debt Crisis, we saw how the tiny nation of Cyprus buckled as recession hit its economy while its debt-to-GDP ratio stood at around 93%, and we know that this led to the confiscation of funds from private citizen’s bank accounts. Yet our leaders turned a blind eye, as our own debt-to-GDP ratio edged above 100%.

Now, what we hear from Potus 44 is that “all of us need to stop focusing on the lobbyists and the bloggers and the talking heads on radio and the professional activists who profit from conflict and focus on what the majority of Americans sent us here to do. Yes, and what perchance is that, to grow the size of government, and along with it the National Debt?

To rephrase this, what Potus is saying is that since the final popular vote totals were 65,899,660 for Obama-Biden (51.1%) and 60,932,152 (47.2%) for Romney-Ryan, nearly half of us, or 47.2%, need to stop focusing on what we believe in, and in many cases would give our very lives for, and instead focus on whatever he, the person whom the other 51.1% of America voted for, says, no matter how preposterous, and no matter how much damage it may inflict on the nation as a whole. But who’s to say the other 51.1% actually co-signed on the concept of unlimited increases to the national debt? After all, when campaigning, didn’t Potus 44 himself promise to place the debt in check?

If it be not a debt ceiling, then what shall we call it – a debt sky, or maybe a debt horizon? Perhaps we should begin referring to it as simply “not the debt ceiling”. The truth is, no matter what we choose to call it, as soon as Congress voted to temporarily suspend the thing, the national debt catapulted above the $17 trillion milestone.

Thus, the Third Conception fails the reality test. Sorry, but we don’t compromise on principles merely to satisfy the insane whims of any and every brain-dead person around us. Try that in your own life, if you wish. In fact, Potus 44, himself, once voted against raising the debt ceiling while serving in the U.S. Senate.

As a side-note, Hell will freeze over before I ever purchase a commercial health insurance policy through the federal government. Are you kidding me? You thought people would flock to a federal government owned and operated website to purchase commercial health insurance policies from private insurance companies? Uh, what’s wrong with this picture? Do we really need the middleman? Good luck with that scam.

You see, there’s truth, and then there’s politics. One is real, the other make-believe. Does anyone out there know the difference between danger and fear? Danger is real; fear is imagined. So here’s how one can know the difference. Over the last 26 years, the United States has spent a total of $8.9 trillion on interest payments to service its national debt; $2.0 trillion of that since 2009 alone (see chart above).

Yet, according to the U.S. Treasury, the gross national debt was only $10.0 trillion at the close of fiscal year 2008, and it stands at $17.1 trillion today (see chart below). Herein is our dilemma: Unless interest rates hover near zero-percent forever and ever, this adjustable-rate, interest-only, debt bomb will one day explode, and the annual interest payments thereon will eventually consume every dime of tax revenue. Is this real, or imagined? I guess it doesn’t matter to some, as long as it’s not their money.

If the next generation doesn’t care about the size of the national debt, today, then it will reap the rewards of negligence. Those who care now won’t be around forever to warn of the perils of unlimited government debt, so if that’s how you want it, have it your way. But, don’t say you were never warned about the 70% to 90% income tax rates you’ll eventually enjoy, and don’t forget to send my generation every dime we’re due in Social Security and Medicare entitlements while you figure it all out. Have a great future! I’ll leave you with the following words of wisdom.

“If you will not fight for right when you can easily win without blood shed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.” ~ Sir Winston Churchill

Related: #Debt

Thursday, October 17, 2013

Watcher’s Council Nominations – Pawns In The Obama Shutdown Game Edition



Via: Watcher of Weasels - Nominations *

Welcome to the Watcher’s Council, a blogging group consisting of some of the most incisive blogs in the ‘sphere, and the longest running group of its kind in existence. Every week, the members nominate two posts each, one written by themselves and one written by someone from outside the group for consideration by the whole Council. Then we vote on the best two posts, with the results appearing on Friday.

