Why would Obama willingly choose to go over the fiscal cliff?

Clearing the path towards Obama's long term objectives of complete socialization of the American economy

by Lance Roberts

Obama already knows that such an event would create an economic drag in the next year of nearly 4% as the various taxes and mandated spending cuts sap economic strength.  After four years of effort, bailouts, incentives and programs to keep the economy afloat - what incentive would there be to willingly go over the "cliff?"  It is an interesting question.

According to the American Council For Capital Formation here are the following impacts to the overall economy:

Real GDP- Increasing the current capital gains and dividend tax rates shows noticeable negative effects on the U.S. economy compared to the Baseline in the shorter run. In this simulation, real GDP growth decreases 0.1%, on average, per year, which equates to a $79.2 billion decrease per year over the 2013-17 time period. The results are similar in longer time period: Between 2013 and 2021 period, real GDP decreases $80 billion on average, per year.

Consumption Spending- Consumption spending is also weaker, averaging $155 billion lower per year between 2013-2021. Between 2013 and 2017 time period, the decrease in consumption is a little over $122 billion.

Employment- In the capital gains and dividend tax increase simulation, the job impact is worse between 2013 and 2017 period. The economy ends up losing 380,000 jobs on average per year. In the longer period, 2013-21, the loss is 344,000 per year. Nonfarm payroll jobs show a large loss of 561,000 persons in 2015 and then smaller losses in subsequent years.

Amsterdam proposes “scum villages”

Say, didn’t the Soviet Union and China try this out for a few decades?

BY ED MORRISSEY

Can we count just how many horrid 20th century chapters of humanity this might evoke?

In a move that sounds straight out of Orwell, Amsterdam allocated 1 million euros last week to a plan that would relocate trouble-making neighbors to camps on the outskirts of the city, the BBC reports.

The “scum villages,” as critics have called them, would lie in isolated areas and provide only basic services to their unwilling residents. According to details of the plan reported by Der Spiegel and the BBC, residents will live in “container homes,” under the watchful eye of social workers or police. The residents themselves might not make very good company. According to the BBC, they’ll include families that engage in repeated, small-scale harassment, like bullying gay neighbors or intimidating police witnesses.

Or perhaps just people whose political and social perspectives annoy the ruling class.  Say, didn’t the Soviet Union and China try this out for a few decades?  They called them “re-education camps,” as I recall, where people who didn’t cooperate properly with enforced collectivism were kept under the “watchful eye” of the police state.  In the Soviet Union, the Kremlin transformed Siberia into an internal-exile internment province.  In some areas of the world — notably North Korea — this practice hasn’t yet ended, either.

If law and order are breaking down in Amsterdam, start building a prison and bolstering law enforcement, but don’t try to pass it off as a social-welfare program. 

In respect to corruption, Greece ranks below Colombia and Liberia

Euro Crisis Feeds Corruption as Greece Slides in Rankings

By Patrick Donahue

The European debt crisis has given way to a new wave of corruption as some of the most hard-hit countries in the turmoil have tumbled in an annual graft ranking, watchdog group Transparency International said.

Greece, in its fifth year of recession and crippled by rounds of austerity, fell to 94th place from 80th -- ranking it below Colombia and Liberia, according to the group’s Corruption Perceptions Index. Ireland, Austria, Malta and Italy were also among member states in the single currency to slide.

 “Transparency International has consistently warned Europe to address corruption risks in the public sector to tackle the financial crisis, calling for strengthened efforts to corruption-proof public institutions,” the Berlin-based group said in a statement accompanying its annual report.

A resolution to the crisis entering its fourth year continues to elude European leaders as a German-led strategy of scaling back public deficits has retreated amid recessions and economic hardship. The crisis has been accompanied by scandals such as tax-crime allegations in Greece and Italian corruption investigations that brought down two regional governments.

What Went Wrong?

