Tag: finance

As PMI manufacturing surveys are released around the world, we get an early read on the state of glkobal manufacturing. As the below table shows, out of the 25 countries that have reported so far, 8 reported improvements in their manufacturing sectors in September, while 15 recorded a weakening, and 2 remained unchanged.

A reading above 50 reflects expansion, while below 50 indicates contraction.

 

As BofA notes,

There were 8 countries in negative territory and 17 in positive. In particular, Austria, Germany, Greece, Korea, and Norway moved from contraction to expansion, while Italy and South Africa did the reverse.

 

Our China economist note that, thanks in part to the easing measures implemented in the past month, the China PMI was stabilized, but is yet to rebound.

 

Our Europe economist notes that weakness in the Euro Area was mostly driven by Germany. Moreover, he highlighted that Euro Area PMIs (as well as German PMIs) are consistent with moderate expansion in 3Q.

 

Lastly, our UK Economist noted that the decline in the UK PMI was attributed primarily to slower exports growth to the Euro Area, and the index is at the lowest since May 2013.

via Zero Hedge http://ift.tt/1vw5EYT Tyler Durden

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

 

Two years ago, the new seven-member Standing Committee of the Chinese Communist Party Politburo – the most powerful political entity in the country – was introduced to great fanfare. All seven men walked on stage wearing a dark suit and a red tie, but to me the most striking aspect of their appearance was their hair. Yes, their hair. Their dark, immaculately coifed, powerful hair. Despite an average age of 65, not one of these men has EVER been seen in public without sporting a mane that would make their grandsons proud.

On the other hand, consider this handsome man, Bo Xilai. Once the princeling of princelings, the son of a Long March vet, Bo was enormously popular for his Redder-than-Thou politics and enormously rich from his mayoral “crackdown” on organized crime in Chongqing, a municipality with about the same urban population as New York City. To put Bo Xilai in a US context, he was richer than Michael Bloomberg and more politically ambitious than Rudy Giuliani, if either of those two qualities can be imagined. And of course, this 65 year old politician had the luxurious jet-black hair as befits a man of his position.

But alas, Bo’s political reach exceeded his political grasp. Undone publicly for abuse of office and a murder conspiracy, privately for his creation of a top-notch intelligence operation that spied on his fellow Politburo princelings (again to put in a US context, imagine if a mega-billionaire mayor of New York City created his own electronic FBI that could monitor everyone’s market activities … crazy, right?), Bo found himself on the wrong end of a show trial and is currently living out the rest of his days in a Madoff-style cell. How do we know that Bo is gone for good, that he has lost whatever political support he formerly commanded? Because they took away his hair dye. He’s “gone gray”, as they say in the Chinese political lingo, portrayed to the world as a frail old man who not only lost his freedom but much more importantly lost his mojo.
 

 

Patrick Henry famously said, “Give me liberty or give me death!”, a sentiment that makes sense in Western political culture but is met with puzzled looks in the East. Personal liberty is, in an important sense, everything in Western political culture. In Chinese political culture … not so much.  On the other hand, signifiers of personal potency – like maintaining dark hair – have enormous meaning in China and, at times, a diametrically opposed meaning in the West. 
 

Okay, Ben, kinda interesting in a cultural anthropology sort of way, but what in the world does this have to do with investing?

Simply this, and it’s a core Epsilon Theory tenet: the meaning of events and market signals differ hugely from country to country, tribe to tribe, generation to generation. Ferguson does not mean the same thing as Hong Kong. Hong Kong does not mean the same thing as Tahrir Square or even Tiananmen Square. Monetary policy does not mean the same thing in Beijing as monetary policy means in Washington, which in turn does not mean the same thing as monetary policy in Paris or Rome. But we have an innate tendency to act as if these signals DO mean the same thing, and we can totally wrong-foot our investments as a result.

The biggest thing happening in the world today is the growing divergence between US monetary policy and everyone else’s monetary policy. There is a schism in the High Church of Bernanke, with His US acolytes ending the QE experiment in no uncertain terms, and His European and Japanese prelates looking to keep the faith by continued balance sheet expansion.

That divergence plays out mostly in exchange rates, and it has three HUGE implications, one for investment strategy selection, one for global growth, and one for … (gulp!) gold.

First, this is great news for global macro strategies and their low-cost, populist cousins, so-called “alternative beta” strategies. Global macro performance has been absolutely atrocious over the past five years, driven primarily by a coordinated global monetary policy regime that squeezed out the historical patterns of difference between geographies and asset classes. Now that monetary policy is uncoordinated, with every major economic region essentially fending for itself, global macro and alternative beta strategies have “room” to work. To be sure, some of these strategies will still be confounded by an investment regime where monetary policy trumps economic fundamentals at every turn, but the sine qua non for ANY active investment strategy is distinction and dispersion. For the first time in more than five years, we can see this sort of distinction and dispersion in regional macroeconomic policies, giving traditional global macro strategies at least a chance of success. Vive
la difference!

Second, this divergence in regional monetary policy creates enormous strains on the tectonic plates of modern international trade – currency exchange rates. In the absence of a re-convergence of monetary policy I don’t see any compelling reason why recent dollar appreciation should slow down, much less reverse itself, with the obvious consequences for US S&P 500 earnings (negative), commodity prices and commodity-related securities (negative), most EM markets (negative), and European and Japanese earnings (positive). But the greatest risk for global economic stability from a dollar on steroids is, for my money, China. Why? Because as I’ve tried to point out in prior Epsilon Theory notes (here, here, and here), China’s political stability depends on economic growth – it’s the mojo of the Party just as surely as jet-black hair is the mojo of Party leaders – and Chinese growth depends on exports. So long as the yuan is effectively tethered to the dollar, a stronger dollar means a stronger yuan, which means weaker exports to Europe, Japan, and EM’s. Sure, it’s cheaper now to buy more iron ore and copper, so I suppose you could build another ghost city or two to keep the growth train on track, but the Politburo’s only serious answer to the politically existential question of growth is to sell more advanced products to more people, most of whom don’t live in China. That means selling medical devices to Japan and telecom equipment to Germany, tasks made much more difficult by a stronger dollar/yuan. To be clear, I do NOT see some imminent economic collapse in China. But growth is much less certain in China today, and that’s a political problem that the Politburo will stop at nothing to fix. I expect the 180-degree shift in Chinese monetary policy that began this January and paused this summer to accelerate again, which in turn will accelerate political tensions abroad with the US and Japan, as well as political tensions domestically with the mega-rich princeling families. And speaking of domestic political tensions …

Look, I don’t think the meaning of Hong Kong – even to the participants – is some pro-democracy uprising a la the Arab Spring or any of the “color revolutions” our media is so quick to christen. Maybe if we start to see fewer English-language signs and fewer teenagers lifting their smartphone “candles” I’ll change my mind, but right now it seems a lot more like a tepid expression of political identity than a determined effort by determined citizens to change the political system at a fundamental level. This isn’t a release-the-hounds moment like Deng believed Tiananmen Square to be, and it looks like the Gang of Seven in Beijing have decided as much with new orders to pull the police back and let the protesters block traffic and annoy everyone in the city who just wants to get back to business.

