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Cameron Impresses Americans
Topic Started: Sep 27 2012, 07:02 AM (741 Views)
Red Andy
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Pasta,Sep 30 2012
08:09 AM
It would be wrong to blame David Cameron for the UK's woes. He has inherited a terrible situation with a minority government.

Cameron inherited an economy that was growing. It is now in recession.

Of course he and his government are to blame. Their austerity agenda has sucked demand out of the economy and led to the present slump.
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Lex
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And what did Labour inherit in 1997?

And what did they leave?
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Red Andy
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Labour endured a recession brought about by the global financial crisis. Whether you agree or not that their stimulus policy was the right thing to do, they had restored the economy to growth by the end of their term.

Now we are back in recession. Global economic conditions are still not good, to be sure, but the UK government must shoulder the blame for pushing through austerity policies at a time when demand needs to be increased, not reduced.
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Pasta
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Oh boy. I am not making friends here.

I do remember 1997 very well. Global downturn/recession.

I was deputy managing director of two public companies listed in Hong Kong. They were real estate companies. We had just concluded a rights issue that raised us HK$350million. We had almost no debt, lots of properties and lots of cash. Almost HK$400million in one company alone.

We should have hunkered down and become quiet. Saved as best we could and endured the storm.

But we didn't. Our shareholders didn't like how our share prices went down and my Managing Director (still a great friend BTW) went on a spending promotion spree.

Our tenants were going bankrupt and stopped paying rent. We ramped up our mortgage debt.

Sometimes when you do things just because your shareholders want you to or the voters on unemployment want you to or people with dreams cut off by recessions want you to - well that is not always the right thing to do.

There is only so much you can expose yourself to to please the masses.

Our two public companies went into virtual receivership.

In contrast...

I started a company called First Ecom.com Inc. and to this day I hold the record for fastest every company from start up to NASDAQ NMS listing. We were the first in Asia to be able to process credit card transactions over the internet in real time.

Very heady times. My financiers and investors wanted me to spend more to justify additional raises. It was like a gold rush. We had just raised US$30million and shortly after warrants were exercised. We raised in our first 16 months US$60million (about that) and still had some $30million in the bank. We were still a start up.

The crash of 2000/2001 (technology bubble bust) hit. I started laying off staff in November and finished it in March.

I had 8,500 shareholders wanting to know what the heck was going on. I had people in the industry predicting my doom. I had death threats.

I hunkered down and saved the company. The people in the industry who predicted my doom a year later were asking me for money. (You can imagine what I told them so incredibly slowly.) My shareholders who watched other dot coms go completely bankrupt changed their minds and then called me a hero.

There was nothing I could do about the macro environment at the time. Our business principles were solid and we did a heckofa lot of good work. We were the only outsource company in Asia that could do transactions for banks. Banks were our clients.

But then sh it happened.

When you consider David Cameron, in contrast to the US which has not gone into a recession, consider the following:

The US debt has completely ballooned and shows less signs of easing off. The UK debt has gone up of course. What would you expect in a global recession? The recession is global and not caused by the UK.

It could have been a whole lot worse for the UK.

Short term pain long term gain. The US can still be a global engine of growth - the UK cannot. The UK needs to hunker down and become opportunistic.

Part of what that means is defining productive aspects of your society and not catering to non-productive aspects. We always need occassional cleansings. I love the play "The Balcony" by Jean Benet (I think).

So I believe David Cameron is a pretty clear thinker for someone so young.

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Pasta
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More to follow but I have to sort out some details respecting shipping polymers.

I am still waiting for someone to ask - and actually want information - about the tax issue and going offshore.

This is something I know a bit about.

It is so easy to throw out statements about tax breaks for the rich. I understand that most people don't know much about these things.

But when confronted with the opportunity to actually learn and then discard that opportunity and revert to the bland "tax breaks for the rich" jargon, well that is not smart. It bothers me.

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Norbert
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Lex,Sep 30 2012
10:38 PM
And what did Labour inherit in 1997?

And what did they leave?

A mess.

A different mess.
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Pasta
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Norbert,Oct 1 2012
10:43 AM
Lex,Sep 30 2012
10:38 PM
And what did Labour inherit in 1997?

And what did they leave?

A mess.

A different mess.

Perhaps and at last!!

Labour and Clinton both presided over the 1997 crashes.

Those crashes, however, were minor tremors. The fundamentals of the major economies were still pretty good. The excesses were not pervasive.

From time to time economies require corrections of the excesses. Much like earthquakes are needed to release the kinetic energy from moving tectonic plates.

At those times the full effect of migration of manufacturing jobs to developing nations was still a long way off. But they were happening and we didn't see it because it was in a lot of people's interest to support the low valuation of the Chinese currency.