Moynihan, Zionism, and Racism

By SCOTT MCCONNELL

My early twenties are often hazy, but I remember one evening pretty well. A woman friend came over, and we watched the 1975 UN debate on the notorious Zionism=Racism resolution on TV. I felt the Arab charges against Israel were completely outrageous, an inversion of truth quite literally Orwellian in magnitude. U.S. Ambassador Daniel Moynihan was eloquent in rebutting them, reading a speech (I later learned) partially drafted by Norman Podhoretz. Next year when Moynihan ran for Senate, I remember pulling the lever for him (in the Democratic primary, v. Bella Abzug) with more conviction than I’ve mustered in a voting booth before or since.

Moynihan and Norman Podhoretz eventually drifted apart, but I’m sure the senator never regretted the words he spoke on that night. Once, many years later, when he came to the NY Post editorial page offices, he told a story–I don’t recall the subject–in which he  described a politician as “the most enthusiastic Zionist you could imagine, you’ve never seen such a Zionist” in tones which may, or may not, have exuded a whiff of mockery, you couldn’t be sure. In any case, in those days the idea that Zionism, the national liberation movement of the Jewish people, a phrase central to the speech, could be defined racist was about as absurd, and obscene, a thought as one could possibly imagine. At least so we thought.

What America Can Learn from Kutusov

From education to decentralization, the Russian who beat Napoleon teaches victory by retreat

By ALBERT JAY NOCK, June 1936

General de Caulaincourt’s memoirs, which have been published recently, give us a vivid sense of the strategy employed against Napoleon by Russia’s great deliverer, Prince Mikhail Illarionovich Kutusov-Golenishchev. It was much like the classical strategy of the Scythians, and even more like that which won for the Roman general, Fabius, the surname of Cunctator. The Russian policy was laid out on a grand scale. The French invaders were keen for battle, but “that devil Kutusov,” as Napoleon called him, persistently refused to accommodate them. Once in a while, to satisfy his subordinates, he went through the motions of taking a stand, as at Tarutino and Krasnoë, but always against his own judgment; and after Borodino, as Count Tolstoi remarks, “he alone did everything in his power to hold the Russian army back from useless fighting.” Technically, Napoleon won the battle of Borodino, and all Russia except Kutusov regarded it as a terrible defeat. He knew it was a great victory, and time proved that he was right. When Napoleon went forth to renew the battle next day, Kutusov was not there; nobody was there; the French found themselves standing in the middle of all outdoors with no one to tell them where Kutusov was, or even which way he had gone.

They pushed on past Mozhaisk to Moscow, and were disappointed again; no Kutusov, no army, nobody, a deserted city. Then the fire, then presently the Great Retreat, with Kutusov acting as a sort of escort or guard of honor, ushering Napoleon back over the border. There was little fighting, practically none except some occasional irregular warfare waged by roving bands of guerrillas and Cossacks; the armies never actually met. Some authorities have criticized Kutusov for dealing so gently with the erring, but the severest critic can hardly help noticing that not more than one per cent of the Grand Army lived to cross the frontier.

Egypt To President Morsi: No Dictators Allowed

Protesting a presidential power play

by Vivian Salama 

Amr Darrag is on a call when a second phone in his Cairo office begins to ring. He’s been awake since 6 a.m., and the stack of papers on his desk swells with every passing minute. A leader in Egypt’s Freedom and Justice Party, the political arm of the Muslim Brotherhood, Darrag is also part of the 100-member committee scrambling to draft the country’s new constitution—a pending document that has hit every possible bump in the road since Egyptians toppled President Hosni Mubarak last year.

“We have a couple more days until we finish our mission,” says Darrag, secretary-general of the Constituent Assembly. “Those who are not interested in stability in Egypt or want to keep the Muslim Brotherhood out of the scene are trying to stop us from issuing the constitution. The courts want to dismantle the assembly. The president had to stop these tricks or the country would fall into chaos.”

On Nov. 22, as Americans sat down to Thanksgiving dinner, Egypt’s first post-revolution president, Mohamed Morsi, issued a decree exempting all of his decisions from legal challenge. The move was a stunning power grab that quickly earned him the nickname “Egypt’s new pharaoh”—a title once bestowed upon his defunct predecessor. Hundreds of thousands of disbelieving Egyptians flooded city streets from Alexandria to Aswan with a familiar cry: “The people want the fall of the regime!” Tahrir Square came alive once again with tents and bullhorns and a howl so loud—so impassioned—that it was dubbed the “19th Day” of last year’s revolution. Angry female protesters returned in masses to Tahrir, resilient after months of deteriorating security that included repeated incidents of harassment and sexual assault.

