The European economy and stock markets have even more pain coming. If you’re invested in U.S. companies with a lot of business in Europe … watch out. Their overall global tax rates could double … maybe triple … and crush profits. Here’s why. Words:580
So writes Tony Sagami (uncommonwisdomdaily.com) in edited excerpts from his original article entitled Why the G-20′s Plan Won’t Work; What’s Your Exit Strategy?.
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Sagami goes on to say in further edited, and in some instances paraphrased, excerpts:
Most investors pay little attention to the G-20. That’s a big mistake. The G-20 members control the world’s printing presses, financial regulations and tax policies. Their decisions have a dramatic impact on the stock and bond markets.
The Group of Twenty (also known as the G-20) is a group of finance ministers and central bank governors from 20 major economies – 19 countries plus the European Union – representing 66% of the world’s population and 85% of the global economy. Formed in 1999, the G-20 members are the most-powerful, influential financial bureaucrats in the world.
Their three objectives:
- Coordinate policy between members in order to achieve global economic stability and sustainable growth.
- Promote financial regulations to reduce risk and prevent future financial crises.
- Modernize global financial architecture.
The G-20 finance ministers and central bank governors meet twice a year. At their just-concluded Moscow meeting, they agreed on a 15-point action plan with profound long-range economic impact.
Unfortunately, their solutions won’t work. Here’s why:
Problem #1: Jobs, Jobs, Jobs
With the youth unemployment rate as high as 60% in some European countries, jobs are rightly a top priority. The G-20 finance ministers think more government-sponsored jobs will help…
Solution: More government spending. More debt.
Problem #2: Austerity is Painful
Greece, Spain and Italy (so far) are flailing under the mountain of debt, thanks to excessive spending and overly generous pensions yet austerity is so severely unpopular that postponing the consequences is the easy way out for politicians. G-20 leaders senselessly think they can revive the global economy with … what else … more government spending…
Solution: More government borrowing. More debt.
Problem #3: The Rich Aren’t Paying Their Fair Share
According to free-spending politicians all around the world, the wealthy don’t pay enough taxes [but] with individual tax rates already sky-high in Europe…[they are turning to] multi-national corporations — like Google (GOOG), Starbucks (SBUX) and Apple (AAPL) — to pay local taxes in every country where they operate.
Solution: Raise taxes on evil corporations.
Problem #4: China is Kicking Europe’s Butt
China is unhappy with its 7% economic growth, but other G-20 leaders would do cartwheels for half as much growth. This is why they talk so much about “exchange-rate flexibility.” They want to rebalance the global economy by manipulating currencies.
Solution: Force China to let its currency appreciate.
What Does All This Mean to Us?
If you’re invested in U.S. companies with a lot of business in Europe … watch out. Their overall global tax rates could double … maybe triple … and crush profits. Companies like McDonald’s (39% of profits), News Corp. (29% of profits), Ford (28% of profits), General Electric (27% of profits) and Coca-Cola (22% of profits) all depend heavily on Europe….
While the timing is always difficult to predict, I believe the ultimate outcome is unquestionable. The European economy and stock markets have even more pain coming. If you own European stocks … you need an exit strategy to protect yourself when things turn ugly…
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.uncommonwisdomdaily.com/why-the-g-20s-plan-wont-work-whats-your-exit-strategy-16764?FIELD9=5 (©2013 Uncommon Wisdom Daily. All Rights Reserved.)
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