But I do think there’s a deeper implication of the Hong Kong protests, one likely to be missed by Western investors who want to project a Western meaning on the events taking place. I think the most important lesson that mainland leaders in the CCP and PLA will take away from the Hong Kong protests is not that the population must be brought to heel, but that they can’t be trusted, that they’re not really one of us. And that’s okay to a certain degree … the potential of “contagion” from Hong Kong to, say, Chongqing seems really remote given the State’s control over media and information flow … but it’s not okay if the “transmission wires” of Hong Kong’s financial system can’t be trusted. Hong Kong is an indispensable financial intermediary for the Chinese State, and I have zero doubt that Beijing will move to cement their control over the sinews of real power here, by any means necessary. One of those sinews of real power is the Hong Kong dollar, which means that Hong Kong monetary policy and the Hong Kong Currency Board – already reduced to a semi-independent satrap – is about to make the transition to full-fledged puppet. This lesson won’t be lost on the mega-rich Chinese princelings, either. The days of parking your mainland wealth in Hong Kong are now over, as it’s no longer a safe haven from the long arm of the CCP. Let the capital flight begin, and watch out below for the Hong Kong dollar.

As for my third point – the implications of monetary policy divergence on gold – I’m always reticent to write about gold because it incites such passion (and I don’t just mean the gold bug camp … poke pretty much any academically-trained economist and you will unleash a furious anti-gold tirade). To be clear, I believe that the meaning of gold today is NOT as a store of value but as an insurance policy against central banks losing control. With market faith in the Narrative of Central Bank Omnipotence at an asymptotic top, the price of that insurance policy – call it $1,200/oz – is as low as it’s going to go. And now with a schism in the High Church of Bernanke, monetary policy divergence, and growing pressures on the tectonic plates of exchange rates we have catalysts for both a generic and geographically specific central bank loss of control.

Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.

via Zero Hedge http://ift.tt/1qXO4II Tyler Durden

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

 

Two years ago, the new seven-member Standing Committee of the Chinese Communist Party Politburo – the most powerful political entity in the country – was introduced to great fanfare. All seven men walked on stage wearing a dark suit and a red tie, but to me the most striking aspect of their appearance was their hair. Yes, their hair. Their dark, immaculately coifed, powerful hair. Despite an average age of 65, not one of these men has EVER been seen in public without sporting a mane that would make their grandsons proud.

On the other hand, consider this handsome man, Bo Xilai. Once the princeling of princelings, the son of a Long March vet, Bo was enormously popular for his Redder-than-Thou politics and enormously rich from his mayoral “crackdown” on organized crime in Chongqing, a municipality with about the same urban population as New York City. To put Bo Xilai in a US context, he was richer than Michael Bloomberg and more politically ambitious than Rudy Giuliani, if either of those two qualities can be imagined. And of course, this 65 year old politician had the luxurious jet-black hair as befits a man of his position.

But alas, Bo’s political reach exceeded his political grasp. Undone publicly for abuse of office and a murder conspiracy, privately for his creation of a top-notch intelligence operation that spied on his fellow Politburo princelings (again to put in a US context, imagine if a mega-billionaire mayor of New York City created his own electronic FBI that could monitor everyone’s market activities … crazy, right?), Bo found himself on the wrong end of a show trial and is currently living out the rest of his days in a Madoff-style cell. How do we know that Bo is gone for good, that he has lost whatever political support he formerly commanded? Because they took away his hair dye. He’s “gone gray”, as they say in the Chinese political lingo, portrayed to the world as a frail old man who not only lost his freedom but much more importantly lost his mojo.
 

 

Patrick Henry famously said, “Give me liberty or give me death!”, a sentiment that makes sense in Western political culture but is met with puzzled looks in the East. Personal liberty is, in an important sense, everything in Western political culture. In Chinese political culture … not so much.  On the other hand, signifiers of personal potency – like maintaining dark hair – have enormous meaning in China and, at times, a diametrically opposed meaning in the West. 
 

Okay, Ben, kinda interesting in a cultural anthropology sort of way, but what in the world does this have to do with investing?

Simply this, and it’s a core Epsilon Theory tenet: the meaning of events and market signals differ hugely from country to country, tribe to tribe, generation to generation. Ferguson does not mean the same thing as Hong Kong. Hong Kong does not mean the same thing as Tahrir Square or even Tiananmen Square. Monetary policy does not mean the same thing in Beijing as monetary policy means in Washington, which in turn does not mean the same thing as monetary policy in Paris or Rome. But we have an innate tendency to act as if these signals DO mean the same thing, and we can totally wrong-foot our investments as a result.

The biggest thing happening in the world today is the growing divergence between US monetary policy and everyone else’s monetary policy. There is a schism in the High Church of Bernanke, with His US acolytes ending the QE experiment in no uncertain terms, and His European and Japanese prelates looking to keep the faith by continued balance sheet expansion.

That divergence plays out mostly in exchange rates, and it has three HUGE implications, one for investment strategy selection, one for global growth, and one for … (gulp!) gold.

First, this is great news for global macro strategies and their low-cost, populist cousins, so-called “alternative beta” strategies. Global macro performance has been absolutely atrocious over the past five years, driven primarily by a coordinated global monetary policy regime that squeezed out the historical patterns of difference between geographies and asset classes. Now that monetary policy is uncoordinated, with every major economic region essentially fending for itself, global macro and alternative beta strategies have “room” to work. To be sure, some of these strategies will still be confounded by an investment regime where monetary policy trumps economic fundamentals at every turn, but the sine qua non for ANY active investment strategy is distinction and dispersion. For the first time in more than five years, we can see this sort of distinction and dispersion in regional macroeconomic policies, giving traditional global macro strategies at least a chance of success. Vive la difference!

