Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#1
I have returned to this theme time and time again about the need for government to take a back-seat and to stop excessive spending and taxing.
Government in this way cause more problems than they solve. Financial crisis such as the one we have now are entirely government made. The economy works in a natural cycle and it is government policies that have turned that cycle into such an appalling mess causing the misery of lost jobs and blighted futures.
Ironically it is the urge to better the lot of people that is the cause of all this misery. Governments do not set out to cause a crisis but that is always the effect of trying to solve the problems of society through taxing and spending lots of our money.
The way out of this mess is to reverse what got us into it. in other words to cut back on government. Lower taxes, less spending and allow us to make up our minds about our priorities for spending our own money. In other words to leave us alone. Less government is good government and the way to greater prosperity for all of us.
This message is sinking home.
More and more people are speaking out and identifying the real problem. One day the message will get home to politicians and maybe we will one day end up with a more sustainable and competitive economy that will benefit everyone through generating greater wealth.
Due to my job I read a lot of economic and taxation papers and articles. These are not written by politicians and people with a political axe to grind and, as such, are very revealing.
Here is one written by a respected and prominent asset manager. This is an article written for IFAs and is not one for a political purpose and is therefore carrying much more authority. He is saying much of what I have been saying for years. These views are catching on behind the scenes as we see the current crisis develop.
I thought I would share the article with those who might be interested. Sadly I cannot just post a link as it is behind a wall that only registered financial advisers can peek behind so I have copied and pasted it.
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By Stewart Cowley.
head of fixed income at Old Mutual Asset Managers.
If taxidermy is the art of taking previously living things, stuffing them and mounting them in unnatural poses for the amusement of the general public, then the arguments being put forward for increased taxation are going some way to achieving the financial equivalent.
Having failed to grasp the nettle on expenditure it was inevitable that politicians in the US and UK would go for the other side of the equation; increasing revenue to fill the deficit gap. And they sort of need to. The gap between tax receipts and outlays is going nowhere.
Societies have become hooked on once temporary taxes. The truth is that our societies are as hopelessly addicted to taxes as they are to expenditure and we have become habituated to the idea it is normal to pay away 40%, 50% or 60% of our income to central government.
But income tax is a relatively recent invention. In the UK it was invoked as a temporary measure to raise money for the Napoleonic wars in the 1800's. It actually disappeared for a while but came back again. Previously there had been a range of mysterious and quixotic levies based on luxury; taxes on wallpaper, glass and windows were all serially invoked in a cascade of increasing ingenuity.
But as the state increasingly penetrated the economy it set in place the transfer of wealth from one set of individuals to other less wealthy (but voting) individuals. Recipients never complain about the transfer of wealth and the victims are legally powerless to stop it.
Inevitably the desire to raise money to maintain public expenditure opens the highly emotive debate about who is better at distributing services and capital within an economy; is it the state or private enterprise? Nobody seems to be able to decide the truth but there are some powerful ideological arguments either side of the divide.
Politicians hungry for easy job creation will argue that the state is best. In more affluent times, government allows the private sector fuller rein. Given our parlous economic state it's interesting to see that politicians are currently voicing a hybrid position; private enterprise should replace the state whilst they simultaneously argue for wealth transfer in the name of fairness and maintaining state-sponsored employment.
US President Barack Obama's latest policies to trim the US deficit include $1.5 trillion of tax increases in the next decade to cope with the twin needs to maintain employment and redress the deficit.
Our own deputy prime minister, Nick Clegg of the Liberal Democrats, has stated he wants to oppose reducing the 50p tax rate on incomes over £150,000 because 'It would be utterly incomprehensible for millions of people who work hard, do their best for the families, and play by the rules, if suddenly the priority is to give 300,000 people at the very, very top a tax break.' The implication is that anyone earning over £150,000 year doesn't work hard, doesn't do the best for their families or play by the rules, or indeed already contribute disproportionately to the total tax take. Coalition Trade Secretary Vince Cable has gone further in supporting a so-called 'Mansion Tax' on homes valued over £2 million.
