Free Markets, Free People


France, the Democrats and reality

One of the three in the title doesn’t belong there:

I watched, incredulously, as all three contenders in Saturday night’s Democratic presidential debate — Hillary Rodham Clinton, Bernie Sanders and Martin O’Malley — refused to say the slaughter was the work of “Muslim” extremists.

Clinton blamed “jihadis.” But despite prodding, she would not speak of the Islamic elephant in the room.

Sanders stood by his earlier claim that climate change, not creatures in suicide vests, presents the biggest threat to this planet because it makes poor people into terrorists by interfering with their crops or something.

At that point, I switched to the Syfy channel to get a bigger dose of reality.

And probably got much more of a dose of reality than the Democratic debate.

Imagine claiming “climate change” was the “biggest threat to the planet” when terrorists are blowing up people in France.  Or the simple fact that the climate really hasn’t shown any change in over a decade.

Who are “jihadis” and what religion do they represent, Ms. Clinton?

And who’s two memes, “ISIS is the jayvee” and “other civilized countries don’t have this sort of problem (referring to mass killings), were utterly destroyed?  Not to mention watching the French president show what leadership means by hitting ISIS immediately, repeatedly and hard?

Oh, that would be our Commander-in-Chief, the semi-retired and totally disconnected Barack Obama.

Meanwhile, the importation of 10,000 Syrian refugees will continue as planned.

Yup, Syfy would seem to deal in reality much more than our President and the Democrats.


The end of “tolerance?”

Probably not, but you’ll notice “tolerance” in quotes.  Tolerance, today, seems to mean that no one has a right to “judge” another culture or religion or ethnic group based on their actions or by their “prejudices” – you know, “white privilege” and all that.   That we should all understand that each of these are “equally good”, just “different”.

Thus what happened in France today is just a “different” way of reacting to certain “stimulus”.   We must “understand” what motivates these sorts of actions and …

Well, you can fill in the blank.  Isn’t that the natural end to that sort of “tolerance?”  Putting up with it?

The question is, have we seen enough of this sort of slaughter that we can bring ourselves, as civilizations, to say “that’s bad and NOT to be tolerated” and that all those who are a part of this should be exterminated from the face of the earth?  Hmmm?

Well, you’d think so – or at least you’d think there’d be some sort of an attitude change in general.  I’ll be interested to see how the French react.  The same country that let “youths” burn 10,000 cars a few years ago over the same sort of nonsense.  Props to the French for this time calling it what it is – terrorism.  Islamist terrorism.  At least they’re not trying to put the “workplace violence” tag that the political cowards here in the US draped on the Ft. Hood massacre by an Islamic extremist.

Meanwhile, even with the scope of the tragedy, there are those who would excuse the killers.

Via Hot Air, here is the Financial Times take on the situation:

Two years ago it published a 65-page strip cartoon book portraying the Prophet’s life. And this week it gave special coverage to Soumission (“Submission”), a new novel by Michel Houellebecq, the idiosyncratic author, which depicts France in the grip of an Islamic regime led by a Muslim president.

In other words, Charlie Hebdo has a long record of mocking, baiting and needling French Muslims. If the magazine stops just short of outright insults, it is nevertheless not the most convincing champion of the principle of freedom of speech. France is the land of Voltaire, but too often editorial foolishness has prevailed at Charlie Hebdo.

This is not in the slightest to condone the murderers, who must be caught and punished, or to suggest that freedom of expression should not extend to satirical portrayals of religion. It is merely to say that some common sense would be useful at publications such as Charlie Hebdo, and Denmark’s Jyllands-Posten, which purport to strike a blow for freedom when they provoke Muslims, but are actually just being stupid.

The other day I pointed out how feminists use the same tactics as the KKK.  This, on the other hand, hits me as the same thing as those who excuse rape by saying, “you know, if you hadn’t have worn that, you probably wouldn’t have been raped”.

Always entertaining to catch this type of a critic in the usual pretzel logic that, in another form, they’re sure to condemn.

Freedom ain’t free – and it is messy and dangerous.  More importantly, you have to fight for it.  And the first step in doing so is being intolerant of anyone who would limit it or take it away – and that includes the murderer’s fellow travelers as well.