Second, this divergence in regional monetary policy creates enormous strains on the tectonic plates of modern international trade – currency exchange rates. In the absence of a re-convergence of monetary policy I don’t see any compelling reason why recent dollar appreciation should slow down, much less reverse itself, with the obvious consequences for US S&P 500 earnings (negative), commodity prices and commodity-related securities (negative), most EM markets (negative), and European and Japanese earnings (positive). But the greatest risk for global economic stability from a dollar on steroids is, for my money, China. Why? Because as I’ve tried to point out in prior Epsilon Theory notes (here, here, and here), China’s political stability depends on economic growth – it’s the mojo of the Party just as surely as jet-black hair is the mojo of Party leaders – and Chinese growth depends on exports. So long as the yuan is effectively tethered to the dollar, a stronger dollar means a stronger yuan, which means weaker exports to Europe, Japan, and EM’s. Sure, it’s cheaper now to buy more iron ore and copper, so I suppose you could build another ghost city or two to keep the growth train on track, but the Politburo’s only serious answer to the politically existential question of growth is to sell more advanced products to more people, most of whom don’t live in China. That means selling medical devices to Japan and telecom equipment to Germany, tasks made much more difficult by a stronger dollar/yuan. To be clear, I do NOT see some imminent economic collapse in China. But growth is much less certain in China today, and that’s a political problem that the Politburo will stop at nothing to fix. I expect the 180-degree shift in Chinese monetary policy that began this January and paused this summer to accelerate again, which in turn will accelerate political tensions abroad with the US and Japan, as well as political tensions domestically with the mega-rich princeling families. And speaking of domestic political tensions …

Look, I don’t think the meaning of Hong Kong – even to the participants – is some pro-democracy uprising a la the Arab Spring or any of the “color revolutions” our media is so quick to christen. Maybe if we start to see fewer English-language signs and fewer teenagers lifting their smartphone “candles” I’ll change my mind, but right now it seems a lot more like a tepid expression of political identity than a determined effort by determined citizens to change the political system at a fundamental level. This isn’t a release-the-hounds moment like Deng believed Tiananmen Square to be, and it looks like the Gang of Seven in Beijing have decided as much with new orders to pull the police back and let the protesters block traffic and annoy everyone in the city who just wants to get back to business.

But I do think there’s a deeper implication of the Hong Kong protests, one likely to be missed by Western investors who want to project a Western meaning on the events taking place. I think the most important lesson that mainland leaders in the CCP and PLA will take away from the Hong Kong protests is not that the population must be brought to heel, but that they can’t be trusted, that they’re not really one of us. And that’s okay to a certain degree … the potential of “contagion” from Hong Kong to, say, Chongqing seems really remote given the State’s control over media and information flow … but it’s not okay if the “transmission wires” of Hong Kong’s financial system can’t be trusted. Hong Kong is an indispensable financial intermediary for the Chinese State, and I have zero doubt that Beijing will move to cement their control over the sinews of real power here, by any means necessary. One of those sinews of real power is the Hong Kong dollar, which means that Hong Kong monetary policy and the Hong Kong Currency Board – already reduced to a semi-independent satrap – is about to make the transition to full-fledged puppet. This lesson won’t be lost on the mega-rich Chinese princelings, either. The days of parking your mainland wealth in Hong Kong are now over, as it’s no longer a safe haven from the long arm of the CCP. Let the capital flight begin, and watch out below for the Hong Kong dollar.

As for my third point – the implications of monetary policy divergence on gold – I’m always reticent to write about gold because it incites such passion (and I don’t just mean the gold bug camp … poke pretty much any academically-trained economist and you will unleash a furious anti-gold tirade). To be clear, I believe that the meaning of gold today is NOT as a store of value but as an insurance policy against central banks losing control. With market faith in the Narrative of Central Bank Omnipotence at an asymptotic top, the price of that insurance policy – call it $1,200/oz – is as low as it’s going to go. And now with a schism in the High Church of Bernanke, monetary policy divergence, and growing pressures on the tectonic plates of exchange rates we have catalysts for both a generic and geographically specific central bank loss of control.

Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.

via Zero Hedge http://ift.tt/1qXO4II Tyler Durden

Just a day after Argentine President Cristina Kirchner, in a televised speech, accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency, Juan Carlos Fabrega – the head of Argentina’s Central Bank – has quit. As WSJ reports, unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%; and it appears the sanity of Mr. Fabrega was too much to bear for Kirchner (and Kiciloff – who had reportedly clashed with the Central Banker also). The reaction – not good – the stock index collapsed over 8%, bond yields spiked and the black-market peso dumped to record lows at 15.65 to the USD (drastically worse than the 8.51 official peso rate).

Fabrega’s departure is “Not a good sign,” said Alberto Ramos, a Goldman Sachs analyst Alberto Ramos, Reuters reports. 

 

“Fabrega was perceived to be a moderating voice and someone that really understood financial market dynamics.”

As The Wall Street Journal reports,

Argentine President Cristina Kirchner replaced the head of the central bank Wednesday, marking the second overhaul of her economic team in less than a year.

 

Mrs. Kirchner named her top securities and exchange regulator, Alejandro Vanoli, as central bank governor after she accepted Juan Carlos Fabrega’s resignation, according to a statement posted on the presidency’s press website.

 

Mr. Fabrega’s resignation came a day after Mrs. Kirchner in a televised speech accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency. Argentina’s central bank has little autonomy from the federal government and the president in practice can hire and fire its senior executives at whim.

 

“You blame me for the flight of capital and the rising dollar, that’s fine,” said Kirchner speaking to Fabrega in the front row of her public speech. “I feel for the dollar losses and not another one should leave the country. Besides that, you continue to have a problem with the economy that I don’t have to solve. Just be sure another dollar does not leave the country.”

 

Mr. Vanoli, who had served as head of the National Securities Commission since November 2009, takes the helm of a central bank whose main task is financing the federal government. Unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%.

 

Since 2010, the Kirchner administration has also borrowed tens of billions of U.S. dollars from the central bank’s reserves to pay creditors. High inflation and declining reserves, now at $27.9 billion, have undermined faith in the currency and spurred some Argentines to seek the safe haven of the U.S. dollar.

 

Mr. Fabrega was widely respected among the country’s bankers thanks to a career of more than 40 years at the country’s largest bank, state-run Banco de la Nacion.

