STAFF NEWS & ANALYSIS
A Modest Monetary Proposal
By Staff News & Analysis - May 01, 2013

Billionaires Flee Havens as Trillions Pursued Offshore … Billionaire Dmitry Rybolovlev, Russia's 14th-richest person, and his wife, Elena Rybolovleva, have been brawling for almost five years in at least seven countries over his $9.5 billion fortune … Those wealthy individuals should stop searching for new tax havens to hide their assets, said tax adviser Philip Marcovici. "We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don't want to play by the rules," he said. – Bloomberg

Dominant Social Theme: Nowhere to run, nowhere to hide … and that's a good thing!

Free-Market Analysis: This Bloomberg article has an oddly celebratory tone. But we are not so interested in celebrating the demise of tax havens as we are in drawing the appropriate lessons from this event.

The first lesson we can draw is that the world is a lot more coordinated than is ordinarily admitted. How is it possible that countries around the world have come up with the same legislation at the same time focused on destroying offshore banking once and for all?

The idea of one coordinated world has long been scoffed at as a kind of conspiracy theory. But these days, conspiracy theory seems to be chasing actual facts. The facts – in fact – are not in doubt.

Post-Cyprus is surely a different era. Here's more from the article:

… More than 30 percent of the world's 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.

Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore taxdodging industry and allowed for the kinds of maneuvers used by Rybolovlev have been undergoing a shift toward transparency Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold − and release when required details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein.

Singapore, the heart of Asia's banking and offshore industry, will make laundering of profits from tax evasion a crime under a law taking effect on July 1. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.

Cyprus was bailed out of its financial troubles in March by the European Union, which required the nation to impose a tax on bank deposits of more than 100,000 euros. That month, the country lost $2.4 billion in deposits, according to data from the European Central Bank.

The shift toward transparency has led many of the world's wealthiest to reassess how and where they hold their assets, according to Goran Grosskopf, a Lausanne, Switzerland-based economist who has advised several billionaires, as well as the Russian government.

Our perspective is that this shift toward transparency is not an unalloyed good. It has ramifications beyond taxes and the increased necessity of paying one's "fair share." The bigger and more disturbing reality is that as the world shrinks, monetary policy is increasingly coordinated. If you like your downturns – and Great Recessions – globalized, then you will be fine with this increased transparency.

But if you don't like the idea of coordinated worldwide business cycles with their attendant booms and busts, then you will not be thrilled by your increasingly shrinking world.

It is certainly happening.

Central bankers, we learn, meet regularly in Switzerland at the BIS headquarters to coordinate monetary policy. We've often pointed out that this is where the real economic control is exercised, not at the national level and not within an industrial context.

The ability to expand and contract credit is the basic tool of centralization and one that is ultimately immensely destructive. Global booms and busts are even worse than national and regional ones.

But who knows what goes on in these BIS meetings? If bankers indeed are coordinating monetary policy around the world, we would argue this is a good deal more destructive than even a billionaire tax dodger.

And here is a question: Why is it that even billionaires are to be subject to evidently and obviously coordinated transparency but those central bankers who meet regularly at the BIS are not?

So here is a modest proposal that we offer to central bankers around the world: We'll trade you billionaires for bankers. We'll scrutinize billionaire tax dodgers relentlessly if the BIS opens up its deliberations for scrutiny.

After Thoughts

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