December 13, 2012
- Online sales tax axed, but arbitrary arrest provisions expanded: peering at the fine print of the latest defense-spending law… including a hidden profit opportunity
- The Fed’s newest notice to savers (besides “You’re screwed”… plus, a wistful look back on four years of evolving Fed language now thrown on the junk heap of history
- The platinum coin solution to the debt ceiling that mainstream economists assure us can’t possibly be inflationary… heh
- Congress tries to crack down on 3-D-printed weaponry (too late)… a reader inquiry on a “forgotten” line item in the federal budget… and more!
Another year, another bullet dodged.
Going back to 1999, every Congress has dealt with a proposal that would force online retailers to collect sales tax. Last year, we told you how the effort gained an improbable ally in Amazon.com… but it still failed.
This year, the attempt came in the form of an amendment to the National Defense Authorization Act (NDAA), the annual Pentagon spending bill. No, an online sales tax has nothing to do with defense spending, but that’s never stopped Congress before.
In any event, the Senate voted last week to cut off debate on the amendment before passing the NDAA.
Whew… bullet dodged, yeah?
Readers with good memories or a keen sense of outrage will recall that last year’s NDAA included a provision called Section 1021 — allowing for indefinite detention of Americans without charge or trial. All one need do to run afoul of the vaguely worded law is to offer “substantial support” to al-Qaida or its “associated forces.”
“The words can mean whatever the president, like Humpty Dumpty, wants them to mean,” Reagan-era Justice Department official Bruce Fein said in our virtual pages. “‘Substantial support’ might be said to include any criticism of the United States government for flouting the Constitution in combating international terrorism.”
Fast-forward to last month: Sen. Dianne Feinstein (D-Calif.) offered an amendment to this year’s bill that on the surface appears to restore some semblance of due process. But attorney Bruce Afran, representing several journalists challenging the law in court, says the loopholes are big enough to accommodate the proverbial Mack truck.
“The Feinstein amendment,” says Afran, “does not say that people in the U.S. can’t be put into military custody. It simply says they can’t be taken into indefinite military custody without ‘trial.’ If they are taken into military custody, they have to be given a trial of some sort — but not due process in a civil court. The [kind of] trial this refers to would be… military tribunals.”
You’re forgiven for not getting a warm and fuzzy feeling over your government’s intentions.
The amendment and the NDAA passed; presumably, it will survive reconciliation with the House version of the bill this week and be signed by the president next week in between bites of papaya during his Hawaiian holiday.
The past is prologue, the saying goes. The preceding nuggets of info are no different. For the past few weeks, we’ve been noodling over an idea. It goes something like this:
In Empire of Debt, we postulated the empire has logic all its own. That logic will bring about events beyond your control. It is far better to understand those events and plan your life and your “portfolio” accordingly… than to allow them to blindside you and your family.
In crass terms, we call it “making the empire pay.” If it suits you better, think of it as channeling some of your tax dollars back into your own pocket.
Ironically, within the fine print of last year’s NDAA is the perfect means to do so.
Section 818 of the law is titled Detection and Avoidance of Counterfeit Electronic Parts. It requires contractors who supply products to the Pentagon to take steps to ensure they don’t contain counterfeit electronic components.
“These contractors, including the big names like Boeing, Raytheon and Lockheed Martin, will now be held liable if their products contain counterfeit components,” explains our tech guru Patrick Cox. “Penalties include withholding payment, being held responsible for repairs and even the potential for civil and criminal damages, as well as disbarment from further business with the Defense Department.”
As noted in yesterday’s episode, the Pentagon is one of the world’s leading consumers of computer chips; its yearly purchases make up more than 1% of a $300 billion market. Chips are an essential component of everything from ships to planes to the electronic optics used on hand-held weapons.
To implement Section 818, the Defense Logistics Agency tested an array of anti-counterfeiting methods. They set very exacting standards. In the end, only one method met those standards — a method using DNA taken from plants, developed by a tiny firm employing only 21 people.
The firm has been granted an enormously lucrative government-guaranteed monopoly.
The next step in the company’s growth comes this afternoon, during a presentation at a posh New York hotel before about 200 government insiders, institutional investors and security-industry execs.
At the moment, shares still go for a mere 19 cents each. They could grow substantially once insiders at the conference act on the information presented this afternoon.
It could happen as early as 1:15 p.m. EST; it might not be till after the close. But either way, it’s an opportunity to “make the empire pay you back” that deserves your serious consideration.
It is “the smallest, most explosive stock opportunity I’ve found in my 30-year career as an economist and market analyst,” says Patrick. He makes a compelling case at this link.
So here we go with QE4.
Because 1, 2 and 3 worked so well, of course.
The Federal Reserve surprised no one yesterday by announcing that come year-end, Operation Twist would transmogrify into full-blown monetization of Treasury debt to the tune of $45 billion a month.
That’s in addition to QE3, announced two months ago, which is ongoing: There, the Fed is buying $40 billion of mortgage debt every month.
The one surprise the Fed delivered was a revised target for when it would finally allow the fed funds rate to start rising from the near-zero levels it set four years ago.
Back then, we were promised only that rates would remain “exceptionally low”…
- …first “for some time” (December 2008)
- …then “for an extended period” (March 2009)
- …which morphed into a target date of “at least through mid-2013″ (August 2011)
- …stretching to “at least through mid-2015″ (September 2012).