...Want to see your work appear on the Watcher’s Council homepage in our weekly contest listing? Didn’t get nominated by a Council member? No worries.

Simply head over to Joshuapundit and post the title a link to the piece you want considered along with an e-mail address (which won’t be published) in the comments section no later than Monday 6PM PST in order to be considered for our honorable mention category. Then return the favor by creating a post on your site linking to the Watcher’s Council contest for the week when it comes out Wednesday morning.  Simple, no?

It’s a great way of exposing your best work to Watcher’s Council readers and Council members. while grabbing the increased traffic and notoriety. And how good is that, eh?

So, let’s see what we have this week….

Council Submissions

Honorable Mentions

Non-Council Submissions

Tuesday, October 15, 2013

U.S. Debt Ceiling | World War Infinity

Excerpt from: GAO: “No Opinion” on U.S. Financial Audit

- By: Larry Walker II -

World War Infinity ::

“Prior to 1917, the Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress established a dollar ceiling for Federal borrowing. With the Public Debt Act of 1941 (Public Law 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of debt limit increases. Most recently, pursuant to the Budget Control Act (BCA) of 2011, the debt limit was raised by $400 billion in August 2011 to $14.694 trillion, by $500 billion in September 2011 to $15.194 trillion, and by $1.2 trillion to $16.394 trillion in January 2012.”

Let’s make this clear. Prior to 1917, Congress approved each and every debt issuance request made by the Treasury Department. It was with the outbreak of the 1st World War that a debt ceiling was first established. This gave the Treasury some latitude in keeping the government afloat without impairing wartime activities. So it would make sense that after the end of World Wars I and II, Congress would resume its role of approving each debt issuance. But instead, the U.S. government has morphed into a permanent war mentality.

Now, a small minority of borderline insane pundits are actually advocating for complete removal of any form of debt ceiling. It’s World War Infinity, they surmise. Like spoiled little children, they have conned themselves into believing that the role of government is to borrow and spend our way into a Utopian entitlement paradise. Where are the adults?

Reference:

GAO: “No Opinion” on U.S. Financial Audit

Friday, October 4, 2013

Give Up 300,000 Federal Workers… and then we’ll talk.

U.S. Government Shutdown: Negotiation 101

- By: Larry Walker II -

“Treasury Secy. Jack Lew warns the country will run out of money later this month. Actually, that's another lie. The country ran out of money $17 trillion ago. It's all borrowed since then, much of it by this administration.” ~ Andrew Malcolm *

The United States federal government shutdown of 1995 and 1996 was the result of conflicts between Democratic President Bill Clinton and the Republican Congress over funding for Medicare, education, the environment, and public health in the 1996 federal budget. The government shut down after Clinton vetoed the spending bill the Republican Party-controlled Congress sent him. The federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. The major players were President Clinton and Speaker of the U.S. House of Representatives Newt Gingrich.

According to the U.S. Bureau of Labor Statistics, in November of 1995, near the beginning of the shutdown, there were 2,152,900 federal government employees, excluding postal workers. By January 1996, at the end of the shutdown, this number had been trimmed by 110,300, to 2,042,600. After the parties reached an agreement, the number of federal workers was further slashed, by an additional 184,900, falling to it’s lowest point in more than 30 years, all the way to 1,857,700 by October of 2000 (see chart below).

Looking back a bit farther, there were 2,309,200 federal employees in December of 1992, so the number had already been slashed by 254,600 from the time Bill Clinton entered office until the shutdown. All in all, the federal government was able to rid itself of 451,500 non-essential employees between the years 1993 and 2000. Simply amazing!

Unfortunately, since October of 2000, the number of federal employees has grown by 291,200, reaching 2,148,900 by August of 2013. How quickly we forget. But the situation today is even more dire. According to the Cato Institute, “Total wages and benefits paid to executive branch civilians will be about $248 billion in 2013, indicating that compensation is a major federal expense that can be trimmed. During the last decade, compensation of federal employees rose faster than compensation of private-sector employees. As a consequence, the average federal civilian worker now earns 74 percent more in wages and benefits than the average worker in the U.S. private sector.” What’s up with that?

