Ed: You want to get to grips with the (true) state of the world economy? Read this – The Social Consequences of Contemporary Financial Markets* – … It is brilliant …

This paper considers the social effects of unprecedented growth in financial trades and speculation. The key claim is that speculative finance capital markets have caused widespread economic and social pressures. Financial speculation has contributed to global instabilities and devastated middle –class homeowner wealth as interest rates remain in low band ranges across most developed countries.

Within nation state tax system structures consumers pay 10 per cent goods and services tax and income tax on earnings. Within the speculative capital systems of derivatives and cross border trades no taxes are levied. Market players have effectively created their own political economy. Wall Street and the City of London are tax havens of long standing1.

An argument is advanced that socio-economic inequalities are resultant of overleveraged, unregulated finance, and market integration over the last three decades. Concomitantly, pressures on civil society have arisen through governments transferring state-based funds to bail out private institutions, and to stimulate economies. Socialisation of debt has been, and is currently, used to strengthen the private sector. Government resources are under pressure and services to those most at need, cut.

Central to this argument is the consideration that two economies have emerged in parallel throughout the developed world. The “real economy” of developed nation states has been depleted by protracted global economic crises. The second, “shadow economy”, has re-emerged (post GFC) as a concentrated economic force with speculative daily global financial trades in excess of US$4 trillion, including AU$41 billion in trades, every day, in Australia.

The majority of trades are enabled by sophisticated high frequency trading corridors between Wall Street and the City of London. Their consequences are felt worldwide. The economic trickle down effect has turned into vast “trickle-up” effects to non-deposit financial intermediaries, hedge funds, high net worth individuals and investment banks. These new concentration of capital systems and wealth have significant consequences for civil society.

For, (now heavily indebted) western economies, global systems are firmly entrenched in a changing international restructure involving the western developed economies and the eastern rapidly emergent economies of India, China, and South East Asia. Prominently entrenched in the new dynamics of global finance is the liberalisation of Chinese finance. Recently The Guardian2 suggested,

“China is making preparations to let its money off the leash, and the repercussions will be felt everywhere – the freeing up of the Chinese economy over the past 35 years has been methodical. First it was agriculture. Then it was industry. Now the next phase of liberalisation planned by the ruling cadre of the Communist Party includes finance”.

The United Kingdom is urging China to make London the trading hub of the renminbi*. This will be a huge fillip for the largest speculative capital market base in the world. An influx of trade from China will increase the daily trades to unprecedented levels. Increasing volatility and instability in markets already fragile, secretive and elitist.

Two key questions are addressed in this paper. First, given the social consequences emanating from global financial markets, and the socialisation of debt in most developed economies, is the introduction of a global or regional financial transaction tax a feasible progressive economic and social reform to partially ameliorate the negative effects of speculative finance capital on nation states? Second, could a miniscule tax on trades, recalibrate the relationships between governments and markets and provide accountability, oversight and stability? This paper argues in the affirmative.

Additionally, this paper supports an argument that transaction tax revenues in Australia, the eighth largest derivatives transaction-trading nation in the world, should be used specifically to strengthen national social policy commitments to the social housing sector and provide a targeted resource for sustainable social services provision.

The financial transaction tax is a socially progressive proposal supported by eminent economists and global leaders. Originally suggested by Nobel Laureate Economist James Tobin in 1961, the idea of the tax has been topical, and highly contested, for five decades. It is, by design, an instrument to deal with the pressures of transnational finance activities, and to provide an oversight on the emerging presence of high speed speculative transactions, commonly described as “flash trades”.

On August 1 2012, France became the first major European country to introduce a Financial Transaction Tax (FTT) into law, with a tax rate of 0.2 per cent on three types of transactions. Fifteen European countries are now supporting or closely examining proposals. Three of the top five liberalised finance states (Singapore, Hong Kong, and Switzerland) have FTTs’ in their taxation structures. The introduction of has been controversial and heavily politicised by financial interests.

