Central Perk: 8 aug. 2012

miercuri, 8 august 2012

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Mish's Global Economic Trend Analysis

Tax Hike Indigestion in France
French Central Bank Admits the Obvious: France Back in Recession
Interview With Roger Bootle, Who Won the Wolfson Prize for Developing a Practical Plan to Dissolve the Eurozone

Posted: 08 Aug 2012 02:43 PM PDT

French president Francois Hollande wants to set the top tax rate in France at 75%, for those who make over €1,000,000 a year.

As a result "Les Riches" Have Tax Indigestion and are looking to move outside France.

"We're getting a lot of calls from high earners who are asking whether they should get out of France," said Mr. Grandil, a partner at Altexis, which specializes in tax matters for corporations and the wealthy. "Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing."

Because there are relatively few people in France whose income would incur such a tax — perhaps no more than 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

There is no question Mr. Hollande is under fiscal pressure. He has pledged to reduce France's budget deficit, currently 4.5 percent of the nation's gross domestic product, to 3 percent by next year, to meet euro zone rules.

The matter of how best to hit that target, though, is as much a political question as a fiscal one. Mr. Hollande was elected in May on a wave of resentment against "les riches" — company executives, bankers, sports stars and celebrities whose paychecks tend to be seen as scandalous in a country where the growing divide between rich and poor touches a cultural nerve whose roots predate Robespierre.

Half the nation's households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

There is currently no plan to change the tax rates for most people, which is 14 percent for the poorest and 30 percent for the next rung. For higher earners — people with incomes above 70,830 euros a year — the tax rate will soon rise to 44 percent, up from 41, in a change that was already set before Mr. Hollande's election.

Taxes are high in France for a reason: they pay for one of Europe's most generous social welfare systems and a large government. As Mr. Hollande has described it, the tax plan is about "justice," and "sending out a signal, a message of social cohesion."

France has a 33 percent corporate tax rate — the euro zone's second-highest, after Malta's 35 percent. That contrasts with the 12.5 percent rate in Ireland, which has deliberately kept a lid on corporate taxes as a lure to businesses.

"It is a ridiculous proposal, but it's great for us," said Jean Dekerchove, the manager of Immobilièr Le Lion, a high-end real estate agency based in Brussels. Calls to his office have picked up in recent months, he said, as wealthy French citizens look to invest or simply move across the border amid worries about the latest tax.

"It's a huge loss for France because people and businesses come to Belgium and bring their wealth with them," Mr. Dekerchove said. "But we're thrilled because they create jobs, they buy houses and spend money — and it's our economy that profits."

Essential Math

The New York Times estimates that fewer than 30,000 make more than 1 million euros.

However, Sophie Pedder, writing for The Economist came up with a much lower number in an NPR interview.

"Probably no more than about 3,000 French households will be affected by this. But that's an absolutely tiny fraction of the whole. So, once you start looking at numbers like that, you realize how this is very much a symbolic gesture," said Pedder.

That's a big difference. But whatever the number is, the government will collect far less than it thinks.

The current top tax rate is 41%. It's a big jump to 75%. And the more someone makes over €1,000,000 a year, the bigger the incentive to move.

Tax Rate Comparison

According to Pedder the UK lowered its top tax rate to 45% from 50%. Sweden has a top rate of 57%, and Belgium at 55% so "France sticks out really like a sore thumb on this one."

I strongly suggest this move by France will backfire. When it does, Hollande will probably seek to raise taxes on the next rung lower to make up for it.

Government Spending Over Half of French GDP

In Quick Facts on France, Heritage says "Government spending has increased to a level equivalent to 55 percent of total domestic output. The deficit remains more than 6 percent of GDP, pushing public debt up to more than 80 percent of GDP."

In a recent panel discussion in Spain, Paul Krugman said he would start to worry when government spending is over 50% of GDP.

France is there now, and the US headed there unless we rein in the deficit, which Krugman does not want to do.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

French Central Bank Admits the Obvious: France Back in Recession

Posted: 08 Aug 2012 08:40 AM PDT

For those who who view matters on a practical basis, France has been in recession the entire year. For those who need to see two quarters of negative growth first, France slides back in recession.

France is headed back into recession for the second time in just over three years, the country's central bank warned on Wednesday.

The Bank of France predicted a 0.1 percent contraction in gross domestic product (GDP) for the third quarter of this year, an outcome which, if confirmed, would follow a similar fall in output for the three months to June.

Economists define a recession as two consecutive quarters of negative growth.

