Capital Flight From France to London

As always, when socialists make it into office, people take their money elsewhere:

London real estate agents are like the canary in the coalmine for the debt crisis. They can sense early on the next country to get sucked into the vortex. So who’s up next? Apparently it’s the French.

Wave of Interest

Real estate agents have been aware of a new wave of interest for months, but it’s been especially noticeable since Feb. 28. The night before, the then Socialist candidate for French president, François Hollande, who famously said “I don’t like the rich,” announced that, if elected, he would raise the top rate of tax on incomes over €1 million to 75 percent. At home, he got much applause for the announcement. But in London, the news produced a reaction that was noticeable on the computers of the London-based property company Knight Frank.

“Since February, when Hollande announced his wealth tax, there has been a large rise in web searches from French customers,” Liam Bailey, head of residential research at Knight Frank, recently told the Daily Telegraph.

Those who do the best they can to attract money will probably fare best during this debt crisis.

You reap what you sow …

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Mish & Max Keiser, Economic & Political Predictions for 2012

Here are Mish’s predictions for 2012:

  1. Severe European Recession as the sovereign debt crisis escalates: Austerity measures in Italy, Greece, Spain, and Portugal plunges all of Europe into a major recession. Spain and Portugal will follow Greece into an outright depression.
  2. Political Crisis in Europe: French President Sarkozy loses to socialist challenger Francois Hollande. German Chancellor Angela Merkel’s coalition collapses. The Merkozy agreement is either modified to do virtually nothing or is not ratified at all. This chain of events will not be good for European equities or European bonds.
  3. Relatively Minor US Economic Recession: The US will not avoid a recession in 2012. Retail spending ran its course with the tail-off into Christmas of 2011. The Republican Congress has little incentive for fiscal stimulus measures in 2012 so do not expect any. However, with housing already limping along the bottom in terms of construction and investment (not prices), a US GDP decline will not be severe. The US may see a recession even if GDP barely drops. Certainly the US recession will be far less severe than the recession in Europe and Australia.
  4. Major Profit Recession in US: Profit margins in the US will be torn to shreds as businesses will be unable to reduce costs the same way they did in 2008 and 2009 (by shedding massive numbers of employees).
  5. Global Equity Prices Under Huge Pressure: Don’t expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap.
  6. Fiscal Crisis in Japan Comes to Forefront: Japan’s fiscal crisis and debt to the tune of 200+% of GDP finally matters. The crisis in Japan will start out as a whimper not a bang, but will worsen as the year wears on. If Japan responds by monetizing debt, not a remote possibility at all, Japanese equities will massively outperform in nominal and perhaps even in real terms. “Real” means “yen-adjusted”, not “inflation-adjusted” terms.
  7. Few Hiding Spots Other than the US Dollar: US treasuries and German bonds were safe havens in 2011, but with yields already depressed don’t expect huge gains. Expect to see a strengthening of the US dollar across the board against all major currencies. Moreover, cash (one the most despised asset classes ever), may outperform nearly everything, even if the dollar goes virtually nowhere. Hiding places will be few and far between for much of 2012.
  8. US Public Union Pension Plans Under Attack: States finally realize the need to rein in pension plans much to the dismay of public unions. Social and economic tensions in the US rise.
  9. Regime Change in China has Major Ramifications: China will start a major shift from a growth model dependent on housing and infrastructure to a consumer-driven model. The transition will not be smooth. Property prices in China will collapse and commodity prices will remain under pressure.
  10. Hyperinflation Calls Once Again Will Look Laughable: Unless there is a major disruption in the Mideast (which I do not rule out by any means), oil prices will drop and food prices will follow. If so, we will once again see silly talk from the Fed about preventing “unwelcome drops in inflation”. As always, the deflation key is not prices at all but rather credit and credit marked-to-market. Expect credit in all forms to come under attack and expect junk bonds take a hit as well. By the way, regardless of what happens to oil prices, hyperinflation calls will look silly.

As always, out of all the experts out there, Mish’s predictions are probably the ones I would pay most attention to.

