France Unemployment Hits New Record High; Hollande's November Pledge Reviewed

In November, French president Francois Hollande announced he had met his electoral pledge to halt the rise in joblessness by the end of 2013.

No one with any economic sense believed it.

Today in the face of a new record high unemployment rate, Hollande says unemployment has "stabilised".

No one with any economic sense believes his statements today either.

Please consider France Unemployment Hits New Record High.

France revealed on Monday tha the number of registered jobless rose to a record 3.3 million in December, belying President Francois Hollande's pledge to reverse the trend by the end of last year.

The number of job-seekers rose by 10,200, the labour ministry said. If those holding part-time employment were taken into account the number of unemployed rose to 4.89 million, another record.

Hollande, a Socialist who is under fierce pressure to tackle unemployment and with polls showing his approval ratings the lowest of any president in modern French history, claimed in November he had met his electoral pledge to halt the rise in joblessness by the end of 2013.

Despite the bleak figures, Hollande - who is currently in Turkey - said that unemployment had "stabilised" but added that "this is not enough."

Stabilization?

• December unemployment rose 0.3 percentage points compared to November
• In the past year, unemployment rose 5.7 percentage points
• By what obscure definition does that performance constitute stabilization?

The average monthly rise in unemployment is .475 percentage points. Thus, it's a relative success for unemployment to rise only 0.3 percentage points. But relative success and stabilization are not the same thing, except of course in political fantasyland.

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

50th Anniversary of War on Poverty Coming Up; Success or Failure?

Before you can assess the success or failure of a program you must first understand the mission. Then, with the objectives of the mission in mind, one can measure success or failure.

If you set the bar low enough or modify the mission, then anything can look like a success. Conversely, everything fails if standards are sufficiently high.

Thomas Sowell discusses those ideas, in relation to the war on poverty, in Fact-Free Liberals.

Since this year will mark the 50th anniversary of the "war on poverty," we can expect many comments and commemorations of this landmark legislation in the development of the American welfare state.

The actual signing of the "war on poverty" legislation took place in August 1964, so the 50th anniversary is some months away. But there have already been statements in the media and in politics proclaiming that this vast and costly array of anti-poverty programs "worked."

The real question is: What did the "war on poverty" set out to do -- and how well did it do it, if at all?

Both President John F. Kennedy, who launched the proposal for a "war on poverty" and his successor, Lyndon B. Johnson, who guided the legislation through Congress and then signed it into law, were very explicit as to what the "war on poverty" was intended to accomplish.

President Kennedy said, "We must find ways of returning far more of our dependent people to independence."

The same theme was repeated endlessly by President Johnson. The purpose of the "war on poverty," he said, was to make "taxpayers out of taxeaters." Its slogan was "Give a hand up, not a handout." When Lyndon Johnson signed the landmark legislation into law, he declared: "The days of the dole in our country are numbered."

Now, 50 years and trillions of dollars later, it is painfully clear that there is more dependency than ever.

Ironically, dependency on government to raise people above the poverty line had been going down for years before the "war on poverty" began. The hard facts showed that the number of people who lived below the official poverty line had been declining since 1960, and was only half of what it had been in 1950.

On the more fundamental question of dependency, the facts were even clearer. The proportion of people whose earnings put them below the poverty level -- without counting government benefits -- declined by about one-third from 1950 to 1965.

All this was happening before the "war on poverty" went into effect -- and all these trends reversed after it went into effect.

By any reasonable measurement of war on poverty mission statements made by presidents Kennedy and Johnson, the war on poverty was a miserable failure.

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

Deflation Will Return: Europe First, Then US; Global Supply Arbitrage

In an email update last week, Saxo Bank chief economist Steen Jakobsen commented "Europe has a more than 50:50 chance of deflation, while the US is 25:75 against."

Steen is talking about a general decline in prices of goods and services, which is also how central bankers use the term deflation. For now, let's use that definition. I will tie things back to money and credit (my preferred way of discussing inflation and deflation) a bit later.

