Good morning

The headlines:

  1. The expulsion of Bo.

    Link: China analysts react.

    Bo Xilai was expelled from the Communist Party on Saturday.

    If you’ve been following, he’s had a rather awesome fall from grace: a wife that he cheated on, who plead guilty to poisoning a british businessman after she felt that he was threatening the life of her son, after which she received a suspended death sentence; a former security guy who sought sanctuary in a US embassy; and then he was thrown out the Chinese Politburo for inappropriate behaviour (which, I understand, is a by-phrase for “letting your wife have free reign”).

    Anyway, in the lead up to the next Party Congress, Bo has been expelled from the party, and is now out of the running for any kind of position of power. The Secretariat also chose Saturday to announce that the 18th Party Congress will take place on November 8th. It all has a tone of “Well now that we’ve cleaned up the competition…”, does it not?

    Bo Xilai

    Some analyst reactions:

    “It is an ancient Chinese tradition that a loser in a power struggle must be thoroughly discredited and found morally corrupt”.

    “Bo’s downfall removes any threat to a smooth succession at the congress by Xi Jinping to the top positions of party chief, and (next spring), president”. 

    “Jiang Zemin faced a similar challenge in the early 1990s from Beijing party chief Chen Xitong, who was also purged from the party and sentenced to prison on charges on which many other leaders could have been equally justly accused. Current party chief and president Hu Jintao likewise engineered the removal of politburo member and Shanghai party secretary Chen Liangyu who had challenged his authority”.

    Politics. It’s a life-or-death business.

  2. The long dark October of Europe’s soul.

    Link: the month ahead.

    I suppose that, given it’s the 1st of October, this is a good a time as any to take stock of the European crisis.

    There is Spanish unrest, and only “general agreement” amongst the Greek coalition as to what spending cuts will be taken where. Which I think is a euphemism for “hypothetical and much-wished-for-by-the-ECB agreement”.

    Which is basically the exact same place that everyone sat in three years ago when all this nonsense started. The debt-ridden countries don’t want austerity, and their peoples are protesting against it. The debt-funding countries are threatening to withhold financing if the debt-riddens don’t get austere. And I’m waiting for someone to call the bluff – because somewhere in all of this, someone is going to tell the rest to “sod it” and they’ll try leave.

    Which will be far costlier to everyone, including the country leaving.

    Stalemate. It continues.

  3. Spain’s plans to borrow €207.2 billion.

    Link: how to absorb a banking crisis.

    The Spanish crisis is less about the government spending and more about the fact that the Spanish banks need to be bailed out by, um, their government.

    When you take the private debt and turn it public, you end up as Ireland.

    Anyway, because Mr Rajoy doesn’t want the conditions that would come with the European Stability Mechanism/Facility financing, Spain is still desperately trying to raise new debt from the general investing/banking public.

    The real question is: how long will that last? Because the market punishes with high interest rates. And once you take the debt, getting rid of it becomes a crisis-type affair (with defaults, haircuts and restructurings, etc)…

  4. France has a new budget.

    Link: the highlights.

    The only highlight I can see is higher taxes on the wealthy and the big corporations.

    I have been quite critical of the 75% tax rate – but I read recently that under the Eisenhower administration in the States, there was something like a 92% marginal income tax rate on the highest earners.

    This was gradually bought down to 70% or so – but only really changed with the arrival of George Bush the first. Read about it here.

    So maybe this will work!

    But, if I’m to have a word of caution – people are creatures of inertia. We accept the rate that is as reasonable. We also don’t mind if the tax rate is lowered – but we really mind if the tax rate is raised.

That’s all for now.

Have a good day.