Political Risk in 2017-2018

In the UK, the conservatives it appears, will win a reduced majority to govern the UK and Brexit process. It is also clear that a loss or hung parliament  for the Conservatives will set the UK back a hundred years politically and economically in the confusion and discord it would sew.

There is a minor risk of a hung parliament where, like 2010, the new government may have to collaborate to hold office. This would make managing the Brexit process untenable. The loss of political and economic confidence that would ensue would bring chaos to the UK. Should there be an outright victory to Labor, we would see a reversion to the 1950/70’s style politics that would also be a disaster.

So, the stakes are just as high as they were in June 2016. What was a ‘sure thing’ bet at the start of the election process has become marginal at a time when the consequences are high. The spontaneous ordering of the voting process may check politicians from being able to achieve their agenda at the expense of the national interest. What hubris by PM May who put personal agenda ahead of the national political interest.

This is typical of the problems found in liberal democracies. Liberal democracies around the world are dying. Voters are cynical of the promises and ability of politicians to achieve anything.

Flag - EU 12Ironically, the EU have hailed Macron’s victory as a sign that right wing populism has peaked and in remission. With no mirror for self reflection the EU elite are back at ‘business as usual’. “Nothing to look at here – move on”! They needed a Le Pen win to shock them into making real change. Macron’s victory has only deferred the inevitable by a year. Meanwhile, the political change that is sweeping the world at present will continue with German elections in October this year. Merkel it appears is set for a heavy defeat.

And in the USA the left wing is continuing its attempt to undermine President Trump and effectively ignore the rule of law. Left wing forces operating at every level of US media, government and politics are moving to impeach Trump. Meanwhile the silent majority that elected Trump are watching and waiting and growing angry.

The last time we saw his level of scale of political unrest was 1740 – 1785 culminating in the French Revolution. The rising tide of political unrest in the USA, UK and EU is polarized by left vs right as well as the elite vs the people. Remember, when political confidence falters, economic confidence falls soon after. This is what is happening now. As pressures continue to mount in the USA and EU there is increasing risk of civil strife breaking out.

The phase June 2017 to December 2018 remains a time of escalating risk. Over this 18 month time frame, what transpires will shape the world and its history for the next 12 years and set up the circumstances that will shape the rest of this century.

Pendulum of Government Overreach has Peaked

The pendulum of government overreach has peaked in most liberal democratic countries around the world (for now). The major political events of 2016 have shown increasing resistance to government given the rising number of breaches in civil liberties and failure of government to identify and respond to the disenfranchised members of their societies.

Many segments of society have felt themselves becoming impoverishment. At the same time they have watched the hubris, greed and failure of politicians to deliver solutions to resolve the various politically made crises. One of the recurring questions that will emerge is the role of government in the lives of people.

By the time politicians’ hubris has completely evaporated, the nature of liberal democratic countries will have changed. We see major risk of political, economic and social upheaval occurring between now and 2028-2033 This phase may extend before social, political and economic stability becomes the norm. As always the pendulum will one day swing again towards increasing government involvement in the lives and affairs of ordinary people.

Brexit Impact 2016

Should the “leave” vote win the coming UK referendum you can expect the impact to have global consequences. It will challenge the survivability of the EU. At the same time it will create massive flights of capital around the world as investors seek refuge for their money. Anticipate the USD being strongly bid. This will have a huge impact on US stock markets at the expense of peripheral markets and their currencies. The nature of global economics has been apparent for some time, though not obvious.  Brexit will cause this to accelerate.

What is clear is the counter-intuitive nature of the Brexit situation. The narrative being promoted by the “in” vote is not what it seems. Democratic processes to do with EU politics have earned a reputation for not being so straight forward with several countries having the “will of the people” overturned in the last decade or so.

Should the UK decide to remain in the EU, we anticipate this will only serve to delay the inevitably. Namely the demise of the EU itself. A reading of history itself should remind that all political systems fail and a political system built on faulty premises to begin with, fail sooner. Thus, human nature expresses itself in a cyclical manner again and again.

The Structure of Collapse: 2016-2019

Charles Hugh Smith writing on his blog Of Two Minds:

The end-state of unsustainable systems is collapse. Though collapse may appear to be sudden and chaotic, we can discern key structures that guide the processes of collapse.

Though the subject is complex enough to justify an entire shelf of books, these six dynamics are sufficient to illuminate the inevitable collapse of the status quo.

1. Doing more of what has failed spectacularly. The leaders of the status quo inevitably keep doing more of what worked in the past, even when it no longer works. Indeed, the failure only increases the leadership’s push to new extremes of what has failed spectacularly. At some point, this single-minded pursuit of failed policies speeds the system’s collapse.

2. Emergency measures become permanent policies. The status quo’s leaders expect the system to right itself once emergency measures stabilize a crisis. But broken systems cannot right themselves, and so the leadership is forced to make temporary emergency measures (such as lowering interest rates to zero) permanent policy. This increases the fragility of the system, as any attempt to end the emergency measures triggers a system-threatening crisis.

3. Diminishing returns on status quo solutions. Back when the economic tree was loaded with low-hanging fruit, solutions such as lowering interest rates had a large multiplier effect. But as the tree is stripped of fruit, the returns on these solutions diminish to zero.

4. Declining social mobility. As the economic pie shrinks, the privileged maintain or increase their share, and the slice left to the disenfranchised shrinks. As the privileged take care of their own class, there are fewer slots open for talented outsiders. The status quo is slowly starved of talent and the ranks of those opposed to the status quo swell with those denied access to the top rungs of the social mobility ladder.

5. The social order loses cohesion and shared purpose as the social-economic classes pull apart. The top of the wealth/power pyramid no longer serves in the armed forces, and withdraws from contact with the lower classes. Lacking a unifying social purpose, each class pursues its self-interests to the detriment of the nation and society as a whole.

6. Strapped for cash as tax revenues decline, the state borrows more money and devalues its currency as a means of maintaining the illusion that it can fulfill all its promises. As the purchasing power of the currency declines, people lose faith in the state’s currency. Once faith is lost, the value of the currency declines rapidly and the state’s insolvency is revealed.

Each of these dynamics is easily visible in the global status quo.

As an example of doing more of what has failed spectacularly, consider how financialization inevitably inflates speculative bubbles, which eventually crash with devastating consequences. But since the status quo is dependent on financialization for its income, the only possible response is to increase debt and speculation—the causes of the bubble and its collapse—to inflate another bubble. In other words, do more of what failed spectacularly.

This process of doing more of what failed spectacularly appears sustainable for a time, but this superficial success masks the underlying dynamic of diminishing returns: each reflation of the failed system requires greater commitments of capital and debt. Financialization is pushed to new unprecedented extremes, as nothing less will generate the desired bubble.

 Rising costs narrow the maneuvering room left to system managers. The central bank’s suppression of interest rates is an example. As the economy falters, central banks lower interest rates and increase the credit available to the financial system.

This stimulus works well in the first downturn, but less well in the second and not at all in the third, for the simple reason that interest rates have been dropped to zero and credit has been increased to near-infinite.

The last desperate push to do more of what failed spectacularly is for central banks to lower interest rates to below-zero: it costs depositors money to leave their cash in the bank. This last-ditch policy is now firmly entrenched in Europe, and many expect it to spread around the world as central banks have exhausted less extreme policies.

The status quo’s primary imperative is self-preservation, and this imperative drives the falsification of data to sell the public on the idea that prosperity is still rising and the elites are doing an excellent job of managing the economy.

Since real reform would threaten those at the top of the wealth/power pyramid, fake reforms and fake economic data become the order of the day.

Leaders face a no-win dilemma: any change of course will crash the system, but maintaining the current course will also crash the system.

Welcome to 2016-2019.

Source: http://www.oftwominds.com/blogjune16/collapse6-16.html

JP Morgan to Leave UK if it Quits EU

JP Morgan, one of the leading banks in the world has threatened to quit UK if it decides to leave EU after the proposed referendum on the matter.