*  *  *

Stocks crashed…

 

Bonds tumbled…

 

and the Dolar Blue collapsed…

 

*  *  *

Good luck Mr. Vanoli…

via Zero Hedge http://ift.tt/1rJLJWT Tyler Durden

Just a day after Argentine President Cristina Kirchner, in a televised speech, accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency, Juan Carlos Fabrega – the head of Argentina’s Central Bank – has quit. As WSJ reports, unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%; and it appears the sanity of Mr. Fabrega was too much to bear for Kirchner (and Kiciloff – who had reportedly clashed with the Central Banker also). The reaction – not good – the stock index collapsed over 8%, bond yields spiked and the black-market peso dumped to record lows at 15.65 to the USD (drastically worse than the 8.51 official peso rate).

Fabrega’s departure is “Not a good sign,” said Alberto Ramos, a Goldman Sachs analyst Alberto Ramos, Reuters reports. 

 

“Fabrega was perceived to be a moderating voice and someone that really understood financial market dynamics.”

As The Wall Street Journal reports,

Argentine President Cristina Kirchner replaced the head of the central bank Wednesday, marking the second overhaul of her economic team in less than a year.

 

Mrs. Kirchner named her top securities and exchange regulator, Alejandro Vanoli, as central bank governor after she accepted Juan Carlos Fabrega’s resignation, according to a statement posted on the presidency’s press website.

 

Mr. Fabrega’s resignation came a day after Mrs. Kirchner in a televised speech accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency. Argentina’s central bank has little autonomy from the federal government and the president in practice can hire and fire its senior executives at whim.

 

“You blame me for the flight of capital and the rising dollar, that’s fine,” said Kirchner speaking to Fabrega in the front row of her public speech. “I feel for the dollar losses and not another one should leave the country. Besides that, you continue to have a problem with the economy that I don’t have to solve. Just be sure another dollar does not leave the country.”

 

Mr. Vanoli, who had served as head of the National Securities Commission since November 2009, takes the helm of a central bank whose main task is financing the federal government. Unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%.

 

Since 2010, the Kirchner administration has also borrowed tens of billions of U.S. dollars from the central bank’s reserves to pay creditors. High inflation and declining reserves, now at $27.9 billion, have undermined faith in the currency and spurred some Argentines to seek the safe haven of the U.S. dollar.

 

Mr. Fabrega was widely respected among the country’s bankers thanks to a career of more than 40 years at the country’s largest bank, state-run Banco de la Nacion.

*  *  *

Stocks crashed…

 

Bonds tumbled…

 

and the Dolar Blue collapsed…

 

*  *  *

Good luck Mr. Vanoli…

via Zero Hedge http://ift.tt/1rJLJWT Tyler Durden

We warned five weeks ago of the potential economic damage that the Ebola virus could do to West African economies, and now it appears The IMF, The World Bank, and the United Nations Food and Agricultural Organization have warned that Liberia and other West African economies, as WaPo reports, begun a frightening descent into economic hell. Fear that "that people would abandon the fields and factories, that food and fuel would become scarce and unaffordable, and that the government’s already meager capacity to help, along with the nation’s prospects for a better future, would be severely compromised" are no longer scenarios – they are real! Annual inflation rates have doubled, fuel sales are down 35%, Liberia's productivity is down 50-75%, and "micro-trade" financing is "completely depleted."

The IMF warns “In addition to exacting a heavy human toll, the Ebola outbreak is having a severe economic and social impact, and could jeopardize the gains from a decade of peace.”

With WHO and CDC expecting a worst case scenario now, the $809 million collapse in GDP across Sierra Leone, Guinea, and Liberia is stunning…

 

As The Washington Post reports,

Three recent reports from international organizations that seem to bear out the worst-case scenarios of months ago: that people would abandon the fields and factories, that food and fuel would become scarce and unaffordable, and that the government’s already meager capacity to help, along with the nation’s prospects for a better future, would be severely compromised.

 

They are no longer scenarios. They are real. While these trends have been noted anecdotally, the cumulative toll is horrific.

 

The basic necessities of survival in Liberia — food, transportation, work, money, help from the government — are rapidly being depleted, according to recent reports by the United Nations Food and Agricultural Organization, the International Monetary Fund and the World Bank.

 

…

 

The International Monetary Fund said in a separate report that restrictions on public transport, internal travel and trade are burdening the country’s ability to distribute the food that is available.

 

The combination is driving up food prices rapidly, said the IMF even as “panic buying” is boosting demand, according to the World Bank. The IMF is projecting an inflation rate of 13.1 percent by year’s end, compared with 7.7 percent before the Ebola epidemic started taking its toll.

 

Transportation has been badly disrupted, one indicator being a drop of between 20 and 35 percent in fuel sales.

 

The services sector, about half of Liberia’s economy, employing about 45 percent of the work force, has experienced a drop in turnover of 50 to 75 percent, the World Bank says.

 

Savings and loan programs, called “susu,” that finance “micro-trade” and small businesses — especially those run by women — have been “completely depleted,” with participants no longer able to pay their debts, said the FAO.

 

Projections for short-term and long-term economic growth are getting ratcheted downward, with the worst-case estimates nothing short of catastrophic. The World Bank, looking at 2014 alone, projected a reduction in growth in Liberia from 5.9 percent to 2.5 percent, a plunge that would be considered calamitous in any country. In 2015, under its most dire but altogether realistic scenario, Liberia’s output could decrease by nearly 12 percent in 2015.

 

Projections for inflation are moving upward, with the IMF estimating an inflation rate of 13.1 percent by year’s end, compared with 7.7 percent the year before.

 

On top of it all, the revenue coming in to the Liberian government has dropped sharply, by 20 percent, Liberia’s foreign minister Augustine Kpehe Ngafuan told the United Nations earlier this week. “Consequently, our ability to provide for basic social services and continue to fund key development projects are significantly diminished.”

*  *  *
“The Ebola epidemic is washing away years of progress and hard work,” said the FAO in its Sept. 23 report.

via Zero Hedge http://ift.tt/1rJLMlw Tyler Durden

Authored by Neil Clark, originally posted at The Spectator,

Václav Klaus has made a habit of saying things others shy away from saying, but it doesn’t seem to have done him much harm in the popularity stakes. Quite the opposite: the 73-year-old ardently Eurosceptic free-marketeer has legitimate claims to be regarded as the most successful ‘true blue’ conservative politician in Europe over the past 25 years. He was, after all, prime minister of the Czech Republic from 1992 to 1998 and then his country’s president for a further ten years, from 2003 to 2013.

So when we meet after a typically hearty Serbian lunch — at the International Science and Public Conference in Belgrade — I am keen to ask if he has any advice for David Cameron and the British Conservative party.

