One of the latest reports from the IMF discusses a super taxation of 10% on savings in the Eurozone. That would solve the debt problem in most sovereign countries. It would be an alternative of higher taxes or spending cuts.
The economists who wrote the paper hasten to say that it is a theoretical proposal. Still, it appears to be “an efficient solution” for the debt problem. For a group of 15 European countries such a measure would bring the debt ratio to “acceptable” levels, i.e. comparable to levels before the 2008 crisis.
The report itself is embedded at the bottom of this article. In the last section of the report, on page 58, right before the appendices, it says:
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. 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). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents)
There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight – in turn spurring inflation.
The tax rates needed to bring down public debt to precrisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth(*).
(*) IMF staff calculcation using the Eurosystem’s Household Finance and Consumption Survey; unweighted average.
Indeed, Keynes makes his appearance in the report as well.
One should note that the first paragraph of the report right away debunks the myth that politicians and main stream media try to sell, i.e. the crisis is contained and the positive economic outlook for 2014.
High debt ratios amid persistently low growth in advanced economies and emerging fragilities in the developing world cast clouds on the global fiscal landscape. In advanced economies, with narrowing budget deficits (except, most notably, in Japan), the average public debt ratio is expected to stabilize in 2013-14. Yet it will be at a historic peak (about 110 percent of GDP, 35 percentage points above its 2007 level). Simulations show that maintaining the overall budget at a level consistent with the IMF staff’s medium-term advice would bring the average debt ratio to about 70 percent of GDP by 2030, although in a few countries it would remain above 80 percent. However, the large debt stock, the uncertain global environment, weak growth prospects, and the absence of well-specified medium-term adjustment plans in systemic economies like Japan and the United States complicate the task.
One of the graphs (page 14) is also noteworthy. It simply shows the unreliability of the forecasts of institutions. Even the report refers to it by saying “Relative to previous projections, fiscal deficits are somewhat larger in most countries, reflecting a weaker economic environment.”
GoldSilverWorlds staff concludes that our fundamental vision has yet another time been confirmed. The black hole in the monetary world, which is called “banking”, is not capable of controlling its own devil, which is leverage. Our monetary system is based on debt based credit. Central banks have deteriorated the situation since 2008/9 and are now caught between a rock and a hard place. Prepare yourself, the reality is that more bail-ins, confiscation and financial repression is coming, contrary to what the good news propaganda tries to tell. Physical precious metals are the safest way to protect.