Re: Luxembourg tax regime under siege
This recent article by Vanessa Houlder of the Financial Times, London, details the economic success that Luxembourg has enjoyed by keeping its business tax rates at a moderate level and the threat to that success from high tax governments colluding to force it to raise its rates. Ms. Houlder seems to be carrying the water for the EU and the OECD in calling for “European governments to pull together and stamp out harmful tax competition.” Elsewhere Ms. Houlder reports that “the OECD is intent on closing loopholes” and wants to “stamp out treaty shopping” by big, international companies who seek to avoid taxes. Likewise, consumption taxes for Luxembourg citizens “are already set to rise.” The general tenor of the article is that governments have a right to collude to ensure that no company or individual can escape paying high taxes.
Governments try to make a virtue out of doing something for which they would prosecute private companies, namely price fixing via a closed cartel. They wish to trap capital and profits behind a façade of legality and will bully any country, especially a small country, into adopting their confiscatory tax regime that is the foundation of their bloated and inefficient welfare states. They want to prevent Microsoft and Amazon, for example, from escaping their clutches just as the former communist countries of the Warsaw Pact tried every means possible to prevent their citizens from fleeing to the West. The US is part of this government led conspiracy. Recently it pressured Switzerland to reveal the names of American holders of Swiss bank accounts in their search for assets to plunder on behalf of the American welfare/warfare state. Naturally, these governments use propaganda to incite the masses to start a new class war.
But if competition is right and proper for companies and forming a cartel for the purpose of holding prices high is not only illegal but also immoral, why is government itself exempt? No one since FDR’s socialist brain trust would accept the argument from the private sector that a cartel enforced price uniformity was needed in order to establish a level playing field, yet tax uniformity is lauded by governments and their main stream media lackeys. Surely, cartels, especially those enforced by law, create huge inefficiencies in the delivery of services. This must be one of the causes to which former member of the European Parliament Godfrey Bloom was alluding when he constantly questioned the unconscionable perks and benefits of European Union civil servants and their constant demand for even more. Without tax competition what is there to enforce spending discipline by government? Nothing. Patrick Barron
Re: EU threatens Germany with fine for running too large a surplus
Ambrose Evans-Pritchard of the Daily Telegraph reports that the International Monetary Fund is criticizing Germany for running too large a trade surplus with the other European Monetary Union states (those EU members who also use the euro). Apparently the surplus violates EU law and requires that Germany pay a 2.4 billion euro fine. The economic geniuses at the IMF claim that Germany’s trade surplus is “economically destructive” in that it harms weaker EMU states who suffer a “liquidity trap”, meaning that they cannot debase their currencies to spur exports (they use the common currency, the euro, you see). The IMF admits that Germany has achieved its trade surplus in large part by holding down wages, something that the weaker EMU states refuse to attempt for fear of the dreaded “deflationary trap”. How keeping wages in line with real demand is a trap goes unexplained by the IMF.
The reality is that only Germany has displayed cost discipline, whereas other EMU states want to borrow, print, and inflate their way out of difficulty rather than confront radical unions about getting wages in line with demand. As long as we are discussing reality rather than economic phantoms, the reality is that the European Central Bank itself aids and abets Germany’s surplus by allowing the deficit nations to borrow newly printed euros to support their failing welfare states. The fact that this action violates the Maastricht Treaty, which established the EMU, is ignored by ECB bureaucrats because it does not allow room for Keynesian monetary stimulus.
Germany has fought the ECB for years over its faithlessness in honoring solemnly negotiated treaties that enticed Germany to scrap its greatest post war achievement–the beloved deutsche mark. It is past time to bring it back. Patrick Barron
Re: Eurozone needs quantitative easing
All the so-called benefits that you expect the eurozone countries to derive from a European Central Bank program of quantitative easing are myths. Myth number one: QE will spur an economy to greater production. Reality: QE will cause dislocations in the time structure of production, causing malinvestment mostly in longer term projects for which insufficient resources exist for successful and profitable completion, leading to capital decumulation and lower production. Myth number two: QE will weaken the euro against other currencies and lead to an export driven recovery. Reality: There is no way that an economic zone can force other economic zones to fund one’s own recovery. Debasing one’s own currency merely gives a bargain to foreign buyers, for which they should be very grateful, and transfers wealth within one’s own currency zone from the non-export industries to export industries. Myth number three: Higher prices (what you erroneously call “inflation”) will lead to economic prosperity. Reality: Higher prices will impoverish the masses of the people by forcing them to pay more for the necessities of life. Patrick Barron
Gold backed digital currency
People often ask me how gold can be used as a currency, since it would be almost impossible to create a coin that would be small enough to conduct everyday transactions, such as buying a cup of coffee. This article explains how. The gold does not have to be exchanged itself from hand to hand, just the ownership of the gold that is held in safekeeping. Gold ownership would be exchanged just as we exchange ownership of our dollars today by writing a check or using a debit card.