Keeping in mind that the only time the federal budget has balanced in our lifetimes was between the years 1996 and 2000, and putting aside partisan B.S. for a moment, what does that tell you? Was it just a coincidence that balancing the federal budget during this time-frame entailed slashing the number of federal workers to the lowest level in more than three decades? No it wasn’t.

The Bottom Line: What this should tell us is that among the 900,000 (or so) non-essential federal workers just placed on furlough, at least 300,000 need to be sent packing – permanently. There’s no way the federal budget will ever balance again, until the federal government takes serious measures to reduce its own size. The private sector is not the problem; government is the problem. Now is not the time to add new entitlement programs, and ever more federal employees, rather like 1995 it’s time to slash and burn. Give up 300,000 federal workers, then, and only then, may we engage in an adult conversation regarding the remainder of the federal budget.

References and Related:

Chart: Overpaid Federal Workers – Cato Institute

If 900,000 federal workers can be furloughed as 'non-essential,' why employ them? – Investor’s Business Daily

Make the Shutdown of Undesirable Federal Departments and Agencies Permanent: A Continuing Resolution is an abomination. – Ideal Taxes Association

U.S. Government Manufactures 469,000 Jobs – Natural Born Conservative

Watcher’s Council Nominations – Storming The Barrycades Edition - Watcher of Weasels

Monday, September 30, 2013

U.S. Government Manufactures 469,000 Jobs

Phony Current Employment Statistics (CES)

“How many legs does a dog have if you call the tail a leg? Four. Calling a tail a leg doesn't make it a leg.” ― Abraham Lincoln

- By: Larry Walker, Jr. -

According to the U.S. Bureau of Labor Statistics (BLS), via its September 26th CES Preliminary Benchmark Announcement, the number of Private Sector Jobs reported in March 2013 was overstated by 136,000, and the number of Government jobs was understated by 12,000. But not to be outdone by a deteriorating economic reality, the BLS eliminated this bad news through a major change in its reporting methodology. After the change, instead of an overstatement of 124,000 nonfarm jobs (-136,000 + 12,000), the BLS will instead be reporting a net gain of 345,000 jobs on its January 2014 employment situation report. It’s magic!

Here’s what the BLS said (emphasis mine), followed by the translation in plain English.

“Each year, employment estimates from the Current Employment Statistics (CES) survey are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from State Unemployment Insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of Total nonfarm employment. The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2013 Total nonfarm employment of 345,000 (0.3 percent). This revision is impacted by a large non-economic code change in the Quarterly Census of Employment and Wages (QCEW) that moves approximately 469,000 in employment from Private households, which is out-of-scope for CES, to the Education and health care services industry, which is in scope. After accounting for this movement, the estimate of the revision to the over-the-year change in CES from March 2012 to March 2013 is a downward revision of 124,000.”

What this means in plain English is that the BLS has once again changed the rules of the game, this time adding an estimated 469,000 Private Household Employees to its accounting of private sector jobs. So what’s wrong with that? Aren’t private household employees considered part of the private sector? The answer is no. Private household employees have never before been considered part of the private sector. The main reasons they have not been are as follows: (1) the BLS has no way of knowing how many household employees really exist, (2) no idea how many are considered full-time, part-time or temporary, and (3) will have virtually no way of tracking changes in the number of such employees on a monthly basis (i.e. its reports are issued monthly).

Unlike private sector businesses, which are surveyed monthly and file quarterly employment reports, private households are not surveyed in the same manner and only file employment reports on an annual basis. According to the Internal Revenue Service (IRS), although household employees are most commonly associated with child care providers, such as nannies, private household employees also include service providers such as gardeners, cleaning personnel or maids, babysitters, housekeepers, private nurses or home health aids and drivers or chauffeurs. Since such employees have never been included in private sector reporting in the past, the federal government’s employment statistics after January 2014 will be forever inconsistent with every prior period.