Survival sometimes means collaboration. But it is no guarantee of success.

Behind the Iron Curtain 

Communist Polish Youth marching in Warsaw, 1955

By Anne Applebaum

Wanda Telakowska did not begin her career as a Marxist. At different times an art teacher, designer, critic, and curator, Telakowska had in the 1930s been best known for her association with a Polish artistic group called Ład, which connoisseurs of design history will recognize as a cousin of the British Arts and Crafts movement. Ład sought to make use of traditional, folk, and peasant craftsmen, who still thrived in parts of southern and eastern Poland, and to use their work as the basis for a new and authentically “Polish” vernacular design. The artists and designers associated with Ład believed that “contemporary” did not have to mean “modernist” or futuristic. Not everything had to be sleek or simplified in the machine age: folk designs for furniture, textiles, glass and ceramics could, they believed, be brought up-to-date, and even used as inspiration by industry.

By instinct and by training, Telakowska was no communist either. Many left-wing artists of the time, including the Bauhaus designers in Germany, spoke of sweeping away the past in the name of revolution, and starting from scratch. Telakowska, by contrast, retained a distinctly un-Communist, lifelong determination to find inspiration from the past. Nevertheless, after the war, she was determined to continue Ład’s work, and toward that end she joined the new Communist government. She quickly found that her project—which favored “authentic” peasant art over the slicker modernism of urban intellectuals—overlapped with some of the aims of the Communist Party. As one cultural bureaucrat pointed out, folk art was more likely to appeal to the Polish laborer: “Our working class is closely connected to the countryside and feels more connected to the culture of folk art than to the culture of intellectual salons.”

Will Egypt’s Liberals Ever Win?

They can, but they must forget Shariah and focus on painting Egypt’s Islamist president as just another Mubarak

By Tarek Masoud and Wael Nawara

After working with Egypt’s president, Mohammad Morsi, to broker a ceasefire between Israel and Hamas last month, President Barack Obama reportedly came away impressed by his fellow former university professor’s pragmatism and “engineer’s precision.” But whatever the Egyptian president’s intellectual gifts, a good memory is clearly not one of them. After having barely eked out in a victory in last June’s presidential election, with a significant assist from liberal and left-leaning revolutionaries who saw Morsi’s opponent as a throwback to the old regime, the new president has thumbed his nose at his erstwhile allies and his promises of democracy. On Nov. 22, he issued a decree granting himself extraordinary, unquestioned authority, and last week his allies in the constitutional assembly rammed through a draft constitution that includes expanded presidential powers, protections for the military, and a highly illiberal social agenda.

Egypt’s liberals—often rightly maligned as hapless and uncoordinated—have seized the opportunity presented to them by Morsi’s overreach, and surprised everyone with a series of massive protests in Tahrir Square. And elsewhere in Egypt, clashes between opponents of the president and his supporters have resulted in at least two deaths and the torching of several Muslim Brotherhood offices. But on Saturday, Morsi’s allies reminded us why the Muslim Brotherhood is so often referred to as Egypt’s most organized and popular force, convening a gargantuan rally of their own in front of Cairo University. Estimates of the size of the Islamist crowd—much of which was bussed in from outside of the city, and which at one point reportedly chanted, “Oh Badia [the Muslim Brotherhood’s leader], you command us and we obey!”—varied. The Brotherhood’s political wing claimed that more than 2 million people turned out to support the presidentbut independent observers pegged the number at closer to 200,000. After the demonstration, hundreds of Islamist activists besieged the country’s constitutional court to prevent the judges of that body from attempting to countermand the president’s actions. The man who once promised to be the president of all Egyptians has proven uncommonly adept at dividing them.

The recent century-long 3.4% GDP growth is dead, never to return. Never.

U.S. GDP on the road to zero growth by 2050

By Paul B. Farrell

Near zero economic growth by 2050? Yes, America’s economy is collapsing. Fast. Yes, the “most depressing forecast ever,” says InvestmentNews, trusted source for 90,000 professional financial advisers across America.

