Karl Denninger Confuses Sophistry With Truth

I love KD.  I really do.  I know too many people like him not to love the guy.  Personally, I am nothing like him, and perhaps that is why I can admire him for what he is, even when I'm repelled by it.

But KD made a really stupid statement today.  Specifically, he said "[t]his is a tautology, or something that is true no matter the interpretation."

Actually, according to Merriam-Webster, a tautologous statement (what Karl means by "a tautology") is "true by virtue of its logical form alone."

A more accurate definition of a tautology is "a statement that holds together logically but that practically makes no sense."  This is particularly true of the tautology that KD adopts, which is the quantity theory of money, or "MV = PQ."  This tautology was and is the basis of Chicago School monetarism and was rejected in practice by Paul Volcker in the mid 1980s when it was proven that "V" does whatever the fuck it wants to do, i.e., it is not bound by the values of M, P or Q.  Volcker killed the U.S. manufacturing sector in the early 1980s trying to slow the velocity of money by jacking up the interest rates, but it made no difference UNTIL businesses actually failed, triggering a deep recession.

To be fair, there are number of things that Karl gets right in the post linked to above.  I just can't get past the stupidity he displays in embracing sophistry as truth, even if it is to make a point that is more correct than not. I think KD is an example of a "progressive" conservative in the Teddy Roosevelt tradition.

Karl Denninger Sees the Real Enemy, Inadvertently Previews A Paradigm Shift In The Political Spectrum

In a post entitled "Nail, Meet Hammer," Karl posts up this interesting video:



I do not agree with everything that Christopher Greene says in this video, and I doubt that Karl does, either.  But  there is a great deal that I do agree with, and I'm sure that Karl wouldn't post it if he didn't agree with a lot of it, as well.  While I doubt that Karl and I would agree about what where we agree with Mr. Greene's video, I am sure that we would agree more than we disagree.

The point here is that a new political center is being created before our eyes.  Denninger proclaims himself as an original member of the Tea Party.  But he has pretty much washed his hands of it and now supports the Occupy movement.  He even makes a pretty good observation about it here.

NOTE: Where Karl and I probably disagree with Greene is the conspiracy theory that drives Greene's narrative.  Karl probably doesn't believe in it, as he prefers to think of people as stupid instead of evil.  I don't agree with the details of the conspiracy implied by Greene's narrative, but the documented history of neoliberalism demonstrates a concerted, multi-generational effort to shape and control public perception in order to rip off the public.  If you're willing to have a looser conception of a conspiracy theory, one that does not require secretive back room meetings between villains, then it is hard to not view neoliberalism as one giant conspiracy.

Karl ALMOST Gets It

Mr. Denninger uses NetFlix to make a point that he ultimately misses, stating:

There are three lessons embedded in this chart.

The first is that exponential (compound) growth does not last forever.

The second is that when (not if) the party ends, the usual path is straight down, while the climb up was (by comparison) rather sedate.

And the third is that you can make it much worse by doing stupid things.

Netflix was a prime example of all three in action . The firm sold the market on the premise of "everlasting growth." That premise forgot the fact that they had created the "brand" on the back of a skeptical industry that underpriced their services - and that these "teaser rates" for content access would end. There was no way for Netflix to win on this, as they'd either fail outright or the content cost ramp would nail them if they were "successful." These risks were disclosed and nobody paid attention to them.

The emphasized sentence illustrates my point.  ALL share prices on the secondary equity markets inherently assume "everlasting growth."  That is because free cash flow models using net present valuation techniques start with today's free cash flow, assume annual growth over 3-5 years at a one rate, and then assume a terminal value which is based on lower, but now perpetual, annual growth rate into the future.  

What Karl is really complaining about with NFLX is the slope of the increase stock price, which is based as much or more on the P/E multiple applied to the assumed level of perpetual growth as on the premise of "everlasting growth," which is common to all companies sold on the secondary equity markets.

Again, I wish Karl luck with his book.  As often as I disagree with the man, he is a genuinely good guy who, like Jesse and Charles Hugh Smith among the A-list financial bloggers, should always be taken seriously ESPECIALLY when you disagree with them.  People with their size audiences who continue to speak unvarnished truth are to be respected.

When You Question Your Understanding of the Present, You Need to Double-Check Your Understanding of the Past

Karl Denninger.  The man is a dynamo. 

I just wish he were as right about the world as he thinks he is.  Unfortunately, he's not.  Why?  Because he refuses to question what he thinks he already knows.