Jamie Dimon, the chairman and chief executive of JP Morgan, says his bank might quit the UK if Britain exits the European Union. “Britain’s been a great home for financial companies and it’s benefited London quite a bit. We’d like to stay there but if we can’t, we can’t,” he said in Davos, Switzerland and the World Economic Forum meetings.

The bank employs 19,000 people in Britain.

For JPMorgan, British membership in the EU is important since it provides the bank with “passporting” rules that allow it to do business across the 28-member bloc.

For the UK, membership is not as important. Overall trade does not require EU membership. Non-members such as Norway or Switzerland, trade with the EU makes up a bigger share of the total than it does for Britain.

Britain’s Prime Minister’s David Cameron hopes to  hold an EU referendum in June.

Source: EconomicPolicyJournal.com

The Great Sovereign Debt Crisis Coming Soon

Starting in Europe and reaching public consciousness when Japan implodes before engulfing the USA and remaining Liberal-Democratic nations.

The Great Sovereign Debt Crisis of the 21st Century is steadily gaining momentum. The forces of deflation have been steadily building since 2000 and the stage is set over the next 6-12 months where the reality of public plundering of the means of production comes home to roost. The weight of public and private debt, government regulation and leverage, fraudulent economics and fallacious political thinking that assumes that if you keep taking and spending other people’s money you will never ever run out!

Yet this is exactly what is happening. The politicians have borrowed to deliver on promises they were never going to be around to see delivered. They’ve debased the their currency and now we have reached the problem that there is so much debt in the world that the world does not have enough income to service that debt.

Historically its happened many times before of course and yet we never seem to learn. Empires grow and prosper, politicians make promises, governments and people borrow and everyone takes for granted the wealth that has been achieved until finally, it all collapses. History records the rise and fall of civilizations on exactly this premise. It’s always government and the self-seeking of leaders that cause civilizations to self-destruct.

While we observe the rise and fall of empires due to reasons of currency debasement or war, we can also observe that these are merely the mechanisms that cause the problems. Behind them lies the cyclic nature of humanity. Deep in the limbic system of the human brain reside deep impulses that play out at individual and aggregate levels.

We might look back at the Tulip Mania Bubble of the Dutch Golden Age (1634-1637) and wonder how people might have been so crazy as to invest in tulips. The Tulip Mania occurred on the back of a Europe-wide debasement of coins (1619-1622) used to finance war. Yet they did and future historians will look back at early 21st century share, commodity, real estate prices and wonder “how could they have been so blind?”TulipPricesDebasement of the currency has occurred this time by closing the link between gold and paper money and the massive printing of money that subsequently occurred. Each era brings the usual excuse “this time its different”. But the same debasing of money, the same political hubris, the same grasp for political power create the same drivers that cause the boom and the bust.

We watch at the moment the European debt drama playing out in Greece. Other nations sit on the edge of potential debt crises including Spain, Portugal, Italy, Puerto Rica and various cities of the US. This is just the beginning. Soon we shall see the debt crisis spreading to northern Europe, Japan, China and the US. Its about sovereign debt of course, the debt accumulated by generations of politicians spending other people’s money.SouthSeaIn Japan they experienced this in the early 1930’s when massive money printing operations inflated their economy. It resulted in the assassination of the Finance Minister and Prime Minister, the establishment of the military as the power brokers of Japanese politics and the beginnings of the build up for for WWII. That didn’t end well for the Japanese people.

Between 1740 and 1783, the French experienced it with the massive indebtedness of the monarchy, high taxes, high levels of regulation and cronyism led to the French Revolution, Napoleon and a final defeat in 1815.

Pax Romana followed a similar path where eventually the debasement of the currency and accumulated debt caused the empire to implode. To look at Pax Americana is to see an identical script unfolding. Massively unsustainable debt levels, vast militarization, endless monetary debasement, constitutional decay and subjugation of citizens by taxation, regulation and blatant spying signal, as it has in many previous civilizations, the demise of this short lived empire.

Using financial markets as a barometer we observe markets in major topping patterns, working out of main trends. The next 3-6 months will prove critical in determining if the Great Sovereign Debt Crisis has truly arrived or if there is still enough gas in the tank for one last sprint before the weight of debt, regulation and political hubris bring down the liberal – democratic nations of the world. dow-jones-100-year-historical-chart-2015-08-07Once again the cyclic nature of human egress and regress is playing out at individual and aggregate levels and from where we stand, major and minor cycles of human endeavor are changing direction. Crisis bring danger and opportunity for those so prepared.

At $200 Trillion The World’s Debt Cup Overfloweth

by Bloomberg Business

The world economy is still built on debt.

That’s the warning today from McKinsey & Co.’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.

While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain.

McKinsey sees little reason to think the trajectory of rising leverage will change any time soon.

Source: McKinsey

 Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure

Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

 Source: McKinsey

2. Households in some nations are still boosting debts

Eighty percent of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

Source: McKinsey

 3. China’s debt is rising rapidly

Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282 percent of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Source: McKinsey

via A World Overflowing With Debt – Bloomberg Business.

Source: http://davidstockmanscontracorner.com/at-200-trillion-the-worlds-debt-cup-overfloweth/

 

 

Era of Transparency & Accountability Beginning for Politicians

An era of transparency & accountability is beginning for politicians.

Very shortly the U.S. Congress will shortly vote to make Economic Impact Assessments (EIAs) a mandatory part of every executive rule or regulation passed with an annual economic impact of $100 million or more (REINS Act SR226 & HR 47).

Elsewhere the rise of right wing politics in the EU and UK is forcing scrutiny on politicians and bringing them to account. In many democracies it may become mandatory to attach economic impact assessment statements to each piece of legislation  If this trend reaches an extreme we will see calls to have politicians and government unable to raise any debt. given their track record however, maybe this is not such a bad thing.

The Australian state of Queensland election is also forcing the incumbent Premier Newman to adopt transparency and accountability principles. We anticipate transparency and accountability will become the new fashion for liberal democratic governments over the next 3-5 years.

The ‘political hubris bubble’ is finally beginning to burst. Social mood is swinging into action and voters are acting on their long held distrust of politicians. Firstly they exercised their democratic privilege to put several governments into ‘hung parliament’ balances (UK, USA Australia) and now they are beginning to hold them accountable. The days where politicians can promise, over-commit and overspend is coming to an end.

Stock Market Update

Most stock appear set to kick off in 2015 with some decent falls. Its too early to tell if this is the beginning of a broad secular bear market or the beginnings of a healthy correction that will last 3-9 months before stocks continue their advance.

Our broad scenario update “The End of the Long Game 2009-2018” will be released over the next three days outlining the bull and bear cases and provide context for what emerges in 2015.

Rise of the New Libertarians: Meet Britain’s Next Political Generation

By

Westminster

Britain’s ‘Generation Y’, the under-30s, have fallen out of love with Westminster politics and the state(Reuters)

In the ruins of Westminster party politics, between the crumbling pillars of broken promises and the shattered glass of optimism, you’ll find Britain’s young people building something new.

They don’t need or want the British state and its creaking machinery. Like feats of Victorian engineering, these tired institutions are impressive, interesting, and have their place in history. But they’re not practical anymore, these dusty relics from the Age of Statism.

This is Generation Y. The under 30s who are the most liberal generation in British history, not just on social issues such as decriminalising marijuana and gay marriage, but on economic ones too.

Spawn of an anarchic internet culture that offers everything on demand and personalised to all whims and wants. Adolescents of austerity, who understand they can’t rely, as their parents and grandparents did, on the one-size-fits-all state as a provider. This generation knows what it wants: the grand prize of individual liberty and personal responsibility. But not for its own sake.

“I’m certainly not in favour of freedom if it doesn’t produce good outcomes. I just tend to think that most policies libertarians espouse are the ones that benefit the most people,” says Anton Howes, a PhD student at Kings College London researching the cultural causes of the British industrial revolution.

He’s also the founder and director of Liberty League in the UK, an umbrella organisation for the growing number of young libertarians across the country.

