Next Up, The Netherlands and France

I would love to be a fly on the wall at Davos. I can only imagine the panic filled discussions being had over not just Brexit, but also the defeat of Hillary Clinton.  All of their plutocratic wealth accumulation schemes at the expense of the common person, and neoliberal plans of incessant domination as of now, look for them to be a giant ice cream cone that is melting before their eyes and in their hands due to the heat of populism. Even when they leave their luxurious surroundings in the snow-peaked Swiss Alps at the annual World Economic Forum, they will continue to have nightmares and dreams of what could have been because of what is up next at the plate.

Within the next 8 weeks the Dutch general election will happen on March 15. As it stands, the current front runner and favorite is the leader and founder of the Dutch Party for Freedom (PVV) Geert Wilders. The PVV has been described as being far-right and anti-Islam with Wilder himself recently being tried (for hate speech) in court, accused of inciting hatred against Moroccans. His crime was asking a crowed at a rally in 2014 if they wanted “fewer or more Moroccans in your city and in the Netherlands”. After the throng began to shout “fewer, fewer,” he responded: “We’re going to organize that.” Although the resulting verdict found Wilders guilty of inciting discrimination, his views and support has only grown. Like Trump, he is seen as an anti-establishment firebrand who speaks the language of the people and tells it like it is.

Pundits have projected that the PVV could win as many as 35 seats this year which would make it the majority power in the 150-seat Dutch parliament. Present policy positions presented by the PVV include but are not limited to closing down all Islamic schools and mosques, shutting down the borders, a complete ban on migrants from Islamic nation states, banning the Koran and calling for a referendum on Dutch EU membership in a hope to pull the Netherlands out of the 28-nation institute, should he become prime minister. Thus it is not improbable that the Christian Wilders, with his promise to start a complete "de-Islamification" of the Netherlands, could become the country's next Prime Minister.

After the Dutch elections, in April and May the first and second rounds of the French presidential elections will take place, and like the Netherlands, the far-right has a strong chance of winning. As it stands, Marine Le Pen of the National Front is just a few points ahead of her conservative rival and former front-runner François Fillon of Les Républicains party based on recent surveys conducted by Ipsos Sopra Steria for Sciences Po University Research Centre (Cevipof) and Le Monde. In the past French voters have supported the National Front to the runoff stage of elections; however this was when the current candidate’s father was running. This time it will be after both the election of Donald Trump and the Brexit vote. Like Obama, the French reflect a similar level of disappointment for both François Hollande and his predecessor Nicolas Sarkozy. Trump’s anti-NAFTA rhetoric is similar to the position of Le Pen regarding the European Union trying to establish a free-trade zone across Europe and North America that would be called the Transatlantic Free Trade Area (TAFTA).

Like Trump and Wilders, Le Pen boasts a similar form of political nationalism. She has been extremely critical of the migration policy of German Chancellor Angela Merkel and has ceaselessly indicated her desire, being labeled a Eurosceptic, to take France out of the EU and/or euro seeing she has pledged to hold a referendum on France’s membership in the organization. In addition she holds views some have described as being anti-Islam. For example, she believes that the children of illegal immigrants should not have access to French public schools. In concert with president Trump, she is for working closer with Russian President Putin and sees the utility of NATO as being questionable. In one recent interview with the BBC she was quoted as stating, “NATO continues to exist even though the danger for which it was created no longer exists.”

Whatever the result, a Le Pen win is set to usher in a new age of right-wing politics for France after decades of centrism. With the UK removed, along with Germany there remains only France to hold the top positions of power in the EU as nation states. And for this to continue, Le Pen and her far-right party would have to fall in defeat to her center-right opponent. If not a Le Pen victory could mean the end of Europe as we know it.

If France’s Marine Le Pen and the Netherlands’ Geert Wilders were to become president and Prime Minister of their respective nations, the impact of their victories would likely be felt far beyond Europe, especially with elections on the horizon in Germany. Not only could it result in a domino-effect of Brexit-style referendums in other member nations, it may entrench the observation that globally in the west, the mistrust of established corporate, media and political elites will continue to display itself in a tug of war between populist and establishment forces. Also, it will signal that more policies that are anti mass immigration, anti-austerity and anti-EU may not be too far behind.