The table above, courtesy of the BLS, shows the March 2013 preliminary benchmark revisions by major industry sector. I have added a second column showing the changes without the addition of the newly concocted 469,000 private household employees. As you can clearly see, consistent with all prior CES statistics, there are actually 124,000 fewer nonfarm jobs than previously reported.

The bottom line: The number of private sector jobs reported in March 2013 was overstated by 136,000. The number of government jobs reported for the same period was understated by 12,000. That’s reality. Those are the facts. Just like the Bureau of Economic Analysis has been overstating Gross Domestic Product due to changes in its reporting methodology, the BLS has been following suit. As the U.S. economy continues to crumble, aside from QE3, the only tool the federal government has left to combat this new reality is to lie through its teeth. Changing the rules midstream in order to paint a rosy economic scenario through phony statistical reporting is not only dishonest, but reprehensible. The problem with lying is that eventually reality catches up. When there are no longer any warning signs, yet the national economy collapses, who will you blame?

Related:

2013 GDP Growth Rate Closer to -1.75% ― Phony Government Statistics: GDP

Black Unemployment Rate Closer to 37.9% ― Phony Government Statistics, Detroit and Black Americans

Entertainment R&D Boosts Federal GDP Calculation Following Formula Changes

The new GDP methodology: What you need to know: U.S. economy over $500 billion larger due to new definitions

Government Economic Reports: What You've Suspected but Were Afraid to Ask.

Saturday, September 21, 2013

2013 GDP Growth Rate Closer to -1.75%

Phony Government Statistics: GDP

- By: Larry Walker, II -

“There are six things that the Lord hates, seven that are an abomination to him: haughty eyes, a lying tongue, and hands that shed innocent blood, a heart that devises wicked plans, feet that make haste to run to evil, a false witness who breathes out lies, and one who sows discord among brothers.” ~ Proverbs 6:16-19 ~

Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. But according to Economist Walter J. Williams of Shadow Government Statistics, “Upward growth biases built into GDP modeling since the early 1980’s have rendered this important series nearly worthless as an indicator of economic activity... With reported growth moving up and away from economic reality, the primary significance of GDP reporting now is as a political propaganda tool and as a cheerleading prop for Pollyannaish analysts on Wall Street.”

On August 29, 2013, the Federal Government reported that Real Gross Domestic Product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis (BEA). In the first quarter, real GDP increased 1.1 percent. (The BEA will release its final number for the second quarter 2013 on September 26, 2013, at 8:30 A.M. EDT.)

However, this GDP headline number refers to the most-recent quarter’s annualized quarter-to-quarter rate of change (what that quarter’s percent quarter-to-quarter change would translate into if compounded for four consecutive quarters). This can mean that the latest quarter can be reported with a positive annualized growth rate, while the actual annual rate of change is negative, as was the case for the 3rd quarter of 2009. So is the economy really growing or not?

Note: The chart above, courtesy of ShadowStats.com, shows Annual Growth (Year-to-Year Percent Change). This is not the annualized quarterly rate of change that serves as the headline number for the series.

Shadow GDP

According to Shadow Government Statistics, the annual growth percentage change in GDP for the second quarter 2013, based on Official BEA data, was a mere 1.64%. However, when the aforementioned upward biases, inserted into GDP since 1984, are removed, the annual growth percentage change for the second quarter 2013 was actually more like -1.75%.

In fact, if you study the chart above, in conjunction with source data courtesy of Shadow Government Statistics, other than an anemic growth rate of less than 0.51% for the first, second, and third quarters of 2004, based on pre-1984 methodology, annual GDP growth has been negative ever since the second quarter of 2000.

Even worse, every time the BEA makes a new Pollyannaish change in its GDP reporting methodology, all prior data is restated back to the year 1929. For example, according to Shadow Government Statistics, methodological changes made in 2004 led to increases in previously reported GDP of 2.86% for 1980, and 5.25% for 1990 (see table below).