In contrast to Steen, I believe deflation is near-certain in Europe, and strongly odds on in the U.S.

Global Supply Arbitrage

A simple statement by economist Andy Xie is what got me thinking about the prospects of deflation once again: Demand is local, supply is global.

Here is the complete context as noted in Keynes Is Dead, Abenomics Fizzles, US Fails to Reach Escape Velocity, Stimulus Fatigue

Keynes Is Dead

I have argued for many years that this round of globalization has fundamentally changed how an economy works, even for a large one like the United States. While demand is and always has been local, the supply side has become genuinely global. Both manufacturing blue-collar jobs and most white-collar jobs have become global. Today's information technology allows a multinational company to position research, marketing, finance and managerial jobs to anywhere. Hence, when a country stimulates demand, it's met by supply from anywhere.

Supply From Anywhere

With supply arbitrage in mind, please consider Invasion of Spanish Builders Angers France Struggling to Compete.

The earth movers digging out a sandy pit in the beach town of Biarritz could be any construction site in France. Except the builder of the 300 homes and its workers are Spanish. In the neighboring town of Anglet, a Spanish company built the concert hall inaugurated this month. A kilometer up the road, in Bayonne, a Spanish company is building a 15-lodging apartment block.

And that’s just in a small corner of southwestern France.

The losing French bidders are crying foul, saying the Spanish pay lower wages and cut corners on regulations. The Spanish, fleeing a construction slump and an unemployment rate of 26 percent at home, say they’re just using European Union rules allowing free movement of businesses and workers.

“We thought for a long time we were in an industry that couldn’t be shifted offshore,” said Didier Ridoret, president of the French Constructors’ Federation, or FFB. “Instead, the reverse happened: the offshore came to us.” 
    
With the best French bid in Anglet priced 40 percent higher than the winning offer, reversing the trend won’t be easy.

French builders say a majority of homes in border regions are now being built by Spaniards, Portuguese and Italians.

"These contracts are often awarded solely on the basis of price,” said Patrick La Carrere, head of the builders’ federation in southwest France. “The Spanish have much lower charges so they can always undercut us.”

For companies hiring Spanish builders, the choice is clear. The 2 million-euro contract for the Anglet concert hall was awarded to Altuna y Uria SA, based in the Basque town of Azpeitia, after its bid was 800,000 euros less than the best French offer, said Jerome Poties, head of culture for the town.

According to accounting firm KPMG, Spanish companies pay 30 percent of a worker’s salary in social security contributions, and the employee pays 6.35 percent. In France, companies can pay as much as 45 percent and labor another 22 percent.

It’s not just lower charges that help Spanish firms, said Maxime Alimi, an economist at Axa Investment Managers in Paris.

“There have been reforms in Spain that have made labor more flexible,” Alimi said. “In France, salaries are extremely rigid. It’s a tendency that’s not likely to change.”

"The Offshore Came To Us"

The offshore came to France. And the implications are enormous.

In Europe, with free movement of citizens, supply of labor could theoretically come from anywhere. In practice it didn't, at least on a large scale. But that is starting to change, and the repercussions will be huge.

Worst Ahead for France

Spain is still in the state of economic depression, but the worst is arguably behind. For France and Italy, the worst suffering is clearly ahead. Both countries are in huge need of work rule reforms and pension reforms. Public sector spending must decline. Wages and prices are going to have to decline for France to be competitive.

One way or another, it's going to happen. Even in Germany, the harmonized CPI is barely positive, with the most recent reading at 1.219%.



What happens if President Hollande lives up to his promises to make France more competitive and to reduce the size of the public sector?

Not many believe he will do that, but it really won't matter. The offshore came to France.

Currency Crisis

A second deflationary factor in Europe is the emerging market currency crisis. Foreign bank exposure to Turkey is $350 billion, and Greece is particularly exposed. For details, please see Start of a Global Currency Crisis?

Stress Tests

A third deflationary factor in Europe is the pending stress tests. Although the ECB Watered Down 2014 Stress Tests Second Time, some banks are still likely to have capital shortfalls.

