A Credit Rating Downgrade And A Market Collapse Coming In Weeks: Wealthy Fleeing France, UK, U.S. As The Country Is Entering An Era Of Fiscal Austerity And Tax Rates Becoming Unbearable, Fiscal Cliff Deal Looking Increasingly Unlikely, And Economic Growth In Advanced Economies Is Essentially Over!

from Phoenix Capital Research

The market continues to track the same pattern it performed going into the failed debt ceiling talks of July 2011. As you’ll recall, then as is the case now, US politicians failed to reach a credible solution to the US’s debt problems. What followed was a credit rating downgrade and a market collapse:

Here’s the S&P 500’s recent action:

Here’s the S&P 500’s action going into the failed debt ceiling talks of 2011:

Here’s what followed:

Be forewarned. As noted earlier this week there are no political incentives for the GOP or Democrats to propose a real solution to the fiscal cliff. So it is highly likely we will be going over the cliff.

Another item holding up the market is hype and hope of more QE from the Federal Reserve at its December 10-11 meeting. I have to admit, I find this proposal completely baffling. Macroeconomics 101 dictates that it takes a full six months or more before a change in monetary policy by the Fed will be fully digested by the system. The Fed just announced a new program three months ago. So the academics at the Fed aren’t even drinking their own Kool-Aid anymore….

BREAKING: Boehner: Obama Walking Economy to Edge of ‘Cliff’

The End Of US Is Coming? Jobless Rate Falls To 7.7% Due To 540,000 People Drop From Labor Force While The United States Actually Has A Higher Percentage Of Workers Doing Low Wage Work Than Any Other Major Industrialized Nation Does!

Warning: Survey finds small business hiring is set to plunge next year
“Net hiring expectations have declined to levels last seen in late 2008… Such low expectations were followed by massive layoffs in early 2009…”

Fiscal Cliff 2013: Why It’s Looking Like No Deal

Expectations have changed lately regarding fiscal cliff 2013. It’s looking increasingly likely that we are going over it.

U.S. Treasury Secretary Timothy Geithner, U.S. President Barack Obama’s lead delegator on the fiscal cliff talks, told CNBC the Obama administration is “absolutely” prepared to go over the cliff if Republicans don’t change their tune on taxes.

President Obama and Republican House Speaker John Boehner on Wednesday, along with Congressional Republicans, reiterated their stance on the fiscal cliff. No compromise was reached, with just 25 days remaining before zero hour.

President Obama maintains there could be a quick deal if Republican lawmakers withdraw their resistance to raising taxes for individuals earning more than $250,000 a year, swapping for concessions on federal spending cuts and entitlement reforms….


The US Is Entering A New Era Of Fiscal Austerity

In discussing the fiscal cliff issue, the one big takeaway not to forget is that it is all about austerity—-extreme austerity if we go over the cliff and a lesser amount of austerity if we settle it before year-end.

More than likely, this is the start of new era of fiscal austerity in the U.S.  In no way do we see this as a solution to the myriad of problems besetting the U.S. economy and stock market. 

These include the still excessive level of household debt that is the main culprit holding back economic growth, a loss of economic momentum in the last few months, declining earnings estimates and guidance, the European recession and the growth slowdowns in the BRIC nations and emerging markets.

Austerity Pushes Europe Into Its Second Recession In Four Years


Wealthy Americans Fleeing The U.S. As Tax Rates Becoming Unbearable

Just counting federal, state and local income taxes, some Americans will be paying marginal tax rates of over 50 percent in 2013.  But like I said, there are a lot of other taxes we pay than just those.

1. Thanks to Proposition 30, many high income residents of California will be paying marginal income tax rates of51.9% in 2013 if the fiscal cliff is not avoided.  Keep in mind that the 51.9% figure only includes federal and state income taxes.  It does not count any of the dozens of other taxes that we pay each year.

2. If a fiscal cliff deal is not reached, many residents of New York and Hawaii will also be paying marginal income tax rates of more than 50 percent.

