STAFF NEWS & ANALYSIS
DB Briefs: China's Subprime Credit Crisis / Greeks Evade Taxes for a Reason / Obama Wants to Raise Taxes – Again
By Staff News & Analysis - September 19, 2011

China's Subprime Credit Crisis … China 'faces subprime credit bubble crisis' … Monetary tightening in China threatens to pop the $1.7 trillion (£1.07 trillion) credit bubble in local government finance and expose the country's simmering "subprime" crisis, according to the Communist Party's economic guru. Mr Cheng Siwei said China is entering a "very tough period" as growth runs into the inflation buffers, threatening the sort of incipient stagflation seen in the West in the 1970s and leaving the central bank with an unpleasant choice. – UK Telegraph

Greeks Evade Taxes for a Reason … Greek tax evasion: 'There is just such little incentive to be honest.' With the medical profession at the forefront of the Greek financial crime squad's list of suspects, Alexis, a Greek doctor, keeps his books tight, which is not an easy feat. According to Alexis, declaring items deemed as 'luxuries' by the tax man, such as a car with a higher horse power or a pool can far exceed the cost of buying the items in the first place. – UK Telegraph

Obama Wants to Raise Taxes – Again … Obama to offer his own debt reduction package … The plan represents an economic bookend to the $447 billion in tax cuts and new public works spending that Obama has proposed as a short-term measure to stimulate the economy and create jobs. He's submitting it to a special joint committee of Congress given the task of recommending how to reduce deficits by $1.2 trillion to $1.5 trillion over 10 years. The White House signaled its approach Saturday by highlighting a proposal in the president's plan that would set a minimum tax rate for taxpayers earning more than $1 million … Obama is going to call it the "Buffett Rule" for the billionaire investor. – Yahoo News/AP

China's Subprime Credit Crisis

China 'faces subprime credit bubble crisis' … Monetary tightening in China threatens to pop the $1.7 trillion (£1.07 trillion) credit bubble in local government finance and expose the country's simmering "subprime" crisis, according to the Communist Party's economic guru. Mr Cheng Siwei said China is entering a "very tough period" as growth runs into the inflation buffers, threatening the sort of incipient stagflation seen in the West in the 1970s and leaving the central bank with an unpleasant choice. – UK Telegraph

Dominant Social Theme: China is fine, just fine, really fine and will be just about forever.

Free-Market Analysis: Again we learn from the Telegraph's Ambrose Evans-Pritchard – on assignment in China – that the Chinese miracle has grown long in the tooth. The various interest rate rises and credit curbs are taking a toll but not in a good way. "The tightening policy is creating a lot of difficulties for local governments trying to repay debt, and is causing defaults," economist Cheng Siewei told a meeting at the World Economic Forum in Dalian. "Our version of subprime in the US is lending to local authorities."

Here's Cheng's bottom line: "Local governments have created more than 6,000 arms-length companies to circumvent restrictions on bond issuance, creating a huge patronage machine for party bosses that has largely escaped central control." This is not in any sense a hopeful revelation. What Cheng is saying is that the pressure on China's regional bosses to perform has led to massive corruption and inflationary stimulation at all levels of Chinese society. How can this end happily?


Greeks Evade Taxes for a Reason

Greek tax evasion: 'There is just such little incentive to be honest.' With the medical profession at the forefront of the Greek financial crime squad's list of suspects, Alexis, a Greek doctor, keeps his books tight, which is not an easy feat. According to Alexis, declaring items deemed as 'luxuries' by the tax man, such as a car with a higher horse power or a pool can far exceed the cost of buying the items in the first place. – UK Telegraph

Dominant Social Theme: Taxes are the cost of being civilized. Everyone needs to pay his fair share. Without taxes, governments could not build schools or roads or post offices or maintain them.

Free-Market Analysis: We would like to think we have been in the forefront (a modest one) of calling out EU "austerity programs" for what they are, another enforced impoverishment of the IMF and its enablers. Nothing we read about what is going on in Greece today has caused us to rethink this analysis. From what we can tell, European banks worked hard to get Southern PIGS to over-borrow in order to cause just the kind of crisis that Europe faces now.

As we predicted long ago, voices are being raised by Eurocrats having to do with establishing a greater political union to salvage the economic one. Austerity is part of this larger meme as Europeans are to be made so miserable by their failing economies that they will finally agree to anything, even an EU political union, though it is the EU's one-size-fits-all currency that has gotten Europe into its current mess to begin with.

The situation in such countries as Greece, meanwhile, is truly intolerable. Not only that but the reality of what is going on – the passive and active resistance – is not being reported in the West. Tax collectors in Greece are refusing to collect taxes, citizens are refusing to pay, post office workers are refusing to deliver state envelopes.

Austerity measures are being resisted at all levels of Greek society – and the idea that it is simply an effort by Greeks to hold onto government sinecures is a misreading of the situation. Greeks would likely gladly say goodbye to the EU and devalue (with all the pain that would cause) rather than stay in a union they increasingly see as abusive, authoritarian and even fascist.


Obama Wants to Raise Taxes – Again

Obama to offer his own debt reduction package … The plan represents an economic bookend to the $447 billion in tax cuts and new public works spending that Obama has proposed as a short-term measure to stimulate the economy and create jobs. He's submitting it to a special joint committee of Congress given the task of recommending how to reduce deficits by $1.2 trillion to $1.5 trillion over 10 years. The White House signaled its approach Saturday by highlighting a proposal in the president's plan that would set a minimum tax rate for taxpayers earning more than $1 million … Obama is going to call it the "Buffett Rule" for the billionaire investor. – Yahoo News/AP

Dominant Social Theme: In times like these, people need to reach a little deeper, especially the rich.

Free-Market Analysis: The more we read about what US President Barack Obama is going to offer Congress in order to reduce deficits by US$1.5 trillion over ten years, the more suspicious we get. For one thing, the aggregate cost of everything politicians (and thus the US government) have promised to the American people is in the area, apparently, of US$200 trillion. (We've written about this in the past.)

Thus we would question if savings of US$1.5 trillion are really that important. Obviously, the US Congress thinks they're important, as President Obama does, too. He's offering a serious and substantive proposal – but one we notice to our dismay apparently includes new taxes. And not just any new taxes. Obama is reigniting the politics of class envy, suggesting more taxes for people earning more than US$1 million a year.

Now, perhaps this seems reasonable to some people, but the Federal government has accumulated so much waste that surely budget cuts should be pursued as seriously as possible before taxes should be raised on ANYBODY, even millionaires. America's house is not in order. Its schools are a mess; its cities are rotting; its infrastructure is falling down. Yet the federal government manages to take in and spend over US$3 trillion a YEAR. Where does the money go?

It is a sad commentary on both the mainstream media and US politicians that the US government will take in some US$30 to US$40 TRILLION in the next decade but is only discussing shedding less than US$2 trillion of it. What exactly is the US doing with that money? Certainly not keeping up its cities, or improving its schools or infrastructure.

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