Wednesday, June 16, 2010
Team Macro Man are going to be scattered to the four winds for the next few days so the posts may be sketchy. But there are a few things that are troubling us. Apologies to the readers who like graphs and quant analysis because here are some ponderances.
As expressed in "the view from the top" the basic game of pass the parcel of debt has seen the music stop with the sovereigns holding it and sweating like they had a packet of anthrax in their laps. Quite right too. Since then liquidity has been solved as far as we can see, but solvency hasn't. Of course it was too simple to assume that the West would knuckle straight down and earn enough back from the rest of the world, either by producing more efficiently or devaluing their currency and inflating their way out of their obligations. Before we even get to that stage we have to go through the Robin Hood phase.
The private sector got bailed out out the expense of the State and the State are now looking for a way of getting their money back. The difference between the private sector and the State is that the State can change the rules whenever they want leaving the private sector with little choice other than to comply or run away. The State is never quite as direct as to say, "Give us our money back or you'll feel the chill of my steel" but the messages coming from many sources are now pretty much as good as.
If you are going to go and mug a rich corporate the first thing to do is to make sure that the voters are on your side. So first the PR machine kicks in -
Banks are evil, right? So they are first on the list. Even if the too obviously named "Robin Hood tax" doesn't directly fire up, the PR machine appears to be cranking up again for another attack. If you saw the UK's Channel 4 "Dispatches" program on Tuesday night you couldn't have lined up a more anti-banking lot to "expose the evils that still lie within". Alistair (Scapegoater) Darling, Paul(Got to sell equities at the bottom) Myners, a Priest (can't not trust a priest. hmmmm) and some ex-head hunters kick it all off to the point I was surprised their wasn't a new set of City riots yesterday. A right old shoeing of the banks is on the cards and they will comply with the demands. The wallets are already about to be handed over. Mugging done, next please.
Large corporates. Well Well Well. BP. Oh dear Christ what a completely sad affair all round. But for Mr State it was like finding a man comatose in a dark alley with a trunk of gold. Obama didn't even look twice at the likes of Halliburton, or the less well off bystanders. He had the advantage that the guy on the floor was an out-of-towner too (well he was wearing a coat made in a foreign land), with few local friends. The cost of the clean up is going to be huge and diverse but in the really big picture every one of the billions of dollars spent and compensated by BP is money into the whole US economy. Whether it be just paying the guy's who are doing the cleaning up, or compensating the fishermen whose seafood isn't being caught and sold, or the tourist operator, via the money that the would-be buyer of that seafood /holiday has spent on substitution elsewhere. It's money from a large corporate's savings into the system. BP is a special case but it does hint how the large corporate is under the same cosh and ultimate fate as the banks, given half a chance.
Direct taxation muggings are on the increase too. Wealthy individuals are legging it out of high tax regimes where it is easy to do so, and more importantly the marginals are being deterred from entering them or are returning to their native roots. Without tax normalisation you'd have to be a very devoted Singaporean to want to spend the rest of your days in London. Macro Man's own departing gift to the survey lady in LHR departures was along the lines of "You've driven me away".
As for regulation - Just have a look at what the Germans are trying to do. If you can't beat 'em, tie 'em up in so much red tape they won't be able to breath. Reminds me of the French when told they HAD to allow imports of videotape recorders from Japan in the early 80's, despite their interests in Thomson. So they bottlenecked the imports by making them all go via one office of only 9 people in Poitiers. Class!
So with the State squeezing the individual, the corporates, the banks, anyone else they can defame and mug and strapping the rest up in red tape, what are the alternatives?
a) Pay up
b) Attack the mugger and send him packing - Now this is going to be an interesting development in Europe if the populace of, say, Greece decide that they won't pay and boot out the government. You can bring in as many academics and IMF superheroes as you like but if Georgiou Public doesn't understand it he may not agree and decide to bring in a government that sticks 2 fingers up at the creditors.
c) Run Away - But where to? Now this is where I unleash the shackles of reality and think big-
You want an unregulated, cheap , empty and undeveloped country you can effectively buy and start again in. Somewhere to build the new Singapore of the European time zone, unsaddled by monstrous debt and irrevocable old laws (Dubai), yours for the moulding. I have had in the back of my mind for many years that a large consortium of the mega-rich, private and corporate, should buy Eritrea from its owners and build a low tax, regulation free Utopia. The Country motto being Caveat Emptor and the only rule being, in Mad Max style, "Bust a deal , face the wheel". Oh, and "No Spitting" because I've always liked that one. It would immediately place responsibility solely on the purchaser to do their due diligence with no crying to rating agencies, government or personal claim lawyers if they cock-up. A secondary insurance market would naturally evolve ( Like CDS's) to cater for those that didn't want to bother with their own due diligence and this would be a measure of "implied" risk rather than the "theoretical" risk that rating agencies uselessly peddle. But at least that would pay out, unlike a ratings agency which just shrugs. As for security against the hoards of upset western nations suddenly pissed off at somewhere else attracting all the money? Well, next-door in Somalia are a bunch of easy to rent guys who for the last 20 years have been running rings around all-comers. Job Done..
Madness over. However, there is one country that is quietly shaping up to be a pretty good contender for the role of off-shore Europe..... The new Carthage. Have you seen what Libya are up to these days?