Taxation 'a blunt instrument'
Taxation has been shown time and time again to be an impossibly blunt object with which to dissect a social malaise. For instance the wonderfully named Sir William George Granville Venables Vernon Harcourt, the inventor of death duties, was warned that if inheritors died in rapid succession then the state would take an unfair chunk of an estate. Harcourt, as Chancellor of the Exchequer, waved the objections aside. It must have been of some amusement to his objectors that just six months after accidentally and unexpectedly inheriting Nuneham Park in Oxfordshire in the spring of 1904 he himself died. Death duties were 'only' 8% at the time but, in less than a year, 16% of the estate was transferred to the UK government for no particular moral or ethical reason other than that the Exchequer needed the money. The lesson is that taxation simply can't accommodate the permutations of life and the moment you start applying a moral or ethical dimension to it you will be trapped almost immediately by the contradictions.
Taxes can be 'wrong-headed'...but change can be too hard to tackle
Of course, this won't stop politicians from pursuing increased taxes with the religious zeal of the self-righteous. In economic terms it is utterly wrong-headed to be reducing consumer's spending power at a time when it is most acutely needed. It would, for instance, potentially be better to increase the minimum wage to target lower earners and reduce corporation tax to compensate companies if you really wanted to put money in the pockets of large numbers of the working population. Corporation tax ranks fourth among the total revenue take which puts it in the 'Too Difficult To Tackle' tray. The ensuing low growth (along with other effects coming from the US, Europe and globally) will help send government bond yields down to Japanese style levels in the very near term.
Looking forward, you have to suspect that, as a method of tackling the deficit, increasingly ingenious taxation will fail as an economic policy. Without real deficit reduction (as opposed to reducing the rate of debt accumulation, which is what is happening at the present time) the US and UK will go the way of other high deficit nations. The fear must be that, one day, some political group or other will abandon even these meagre attempts at debt control because the political heat will be just too much. As with other nations, the US and UK will not be immune to the judgment of the markets (in terms of their bonds and currencies). For the time being they are benefiting from the distracting idea that they are not in the eurozone - but after that you won't need a taxidermist to tell you that we are stuffed.
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Guest 710- Registered: 28 Feb 2011
- Posts: 6,950
#2
So..."We are stuffed!"
This rather takes what wind there is out of your colleague's sails, Barry. Still, he has thus ensured that whatever happens it's not his fault. He should be a politician.
But, let's return to the top...
"...excessive spending and taxing."
Whichever way one looks at this phrase it is certain that it is one word too long. The fun lies in choosing to omit the first or the third word. (we don't count the conjunction, OK?)
Reading through what this fellow has written there is little of importance until we reach, "better to increase the minimum wage to target lower earners and reduce corporation tax to compensate companies", this is at least an idea and not a bad one either. I would add a three or four day working week to this, to help with unemployment and training.
Companies and high earners need higher taxes and no mistake. The fortunate happen-stance of inclement weather on the day of Waterloo has done nothing to dampen the ardour of successive little Napoleons around the globe, many enjoying resources that we in the West require to to sustain our way of life and to grow. Wars cost money! Having a well educated workforce to hand costs money! Having a healthy workforce and a healthy, contented and 'flush' customer base too costs money!
And finally...
On the point of Death-Duties. From one of the worlds richest men and a fellow Fifer, one Andrew Carnegie...
"The man who dies rich, dies disgraced."
http://www.goodreads.com/author/quotes/23387.Andrew_CarnegieIgnorance is bliss, bliss is happiness, I am happy...to draw your attention to the possible connectivity in the foregoing.
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
#3
Banks are and still are the problem!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#4
In a way that is correct Reg, after all they did all that irresponsible lending to governments so governments could pay for their self-indulgent policies. Perhaps if the banks, and the markets generally, refused to buy government bonds years ago we would not be in this crisis now as governments would have had to curb their spending.
Keith Sansum1
- Location: london
- Registered: 25 Aug 2010
- Posts: 23,948
#5
well done reg
dont let him off the hook lol
ALL POSTS ARE MY OWN PERSONAL VIEWS
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#6
Reg and Keith - in other words, according to your philosophy always the lenders fault and never the borrowers.