Unless this nonsense is reigned in, I suspect that in the near future, the Great Depression will be referred to as the Booming 30’s. Should you wish to study this topic further, please take a few moments to read the series authored by Walter J. "John" Williams, “Government Economic Reports: Things You’ve Suspected But Were Afraid To Ask!

The Bottom Line: Nearly every key statistic reported by the Federal Government is a lie. Virtually every word emanating from Washington, DC is a lie. Although the American people may be exceptional, the Government of the United States, as it stands today, has strayed so far from the mark that there will be none other to blame as it seals its own demise.

Related:

Black Unemployment Rate Closer to 37.9%: Phony Government Statistics, Detroit and Black Americans

Entertainment R&D Boosts Federal GDP Calculation Following Formula Changes

The new GDP methodology: What you need to know: U.S. economy over $500 billion larger due to new definitions

Saturday, September 7, 2013

Directed Sunrise

Fire in the Sky, Bomb in the Sound

- Lights, Camera, Action... -

Tybee Island, Atlantic Ocean -- September 2, 2013 ::

On February 5, 1958 the US Air Force lost a 7,600-pound Mark 15 hydrogen bomb in the waters off Tybee Island near Savannah, GA. The Air Force had been running practice exercises at about 2 AM that morning when the B-47 bomber carrying the bomb collided in midair with an F-86 fighter plane.

The F-86 pilot ejected before the collision but the B-47 remained airborne. Struggling, the pilot requested permission to jettison the bomb to reduce weight and prevent the bomb from exploding during an emergency landing. Permission was granted and the bomb was jettisoned at 7,200 feet while the bomber was traveling about 200 knots. When the bomb struck the sea, no explosion was seen. The B-47 safely landed at the nearby Hunter Air Force Base.

A recovery effort began on February 6, 1958, for what is now known as the Tybee Bomb. The Air Force 2700th Explosive Ordnance Disposal Squadron and 100 Navy personnel equipped with hand held sonar and galvanic drag and cable sweeps mounted a search. On April 16, 1958, the military announced that the search efforts had been unsuccessful.

The Tybee Bomb, allegedly, remains buried here unto this day.

Saturday, August 3, 2013

Black Unemployment Rate Closer to 37.9%

“I am a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts.” ~ Abraham Lincoln ~

Phony Government Statistics, Detroit and Black Americans

- By: Larry Walker II -

One way the federal government could help reduce Black-on-Black crime and address the nation’s poverty crisis would be to start telling the truth about unemployment. The U.S. Bureau of Labor Statistics (BLS) publishes a set of completely phony statistics each and every month, in order to convince the public that our economic condition is rosier than it appears. However, if the economy is doing so well, then why has the number of Americans living in poverty recently spiked to levels not seen since the mid-1960s? What’s up with that? Could it be that the employment situation and more specifically Black unemployment is far worse than government statistics portend?

For example, in December 2009, the BLS estimated that the official unemployment rate in Detroit, Michigan was 27.0%. However, at the same time, Detroit Mayor Dave Bing stated that the city's official unemployment rate was as believable as Santa Claus, proffering that it was instead closer to 50.0%. Considering that less than four years later, Detroit would file the largest municipal bankruptcy in U.S. history, he was probably on the right track. So how did Mayor Bing come up with his figure?

Well, the BLS estimated that for the year ending September 2009, the State of Michigan's official unemployment rate was 12.6%, but according to its broadest definition of unemployment, the state unemployment rate was 20.9%, or 66.0% higher than the official rate. Therefore, since the City of Detroit's official unemployment rate for October 2009 was 27.0%, applying the broader rate meant the city's rate was really as high as 44.8% (27.0 * 1.66). Since Mayor Bing’s estimate was more in the ballpark than the BLS, it might be a good idea to apply this same logic nationwide, especially when it comes to Black Americans, who as a whole have traditionally sustained the nation’s worst levels of unemployment.