‘I was invited to a conference last year in Windsor which was called the Conservative Renewal Conference,’ he says. ‘I made a speech in which I asked the question: “Do you really need a renewal — or don’t you think it would be sufficient to have a return?” My speech stressed the need to return to standard conservative ideas and approaches. I am afraid the current leadership of the Conservative party are not exactly doing that.’

Klaus’s message clearly resonates more with activists than with the serial ‘modernisers’ at the top of the party. ‘After I had finished my speech, two or three older ladies came up to me and said, “It was like Maggie’s speech!” So I find the Conservative party now rather confused in its ideas. The party is playing with the green ideas in a way I can’t accept.’

Klaus is not too keen — to say the least — about another element of the ‘modernising’ agenda. ‘The same-sex marriages and all that stuff about family, to put it broadly, is for me another tragic misunderstanding by the current leaders of the party and I am very sorry about that.’

We move on, inevitably, to Europe. What effect does Klaus think a British referendum on EU membership — and the prospect of a UK withdrawal — might have for the Continent? ‘It would send a strong signal. I was very angry, even in the communist era, looking at Britain from the outside, from behind the Iron Curtain, that Britain decided to leave EFTA to join the EEC in the early 1970s.’

It was a Conservative prime minister, Edward Heath, who took that momentous step. What, I wonder, does Klaus think of the present Conservative leader’s line on Europe? ‘I have met Mr Cameron several times and I am not so sure about his credentials on the EU. I understand he must somehow reflect the division in the whole country and in his party, but nevertheless I don’t think that in a secret ballot in a referendum that he would vote yes [for Britain to remain in the EU] — but this is only my guesstimate.’

Listen to Klaus in full flow on the absurdities of the EU and it’s hard to think why any sane individual — on left or right — would want their country to stay in it. ‘A few days ago I studied the names of the EU commissioners under Mr Juncker, and their portfolios. We in my country say that 16 is already too high for having meaningful portfolios. But the EU now has 28, more than in any country in our part of the world. If you look at the names of those portfolios, I really don’t believe my eyes. The former Estonian prime minister is a commissioner for digital markets. As an economist I really don’t know what the term “digital markets” means. Plus there is another, a German politician, Günther Oettinger, who is the commissioner for “digital economy and society”. We would laugh in the communist era to have such names for the members of our cabinet. I can’t imagine what these commissioners are doing.’

I put it to Klaus that in the bloated and bureaucratic EU economic model, we have the worst of all worlds — one which pleases neither genuine socialists, nor Thatcherite free-marketers, and he readily agrees. ‘What we have in Europe now is not the German Soziale Marktwirtschaft — the social market economy — but the German model deteriorated by another adjective, “ecological”.’

‘I started my political career after the fall of communism with a well-known slogan: “I want to introduce markets without adjectives.” There was a big fight in the country about this phrase. They said, “Klaus wants to introduce markets without social policy.” “No,” I said. “There can be a social policy, but the slogan means a market economy with an additional social policy and not a social market.”The sequence of the words is all important. At present we are going deeper and deeper and deeper into the ecological and social market economy.’

Whatever we decide to call the current system, he adds, it clearly isn’t working for Europe. ‘I am really shocked to see leading EU and European politicians pretending that everything is OK, which is ridiculous and funny,’ Klaus says. ‘I recently read an article by a well-known German economist, Professor Sinn, who has studied the situation in Italy. He presented statistical data which showed that GDP in Italy has declined by 9 per cent since 2000. It’s unimaginable! I don’t think communist Czechoslovakia would have survived such a long-term decline. At the same time, industrial output declined in the same period by 25 per cent! One quarter of the economy simply disappeared.’

Klaus believes the EU is beyond reform and has called for it to be replaced with an ‘Organisation of European States’ — a simple free trade association which would not pursue political integration. He recalls his own experience at the forefront of Czechoslovakia’s Velvet Revolution in 1989. ‘When we started to change my country we quite deliberately did not use the term “reform” — we used the word “transformation”, because we wanted a systemic change. Such a systemic change is needed in Europe today.’

It’s not just on the economy that Europe has got it wrong, says Klaus. He doesn’t agree with the western elite’s current hostility towards Russia, which he believes is based on a false and outdated view of the country. ‘I remember one person in our country who at one moment was minister of foreign affairs, telling me that he hated communism so much that he was not even able to read Dostoevsky. I have remembered that statement for decades and I am afraid that the current propaganda against Russia is based on a similar argument and way of thinking. I spent most of my life in a communist Czechoslovakia under Soviet domination. But I differentiate between the Soviet Union and Russia. Those who are not able to understand the difference are simply not looking with open eyes. I always argue with my American and British friends that although the political system in Russia is different from the system in our countries and we wouldn’t be happy to live in such a system, to compare the current Russia with Leonid Brezhnev’s Soviet Union is stupid.’

He says, with finality: ‘The US/EU propaganda against Russia is really ridiculous and I can’t accept it.’

Klaus wants to transfer other democratic decision-making powers back to the nation states. ‘I’m not just criticising the EU arrangements — at the same time I’m very critical of global governance and the shift to transnationalism. A week ago I was in Hong Kong and I criticised the naive opening up of countries without keeping or maintaining the anchoring of the nation state. Doing this leads either to anarchy, or to global governance. My vision for Europe is a Europe of sovereign nation states, definitely. But we have already gone well beyond simply economic integration. The EU is a post-democratic and post-political system.’

Klaus has spent his political career standing up for sovereignty and rejecting the dominant orthodoxies of the day. Unlike other leaders in the former Soviet bloc countries, he did not feel inhibited about criticising western policies when the Berlin Wall came down. He was one of the few to oppose the Clinton/Blair ‘humanitarian’ bombardment of Yugoslavia in 1999 (he was also strongly critical of the Iraq war).

Yet he feels the freedom to hold — and express — ‘unfashionable’ views in the West is now under increasing threat.

‘If you ask me whether I think liberty is under huge attack in Europe now, I would say yes. I feel repressed by not being allowed to express my views. I have permanent troubles with this. Suddenly I have discovered, for the first time in 20 years, having been invited to be a keynote speaker at a conference, that the organisers find out I have reservations about the EU, about same-sex marriages, about the Ukraine crisis, and they say, “We are very sorry, we have already found a different keynote speaker, thank you very much.” This is something I had experienced in the communist era but not in so-called free Europe. Only a very narrow range of opinions is now considered politically correct.’