Neoliberal detractors may say that politicians like Trump, Le Pen and Wilders are exploiting a populist agenda by capitalizing on irrational beliefs and views. Unfortunately the reality is that people are sick and tired of not having their political, or any interest represented by the contemporary status quo and feel they are not being represented by, or benefiting from current dysfunctional,neoliberal or neoconservative mainstream policies.  They have seen what has happened in Greece and the impact that mass immigration and migration policies can have on a nation’s security and serenity.  They are seeing increasing levels of terrorism once where they had not and are experiencing little and little less in their wallets and purses to even meet their basic needs. Even more sad and offensive is that mainstream politicians and most journalist not only are not trying to understand these phenomena but rather ignoring them as if a passing fad.

So if the Netherlands and France are next to follow Trump and Brexit, it could significantly damage the dream of a single unified shared economy for the Eurozone and significantly weaken the European Union as a world power and more importantly, signal that populist movements will continue to cultivate in Europe and the progressive left and other traditional supporters of neoliberalism will remain behind the curve or on the outside looking in.

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War of Taxes

Around 600 years ago in England there was a war.  It was between the House of Lancaster and the House of York and was called ex post facto the Wars of the Roses. It was a petty and bloody war and ended when Richard III, the last Yorkist king, was defeated by Henry Tudor founder of the house of Tudor at the battle of Bosworth in 1485. We may be in for a similar metaphorical history making period of time if the tea leaves read from Brexit, the election of Donald Trump, and with Italian voters rejecting Prime Minister Matteo Renzi’s referendum on constitutional reforms and the established world order with a “no” vote this past Sunday. If so, an ample title for this allegory could be the “War of Taxes.”

Here in America, liberals have been so caught up on raising taxes on the wealthy that they missed the picture worldwide in terms on how these policies impact not only the world transnational economics but also the common citizen. This means that tax policy has to consider global and national economic interest equally.

As it stands, Ireland with a 12.5% corporate tax rate, has one of the lowest in the world. The federal corporate tax rate in the U.S. is 35 percent. Thus using basic math, if a company constructs a factory in Ireland that produces $1 million in profit, it will pay $125,000 in Irish tax compared to $350,000 that it would pay if it built the same factory in the U.S. This is a large difference seeing that the Organization for Economic Co-operation and Development (OECD) notes that the U.S. has the highest corporate income tax rate among its 35 industrialized member nations.  What does this mean? Well knowing that Ireland is in the midst of a deep recession, the last thing there economic policy needs is to run-off foreign investment.

The U.K. has a similar economic problem. But after their June 23 Brexit vote to leave the European Union, under the leadership of U.K. Prime Minister Theresa May,they are going out of their way to comfort international companies to show that the U.K. will become an even better place to do business. Although what the U.K. corporate tax policy will be (whether she would be willing to embrace a suggested cut to 15% or to cut the rate by 2020 to 17%), the British government commitment to lower corporation tax is being well received and it is certain that in the future, it will be significantly lower than current levels and would give the nation the lowest corporate-tax rate among G20 nations. Presently the U.K. corporate tax rate is 20%, which is one of the lowest in the G-20 and the same as Russia, Turkey and Saudi Arabia. 

President elect Donald Trump has also expressed the importance of addressing the U.S.corporate tax rate. If we look beyond the G20 to the top 188 economic nations, the U.S.’s corporate tax rate is the third highest in the world, lower only than the United Arab Emirates’ rate of 55 percent and Puerto Rico’s rate of 39 percent, with the worldwide average corporate tax rate being 22.5 percent. Trump has proposed reducing the US federal tax from 35% to 15%. If this happens, in particular with a GOP dominated House and Senate, we may see the possibility of additional cuts in other nations. Steven Mnuchin, Trumps U.S.Treasury Secretary-nominee is already on record saying he wants to make tax reforms to increase job growth his main priority.