Jennifer Salisbury-Jones, communications manager at Liberty League and a recent physics graduate, is in agreement with her colleague Howes: a smaller state and less regulation can improve the lives of the poorest.

“Quite often, an interfering state, though it comes with the best intentions, makes life harder for the worst off and it doesn’t quite do what it was intending to do,” says Salisbury-Jones, who is also a campaigns manager at the Taxpayers Alliance, a well-known pressure group pushing for lower taxes.

“We do not pretend to know what is best for everyone, and so we feel that decisions are ideally taken by the persons directly affected by them,” says Mark S. Feldner, a law student and president of Cambridge Libertarians, a group for students at one of the world’s best universities.

“This scepticism about concentrated power, central planning and top-down regulation also encourages individuals to accept responsibility for their own actions.”

Young libertarians are also looking to Ukip’s newest hero, the Tory turncoat Douglas Carswell. A free market-loving, privatisation-touting, tax-cutting libertarian rascal, Carswell just won a by-election in Clacton – increasing his majority – after his defection from the Conservatives to become Ukip’s first elected MP.

Politics, but not party politics

Generation Y marks a noticeable shift in opinion when compared to other generations. They’re not that proud of the welfare state. They’re less trusting of the traditional big public institutions. They’re much more socially liberal, cosmopolitan, and internationalist.

They believe more in markets, lower tax and less regulation. They want to make their own decisions, not have the state – an overbearing parent, of sorts – make them on their behalf.

When the Conservative-Liberal Democrat coalition moved in 2013 to cap the total annual benefits a household can receive at £26,000, a YouGov survey found that 54% of 16 to 24-year-olds agreed with it against 16% in opposition.

As consequence, Generation Y has been slapped with several different Tory-centric monikers. Generation Right, Generation Boris, Thatcher’s Children. But these mis-characterise many of today’s younger voters.

“If you look at their voting intention, they are nearly twice as likely to be Labour than Conservative supporters,” says Bobby Duffy, managing director of pollster Ipsos MORI’s social research institute.

“It doesn’t really translate as much into political allegiance. There’s a little bit of a shift towards conservatism, but that’s not the main story.”

The main story, says Duffy, is the general disengagement with party politics. For the generation born before the Second World War, 70% feel engaged with political parties in Britain. Just 20% of under-30s feel that connection.

This chasm is enormous. But don’t assume Generation Y is apathetic or politically inactive.

Welfare state - generational pride poll

Generation Y are much less proud of the welfare state than their parents and grandparents.(Ipsos MORI)

“They’re much more used to identifying an issue, grouping together around that issue to try to solve it or improve it, and then dissolving and moving on to the next issue,” Duffy says.

“It’s not the whole manifesto approach where you’ve got to buy into some things you may not necessarily agree with. That doesn’t fit with a generation used to tailoring.”

The internet and new social technologies, and the fluidity and flexibility they bring, have shaped this change. It’s easy for a generation used to Twitter and Facebook to cluster around a single campaign, send it viral and use the groundswell of publicity and support to strong-arm politicians.

It’s not so easy to join a party, work your way up and, if your original views survive untarnished by all the boot-licking and compromise just to get ahead, bring about change from the inside. You’d be fed in as a pork chop, minced up with the party’s offal, and funnelled out an unpleasant sausage.

And today’s young people have been through the global financial crisis. Though this event was billed by many leftists as a catastrophic failure of neo-liberalism, prophesied by Karl Marx, which would drive young people towards the left-wing, it seems to have done the opposite.

Years of austerity and public spending cuts have changed Generation Y, but not in the way some expected. Rather than fuelling anger among young people that the state is being chipped away, many are absorbing the message of individualism, of DIY solutions to personal, community and societal problems.

They simply don’t need the state anymore. You’re more likely to find them working in social enterprises and charities than in the hallowed Westminster halls of Whitehall.

“The combination of these attitudes – often described as socially liberal and fiscally conservative – cannot be found within established political parties,” says Feldner of Cambridge Libertarians.

“Libertarianism thus provides an intuitively appealing set of beliefs for those who do not feel represented by the political mainstream. Unless and until libertarian ideas are adopted by the establishment, this trend is likely to continue.”

Changing the image

There’s a crude perception of libertarianism thanks to what we might call “tabloid libertarians”, the well-known loudmouths who like to argue for the sake of arguing, take the concept of freedom to logical extremes and idolise the wealthiest of the wealthy, prioritising the protection of the 1%’s capital above all else in society.

And the image of libertarianism isn’t helped by movements such as the Tea Party in the US, a mob of gun-toting southern state conservatives who hate taxes and sit on their porches clutching a 12-bore to protect their property from the federal government.

Many libertarians don’t class the Tea Party as libertarian at all, because they’re not holistically liberal. Though the Tea Party may be economically libertarian, they’re prim social conservatives too, and aligned to the likes of Glenn Beck and Sarah Palin.

But still, brand libertarianism is tarnished by these placard-waving yokels and maniacal patriots.

At just 26, Sam Bowman is already research director at the Adam Smith Institute (ASI), a free market libertarian think tank in London. He uses the dating app Tinder and says his job piques some interest because it’s a little different. While it’s won him dates, some women ask: “Is that like Sarah Palin?”

Sam Bowman

Sam Bowman(YouTube)

“So if I’m facing that when I’m trying to get a date on Tinder, imagine how big that is when we’re trying to argue on Sky News that this particular tax cut is good because it’s going to help the poor,” he says.

“If people in the backs of their minds are thinking this guy’s basically Sarah Palin, or Glenn Beck, then we’re in big trouble.”

Bowman has made it his own personal mission, as well as that of the ASI, to remould how people react to libertarianism. To make their ideas appeal not just to the right, but also the left.

“We’ve made a concerted effort. It’s been conscious. We want to make our arguments on the basis of how they would affect the poor because rich people can basically look after themselves,” he says.

Negative income tax

One the ways Bowman has sought to subvert people’s preconceptions of libertarianism is to advocate the negative income tax, an idea closely associated with the free market economist Milton Friedman and a means of redistributing wealth from the top to the bottom.

Put simply, it works by establishing a minimum income that people need to meet a basic standard of living. Those earning under the threshold are given a tax credit to top them up. Those earning above begin to pay income tax, the rate of which increases depending on your earnings.

Bowman says this would be a “radical simplification” of the welfare system to make it cheaper to administrate and less bureaucratic for those needing to use it, while making sure the poorest have enough money to live on. And, of course, that the richest pay their fair share.

Another part of Bowman’s strategy is to focus on important individual issues instead of taking a broad-brush libertarian approach.

“What we want is to give a version of libertarian ideas in a way that is appealing and accessible to non-libertarians,” he says.

“We’re not trying to convert people to libertarianism. We’re trying to get non-libertarians to adopt a few of our ideas.”

One example is a paper by Bowman on free banking in an independent Scotland. His solution to the currency question proposed allowing banks to issue their own promissory notes tied to whatever reserves were desired, be that sterling or otherwise, to create a more efficient and flexible money supply.

“We got a lot of coverage of that. Where we succeeded with that was to make it relevant to a very interesting debate at the time,” he says.

“Even though free banking’s not going to happen in Scotland – that’s fantasy – what we did was to get people to start thinking seriously about the idea. And not as part of a big lump of ‘this is libertarianism and you have to adopt this’ but as an individual idea. Let’s consider this on its merits.”

Bleeding heart libertarians

The cause of changing people’s opinions about libertarianism is shared by many of its young advocates because they want to show the public that they aren’t a bunch of selfish Objectivists who go doe-eyed for Ayn Rand and Donald Trump. The young want libertarianism to grow up.

Salisbury-Jones of Liberty League doesn’t know any young British libertarians who have come to the movement via Rand, whose most famous novel is Atlas Shrugged.

Jennifer Salisbury-Jones

Jennifer Salisbury-Jones(Liberty League)

“I think in the UK people are much more likely to identify as bleeding heart libertarians than Randians and how it can be applied to social justice rather than objectivism,” she says.