It’s to fight this worrying trend that Klaus has decided to launch a new project. ‘I am planning, if we can get the money and people together, to start a new quarterly journal in 2015 called Europe and Liberty.’

It’s hard not to wish him well. In the not too distant past, Europe did have leaders who had clear and distinct visions: on the left, the likes of Sweden’s Olof Palme and Austria’s Bruno Kreisky; on the right, de Gaulle and Margaret Thatcher. You could agree or disagree but you could never say you didn’t know what they believed in, or that the views they held were not sincere. But they’ve been replaced by a generation of bland, uninspiring, consistently ‘on-message’ politicians.

Václav Klaus is different, a throwback to the days when our leaders did stand for something and weren’t afraid to speak their minds. Let’s hope he does not turn out to be Europe’s last conviction politician.

via Zero Hedge http://ift.tt/YPgMp6 Tyler Durden

Authored by Neil Clark, originally posted at The Spectator,

Václav Klaus has made a habit of saying things others shy away from saying, but it doesn’t seem to have done him much harm in the popularity stakes. Quite the opposite: the 73-year-old ardently Eurosceptic free-marketeer has legitimate claims to be regarded as the most successful ‘true blue’ conservative politician in Europe over the past 25 years. He was, after all, prime minister of the Czech Republic from 1992 to 1998 and then his country’s president for a further ten years, from 2003 to 2013.

So when we meet after a typically hearty Serbian lunch — at the International Science and Public Conference in Belgrade — I am keen to ask if he has any advice for David Cameron and the British Conservative party.

‘I was invited to a conference last year in Windsor which was called the Conservative Renewal Conference,’ he says. ‘I made a speech in which I asked the question: “Do you really need a renewal — or don’t you think it would be sufficient to have a return?” My speech stressed the need to return to standard conservative ideas and approaches. I am afraid the current leadership of the Conservative party are not exactly doing that.’

Klaus’s message clearly resonates more with activists than with the serial ‘modernisers’ at the top of the party. ‘After I had finished my speech, two or three older ladies came up to me and said, “It was like Maggie’s speech!” So I find the Conservative party now rather confused in its ideas. The party is playing with the green ideas in a way I can’t accept.’

Klaus is not too keen — to say the least — about another element of the ‘modernising’ agenda. ‘The same-sex marriages and all that stuff about family, to put it broadly, is for me another tragic misunderstanding by the current leaders of the party and I am very sorry about that.’

We move on, inevitably, to Europe. What effect does Klaus think a British referendum on EU membership — and the prospect of a UK withdrawal — might have for the Continent? ‘It would send a strong signal. I was very angry, even in the communist era, looking at Britain from the outside, from behind the Iron Curtain, that Britain decided to leave EFTA to join the EEC in the early 1970s.’

It was a Conservative prime minister, Edward Heath, who took that momentous step. What, I wonder, does Klaus think of the present Conservative leader’s line on Europe? ‘I have met Mr Cameron several times and I am not so sure about his credentials on the EU. I understand he must somehow reflect the division in the whole country and in his party, but nevertheless I don’t think that in a secret ballot in a referendum that he would vote yes [for Britain to remain in the EU] — but this is only my guesstimate.’

Listen to Klaus in full flow on the absurdities of the EU and it’s hard to think why any sane individual — on left or right — would want their country to stay in it. ‘A few days ago I studied the names of the EU commissioners under Mr Juncker, and their portfolios. We in my country say that 16 is already too high for having meaningful portfolios. But the EU now has 28, more than in any country in our part of the world. If you look at the names of those portfolios, I really don’t believe my eyes. The former Estonian prime minister is a commissioner for digital markets. As an economist I really don’t know what the term “digital markets” means. Plus there is another, a German politician, Günther Oettinger, who is the commissioner for “digital economy and society”. We would laugh in the communist era to have such names for the members of our cabinet. I can’t imagine what these commissioners are doing.’

I put it to Klaus that in the bloated and bureaucratic EU economic model, we have the worst of all worlds — one which pleases neither genuine socialists, nor Thatcherite free-marketers, and he readily agrees. ‘What we have in Europe now is not the German Soziale Marktwirtschaft — the social market economy — but the German model deteriorated by another adjective, “ecological”.’

‘I started my political career after the fall of communism with a well-known slogan: “I want to introduce markets without adjectives.” There was a big fight in the country about this phrase. They said, “Klaus wants to introduce markets without social policy.” “No,” I said. “There can be a social policy, but the slogan means a market economy with an additional social policy and not a social market.”The sequence of the words is all important. At present we are going deeper and deeper and deeper into the ecological and social market economy.’

Whatever we decide to call the current system, he adds, it clearly isn’t working for Europe. ‘I am really shocked to see leading EU and European politicians pretending that everything is OK, which is ridiculous and funny,’ Klaus says. ‘I recently read an article by a well-known German economist, Professor Sinn, who has studied the situation in Italy. He presented statistical data which showed that GDP in Italy has declined by 9 per cent since 2000. It’s unimaginable! I don’t think communist Czechoslovakia would have survived such a long-term decline. At the same time, industrial output declined in the same period by 25 per cent! One quarter of the economy simply disappeared.’

Klaus believes the EU is beyond reform and has called for it to be replaced with an ‘Organisation of European States’ — a simple free trade association which would not pursue political integration. He recalls his own experience at the forefront of Czechoslovakia’s Velvet Revolution in 1989. ‘When we started to change my country we quite deliberately did not use the term “reform” — we used the word “transformation”, because we wanted a systemic change. Such a systemic change is needed in Europe today.’

It’s not just on the economy that Europe has got it wrong, says Klaus. He doesn’t agree with the western elite’s current hostility towards Russia, which he believes is based on a false and outdated view of the country. ‘I remember one person in our country who at one moment was minister of foreign affairs, telling me that he hated communism so much that he was not even able to read Dostoevsky. I have remembered that statement for decades and I am afraid that the current propaganda against Russia is based on a similar argument and way of thinking. I spent most of my life in a communist Czechoslovakia under Soviet domination. But I differentiate between the Soviet Union and Russia. Those who are not able to understand the difference are simply not looking with open eyes. I always argue with my American and British friends that although the political system in Russia is different from the system in our countries and we wouldn’t be happy to live in such a system, to compare the current Russia with Leonid Brezhnev’s Soviet Union is stupid.’

He says, with finality: ‘The US/EU propaganda against Russia is really ridiculous and I can’t accept it.’