To hell with all that, the Fed said yesterday: Savers will continue to be flogged relentlessly, at least until the unemployment rate falls to 6.5% and inflation “between one and two years ahead is projected” at no more than 2.5%.
By point of reference, U-3 unemployment is currently 7.7%… and “core PCE,” the Fed’s preferred measure of inflation, is 1.6%.
The Fed might as well have said, “The beatings of savers will continue until morale improves.”
If you’re starting to have trouble distinguishing these assorted and now overlapping QE operations, Vancouver favorite Barry Ritholtz is suggesting the Fed adopt Apple Inc.’s style of branding.
A suitable logo for the Fed…“Their nomenclature for phones is easily followed,” Mr. Ritholtz writes with tongue firmly in cheek, “and communicates a great deal about what is happening. For example, this current easing is QE4. In the spring, we could see QE4S. Next fall, we will all get excited about QE5, followed by QE5S the following spring.
“We would have named Operation Twist ‘The Mini.’”
And given what some wags say about “QE Infinity,” Mr. Ritholtz further suggests the Fed’s current address of 20th St. and Constitution Ave. NW in Washington isn’t nearly as catchy as Apple’s. There, the nomenclature can be stolen outright: “1 Infinite Loop.”
But wait, there’s more insanity! Have you heard about the trillion-dollar face value platinum coins that the Treasury could use to keep Uncle Sam under the debt ceiling?
“There’s nothing that’s obviously economically problematic about it,” former Fed economist Joseph Gagnon tells The Washington Post.
We’d better back up a bit: “Thanks to an odd loophole in current law,” the Post says, “the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.”
During the debt-ceiling debacle of 2011, Yale law professor Jack Balkin pointed out that — believe it or not — there’s a legal limit on how much paper money the U.S can circulate at one time. Ditto for the number of gold, silver and copper coins the Mint can produce.
Not so for platinum. The idea’s getting traction, because no matter what happens with the “fiscal cliff,” Uncle Sam is set to bump up against the debt ceiling — now set at $16.4 trillion — in February.
Stick another 10 zeros on the end and they’d be getting close…
”Under this scenario,” the Post continues, “the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.”
“In theory,” the rag goes on, “this is much like having the central bank print money. But, says Gagnon, the U.S. government would simply be using the money to keep spending at existing levels, so it wouldn’t create any extra inflation.”
We have a feeling this item might end up in Chris Mayer’s customary “You Can’t Make This Stuff Up” talk in Vancouver next summer.
Stocks and precious metals popped after the Fed announcement yesterday… only to give it all back, and then some.
The major U.S. stock indexes ended the day where they began. This morning, they’re down fractionally, the Dow at 13,227.
Gold spiked briefly above $1,720, but sank big-time overnight. At last check, the bid was $1,690. Silver’s down more than 3%, to $32.38.
Even crude can’t rouse itself to react to the fresh money printing, at least not now: A barrel of West Texas Intermediate fetches $86.54.
Meanwhile, traders are chewing on several numbers today…
- First-time unemployment claims: back to pre-Sandy levels at 343,000. Still nowhere near levels resembling a “healthy recovery”
- Producer prices: down 0.8% in November, attributable almost entirely to falling energy prices. The year-over-year change works out to an increase of 1.4%.
- Retail sales: up 0.3% in November. But if you back out car sales, the number is flat — Black Friday notwithstanding.
“Congress passed a law banning plastic guns for two decades, when they were just a movie fantasy,” writes Rep. Steve Israel (D-N.Y.) in a recent press release.
“With the advent of 3-D printers, these guns are suddenly a real possibility, but the law Congress passed is set to expire next year.”
As you know, we’ve been covering the Wiki Weapon story for quite some time. Each revisit seems more surreal than the last.
The law Rep. Israel refers to is the Undetectable Firearms Act, passed in the mid-1980s when Austrian company Glock began exporting its plastic-framed firearms to the United States. The fear was the Glocks would pass undetected through metal detectors.
“Nobody mentioned that there was over 1 pound of metal in them,” author John Lott commented, rendering a law for a fantasy gun completely absurd.
The call to renew the act came only a few days after Defense Distributed executed their first rounds of tests with a 3-D-printed gun part…
And over two decades later, Israel is spouting the same rhetoric as the wolf-callers of yore.
“Being lost in all the noise is the fact that nonmetal (polymer) lower receivers are not new and are commercially available,” Examiner blogger David Codrea writes.
“No one has suggested that they fall afoul of the 1988 law, because they don’t, so Rep. Israel’s agenda is obviously not to keep someone from slipping through airport security with an ‘invisible’ gun, meaning his bait-and-switch intent is to further close off technology to all but an approved class, with all the opportunities for failure and corruption that implies.”
“I couldn’t help but notice,” a reader writes, “that when it comes to federal spending, there never seems to be a rant concerning the DOD — yet the DOD is surely one of the monsters of federal spending!
“And while I don’t much support food stamps and the like, don’t food stamps have some economic value (in the form of spending for food, at least)? Whereas spending on an F-35 whose sole mission is to destroy sounds like a lot worse.”
The 5: The effect is identical: Both merely remove money from one pocket to put in another; no new wealth is created. As we said, the empire has a logic all its own.
The 5 Min. Forecast
P.S. The most potentially lucrative way to “make the empire pay” could break as early as this afternoon. Details here.