Background

The last three decades have resulted in the globalisation and integration of financial markets. This has led to unprecedented growth in global financial trade and speculation causing widespread economic and social pressures. Burgeoning derivatives markets are becoming concentrated. Market share of the 10 largest finance trading firms in the United Kingdom has increased from 71 per cent in 2001 to 92 per cent in 2010 3 . The largest 20 firms accounted for 99 per cent of turnover. In the United States, the largest 10 financial entities accounted for 95 per cent of turnover in 2010. Many entities are based, and operate, from tax havens where $US 21 trillion is currently being held4. The 2012 trading volume for the Chicago Mercantile Group was US$806 trillion (approximately 12 times more than the entire global GDP).

More recently, pressures on civil society have arisen through governments allocating taxpayer funds to bail out private institutions and to stimulate debt-ridden economies. Civil society and public sector resources have been drained in an attempt to strengthen private sector accounts. The socialisation of private sector debt has been a feature of contemporary macroeconomic policy settings across most developed states5. Globalisation of finance has contributed to financial instability.

Banking and financial system speculation and concomitant market fragility has spread rapidly from the United States to Europe and, to a lesser extent, Australia. The International Monetary Fund estimates debt levels in the G20 countries to be $US 30 trillion. Ratings agency Standard and Poor’s forecasts a “global wall” of nonfinancial corporate debt maturities, due from 2012 to 2016, which will need to be refinanced over the next five years, at US$ 43 to US$ 46 trillion6. Standard and Poor’s argues that this factor, amid the current Euro zone crisis, a soft US economic recovery following the Great Recession, and the prospect of slowing financial growth, raise the downside risk of a “perfect storm” for credit markets. There is a growing scenario of global recession that politicians fail to explain. Historian Antony Beevor suggests, “The public have not been told about how desperate the situation is because no politician, then or now, dares to spell it out.”8

As a direct consequence of the global credit squeeze, unemployment, and increasing nation state debt levels have occurred across civil, industrial and resources sectors with millions of workers now facing unemployment, or underemployment. For global citizens, particularly those located in developed states, the horizontal linkages that often integrate social communities are being replaced by vertical ties binding the individual to the state. Global civil societies face considerable inequalities. There is a risk of a job-less generation, disconnected, and left behind.

Two economies have emerged, in parallel, throughout the developed world. The first, the “real economy’ (of developed nation states) has been depleted of resources by the global crisis in finance. Second, the “shadow economy”, has re-emerged (following the 2008 financial meltdown), as a dominant force with daily global currency trades of over US$4 trillion, underpinned by burgeoning derivatives markets. Derivatives markets are recording record turnovers of nearly US$700 trillion. Seventy seven per cent of these trades are speculative. A concentration of wealth and political power is evident in this shadow economy. It is within this context that social accountability of finance becomes the key question of this thesis. Can finance capital be allowed an elite market space, and political protection?

Global political leaders, economists, and civil society groups have endorsed conceptual frameworks supporting a global or local financial transaction tax (FTT). European countries are examining its merits, and motives. In June 2012 the European Parliament voted in favour of the European Commission’s proposal for a financial transaction tax9. Eleven European countries have now supported implementation of an FTT10.

An FTT on financial trades would ameliorate some of the detrimental social impacts from the present financial crisis and provide a framework, and rationale, to prevent further disruption. An FTT would provide oversight and accountability on speculative finance capital activities on a global and nation state level.

For promoters of rapid deregulation of the global economy attached to policy settings pursued under such labels as “Neoliberalism”, “Anglo-Saxon, “Anglo-American Model”, or “the Washington Consensus”, persistent and rising inequality was until recently only a modestly embarrassing imperfection in an otherwise appealing picture of market prosperity11. This prosperity appeared more tangible through booming housing markets and an increasing display of wealth in most developed countries around the globe.

However, this was a prosperity missed by those in civil society who were unable to access the wall of hedge fund enabled finance capital in the “carry trade” credit markets. These were markets where US dollar surpluses held in China and Asia coursed back through the United States and on to Australia for housing, motor vehicle, investment and personal debt. Ferguson argues that over-leveraged personal and business finance is a contemporary feature of modern developed state economies12.

Inequality among nations has been explained by the insistence that the leaders of poorer nations had not been pursuing the right policy mix of deregulated markets, privatised government services, weakened labour unions, and most importantly a readiness to accept carry-trade investments from the growing number of hedge funds and sophisticated financially engineered products13.