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Finland, Netherlands, and Irelend Thwart Franco-German Plans; New Euro Accord To Include 23 Countries – For Now

Merkozy plans are dead on arrival as a A rebellion by Finland, the Netherlands and Ireland is threatening to torpedo the Brussels summit plans:

Hours before leaders arrived in Brussels , the Finnish parliament ruled that treaty changes proposed for the European Stability Mechanism (ESM) were “unconstitutional”.

The summit was further put at risk with news that after failing stress tests, European banks need to raise €115bn (£98bn) in fresh capital to satisfy regulators.

Finland’s grand committee said decisions made by the ESM – the eurozone’s permanent bail-out fund set for launch in 2012 – had to remain unanimous, and not changed to the “qualified majority” that French president Nicolas Sarkozy and German chancellor Angela Merkel have agreed.

The Finns are backed by the Netherlands, which fears proposals to withdraw veto powers from the ESM is an erosion of democracy and would make it vulnerable to funding bail-outs without recourse. Meanwhile, the Irish want to block plans for the “convergence and harmonisation” of the eurozone’s “corporate tax base”.

And this just in – New euro accord to include 23 countries:

The president of the European Council said Friday that a new intergovernmental treaty meant to save the euro currency will include the 17 eurozone states plus as many as six other European Union countries — but not all 27 EU members.

The failure to get agreement among all the members of the European Union at a summit meeting in Brussels reflected in large part a deep split between France and Germany on the one hand and Britain on the other. France and Germany are the two largest economies in the eurozone; Britain does not use the euro as its currency.

French President Nicolas Sarkozy said early Friday he would have preferred a treaty among all the members of the European Union. But that could not be achieved, he said, because the British proposed that they be exempted from certain financial regulations.

“We could not accept this” because a lack of sufficient regulation caused the current problems, Sarkozy said. The new intergovernmental accord should be ready by March, he said.

Note Sakozy’s assumption that anyone who hears him talk is a complete moron. The Euromess is a complete and total result of bureaucratic regulation from all angles, to assume people can’t see that is to assume that people are literally mentally challenged.

And then to bring it up against the British who avoided this bureaucratic mess precisely by staying out of Euro currency regulations … that, my friends, truly takes the full force of arrogant, negligent, and shameless statesmanship that only a Nicholas Sarkozy could display.

Anyway, the number of future member stats is already down to 17+6, the Euro has officially begun to crumble. Expect more states to quit this failed experiment until it finally disappears where it belongs: the dustbins of history.

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The Fed’s Secret Loans, Europe’s Crisis, and the Boring Patterns of Statist Propaganda

In response to recently published information about the Fed’s emergency loans, Bloomberg’s Felix Salmon was promptly ready to perpetrate this piece of grade A scumbaggery:

stanley.tiff

Ladies and Gentlemen, this is what a lender of last resort looks like. What you’re looking at here are three lines. The black line is Morgan Stanley’s market capitalization, which tends to hover in the $40 billion range but which fell as low as $9.8 billion in November 2008. The orange line is the amount that Morgan Stanley owed to the Federal Reserve on any given day — an amount which peaked at $107 billion on September 29, 2008. And the red line is the ratio between the two: Morgan Stanley’s debt to the Federal Reserve, expressed as a percentage of its market value.That ratio, it turns out, peaked at some point in October, at somewhere north of 750%.

Many congratulations are due to Bloomberg, for extracting this information from the Fed after a long and arduous fight. It couldn’t have come at a timelier moment: if the ECB wants to avert a liquidity crisis, charts like this give a sobering indication of just how far it might have to go, and how quickly it might have to act.

The Euromess has everything to do with the fact that the ECB exists in the first place, and the fact that it enabled irresponsible bureaucrats to hide behind relatively responsible ones and borrow beyond their respective taxpayers’ means.

Almost 3 years ago I already said that if European government bureaucrats don’t quit the centralization of power which enables the above, things would only get worse and worse.

Then about 2 years ago I wrote:

The truth is very simple: The best that can be done for the people of Greece is to not provide one cent of assistance to its corrupt, bloated, and union-controlled government apparatus. A country’s bailout is like a corporate bailout, only many times worse! From this logically follows that the absolute worst Europe could do to the people of Greece would be to give their rulers any more means to continue their irresponsible policies.