Increased lending? Forget about it.

Recession in Germany and France

In December, France's statistics body, the INSEE, said France would avoid recession. I did not believe it then, and I sure don't now given Eurozone PMI Strengthens, Except France.

It's going to be very difficult for Germany to avoid recession when France slides back into one.

Europe First, Then U.S.

In the U.S., the Fed and others way overestimate the robustness of the jobs market. The discrepancy between the household survey and the establishment survey is 65,000 jobs a month.

For details, please see Employment vs. Jobs Discrepancy based on December 2013 Data, released in January.

Retail Sales Cost-Cutting, Competition, and Cannibalization

Numerous retailers are cutting employees. Wal-Mart, J.C. Penney, Macy's, Target, Aéropostale, and numerous other retailers have announced cutbacks as noted in Tsunami of Retail Store Closings and Downsizings Coming; Expect Layoffs and Shorter Hours.

Notably, Sam's Club CEO Rosalind Brewer announced a 2% Reduction in Sam's Club Employees to thin middle-manager ranks. Where are those managers going to get another job?

In "Retail Sales Cannibalization" I noted

"Brewer aims to better compete with brick-and-mortar rival Costco as well as to take on online membership clubs like Amazon Prime service. She seeks to double revenue and turn it into a $100 billion business, roughly the size of Costco."

Is doubling revenue remotely possible? If so how?

The only way it is possible is via reducing prices and costs to the bare bone and taking customers away from Amazon, Macy's, J.C. Penny and its own parent company, Wal-Mart.

The deflationary repercussions are enormous.

The China Factor

China is slowing. This puts pressure on commodities which in turn puts pressure on producer prices, then final prices.

A 3 billion-yuan ($496 million) Chinese trust product is on the verge of collapse. $496 million is a tiny amount, but it's also a sliver of the problem.

Bloomberg reports China Trust Products Gone Awry Evoke Soros Crisis Echoes

China’s $4.8 trillion in shadow-banking debt, arranged by trusts and fund managers with less transparency than commercial-bank loans, was equivalent to as much as 55 percent of the nation’s 2012 economic output at the end of that year, according to Moody’s latest estimate.

Goldman estimates the 2 trillion yuan in lending by trusts last year accounted for 10 percent of financing in the economy and a removal of credit flows from trusts would knock 0.8 of a percentage point off the nation’s growth rate. Gross domestic product will expand 7.45 percent this year, the slowest since 1990, a Bloomberg survey of economists signals. 

The first default of a trust product in at least a decade would shake investors’ faith in their implicit guarantees and spur outflows that may trigger a “credit crunch,” according to David Cui, China strategist at Bank of America Merrill Lynch in Hong Kong. The government and state banks may bail out a significant portion of bad debt “to prevent a financial crisis,” he said. Guangdong International Trust & Investment Corp. failed to pay Yankee notes in 1998, the nation’s first default since the People’s Republic of China’s founding in 1949.

A credit crunch in China will not be good for global growth, and that is on top of China's efforts to ease slowly.

For further discussion, please consider ZeroHedge's report China's First Default Is Coming: Here's What To Expect.

Equity and Bond Bubbles

The Fed (central bankers in general), once again spawned enormous asset bubbles in equities, corporate bonds, and housing.

For discussion, please see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?

The popping of bubbles is inherently deflationary.

Housing Bubble Returns

Even though household formation by millennials is at a record low percentage, home sales are at modest levels thanks to investor demand in the form of all-cash buying:  All-Cash Home Sales Hit Record 42% of Sales.

CNBC reports All-cash offers crushing first-time homebuyers

Insatiable demand from hedge funds, private equity investors and foreign buyers, all armed with ready cash, are elbowing first-time buyers out of the housing market.

First-time buyers tend to purchase lower-priced homes, but all-cash investors have cornered the market on those, leaving little behind. All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from 38.1 percent in November, and up from 18.0 percent in December 2012, according to a new report from RealtyTrac.

The equity, corporate bond, and home bubbles are poised to burst. When they do, demand for goods and services of all kinds will decline. In turn, prices will drop.