These global inequalities were identified and remedied by World Bank and International Monetary Fund operatives preaching “open market” doctrines to new funding recipients. Non-compliance was viewed as a perceived weakness demonstrated by hesitant governments resisting deregulation.

By the last years of the twentieth century, this rationalisation was undercut by a string of economic disasters that had befallen governments whose leaders and policies were considered exemplary of the new capitalist modelling. México, Thailand, Indonesia, Korea, Japan, Brazil, and Russia adorned the gallery of nations whose economies soured shortly after their leaders where lauded by the global policy elite for pursuing sound economic fundamentals.

Around the same time, the failure of Long Term Capital Management in the United States in 1998 exemplified the massive leverage risks in corporations and markets, increasingly decoupled from the real economy and historic financial models of trade and development. New sophisticated hi-tech transfers of capital through unregulated and largely unknown players were emerging within the shadow economy (and shadow banking systems)14.

The first decade of the new century (2001–2012) has witnessed the most extraordinary political and socioeconomic events, startling in scale and veracity, yet not entirely unanticipated given the nature of speculative global capital trades and heavily debt laden economies.

When governments hand control of regulated capital markets to unregulated margin-seeking traders, this disconnect becomes palpable, and dangerous. Policymakers, influenced by lobbyists in the two largest financial trading nations, the United States and the United Kingdom have downgraded and off-shored industrial development, heartland manufacturing, and home-grown research and development, in favour of financial services headquarters in Wall Street and Canary Wharf. Between these two locales, 85 per cent of the total global currency trades of US$4 trillion are transacted every day of the year15.

The City of London and Wall Street finance and business areas are effectively tax havens. Finance capital and politics provide the platforms for trades and high levels of information technology to enable corridors of high speed trading in 24 hour convoys between these two highly influential entities.

In the five years from the outbreak of the financial crisis the global economy is still unstable as interactions between markets and state economy become more disparate and unbalanced. Aggregate asset values of central banks have grown by over 30 per cent or double the ratio in the last decade. Interest rates are near zero or in negative bands in real terms16. To facilitate this growth new high speed systems have changed beyond recognition. Despite efforts to reform markets they are less transparent, unstable, and high-tech than ever with some exchanges able to execute trades in less than half a millionth of a second (more than a million times faster than the human mind can make a decision), with firms deploying sophisticated algorithms to battle for a fraction of a cent. Programs exploit minute spreads ($1.00 to $1.0001at a rate of 10,000 times a second. Oversight and compliance are left far behind.

Program efficiencies are a critical part of a growing industry dedicated to high or hyper-speed connections for firms.A connection to a trade at a one millisecond advantage could boost high speed firm’s earnings by as much as $100 million a year17. A new race is on in earnest to establish the fastest connections between trading hubs (Chicago – Wall Street – London). Every extra foot of fibre-optic cable adds 1.5 nanoseconds of delay, each additional mile adds 8 microseconds. Specialist firms link trading centres, and charge trading firms high prices to firms who want to place their networks close to exchanges. Industry experts estimate that high-speed traders spent over US$2 billion on infrastructure in 2010.18

In another unparalleled systems change the need for competitive advantage amongst the concentrated group of elitist traders19 is the quest for speed between two rival US traders20. Two rival high-speed market traders are currently building two underwater cables across the Atlantic to link trading hubs in Wall Street and the City of London. The cost is around US$300 million each. When completed in 2014 one of the cables is expected to reduce the current trade speed by between five and six milliseconds. Although human expertise in this secretive sector still run the banks, and write the codes, algorithms now make the myriad of “moment-to-moment” calls on global markets. Politicians set the rules (or non-observance) of oversight, and traders, increasingly build super sophistication into systems that will ultimately benefit very few at the expense of many in the global civil society who remain unaware of the imminent risks.

London, to be precise, The City of London, is the leading international financial centre and holds that status in terms of international banking activity, foreign exchange transactions and, most importantly, over-the-counter derivatives trades. Other international centres include the British Crown Dependencies including Jersey, Guernsey, Isle of Man, and the British Overseas Territories of Cayman Islands, Bermuda, British Virgin Islands, and Gibraltar21.

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The City of London has vast networks of banks, consultants, and legal services to court every need of high net worth individuals, hedge funds and investor22.