Before you say that Trump economic policy is impractical, be reminded that the U.S. is not the only country pushing for lower corporate tax rates. In 2015 Italy moved to lower its national corporate tax rate 24% starting in 2017 and Canada and Japan are just two of other countries currently in the process of lowering their corporate tax rates to attract new transnational businesses. Canada currently has a corporate income tax rate of 26.7 per cent. Even Japan, in an effort to promote growth just reduced its corporate tax rate to 30%. Germany along with Ireland made big cuts in an effort to attract corporate investment more than a decade ago and it has proffered effective. 

All of the above may be a forewarning of what may be on the horizon – a war of corporate tax rates around the globe.  This should only be expected since after losing regulatory requirements and closing tax loopholes, the only thing left to promote domestic economic growth in pragmatic terms is to reduce ones national corporate tax rate. Moreover, given that the U.S. doesn’t have a value-added tax (VAT or federal sales tax), having higher corporate tax rates will continue to serve as an impediment to economic growth domestically in terms of increased wages and jobs.  It is not a requirement that we turn into a Greece before we learn the lessons of Greece. So although the War of the Roses is history, maybe 600 years from now, history books will be talking about the war of taxes.

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Playing the Markets on the Trump Effect

Over the past week I have noticed many big speculators of the Wall Street ilk expressing, via their monetary and personal wealth actions, that if Trump wins the general elections that they think the market will tank.  It was cool for a while with everyone thinking Hillary had this election in the bag but recently it appears the fear that Donald Trump could win has set in on Wall Street. Some of the experts say that a Trump victory would most definitely reduce the value of the S&P 500 and other global stock markets by 10-15%. Given this, it wouldn’t surprise me if the largest panic attack is occurring in the equity market arena.

Seems major global financial institutions are afraid of what an unscripted President Trump would do.  Would he tear up trade agreements? What would that do to world markets?  Will our trade partners cause a trade war as a retaliatory action? What we do know, based on his position papers is that a Trump presidency would likely mean a major tax code transformation, the ending or renegotiation of NAFTA and taxing hedge funds, among other things.

The first sign for me was the dollar. The dollar has been slipping to yen and the euro been slowly moving up. The dollar has also added to the Mexican Peso. While at the same time, we see bond yields going down along with stocks.  Even before this, all the chatter should have given warnings of such with so much attention being placed on interest rates and inflation.  Around the globe, the feeling is that a rise in inflation is on the way.  Warnings of bond market inflation have been uttered from Germany to Canada. If this true then our currency will purchase less and prices will be going higher and higher.

This is what I have to say, just because the markets panic, you should not. When that piercing immediate sell-off on the markets that is bound to happen if Trump wins according to the mainstream (see Brexit) then jump in and buy, buy, buy if you got any spare loot. What I anticipate is that we will see and experience what we observed after Brexit. The market will go through a massive panic sell-off due to perceived future uncertainty and eventually bounce back. We saw this with the Brexit vote when the pound dropped sharply after the vote to leave the EU. Now some months later we see the pound jumping to an almost one-month high against the dollar. In fact the same experts are outing a similar outcome with a Trump Victory as they did with a Brexit vote – that if fully implemented, Trump's economic policies will result in a loss of any where between 4 and 11 million U.S. jobs. The main stream media is serving as an echo chamber for these sentiments.

Even before Brexit, when the first steps towards a European currency were taking place in 1972 history saw the Sterling drop out after only six weeks, weaker than ever, bowing to the dictates of the markets.  In 1976 we saw the pound fall below $2 for the first time but eventually the Sterling proved too strong.  What will likely happen, is that Central banks around the world will intervene to keep whatever currency that is on top from becoming too strong. Martin Weitzman in his 2007 paper "Subjective Expectations and Asset-Return Puzzles," noted that most of the time such economic disasters (like a 10-15%) drop on a given index like S&P) did not occur. Although it is possible theoretically that the S&P could fall by X percent for any given number of months, in economic reality you are sure to lose loot in the short-term, but eventually your expected upside will always be greater.  Even if inflation runs well above its target or above short term bond/stock yields.

So I say if there is a Trump effect in the markets, it will prove from now to be a great time to buy s we saw after the crash of 1929.

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