Actually it’s worse than depressing if you read the details in “On Road to Zero Growth,” the latest Quarterly Letter from Jeremy Grantham, founder and chief investment strategist for the $100 billion GMO money managers.

Yes, today’s fiscal-cliff drama is just a warm-up for what’s coming. America’s economic future is a disaster. We are going over a bigger game-changing economic cliff, into a long-term chasm. And it’s unavoidable.

Why? Because our myopic Congressional leaders and Fed chairman are focused on short-term fixes, piling on more monetary-stimulus debt, while avoiding America’s systemic long-term problems. Yes, we are our own worst enemy and nothing will keep us from driving down the road to zero growth and into painful austerity, just like the 1930s.

Listen closely: here’s Grantham’s overview of America’s economy from the late 1900s through 2050: “The trend for U.S. GDP growth up until about 1980 was remarkable: 3.4% a year for a full hundred years.” That powered the great American Dream. “But after 1980 the trend began to slip.” And unfortunately the economy is “not going back to the glory days of the U.S. GDP growth.”

Get it? A century of high-growth prosperity, then our GDP growth dropped “by over 1.5% from its peak in the 1960s and nearly 1% from the average of the last 30 years.”

Fiscal Cliff Debate Is About Size of Government, Not Taxing "the Rich"

No previous administration in the entire history of the nation ever finished the year with a trillion dollar deficit

By Thomas Sowell 

Amid all the political and media hoopla about the "fiscal cliff" crisis, there are a few facts that are worth noting.

First of all, despite all the melodrama about raising taxes on "the rich," even if that is done it will scarcely make a dent in the government's financial problems. Raising the tax rates on everybody in the top two percent will not get enough additional tax revenue to run the government for ten days.

And what will the government do to pay for the other 355 days in the year?

All the political angst and moral melodrama about getting "the rich" to pay "their fair share" is part of a big charade. This is not about economics, it is about politics. Taxing "the rich" will produce a drop in the bucket when compared to the staggering and unprecedented deficits of the Obama administration.

No previous administration in the entire history of the nation ever finished the year with a trillion dollar deficit. The Obama administration has done so every single year. Yet political and media discussions of the financial crisis have been focussed overwhelmingly on how to get more tax revenue to pay for past and future spending.

The very catchwords and phrases used by the Obama administration betray how phony this all is. For example, "We are just asking the rich to pay a little more."

This is an insult to our intelligence. The government doesn't "ask" anybody to pay anything. It orders you to pay the taxes they impose and you can go to prison if you don't.

The Keynesian Revolution Has Failed: Now What?

In the next depression, everyone will have plenty of money but it won’t buy much of anything

by Scott Minerd

In 1968, America was literally over the moon. Apollo 7 had just made the first manned lunar orbit and the nation would soon witness Neil Armstrong’s moonwalk. The United States was winning the war in Southeast Asia and the Great Society was on the verge of eliminating poverty. I remember my father taking me to the Buick dealership that summer in Connellsville, Pennsylvania, where he bought a 1969 Electra. As we drove home I asked him why we had bought the 1969 model when we had the 1968 one, which seemed equally good.

“That’s just what you do now,” my father said, “Every year you go and get a new car.” “Wouldn’t it be better,” I asked as a precocious nine year-old, “if we saved our money in case a depression happened?” I will never forget my father’s reply: “Son, the next depression will be completely different from the one that I knew as a boy. In that depression, virtually nobody had any money so if you had even a little, you could buy nearly anything. In the next depression, everyone will have plenty of money but it won’t buy much of anything.” Little did I realize, then, how prescient my father would prove to be.

Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The panic in financial markets in 2008 that caused a systemic crisis and a sharp fall in asset values still weighs on markets around the world. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Today, I believe we are in the midst of the Keynesian Depression that my father predicted. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.

This Depression is Brought to You By...