Rhodes and Stelter argue that the levels of debt in the global financial system are unsustainable and that the developed countries must immediately address the crisis of debt.

Rhodes and Stelter contend23:

Total debt-to-GDP levels in the 18 core countries of the Organisation of Economic Co-operation and Development (OECD) raised from 160 per cent in 1980 to 321 per cent in 2010. Disaggregated and adjusted for inflation, these numbers mean that the debt levels of non-financial corporation’s increased by 300 per cent, the debt levels of governments increased by 425 per cent and the debt levels of private households increased by 600 per cent. But the costs of the West’s aging populations are hidden in the official reporting. If we include the mounting costs of providing for the elderly, the debt levels would be significantly higher. Add to this sobering picture the fact that the financial system is running at unprecedented leverage levels, and we can draw only one conclusion: the 30-year-old credit boom has run its course. The debt problem simply has to be addressed.

Underpinning this considerable growth in capital markets, and overlaying socioeconomic civil society patterns, has been the continuance, over the past two decades, of a new phase of accumulation associated with the concentration of capital through centralised financial centres. Streithorst argues that since the 1980s, debt has been the world economy’s essential engine of growth24.

Capital centres emerge alongside, support, and influence capital elite stakeholders over real economy socioeconomic outcomes and strategies in all forms of government policymaking. The new macroeconomic structures are underpinned by financialisation of global markets splitting traditional and historical global investment and development funds and trades (real economy); into highly complex linkages between agents and borrowers in finance capital markets (shadow economy). The 2008 financial crisis and the resultant stagnation of economies is often attributed to the spread of shadow banking which accounts for a third of total banking assets globally25.

The impact of financialisation reinforces and enables capital accumulation amongst high net wealth individuals and corporations, influences political outcomes, turns politicians into servants, and, most grossly, develops a new phase of socioeconomic inequity. It has provided the structural vehicle for the socialisation of debt. In pursuit of the next sophisticated instrument to trade fast and with stealth, the recently crippled investment banks including Goldman Sachs have re-emerged with massive profits and rewarded, again, top traders with top packages.

A rising tide of angst and disbelief amongst civil society leaders and policymakers has forced an open enquiry into cash market accountability following disclosure of the LIBOR rate fixing scandal. More incessantly, past and present operatives of Goldman Sachs now occupy top-level government offices in Italy and Greece as most European countries enter turbulence occasioned by a sovereign debt crisis26.

Considerable energy has recently been shown by the former head of the London based Financial Services Authority (Lord Adair Turner), German Chancellor Angela Merkel and newly elected French President Hollande to introduce a miniscule tax on speculative global financial transactions as a means to ameliorate the socialisation of debt. These proposals for a publicly accountable global financial transaction tax have been mooted since the idea was first put forward by Nobel Laureate Economist James Tobin in the 1960s. The case for broader tax imposts on speculative capital had been promoted by John Maynard Keynes decades earlier.

Despite the “unfashionable” nature of the tax and attempts by shadow economy financial institutions and hedge funds to dismiss this progressive idea, the recent signals of financial instability has seen a new investigation of the merits of the tax as a means of countering the deleterious effects of the global recession on civil society.

The proposal for financial transaction taxes (FTTs) has seen renewed urgency (late 2012–13) that has brought French President Hollande, German Chancellor Merkel and European leaders together to discuss and recommend new proposals.

Anni Podimata, the Member of the European Parliament spearheading Parliament’s position on establishing a financial transaction tax, issued a statement about the intention of 11 European countries to press ahead with the FTT. The newly formed Dutch Government formed on 31 October 2012 became the 11th out of 27 European Union countries to support and adopt an FTT. Podimata stated27:

I welcome the decision of 11 Member States to introduce a Financial Transaction Tax under enhanced cooperation on the basis of the Commission proposal of September 2011. It is a socially fair tax, an indispensable part of a complete and coherent solution to exit the crisis. This is a reward for Parliament, which has been calling for an FTT for over two years. It will contribute to shifting the burden from the citizens to the financial industry – which has not yet contributed its fair share to the cost of the crisis. It will target the most speculative activities and at the same time provide finances equal to more than half of the EU’s annual budget at a time of intense fiscal consolidation. We will continue to bring on board the greatest possible number of member states.

