Tax Liabilities

One of the key announcements in the latest Australian Government budget has been to implement a tax on banks who have assets over AUD$100 million. Currently this would only affect the five biggest banks in the country. The tax comes in at 0.06% of the amount of liabilities. This does not sounds like a lot, but is expected to raise about AUD$6.2 billion over four years. Whether it is that successful, remains to be seen.

What I am most interested in is how the Government has sold this idea. By taxing liabilities, it sounds at first glance, that the banks are being punished for something bad. After all liabilities are considered "bad" in most cases. It is something that liabilities are a net obligation owed to someone else. In this case it is the bank's deposits. That is right, the government is taxing deposits. This tax will decrease the interest rate that banks are currently paying for deposits. If you have a savings account, you will receive a lower interest rate at one of the big five banks compared to a smaller bank. These banks will find it harder to compete for deposits or they will have to earn a lower interest spread decreasing profit. Either way this tax makes the big four banks less sound. We all know what happens when a large lender has financial problems. I am not implying this tax will lead to this, but is this really the best way to raise more revenue?

Brexit and the Billionaires

A lot has been written about the rise in quantity of millionaires and billionaires in the UK, post the Brexit vote, while the working class population struggle with price increases and stagnent balance sheets.

What I am most surprised about when reading these articles is the anger towards the rich profiting of a Brexit event. It is as if the rich wanted a Brexit to happen and through various channels were able to orchestrate it. By making Brexit happen, the rich then went on to profit and maybe even 'exploit' the country. For the population that did not want a Brexit, this possibility would be disgusting.

What has been overlooked is two very important factors. Firstly, the rich are in the position they are in because they have a network of people who are likeminded and they are smart, astute investors. The rich prepare for these sort of events ahead of time and take all necessary steps to avoid any potential loss from a 'black swan' event. Second, the Bank of England has been on a path to destroy the value of the Pound since at least 2008. Interest rates have been at historical lows since the Great Recession and they have engaged in currency printing. However the destruction and attempted undermining of the value of the Pound has been ongoing for a long time.

I want to expand on the second point, as this is the most important factor. When an easy monetary policy is implemented, there will always be 'winners' and 'losers'. This is because the newly created currency does not flow evenly throughout the economy and it is the ones who receive this new currency first that benefit the most. The banks are the first to receive this currency as they own a lot of the government bonds the central bank is buying with the new currency (the central bank is also not allowed to buy directly from the government, so banks have to be involved). The extra currency the banks now have on-account is available to lend out and as the above events unfolded during the recession, the most creditworthy borrowers are the wealthy as they have bigger balance sheets. The wealthy borrow this newly created currency at record low interest rates and proceed to bid up asset prices within the country and around the world using their connections to find deals. As this money is spent, prices rise (or fall less than they otherwise would have) because more people are coming into contact with the new currency. Asset prices rise and the wealthy who purchased when prices were lower are sitting on a very nice capital gain. Eventually interest rates will be forced to rise and people who most recently borrowed money to buy high priced assets will find themselves unable to service the loan.

Brexit has merely shown a light on the rich, they were alway there. In fact, if the wealth of the rich was measured in a stable store of wealth, ie Gold, their wealth would not have changed much at all. The rich have had a 10-15% 'assistance' from a falling Pound.  Instead of blaming the exit of a political union, it would be more useful to to target the monetary policy that has been eroding the value of the Pound for the last 40 plus years.

Chalking a Pool Cue

When to chalk a pool cue is a decision that seems very simple, but yet can and does beat more people than it should. For the professional pool player this is a no brainer. You chalk the pool cue before every shot. However for the amateur player, it's often after they have made a bad shot and miscue that the thought to chalk the cue crosses their mind.  By then it is too late. The shot was missed and your opponent now has a turn.

This leads to one of my favourite sayings (and I have to admit that I do not always abide by it); 'do it when you can, not when you have to'. If the pool player chalked their cue when they could (before their shot) has opposed to when they had to (no chalk on the cue so they missed the shot, forcing them to chalking the cue), they would be far better off for it. Why does an action that is assumed to be of benefit to us be left until it is seemingly too late? Is it the 'she'll be right mentality' or procrastination or just simply not aware of the situation?

Thoughts on this are welcome. Please leave a comment!