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FTT – Fardels To Troy

November 14, 2012

The Financial Transactions Tax (FTT) is the wrong tax at the wrong time. Devised by an organisation to which the workings of a market are both anathema and mystery – the European Union – its devisers failed to read page one of tax theory, i.e. whoever cannot pass the tax on, pays it. FTT, despite the emotional pull of its name, is the same as any other sales tax. Does VAT stabilize the UK high street? Is VAT paid by shopkeepers? No to both questions. FTT is the same but in this instance the tax will be paid, like every other impost in the financial services industry, by long-term holders of financial securities, pensioners.

The tax and the costs of collecting it, including a profit margin, will ultimately be borne by pensioners who have no one to pass the tax on to and will be obliged to accept an even worse return on their pension than they currently receive. According to OECD data, during the decade ended December 2010, the UK national pension fund’s real return (after inflation and all administration costs) was 0%; zilch; zip; nada; jack doodle squat. Subtracting a tax from that will guarantee a negative return in the future – unless your employer can coerce taxpayers into meeting your inflation-protected pension, like the EU intends to do to the taxpayers who are gutless enough not to demand their exit. Yes, Britain’s last few taxpayers, I mean you.

FTT was a classic piece of Eurocrat opportunism, formed at the confluence of two irresistible forces, 1) the EU’s never-ceasing desire to impose taxes and 2) the public’s evanescent realisation that the banking system is the world’s greatest scam (profits are the just rewards of capitalist enterprise, but losses are owned by labour, or the system will crash and pauperize us all). Seizing upon the public’s righteous disgust at the anti-common good behaviour of the money printers, the EU launched its proposal for a financial transactions tax, that supposedly will be used to stabilize the banking system.

Sadly, in a debt-based money world, where loans are created, but not necessarily the interest charged on them*, repayment requires the creation of new loans, etc. Self-evidently this system is by its nature unstable and must always collapse when the speed of new loans creation is lower than the speed of repayments. Therefore, the FTT will fail in its objective, but until the lie is exposed some years hence, a thousand bureaucrats will live like princes at our expense.

(*it’s a technical point, but if the bank spent all the repayments of capital back into the economy, then in theory there would be sufficient flows to pay interest. However, in reality they do not spend all repayments back into the economy and the borrowers are obliged to other borrowers)

The timing couldn’t be much worse either. Trading volumes in equity and debt markets are at multi-year lows and what volume there is tends to be dominated by High Frequency Trading systems. These are computer programmes that sit next to the stock and futures exchanges (co-location) so that one computer can execute a trade 1 millionth of a second before another computer. Ah, capitalism, never ceasing to enlarge the common good. Adding an additional transactions tax to trading will only lead to even lower trading volumes, and may drive discretionary buyers out of the market completely. Retail holdings of equity mutual funds are also at multi-year lows as no one has any confidence that money in the stock market won’t go, poof!

The theoreticians at the EU, who understand nothing of risk and reward (living in a world of entitlement), are pressing ahead, despite the fact that other global financial centres are smart enough not to take the FTT suicide pill. The EU financial centres of Frankfurt, Paris, Amsterdam and Milan will decline over time as the FTT is first imposed and then ratcheted up as the overlords see fit. Most exposed is the City of London, which will be obliged to levy this self-denying ordinance, even though the majority of Brits want out of the EU. However, until the electorate starts to punish those parties that bind them in debt-servitude, our national decline will continue apace.

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From → Chapter 1

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