Subprime Car Loans

Automakers have been relatively happy lately. Unfortunately, Subprime Car Loans are the driving force.

As the fifth anniversary of the Federal Reserve’s policy of keeping interest rates near zero approaches, the market for subprime borrowing is again becoming frothy, this time in the car business instead of housing. U.S. auto sales, on pace for the best year since 2007, are increasingly being fueled by borrowers with spotty credit. They accounted for more than 27 percent of loans for new vehicles in the first half of the year, the highest proportion since Experian Automotive began tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession. “Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, an analyst with Morgan Stanley, wrote in an October note to investors.

The money for subprime loans comes from yield-starved investors who buy bonds backed by them. Issuance of such bonds, which pay higher rates than U.S. government debt, soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, but still below the peak of about $20 billion in 2005, according to Harris Trifon, an analyst at Deutsche Bank.

Technology, Education, Medical Expenses

Competition in electronics, computers, and even computer storage is intense. Falling prices are the norm.

Two days ago Microsoft announced "new worldwide prices" to match Amazon Web Services prices. "Effective March 13, customers will see lower prices for Block Blobs Storage and Disks/Page Blobs Storage matching AWS’ prices. We’re also making the new prices effective worldwide which means that Azure storage will be less expensive than AWS in many regions."

In general, price deflation reigns in areas where that has been little government interference in the free market.

Two areas of highest price inflation have been healthcare and education. However, online eduction offerings are starting to eat away at what used to be a rising-cost, brick-and-mortar college experience.

The number and quality of accredited online schools and colleges is growing, and costs have come down. On September 3, I wrote Future of Education is At Hand: Online, Accredited, Affordable, Useful

Healthcare Costs Slow

At long last, healthcare costs have started to slow. NPR reports Health Care Costs Grew More Slowly Than The Economy In 2012

Obamacare had nothing to do with the trend even though the Whitehouse tried to take credit, and even though we are talking about 2012, before the exchanges were operable.

Moreover, actuaries suggest the Affordable Care Act likely produced a small overall increase in spending.

Some cite lingering effects of the recession for slowing costs. I suggest it's nothing more than "what can't go on, won't".

Deflation in Terms of Credit

Above I talked about reasons why prices are likely to decline. But what about credit?

Subprime loans are likely to blow up once again. Demand for business loans will plunge. Writeoffs of all kinds will increase. Asset prices including stocks, corporate bonds, and houses will all take a hit.

These are all symptoms of deflation in a practical sense.

What about money supply?

I have little doubt the Fed (central bankers in general) will step on the money supply spigot in response to another slowdown. But credit dwarfs money supply.

Once again, those who view inflation and deflation in the myopic eyes of money supply alone will come to the wrong conclusions about prices of goods, services and assets, just as they did in 2008 when they thought hyperinflation was just around the corner.

Those who understand credit and credit market to market will get the picture right. I repeat my claim that I made in 2007. The US will go in and out of deflation over the course of a number of years.

Deflation is once again nearly at hand, but Europe will be first.

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

Start of a Global Currency Crisis?

In Emerging Market Contagion Spreads, I presented a viewpoint that emerging market currencies have been under pressure because of falling commodity prices.

Commodity exporter currencies such as the Australian dollar, Canadian dollar, and Brazilian Real have been under pressure for the same reason.

Yen Connection

In addition to the commodity collapse thesis, Pater Tenebrarum at the Acting Man blog throws Abenomics into the mix of possible causes of the Currency Massacre in Emerging Markets.

Both Venezuela (socialist worker's paradise) and Argentina (nationalist socialist paradise) have a problem with their foreign exchange reserves. In both cases it stems from trying to keep up the pretense that their currencies are worth more than they really are.

Since they have maintained artificial exchange rates – coupled with capital controls, price controls and other coercive and self-defeating economic policies – people have of course felt it necessary to get their money out any way they can. This includes making use of every loophole that presents itself, so that e.g. in Venezuela, so-called 'dollar tourism' has developed, whereby citizens travel abroad for the express purpose of using their credit cards to withdraw the allowed limit in dollars at the official exchange rate [then buy goods or bring back the cash to exchange on the black markets at much higher rates].