Two examples.

First, there's this post of his, which is dogmatically modern "libertarian" chic.  Watch the video he links to, and ask whether there can be any distinction between the "oligarchy" which the video claims to abhor and the "republic" which the video claims to exalt over all other forms of government.  It seems to me that a republic in which only men (not women) who own property (not all citizens) and who are not themselves property (i.e., slaves) serves only the oligarchy.  Seriously, how obvious is that?  Just take the time to past the rhetoric and at the actual facts.  (And the claim in the video that everybody else "lies" about how to describe the left-right continuum is utter nonsense; you can't legitimately argue that your new definition of accepted terms makes somebody else a liar.)

Second, look at this post, which complains about the frauds he recognizes while demonstrating the fraud he fails to see.  What Karl doesn't get is that, according to his definition, all stock market transactions are also Ponzi schemes, and by trading, he aids and abets those schemes.  As I've said before, analysts set stock price targets based on free cash flow models that assume perpetual growth, which, as Karl rightly points out, is not possible in the real world.  Nevertheless, like a good modern "libertarian," Karl has blinders on when it comes to "private" behavior (as opposed to the behavior of the government).

Karl is too old to change, so I'll just focus on enjoying him for the person he is, which is a genuine, well-meaning dude.  I wish him much luck on the upcoming release of his book.

Cognitive Dissonance, Karl Denninger Edition

One side of Karl's brain relies on Fed data regarding the amount of outstanding debt to argue that the American consumer has not delevered.

The other side of Karl's brain argues, I think correctly, that the value of outstanding debt has been vastly overstated by banks who refuse to mark bad debts to their market value.

If the latter argument is correct, than the former cannot be.  Anybody who believes the banks are lying about the value of the debt they're carrying on their books should not be relying on the banks lies for anything.

Karl Denninger: Seeing What He Wants to See

Actually, it is not fair to single out Karl.  He's late to the game as people like "Tyler Durden" of ZeroHedge and Max Keiser piled onto this story a day or two ago.

What story?  The story that PIMCO is shorting the U.S. dollar, which is based on the fact that PIMCO has recently taken a relatively small short position against U.S. treasuries.  Here is Karl's take on the story.

The problem with the "story" is that it is fiction.  At the same time that PIMCO has taken its $7 billion short position against treasuries, it has almost $80 billion in cash (i.e., the U.S. dollar), making cash the single largest asset class held by the PIMCO fund in question.  Given the 10:1 ratio between cash and the short position in treasuries, one can only view the latter as a hedge against the former bet being wrong.  And what is that bet?  PIMCO is betting on a collapse in the secondary bond and equity markets that will once again make cash king.  And I think PIMCO is right.

I commented on this story over at Max Keiser's place here and here, ending the discussion in both cases. 

Bottom line: deflation is inevitable (indeed, we're already undergoing deflation, but that fact is being masked through stupid accounting and finance tricks); all that is happening right now is the Fed and other central banks are managing a soft landing for the financial elites at the expense of everybody else.  At heart, the banksters are illusionists who use sleight-of-hand to work their "miracles."  Everything that we are seeing, including central bank policies across the board, is meant to herd people into risky bets to fleece them. 

Better Title: 27 Pages of "Fluffing"

Karl Denninger, who has been embracing his inner wingnut lately, finally has a good non-ideological post up:

Flush The AGs: 27 Pages Of Fluff

But I like my title better . . .

The state attorneys general are now accomplices to the federal corporatist agenda, so states' rights won't save us, either.  Whether local, state or federal, all American government is now corrupt.  Isn't life grand?

Disclaimer: I actually believe that government need not be corrupt and can (and should) serve a legitimate and needed role in our daily lives.  I'm just convinced that our governments as currently constituted cannot do so. 

Karl Denninger Doesn't Get It (and Neither Does Sarah Palin)

As I've said before, there's a lot of things I like about Karl Denninger.  Unfortunately, he can get sloppy in his thinking, even as he makes some pretty keen observations.

Karl has been doing a great job in identifying price inflation caused by speculation in commodities that are consumer staples.  Really, nobody has been more vocal than Karl in pointing out this phenomenon, which will undoubtedly cause a lot of pain to the least fortunate Americans, who are already struggling.