The European Currency Union and the European Union itself are both such gigantic failures that it is already pre-ordained that the entire experiment will go down in flames sooner or later. Now is certainly not that time yet. What we are seeing are just a few more cracks emerging in the structure of the system. The European bureaucrats will come up with some sort of pseudo solution to paper over and patch the Greek problem for now.

Even if the Greek government were saved to the detriment of the people it tyrannizes, this won’t be the last time we’ll be having this discussion, and it sure as hell won’t get any better!

We’re having that discussion again now, and the time has run out for patchwork and pseudo solutions. The system is going down as predicted.

To say that the Euromess is caused by a lack of even more ECB intervention is to say that the heroin addict’s withdrawal pains are to be imputed upon a lack of an increase in his dosage.

I think that’s pretty lazy and irresponsible stuff to put out there and it genuinely hurts reading it.

Wouldn’t it make sense at some point to stop and think a little more carefully and precisely about the things we say in public discourse?

Bank of England governor King pointed out a few weeks ago: “This phrase ‘lender of last resort’ has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That’s what lender of last resort means.”

And about the Fed having solved any problems in the US … are you going to say the same thing when the public debt burden, subsidized by QE1,2,3,4,5…, will have reached an amount where the government’s automatic spending cuts start to kick in and begin to impoverish more and more of the millions of people who have been made dependent upon government handouts?

Or better yet, are people going to be asking for the Fed and government to step in, grab more power, and regulate all these banks’ irresponsible speculation binges, because for some inexplicable, magical reason they don’t seem to have much of an incentive to conduct business prudently, to pay themselves reasonable salaries, or to lend responsibly, and not, say … invest in Greek bonds for example?

The pattern is simple and boring: Keynesian and other statist clowns out there will continue doing what they’re paid for. They will support one stupid ass government spending and expansion program after another, applaud one newly created government institution after another, be completely incapable of predicting the long term effects of those unsustainable policies, ignore or even ridicule those who are capable, and then when the inevitable crisis hits they will boldly “predict” that a tragic crisis is going to hit, should all those unsustainable programs not be sustained.

This is truly embarrassing to watch.

But at the same time it’s encouraging to see other people around the world wake up to the truth, and ditch the repetitive dronings and platitudes of entitled and state tenured ivory tower academics whose cumulative output will supply plenty of instructive and awe-inspiring entertainment for future generations.

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The European Stability Mechanism (ESM) – A Treaty of Debt

So long as people give moral justification to organized aggression, namely the concept of government, there will be governments. So long as there are governments they will grow and grow until they completely cripple the economy they are leeching on or until they become unable to meet obligations entered into, triggering a reset.

In the long run, government power always tends towards centralization, with more and more power consolidated with fewer and fewer people, with less and less representation of the governed in the process.

It is true that, prompted by public ire from past failures, bureaucrats have throughout history devised methods to try and limit and balance state power through things like constitutions, bills of rights, balance of powers, parliaments, etc. What these measures have accomplished has been to slow down the growth, centralization, and overreach of the affected governments, but they have happened nonetheless, and with catastrophic results in many respects one could argue (1.4 million dead Iraqis might agree with me, just to bring up ONE example).

This is why even a limited government is so dangerous, because all the wealth and economic growth it brings about simply supplies more potential tax loot and thus sets the stage for more and more taxation and indebtedness, and an all the more gigantic and imperialistic state. (This is, by the way, why in the long run, after having suffered from repetitive government depredations again and again, at some point people will have to accept the validity of voluntaryism.)

These are the theories that I have been working with for years now, and there is plenty of historical evidence over the past millennia to corroborate them. The most prominent current example is of course the federal government in the United States, which has grown from a tiny government (about 7% of US GDP back then with lots of sovereignty for individual states) to the largest, most powerful, and most imperialistic government in the history of mankind, with more and more power being centralized in Washington, with Democrats and Republicans complicit in skillfully supplying their respective reasoning in their respective areas of public policy in order to consolidate power in the fields of social and military policies, respectively.

Another contemporary example is of course the European Union. Brussels represents what Washington has been in US history. Each individual crisis has been supplying and will continue to supply Brussels bit by bit with ammunition to expand its powers over member states in their endeavor of building a European Empire.

The ESM that is being discussed now fits right into this pattern and you can find out more about it in this informative clip:

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