“People come to libertarianism because they feel very strongly about free speech, or whatever else, then they look it up and come to the rest of it. That the burden of taxation and regulation on the poorest should be lower.”

For Howes, the battle for open-mindedness about libertarianism is already won. To him, it’s “not even a challenge anymore”. The age of libertarians as eccentric, male, white, radical Tories is over.

At the annual Freedom Forum conference held by Liberty League, which brings people together for debates, lectures, training and socialising, Howes says he has seen the makeup of attendees change dramatically since 2011.

“This year it seems as though everyone is just… I want to say ‘normal’, but that’s not the right word,” says Howes.

“You see what I’m getting at there – non-political, non-partisan, eclectic. If I took a random sample of a group of undergrads at any university, they’d look like that. That seems to me what it actually looks like now. That’s a really big change and one that is already happening as we speak.”

Alexandra Swann, 26, once dubbed the “future face of Ukip” but who fell out with the party over its stance on immigration, says the movement needs to “widen the understanding of what libertarianism actually is”.

“A large proportion of the small percentage of the populace who have heard of libertarianism equate it with cold-hearted capitalism, a hatred of the poor and a return to 19thC values with the obligatory poor-house and no roads (because who on earth could build a road if not the state?),” says Swann, who is a columnist for Breitbart London.

“We must find a way to condense our message and decide our goals. I’m finally accepting that my libertarian utopia will not be achieved in this lifetime, governments have far too successfully entrenched their existence and bred a population that needs and relies on them both physically and for guidance of sorts.

“Government, especially the NHS, is the new religion; to criticise it is blasphemy. Modern libertarians must show alternatives to big government solutions.”

Entryism?

For Liberty League and the ASI at least, the challenge for sustaining the momentum of libertarianism’s rise in popularity is also about getting people from the movement into positions of influence within society.

Be that in academia, the media, the civil service, Westminster politics, or even literature. Creating tomorrow’s libertarian journalists, novelists, politicians and wonks who can propagate the ideas, particularly by trying to drum up support in universities. Which sounds a bit like entryism.

Anton Howes

Anton Howes(Liberty League)

“In a sense yes, except that we’re not focused on any particular institution to be entryist to. It’s more a sort of scatter-gun approach. We’ll just support them in whatever field they want to go into,” says Howes.

“I’d love to have more English students wanting to become novelists, or more film students wanting to make documentaries. That’s a bit rarer because people tend to be more interested in economics, philosophy and politics and you don’t really get many people with those skill sets. But whatever it is that they want to do I’d want them at some stage to be very effective.

“Hayek calls them second-hand dealers in ideas. So you have these ideas running around, mostly coming from academics and being produced by intellectuals, then people who are able to disseminate them make them much more approachable, help them make sense to a much broader section of the population.”

Ukip

Not every young person agrees in rejecting party politics. Jack Duffin is a chef-turned-politico. At just 22 he’s readying up to fight for a seat in parliament at the 2015 general election in the in Uxbridge and South Ruislip constituency, where his biggest rival for the seat is none other than London’s incumbent mayor, Boris Johnson.

Duffin’s party is Ukip, where he chairs the youth wing Young Independence.

“A big state’s a bad thing because you have to be taxed more, there’s less of a safety net for people when they come into economically hard times, because everyone who is employed by the state doesn’t generate money,” says Duffin, who is attracted by libertarianism, but doesn’t want to give himself a particular label.

Jack Duffin

Jack Duffin(Young Independence)

“Obviously there are key people you need, like doctors and everything, but the more people you employ on the state, the more damage it does to private industry. If we had a small state that was manageable, then there’s less taxes, people can spend their money the way they want to spend their money.

“And it’s a choice, at the end of the day. We shouldn’t be telling everyone how they’re going to spend their money, ramping up taxes just to keep providing for this bloated state.”

There was a time when Ukip was seen as the British libertarian party. Its commitment to a flat rate of income tax, its desire to reduce state spending and wreak privatisation through what’s left of the public sector.

This image has worn off somewhat as the party hoovers up old Labour and Tory voters, who are British traditionalists yearning for a lost mythical post-war England, before the rot of multiculturalism supposedly set in.

It’s revealed itself to be socially conservative by opposing gay marriage. Its views on immigration – Ukip thinks there should be much less of it – are also anathema to many libertarians.

Duffin defends the party’s position on gay marriage. It’s not about limiting gay rights, but protecting those of the religious. He says he supports legalising gay marriage in principle, but not in practice because the Supreme Court is not the highest court in the land.

He fears that religious organisations will be forced under European human rights law to conduct gay ceremonies against their wishes. Therefore until the UK leaves the European Convention on Human Rights, religious rights are under threat because of the legalisation of gay marriage.

But young libertarians are still signing up to Ukip. Duffin says since he took over as chairman in February 2014, the number of members has increased from 1,700 to 2,600.

“Young people are realising there’s a change out there. So rather than just not getting involved in politics at all, which a lot would do if Ukip wasn’t around, they’re actually turning to Ukip as a way to change everything,” he says.

He also says young people are realising that the size of the state is out of control in the UK and that they like the seemingly blunt authenticity of Nigel Farage, Ukip’s leader, who thinks he is the antithesis of the Philosophy, Politics and Economics (PPE) at Oxford-then-parliament merry-go-round of Westminster.

“Obviously there is a role for the state, but it needs to be manageable. So many pen-pushers. Just look at the NHS. The whole middle layer of the NHS is bureaucracy. It’s a waste. That money would be much better spent on the front line,” he says.

“Young people are looking at this. They’re seeing it in schools as the classroom size increases the amount of different teaching staff, and quango-style stuff – people have had enough of it.”

Douglas Carswell

Defector Carswell of Ukip(Getty)

The Future

What does libertarianism’s future look like in Britain? Today’s young libertarians are working hard to create a solid platform on which to build.

They’re softening up the public to libertarian ideas and showing people they don’t have the lowest motivations, but share the same concerns as everyone else for improving the conditions of society’s worst off.

As digital natives, they may get a leg up from new technology that empowers consumers and businesses by slipping through the tentacled grip of burdensome state regulation.

Apps such as taxi ordering service Uber, which has drastically reduced the costs to consumers of a cab journey in the cities where it’s used by increasing competition and evading bureaucratic licensing terms.

Or cryptocurrencies such as bitcoin, which operate outside of the realm of financial regulation and monetary policy frameworks, powered organically by a sprawling network of dedicated developers and enthusiasts.

In Howes’ words, technology will “undercut a lot of the existing hierarchy”.

There’s one snag: the state will always try to catch up. The loophole advantage of legal grey areas exploited by new technologies is often closed. Uber has faced court challenges and financial regulators across the world are working out if and how to police cryptocurrencies.

“When the state cracks down on Uber, people see the state cracking down on a technology they like,” Salisbury-Jones says.

“They disapprove of this. They think this is the old establishment cracking down on something that I like and is successful. They don’t necessarily consider themselves libertarian, but they fundamentally dislike the state interfering in things they think are fine.”

She’s optimistic about the future. That in 20 years’ time, the government won’t see a problem and ask what it and it alone can do to solve it. Instead, it will look at what it’s doing to make things worse and get out of the way.

Even if the attitude of government doesn’t change, Salisbury-Jones and other young libertarians can look with optimism at those even younger than them. Ipsos MORI’s Generation Next survey of 11 to 16-year-olds seems to confirm that the ideas of personal responsibility and individualism are growing in appeal among tomorrow’s adults.

Just 4% of more than 2,700 secondary school pupils surveyed said the welfare state made them most proud to be British. The winner was Team GB, the Olympians, at 28%. And only 2% said benefits were the most important focus for government spending, though 11% did prioritise looking after the poor.

Moreover, 51% said it doesn’t matter whether you come from a poor or rich family when it comes to getting a well-paid job. This suggests a majority believe career success these days can be powered by the efforts of the individual to overcome the barriers put in place by growing up in a low income household.