The problem is that Karl equates increasing prices with inflation (to the point that he equates price reductions due to improved productivity as "deflation"):

Now watch very carefully... remember, my thesis is this: Depressions are a function of margin collapse, not deflation.  You seek deflation intentionally every time you go to the store.  Technology creates massive deflation in many things (e.g. calculators, computers, music players, televisions, etc)   This is not bad, it is good.  It allows your earnings to go further and enhances your standard of living.

Because Karl thinks of inflation and deflation in terms of the price of consumer goods, he fundamentally misunderstands what is going on, even while he seems to see the self-reinforcing feedback loop that is being set up by QE2.  Unfortunately, he mistakenly believes that QE2 squeezing operating margins (which will implicitly lead to more layoffs or other forms of cost arbitration that will negatively affect the U.S. economy) is the problem, when the real problem is that QE2 will reallocate aggregate demand away from discretionary spending, causing  a reduction in unit sales.  Management at companies that sell consumer discretionary goods have a fair amount of control over their costs (and, therefore, their margins).  They have no control over whether or not customers will have any money to spend on consumer discretionary goods.  He also isn't taking into account the currency wars that are currently underway.  The international flavor of our global economy will ameliorate some of the margin impact in the U.S. because of the devalued dollar (which really isn't devalued directly because of QE2 because that money has no velocity and is not finding its way into the U.S. in any event).

Anyway, he shouldn't be surprised that Sarah Palin shares his confusion.

Hoisted From My Own Comment at Naked Capitalism

I had decided that there are enough top-notch bloggers (e.g., Yves, Karl, Barry and Rortybomb) out there covering the fraudclosure mess that there was no reason for me to post more about it here, but the latest info coming out of Wall Street is very interesting.  Since I shared it over at Naked Capitalism, there's no reason not to do so here:

From Karl Denninger, a link to a Citi analyst report regarding their meeting with a law professor about the possible outcomes of foreclosuregate.

From the paper Karl links to:

“Levitin articulated three possible outcomes to the aforementioned issues and assigned an equal likelihood to each. In his best case scenario, these issues are deemed merely technical in nature and are successfully resolved but it takes at least year to do so and all foreclosures are delayed by at least a year. Levitin disputed the claim by banks that these issues can be resolved in a month or so and attributed the banks’ claims to “legal posturing.” In the medium case scenario, litigation ensues and it takes years to sort out these matters. In the worst case scenario, the aforementioned issues become a “systemic problem” which causes the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”

Even the best case scenario all but assures Chris Whalen’s prediction from last week of of a new banking crisis within 3-6 months. http://www.aei.org/docLib/Whalen.pdf

I was betting on the under, but I now think it will come before Nov. 2nd to ensure that the expected QE2 is as big as possible . . .

And now I guess we know that QE2 is really intended as just another bank bailout, but this time we’re not even pretending that the government has a say in it.

Addendum:  I speak to my investment advisors almost every day, and when I told them of the depth and legs of the foreclosure mess today, it was news to them.  Since they were at Lehman when it collapsed, they were very, very concerned.  I'll get their take on the Citi report tomorrow.

Karl Denninger Asks and Answers the Most Important Question: "Why?"

Karl has a new post up this afternoon with some observations about foreclosuregate.  While his claim that nobody but he has been asking the "why" question is incorrect (Yves Smith has been asking the same question for at least a week), I think he is the first one to provide a comprehensive answer.  You can find the post here. 

While it is well worth it to read the whole thing, here is the punchline:

So what we have here are two answers to "Why?"

1. The deals were un-economic unless someone cheated.  That is, there's only so much risk-adjusted "spread" in a particular lending transaction.  The common law of business balance says that nobody ever works for free, and as a consequence the more hands that touch a deal the more that profit is dissipated among those hands.  In a competitive market where multiple entities compete for business this means that the true yield available to at least some of the investors would always have to understate the risk of default, and therefore someone was always going to get screwed.  On balance there's nothing unlawful about that, so long as you properly and fairly disclose everything about the deal - there's nothing that stops you from buying a thing that is disadvantageous to you.  We take this risk every day when we, for example, buy a pack of cigarettes.  The "pleasure" (such as it were) from smoking may come with a horrific cost (lung cancer); it was only when the Tobacco Companies tried to conceal this risk that they were held responsible.
   
2. As the pyramid grew higher, the number of good borrowers was exhausted.  To keep the charade going it was necessary to fund loans to "patsies" - the infamous "fog-a-mirror" lending.  That would have been ok too, except that the lenders actively concealed the fact that the loans they were stuffing into the securities did not meet the standards under which they sold those resulting MBS to investors. 