So how are those sanctions against Russia going?

Ask France:

France will press ahead with a 1.2 billion-euro ($1.66 billion) contract to sell helicopter carriers to Russia because cancelling the deal would do more damage to Paris than to Moscow, French diplomatic sources said on Monday.

France has come under pressure from Washington and some European partners to reconsider its supply of high-tech military hardware to Moscow. It had said it would review the deal in October – but not before.

However, French diplomatic sources said on Monday the 2011 contract with Russia for two Mistral helicopter carriers, with an option for two more, would not be part of a third round of sanctions against Moscow.

“The Mistrals are not part of the third level of sanctions. They will be delivered. The contract has been paid and there would be financial penalties for not delivering it.

“It would be France that is penalized. It’s too easy to say France has to give up on the sale of the ships. We have done our part.”

And, we can’t have the sanctions hurt France, can we?

One of the attack helicopter carriers will be deployed in the Black Sea, where all the trouble began:

The first carrier, the Vladivostok, is due to be delivered by the last quarter of 2014. The second, named Sebastopol after the Crimean seaport, is supposed to be delivered by 2016.

How does France justify its intention to provide the ships?

“We are not delivering armed warships, but only the frame of the ship,” the source said.

That, of course, misses the entire point of sanctions. It is a punishment for wrong behavior. It is supposed to be a way one side teaches the other not to do what it has done. And the Western powers agreed that “strong sanctions” be imposed because of Russia’s unacceptable behavior. Now we see the exceptions being made – exceptions that Russia will, rightfully, view as weakness.

Additionally, that “frame” the French are dismissing as inconsequential will give Russia access to advanced technology. And these “frames” have quite a potent capability. The Mistral can carry up to 16 attack helicopters, such as Russia’s Kamov Ka-50/52; more than 40 tanks or 70 motor vehicles; and up to 700 soldiers.

As for leadership from the US insisting that the French not provide the Russians with advanced weaponry?

A French government source said at no point had the U.S. officially expressed any concern over the sale …

Another example of why “strong sanctions” is, in reality, an oxymoron, especially when the Western powers are concerned.


UK and France backing away from Syria strike?

The shaky coalition of Western nations promising to strike Syria for its alleged use of chemical weapons is getting even shakier.  In the UK, Prime Minister David Cameron is reconsidering:

David Cameron backed down and agreed to delay a military attack on Syria following a growing revolt over the UK’s rushed response to the crisis on Wednesday night.

The Prime Minister has now said he will wait for a report by United Nations weapons inspectors before seeking the approval of MPs for “direct British involvement” in the Syrian intervention.

Oh look … Cameron plans on getting the approval of Parliament before committing British troops to war.

That’s because opposition British politicians apparently play hardball while ours … well they talk and complain a lot:

Senior sources had previously suggested that Britain would take part in strikes as soon as this weekend which meant an emergency recall of Parliament was necessary on Thursday.

However, following Labour threatening not to support the action and senior military figures expressing concerns over the wisdom of the mission, the Prime Minister on Wednesday night agreed to put British involvement on hold.

The climbdown is likely to be seen as an embarrassment for Mr Cameron as he was determined to play a leading role in British military strikes, which had been expected this weekend.

France too is showing signs of waffling:

French President Francois Hollande said on Thursday that Syria needed a political solution, but that could only happen if the international community could halt killings like last week’s chemical attack and better support the opposition.

Hollande sounded a more cautious note than earlier in the week, when he said France stood ready to punish those behind the apparent poison gas attack that killed hundreds of civilians in Damascus.

He indicated that France was looking to Gulf Arab countries to step up their military support to the opposition to President Bashar al-Assad, after Paris said this week it would do so.

Not exactly the saber rattling that was going on a few days ago.  It appears a “political solution” may be code words for “yeah, we’re climbing down too.”

Don’t expect a climbdown here.  At least not anytime soon. Not only has President Obama said he doesn’t need Congress’s approval, he’s also decided he doesn’t need to inform the American people of his decision via a televised Oval Office announcement.  However he would like the cover of a coalition (my, the shadenfreude here is delicious, isn’t it?).

