This can't go on. And so it won't, at last...
HERE AT CASEY RESEARCH, we have been rather negative about the economy for many moons, writes David Galland, managing director of Casey Research.
To be otherwise in the face of the decades-long trend toward ever more government – along with its increasingly destructive and expensive meddling in the free markets – would have been foolish. And, so far, we have been right.
However, I for one am beginning to see some light at the end of the tunnel.
It won't happen overnight, and maybe not in the next five to ten years, but it increasingly appears to me that the government's disastrous "problem solving" that has brought us to this place is approaching a limit. Case in point, governments the world over are now engaged in an insane race to the bottom for their currencies – which will only gain speed if the Fed goes ahead with a new round of quantitative easing. Should the Fed persist with this latest madness, countries all over the globe are likely to step up their own interventions – but that may very well lead to the fiat system breaking down completely, to be replaced by something more tangible.
Likewise, given the increasingly dire need to spur economic growth, we could soon see an end to the growth in bureaucracy and the fire hose of taxes and regulations that those bureaucrats have been spraying over the global economy for decades.
Put another way, having squandered so much of human progress through counterproductive policies, any leader that wants to retain power – and they all want to retain power – is soon going to be forced to return to policies that have been proven to allow businesses to blossom.
This sea change won't happen all at once – and probably not without the global economy first going through a dark and troublesome period. But I have to believe that we'll soon see a widespread recognition that there are problems to be solved, and opportunities to be captured, by breaking from the herd. Thus, while one state tries to raise taxes to "solve" its budget problems, another will see the opportunity for growth to be had by lowering taxes. While one government passes more regulation to pander to a favored group, another will repeal legislation to lighten the dead hand of government in order to favor all.
In reasonably quick order, the governments that reduce, rather than increase, their burden on their business communities will see their economies begin to prosper while others stagnate – just as they always have. The United States in its youth provides the paradigm of this principle, but Hong Kong, Singapore, Dubai, and a handful of other, less pure examples prove the point as well.
In support of this general theme, subscriber D.W. recently sent along an interesting piece on boom times in a Swiss canton that is picking off the hedge fund managers being chased out of the UK by the 50% tax now being levied on earnings of over £150,000 a year.
And I quote...
"Switzerland's tempting tax regimes attract UK firms
"Thirty minutes from Zurich and dotted with traditional dairy farms, it might seem an unlikely location for some of Britain's biggest hedge funds. But it is one of a number of Swiss regions competing to offer ever lower tax rates in a bid to tempt British businesses to relocate.
"The hills are alive with the sound of cowbells – and construction workers.
"The village, in the area of Höfe in Schwyz is clustered around a shimmering lake which reflects the lush green, rural backdrop. However the scenery is also now increasingly dominated by building sites as it reinvented itself as a hedge fund centre by offering low personal tax rates to attract cash-rich fund managers.
"Spa hotels and up-market furniture retailers are springing up on the outskirts to cater for the new clientele."
Why am I so confident that following another round or two of desperate, last-gasp efforts to maintain the statist quo, we'll see a shift to a global competition based on free-market policies and hard money?
Simply because when there is only one path left, the choice of where to go next becomes obvious.
Or as one anonymous pundit so well put it...
"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."
The very real problems now confronting the world – most of which were created by politically motivated politicos trying to solve real and manufactured problems for favored constituents – have now reached the point where they can only be solved by lowering the burden of government on entrepreneurs and letting the free market do what it does best.
The countries that are first to jump on this bandwagon, or that are most vigorous in shedding their layers of obstructionist regulations and taxation, are going to be those that win the day. Conversely, any country that stubbornly tries to hold on to the statist quo is headed for even more serious troubles as its productive elements ship off to more favorable turf.
Investment angle? Watch the news for signals indicating that a particular government is turning toward freer markets, smaller governments, and lower taxes – then pile in. Getting in early on such a turnaround could be hugely profitable, just as leaving money tied up in the markets overburdened by stubborn statists is a sure ticket to a big loss.
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