Home' Trinidad and Tobago Guardian : November 8th 2015 Contents NOVEMBER 8 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG13
Looking back, everything seems
clearer and sharply focused.
Looking forward, it seldom
has the same clarity. With
central-bank policies for a
about half a decade, it was
pretty clear---just keep shoveling more money
out there and drive debt prices to extreme
The consequences were clear in some
places and murkier in others. Debt pushers
would see their currencies devalue and a
general rise in most financial assets --- at
least for a while---until the next country
came along and did the same. Corporations,
even countries, moved their risk curve out
farther and farther as the debt-laden policies
forced decisions that otherwise would have
never occurred. Heck, "if the money is free,
then why not use it" was the attitude.
Of course, everything has a cost---even-
tually---and this funny money does too. With
the latest Fed speak seemingly intent to
really raise rates in December, the question
is: can the world handle a rate hike? So,
let s step back a minute and try to consider
the larger picture.
The Federal Reserve is signaling, in the
strongest terms yet, that they will raise rates
for the first time in a decade (yes, a decade
now) in December.
They will likely raise by a mere quarter
point if they do, but the effect around the
world of just the notion that it is really time
for "lift off" (as they keep calling it) is as
clear as daylight. Bond yields across the
yield curve and especially on the shorter
end are moving higher, and bond prices are
diving as a result.
And all of this is the result of the idea
that the Fed may raise rates a measly quarter
point after almost 10 years of basically zero;
after years of quantitative easing here and
still plenty of quantitative easing abroad.
So other than the obvious rate rise, what
are other downstream effects? Certainly
one is the obvious effect is a rising dollar.
With dollar strength, the deflation quag-
mire probably deepens as anything priced
in dollars gets more expensive, which means
you will tend to buy less of them.
The other bigger, and less transparent,
effect is that all the countries, fund man-
agers, etc., that have used a cheaper dollar
to go on a debt-buying binge will suddenly
see the price of their repayments increase.
If servicing their debt gets more expensive,
then that takes away from everything else
they could have done with that money.
A recent report from the Institute of Inter-
national puts that debt at extraordinary
levels when compared to 2008. The Institute
puts those debt levels as having doubled
from 2008 to 2014 and now totaling US$6.8
trillion. That s bad enough, but where it s
really bad is in emerging markets where
non-financial corporate bonds have swelled
to US$2.6 trillion (up triple since 2008) and
now is over 80 per cent of GDP of those
Like anything, it doesn t matter until it
does, but clearly a rising dollar is not going
to help the situation; especially in those
places where a significant percentage of the
debt is dollar denominated.
So will a quarter point matter? Since
almost all the trades are highly leveraged,
it will definitely have an impact if it comes
to pass for those playing money games. For
those servicing debt for purchases made, it
won t kill them, but the worry is what hap-
pens next. If the Fed raises rates does that
mean that more rate increases will be com-
ing? That s the piece that the market will
have to price in, and that s an unknown.
The Federal Reserve is doing everything
in its power to make it clear it will not auto-
matically turn to raising rates but will instead
be data dependent, whatever that means.
They are doing their best to tell us that
taking away some of the medicine after 10
years is good for us because it tells us we
are finally getting better. The risk is that
the patient can t really stand on its legs yet
and that probably happens if it thinks more
rate hikes are coming so somehow the Fed-
eral Reserve has to persuade the skeptics
on that point.
So why does the Fed feel compelled to
take the risk of shaking up the status quo?
Clearly they want to normalise policy to
fight the coming battles. It s a fact that the
economy will not grow forever and unless
rates actually rise, they simply can t be
manipulated lower to spur growth in a weak-
So, in the end, we have all sorts of loose
ends that will take years to work out. We
have distortions all over the place. We have
investments made that probably never
should or would have had we not pushed
rates to zero and the augmented it will a
debt issuance binge.
Essentially, we have created mountains
of debt to solve our existing debt problems.
That s some great logic. What a fine mess
we have created. MarketWatch
The world is becoming less welcoming to tax
dodgers. That is the conclusion of the latest
Financial Secrecy Index, published every two
years by the Tax Justice Network, an NGO.
It looks at various measures of financial transparency
and information-sharing in more than 90 countries,
then weights them according to the level of financial
services each country provides to nonresidents. Most
countries scores have fallen since 2013, indicating
greater transparency. Among the biggest improvers
are the Cayman Islands, once a notorious tax haven,
and Luxembourg, which tax campaigners used to call
Europe s "death star" of financial secrecy.
The reason for the shift is the global, austerity-
era push for countries to share more information on
tax arrangements. Under the fast-spreading Common
Reporting Standard sponsored by the Organisation
for Economic Cooperation and Development, countries
routinely will exchange data on each other s citizens
so that they can be taxed appropriately in their home
countries. Rules on the registration of corporate own-
ership are being tightened, too, in order to reduce
opportunities to hide dirty money in anonymous
However, America---the country that has arm-
twisted so many others to join the transparency rev-
olution---is dragging its feet. It is now the third-
most-secretive jurisdiction, behind Hong Kong and,
inevitably, Switzerland, where rumors of the death
of bank secrecy have been exaggerated.
America was in the vanguard in the fight against
tax havens, first targeting the Swiss, then passing the
Foreign Account Tax Compliance Act, which forces
financial companies all over the world to spill the
beans on their American clients. While demanding
concessions from others, however, Washington has
made few itself. It has, for instance, failed to engage
with the OECD s data-sharing scheme. Worse,
anonymity-friendly incorporation regimes at the state
level mean that America is unmatched in corporate
This matters, because America hosts a great deal
of offshore business---ask a billionaire from Caracas
or Cairo where he buys property or sets up the shell
companies that hold it.
The Tax Justice Network offers a solution: It reckons
that Europe should mimic the Foreign Account Tax
Compliance Act by imposing a stiff withholding tax---
it suggests 35 per cent---on payments from Europe
to American financial institutions, until America gives
as much data as it takes.
That would induce wry smiles in Zurich.
The mother of
all tax havens
Real impact of a decade
of low interest rates
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