Posted Jan 18, 2013 by Martin Armstrong
The desperate need for revenue is tearing the world economy apart. Just as during the Great Depression nations turned toward protectionism, the same trends are emerging throughout Europe and the United States. Most nations are now imposing stricter version of work permits and entry visa authorizations. Even Singapore altered its laws last April elimination the ability to buy in for S$10 million. Now, about one-third of the work permits are being denied based on political pressure. In April 2011, the UK changed its rules on students remaining in the UK after graduation. They now have to show they have £200,000 or more to invest in a business. Everywhere the same trend is emerging. This is political pressure as the economy fails to rebound aggressively and is really subject to a slow water-torture trend of stagnation.
Economic growth is the real problem. As that declines and is likely to turn negative in Europe overall, tax revenues decline. It becomes a catch 22. Governments need cash to keep their debts rolling and the more aggressive they become, the greater the decline in economic activity. Even China records slowest growth for 10 years and the double digit growth there has slowed moderately. The Chinese Gross domestic product expanded 7.8% in 2012, the weakest growth since 1999. This has actually declined because of the global economic crisis and a domestic campaign to deflate a property bubble. Meanwhile, British politicians are in desperate search of a “new deal” for Britain as David Cameron’s speech tried to walk a thin rope between the Tory hardliners who want to leave the EU and trying to simultaneously convince European leaders that he sees the UK’s future includes remaining within the EU.
The international pursuit of revenue is tearing everything apart at the seams. Now, even the Cayman Islands are opening up to scrutiny. No one will be able to resist for they discovered a new tool with Iran – eliminate it from the international settlements system. Once they pull that plug, it is over. They are even doing that the Vatican. Nobody will remain standing. The only safe-ports will become those with military force to resist such as China and Russia.
The UK banks will begin reporting directly to the US IRS in 2014. The taxman in every country is extending their scrutiny not only over international business, but to the domestic wealthy as well. The affluent are PRESUMED to be just rich tax avoiders and cheats. The UK created a unit to target them and hired more than 200 inspectors to audit those worth more than £1million. Meanwhile, governments in general in Europe and the USA want to close down loopholes that help multinational corporations avoid tax. This has sent a flurry of concerns for it puts at risk attracting big foreign investors. This desperate need for revenue is destroying everything. They are TOO BRAIN-DEAD to figure out we must reform. Even Hadrian figured that out and forgave tax-indebtness in a major reform.
Public Confidence still remains shaky as trading volumes have remained one-third to 50% below 2007 levels depending on the market and nation. Of course regulators only make things worse. German lawmakers are seeking to force high-frequency traders to seek authorization to operate. No matter what the truth is, people think high-frequency trading somehow harms the market when in fact it is simply providing liquidity that was the role of a floor broker. The system shut down with high volatility and they are not position trading so there is no “force” that drives overnight trends. Shut them down and what volume collapse to 33% of 2007 levels. In the USA, the lack of enforcement against the banks in New York combined with the new regulations on derivatives have been sending capital and such business offshore. NYC is rapidly declining as the Financial Capital of the World.
Rating Agencies Testify Before Congress
The rating agencies have not come back from the collapse in confidence they deserved for their role in the Mortgage-Backed security scandal. The only person to defend them was a shareholder – Warren Buffett. The distaste for their role in the crisis with their close connections to Goldman Sachs, Buffett, and other Wall Street firms has not been eased by the lack or serious reforms in the big three and the failure of regulators to really take any actions against them in a meaningful manner. Even companies such as Schroders has now ditched PwC as auditor. The once “trustworthiness” of having a big three audit is history – it really means nothing today anymore.
Meanwhile, Citi Bank and Bank of America have been unable to dispel concerns about their economic conditions unable to escape their troubled legacy of problems from the financial crisis, Banks in Europe are at the mercy of the Sovereign Debt Crisis, and even in Switzerland banks like UBS lost their AAA rating thanks to entanglements with the USA hunting down Americans. All of this is starting to send capital back to private corporate bonds. This shift to corporate bonds has led to even the Junk-bond prices moving into highs as yields for US junk bonds have now fallen below 6%. This illustrates how investors are indicating they believe there is less risk in the corporate world rather than banks and government.