Today King World News is featuring a piece by a man whose recently released masterpiece has been praised around the world, and also recognized as some of the most unique work in the gold market. Below is the latest exclusive KWN piece by Ronald-Peter Stoferle of Incrementum AG out of Liechtenstein.
By Ronald-Peter Stoferle, Incrementum AG Liechtenstein
November 7 (King World News) – Worried About Gold / Silver Smash – This Is Truly Terrifying
Wealth taxes and financial repression as a solution to over-indebtedness? Pt.2
In our last “In Gold we Trust” reports as well as last week’s article, we extensively discussed the topic of financial repression. Financial repression always consists of a combination of different measures, which lead to a significant narrowing of the universe of investable assets for investors. Money, which in a more liberal investment environment would have flowed into other asset classes, is channeled in a different direction. The goal of financial repression is an indirect reduction of government debt by means of the targeted manipulation of the cost of government debt, most of the time accompanied by steady inflation. Financial repression is ultimately a government-imposed transfer of wealth….
Continue reading the Ronald Stoferle piece below…
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Specific examples of repression measures imposed over the last year:
* Federal Reserve officials are already discussing whether regulators should impose exit fees on bond funds to avert a potential run by investors. This underlines their concern about the vulnerability of the $10 trillion corporate bond markets.1
* Retroactively to 1 February, Italy taxes incoming cross-border money transfers at a rate of 20%. Only if one can prove that one has not engaged in money laundering does one get one's money back. The onus of proof is thus with taxpayers.
* In Poland, a radical step was taken. In order to lower the debt-to-GDP ratio by 8 percentage points, the expropriation of private pension funds was enacted. The background is that upon reaching a debt-to-GDP ratio of 55%, consolidation measures are automatically implemented. By expropriating AXA, ING and Generali, the debt-to-GDP ratio was lowered by 8 percent. According to finance minister Jacek, this creates the potential for the government to run up additional debt.
A revenue source for government that is currently one of the most popular debates, consists of more direct measures, including compulsory levies on all savings, securities and/or real estate. This debate has intensified following a publication by the IMF, an excerpt of which we provide below:
“The sharp deterioration of the public finances in many countries has revived interest in a “capital levy” – a one-off tax on private wealth – as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance
is possible and there is a belief that it will never be repeated, does not
distort behavior (and may be seen by some as fair).”2
Germany's Bundesbank jumped on the bandwagon as well and said:
“With this special context in mind, the following outlines the various aspects of a one-off levy on domestic private net wealth. In other words, a levy on assets after liabilities have been deducted. From a macroeconomic perspective, a capital levy – and even more so a permanent tax on wealth –
is, in principle, beset with
considerable problems, and the necessary administrative outlay involved as well as the associated
risks for an economy’s growth path are high. In the exceptional situation of a looming sovereign
default, however, a one-off capital levy could prove more favorable than the other available
alternatives……If the levy is referenced to wealth accumulated in the past and it is believed
that it will never be repeated again, it is difficult for taxpayers to evade it in the short term,
and its detrimental impact on employment and saving incentives will be limited –
unlike that of a permanent tax on wealth.”3
“Capital will always go where it’s welcome and stay where it’s well treated.” — Wriston’s Law of Capital
US economist Barry Eichengreen outlined in a 1989 study entitled “The Capital levy in Theory and Practice” how such a compulsory levy must be implemented to be successful: without political debate, fast and above all the surprise factor is essential. Otherwise, capital flees across the border or into different asset classes.
“Either the State ends public debt, or public debt will end the State.” — David Hume
The road toward wealth taxes is thus already being paved. Even though the compulsory levy is often called a “millionaire's tax”, caution is advisable. Such a levy on wealth would have massive effects on saving behavior and thus also long-term negative consequences for capital formation. The capital structure will be distorted and capital accumulation will become more difficult. When in the past, savings were invested in the capital markets, other ways will now be sought in order to evade the levy. Since these new ways will only be sought as a result of the new wealth tax, they represent more inefficient forms of capital formation, as they would otherwise already have been used previously.4
Conclusion
We expect that financial repression as well as wealth taxes in various facets will increasingly gain in importance in coming years. We believe this to be a disastrous strategy, as the redistribution will merely buy time, while the structural problems remain unsolved. King World News note: This is an incredibly ominous warning from Stoferle and I suggest all KWN readers around the world take it very seriously while there is still time.
1 see "Fed looks at exit fees on bond funds," Ft.com
2 “Fiscal Monitor. Taxing Times," International Monetary Fund, October 2013, p. 49
3 “A one-off capital levy:a suitable instrument for solving national solvency crises within the current EMU framework?” Monthly Report, January 2013, German Bundesbank
4 see „Österreichische Schule für Anleger“ („Austrian School for Investors“), Taghizadegan, Stöferle, Valek
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