If one had to guess, however, any strike this week would be sans the British and the French.  And that may be enough to delay an American strike (don’t forget, President Obama claims he hasn’t made a decision yet).

Meanwhile in the Med, tensions spiral up as Russia decides to flex a little naval muscle in the area:

Russia will “over the next few days” be sending an anti-submarine ship and a missile cruiser to the Mediterranean as the West prepares for possible strikes against Syria, the Interfax news agency said on Thursday.

“The well-known situation shaping up in the eastern Mediterranean called for certain corrections to the make-up of the naval forces,” a source in the Russian General Staff told Interfax.

Interesting.  And, if the strikes don’t happen now, who will claim to have helped call the coalition’s bluff?

As with most things concerning foreign affairs that this administration involves itself, this is turning into a debacle of major proportion.

Stay tuned.


The flight of the ‘greedy rich’

France’s prime minister, Jean-Marc Ayrault, is hopping mad. In response to the French socialist government’s plan to significantly increase taxes on "the rich"—including a proposed 75% tax on incomes above €1 million—rich people are moving out of the country. This is intolerable to Mr. Ayrault.

"Those who are seeking exile abroad are not those who are scared of becoming poor," the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis.

These individuals are leaving "because they want to get even richer," he said. "We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity," he added.

It could be a scene right out of "Atlas Shrugged".

Mr. Ayrault is angry because rich Frenchmen are fleeing the country to keep their money, instead of handing it over to him. And he is joined by the baying of the other hounds in France’s left wing. Case in point, French actor Gerard Depardieu, whose announcement that he was moving to Belgium provoked responses such as:

Socialist MP Yann Galut called for the actor to be "stripped of his nationality" if he failed to pay his dues in his mother country, saying the law should be changed to enable such a punishment.

Benoît Hamon, the consumption minister, said the move amounted to giving France "the finger" and was "anti-patriotic".

In a stinging editorial, Libération, the left-leaning daily, called him a "drunken, obese petit-bourgeois reactionary".

They are owed this money, by God, and how dare you try and steal it away from them!

This is always the implicit argument of the Left: They have the first claim to your income, and you have a duty to honor that claim. No matter how you earned that money, they have the right to take as much of it as they please away from you, and if you dispute that right, you’re unpatriotic, and should be punished.

This is Leftism in a nutshell. You are not a free individual, but rather a serf of the state or some other politically-defined "larger community" that has an absolute claim on your property and income that you may not defy. This is no different in concept, or in practice, than the idea of ancient Babylon or Akkad that every subject is a slave of the king.

You can dress it up in high-sounding phrases like "solidarity" or "social justice", "helping the poor" all you want, and it still amounts to nothing but the simple declaration that the state owns you.

The people who believe in this idea are the enemies of freedom, and should be treated as such.

Dale Franks
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France to impose a 75% tax on "the rich"

The “you didn’t build that” gang’s attempt to get the “rich” to pay what they characterize as their “fair share” in taxes (when in fact in almost every western country they pay more than their fair share) is about to get tested in France:

The call to Vincent Grandil’s Paris law firm began like many others that have rolled in recently. On the line was the well-paid chief executive of one of France’s most profitable companies, and he was feeling nervous.

President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. “Should I be preparing to leave the country?” the executive asked Mr. Grandil.

The question asked by the client is typical of what will happen if such a tax is imposed … anywhere.  If you believe “the rich” are going to lay back and take it, you’re crazy.  They will do what is in their best interest and paying 75% taxes on what they earn isn’t in their best interest.  We’ve often talked about the Laffer curve and how it applies to taxes.  How at some percentage of taxation, revenues will drop and in some cases drop dramatically.

That’s precisely what that client’s question indicates will happen in France with a 75% “rich” tax.

France has a history of punitive taxation which is one reason it no longer is considered much of a economic power:

[T]he proposal is the latest red flag in a country that has long labored under the image of being a difficult place to do business. 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.

Businesses don’t have to stay and take France’s coercive tax rates anymore.  There are countries more than happy to accept their businesses and the boost to the economy they bring. 