Real Unemployment

Every month, the BLS publishes its official U-3 unemployment rate, a headline number that almost everyone is familiar with, but also releases the lesser known U-6 unemployment rate, its broadest measure of unemployment. U-6 includes short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time work. When we compare current BLS statistics, which are based on a flawed methodology only in place post-1993, against its pre-1994 methodology, we discover that the official U-3 rate is really closer to 12.8%, not the 7.4% figure published on August 2, 2013, and that the broader U-6 rate is really closer to 23.3%, rather than 14.0%.

There is actually an alternative to the federal government’s phony reporting. A private organization, Shadow Government Statistics, publishes a more accurate measure of unemployment, which is based on pre-1994 BLS methodology. The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. In other words, the SGS Alternate Rate adds millions of long-term discouraged workers back to the BLS estimate, which only includes short-term discouraged workers.

In case you didn’t catch that, allow me to clarify. What this means is the BLS has eliminated long-term discouraged workers (i.e. those who have been without a job for so long, they haven't bothered to look for more than 12 months) from official unemployment statistics since 1994, thus distorting the real employment situation. And herein lies the problem: If you knew that a U.S. city was battling an unemployment rate of 27.0%, while the federal government was busy creating jobs in Egypt, China and everywhere else but that city, what would that tell you? Would it have made any difference if you knew that city’s unemployment rate was really 44.8% or greater? What do you think millions of long-term discouraged workers are up to, just sitting around laughing, joking and waiting on a government handout? Not likely, for an idle mind is the devil’s workshop.

To get a better idea of what’s really going on in America, we will begin by analyzing the federal government’s broadest measure of unemployment (U-6). Then we will compute the difference between U-6 and Shadow Government Statistics Alternate Unemployment Rate (Real U-6). Next, we’ll analyze the government’s official U-3 unemployment rate, then use the difference between U-6 and Real U-6 to extrapolate the real official unemployment rate (Real U-3). Finally, we will focus on unemployment among Black Americans, and using the same formula, project the real unemployment rate for Black Americans.

What’s the point? The first step in solving any problem is to define it. My mission today is to better define the problem, not necessarily solve it. There’s not a person in this nation, with the exception of those who still believe in Santa Claus, who truly believes the official unemployment rate is 7.4%, as of August 2, 2013, or that the total unemployment rate is just 14.0%. Nor is there any way on earth that Black folks, especially those in or around inner-cities, believe the Black unemployment rate is just 12.6%. So let’s get real. With that, here we go.

U-6 – Total Unemployment

When it comes to the federal government’s broadest measure of unemployment, U-6, according to the BLS the rate was 14.2% for January 2009, peaked at 17.1% in October through December of 2009, once again in April of 2010, and has since declined to 14.0%, as of July 2013. A closer look reveals the following annual averages, since 2003:

By comparison, U-6 averaged between 8.2% and 10.6% in the six years prior to the Great Recession, including 2008, the first full year thereof, but since the end of 2008 has averaged between 14.1% and 16.7%. What does that tell you? It tells me that notwithstanding the fact that the Great Recession ended in June of 2009, a solid four years ago, the total unemployment rate in 2013 is averaging 33.0% higher than in it did at the end of 2008 ((14.1 – 10.6) / 10.6), the first full year of the recession.

In other words, U-6 has grown 33.0% worse, since Potus 44 took the reigns, and that’s going by the government’s most optimistic estimates, based on a set of phony statistics which fail to count the number of long-term discouraged workers. Well, that’s not very encouraging.

SGS Alternate Unemployment Rate

According to Shadow Government Statistics, the BLS has defined a certain segment of society, long-term discouraged workers, out of existence since 1994. It kind of sounds like the old three-fifths of a man theory, only now millions are counted as zero-fifths of a person, at least when it comes to official unemployment statistics. Oh you can vote alright, but if you’re poor, unemployed and haven’t searched for work in more than 12 month’s, you don’t really matter. Thus, the real unemployment rate is far worse than what the federal government would have us believe. The chart that follows is the latest from Shadow Government Statistics.

