Thursday, July 5, 2012

Quick Hits - July 5, 2012

French President Francois Hollande and the newly elected Socialist majority in France are charging hard to prove that this time, unlike all of the other times in history, massive tax increases combined with skyrocketing government expenditures in the name of 'fairness' and a renewed expansion of the entitlement state will solve France's economic challenges.  Fresh off of the announcement late last week that he proposes to increase the maximum income tax rate to 75% as well as hike corporate and capital gains taxes, Francois Hollande is now setting his sights on foreigners who own second homes in France.
Approximately 200,000 Britons own second homes in areas such as the Dordogne and other parts of France, particularly those serviced by budget airlines.

Now, however, holiday home owners find themselves in the sights of President Fran├žois Hollande as he seeks to tax the better-off to reduce France's large budget deficit.

On Wednesday (July 4th), the French government announced it was to increase taxes on foreign-owned second homes. Tax on rental income would rise from 20 per cent to 35.5 per cent, and capital gains tax on property sales would rise from 19 per cent to 34.5 per cent. The extra in each case is being labelled a "social charge".

In Europe, the ECB (European Central Bank) announced a cut in interest rates across the Euro zone - reducing their key rate by 25 basis points to 0.75%, a record low. With ECB head, Draghi, failing to provide any hints of bolder steps being taken by the ECB to address the debt crisis affecting the Euro zone, the Euro currency was down soon after the announcement - hitting a new low versus the US dollar of $1.2365. Bond yields for Italian and Spanish bonds also moved sharply upwards with Italian bonds back above 6% and Spanish bonds increasing to 6.8%.

Britain's poor economy forced the Bank of England to announce today that it was going to pump £50 billion more into the economy via another round of Quantitative Easing (QE) (having now pumped £375 billion since the start of the economic recession in 2008) and holding its interest rate at a historic low of 0.5%.

Lost within this news, Greece today announced that they are asking the 'troika' behind their latest bailout for an additional three years before they need to adhere to the commitments they gave in order to get their second sovereign debt bailout in March.

Economist and Telegraph columnist, Roger Bootle won the £250,000 Wolfson Economics prize for designing the best possible Euro zone break-up plan....
The optimal reconfiguration would probably involve the retention of a northern monetary union centred on Germany, and including Austria, the Netherlands and Luxembourg, and perhaps Finland and Belgium. These countries are pretty well aligned with Germany, economically, institutionally and culturally. If their electorates so desired, it would be perfectly plausible for these countries to form a full fiscal and political union.

The most intriguing issue concerns France. It has been Germany's close partner, and the two economies have tended to move together. However, France's recent performance has in some ways resembled the peripheral economies. It has a current account deficit as opposed to Germany's surplus and its primary budget deficit is close to Greece's. It also has strong banking and financial links to the peripheral economies. Moreover, although it is not as uncompetitive as the peripheral countries, France has also lost competitiveness against Germany.

Given these points, I would advise France to stay out of a northern monetary union. Indeed, there would be attractions for it in leading a grouping of former euro members. This would split the eurozone into two roughly equal parts, with the French-led bloc slightly larger.

Domestically, President Obama perhaps got a forerunner of some not-so grim economic news on the job front as this week's initial jobless claims number beat expectations for the first time in a year, with an announced 374,000 new filers for jobless claims - below the expected 385,000 - and also below last week's 386,000 388,000 (yes, the previous week's number was revised upwards for something like the 70th out of the last 71 weeks). Expectations are now of a better June jobs number than the net 69,000 jobs added in May - but still well below what is needed to maintain pace with population growth or reflect a vibrant economic recovery.

Today we learn of yet another Obama-backed (with U.S. taxpayer funds) energy company nearing insolvency - highlighting an already dismal record for the Administration of picking winners and losers.
A geothermal energy company with a $98.5 million loan guarantee from the Obama administration for an alternative energy project in Nevada — which received hearty endorsements from Energy Secretary Steven Chu and Senate Majority Leader Harry Reid — faces financial problems, and the company’s auditors have questioned whether it can stay in business.

…Nevada Geothermal Power (NGP) has incurred $98 million in net losses over the past several years, has substantial debts and does not generate enough cash from its current operations after debt-service costs, an internal audit said. …
But Rep. Jim Jordan, Ohio Republican and chairman of the House Oversight and Government Reform subcommittee on regulatory affairs, stimulus oversight and government spending, is concerned about NGP’s finances and the timing of the loan guarantee.