Now the governments of both Venezuela and Argentina have reacted – the former by introducing a 'second bolivar exchange rate' for certain types of exchanges, the latter by stopping to defend the peso's value in the markets by means of central bank interventions.

To be fair, quite a few emerging market currencies as well as the currencies of developed countries that are large commodity exporters have been under pressure for some time. The Indonesian rupiah has basically crashed, the South African Rand and the Brazilian real have fallen to their weakest levels since the 2008/9 crisis sell-off, and even the Canadian and Australian dollar look a bit frayed around the edges these days.

We cannot help thinking that all this upheaval is the prelude to a more serious denouement down the road – perhaps sooner than most people currently think.

One of the sources of all this recent trouble is quite possibly Japan's decision to inflate with the help of a generous dose of 'QE' and deficit spending. Although the yen's anticipatory move lower could so far not really be justified by actual money supply growth, the fact remains that it did decline rather sharply. This in turn has put pressure on Japan's competitors in Asia, which in turn has put pressure on their suppliers in commodity-land and has altered capital flows, etc.

Recall that the Asian crisis of the late 1990s was preceded by a devaluation in China, after which the yen started weakening rather precipitously as well. Of course the situation was different in that many of the countries hit by the crisis had their currencies pegged to the dollar at the time, but the point remains that a weakening yen preceded the event. A parallel is that there are once again quite a few countries that sport large current account deficits and have experienced major credit and asset booms. In short, there are many balloons waiting for a pin.

No US Hyperinflation

While misguided US hyperinflationists predicted the collapse of the US dollar, I expected a collapse in commodity exporter currencies. Please see my November 8, 2011 article Perfect Storm; Eight Reasons to be Bullish on the US Dollar.

I also expected a slowdown in China, a plunge in the Yen, and a currency crisis not related to a sinking US dollar (See March 12 2012 article Japan's Debt Disaster and China’s Non-Rebalancing Act: Economic Toxic Brew Portends Currency Crisis).

Here we are, with still other currencies in the problem mix. Consider this chart of the Turkish Lira.

Turkish Lira vs. US Dollar



Since mid-2008 the Lira collapsed from 1.03 to 2.45 to the US dollar, a collapse of 58%. Turkey's deputy prime minister Ali Babacan Blames Fed Tapering.

Babacan said the central bank was taking the necessary steps to deal with the situation, and said Turkey was protected against the swings in the market by its sound finances.

“The balance sheet of the government, the banks and households are quite well protected against market volatility.”

Turkey-Greece Connection

ZeroHedge notes Turkey's liabilities have multiplied dramatically in recent years with over $350 billion of foreign bank exposure on an ultimate risk basis.



According to Gavekal, as quoted by ZeroHedge ...

• Turkey is not, however, showing any signs of stabilization. The lira continues to fall, and policymakers are doing little to contain the situation.
• Not only is its current account deficit at nearly 8% of GDP - the highest in the MSCI’s emerging markets universe—but the country is also geographically closer and thus more dependent on the eurozone, whose economic recovery is painfully slow. Its political situation is also clearly very unstable.
• Already fragile Greece is particularly exposed to the Eurasian republic. Turkish credit as a proportion of total Greek bank assets stands at over 5%, compared to 0.7% for the next two largest (Dutch and UK banks).

It's difficult to know whether this is the start of a major currency crisis or if central banks can paper over these imbalances still another time, but things sure are heating up rather quickly on numerous currency fronts at once.

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

Mid-Level Manager at Target Responds to Mish Part-Time Job Thesis

My part-time job thesis is easy to describe:

1. Obamacare exacerbated the already ongoing trend towards more part-time employment by lowering the definition of full-time employment to 30 hours. 
2. As a result, companies reduced employee hours from 32-34 to 25-29. 
3. In turn, workers picked up extra part-time or weekend jobs with minimal hours, to help make ends meet.