So between #1 and #2, we have two things that would not be illegal if they were properly and fully disclosed, but if they were fairly and fully disclosed there would have been no money in securitizing these loans, as nobody would have bought them.
To sell them, they had to cheat.  And when the "caught" part of the cheating became apparent as housing prices started to collapse, they attempted to cheat again to cover up the earlier cheating, which is what you're seeing now.

The next question is why cheat?  As I said in a previous post, public companies like the TBTF banks all must show perpetual growth or see their share price plummet.  There are only so many ways to keep the illusion of perpetual growth alive, and the last resort is always cheating, which can be as trivial as timing sales and as brazenly criminal and systemic as the predatory lending, the fraudulent conveyance of mortgage-backed securities that were not, in fact, backed by mortgages, and the subsequent foreclosure fraud to cover up their prior misdeeds. 

Could "Foreclosuregate" Spell the End of the Debtrix?

Karl Denninger calls the current foreclosure fraud mess "Foreclosuregate." 

Personally, I think labeling the foreclosure fraud mess with the obligatory "-gate" suffix makes Watergate appear to be a far bigger deal than it was.  Watergate just involved some petty crimes by lackeys of the POTUS to secure fodder for political dirty tricks.  By contrast, the foreclosure scandal is systemic and appears to include, at some level, the complicity of pretty much everybody in the elite power appartus (POTUS, Congress, courts, banks, lawyers, other corporations), all to the detriment of average American citizens. 

The foreclosure fraud scandal is several orders of magnitude worse than Watergate and could well result in an existential political crisis on the order of the Revolutionary and Civil Wars.  Because the foreclosure scandal does not lend itself to the typical "A versus B" frame of conventional politics, it cannot devolve into the factionalism or regionalism that marked prior existential crises.  Indeed, because the foreclosure fraud scandal strikes at the heart of our conception of America as being a country premised on the "rule of law" and the sanctity of property, even many economic elites will feel compelled to join the cause of reigning in the predatory FIRE sector, just as they did in response to the Great Depression. 

I view Obama's veto of HR 3808 as confirmation that the White House understands just how volatile this situation could become.  Why?  Because HR 3808 is really no big deal.  Contrary to a lot of the breathless headlines out there, HR 3808 would have had no real effect on foreclosure fraud because nothing in the bill requires judges to accept fraudulent documents as either evidence or true.  The authentication of documents, which is all that notarization provides, is but the first step in getting a document in front of the finder of fact (in judicial foreclosures, this is the judge), and the mere fact that a document is authenticated as genuine does not mean that its contents are true.  It is up to the finder of fact to weigh all of the evidence presented and determine what the truth is.  Obama knows this.  His choice to veto the bill in view of the completely unfounded concerns of lay people** was a purely political one meant to mollify the masses and get them back to being angry at each other instead of the banks.  The bill will ultimately become law.

I don't think the political whirlwind caused by the foreclosure fraud scandal can be so easily contained.  The number of states imposing moratoria on foreclosures is growing, as is the number of major banks being subject to them.  This makes Chris Whalen's prediction of a new banking crisis within the next 3-6 months that much more likely, and I'm betting on the under.

The timing could not be worse for the major political parties, who are only a month away from the mid-term elections.  Expect a major shift in campaign rhetoric as candidates realize that the foreclosure fraud scandal transcends politics-as-usual.  Another bank bailout is politically impossible after the banks paid themselves billions of dollars in taxpayer money for being so "successful" after the last bank bailout just 18 months ago. 

We'll see how this all plays out.  We're definitely living in interesting times.

** I practiced law for fifteen years, most of them as a litigator and trial lawyer.  While I no longer practice law, I remain interested in the discipline.

UPDATE 1:  Via Mish, 40 state attorney generals are now investigating mortgage/foreclosure fraud. 

FYI -- In the linked post, Mish links to a previous post in which he blames the SEC's lack of regulation for the fraud we're seeing.  While there's no doubt that things might not have turned out so poorly if the SEC had been doing its job, the reason why the NEC was not doing its job is because neoliberal ideologues like Mish were in charge of the SEC and Federal Reserve.  The only people who can properly be blamed for the fraud are the banksters who engaged in it.  If you want to blame captured regulators as accomplices of the banksters, fine, but to blame only the regulators is to absolve the real criminals, i.e., the banksters.  Austrian neoliberals like Mish cannot have it both ways.