“The underlying theory of social change is one that relies on ideas winning out,” Howes says.

“It relies on the people who are talking about those ideas being as well placed as possible in the future to be able to get those ideas to a much broader audience.”

If today’s growing mass of young libertarians cling on to their beliefs as they get older and more world-weary; if they find their way into positions of influence and power across Britain; libertarianism will have won out. It looks like change is coming.

“The thing with libertarianism is we are a rather nice bunch who do not want to inflict our views on other people,” says Swann.

“We are the carrot without the stick, so to speak. All we can do is hope the current climate of disillusionment toward Westminster politics coupled with the state’s virtual bankruptcy, both moral and fiscal, provide the perfect storm to propel the wings of political change.

“Libertarianism is increasingly popular with young people. There is hope yet.”

Source: http://www.ibtimes.co.uk/rise-new-libertarians-meet-britains-next-political-generation-1469233

Guess which empire came to an end today?

 Spanish Hapsburgs

In the early 16th century, a priest by the name of Fray Francisco de Ugalde remarked to his king that Spain was “el imperio en el que nunca se pone el sol”.

In other words, the sun never set on the Spanish Empire.

And by the 1500s with its vast lands across the Americas, Africa, Europe, Asia, and even the South Pacific, Spain (technically the House of Habsburg) had become the first truly global superpower.

The Empire’s status was so great that its silver coin (the real de ocho or piece of 8) was used around the world as a global reserve standard… including in the US colonies.

It didn’t last.

Like so many great empires that came before, Spain was beset by unsustainable spending, constant warfare, debilitating debt, and an inflated money supply.

By the mid 1500s, the Spanish government was spending 2/3 of its total tax revenue just to pay interest. Spain defaulted on its debt six times in the next century.

It finally came to an end on today’s date in 1643, exactly 371 years ago.

Historians can literally circle the date on a calendar that Spain ceased being Europe’s dominant superpower; it was the day that Spain lost the Battle of Rocroi, and effectively the Thirty Years War against France.

Just days before, a four-year old Louis XIV had ascended to the throne to become the King of France after the death of his father.

And during his whopping 72-year reign, France replaced Spain as the global superpower.

(To put this reign in context, the longest serving monarch alive today is King Bhumibol of Thailand, who at age 86 has served for 67 years. At age 88, Queen Elizabeth has served for 62 years.)

For more than a century, commerce, art, and technology flourished in France. And some of the greatest intellectual minds in history published their works during this period.

I remember being told as a West Point cadet that in the early days of the Academy in the 1800s, the only two classes were French and Mathematics, primarily because all of the great textbooks were written by French mathematicians.

France had public healthcare and free hospitals. Great monuments to their grandeur. Colonies around the world. An awe-inspiring military.

And their influence was so great that foreign governments from Russia to Prussia spoke French internally.

Needless to say, this didn’t last either.

And like the Spanish before them, France overspent, overexpanded, and overregulated. They waged excessive warfare, and they managed their affairs as if the good times would last forever.

By the 1780s, the French debt had grown so much that they were rapidly devaluing the currency and borrowing money just to pay interest on what they had already borrowed.

Sound familiar?

The US is in a similar position right now, along with most of the West (including… France and Spain again!)

Like an aging prize fighter, there is no nation that can permanently maintain its status as the dominant superpower. And certainly no nation that can defy universal economic truths.

Powerful nations believe they can borrow indefinitely and dilute their currencies without consequence.

This simply isn’t true. Wealth and power shift. The world’s reserve currency changes. It’s been happening for centuries, and this time is no different.

We are all witnessing this change unfold again. And this isn’t some wild assertion.

Objective data from the Bank for International Settlements and the International Monetary Fund all show a clear decline in the dollar’s share of global reserves.

chart2 1 Guess which empire came to an end today?The US government’s own data shows a net worth of minus $16.9 trillion, over 100% of GDP in the red.

And even in their most optimistic projections, the government tells us that growth in debt will outpace growth in tax revenue.

Day to day, it’s easy to ignore these trends. But from a big picture perspective, it couldn’t be more obvious.

Just like the Battle of Rocroi in 1643, or the storming of the Bastille in 1789, there will come a time when future historians circle a date on a calendar and say, “That was the day the United States ceased being the dominant superpower.”

Perhaps it’s happened already. Or perhaps it will occur in a war yet to be fought.

But if history, common sense, and truth are any guides, that reckoning is quickly approaching.

Source: http://www.sovereignman.com/expat/guess-which-empire-came-to-an-end-today-14439/

Eating Our Seed Corn: How Much of our “Growth” Is From One-Time Cashouts?

Charles Hugh Smith of http://www.oftwominds.com/blog.html writes:

We as a nation are consuming our seed corn in great gulps, and there will be precious little left in a decade to pass down to the next generation.

Anecdotally, it seems a significant percentage of our recent economic “growth” is being funded by one-time cashouts of IRAs, 401Ks, sales of parents’ homes, etc. This is the equivalent of eating our seed corn. Once these pools of savings/equity/capital are gone, they aren’t coming back.

I personally know a number of people who have cashed out their retirement account 401Ks (and paid the taxes) to pay for their kids’ college expenses–in effect, cashing out their retirement to lower but not eliminate the debt burden of their offspring who bought the “going away to college” experience.

The cashed-out 401K delighted the government, which reaped huge penalties and income taxes, as the cashout pushed the annual income of the recipient into a high tax bracket. (“Hardship” withdrawals for medical care and education waive the penalties, but the income tax takes a big chunk of the withdrawal.)

The middle-aged person who cashed out their retirement will not work long enough to save an equivalent nestegg. Not only is time against such an accumulation of retirement savings, so is the stagnant economy: companies are slashing 401K contributions to offset rising healthcare (a.k.a. sickcare) expenses, and many workers young and old alike are finding jobs that pay them as self-employed contractors or part-time jobs with no benefits.

Another set of middle-aged people are withdrawing from IRAs (and paying the penalties) just to fill the gap between expenses and income. For a variety of reasons, many people are loathe to cut expenses or are unable to do so without drastic changes in their lifestyle. So they withdraw from the IRA (individual retirement account) to cover expenses that are left after income has been spent.

This “solution” is appealing to those whose incomes have declined in what they perceive as “temporary” hard times.

Another pool of equity that is being drained is the home equity in aging parents’ homes. The government will only pay for one set of medical expenses (long-term care, for example) if the elderly person has assets of less than $2,000 (as I recall). Given this cap, it makes sense for elderly homeowners to transfer ownership of their home to their offspring well before they need long-term care (which can cost $12,000 to $15,000 a month).

A variety of other medical expenses can arise that cause the home to be sold to raise cash–either expenses for the elderly parents or for their late-middle-age offspring who develop costly health issues. Family disagreements over sharing the equity can arise, leading to the sale of the house and the division of the equity among the offspring.

This cash is immediately hit with a variety of demands: a grandkid needs a car, somebody needs money to go back to graduate school (pursuing the fantasy that another degree will provide financial security), and so on–not to mention “we deserve a nice vacation, a new car, etc.“, the temptations in a consumerist culture that we all “deserve.

Once the family home is sold, the furnishings and other valuables are also sold off to raise cash. In many cases, the expense of transporting the items across the country to relatives exceeds the value of the furnishings.

One common thread in all these demands for liquidation of equity is the short-term need is pressing. A consumerist culture offers few incentives for long-term savings other than life insurance, IRAs and 401Ks, and all of these can be tapped once a pressing need arises.

Though people may want to hang on to their nestegg, they are faced with short-term needs: how else can I pay tuition, or this medical bill?

As incomes have stagnated and costs for big-ticket expenses such as college and healthcare have soared, the gap between income and expenditures has widened every year for the bottom 90%.

 

Even those in the top 10% are not protected from draw-downs in retirement funds and family equity in homes and other assets.

Retirement funds, home equity, family assets–these are the financial equivalent of seed corn. Once they’re cashed out and spent, they cannot be replaced.