A few days ago, Target made the claim it would not reduce employee hours because of Obamacare. See Target Drops Healthcare Coverage for Part-Time Workers, Claims No Reduction in Hours.

My response was that Target was disingenuous, and that the only way it would not reduce hours due to Obamacare is if it already did so well in advance.

A Home Depot employee asserted that Home Depot did just that (see Anecdotes From Home Depot Employee), but I had not heard from Target employees yet.

Today I heard from a Mid-Level Target manager (MLTM) who wishes to remain anonymous. MLTM writes ...

Hello Mish

I appreciate your blog and felt that I should contribute at least what I have observed in my time at Target. I'm an exempt store employee (middle management) and I can attest to the fact that Target has been controlling hours of hourly employees as you have suggested.

This is a trend that began well before the recent press release regarding health insurance for part time workers. Policy isn't explicitly stated, but part-time positions have a 12 month auditing period. Average weekly hours are tracked in order to not exceed the part time threshold.

It is common to have part time team members scheduled to cover full time shifts or responsibilities. The two most striking aspects of this effort are on the team members and on shoppers.

The vast majority of team members have such limited hours that to survive they must either have other employment. Some have other full time employment, most an additional part time position. Alternatively some of our part time positions are filled by retired workers or college students.

Turnover, attendance, and work quality and customer support are greatly affected by these facts.

The customer impact, as many of your readers may have noticed, is that there are not enough team members to assist or process transactions at any given time. This frustrates shoppers and makes lower cost internet shopping experience all the more attractive.

A downward spiral of falling sales, fewer hours/team members, further falling sales, and increased operational costs from Obamacare and other regulations pushes costs up when the consumer is buying less from stores and more from on-line vendors.

Anecdotes do not constitute data, but the overwhelming number of similar emails I receive sure rings true.

Competition in the form of "Retail Sales Cannibalization" is intense.

Moreover, the huge, ongoing discrepancy between the establishment survey and the household survey also suggests my thesis is correct.

For details, please see Employment vs. Jobs Discrepancy based on December 2013 Data, released in January.

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

Were You Aware the NFL is Treated as Non-Profit and thus Exempt From Taxes? Should it Be?

With the Super Bowl a week away, here's a question on my mind: Were you aware the NFL is treated as a non-profit organization and thus exempt from taxes?

If you weren't, you are with the majority. Only 13% of people polled got the question correct. Curiously, it's only football that's exempt from taxes, not baseball or other sports.

Please consider a Fairleigh Dickinson University report Your Tax Dollars into NFL Owners' Pockets?

Americans may love football, but few support the use of public funds and tax breaks for the National Football League and a vast majority were unaware the NFL is a not-for-profit entity, according to a recent national survey from Fairleigh Dickinson University’s PublicMind.

More than half of respondents (56%) identify themselves as fans of the NFL, but when it comes to tax dollars being used to help the NFL, an overwhelming majority of Americans say it should be ‘under further review.’ Seven-in-ten (69%) oppose the use of public funds to build and support stadiums for NFL teams, and virtually the same number (71%) say no to tax breaks to attract or keep a team in town.

“The public’s love for the game clearly doesn’t trump their fiscal restraint when it comes to big time sporting events,” said Krista Jenkins, director of PublicMind and professor of political science at Fairleigh Dickinson University. “Even teams who don’t make it to the Super Bowl generate millions from licensing and ticket sales. The public says taxpayers shouldn’t be hit up for support when there’s enough in the NFL coffers to pay their own way.”

Digging deeper, there’s little evidence to suggest that some are more persuaded by NFL appeals for public funding than others. Across gender, race, and age, opinion remains consistent -- a resounding “no” to tax breaks and public funds. Even self-described football fans are largely opposed to corporate welfare for the NFL, although it’s notable that fans are twice as likely as non-fans to favor tax breaks for NFL teams (27 versus 14 percent, respectively).

