Australia

It’s no surprise to see Switzerland and the USA at the top of the list for average wealth. However, if we look at median wealth the story is rather different. This measure controls for super-rich Americans who dominate the rich list.

The United States does not appear at all in the top 10 for median wealth. In fact it ranks 18th, just above Korea and below Qatar.

More interesting still that Australia is top of the list. I have to say, the lived experience in Australia might tell you that this is true. There is something egalitarian about this place. You’d be hard pressed to find a poor builder or plumber in Australia and frequently they would earn more than any randomly selected banker; and why shouldn’t they?

More than that though, whatever seems to happen in the current environment is good for Australia. The world is migrating away from coal but Australia’s cleaner coal is in huge demand. Demand for uranium is going to skyrocket over the next 10 years and guess who has all of that?

Food shortages are likely to be a reality across Europe and Asia until the energy situation stabilises. Australia exports 70% of its food production, and in theory could feed itself 3x over and still have enough left to send overseas.

The ultimate proof of wealth is in life expectancy, where Australia ranks amongst the very highest.

It seems to be a well kept secret though. The perception across the world is that Australia is a nice place to visit but hardly compares to Switzerland. On the contrary, its prospects are actually incredible given the amount of land and mineral wealth that sit here. I would venture to suggest that Australia is far wealthier than Switzerland on a broader measure. The longer it’s a secret the better I suppose.

So even though it’s raining and we’re staring down the barrel of another wet summer; what a place this is.

Price-to-Book

The travails of Credit Suisse this week are now well known. Their CEO has been manning the phones to reassure both staff and clients that the bank is solvent and everything is well. Unfortunately for him, the market thinks otherwise.

The price-to-book ratio of European banks tells the story. It’s a ratio of share price to net assets that the bank claims to have on its balance sheet. In the case of Credit Suisse and Deutsche you can buy $100 of their assets for a mere $24. Either the market is stupid or the big European banks are full of toxic leveraged products that could blow up at any moment and destroy them.

Sadly, all the banks listed have the category G-SIB which means “global systemically important banks”. Another way of saying they will be bailed out if need be but one assumes shareholders would be wiped out.

It’s sad to watch the demise of European banks, but there are way too many banks in Europe and something will have to give.

For Credit Suisse, it’s a bit less sad. Once a titan with a brand to be proud of they bestrode the globe and feared nobody; as a result their scandal list became long and fabulous. My favourite has to be opening accounts for Ferdinand and Imelda Marcos and calling them William Saunders and Jane Ryan. Just magnificent stuff.

Quietly confident

On a number of levels a ‘global minimum tax rate’ is an interesting idea. Specifically, it requires massive coordination and pressure on countries that do not wish to to comply but it is also hugely revealing.

Capital is now more mobile than ever. Businesses are now more mobile than ever. As a consequence the tax base is not fixed, it can move if it doesn’t like you.

All of this was predicted many years ago in the book, The Sovereign Individual, which asserted that the state had become so large people would simply move with their assets to locations better suited to their long term objectives. Historically that has been hard to do because one cannot move physical assets and selling them can generate huge tax liabilities.

With government deficits where they are globally, the tax grab is likely to get more and more aggressive. Anything that is not mobile will be targeted (real estate looks especially vulnerable here).

You might reasonably argue that a 15% tax rate is nothing to fear and perfectly aligned with societal goals. That might be correct, but perhaps a globally coordinated tax net at this scale is rather sinister. Why? Because nobody voted for it. Matthias Corman was once an elected official in Australia and when he introduced a new tax he did so with the authority of the democratic process. Now he is an unelected official who is ‘quietly confident’ about introducing a global tax floor of 15% for seven billion people.

Which of those seven billion people asked for a global tax floor? Pretty much nobody.

The sands are shifting very quickly here. The tax system will likely look different in the next decade and might focus on assets rather than income, simply because that’s where the money now is. The state isn’t going to shrink without an almighty fight and some assets are more vulnerable here than others. Even income tax once was considered an unacceptable intrusion into private lives, so material changes in the mechanism of taxation do happen.

At that time, many people in Britain opposed income tax, on principle, because the disclosure of personal income represented an unacceptable governmental intrusion into private matters, and a potential threat to personal liberty. The first permanent British income tax was not introduced until 1842, and the tax remained controversial into the 20th century.

You have been warned.

From the archives

It was October 1, 1999. CFO Magazine awarded a CFO Excellence Award to Andy Fastow of Enron.

A senior vice president of Lehman Brothers was on hand at the time to add some colour to the award.

“Thanks to Andy Fastow, Enron has been able to develop all these different businesses, which require a huge amount of capital, without diluting the stock price or deteriorating its credit quality – both of which have actually gone up. He has invented a groundbreaking strategy”

Andy then took his groundbreaking strategy to a Federal penitentiary where he deployed it to other prisoners over a six year period. On his release in 2007 he only had a year to wait and Lehman collapsed.

As the motto of bitcoiners goes: don’t trust – verify.

Euro-Trash

“The Frankfurt Forum launches new research and brings together senior policymakers from both sides of the Atlantic. This special event will deliver a blueprint for US-EU cooperation in four key areas: digital currencies, monetary policy, international trade, and economic statecraft.”

It was great to have so many Americans over in Europe saying nice things. They even brought some of their special forces personnel with them, who spent a bit of time having a nice swim off the coast of Denmark.

We largely know what the US thinks of the EU from leaked cables years ago. This rather wonderful conversation between the diplomats tells its own story.

Anyway, the pretend niceties extended to discussion on digital currency essentially which landed here:

• The ECB plans to have one
• Consumers want instant settlement payments
• There will be KYC and oversight
• There will be tracking of all transactions

Which is great for us in many ways. You could summarise the future as CBDCs acting like bank accounts do now providing absolutely zero competition to the digital assets that consumers are actually choosing.

So a similar level of irrelevance for the new Euro token as there will be for the Euro. “We plan to die but we will do it digitally.”