And, that goes for “le rich” as well.  ‘Leaving the country’, in the case of France, doesn’t necessarily mean moving too far:

“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.”

You’d think, for anyone with an ounce of common sense, this outcome would be obvious.  Apparently not.  And so France will drive off its rich, see revenues in that income bracket drop even while the tax percentage is increased to 75% and attack those who’ve avoided those taxes as “greedy”.  Just watch.

Of course I agree with the words of Dr. Thomas Sowell in that regard:

“I’ve never understood why it is “greed” to keep money you’ve earned, but not greed to take somebody else’s money”.

Yeah … me neither.  Right now, the greediest entities on earth are governments.


Twitter: @McQandO

A new day dawns in France … well, not really

If this is any indication of how France’s new president elect, Francois Hollande, plans to govern, I pity the French as well as the rest of Europe:

The 57-year-old Socialist has openly admitted that he “does not like the rich” and declared that “my real enemy is the world of finance”. This means taxing the wealthy by up to 75 per cent, curtailing the activities of Paris as a centre for financial dealing, and ploughing millions into creating more civil service jobs.

Add an explicit threat to renegotiate the euro pact to replace austerity with “growth-creating” spending, and you have one of the most vehemently left-wing programmes in recent history.

Of course reading through that helps one understand why, after learning of his victory, President Obama immediately invited him to the White House.  Let’s see, tax the rich, go after the financial sector, grow government jobs and borrow, borrow, borrow to spend, spend, spend.

Huh … sounds familiar.


Twitter: @McQandO

Half Solutions Will Not Work

Brett Arends is skeptical about Europe’s current direction:

Their proposal is preposterous. Anything can happen in this life, but it would be remarkable indeed if this idea got off the ground. Anyone pinning their hopes that this will solve the crisis needs to think it through.

Why would the Portuguese accept the right of Germany to impose budget cuts on their country? Why would the Greeks?

Would we accept that role for the Chinese and the Japanese, the biggest holders of Treasury debt? How would you feel if you opened the paper to be told that the new Sino-Japanese “Fiscal Stability Commission” in Washington had just slashed your grandma’s Social Security checks by one-third, scaled back federal highway repairs, and that it would impose a 10% national sales tax?

That is, after all, effectively what is being offered to the people of Greece, Italy, Spain, Portugal and Ireland.

It’s absurd. There is no reason why these countries should have to surrender sovereignty. They can simply, where necessary, default. A default by, say, Louisiana would not destroy the dollar. Neither did the bankruptcy of Enron or Lehman.

What happens when after signing the new treaty (if it ever actually comes to be) the Greeks or Italians decide to thumb their noses at the EU and default anyway? Kick them out? Isn’t that right where we are now? Isn’t the fear that countries are kicked out or leave leading to financial chaos and defaults? Will these countries truly continue to pay their bills and accept austerity in the face of a severe recession/depression?

If that is the concern, just as I have been pointing out for some time, anything short of true fiscal and political union will fail. The right of existing states to refuse to honor the treaty (remember the last one was treated as inconsequential by violators, including Germany and France) cannot exist which means the right of states to secede or be expelled from the union cannot exist. If that option is not off the table then Eurozone bonds cannot be treated as risk free. If they are not seen as risk free then they will be rated accordingly and the Eurozone will be unstable as Louis-Vincent Gave points out:

Basically, we have to remember that the average sovereign debt buyer is not a hazardous investor. The guy who buys a government bond is looking for a very specific outcome: he gives the government 100 only so he can get back 102.5 a year later. That’s all the typical sovereign debt investor is looking for. Nothing more, nothing less.

But now, the problem for all EMU debt is that the range of possible outcomes is growing daily: possible restructurings, possible changes in currencies, possible assumption of other people’s debt, possible mass monetization by the central bank etc. Given this wider range of possible outcomes, and the consequent surge of uncertainty, the natural buyer of EMU debt disappears. Again, the typical sovereign investor is not in the game of handicapping possible outcomes; he is in the game of getting capital back!