Klaus wants to transfer other democratic decision-making powers back to the nation states. ‘I’m not just criticising the EU arrangements — at the same time I’m very critical of global governance and the shift to transnationalism. A week ago I was in Hong Kong and I criticised the naive opening up of countries without keeping or maintaining the anchoring of the nation state. Doing this leads either to anarchy, or to global governance
. My vision for Europe is a Europe of sovereign nation states, definitely. But we have already gone well beyond simply economic integration. The EU is a post-democratic and post-political system.’

Klaus has spent his political career standing up for sovereignty and rejecting the dominant orthodoxies of the day. Unlike other leaders in the former Soviet bloc countries, he did not feel inhibited about criticising western policies when the Berlin Wall came down. He was one of the few to oppose the Clinton/Blair ‘humanitarian’ bombardment of Yugoslavia in 1999 (he was also strongly critical of the Iraq war).

Yet he feels the freedom to hold — and express — ‘unfashionable’ views in the West is now under increasing threat.

‘If you ask me whether I think liberty is under huge attack in Europe now, I would say yes. I feel repressed by not being allowed to express my views. I have permanent troubles with this. Suddenly I have discovered, for the first time in 20 years, having been invited to be a keynote speaker at a conference, that the organisers find out I have reservations about the EU, about same-sex marriages, about the Ukraine crisis, and they say, “We are very sorry, we have already found a different keynote speaker, thank you very much.” This is something I had experienced in the communist era but not in so-called free Europe. Only a very narrow range of opinions is now considered politically correct.’

It’s to fight this worrying trend that Klaus has decided to launch a new project. ‘I am planning, if we can get the money and people together, to start a new quarterly journal in 2015 called Europe and Liberty.’

It’s hard not to wish him well. In the not too distant past, Europe did have leaders who had clear and distinct visions: on the left, the likes of Sweden’s Olof Palme and Austria’s Bruno Kreisky; on the right, de Gaulle and Margaret Thatcher. You could agree or disagree but you could never say you didn’t know what they believed in, or that the views they held were not sincere. But they’ve been replaced by a generation of bland, uninspiring, consistently ‘on-message’ politicians.

Václav Klaus is different, a throwback to the days when our leaders did stand for something and weren’t afraid to speak their minds. Let’s hope he does not turn out to be Europe’s last conviction politician.

via Zero Hedge http://ift.tt/YPgMp6 Tyler Durden

Another day, another unintended consequence of the socialist state’s eagerness to “make things better” for everyone, blowing up in its face.

For today’s anecdote we go to New Jersey where legislation introduced by Assemblywoman Shavonda Sumter, D-Paterson which passed in the Assembly’s Labor Committee on a party-line vote last March, calls for an increase in the minimum wage for tipped workers. It would increase the federal minimum of $2.13 per hour to $3.39 by the end of this year and $5.93 by 2016.

Assemblywoman Shavonda Sumter wants an increase in the
minimum wage for tipped workers from the federal minimum of
$2.13 per hour to $3.39 by the end of this year. (Photo:
New Jersey Assembly Majority Office)

So far so good: after all, in isolation, it’s a tiny amount, and will hardly impact the employer, while it should boost the bottom line of minimum wage employees, leading to a win-win for everyone right?

Well, no, because nothing is ever “in isolation.” However, to grasp the practical implications of how minimum wage hikes flow through the system one needs to actually be a small business owner – the person paying the wage – not a politician, who may have the best intentions in mind (if only for one’s own bank account and delusions of grandeur) yet have zero practical understanding that such centrally-planned meddling in the free market always does more bad than good.

Case in point, the following story of Rob Pluta who owns and operates Leonardo’s II, an Italian eatery in Lawrenceville, New Jersey as recounted by The Daily Signal. 

Pluta wasn’t wild about the constitutional amendment New Jersey voters approved last year that raised the state’s overall minimum wage from $7.25 to $8.25 and linked annual increases to the Consumer Price Index. But he’s even more concerned about legislation introduced by Assemblywoman Shavonda Sumter, D-Paterson. Sumter’s bill, A857, which passed in the Assembly’s Labor Committee on a party-line vote last March, calls for an increase in the minimum wage for tipped workers. It would increase the federal minimum of $2.13 per hour to $3.39 by the end of this year and $5.93 by 2016.

 

For restaurant owners, that’s even worse than it sounds, Pluta says. Under current law, if employees don’t make $8.25 counting tips and base, the employer makes up the rest. Pluta says he’s never had to pay—his employees routinely make $15 to $20 per hour or more.

 

If this legislation passes—a companion bill in the state Senate has not moved, and it’s unclear if Republican Gov. Chris Christie would sign it if it did reach his desk—Pluta would have to pay out up to $24,000 more per year, plus payroll taxes. His employees, however, would see little difference in their paychecks.

In short, “This is not a logical proposal,” he says. “It’s an additional cost and an additional burden.” However, there is no populism in being logical: one wins relection by pandering to the lowest common denominator even if it means a wholesale increase in food prices which has a ripple effect on demand, and ultimately, may likely lead to the evisceration of the mom and pop restaurant industry of New Jersey.

Pluta’s customers understand what this will mean. Kevin and Eve Connelly are regulars. They like to order a shrimp platter with cocktail sauce. It’s not on the menu and is supplied only by request.

 

“If the restaurant suddenly has to pay for something it didn’t have to pay before, one way to cover that cost is to raise menu prices,” Kevin Connelly says. “So we are probably going to have to pay more for that shrimp.”

 

And that, says Eve Connelly, will have a ripple effect. Higher prices mean people go out less often, which means less in tips for the wait staff at Leonardo’s II. “I wonder if this is something the politicians understand,” she says.

No, they don’t. But they are not paid to understand. If they were, they would grasp that corporations will pass on costs first, middle and last, to the point where the business crosses its viability point and competitors come and, pardon the pun, eat its lunch. 

“What I keep trying to drive home is that we are forced into paying costs we never had to cover before in addition to the minimum wage increase that is already in motion,” he says. “This will cripple the restaurant industry. This is especially true for start-ups and other borderline businesses operating at the margins.”

Ironically, in pursuing this kind of wealth redistribution, politicians are crushing the small and medium businesses, those which traditionally are the biggest sources of new jobs, and handing over their business to established, franchised mega corporations, which have the economy of scale to offset such cost hikes.

T.C. Nelson, who owns the Trenton Social on South Broad Street in Trenton, told The Daily Signal the winners will be chain restaurants, which “have the economy of scale to absorb these costs.” The losers, Nelson says, will be neighborhood bars that can’t survive the extra expense.