John Maynard Keynes (1883—1946) was a British economist and the chief architect of contemporary macroeconomic theory. In the 1930s, he overturned classical economics with his monumental General Theory of Employment, Interest and Money, a book that, among other things, sought to explain the Great Depression and made prescriptions on how to escape it and avoid future economic catastrophes. Lord Keynes, a Cambridge educated statistician by training, held various cabinet positions in the British government, was the U.K.’s representative at the 1944 Bretton Woods conference and, along with Milton Friedman, is recognized as the most influential economic thinker of the 20th century.

Strawberry Fields – Forever?

Bill Gross Latest Monthly Outlook: "We May Need At Least A Decade For The Healing"

You didn't build that ..........     332

I built that .......................      206

Well, I guess that settles it: you didn’t build that after all. Or maybe you did, but not all of it. Or maybe like the convoluted John Lennon above “you think you know a yes, but it’s all wrong. That is you think you disagree.” Whatever. Rather than an economic mandate, November’s election was more of social commentary on the Republicans’ habit of living with eyes closed. Their positions on what Conan O’Brien labeled “female body parts” – immigration, gay rights and student loans – proved to be big losers, and they will have to amend rather than defend those views if they expect to compete in 2016. I suspect they will. Political parties are living social organisms that mutate in order to survive. We will see straight talking Chris Christie or Hispanic flavored Marco Rubio leading the Republican charge four years from now versus a reenergized Hillary Clinton. It should be quite a show with a “No Country for Old (White) Men” caste to it.

But whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. “Happy days are here again” was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments “It’s getting hard to be someone but it all works out.” Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably? That really was the economic question of the 2012 election towards which very few specifics were applied from either side. “There’s a better life out there for us,” Governor Romney bellowed to a crowd of thousands in Des Moines, Iowa just days before the election, but in truth he never told us how we were going to achieve it or, importantly, why we weren’t realizing it in the first place. The president’s political mantra of “Forward” was even more vague.

Franco-German rift threatens EU banking union

Berlin is left to foot the bill for banks too weak to survive on their own

By by Annika Breidthardt and Jan Strupczewski

Germany and France clashed publicly on Tuesday over plans to put the European Central Bank in charge of supervising banks, deepening a dispute over the scope of ECB powers that threatens to derail one of Europe's boldest reforms.

With time running out to meet a pledge to complete the legal framework for an EU-wide banking union by the end of the year, Germany's Wolfgang Schaeuble told a meeting of finance ministers he could not support a plan that would give the ECB's Governing Council the final say on supervision.

France's Pierre Moscovici and the ECB protested against any watering down of a plan central to Europe's response to a five-year banking crisis and which promises to unify the way it deals with problem banks, ending a previously haphazard approach.

"The right of the last decision cannot be left to the ECB Governing Council," Schaeuble said in comments broadcast to reporters, going on to say that allowing it to happen could obscure the ECB's primary monetary policy mandate.

There could be no deal unless national supervisors had responsibility for most banks, he added, dampening expectations of a quick agreement on what will be a cornerstone of the closer integration needed to secure the euro's future.

"A Chinese wall between banking supervision and monetary policy is an absolute necessity," he said, also voicing skepticism that an independent central bank such as the ECB could even take on the tasks of supervision.

The Unprecedented Implosion Of European Car Sales

Socialist and protectionist Europe does all it can to preserve much needed votes jobs in the critical, if greatly uncompetitive, car making sector

The graphic above, which presents an unvarnished picture of Europe's true economic state, needs no explanation:

Source: FT

In the context of the above, no explanation is also needed that quietly, and without much fanfare, French car-maker, Peugeot, and Europe's second largest after VW, was recently GMed, and received a government bailout.

Carmaker Peugeot gets $9.1B government bailout

The French government has agreed to underwrite up to €7 billion ($9.1 billion) of bonds issued by Banque PSA Finance SA, the financing unit of carmaker PSA Peugeot Citroen SA, allowing the French automaker to offer low-cost credit to its dealerships and clients amid a slump in sales.

Peugeot announced the deal on Wednesday, Oct. 24. It also said it had agreed the basis of a €10.5 billion restructuring of existing loans and asked banks to provide a further €1 billion of new debt to its finance unit.

The deals effectively immunize Peugeot's credit unit against recent downgrades of its parent's debt rating. That had threatened to drive the lending arm's rating to junk and would have forced it to increase the rates on loans to its own dealerships and to clients, hurting car sales that are already suffering from a Europe-wide slump.

