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Friday, July 4, 2014

When the Defaults Come, So Will the Wealth Grab

​S​ubmitted by Phoenix Capital Research on 07/04/2014 15:56 -0400

The biggest problem with the epic Central Bank rig of the last five years is that propping up a bankrupt financial system by printing money only works for so long.

The reason for this is that no one, whether it be a country, company, or person, can defy mathematics.

A loan can be extended, it can be restructured, or it can be finagled in countless financial ways. But at the end of the day, if your creditors lost faith in your ability to repay it… it's GAME OVER.

History has shown many times that countries try to inflate their debts away until the inevitable restructuring occurs. As Argentina is now showing us, when the "D" word becomes palpable, markets move quickly.

Anyone who is truly concerned about their wealth in the coming years needs to assess what has happened in Europe: higher taxes on top earnings and bail-ins (meaning your bank deposits are raided to fund bank bailouts).

Indeed, the IMF recently proposed a "global wealth tax" to "restore debt suatainability."

Here's the critical quote:

Recurrent taxes on net wealth (assets less liabilities) have been declining in Europe over the last 15 years (repealers include Austria, Denmark, Finland, Germany, the Netherlands, and Sweden). But this may be changing: Iceland and Spain reintroduced the tax during the crisis, and it is now actively discussed elsewhere. (There has been interest, too, in the possibility of a one-off wealth tax to restore debt sustainability, taken up in Box 6.)

The revenue potential is subject to considerable uncertainty (related, for instance, to the valuation of real estate) but is in principle sizable. Based on Luxembourg Wealth Study data, a 1 percent tax on the net wealth of the top 10 percent of households could, in principle, raise about 1 percent of GDP per year…


The sharp deterioration of the public finances in many countries has revived interest in a "capital levy"—a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.1 The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair)


Anyone who has assets worth over $200,000 should note that the Governments of the world WILL be coming for your money to prop up the insolvent banks. And they're going to be taking MORE instead of less.

Indeed, in the case of Cyprus, the proposed wealth tax of 7% of all deposits over €100,000 quickly rose to an incredible 47%!  Those individuals whose deposits were seized received equity in the banks themselves.

This scheme has been used in Spain multiple times… though the press has yet to note that when the banks FAIL, that equity is worth ZERO.

Cyprus has since released some of these funds though they are subject to capital controls (READ: YOU CANNOT GET YOUR MONEY OUT OF THE COUNTRY).


1)   Cyprus staged a bail-in, froze accounts, and took 47% of wealth over the first €100,000.
2)   EU Finance ministers announced this policy will be a "template" for bailouts going forward.
3)   The IMF hints that a global wealth tax might be a good thing.

Connect the dots...