Also notice that government involvement is not required. Money can be produced naturally and spontaneously by the market, just as the market produces any other desired good. A free market probably would produce many kinds of commodity backed monies–gold money, silver money, etc. The only thing preventing this from happening today is the prevalence of legal tender laws, which force people to use only government money…which is backed by nothing! Patrick Barron
From today’s Open Europe news summary:
French Economy Minister Arnaud Montebourg said yesterday, “[It is] inevitable that the ECB goes even further in its non-conventional monetary policies, by finally proceeding to the purchase of public debt securities if the euro doesn’t go down and growth doesn’t return within the eurozone.”
As much as I hate to admit it, I agree with M. Montebourg. The European Central Bank will do whatever it chooses, regardless of treaties solemnly and carefully negotiated and presented to national electorates. Implicit in his statement is the overarching Keynesian assumption that prosperity will return to Europe by driving down the value of the euro in relation to all other currencies. The ECB is not alone. All central bankers are engaged in a policy of mutual self-destruction of their currencies. No one in a position of power anywhere seems to question this basic assumption. But if this assumption is correct, why did not Zimbabwe become a prosperous country by devaluing its currency, the Zim dollar? Patrick Barron
From today’s Open Europe news summary:
EUobserver reports that Russia has retaliated against the signing of a new trade treaty between Moldova and the EU, by banning the imports of processed beef, horse meat, lamb and pork from Moldova.
Who suffers here? Of course the Moldovans lose a customer, but one can assume that they will sell their food products to someone, perhaps even themselves. There will be a temporary glut of these food products on the Moldovan market, so one can expect prices to fall until more lucrative external markets are found. The real losers here are the Russian people, who no longer can purchase these food products. Their standard of living will decline as they spend more on substitute products or do without. I doubt that the Russian leaders care anymore about their people’s plight than did America’s leaders in boycotting Iranian oil.
From today’s Open Europe news summary:
The Irish Independent reports that outgoing European Commissioner, Maire Geoghegan-Quinn, is entitled to a total €432,000 EU pay-off over the next three years to help her adjust to life after Brussels.
According to Wikipedia
, this lady has been out of public office for only two years since seceding her father in the Irish parliament in 1975 when she was twenty-five years old. Therefore, she will need substantial financial help with this difficult transition to private life. But for some reason I do not think she will have any problems peddling the political influence that she has gained in the last forty years. Patrick Barron
Re: The new normal is 2.5%, not 5% benchmark interest rate
Mark Carney, Governor of the Bank of England:
“Why is that the case? Things have changed. Households have a lot of debt. The Government is consolidating its financial position. Europe is weak. The pound is strong. The financial system has been fundamentally changed – it has to carry a lot more capital, it has lot carry a lot more liquidity insurance and it will pass on those costs to borrowers. “As a consequence of all those factors, in order to bring the economy back to full employment, in order to get inflation at target, the new normal is materially lower than the old normal.”
Notice that Mark Carney does not offer a real reason that interest rates cannot rise to 5%, only that it would be inconvenient for borrowers and the ever hopeful “This time its different” theme. Therefore, it won’t happen. Really? Sometimes it is inconvenient for the tides to rise, so perhaps Mr. Carney could be named Governor of Tides and hold them back. His assumption, of course, is that interest rates are determine solely by central banks and that market forces are irrelevant. Patrick Barron
From today’s Open Europe news summary:
Following the failed merger of Siemens and Alstom, which eventually joined with General Electric, France is reportedly pushing for an easing of the EU’s antitrust rules to allow the creation of European “champions”.
Language is very important. The merger between Siemens and Alstom did not “fail”; it was scuttled by the French government. Now we see the true reason behind France’s action–it wishes to create a crony capitalist company that it can control. It is mercantilism in a new guise. Patrick Barron
The Fed’s warning to banks that tougher stress tests are coming, so they should be making extraordinary preparations, is tantamount to passing out cocaine while warning that tough new drug tests will follow. What does the Fed believe is the cause of this excessive risk taking if not its own policies to flood the banks with zero interest rate money? Its explicitly stated purpose is to make funds available to those who would not receive loans otherwise, due to the natural interest rate pricing them out of the market. But that is a good thing! Why should anyone desire to lend money to someone who cannot pay them back, which is exactly what the Fed’s actions are designed to accomplish? Madness!!!!