 

“What this proposal does is take the art of service and hospitality out of the hands of the small business,” he says. “Right now, it’s hard to know how much this will cost. But you can be sure some of the smaller, local neighborhood places will go under.”

 

Pluta is not optimistic.

 

“This is an easy issue to demagogue,” he says. “If this bill does go through it will mean higher consumer costs and less business in restaurants, which works to the disadvantage of the very workers the politicians say they are trying to help.”

Well yes, but it will also help the major restaurant chains, most of which are subsidiaries of publicly owned holding companies (which most likely have been buying back their shares hand over fist courtesy of Bernanke’s policies and rewarding management for doing… nothing at all) and which have also spent countless dollars lobbying the Shavonda Sumters of the world to do their bidding, while masking this corporatist hypocrisy with the pleasant face of “we are just trying to make lives better for the minimum wage earners” populism.

That, like the stock market, only works until it doesn’t, until all small businesses are ultimately crushed or simply decide to go away, and there is no marginal creator of any jobs left, period. Which, needless to say, leads to a far worse outcome for everyone.

via Zero Hedge http://ift.tt/1qXnsYn Tyler Durden

Another day, another unintended consequence of the socialist state’s eagerness to “make things better” for everyone, blowing up in its face.

For today’s anecdote we go to New Jersey where legislation introduced by Assemblywoman Shavonda Sumter, D-Paterson which passed in the Assembly’s Labor Committee on a party-line vote last March, calls for an increase in the minimum wage for tipped workers. It would increase the federal minimum of $2.13 per hour to $3.39 by the end of this year and $5.93 by 2016.

Assemblywoman Shavonda Sumter wants an increase in the
minimum wage for tipped workers from the federal minimum of
$2.13 per hour to $3.39 by the end of this year. (Photo:
New Jersey Assembly Majority Office)

So far so good: after all, in isolation, it’s a tiny amount, and will hardly impact the employer, while it should boost the bottom line of minimum wage employees, leading to a win-win for everyone right?

Well, no, because nothing is ever “in isolation.” However, to grasp the practical implications of how minimum wage hikes flow through the system one needs to actually be a small business owner – the person paying the wage – not a politician, who may have the best intentions in mind (if only for one’s own bank account and delusions of grandeur) yet have zero practical understanding that such centrally-planned meddling in the free market always does more bad than good.

Case in point, the following story of Rob Pluta who owns and operates Leonardo’s II, an Italian eatery in Lawrenceville, New Jersey as recounted by The Daily Signal. 

Pluta wasn’t wild about the constitutional amendment New Jersey voters approved last year that raised the state’s overall minimum wage from $7.25 to $8.25 and linked annual increases to the Consumer Price Index. But he’s even more concerned about legislation introduced by Assemblywoman Shavonda Sumter, D-Paterson. Sumter’s bill, A857, which passed in the Assembly’s Labor Committee on a party-line vote last March, calls for an increase in the minimum wage for tipped workers. It would increase the federal minimum of $2.13 per hour to $3.39 by the end of this year and $5.93 by 2016.

 

For restaurant owners, that’s even worse than it sounds, Pluta says. Under current law, if employees don’t make $8.25 counting tips and base, the employer makes up the rest. Pluta says he’s never had to pay—his employees routinely make $15 to $20 per hour or more.

 

If this legislation passes—a companion bill in the state Senate has not moved, and it’s unclear if Republican Gov. Chris Christie would sign it if it did reach his desk—Pluta would have to pay out up to $24,000 more per year, plus payroll taxes. His employees, however, would see little difference in their paychecks.

In short, “This is not a logical proposal,” he says. “It’s an additional cost and an additional burden.” However, there is no populism in being logical: one wins relection by pandering to the lowest common denominator even if it means a wholesale increase in food prices which has a ripple effect on demand, and ultimately, may likely lead to the evisceration of the mom and pop restaurant industry of New Jersey.

Pluta’s customers understand what this will mean. Kevin and Eve Connelly are regulars. They like to order a shrimp platter with cocktail sauce. It’s not on the menu and is supplied only by request.

 

“If the restaurant suddenly has to pay for something it didn’t have to pay before, one way to cover that cost is to raise menu prices,” Kevin Connelly says. “So we are probably going to have to pay more for that shrimp.”

 

And that, says Eve Connelly, will have a ripple effect. Higher prices mean people go out less often, which means less in tips for the wait staff at Leonardo’s II. “I wonder if this is something the politicians understand,” she says.

No, they don’t. But they are not paid to understand. If they were, they would grasp that corporations will pass on costs first, middle and last, to the point where the business crosses its viability point and competitors come and, pardon the pun, eat its lunch. 

“What I keep trying to drive home is that we are forced into paying costs we never had to cover before in addition to the minimum wage increase that is already in motion,” he says. “This will cripple the restaurant industry. This is especially true for start-ups and other borderline businesses operating at the margins.”

Ironically, in pursuing this kind of wealth redistribution, politicians are crushing the small and medium businesses, those which traditionally are the biggest sources of new jobs, and handing over their business to established, franchised mega corporations, which have the economy of scale to offset such cost hikes.

T.C. Nelson, who owns the Trenton Social on South Broad Street in Trenton, told The Daily Signal the winners will be chain restaurants, which “have the economy of scale to absorb these costs.” The losers, Nelson says, will be neighborhood bars that can’t survive the extra expense.

 

“What this proposal does is take the art of service and hospitality out of the hands of the small business,” he says. “Right now, it’s hard to know how much this will cost. But you can be sure some of the smaller, local neighborhood places will go under.”

 

Pluta is not optimistic.

 

“This is an easy issue to demagogue,” he says. “If this bill does go through it will mean higher consumer costs and less business in restaurants, which works to the disadvantage of the very workers the politicians say they are trying to help.”

Well yes, but it will also help the major restaurant chains, most of which are subsidiaries of publicly owned holding companies (which most likely have been buying back their shares hand over fist courtesy of Bernanke’s policies and rewarding management for doing… nothing at all) and which have also spent countless dollars lobbying the Shavonda Sumters of the world to do their bidding, while masking this corporatist hypocrisy with the pleasant face of “we are just trying to make lives better for the minimum wage earners” populism.

That, like the stock market, only works until it doesn’t, until all small businesses are ultimately crushed or simply decide to go away, and there is no marginal creator of any jobs left, period. Which, needless to say, leads to a far worse outcome for everyone.

via Zero Hedge http://ift.tt/1qXnsYn Tyler Durden