The Money Noose Tightens Further

The desperate folks in government are looking for money everywhere. In fact, at the last two G20 meetings, the richest 20 nations seemed able to agree on only one thing: that they will automate the trading of financial records with each other to try to catch corporations and individuals who are trying to avoid taxes. Other than that, the meetings were said to have a lot of bickering over Syria, NSA global spying, the Japanese debasing their currency faster than other regions, and so forth.

The International Monetary Fund, whose employees pay no taxes at all on their own salaries, is recommending a 10% wealth tax on all European Union citizens. Why? “..to restore debt sustainability.” In other words, they are admitting that EU countries are drowning in unpayable debt loads, so they advise snatching 10% of the wealth of everyone in those countries to pay off some national debts. And what will that 10% wealth grab accomplish? They say it will restore national debt levels to where they were in 2007. 2007?!? Wasn’t that the precipice of the financial crisis? They don’t seem to understand that countries were already drowning in too much debt in 2007, which was one of the primary enabling factors of the financial crisis. They say this is a one-time wealth grab. But after they grab that 10% of people’s money and it fixes nothing, what will they advise then? Grabbing 20% perhaps? More? Very likely.

Poland joined Argentina, Hungary, Ireland, Cyprus, and France in confiscating people’s pension assets. The Polish government grabbed national bonds held in pension funds managed by private sector money managers (think IRA or 401K managers ) and pulled them into the public sector pension program. Why? To count those bonds as government assets rather than debts so that their debt to GDP ratio looks better so they can borrow more money more cheaply in the open market. (Now you might think: why would bond  investors fall for such pathetic tricks? Why indeed. Don’t ask me. These “investors” are probably the same people who had money with Madoff.)

And Chase has told lots of its small business and individual clients that they can no longer use wire transfers to transfer money out of the country. If this sounds to you like progress along the lines of the dreaded currency controls, then you are being rational and astute. Currency controls, through which people are prohibited from moving their money out of its home country, are a plague on people when a country’s currency is plummeting in value. Ask people in Argentina how that feels, they’ve been through it twice.

Governments tried printing and borrowing lots of money to boost economies so they could collect more taxes. This has backfired: the economies barely grew while the debt continues to grow wildly.  Here’s what it looks like in the US, where the debt is the red line and the economy the blue line:

Debt_GDP

Some people, like Dick Cheney and Paul Krugman, say “who cares,” but the problem is, debts costs money, that is, you have to pay interest on the debt and you have to pay back the principal. And when the debt load keeps increasing faster than the economy, and faster than tax collections, it’s a classic case of unsustainability. Which is why governments are now starting to confiscate. They want more money, folks. They want to get it from you. Protect yourself accordingly.

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