UPDATE 2: Here's an interview with the Ohio Secretary of State regarding foreclosuregate and HR3808 (h/t Karl Denninger).  My take on what she had to say is that HR 3808 would have made it cheaper and easier for the banks to engage in forging missing mortgage documents by setting up shop in states with loose notary laws.  This concern does not translate directly into the assertion that the law would have made it easier for the banks to obtain judicial foreclosure, although arguably being able to pump out forged documents more quickly could sharply increase the number of foreclosure cases in the system and encourage other states to create a Florida-like "rocket docket" for handling foreclosures. 

The Easiest Way to Make a Buck is to Steal It

(via Karl Denninger)

Here's Rep. Alan Grayson with a powerful indictment of the rampant mortgage fraud occurring in Florida.

Karl Denninger Is On Fire (Again)

One of the things I like about Karl is that he calls thing like he sees them.  This time, it's about the fraud done by the banks.  Yes, he casts some blame on the government for setting up a system that absolves banks of wrongdoing, which is completely fair, but his focus is on the banks, where it ought to be.

Here's the impassioned conclusion to his post:

How far does this have to go ladies and gentlemen, before you've had enough?; Before you simply refuse to submit?  How much of your money - both present and future earnings - has to be stolen before you will rise and say "no more"?

How much?

Do you need to be reduced to living under a freeway overpass?  Eating scraps from a garbage bin?  Is not having your retirement and income security destroyed not once, but twice in ten years enough for you to demand that this crap stop, and for you to refuse to labor and thus create more wealth that these crooks can steal until you obtain effective redress and the people responsible are held to account?

These events were not accidents folks.

They were premeditated and intentional, undertaken with the full knowledge of what would - and did - happen.

The truth has been covered up, whitewashed and papered over by both major political parties, neither of which is willing to stand and demand that all of these void agreements be rescinded, that the funds stolen be returned and that everyone involved in this tawdry mess go straight to prison.

No, instead all you've heard is "irrational exuberance."

There was nothing irrational about it folks.

It was intentional, mendacious theft

Shorter Karl Denninger: ZIRP and QE = Forced Transfer Payments from the Middle Class to the Rich

Karl nails this one: Why The Fed's Policies WILL Collapse The Economy

The Fed simply cannot debase the currency enough to account for the tsunami of bad debts profligate financial speculators incurred over the last decade.  Even if the Fed were to devalue the dollar enough such that the productive economic sectors' wages were essentially reduced to zero, it will still be like bailing out the Titanic with a thimble.

NOTE: I plan to publish a wonky version of my "There Is No Red Pill" post that removes the pop references and most of the cynicism that reviewing the underlying data instilled within me.  There will be a lot of econ chart porn, so be prepared (not suitable for work because sleeping on the job is grounds for dismissal).

Note to Karl Denninger: Government Debt Does Not Necessarily Equal Deficit Spending

Karl has been using this chart for awhile now:

Attribution: http://market-ticker.org/akcs-www?get_gallerynr=13

In this case, Karl uses the chart to rebut the assertion by Dean Baker that the current national debt levels are not worrisome.  Dean Baker is a pretty smart guy, but he tends to lean farther left than Karl does right, so I felt compelled to dig into who is correct.

While I still don't know the answer to that question, I do know that Karl is wrong at least for the reasons he assets to support his position.  Why?  Because the chart above appears to divide national debt by GDP.  That is, Karl is assuming that government borrowing equals government spending.  That assumption is incorrect at the moment because over a trillion dollars that the Treasury borrowed (by selling treasury bonds)was dumped on the balance sheets of banks as reserves and have not been spent:

As you can see, the ramp in bank reserves corresponds to the ramp in "deficit spending" in Karl's graph.  In order to make Karl's graph correct, he needs to back out these unspent reserves from the Treasury debt to derive the actual deficit spending number, which I suspect will be closer to 6-8% instead of his asserted 12%.  Indeed, if you use the Federal government spending numbers in the BEA's GDP data instead of the Treasury "to the penny" data, it shows only 8.1% of GDP for 2009 was government spending (not necessarily deficit spending), instead of Karl's 12%.

Denninger to the Banksters: Stop Dining on the Middle Class

Karl Denninger is a passionate, somewhat ideological guy with whom I often disagree on the details but just as often agree on the the outlines of the problems and solutions.