The Monetization Of America

J.P. Morgan suggested that the Fed would account for 90% of all new US debt issuance

By Mark J. Grant

In the piece I wrote over the weekend and subsequently published as an “Out of the Box” yesterday I touched upon the Fed’s buying and what it will mean for the bond markets. Today I wish to concentrate on the implications of what the Quantitative Easing will do to the fixed income markets and, to a lesser extent, to the equity markets. Many people, and erroneously, think that all of the purchasing by the Fed will go to both markets in equal amounts but this is not the case.

More money for the stock markets would have to come from asset reallocations by money management firms, insurance companies, pension funds and the like and this is not going to happen anytime soon given the 2008/2009 experience. Consequently the greatest flows generated by the Fed’s recent and forward actions will affect the bond markets much more than the equity markets.  What this means is a massive compression of available securities against Treasuries which continues what has been underway since early last year. The demand for Treasuries will also push down absolute yields so that my springtime prediction of a 1.25% ten year Treasury yield, the actuality is 1.38% so far so I was close enough, will be breached in 2013 as the Fed takes in and monetizes somewhere between 80-100% of all new Treasury issuance.

Hitler’s Strange Afterlife in India

The evidence is that Hitler has plenty of admirers in India

By Dilip D’ Souza

Hated and mocked in much of the world, the Nazi leader has developed a strange following among schoolchildren and readers of Mein Kampf in India. Dilip D’Souza on how political leader Bal Thackeray influenced Indians to admire Hitler and despise Gandhi.

My wife teaches French to tenth-grade students at a private school here in Mumbai. During one recent class, she asked these mostly upper-middle-class kids to complete the sentence “J'admire …” with the name of the historical figure they most admired.

To say she was disturbed by the results would be to understate her reaction. Of 25 students in the class, 9 picked Adolf Hitler, making him easily the highest vote-getter in this particular exercise; a certain Mohandas Gandhi was the choice of precisely one student. Discussing the idea of courage with other students once, my wife was startled by the contempt they had for Gandhi. “He was a coward!” they said. And as far back as 2002, the Times of India reported a survey that found that 17 percent of students in elite Indian colleges “favored Adolf Hitler as the kind of leader India ought to have.”

In a place where Gandhi becomes a coward, perhaps Hitler becomes a hero.

Loss of income caused by banks as bad as a 'world war', says BoE's Andrew Haldane

Bank should have done more to deflate the bubble ahead of recession

By Philip Aldrick

Andy Haldane, the Bank’s executive director for financial stability, added that public anger at the banks was fully justified and that pay in the industry remained too high.

“In terms of the loss of incomes and outputs, this is as bad as a world war,” he said. “It would be astonishing if people weren’t asking big questions about where finance has gone wrong.

“If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren. There is every reason why the general public ought to be deeply upset by what has happened – and angry.”

Four years since the crisis struck, the economy is still 3pc smaller than at its peak. The scale of the problems will be exposed again on Wednesday when the Chancellor updates the country on the economic outlook and his austerity plans.

To boost “growth, job creation, exports, investment, and business confidence”, George Osborne needs to be “bold” in his mini-Budget, the British Chambers of Commerce said as it downgraded its growth forecasts for next year and 2014.

From cradle to grave

Labour must set out a new, nonstate, collective approach to welfare reform

BY FRANK FIELD

Britain’s welfare state is broken-backed: the number of claims is soaring and with them the welfare bill. Well over 22 million citizens already depend on means-tested assistance. Means tests paralyse self-help, discourage self improvement and tax honesty. Means tests attack the basis of independent citizenship and community cohesion and at the same time incentivise bad behaviour. It was not meant to turn out like this. The Labour government led by Clement Attlee, elected in 1945, aimed for very different results when it implemented the welfare programme set out in Sir William Beveridge’s report Social Insurance and Allied Services, published on 1 December 1942.
Ultimately Beveridge’s scheme failed but not for the reason normally trotted out – that he did not envisage the changed position of women in society. His scheme could easily have been adapted to accommodate changing gender roles if there had been the political will and the imagination in Britain in the postwar period.