3. If Americans fully funded the government through their taxes without any borrowing, the average American would have to work for 197 days just to meet the expenses incurred by government.

Income tax will exceed 50% in California, Hawaii, and New York City

Thanks to passage of Proposition 30 last month, high-income Californians would pay the nation’s highest marginal income tax rates – nearly 52 percent — if President Barack Obama and Congress fail to make a deal to avoid the so-called “fiscal cliff,” according to a new study.

Article Continues Below

Any civilization that taxes it’s people more than 50% has always fallen.



Business Fleeing France as 75% Income Tax Looms

A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say.

“It’s nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market,” said managers at Daniel Feau, a real-estate broker that specialises in high-end property.

While it is not yet on the scale of the exodus of rich French after the election of Socialist president Francois Mitterrand in 1981, real estate agents said, the tax plans of France’s new Socialist President Francois Hollande are having a noticeable effect.

While the Socialists’ plan to raise the tax rate to 75 percent on income above 1.0 million euros per year has generated the most headlines, a sharp increase in taxes on capital gains from the sales of stock and company stakes is pushing most people to leave, according Didier Bugeon, head of the wealth manager Equance.

Read more here: http://www.newsmax.com/Newsfront/business-flees-france-income/2012/10/07/id/459007

Two-thirds of millionaires left Britain to avoid 50p tax rate – Telegraph

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50p top rate of tax, figures have disclosed.

Read more here: http://www.telegraph.co.uk/news/politics/9707029/Two-thirds-of-millionaires-left-Britain-to-avoid-50p-tax-rate.html

Peter Schiff: The Fantasy of a 91% Top Income Tax Rate

Democratic Party leaders, President Obama in particular, are forever telling the country that wealthy Americans are taxed at too low a rate and pay too little in taxes. The need to correct this seeming injustice is framed not simply in terms of fairness. Higher tax rates on the wealthy, we’re told, would help balance the budget, allow for more “investment” in America’s future and foster better economic growth for all. In support of this claim, like-minded liberal pundits point out that in the 1950s, when America’s economic might was at its zenith, the rich faced tax rates as high as 91%.

True enough, the top marginal income-tax rate in the 1950s was much higher than today’s top rate of 35%—but the share of income paid by the wealthiest Americans has essentially remained flat since then.

In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.

So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same? Two factors are responsible. Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.

In reality, tax policies that diminish the incentives and capacities of innovators, business owners and investors will not spur economic improvement. Such policies will, however, satisfy the instincts of those who want to “stick it to the rich.” Never mind that the rich have already been stuck fairly well.

More Wealthy Americans Voting With Their Feet, Fleeing The U.S.

America’s rich are renouncing their citizenship at record levels — just to get richer.

Startling new data from Uncle Sam show that defections by Americans are expected to double this year, largely to avoid any stiff tax bills resulting from the proposed 55 percent hike on the rich — as well as the likely expiration on Dec. 31 of the Bush era tax cuts.

As many as 8,000 US citizens are projected by immigration officials to renounce in 2012, or about 154 a week, versus 3,805 in 2011, or about 73 per week.

“High-net-worth individuals are making decisions that having a US passport just isn’t worth the cost anymore,” said Jim Duggan, a lawyer at Duggan Bertsch, which specializes in protecting assets of the wealthy….


Have We Really Seen The End Of Growth?

If you believe Robert Gordon, the Northwestern University professor whose work on technological progress – or to his mind, the lack of it – is gaining a cult following, economic growth in advanced economies is essentially over, not just for now, but forever.

In itself, there is nothing new about gloom laden “declinism” of this sort; it’s almost as old as humanity itself, and invariably it’s in the ascendant at times like this, when everyone is down in the dumps and barriers to growth seem almost insurmountable.

Yet there are good reasons for believing there may be something in it this time around. With long yields on government bonds in any halfway creditworthy advanced economy tumbling to historic lows, this seems to be the predominant view of millions of investors around the world. Money managers are betting on low to nil or even negative growth way out into the indefinite future.


Peter Schiff: Many Other Cliffs Await the US Economy



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