The economy was flat in the first three months of 2012 but the deteriorating outlook has forced the Socialist government to cut its growth forecast for the full year from 0.4 to 0.3 percent, and for 2013 from 1.7 to 1.2 percent.

Definition of Recession

Bear in mind that a recession, at least is the US, does not require two consecutive quarters of negative GDP. Rather, the NBER, the official arbiter of recessions, looks at a whole gamut of factors.

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Recessions frequently start (as did the last one), without even a single quarter of negative GDP.

Two quarters of negative GDP is a sufficient but not necessary condition so the statement in the article "Economists define a recession as two consecutive quarters of negative growth" is simply wrong.

Europe in Recession

Recall that back in January IMF head Christine Lagarde said she thought it was possible for the eurozone to avoid a recession.

On January 9th, my take was Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year".

Even those waiting for two quarters of negative growth cannot hide the obvious: Italy, Spain, Greece, Portugal, and France are all in recession. Germany is headed there.

The recession in Europe is about to get much worse because of preposterous tax hikes nearly everywhere, coupled with inane policy moves in France, notably Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Interview With Roger Bootle, Who Won the Wolfson Prize for Developing a Practical Plan to Dissolve the Eurozone

Posted: 08 Aug 2012 12:34 AM PDT

RT's Laura Smith interviews economist Roger Bootle, who won the £250,000 Wolfson Prize for developing a practical plan to dissolve the Eurozone.

This was a very good interview, well worth the 12 minutes of time it takes to play it. A transcript is available in the RT post Economic growth in eurozone impossible without break-up

To download the winning entry, please see Wolfson Economics Prize.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Damn Cool Pics

Backyard PVC Roller Coaster With 12ft Drop
19 Amazing Food Tips
25 Strange Google Search Suggestions
Snoozebox: The Shipping Container Hotel
Things That Can Affect The Skin [Infographic]
Curiosity's Seven Minutes of Terror
Original vs. Remake Comparison

Backyard PVC Roller Coaster With 12ft Drop

Posted: 08 Aug 2012 06:47 PM PDT

The best back yard pvc rollor coaster on youtube it stands 12 ft tall its made of pvc pipe treated lumber and lots of concreate. I wish my father built something like this for me when I was a kid.

19 Amazing Food Tips

Posted: 08 Aug 2012 04:23 PM PDT

Did you know that Doritos can be used as kindling? Or that you can put a wooden spoon on a pot to keep it from boiling over? Buzzfeed is here with nineteen great food-related tips that will make life a heck of a lot easier from now on.

Cut hot dogs in spirals to improve the wiener-eating experience.

25 Strange Google Search Suggestions

Posted: 08 Aug 2012 02:38 PM PDT

Google search is a gold mine of laughter thanks to its auto-suggestions. Seriously, either people have a strange sense of humor, or they're just plain stupid.

Snoozebox: The Shipping Container Hotel

Posted: 08 Aug 2012 02:34 PM PDT

Snoozebox is a portable hotel consisting of shipping container living units that can be easily transported, stacked, and arranged into hotels of 40 to 400 plus rooms. Each container is outfitted with two to four rooms, and each room has its own bathroom, Wi-Fi and TV. Snoozebox is based in the UK, but they will set up a hotel anywhere in the world. Upon arriving at a location, the Snoozebox team can get a hotel up and running in about 48 hours. A 320 room Snoozebox hotel is currently in place in Essex, UK to house staff for the London Olympics.

Things That Can Affect The Skin [Infographic]

Posted: 08 Aug 2012 12:54 PM PDT

Apart from any inherited factors that determine what type of skin you have, there are many factors that affect the way your skin looks and feels. In the following infographic, published by HealthySkinSolutions, learn what these factors are and how they affect the skin is important if your goal is to keep your skin looking and feeling its best for as long as possible.

Click on Image to Enlarge.

Curiosity's Seven Minutes of Terror

Posted: 07 Aug 2012 09:00 PM PDT

This photo, taken by the Mars Reconnaissance Orbiter satellite, captures the Curiosity as it's parachuting to the surface. I've never seen anything like this before.

Here's an explanation of what exactly we're looking at here:

Via Buzzfeed

Original vs. Remake Comparison

Posted: 07 Aug 2012 05:15 PM PDT

It's interesting to compare how films used to look like and what actors played in them compared to remakes. Plus, I'm sure you didn't know some of the movies appearing in this list were actually remakes and not originals!

Total Recall