“The company was in danger of defaulting on its financial obligation, and the [Department of Energy‘s] assistance served as a de facto bailout,” Mr. Jordan said. “After receiving a taxpayer-backed $98.5 million loan guarantee, the company is still struggling.”

Fundraising continues to be a concern for President Obama as he kicks off a 2 day bus tour through the battleground states of Pennsylvania and Ohio - called 'Betting on America'. One of the key memes of the tour is to continue to (falsely) paint Mitt Romney as an outsourcer of jobs - and that President Obama needs a 2nd term in office to complete his economic recovery. Increasing the stakes for the President is information that Mitt Romney raised $100 million for his campaign in June.

Much of the mainstream media focus remains on the Romney campaign's 'tripping' on the semantics of the Obamacare individual mandate ruling - highlighting adviser Eric Fehrnstrom's Monday assertion that Mitt Romney calls the mandate a 'penalty' and Mitt Romney's assertion on CBS News that it's a tax because it was classified a tax by the majority ruling of the Supreme Court of the United States.

Yet, as the mainstream media focuses on this, they are ignoring the challenges within the Obama campaign / Administration to address the semantics of the SCOTUS ruling.

Unsurprisingly, WH Press flack, Jay Carney, wants to have it both ways - to have the mandate be a tax for the purposes of the constitutionality of Obamacare, but a penalty for the purposes of politics (i.e. avoid having it be clearly seen that President Obama broke his promise regarding tax increases on the middle class).  Here was Carney today -
But if I could just add as a matter of policy, it is simply a fallacy to say that this is a broad-based tax. That's not what the opinion stated that was authored by the Chief Justice. The Affordable Care Act is constitutional under Congress's taxing authority, but this is clearly a penalty that affects less than 1 percent of the American population.

Unfortunately, you can't have it both ways. It is either a tax, as the SCOTUS majority ruled or it's a penalty, and therefore, according to SCOTUS, an unconstitutional expansion of the Commerce clause. As for how many it will affect? Who knows what number that is - but we can bet it will be substantially higher than the 1% Carney dismissively tosses out there. This is the same Administration that said that 'if you like your insurance, you don't have to change it' before we found out that the legislation incentivizes businesses to drop healthcare plans for their employees.

This remains a huge tax passed on the middle class (as well as other classes - remember the $500 billion cut to Medicare that was included in the law?) to have the middle class fund the government's expansion into controlling 1/6th of the total US economy (Healthcare industry) - and providing insurance to about 10% of the U.S. population at a cost of $1.75 billion to $2.4 billion over the first 10 years of Obamacare.

Jay Carney isn't the only Obama spokesperson struggling with the Obamacare decision...

On CNN this morning, President Obama's campaign spokesman Ben LaBolt said that the president disagrees with the Supreme Court's on Obamacare:

LaBolt says the president believes Obamacare is a penalty, not a tax, as the Supreme Court called the health care law.

CNN’S SOLEDAD O’BRIEN: “Does he believe this is a tax, or does he believe it’s a penalty? He actually hasn't said yet, as I'm sure you know. He has not specifically said. His spokesperson sitting here with me said it's a penalty. The Supreme Court has said it's a tax. What does he believe?”

OBAMA FOR AMERICA PRESS SECRETARY BEN LABOLT: “That it's a penalty. You saw our arguments before the Supreme Court. You’ve seen what the president has said over the past several years that it's a penalty for that 1% of the population who can afford health insurance but hasn't chosen to get it. Because the fact is that has led the rest of us to pay a hidden tax of $1,000 a year. Folks who already covered, it drives up our premiums.”

O’BRIEN: “So then he disagrees with the Supreme Court decision that says it's now a tax.”

LABOLT: “That's right. He's said that it’s a penalty. You saw our arguments before the Court. And—”

O’BRIEN: “Your argument before the Court honestly also said that it could be-- one of the side arguments, kinda like the backup argument was that it was a tax. So I did see the arguments before the Supreme Court and read the transcripts.”

LABOLT: “It never referred to it as a--it never referred to it as a tax. It said that it was a penalty. And that's under the section of the law that is the tax code, but it said very specifically that it's a penalty.”
Fact Check!

Yes, it was, as addressed by the Solicitor General as a tax...