Today, he has a good summary of where we are and how we got here.  Again, I don't agree with all the details, but the final few paragraphs summarize my sentiments quite well:

President Obama and Congress have a serious choice to make before them.  This is not about elections, it is ultimately about national survival.  The Jamie Dimons and Tim Geithners of the world don't care about the middle class or working person - they care about being bailed out of their positions, and how it happens doesn't matter to them.  They can and will step on your neck in order to do it, even though such an act is pure idiocy in that it only provides temporary respite.

But desperation does not lead to coalition-building and thoughtful response, it leads to cannibalism, especially when one has squandered the earlier opportunities to plant the fields and reap a harvest.

Nonetheless, cannibalism, should you choose it, means fewer hands next spring to plant said field.  Carried to it's logical conclusion there is exactly one man left with nobody else available to eat.

America must not go there.

It is time to change course, and that change in course begins with giving the banksters and other "financiers" a choice: either stop the crap - right now and forevermore, and give back what you stole through false pretense - or you're the ones we "eat" while we put this nation right.

As his post demonstrates, Karl seems somewhat influenced by the Austrian School's business cycle theory and assumes that money saved is actually invested (as opposed to being used at the casino to gamble), but the fact that I disagree with his economic theory does not mean I have to disagree with his ultimate conclusion. 

Karl Denninger Drinks the Kool-Aid Without Knowing It

Karl normally is highly skeptical of government statistics.  Unless said government statistics confirm what he already believes, in which case he gives them a big sloppy kiss.

Karl's posts today of both phenomenon.  For example, here he takes "Turbo Timmy" Geithner to task for fudging numbers, and here he gobbles up rigged government statistics and finds them so tasty that he regurgitates them to experience the flavor once more.

Specifically, in arguing that that the Bush tax cuts for the wealthy, Karl argues:

Because capital formation comes from savings.

Capital formation is what creates jobs. It is what fuels small business. It is what causes people to be hired, which increases economic activity.


In order to have capital formation you must have saving.

If you borrow instead then you're stuck paying debt to a bank, and worse, you're diluted in your effectiveness severely compared to someone who saves, as you must pay interest while he does not.

When the first Bush tax cuts were signed into law in June 2001, pushing the top rate down to 35 percent, the wealthy boosted savings. The saving rate climbed to 2.8 percent in the first quarter of 2002 from minus 2 percent in the second quarter of 2001. The increased savings coincided with a 1.1 percent decline in the S&P 500 index.

Yes, and what followed was a burst of entrepreneurship, which is how we create jobs!

First of all, as documented previously on this site, real personal disposable income (DPI without imputations) was negative from 1998 - 2007.  Since the personal savings rate equals savings divided by disposable personal income, by implication the real savings rate was negative for that period was likewise negative, which this chart confirms:

(click for larger image)

Okay, how about that "burst of entrepeneurship?"  Did it really create jobs?  Let's take a look at the unemployment statistics around that time:

(click for larger image)

Hmmmm.  It looks like unemployment actually went up for a couple of years before new jobs were found.  Of course, we know from John Williams at Shadow Government Statistics that the BLS can artificially depresses the unemployment number by not counting everybody.  So let's take a look at the civilian participation rate:

(click for larger image)

Hmmmmm.  This shows that the percentage of employed Americans started declining in 2001 and did not start increasing until 2005 without ever making it back to the rate at which it stood when the Bush tax cuts were passed.

Sorry, but the facts don't support Karl's assertions, which are likely based, in part, on Keynes' (gasp!) conclusion that Savings equals Investment.  The problem is that when "investment" is actually speculation (as when you "invest" in the secondary equity market by buying existing shares of a company), savings does not lead to capital formation or jobs.

So what did the wealthiest Americans do with the money from the Bush tax cuts, if they didn't invest it and create jobs?  I'll tell you what I did: I used it to speculate on the stock market. 

The fact is that increasing the free cash flow of the wealthiest Americans increases their appetite for financial speculation, and with so many people and so much money seeking yield, the risks get multiplied and lead to financial instability, then financial crises and, ultimately, depressions like we're in right now.

I'm not saying that increasing nominal tax rates of the wealthiest Americans is necessarily the solution.  Indeed, I think it among the least efficient ways to grow the American economy (you don't necessarily add to real economic growth by subtracting from the funds the wealthy use to bet at the casino).  I'm just saying that increasing the wealthiest Americans' free cash flow does not necessarily have any stimulative effect on the American economy because the use it for financial speculation, not for creating new businesses.