In more prudent and prosperous times, these nesteggs of capital were conserved to be passed on to the next generation not for consumption but as a nestegg to be conserved for the following generation. That chain of capital preservation and inheritance is being broken by the ravenous need for cash to spend, not later but right now.

So how much of the recent “growth” in GDP results from our consumption of seed corn? It is difficult to find any data on this, something which is unsurprising as the data would reveal the entire “recovery” story as a grandiose illusion: we as a nation are consuming our seed corn in great gulps, and there will be precious little left in a decade to pass down to the next generation.

We face not just an impoverishment in consumption but in expectations and generational assets.

Source: http://www.oftwominds.com/blogfeb14/one-time-cashout2-14.html

 

 

The QE Experiment is Failing… Will Stocks Crash?

Graham Summers from GainsPainsCapital writes:

We’ve long maintained that Japan is ground zero for the “QE works vs QE doesn’t work” debate.

The Fed’s economic models, and 99% of the economic models employed by Central Banks in general, believe that monetary easing can bring about an economic recovery. The primary argument for this crowd if QE has thus far failed to produce a recovery is that the QE efforts have not been big enough.

And then there’s Japan. In a nation with GDP of $5.96 trillion, the Bank of Japan has launched a $1.4 trillion QE effort: a monetary move equal to 23% of Japan’s GDP.

To put this into perspective, this would be akin to the US’s Federal Reserve announcing a QE effort of over $3 trillion.

Suffice to say, Japan’s QE most certainly should be considered “enough” by even the most pro-QE supporter. But the very problem is that it does not appear to be having the intended effects.

The following is an article from the Wall Street Journal. I’ve highlighted a few choice items for your review:

At Koeido Co., a 156-year-old sweets maker based in this city in southwest Japan, chairman Shuichi Takeda says he feels the country may finally be coming out of a 20-year funk.

Sales of Koeido’s sweet millet dumplings are holding up. The company is spending around 80 million yen ($800,000) to renovate two shops—a sign of how Japan’s economy is showing signs of life, lifted in part by a flood of easy money from the central bank that has boosted stocks and helped spur growth.

But with future demand unclear, and costs for imported sugar rising, Koeido still isn’t bullish enough to take out bigger loans to replace equipment or expand its business—even though banks are begging it to borrow more.

The economy doesn’t necessarily get better just because of monetary easing,” says Mr. Takeda. “And you don’t borrow just because rates are low.”…

It is an attempt to literally crowd banks and other investors out of the market and force them to put their money to work in other ways—through loans or investments in real estate, for example—to help stimulate the economy…

“The idea that the Bank of Japan will buy bonds, and then the extra money will start flooding into corporate or retail loans—that’s just a theoretical exercise,’‘ says Chugoku’s Mr. Miyanaga. “Most important is [for the government] to hurry up and produce a concrete growth strategy, which will spur private economic activity.

http://online.wsj.com/news/articles/SB10001424052702304470504579163094082999108

I want to point out that the individuals who are expressing basic common sense views about monetary policy and the economy are businesspeople who run actual businesses, NOT academics.

This is what happens when academic monetary theory meets reality: theory proves to be just that theory.

There are some perceived benefits (the markets rally) from the easy money high. But the inevitable hangover is usually intense (see 2000-2001 and 2007-2008).

So stocks rally for now. But eventually this will end. In fact it may come sooner rather than later.

Remember 2008? Everyone said everything was just fine… right up until the Crash hit.

We’re seeing the same warnings in the markets now.

Source: http://gainspainscapital.com/2013/11/20/the-qe-experiment-is-failing-will-stocks-crash/

How the End of Empire comes, not with a bang, but with a whimper

When Moody’s downgraded the UK’s sovereign credit rating last week it was something of an anti-climax.

The ratings agencies long ago lost what little credibility they ever had. Being downgraded by Moody’s is like being called a moron by a moron; ask anyone who has ever set foot in a bond dealing room– the ratings agencies are always behind the curve.

The UK has been on the skids, credit-wise, for years. Britain’s debt to GDP has gone through the roof. We, and generations to come, will be left with the reckoning.

We’ve seen this before in history. British debt to GDP peaked in the immediate aftermath of the Napoleonic Wars, the cost of which also brought in the ‘temporary’ measure known as the income tax. It wasn’t so temporary.

But as the peace dividend and Britain’s sole status as superpower flourished, debt/GDP ratio fell. With the outbreak of World War I, it began to rise again, peaking unsustainably as the Second World War ended.

By July 1956, British sovereign finances were in a dismal state. At the time, Egypt’s President nationalized the Suez Canal, putting British oil supplies at risk. Joining the fray, Saudi Arabia began an oil embargo against Britain and France.

Britain wanted to take action and went to the IMF for support. But sensing an opportunity to increase its influence in the Middle East at the expense of its faltering old ally, the US said NO and threatened to dump some of its massive holdings of UK government debt.

Britain’s foreign exchange reserves were running out, and the country would soon be unable to supply itself. Britain blinked first and bowed out. Our days of Empire were over. It came not with a bang, but with a whimper.

It is not unreasonable to believe that the exact same life cycle relates to the United States. Further, it is not unreasonable to think that the US’ day in the sun has already been and gone.

If its own high water mark was the fall of the Berlin Wall, at which point the world recognized the primacy of the free market model versus the failure of Communism, America’s ‘end of Empire’ moment has already passed.

Of course, like the UK, the US has already been downgraded (by Standard & Poor’s in 2011). This only confirmed what we already knew: given the absolute level of its indebtedness, the off balance sheet debts, and its broken political system, the US hasn’t been a genuine AAA credit for quite some time.

Yet even though its risk is obviously more than zero, US Treasuriues remain the credit market’s ‘risk free rate’. This is because bond fund managers operate dysfunctionally, favoring the debts of the world’s most heavily indebted countries.

Consequently, EVERYTHING is benchmarked to US Treasuries simply because the US is the world’s largest debtor.

In this context, the US downgrade was an act of spectacular significance. It punctured (or should have punctured) a bubble of suspended disbelief that just about every investor on the planet had been inflating for years: that the US was a riskless credit.

Or, even more ludicrously, that there was such a thing as a riskless investment in the first case.

And yet, government bonds become even MORE attractive after the downgrade. We may see the same in the UK.

Nobody believes that bonds are an objective reflection of economic reality. The game is rigged, and everybody knows it. But the Moody’s downgrade should serve as a piercing smoke alarm to anybody still naive enough to be holding these instruments of value destruction. Get out now while the going is good.

Source: http://www.sovereignman.com/finance/how-the-end-of-empire-comes-not-with-a-bang-but-with-a-whimper-10971/

The UK needs an emergency Budget full of shocks

There is no attitude more shameful and debilitating than defeatism, as Britain learnt at great cost in the 1970s, when managing decline became our crumbling establishment’s default strategy.

HM Revenue Customs document surrounded by pound coins
George Osborne needs to slash corporation tax to 11pc, just below the level levied in Ireland Photo: Alamy

Yet our present, increasingly fatalistic acceptance that the British economy is set for a lost decade of stagnant growth, falling real incomes and untold other humiliations is becoming eerily reminiscent of those bad old days.

Such thinking should be unacceptable. I become angry when I talk to unimaginative economists or cowardly politicians who believe that we are powerless to influence the economy and have therefore quietly resigned themselves to years of misery. Just because interest rates cannot be cut further and printing yet more money won’t work doesn’t mean that we should give up.

Austerity, when it comes to public spending, remains essential. But we should also be adopting, in parallel with spending cuts, the sort of radical, pro-growth supply-side tax reforms that have always worked wherever they have been tried. David Cameron has already successfully made one historic U-turn on Europe; he needs to perform another on the economy.

This doesn’t mean that he should jettison all Coalition policies – just that a dose of shock therapy is desperately required to jolt the UK back into growth. For that, an emergency Budget is required, together with a dramatic gear shift by the Chancellor, who needs to understand that the political and economic risks of doing nothing are now much larger than those of taking bold action.