A roadmap for destroying an economy

France Sexy No More for Entrepreneurs Escaping Hollande: Taxes

A decision by France’s richest man, LVMH Moet Hennessy Louis Vuitton SA (MC) Chief Executive Officer Bernard Arnault, to seek Belgian citizenship created a media frenzy over tax exiles. Arnault had to quickly come out and say that he plans to retain his local residence and will continue to pay French taxes.

By Helene Fouquet

With President Francois Hollande’s government readying a vote this month on its first annual budget law that seeks to raise 24.4 billion euros ($31.7 billion) in additional taxes, some of France’s entrepreneurs and wealthy are heading for the door. Hollande’s hitting businesses and individuals with at least a dozen new measures, including a 75 percent levy on income of more than 1 million euros, to narrow the budget gap.

“France is no longer a sexy place to be,” said Rosenblum, founder and former owner of Pixmania, an online seller of computers. “To attract and keep business and jobs you have to put on your best face, especially in tough economic times. With all the costs, the taxes and the social pressure, France looks more like an old maid to me.”

Rosenblum -- who says he’s leaving France with his wife and two little children this month to open a new business in a country he won’t disclose -- is among people fleeing a slew of levies announced by Hollande since the Socialist president was elected in May. The 75 percent millionaire tax was followed by new levies on capital gains, an increased tax on income and wealth, a boost to inheritance charges and an exit tax for entrepreneurs selling their companies.

The weight of the levies is prompting a wave of departures, said Philippe Kenel, Geneva-based tax lawyer at Python, Schifferli, Peter & Associates.

Doubled Relocations

“It’s impossible to measure yet how many people are leaving or have left as no one wants to go public,” Kenel said. “But frankly, I’ve doubled the number of relocations this year with a sharp increase since Hollande unveiled his new fiscal rules in September. Retirees go to Switzerland. Entrepreneurs go toBelgium or to London.”

U.S. and Germany Wake Up to Putin

The schism in the Russian elite is already a step toward a new reality

By Lilia Shevtsova

The West is starting to change its views on Russia. In September, the European Parliament adopted a resolution criticizing how court decisions are often politically driven in Russia. In October, the European Parliament proposed that the  European Council come up with its own Magnitsky list. In November, the Magnitsky Act was approved by the U.S. House of Representatives and the German Bundestag approved a sharp resolution criticizing the Kremlin's crackdown on human rights and other elements of a democratic society.

These steps may spell the end of Washington and Berlin's illusions regarding a possible integration of Putin's Russia into the West. The adoption of the Magnitsky Act effectively ends Washington's reset policy, while the Bundestag's resolution signals the end of the German experiments in a "modernization partnership."

At the same time, however, the loss of patience with the Kremlin does not mean Washington and Berlin are ready to completely bury the reset with Moscow. Both the U.S. and Germany are fixated on their own problems. Russia is ready to cooperate with the West, although the Kremlin will probably continue to engaging in anti-Western rhetoric for domestic political reasons.

The realistic views prevail in both capitals. They call for continued cooperation with Russia under any circumstances, believing that everything will turn out all right if the Kremlin is not criticized. Besides, the U.S. and Germany receive pressure from large business interests, which will benefit from their governments' leaving the Kremlin alone.

But by supporting the Magnitsky Act, the U.S. has made it clear that it is prepared to search for a new equilibrium between cooperation with Russia and a harsher stance toward the Kremlin's policies of suppressing society. Essentially, Congress has moved closer to creating a new paradigm of relations with kleptocratic regimes based on the principles of conditionality. Its position on suspected Russian human rights abusers is clear: Your ability to enjoy U.S. privileges will depend on how you behave at home.

China as number two -- or even three

Chinese workers would have to quadruple their productivity in order for the Chinese GDP to equal the U.S. GDP

By Clyde Prestowitz

As China prepares for a momentous change of leadership at the top, a question increasingly being posed is how the new leaders will guide a country that will soon be the world's largest economy. That the Chinese economy will reach the top rung sometime between now (some economists believe it already is the biggest economy) and the early 2020s is assumed as part of the conventional wisdom, having been confidently predicted by such influential voices as the International Monetary Fund, the Economist magazine, and virtually all of the leading pundits both in the West and in Asia.