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
#7
lenders are the professioals ???..................the experts ?? ..................borrowers just bail them out!!!!!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#8
So people who borrow have no personal responsibility for their own actions then Reg. That is not a philosophy that I agree with. The irresponsible borrowers causing this crisis, governments, have their own so called experts anyway - a point that you conveniently ignore.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
#9
Barry,
Irresponsible lending by banks created the property crisis which ignited the economic crash. Of course borrowers have responsibilities but when the so called experts of the financial world assure you that you can borrow 105% of your income and you will be ok the burden of responsibility must lie with the lender.
Guest 710- Registered: 28 Feb 2011
- Posts: 6,950
#10
Was there not more money than there was need?
Bankers then went all out to create the need and a vibrant market in need, lend the money, obtain the all-but-instant bonus and lounge around snug-cosy-smug waiting for the projected earning to roll in.
Expertise went the way of the Mammoth at the introduction of electronic market-modelling. (whatever the correct term may be)
-No business has the least right to spend huge sums on Advertising, Self Promotion and telephonic high-pressure selling and upon inevitable failure, chide their customers for buying-in to the schemes/scams.
-Many of the money-market-Magi employed by Local Authorities;bonus driven yet again, found it all too easy to follow the highest prospective return, 'earned' their bonus and had their employer bailed-out as the house of cards fell apart.
Many;most if not all, of the products in this market were poisonous. (A fact which is not entirely a matter of hind-sight.) In this, as with the selling of other tainted produce, the customer is the victim. The vendor;intentionally culpable or not, must carry the can.
Ignorance is bliss, bliss is happiness, I am happy...to draw your attention to the possible connectivity in the foregoing.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#11
Mark - as usual for Labour apologists you are getting it around the wrong way.
We had a cyclical downturn, these are as inevitable as a tide turning. Brown thought he had 'banned boom and bust' and as a result ran the economy accordingly. The outcome is that when the downturn started we were in an appalling position to weather it.
As far as the banks are concerned, yes there was some irresponsible lending as much to governments as individuals, but there were far more fundamental problems than that. The ill-considered inflation brief Brown gave the Bank of England meant that debt in the economy was ignored so interest rates were held too low for too long. Saving was discouraged and borrowing encouraged by that and by his reduction in the tax benefits from investing. It was the monetary policy brief of his that was largely responsible for the property bubble and levels of private debt. Government borrowing policy also set an appalling example or irresponsibility and like many individuals the government was vulnerable to the downturn.
Of course Brown made many other silly errors, his regulation changes reduced oversight and that allowed the banks to enter into adventures in the USA and his personal encouragement of that in the Mansion House speech.
You left wingers may love your demonising of the banks and to distort what actually happened, but the facts of history and economics speak for themselves. We had a government that lost all sense of responsibility towards public finances and we are paying for that.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
#12
Bear Stearns...Lehman Brothers......
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#13
And your point is... The Lehmans collapse, who acted as counter party risk on some products that I shunned for my clients as I did not like them, cost me several thousand pounds as part of a compensation scheme levy for clients of IFAs who lacked my judgement. So I can give you chapter and verse on that one if you want.
That does not change the facts of Gordon Brown's fundamental errors in UK fiscal policy, monetary policy and regulatory changes that made the UK as a country far more vulnerable in the recession that it need have been.
It was entirely Brown's fiscal policy that gave us the structural deficit resulting in the need for spending cuts - nothing at all to do with banks.
His regulatory changes and personal urging led to UK institutions being vulnerable to the US lending catastrophe.
Guest 710- Registered: 28 Feb 2011
- Posts: 6,950
#14
You Right-wingers and you Left-wingers afford each other great sport.
Of course, we as a population, should blame Politicians for all our ills. If for no other reason than it is they and only they we can punish.
It is rather too cosy to seek to blame Government though. We should hold Parliament responsible and not continue to play this absurd Party-Political game.
This notion of, "cyclical downturn" is a big give-away to the actual fault that lies at the heart of how our democracy operates.
Our acceptance of the wholly unnatural 'naturally cyclic' nature of the established two party system we 'enjoy' ensures that we fail and fail again;as a democracy and as an economy.
The Right habitually starves and the Left habitually force-feeds. Each having, at all times, the other to blame.
Recently. All that GB etc. got wrong was plainly wrong, plainly wrong at the time.
BUT!!
There is ever the greatest advantage politically in the opposition giving the Government enough rope... Thus ensuring/holding out the greatest hope, that the colour of the Party in Government WILL change at the inevitable General Election.