This is very problematic because once uncertainty creeps in, bonds will tend to gradually drift towards what I have come to call the bonds “no-man’s-land”. Basically, once sovereign bonds reach 90c to par, they tend to have a much higher volatility and much greater uncertainty. As a result, they are no longer attractive to the typical bond manager or asset allocator looking to buy bonds to diversify equity risk (think how Italian bond yields are now correlated to European equities. If you want to be bullish Italian bonds, you may now just as well spend a fifth of the money and buy European banks for the same portfolio impact…). And once a bond enters into no-man’s-land, it has to fall a lot before attracting the attention of distressed debt and vulture investors (usually yields of 15%+). So the first obvious problem is that more and more European debt markets are entering this “no man’s land” bereft of “normal” investors.

Do these countries need the Euro over the long term to be prosperous? More Brett:

The British look smarter and smarter for staying out of the euro area in the first place. Prime Minister John Major, and then, later, Chancellor of the Exchequer Gordon Brown, each took the decision to keep the British pound free. At the time fashionable opinion predicted disaster for the Brits. So much for that.

(Predictably, fashionable opinion now says the Brits look “isolated” for staying out. Really, you couldn’t make it up).

My guess is Brett is correct that we are no where close to a real resolution, which is a path to political unification or breakup.

It has long been clear the Franco-German duo wanted to use their shared currency to bludgeon the continent into something closer to a federal system.

Any investor pinning their hopes on this bird flying needs to be aware it looks a lot more like a turkey than an eagle.

This week’s meeting of European leaders already marks the fifth “summit” to solve the region’s debt crisis since early 2009.

My favorite comment this time: “After a series of ‘final’ summits, it would be nice this time to have a real ‘final’ summit.” That was from Standard & Poor’s chief European economist, appropriately-enough named Jean-Michel Six. What’s the betting Mr. Six will be attending Summit No. Six in the new year?

Which is not to say that the ECB or some other entity couldn’t stem the immediate crisis and kick the can further down the road. Maybe, but if so the question is how far? A week, a year, five years? That I cannot answer now.

Credit rating downgrade fallout

First among the reactions globally was that of China:

China bluntly criticized the United States after the S&P ratings cut to AA-plus, saying Washington had only itself to blame and calling for a new stable global reserve currency.

"The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China’s official Xinhua news agency said in a commentary.


Xinhua scorned the United States for a "debt addiction" and "short sighted" political wrangling. China, it said, "has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets."

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said.

If you think it is bad now, consider our predicament if the dollar was to be replaced as the new global reserve currency.  However it is ironic to be lectured by the Chinese on economic matters given their ideological bent.  Communists telling Capitalists (pseudo anyway) how they should conduct their business. 

France, on the other hand is expressing faith in the US’s ability to get its house in order, as is Poland’s Prime Minister:

France’s Baroin said France had faith in the United States to get out of this "difficult period." Friday’s U.S. unemployment numbers were better than expected and so things were heading in the right direction, he said.

"One should not dramatis, one needs to remain cool-headed, one should look at the fundamentals," he told France’s iTele.

"There is no need for panic," Polish Prime Minister Donald Tusk said. "We will see in August, and maybe more intensively in September what the effects for the world economy will be."

Of course, with the huge problems in Europe, both France and Poland are inclined to play down the significance of a US downgrade.  And  more interesting than what will happen later this month or next may be what happens on Monday, the first day global markets will mark their reaction to the US credit downgrade:

Because the S&P move was expected, the impact on markets may be modest when they reopen on Monday. But the ratings cut may have a long-term impact for U.S. standing in the world, the dollar’s status and the global financial system.

"The consequence will be far reaching," said Ciaran O’Hagan, fixed income strategist at Societe Generale in Paris.

"It will weigh on secure assets. The bigger reaction will be on risky assets, including equities and on agencies (Freddie Mac, Fannie Mae) and states backed directly by the federal government."

But he added: "U.S. Treasuries will remain a benchmark. This is a ship which takes a long time to turn around."

Norbert Barthle, a budget expert for German Chancellor Angela Merkel’s conservatives, said the downgrade would certainly provoke further turbulence in markets.

Everything mentioned is very important to the future of the US economy and its financial health.  Unfortunately most of it is negative.  In the next few months we’ll see how this shakes out, but at this point, even the optimists are pessimistic.


Twitter: @McQandO