The same survey also finds that most are unaware that the NFL is a not-for-profit organization. As a recent report in The Atlantic outlined, the NFL and its teams are the recipients of a good many direct and indirect subsidies. However, more than two-thirds (69%) say the NFL is NOT a nonprofit, with only 13 percent correctly identifying it as not-for-profit.

“Since the NFL is generally associated with wealthy owners and players, not to mention the tremendous revenue that each team generates year-round, the public would not be expected to know the League is a non-profit organization,” said Jenkins. “With billions likely to flow from the Super Bowl, it would seem a contradiction that the organization behind it all would be technically a not-for-profit, but that is indeed true about the NFL.”

Fairleigh Dickinson University Survey Question



How Did the NFL Get Tax-Exempt Status?

Bloomberg explains in Americans Think NFL Should Pay Taxes

The NFL enjoys vast support among the American public despite recent controversies, but when it comes to taxes, the league is best served by keeping fans in the dark.

A survey conducted last month by Fairleigh Dickinson University found that people overwhelmingly oppose tax breaks enjoyed by the league, while the majority had no idea the National Football League has nonprofit status. The poll, which questioned more than 1,000 people, found that 56 percent identified themselves as football fans, 69 percent don't think public money should be used to build stadiums, and 71 percent oppose tax breaks to keep an NFL team in town.

Most interesting, however, is how effective the NFL's public-relations machine has been at keeping its nonprofit status out of the public eye. Only 13 percent of those polled correctly identified the NFL as a nonprofit. It seems most people have a hard time reconciling tax breaks for a league flush with cash at a time when government budget cuts are threatening classrooms and even the IRS itself.

To clarify, the NFL is not categorized as a charity under the tax code; rather, it falls under Section 501(c)(6), which exempts trade or industry associations from taxation. In 1966, the tax code was amended to include professional football to facilitate the merger of the NFL and the American Football League, by granting the sport antitrust and tax exemptions. The IRS specifically mentions the sport in its statute:

IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

With $9.5 billion in revenue, the NFL doesn't seem to fit this definition. The next-richest professional sports league, Major League Baseball, does not enjoy the same break.

There's a bipartisan campaign to amend the tax code, which is right in the wheelhouse of liberal activists calling for increased taxes on millionaires and conservative critics of government waste. Senator Tom Coburn, Republican of Oklahoma, recently announced he would retire from Congress, but not before introducing a bill that would strip the NFL of its nonprofit status. The PRO Sports Act proposes taxing any professional sports league that brings in at least $10 million. In such a politically polarized climate, it seems football might be our great uniter after all.

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

Venezuela Enacts "Law of Fair Prices" Banning Profits Over 30%, with 10-Year Imprisonment for Hoarding

No matter how ridiculous things are, they can always get worse, especially when dealing with leftist dictators and hyperinflation setups.

Via translation from El Economista, please consider Venezuela Issues Law of Fair Prices, Prohibiting Profits Over 30%.

The Fair Prices Act, an instrument with which the Government of Nicolas Maduro intends to control prices and eliminate shortages, includes a ban on profit margins over 30%, with penalties of up to 10 years imprisonment for hoarders.

The law passed in November, and the Supreme Court ratified the law yesterday.

The law, published in Official Gazette, states that the profit margin will be established annually "addressing scientific criteria" by the National Superintendency for the Protection of Socio-Economic Rights (SUNDDE).

The law provides for the application of preventive measures and sanctions such as confiscation, temporary occupation of premises or property, the temporary closure of an establishment or suspension of licenses and the "immediate adjustment" price.

In the section of the law regarding hoarding, those who "restrict supply, circulation or distribution of regulated goods or cause distortions in prices, shall be punished with imprisonment judicially 8 to 10 years."

The law also provides for fines ranging from 107,000 bolivars ($17,000) to 5.3 million bolivars ($850,000).

SUNDDE will "fix maximum prices for the production or importation, distribution and consumption according to their importance and strategic nature for the benefit of the population as well as the technical criteria for assessing the levels of exchange equitable and fair of goods and services."

Under this preposterous measure, no companies will be able to import and sell goods at anything but a loss. Expect all goods and services to vanish soon.

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