As you can see visually, and according to data from Shadow Government Statistics, for January 2009, instead of the federal government’s phony unemployment rates, U-3 of 7.8% and U-6 of 14.2%, real total unemployment (Real U-6) was actually 18.3%. But even more stunning is the fact that since January of 2009, instead of both rates peaking in 2009-2010 before declining to current BLS levels, Real U-6 has never declined, but has rather increased from 18.3% to 23.3%.

Summary Conclusion 1: The U-6 unemployment rate is really closer to 23.3%. When compared to the BLS U-6 rate, Real U-6 was 28.8% higher for January 2009 than we were led to believe ((18.3 – 14.2) / 14.2). Also, instead of declining, Real U-6 has since increased by an additional 27.3% ((23.3 – 18.3) / 18.3). In other words, Real U-6 is currently 64.0% worse than the BLS reported for January 2009 ((23.3 – 14.2) / 14.2). Got that?

U-3 – Official Unemployment

According to BLS, the official U-3 unemployment rate was 7.8% for January of 2009, peaked at 10.0% in October of 2009, and has since declined to 7.4% as of July 2013. A closer look reveals the following annual averages, since 2003:

By comparison, U-3 averaged between 4.6% and 6.0% in six years prior to the great recession, including 2008, the first full year thereof, but since the end of 2008 has averaged between 7.6% and 9.6%. Keeping in mind that the Great Recession officially commenced in December 2007 and ended in June of 2009, what does that tell you? It tells me that undeterred by the federal government’s phony statistics; U-3 is worse off today, on average, than after the first 13 month’s of the recession, which only lasted a total of 19 months.

In other words, in contempt of the fact that the Great Recession ended in mid-2009, just over four years ago, the average U-3 unemployment rate in 2013 is 31.0% worse than at the end of 2008 ((7.6 – 5.8) / 5.8). Although bad enough on its lonesome, remember that this is based on the federal governments most optimistic estimates, steeped in the same phony methodology mentioned above. So then what is the real unemployment rate?

Summary Conclusion 2: As shown in Summary Conclusion 1, the Real U-6 unemployment rate is currently 64.0% higher than the BLS reported for January 2009. Therefore, I contend that the real official unemployment rate (Real U-3) is also 64.0% greater than the government’s January 2009 figure. Since U-3 was said to be 7.8% for January 2009, Real U-3 is closer to 12.8% today (7.8 * 1.64). Are you still with me? Good. Now let’s look at the unemployment rate for Black Americans.

Black Unemployment

According to BLS, the official unemployment rate for Black Americans was 12.7% for January 2009, peaked at 16.8% in March of 2010, and is currently 12.6%, as of July 2013. A closer look reveals the following annual averages, since 2003:

By comparison, the official unemployment rate for Black Americans averaged between 8.3% and 10.8% in the six years prior the Great Recession, including 2008, the first full year thereof, but since the end of 2008 has averaged between 13.4% and 16.0%. Again, what does that tell you? It tells me that even though the Great Recession ended in mid-2009, more than 48 months ago, the average annual unemployment rate for Black Americans is now 32.6% worse than at the end of 2008 ((13.4 – 10.1) / 10.1).

In other words, the official Black unemployment rate has grown worse by 32.6%, since Potus 44 took the reigns. Yet again, I remind you that these are the federal government’s most optimistic estimates, based on phony BLS methodology, as mentioned above. [It’s worth noting that the unemployment rate for Black Americans more closely mimics the U-6 rate, and is currently 70.2% higher than the official U-3 rate ((12.6 – 7.4) / 7.4).] So even after reducing millions of Blacks to zero-fifths of a person, for unemployment purposes, the Black unemployment situation is completely unacceptable.

