Tax and Spend Policies Threaten US, Europe; Misguided Policies Everywhere Threaten Global Growth

Although all eyes have been focused on the PIIGS in Europe (Portugal, Ireland, Italy, Greece, and Spain), and the CINN group in the US (California, Illinois, New York, New Jersey), tax and spend problems are everywhere you look, including Germany.

Please consider German Municipalities face €15-billion shortfall.

Germany’s local governments are slipping into their budget worst crisis since World War II, with total deficits of €15 billion forecast for this year, the German Association of Cities warned Friday.

The association’s president, Frankfurt Mayor Petra Roth, told the Frankfurter Rundschau that the dismal environment for tax revenues in 2009 meant a new record deficit was looming.

It would be €3 billion worse than previously thought, Roth said, and would nearly double the previous record deficits of 2003. Over the past year alone, municipalities had spent at least €7 billion more than they took in, she said.

“Our budgets are completely overstretched,” Roth said, adding that she welcomed Chancellor Angela Merkel’s recent statement ruling out tax cuts for the time being.

She blamed poor federal government policies for the dire situation of the municipalities, saying that about half the shortfall were due not to the economic situation, but to tax policies.

The Finance Ministry’s approach in its efforts to reform the tax system had been “ineffectual,” she said.

Meanwhile Back in the US ...

In a crucial budget address on Friday, California Governor Arnold Schwarzenegger blew a golden opportunity to propose radical changes like privatizing the prison system, privatizing work in general, sending illegal aliens home, or getting rid of defined benefit plans.

Instead, Schwarzenegger wimped out on many key issues. (please see Schwarzenegger's Budget Addresses Few Structural Issues for details).

In general, over the last couple decades, the US has been becoming more like Greece, taking form productive members of society and giving it to the union parasites and others in social distribution schemes.

“We will not pass a budget that eliminates CalWorks,” state Senate President Darrell Steinberg told reporters after the governor’s speech. “We will not be party to devastating families. That’s not what any of us came to Sacramento to do.”

Who wants to cut taxes and spending?

Not Frankfurt Mayor Petra Roth, not Schwarzenegger, not Illinois Governor Pay Quinn, and certainly not president Obama.

Many Republicans say they want to cut taxes and spending, yet in spite of all the talk from Republicans, only one person has solidly delivered on either front: New Jersey Governor Chris Christie.

Everyone else is beholden to public unions, social wealth distribution schemes and higher taxes. Illinois Governor Pat Quinn is running on a platform of 50% higher state income taxes. Of course he has the backing of public union parasites who would be the biggest beneficiary of his ridiculous proposal.

Misguided Policies Threaten Global Growth

I have news for the world: Tax and spend foolishness will cost global growth. Robbing the wealth producers and giving free handouts to public unions and other freeloaders is not a recipe for growth. Nor is higher taxes.

Bernanke stated there will be no drop in unemployment unless GDP growth averages 2.5% or better. Well I have news for Bernanke too: US GDP will be lucky to average 2.0% a year over the next decade with the tax and spend, wealth redistribution policies of Obama.

Europe is in the same boat, including Germany. Moreover, bailing out Greece at the expense of Germany and France does not cure any structural problems in Europe.

China Not a Beacon of Growth

Structural problems abound in China as well. Printing Renminbi (Yuan), to build cities no one can afford to live in, or shopping malls where no one shops, is not growth; it's malinvestment.

When China slows, and it will, that in turn will affect the economies of the commodity producing countries like Canada and Australia.

While nearly everyone is cheering the 1-year results of the Fed, ECB, and central bank of China, in reviving the global economy, I note that the recovery is totally a mirage, that spending money does not jump-start a recovery.

Moreover, from Frankfurt Germany, to Springfield Illinois, to Sacramento California, to Washington DC, to Beijing China, the only person addressing structural issues in any meaningful manner is Governor Chris Christie of New Jersey.

While I salute Governor Christie, his one man band of sensible economic policies will not single-handedly jumpstart global growth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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