On the first day of health care reform arguments before the Supreme Court, two justices needled a top Obama lawyer for simultaneously calling the fine that will be paid under the law for not purchasing insurance a “penalty” and a “tax.”
The confusion arises because of the administration’s argument that the power to enforce the individual mandate is rooted in Congress’ taxing power — but that the mechanism itself is designed to be a penalty, not a revenue-generating policy.
The narrow but important distinction created a communication challenge for the lawyer representing the Obama administration.

U.S. Solicitor General Donald Verrilli used the phrase “tax penalty” multiple times to describe the individual mandate’s backstop. He portrayed the fee as a penalty by design, but one that functions as a tax because it’s collected through the tax code.
“General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax,” said Justice Samuel Alito, in one of the few laugh lines throughout the 90 minutes of argument Monday.

Labolt lied about this, just as WH Chief of Staff, Jack Lew lied about it last weekend when appearing on Fox New Sunday....

The only real difference here was Chris Wallace called Lew on his lie, as he rightfully should have done. CNN's Soledad O'Brien let the Obama spokesman skate on his lie.

And there is still more media bias around this story....

The Hill - 'Romney contradicts top adviser, says health law mandate 'is a tax'...

But as's Big Journalism highlights, the mainstream media is ignoring the same 'tax confusion' (see the story above re Labolt and Carney) within the Obama Administration...

Another scary thought about Obamacare? Administration officials have already drafted 13,000 pages of new rules and regulations for the healthcare law...
180 new bureaus/boards/commissions, hundreds of new employees, billions of dollars, who knows how many new rules to comply with… the mind reels. Make no mistake about it, whatever Team Obama says — this is a massive, unprecedented expansion of federal power. Nancy Pelosi said we had to pass it to know what’s in it, and we’re still not even done figuring out what’s in it. Awesome.

And it’s not as if all of these rules and regulations are just innocent little administrative instructions, either; the Catholic Church, for instance, isn’t too pleased with the rule decreeing that insurance plans need to cover contraception, regardless of religious affiliations. What other nefarious liberty-infringing, social-engineering surprises are going to come out of this legislative Pandora’s box?

Wrapping up for today is a story about the former USS Texas - a museum ship that I visited as a young child in the mid-1960's...
The 100-year-old Battleship Texas, the last remaining dreadnaught that fought in World Wars I and II, closed indefinitely Monday as staff try to repair several holes allowing nearly 2,000 gallons of water per minute into the vessel, the ship's manager said Monday.

The leaks plaguing the ship, which fought as the USS Texas, have highlighted the need to enact a multimillion dollar plan to dry dock the vessel, removing it from the salty waters of Buffalo Bayou and the Houston Ship Channel, where it has sat for several decades.

"The ship is not as good as she was. She's leaking, again," Smith said, the frustration clear in his voice. "I think she's getting persnickety in her old age."

This as one of the big news items here in the LA area was the dedication of the USS Iowa as a museum - and the last of the 4 Iowa class battleships seen to be the pinnacle of battleship design to become a floating museum.

Today in History

1914 - On July 5, 1914, in Berlin, Kaiser Wilhelm II of Germany pledges his country's unconditional support for whatever action Austria-Hungary chooses to take in its conflict with Serbia, a long-running rivalry thrown into crisis by the assassination, the previous June 28, of Archduke Franz Ferdinand of Austria and his wife by a Serbian nationalist during an official visit to Sarajevo, Bosnia.

The kaiser's pledge, which historians have referred to as the carte blanche or "blank check" assurance, marked a decisive moment in the chain of events leading up to the outbreak of the First World War in Europe during the summer of 1914. Without Germany's backing, the conflict in the Balkans might have remained localized. With Germany promising to support Austria-Hungary's punitive actions towards Serbia, even at the cost of war with Russia, whose own powerful allies included France and Great Britain, the possible Balkan War threatened to explode into a general European one.

1943 – The Battle of Kursk, the largest tank battle in history, started when over half million German soldiers and around 2,500 tanks launched a major assault on Soviet positions around the Kursk salient called Operation Citadel.

1946 – French designer Louis Reard unveils a daring two-piece swimsuit at the Piscine Molitor, a popular swimming pool in Paris…the bikini is introduced.

1962 – Algeria becomes independent after 132 years of French rule.

1975 – Arthur Ashe becomes the first black man to win the Wimbledon singles title as he defeats the heavily favored Jimmy Connors.

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