Summary Conclusion 3: As shown in Summary Conclusion 1, the Real U-6 unemployment rate is currently 64.0% higher than the BLS reported for January 2009. Therefore, I contend that the official unemployment rate for Black Americans is also 64.0% greater than the government’s January 2009 figure. Since the Black unemployment rate was reported to be 12.7% for January 2009, the official unemployment rate for Black Americans is really closer to 20.8% today (12.7 * 1.64), or 65.0% higher than BLS reported on August 2, 2013. But that’s not the end of the story.

Now we must take into consideration Detroit Mayor Dave Bing’s 2009 assessment of Detroit’s real unemployment rate. When we apply Mayor Bing’s formula to the nation as a whole, we can draw the following conclusion.

Conclusion: The official U-3 unemployment rate is really closer to 12.8%, as shown in Summary Conclusion 2. The total U-6 unemployment rate is really closer to 23.3%, as shown in Summary Conclusion 1, or 82.0% higher than Real U-3 ((23.3 – 12.8) / 12.8). Therefore, I contend that the total unemployment rate for Black Americans is also 82.0% higher than the figure shown in Summary Conclusion 3. Applying the broader measure means the unemployment rate for Black Americans is actually as high as 37.9% (20.8 * 1.82).

The Wrap

The first step in solving any problem is to define it. Publishing phony employment statistics is just one of the many games slick talking Washington politicians play to hide the truth. By masking reality since 1994, the U.S. government has been outright lying to itself and the general public for at least two decades. So what else are they lying about? What about inflation, GDP, the money supply, and carbon dioxide levels in the atmosphere, to name a few?

According to the federal government, as of July 2013, the official U-3 unemployment rate was 7.4%, U-6 total unemployment was 14.0%, and the official rate for Black Americans was 12.6%. But these are phony estimates, which fail to include the number of long-term discouraged workers. When we include those who should matter the most, those currently counted as zero-fifths of a person, we find that Real U-3 is 12.8%, Real U-6 is hovering at 23.3%, and the unemployment rate for Black Americans is really closer to 37.9%.

  • Real U-3: 12.8% (vs. 7.4%)

  • Real U-6: 23.3% (vs. 14.0%)

  • Black Unemployment: 37.9% (vs. 12.6%)

Not only has the unemployment rate grown 64.0% worse since January 2009, for all Americans, but the unemployment rate for Black Americans is really closer to 37.9% nationwide. However, within more problematic, high-crime, urban areas across the nation, such as Detroit, Black unemployment is now deathly critical. If you want to know the real unemployment rate in your city, state or locality, take the federal government’s official rate from January 2009, multiply it by 1.64, then take the result and multiply it again by 1.82, and you’ll have a more accurate figure.

When Potus 44 starts throwing around words like phony, as he prances around waving a golf club and berating folks for locking their car doors, he should be mindful that the very core of the government, over which he so arrogantly presides, may in fact be built on a lie. If Potus 44 truly believes the unemployment rate for Black Americans is 12.6%, then he should probably just take another nap, play another round of golf, give another incoherent speech, and then take another vacation. But if he believes the real unemployment rate for Blacks is closer to 37.9%, and construes it to be the main culprit behind poverty levels not seen since the mid-1960s, and a reason why 93% of Blacks are being murdered by other Blacks, then he should act accordingly.

However, race-baiting, raising the minimum wage, hiking income taxes, regulating the coal industry out of existence, delaying the Keystone XL Pipeline, and mandating that every American buy health insurance are all policies which lead to fewer job opportunities, not more. So perhaps the solution to our problem lies not in government doing more, but in government undoing much of what it has already done. My mission today was not to solve America’s problems, but rather to help define them. It’s high time the federal government starts giving us the truth. Now here’s a riddle: Detroit has fallen! Detroit has fallen! How long before the United States faces bankruptcy?

References:

Shadow Government Statistics - http://www.shadowstats.com/alternate_data/unemployment-charts

Confounded Interest - The Daunting Gap In Unemployment and Homeownership By Race – Blacks In Last Place.