A simple three-point plan would do the trick. First, and most radically, George Osborne needs to slash corporation tax to 11pc, just below the level levied in Ireland, which at 12.5pc is the lowest of our close competitors. It would be essential for such a sweeping, historic move to begin with the new tax year in April, in a blaze of publicity. The excitement this would generate, and the message it would convey, would transform Britain’s prospects.

The UK would suddenly become the most attractive location in which to conduct and base commercial activity; nobody would believe any longer that the UK is closed to business. It would end the row over tax avoidance, as multinationals would rush to base their operations in the UK, and it would create huge numbers of jobs. It would be a genuinely revolutionary policy, and one which would be surprisingly fiscally manageable. Corporation tax is expected to yield £38.9bn in 2013-14, with the rate set to fall to 23pc this April and to 21pc from 2014. On a worst-case scenario, which implausibly doesn’t assume any change in behaviour or any additional investment in the UK, slashing the tax to 11pc would reduce government revenues by around £20bn a year; the immediate pro-growth effect will almost certainly mean a smaller hit, even in the first year.

But merely slashing corporation tax is not enough. My second, immediate reform would be to abolish capital gains tax (CGT), currently levied at 28pc following one of Osborne’s early raids. This tax creates more economic damage and distortions for every pound it raises than almost any other. It is set to bring in £4.6bn next year, a relatively insignificant sum given its impact and the fact that the Government has been forced to introduce so many avoidance mechanisms – from Isas to Enterprise Investment Schemes – to mitigate its effects.

CGT depresses the returns to capital, thus reducing the incentive to invest at a time when we desperately need to encourage business expenditure and risk-taking. The main reason why so many firms are using the UK as a cash cow, shifting funds generated here to finance investments abroad, is because the returns to be made in Britain, especially in manufacturing, are too low. Eliminating capital gains tax and slashing corporation tax would help rectify that. Most City analysts would argue, quite correctly, that the value of a share is the net present value of its future expected dividends. But dividends are already taxed, as are profits – even under my proposed reforms – so also hitting capital gains with a levy is tantamount to triple-taxation, which is unfair as well as counter-productive.

Getting rid of CGT would deliver a major boost to the stock market, almost guaranteeing a double-digit increase in share prices. Investors, including pension funds, would enjoy huge windfalls; a buoyant market would make it easier for companies to raise equity, reducing their cost of finance and allowing them to grow, spend and create jobs.

Ditching CGT would also encourage property investors to put buy-to-let homes on the market: at present, many don’t want to sell because they would rather delay paying tax on any gains. Getting rid of this barrier would increase the supply of properties, helping first time buyers and bolstering economic activity. Britain did not tax capital gains until 1965 so scrapping the tax is hardy a leap in the dark; the only difficult bit is that its repeal would have to be accompanied by an explicit crackdown on avoidance, with clear guidelines to prevent people passing off income as capital gains. But even if some income tax receipts were to vanish as a result, it would be a price worth paying for the massive economic boost delivered in return.

The combined static hit to the Treasury from these two tax cuts would be about £25bn. I’m confident that the increase in investment and activity that would result from the enhanced incentives would significantly reduce this number even in the first year, by bolstering other taxes – but, even at face value, such a drop in receipts would be manageable. Nominal GDP will be £1.62 trillion next year; so the sweeping change I’m advocating would be worth just 1.5pc of national income at worst.

The Chancellor has already lost his grip on the public finances: the budget deficit is rising again, gilt yields are increasing, the pound is tumbling and Britain is likely to be stripped of its AAA-credit rating later this year. With the UK’s reputation for fiscal rectitude already in tatters, a deficit that ends up a little larger than previously thought, in return for stronger growth and a more competitive economy, would therefore be a price worth paying.

But, to reassure markets, and to make sure these supply-side reforms are not incorrectly perceived as a doomed Keynesian-style attempt at boosting demand by borrowing even more, the Chancellor’s spending cuts, currently pencilled in over a number of years, should be accelerated. Instead of cutting real spending by around 1pc in 2013-14, the Chancellor should aim for 1.5-2pc.

Managing decline should be anathema to any serious government, especially given that there is still all to play for. It is time for the Chancellor to jettison his fiscal conservatism and to embrace supply-side radicalism instead. He is likely to be pleasantly surprised by the results.

Allister Heath is editor of City AM

Source: http://www.telegraph.co.uk/finance/comment/9834764/The-UK-needs-an-emergency-Budget-full-of-shocks.html

Britain is experiencing ‘worse slump than during Great Depression’

Britain’s recent economic performance is the worst since records began in the pre-Victorian era, experts said today, apart from the two immediate post-war slumps.

By Rowena Mason, Political Correspondent

Ministers today admitted Britain is facing “very, very grave difficulties” after figures showed the economy did not grow at all in 2012.

Both George Osborne, the Chancellor, and Danny Alexander, the Chief Secretary to the Treasury, said they do not underestimate the scale of the challenge but insisted the Goverment is on a “path of repairing our public finances”.

Despite their optimism, City analysts warned that the economy is still “in crisis”, more than four years after the financial crash of autumn 2008.

Economists from the Royal Bank of Scotland said the last four years have produced the worst economic performance in a non post-war period since records started being collected in the 1830s.

Stephen Boyle, head of group economics at the Royal Bank of Scotland, said the last time the economy was so bad was immediately after World War One and World War Two, when GDP fell in double digits.

“Those aside, 2008-12 fall was bigger than any since before Victoria ascended the throne,” he said.

“It’s the worst economic performance since at least 1830, outside of post-war demobilisations,” he told The Daily Telegraph. “It’s worse than the 1920s, it’s worse than the Great Depression.”

He said the economy has been “heading this way for a long time” because of the scale of the problems that came to a head in the 2008 financial crash.

“When you get a downturn that’s rooted in very high levels of indebtedness and stress in the financial system, history tells us that you get recessions that are much deeper and longer, and recoveries that are much weaker,” he said.

The top economist at RBS, which is mostly owned by the Government, said it is difficult to recover when much of the world is facing similar problems.

“It’s the scale of what happened in 2008 but also the build-up to that,” he said. “Compared with other recessions [like in the 1980s and 1990s], this is happening all over the world. There’s not a quick and easy way to export your way out of this.”

However, Mr Boyle said there are “limited options” for the Chancellor to “let up on austerity”.

“The Bank of England has made it clear that it would expect interest rates to rise if the Government let off on austerity,” he said.

“There is an opportuninty for very modest fiscal expansion – more spending or tax cuts – but the Government has to balance that against what might happen to interests.”

Official figures released at 9.30am showed the UK economy did not grow at all last year, because of the poor results for the last three months of 2012.

Experts said the economy shrank in the final quarter as Britain’s manufacturers suffered their worst year since the financial crisis.

Tony Dolphin, chief economist at the IPPR, said there would not necessarily be a triple-dip recession but the economy remains in crisis.

“We will not know for sure whether the economy is back in recession for another three months,” he said. “And even then, history suggests there is always a chance that the GDP figures will be revised and that any recession will be subsequently eradicated from the record.

“What we do know, however, is that the economy is facing a triple crisis: stagnation, debt and imbalance.”

Source: http://www.telegraph.co.uk/news/9826857/Britain-is-experiencing-worse-slump-than-during-Great-Depression.html

 

The Failing Pretense of Growth

Wolf Richter for Zerohedge:

Hasbro, the second largest toymaker in the US behind Mattel, confessed that it would miss fourth-quarter revenue estimates. Christmas wasn’t kind. Despite “double digit growth in our emerging markets business,” as CEO Brian Goldner said, revenues fell by 2% for 2012 and by 3.8% for the quarter. But 4% inflation, preferably more, would have covered up that debacle.

The consequences are brutal. There will be a pile of restructuring charges, and 10% of the people will be axed—a collective punishment that the Romans used to dish out to lackadaisical legionnaires. They called it “decimation” (Latin for “removal of the tenth”). One in ten soldiers, determined by drawing lots, would be stoned or clubbed to death by his buddies. It did wonders for morale, and the whole empire collapsed.

