Mish's Global Economic Trend Analysis

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• "Grillonomics" Is a Mess
• "Grillonomics" Beppe Grillo Exchanges Emails with Krugman, Calls on Stiglitz and Fitoussi to Create Five-Star Economic Plan
• EU Calls on Spain to Hike Taxes Again, Economic Stupidity at its Finest

"Grillonomics" Is a Mess Posted: 05 Mar 2013 06:48 PM PST I asked reader "AC" who is from Italy but now lives in France for some comments on "Grillonomics". She replies ... Hello Mish, Your translation seems correct. It's quite astonishing is that a serious newspaper like Les Echos reports this story. It is far from clear and proven that Stiglitz has collaborated to any significant extent on the program of M5S. Some newspapers reported a formal denial from Stiglitz. What is true is that Stiglitz has been writing a few posts (2 or 3) on Grillo's blog, but just that. The main "ideologists" of Grillonomics seem to be Italian economist Mauro Gallegati, Alberto Bagnai (an economics professor in Pescara) and Loretta Napoleoni. Beppe Grillo's economic program is quite a mess. Grillo provides no details on where the money for all the expenditure he wants will come from. M5S wants free Internet, abolition of several taxes, citizenship income, revoking reforms that have made the job market more flexible, and nationalization of banks. Some things he seeks are pro-market, some others not at all. He seeks many tax cuts (a good thing) but he does not specify enough cuts elsewhere to balance. Succinctly, his economic program is a real mess. Grillo's campaign against the "cascade of holdings" refers to a typical Italian situation where few people get control of huge companies via control of preferred shares of intermediate companies. Italian capitalism is frequently made of "capitalists without capital". Regards, AC Italian Cascade Control Explained A search for "Italian Cascade Control" led me to Corporate governance: the Italian Story, a 63 page document that explains the cascade process is one in which companies issue "preference shares without voting rights ... Nearly all the major corporations of the country have grown in a similar manner". Italian regulation allows the issuance of various types of stocks: a) normal or "ordinary" stocks, with full voting rights; b) stocks with limited voting rights but privileged as concerns the distribution of dividends; and c) stocks without voting rights but privileged as concerns the distribution of dividends and reimbursement. The only limitation is that the sum of b and c cannot exceed 50% of the whole capital. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

"Grillonomics" Beppe Grillo Exchanges Emails with Krugman, Calls on Stiglitz and Fitoussi to Create Five-Star Economic Plan Posted: 05 Mar 2013 12:19 PM PST Beppe Grillo's anti-corruption, eurosceptic, Five Star Movement (M5S) is now the largest political party in Italy. Enter "Grillonomics" Via Google translate from French, Les Echos reports Fitoussi and Stiglitz are working on the economic program of Beppe Grillo. All eyes are beginning to converge on the "economic program" Beppe Grillo, still limited to a page and a half on the site M5S. With Italian economist Mauro Gallegati acting as coordinator, Nobel Prize winning economist Joseph Stiglitz and French economist Jean-Paul Fitoussi were called on to help formulate the economic doctrine M5S. "To move from protest to proposal, the first step is to get studying. In this context, I am trying to organize a task force of academics begin to teach the newly elected" said economist Mauro Gallegati, an economics professor at the University of Ancona. "Bruce Greenwald of Columbia University in New York and Jean-Paul Fitoussi will give me a hand," says Gallegati who rejects the label of "Beppe Grillo's Economic Guru." The real "sponsor" of M5S's economic program, based on the decay and the development of clean energy, is mainly Nobel Laureate Joseph Stiglitz (Columbia University), with Bruce Greenwald as one of the closest staff. Paul Krugman has also maintained a dialogue with Beppe Grillo for several years. Globalization, Guaranteed Income, Debt Reductions "Globalization as has been managed seems a pact with the devil. We can ensure that globalization works, not only for the rich and powerful, but for everyone" said a message posted on the M5S blog with a link to a Stiglitz video "Make Globalization Work". Grillo supports a concept of a guaranteed "citizenship income" for all, whose cost is estimated at between 20 and 30 billion euros. M5S advocates "reducing the debt through strong interventions on the cost of the State with the fight against waste and the use of new technologies to make the citizen access to information and services without the need for intermediaries." It also provides for the abolition of stock options and cascades of holding for listed companies. That is a substantially Mish-modified translation from French. I am not sure what "cascades of holding for listed companies" means. It will be interesting to see what this collection of economists comes up with, because Grillo is eurosceptic and I doubt those whose advice Grillo seeks are in the same camp. One thing is for sure: austerity is likely to head out the window, and that will cause fits in Brussels and Germany. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