The rest is but an act.
We, as a Nation, have much more to rue from the EU than the bulk of legislation. We too are adopting the detachment of Parliament from Electorate.
Ignorance is bliss, bliss is happiness, I am happy...to draw your attention to the possible connectivity in the foregoing.
Guest 698- Registered: 28 May 2010
- Posts: 8,664
#15
Bank collapses are nothing new. Those of us with financial markets experience (and long memories) will remember:
Slater Walker about 1973
Herstatt Bank 1974
BCCI 1990
Drexel Burnham Lambert 1992
Barings 1997??
There are probably others.
I'm an optimist. But I'm an optimist who takes my raincoat - Harold Wilson
Guest 716- Registered: 9 Jun 2011
- Posts: 4,010
#16
It appears Banks are good at collapses and.........................outstanding with bonuses!!!!!
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#17
Banks are businesses and businesses sadly fail all the time. I say sadly but it is important in a vibrant economy that businesses both fail as well as succeed.
What would be unhealthy is for banks to feel they cannot be allowed to fail, indeed they must be allowed to fail. They cannot be allowed to be 'too big to fail'. It would be highly unhealthy for banking and all of us if they felt invulnerable to failure, a situation that we have at present. Banks have recently been downgraded by rating agencies because moves are afoot to make sure they are rightly not 'too big to fail'.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
#18
Barry
my point was that the creation by banks of the sub-prime market turned this downturn into a full-blown global crisis. Predatory behaviour exploiting those who did not know better.
I agree that banks should be allowed to fail otherwise we end up where we are now with banks calling the shots and governments cowering.
Guest 655- Registered: 13 Mar 2008
- Posts: 10,247
#19
I could not disagree more.
There is a case for the sub-prime market. I have never done many mortgages and it is about 4 years since I did the last one, but I can assure you that sub-prime lending, done properly and with good advice, can work well and many people have been able to restore their credit ratings as a result and save their homes. This does not tie in neatly with the red-tops or anyone who thinks in black and white but it is a fact.
What is more you are attributing the wrong causes to the crisis and are mixing up the policies pursued by Clinton in opening up lending in the USA with the UK sub-prime market. British banks were exposed by the expansion into the USA to the American toxic debt. It was Brown who enabled and encouraged that exposure. We had a bit of a 'perfect storm' as a result of the UK domestic monetary policy also with a massive housing and debt bubble here. Some of what I describe above, of course, goes back to the credit crunch of 2008 rather than the present recessionary and sovereign debt problems though there are still hangovers of that in the present problems.
These current problems are governmental, holding back recovery. It relates to excessive borrowing and deficit spending by many Western governments (including ours) creating the sovereign debt crisis that threatens now the world economy. The Euro is seriously hamstringing the weaker European economies preventing a devaluation that would help make their economies more competitive and help spark a recovery. Such a recovery will help them finance their excessive debt burden of course, though they would still have to make serious spending cuts to bridge their structural deficits. Default in some countries would still be likely and is almost certain to happen simply because so far not enough has been done to deal with the root causes of the problem. Too much sticking plaster being administered just holding off the inevitable.
I am not a fan of the banks. I have seen too many examples of where people have been given poor advice and only too often I find myself trying to resolve these problems. That said they are convenient whipping boys for those who prefer not to acknowledge the role the Brown government played in the mess we are in. Personally I prefer to limit my criticism of the banks to those matters that are well deserved like poor financial advice, particularly investment advice and poor service delivery of basic banking.
Make no mistake, I do not let George Osborne off the hook either. I have often said that he is not cutting deeply or quickly enough. The best I can say is that he has done what is necessary to steady the markets. He has also, not yet, done enough to stimulate growth. We need some political courage from the government but the coalition style of governing does not facilitate that even if willing.
Guest 683- Registered: 11 Feb 2009
- Posts: 1,052
#20
Barry
banks and other financial institutions made the emperors new cloths look positively real. They convinced themselves that 'bust' would not happen and bundled up debt and sold it on in in some mad game of make believe. I see all this as poor financial practice. Poor financial advice would have been given to purchasers of mortgages that they really should not have been sold, and would not have been sold, had there been an element of reality rather than just simply profiteering.