Procter & Gamble, the consumer products giant with a myriad of ubiquitous brands, brimmed with optimism in its earnings call on Friday as CFO Jon Moeller praised its “growth strategy.” But in the end, sales grew only 2%, about the rate of inflation. It’s tough out there.

A decimation had already been announced last February: 10% of non-manufacturing employees, “roughly 5,700 roles,” he said. Not people, but “roles.” 5,500 of these roles were already gone. The rest would be gone soon. Ahead of schedule. But it still wasn’t enough. In November, P&G “committed to do more,” that is axe another 2% to 4% of “non-manufacturing enrollment,” but “any additional enrollment progress”—enrollment progress!—in fiscal 2013 would give P&G a “head start” for their 2014 to 2016 “enrollment objectives” [for a peculiar American conundrum, read Making Heroes of Those Who Slash Jobs ].

But why this decimation? Sales growth. Or rather, the lack thereof. Which Moeller said, would be “1% to 2%.” Below the rate of inflation. Other large companies are in a similar predicament. Microsoft, for example, admitted on Thursday that its revenues rose a paltry 3%. Inflation is just too embarrassingly low for these corporate giants that are dependent on incessant price increases to doll up their top line.

Fed to the rescue! And it has been trying. After years of escalating waves of QE, the Fed has finally managed to print so much money that its balance sheet officially as of Friday, and for the first time in US history, broke through the $3 trillion mark. Here is a screenshot to eternalize the historic event:

On August 1, 2007, when the prior all-time-craziest Fed-inspired credit bubble was showing signs of blowing up, there were “only” $874 billion in assets on that balance sheet. Over the last two months alone, the Fed printed enough dollars to mop up $160.4 billion in securities. The two largest asset groups on the balance sheet : US Treasuries ($1.697 trillion) and mortgage-backed securities ($983 billion). Every month the Fed will add $45 billion in Treasuries and $40 in mortgage-backed securities. Until it comes up with something new.

Other central banks have also run their printing presses until they’re white hot. As all this money went looking for things to buy, it pushed bonds into the stratosphere, and yields into hell. Risk is no longer compensated. Some governments have been borrowing at negative yields. Even 10-year Treasuries yield less than inflation. And junk bonds with a considerable chance of default, if the free money ever dries up, yield as little as a 1-year FDIC-insured CD used to yield before the financial crisis. Commodity prices have been driven up. Food has become unaffordable for many people in poorer parts of the world. And equities have been driven to lofty heights. China just warned that “hot money” fresh off the US and Japanese presses would wash over China and drive asset bubbles to even more insane and dangerous heights.

But the one thing all this money-printing just hasn’t done in the US in 2012 is create the kind of substantive inflation that a lot of corporations need to beautify their revenues. Inflation creates the pretense of growth—just like salaries that have been rising, but less than inflation. It makes things look good on the surface, and analysts can go around and hype the company’s “growth strategy,” and everybody is happy. Reality be damned.

Meanwhile, European talking heads have been reassuring us on an hourly basis that the worst of the debt crisis is over. But the Japanese trade deficit, a measure of reality, not words, tells a different story about the crisis in Europe. And about troubles coming to a boil in China. But neither can be cured by Prime Minister Shinzo Abe’s plan to demolish the yen. Read…. What the Japanese Trade Deficit Says About the Fraying Fabric In China And Europe .

Source: http://www.zerohedge.com/contributed/2013-01-26/failing-pretense-growth/

Daniel Hannan Destroys The 3 Unquestionable Myths Of Our Crisis

Zerohedge presents:

The past and present bailouts of each and every bank (and ‘important’ industry) will, one day, be seen as a generational offense is how MEP Daniel Hannan begins this thoroughly British demolition of the three critical myths surrounding the crisis, that despite market optics, we are still living through. From the idea that capitalism has failed (it has not in his view, it has been ravaged by political pandering), to the crisis being caused by lack of regulation, and that greed is the single-driver of the mess that we remain in; Hannan suggests in a brief but extremely eloquent debate that there is a world of difference between being pro business and pro market as he destroys any semblance of credibility that the political (and elite) class has echoing a young Ron Paul in his thoroughly libertarian free-market sensibilities.

Daniel Hannan | Occupy Wall Street Debate | Oxford Union

Source: http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis

The EU’s tariffs are daylight robbery

(Or why Britain wants to leave)

By Sam Bowman for the Adam Smith Institute:

One attractive aspect of an EU exit would be the exit of the Common External Tariff. As Daniel Hannan has pointed out , the Single Market is more like a customs union than a free trade bloc. All goods coming into Britain from outside the EU are subject to tariffs, designed to protect European industries from cheaper competition.

Unlike VAT, which isn’t levied on essentials (although I’m not sure I like the idea that beer and wine aren’t essentials), the tariffs are highest on things like food and clothes. (Courtesy of the WTO, here is a list of goods affected by the Common External Tariff .)

There’s a 16% tax on bananas from outside the EU, a 17% tax on trainers, 12% on stoned fruit like peaches and plums, and 12% on shirts, suits, coats and school uniforms. Cars are taxed at 9.7%. Twine and string get a 9.2% hit. Knitted gloves carry an 8.8% tariff whereas non-knitted gloves are hit by 7.6%. You name it, they tax it.

The loser is the consumer. On its own, the European cucumber industry (protected by a 12.8% tariff) might not be very influential, but any threat to a tariff causes businesses and their lobbyists to circle the wagons.

The ‘bra wars ‘ ended with European consumers paying more for Chinese underwear – not because Big Brassiere is unbeatable, but because related industries recognised that, individually, they would fall, and marshalled their political representatives into action.

The most perverse part is that if we got rid of all these tariffs, many, if not most, producers would be better off too. They are consumers as well as producers, and tariffs make the inputs they use (like steel – 2.7%) more expensive. But they face exactly the same collective action problems as consumers at large do.

The old public choice problem holds: free-riding is more costly for members of small interest groups than for members of big ones. Ostracism from trade associations, and so on, is much easier (and more harmful) for firms that don’t go along with the lobbying. Unfortunately, there aren’t many people who will ostracise their fellow consumers for failing to renew their subscription to the Adam Smith Institute.

The public choice problem in politics is often overstated. Most of the people who march against austerity really do think the cuts are bad. Most of the people who want to keep out immigrants really do think that they’ll cost them jobs. And, no doubt, most people who support tariffs really do think that protecting native industries is a good idea.

But voters are not as aware of the Common External Tariff as they are of many other issues. It isn’t clear what the ‘left-wing’ position on taxing cheap clothes from China ought to be, nor the ‘conservative’ position on exposing native industries to the free market. It’s hard to escape the impression that the Tariff really is an example of businesses hijacking democracy. The External Tariff represents one of the biggest swindles of modern times: a collective theft from consumers by politically powerful producers.

Source: http://www.adamsmith.org/blog/international/the-eus-tariffs-are-daylight-robbery/

News Spot (with Future Implications) 26/04/12

• The total amount of student loan debt in the U.S. topped 1 trillion dollars yesterday.

• It was Tax Freedom Day in the US last week. The average American worked three-and-a-half months just to pay taxes. The worse news is that Tax Freedom Day in the UK, which the Adam Smith Institute calculates each year, doesn’t occur until 29 May! In other words, the average person in Britain has to work five months of the year to pay taxes.

• But it gets worse still. As you know, governments spend everything they raise in taxes, and then borrow as much more as they can get away with. And it works out that those poor British blighters will have to work nearly another month to pay for all that extra spending that is being chalked up on the slate.

• Czechs en masse turned out to demand the resignation of the government over austerity measures last weekend. Upwards of 80,000 people joined in.

• Politicians throughout the EU are weakening their resolve over austerity measures to right their ailing economies. Voters, already hurting, want delivery on health care, pension entitlements and other benefits promised over the decades. The cupboard is bare however.