EU Calls on Spain to Hike Taxes Again, Economic Stupidity at its Finest Posted: 05 Mar 2013 09:59 AM PST The sheer stupidity out of nannycrats in Brussels is staggering. Smack in the midst of a depression, Brussels once again calls on Spain to hike taxes. Via Google translate from El Economista ... The European Commission today called on Spain to restrict the application of the reduced VAT rate and raise fuel taxes to reduce the deficit, and continue reforms in the labor and pensions, delaying the effective retirement age. These requests collide with the ideas defended by the Spanish Government no further adjustment and lower taxes in 2014. Brussels also calls on the Government to implement a stricter budgetary stability law to the autonomous regions in breach of their deficit targets and accelerate the implementation of budgetary control office. Brussels admits that the increase in VAT which applies since last September (from 18% to 21% and the basic rate from 8% to 10% reduced rate) is a "progress" to improve the effectiveness of the Spanish tax system. "However, there is scope to limit the application of different VAT rates low and to increase environmental taxes, especially fuels," says the report. Economic Stupidity at its Finest For those not familiar with the VAT system in Europe, there are varying tax rates on numerous categories of products and services. The lowest VAT rate in Spain went from 8% to 10% and Brussels wants Spain to limit the number of items that get the lowest rate. Brussels calls the hike in the minimum VAT to 10% and the top VAT to 21% "progress". Tax hikes in the middle of a depression is "economic stupidity", not progress. Monitoring Spain's Deficit Not counting bank bailouts, El Economista reports Spain ended 2012 with a deficit at 6.74%. The Minister of Finance and Public Administration, Cristobal Montoro, today confirmed that the total government deficit ended the year 2012 on the 6.74% of gross domestic product (GDP), as reported yesterday the Prime Minister Mariano Rajoy. Also reported that the deficit of the regions was 1.73%, two-tenths above the target. The government closed last year with a deficit of 70.822 million euros, equivalent to 6.74% of GDP, .44 percentage points above the target agreed with Brussels (6.3%). The deficit rises to 9.99% when taking into account the banking aid, which added 3.25 percentage points. This figure is higher than that recorded in 2011, from 9.44% of GDP. The hole in the budget of the regions was 1.73%, when the target was 1.5%, while the local government hole was 0.2%, better than the 0.3% that had been planned. No More Adjustments The finance minister has said he will not take further tightening measures in 2013 because it is not necessary. "There will be no need for further action," said Montoro. Battle Over Adjustments The two biggest problems in Spain are government spending and lack of labor reforms, so the solution cannot possibly be higher taxes. Yet, higher taxes is exactly what Brussels demands, smack in the midst of an economic depression, and smack in the face of a "no more adjustments" statement from Spain's finance minister. Those tax hikes are guaranteed to be counterproductive. One can also expect still more bank bailouts. Thus, a rational-thinking person expects another huge budget deficit miss by Spain in 2013 and beyond. For more on the hopelessness in Spain (and the eurozone in aggregate), please see Michael Pettis on Misguided European Optimism   Car Sales Plunge 10% in Germany, 12% in France, 17% in Italy; US Plunge Coming Up The unfortunate thing in this mess is having to listen to Keynesian clowns  shout "I told you so" regarding "austerity" when not a single Austrian economist anywhere would be supportive of these tax hikes (and it is tax hikes and lack of labor reforms, not "austerity" that is wrecking Europe). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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