So it was fascinating last week for me to meet with one of Beijing's top economists who says "it's never going to happen." Because this analyst requested anonymity, I cannot reveal who it is which I believe is itself a commentary on some of the reasons why it may not happen. Nevertheless, the substance and logic of the analysts argument is compelling and important.

The first point is that the Chinese economy today is not, as is commonly stated, half that of the U.S. economy. Rather it is only about a third the size of the U.S. GDP. This is because a lot of the growth of the past was accomplished by building stuff that will never be used sufficiently to justify its cost and should thus represent negative growth if it were correctly counted.

Farewell to Europe

Giants and Pygmies

By Clyde Prestowitz

All my life I've been a Europhile. My dad worked for a Belgian company. I was a high school exchange student to Switzerland in 1958. My first posting as a Foreign Service officer was as vice consul to Rotterdam. I lived in Brussels for five years in the 1970s as head of Scott Paper Company's European marketing operations. I take my family to Europe frequently and maintain a wide range of work and other activities there.

Through all the vicissitudes of mid-night negotiations, I admired the dedication and vision of the negotiators who were building the European Union. I believed in the vision of a united Europe and welcomed the advent of the Euro as a major step along the way. When the recent crisis first broke three years ago, I welcomed it, thinking that surely it would be a catalyst for Europe to move to full financial integration and to greater political integration on the way toward realizing the vision of a truly united Europe.

I was wrong, and I have come to realize that my dream of a united Europe a la  the United States, is not the European dream. Indeed, with great disappointment I have at last concluded that there is no European dream because a las those whom we on the outside call Europeans are not and don't want to be Europeans.

I spent part of last weekend with a group of leading intellectuals from various European countries. The Germans were firm in their conviction that the primary cause of the EU crisis is the laziness, profligacy, free rider attitude, and mendacity of the so called Peripheral Countries ( Spain, Portugal, Ireland, Italy, Greece, and even maybe France), especially Greece, Portugal, and Spain. They emphasized that Germans believe in paying their way, in spending prudently, saving, investing, producing, and maintaining sound money and strong currencies.

The Tragedy of Inaction

A chronicle of the West’s early failure to take action against Bolshevism

By GUY F. BURNETT

“Russia, my lords and gentlemen, is the decisive factor in the history of the world at the present time,” observed Britain’s then-Secretary of State for War Winston Churchill in 1919. In his new book, Spies and Commissars: The Early Years of the Russian Revolution, Oxford historian Robert Service shows that not only Churchill, but also most of the West, were aware of the emerging Soviet presence. For a crucial five years, though, the West remained passive while the new Bolshevik government teetered on the brink of failure.

Service, who has authored biographies of the holy trinity of Russian Communism—Lenin, Stalin, and Trotsky—as well as nine more books on the Soviet Union, is meticulous in his treatment of Communist rule. The new book’s only downfall is its misleading title, which sounds like a publisher’s choice. While spies and commissars do factor into the book, those looking for tales of espionage and intrigue will be disappointed. This is a study of the early years of the Russian Revolution through both Russian and Western eyes.

Service begins with the Bolsheviks’ narrow consolidation of power over the Russian government in 1917. The new regime became Lenin’s and Trotsky’s own: vicious in a fanatical pursuit of a better world for their preferred classes of workers and peasants. As a German Communist noted: “One can’t make a revolution in white gloves. . . it will be necessary to pass through rivers of blood and mud to get to the destination.”

Why USA Is Not Greece (Yet)

The bottom line is that if US doesn't want to be Greece, she can't act like Greece

By Howard Marks

What do you think of when you hear the word "Greece"?

• An uncompetitive, low-growth economy,
• for years, a higher credit rating than it deserved,
• the resultant ability to borrow money it shouldn't have been able to, at interest rates that were unjustifiably low,
• excessive public spending,
• generous benefit promises that it can't fulfill given the realities and, as a result,
• soaring debt and deficits.
• Consequently, the need to cut spending and increase taxes, and
• mandated austerity and deleveraging, with very negative implications for economic growth.