People bought things cheaper and their dollars/pounds/euros stretched so much further as trade imbalances were funded by the accumulation, by the Chinese and Taiwanese and even Hong Kong, of foreign currency reserves to ridiculous levels.

Western politicians got re-elected.

Today it is way different. The sins of the fathers have truly been visited upon the sons.

We have the effects of China being close to the US in terms of size economically. Its growth has been in manufacturing at the expense of jobs from virtually every developed nation and then some.

This could have been seen but no one took action. Not Clinton or Blair or Bush. No one.

What has taken decades to build up can't be undone in two or three years.

I am a free trade type of person. Overall it is the way to go.

I do think, however, that free trade needs a level and fluid playing field.

As we speak China is starting to realize that it needs the west to be strong. If not her gains are transient. Her reserves of US dollars she is spending as fast as she can to secure oil and other resources long term.

(And China is not being efficient in this manner - just ask people from major mining regions how much money she just pisses away all the while disrupting markets. I guess China figures - perhaps correctly - that her Euros and USD might as well be spent now when people still think they are as valuable as they think they are.)

The mass migration of jobs to China has made western economies stagnant.

I live in Asia. When sort of skilled workers make US$200 per month, jobs are going to move. Throw in efficiencies of shipping and handling and pretty much zero tarriffs, the job losses of Europe and NA in particular will continue.

Back to underlying my premise about Cameron, what is required is a concensus amongst the economies as to how we should collectively go forward. Unfortunately that requires leadership and benevolance that I suspect is not going to appear.

As such things will eventually balance out. In the mean time there is going to be ongoing blood letting. Keeping that down to a minimum is a correct path for all but the biggest economies. The US, China and that's about it.

Next on to tax policy.
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Pasta
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Tax policy.

We really need to understand tax policy in the broader sense of a freer economy. Free economies with mobility of capital are proven to be the best arbiter of allocation of capital.

There are times when a nation freezes its currency and conversion of same within its boundaries. Malaysia did that in 2997 I believe. That can work to protect an economy short term from the ravages surrounding it. The province of Alberta, Canada did something similar during the 1929 depression when it created its own currency.

My former country manager from Thailand (Visal and don't ask me to spell his last name - I never got that right) was a lifetime Senator appointed by the king. He was also the chief legal advisor to the Prime minister and the Minister of the Interior in the 90's and early 2000's. He told me that when Malaysia first came up with her policy the ASEAN nations complained and warned Malaysia of the decline in international confidence. He also said that afterwards he wished Thailand had done the same thing.

Sometimes micro management like that works, but ultimately it took a very long time for international confidence to return to Malaysia.

Similarly it takes a long time (if ever) for international money to be comfortable in economies with excessive monetary controls.

Back to the point. Established economies have decided and are now governed by international agreements that mobility of capital is desired.

In that context, there is pretty much nothing governments can do to prevent tax sheltering or even evasion.

The more the top end tax rates are raised, the more sheltering is done as it becomes increasingly economical to spend the resources.

Furthermore higher tax rates discourage money flowing into a country.

Hong Kong has incredibly low tax rates and is now the leading financial center in the world, arguably.

When the UK established London as a tax haven for foreign investors it was a massive boom to the UK economy.

In fact my friends who had tax "[I]issues"[/I] with the Canadian government moved to London. Properties in Canada were "sold" and they set up a London residence. They even became football/soccer fans. The laws in Canada were such that if they spent more than half the year there, they would still be subject to Canadian taxes. So airports were out. They would fly to Seattle, Washington and take a ferry where only their driver's license was required, if that.

My first auditor explained how he was part of a captive insurance company offshore and he would pay malpractice insurance premiums four times what he could otherwise get in Canada. The reason is he was paying it to himself and getting a huge deduction.

Personally I haven't paid taxes anywhere for many years. Now that I have tasted the candy, why not.

Every member of society benefits from government expenditures. Progressive tax rates can be justified in some minds, but the high income earners don't buy it. So they move.

If you have a lot of money and want to invest, where do you choose to put your money? Where taxes are high and money movement restrictions dangerous? Not at all.

Increasing the tax rate beyond what they are is counter productive and completely ineffective over time. Negative.

People describe the reduction of the top end tax rate as giving a "break" to the wealthy. What an utter bunch of nonsense. You are simply reducing the marginal tax rate at the top end. Their tax rates - based on the scales - are already the highest and this is not a break, but rather a bit of a balance.

It takes a tough politician with some conviction and courage to reduce top end tax rates. They are faced with a largely economically illiterate voting constituency and it is not a politically popular thing to espouse.

The harsh reality is that it will always be the masses that foot the bill.

Personally I am not sure of the ethics of this reality. I am simply being a pragmatist from one perspective.

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