Two More IMF Papers See Savings Tax And Fiscal Austerity Coming
Gold Silver Worlds
January 4, 2014
It was only two months ago when we wrote about the IMF Considering A Super Savings Tax Of 10% in the Eurozone in one of their research papers. The most important conclusion from the researchers: “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.”
As we finally arrive in the magic year 2014, in which almost every economic and business cycle is trending down, it seems that the idea of a debt reduction through savings confiscation is gaining traction. If it would have been true that the debt crisis was contained (like our political leaders try to make us believe, for instance the European Council President just a week ago), then there is a huge divergence with what the IMF research lab is producing. In December alone, two working papers appeared in which debt restructuring is mentioned as the most likely way to reduce the untenable debt burden.
One working paper comes from Reinhart and Rogoff. Their research concludes by saying:
“The endgame to the global financial crisis is likely to require some combination of financial repression (an opaque tax on savers), outright restructuring of public and private debt, conversions, somewhat higher inflation, and a variety of capital controls under the umbrella of macroprudential regulation. Although austerity in varying degrees is necessary, in many cases it is not sufficient to cope with the sheer magnitude of public and private debt overhangs.”