There is no natural end to QE. Once it has propped up markets it has to be continued ad infinitum to keep ‘prices’ where the authorities want them. None of this is a one-off or temporary. It is a new form of finance socialism.
An Eat-the-Rich rhetoric is discernible everywhere, and it is getting louder. In Britain, Deputy Prime Minister Nick Clegg wants to introduce a special ‘mansion tax’ on high-end private property. This is being rejected by the Tories but, according to opinion polls, supported by a majority of Brits. (I wager a guess that it is popular in Scotland.) In Germany, Angela Merkel’s challenger for the chancellorship, Peer Steinbrueck, wants to raise capital gains taxes if elected. In Switzerland of all places, a conservative (!) politician recently proposed that extra taxes should be levied on wealthy pensioners so that they make their ‘fair’ contribution to the public weal.
The above trends are all nicely epitomized by developments in France. In 2012, President Hollande has not reduced state spending at all but raised taxes. For 2013 he proposed an ‘austerity’ budget that would cut the deficit by €30 billion, of which €10 billion would come from spending cuts and €20 billion would be generated in extra income through higher taxes on corporations and on high income earners. The top tax rate will rise from 41% to 45%, and those that earn more than €1 million a year will be subject to a new 75% marginal tax rate. With all these market-crippling measures France will still run a budget deficit and will have to borrow more from the bond market to fund its outsized state spending programs, which still account for 56% of registered GDP.
If the government spent money on hiring people to sweep the streets with toothbrushes this, too, would boost GDP and could thus be labelled economic progress.
Fiscal and monetary actions by states will increasingly be flanked by aggressive regulatory and legislative intervention in markets. Governments are controlling the big pools of savings via their regulatory powers over banks, insurance companies and pension funds. Existing regulations already force all these entities into heavy allocations of government bonds. This will continue going forward and intensify. The states must ensure that they continue to have access to cheap funding.
And to round it all off, there is the War on Cash. In many European countries there are now legal limits for cash transactions, and Italy is considering restrictions for daily cash withdrawals. Again, the official explanation is to fight tax evasion but surely these restrictions will come in handy when the state-sponsored and highly geared banking sector in Europe wobbles again, and depositors try to pull out their money.
So here is the future as I see it: Central banks are now committed to printing unlimited amounts of fiat money to artificially prop up various asset prices forever and maintain illusions of stability. Governments will use their legislative and regulatory power to make sure that your bank, your insurance company and your pension fund keep funding the state, and will make it difficult for you to disengage from these institutions. Taxes will rise on trend, and it will be more and more difficult to keep your savings in cash or move them abroad.