Many versions have been promoted by politicians and researchers and have included a tax localised to financial areas such as Europe and Asia. A global financial transaction tax is the most ambitious and encompassing model, as it is fair and equitable, and imposes most effect on speculative capital market players; those that increasingly monopolise the markets in the United States and United Kingdom. A global financial transaction tax on capital inflows and outflows from Australia, the sixth largest global trader, could bring AU$6 billion in revenues28.

Recently the former chief of the International Monetary Fund and now Professor of the Sloan School of Management at the Massachusetts Institute of Technology, Professor Simon Johnson, likened the hold of the “financial oligarchy”, over US policy, with that of business elites in developing countries including Russia. Other commentators agree. Certainly, the mix of capital elites and policymakers is starkly evident in Washington, and in Europe where high profile entities with links to high finance have been chosen, not elected, to power. Professor Johnson argues that the weight of the US financial sector, on government, is preventing a resolution of the current crisis saying29 :

In its depth and suddenness, the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets. The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe. But there’s a deeper and more disturbing similarity: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. Moreover, the great wealth that the financial sector created and concentrated gave bankers enormous political weight.

Johnson suggests that the GFC has unearthed many unpleasant truths about the United States and foremost amongst these is that the financial industry has effectively “captured the government”, a state of affairs that more typically describes emerging markets and is at the centre of many emerging market crises and, further, that “recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true recession we are running out of time.”

These views would be challenged by governments in power at the time of considerable growth in financial leverage and technological capacity.

Governments in the United States, United Kingdom, Greece, Italy, Ireland, Spain and Australia, have all been a part of the momentous cycle of financial infusion and cross-border flows of capital over this decade. Each country (apart from the resources-driven and China-focused Australian economy) is suffering a severe downturn that is savagely effecting employment, exports, consumer, and housing markets. Most nation states, developed and developing are undergoing considerable realignment in the face of the crises that have swept aside modern convention and changed global outlooks substantially, perhaps forever.

The realignment is integrated further in the dynamic of developing nations versus the failure of developed nations to absorb the mismanagement of mountains of debt accumulation, particularly over the past decade (2001–2011).

Further, Simon Johnson provides a summary in this end game scenario in The Atlantic:

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

There has recently been a social resurgence and urgency of world leaders seeking global economic and social reform. A global hedge fund research organisation issued results of a survey of member funds that predicted another severe financial meltdown would occur within five years if financial market players continue efforts to avoid any form of regulation.
Further financial dysfunction and social disruption has emerged in Greece, which has implications for the European Union (EU) and particularly debt-laden Spain, Ireland, Italy, and the United Kingdom. The tenuous nature of slow recovery from the GFC has been further heightened by the nature of dealings between European states and Wall Street over the past decade. Revelations of how Wall Street entity Goldman Sachs helped to mask problems with the debt-fuelled Greek and Italian economies has led economists and commentators to forecast a decade of further economic and social unrest caused by the seemingly terminal nature of debt suffocation across European economies.

An example of close political and corporate dealings is the relationship of ex-Goldman Sachs executive, ex-Italian Prime Minister Mario Monti, who oversaw Italian reform in 2011 (known as ‘Salva Italia”)30. Monti had supported the growing push for a European FTT being championed by French President Hollande and Germanys’ Chancellor Angela Merkel.
The European Central Bank President, Mario Draghi, was Goldman Sachs International’s vice-chairman for Europe between 2002 and 2005, a position that put him in charge of the “companies and sovereign” department which, shortly before his arrival, helped Greece to disguise the real nature of its books with a swap on its sovereign debt31.

Mario Monti was an international adviser to Goldman Sachs from 2005 until his nomination to lead the Italian government. According to the bank, his mission was to provide “advice on European business and major public policy initiatives worldwide”. As such, he was a “door opener” with a brief to defend Goldman’s interest in the corridors of power in Europe32.

Lucas Papademos was the governor of the Greek Central Bank from 1994 to 2002. In this capacity, he played a role that has yet to be elucidated in the operation to mask debt on his country’s books, perpetrated with assistance from Goldman Sachs. In addition, perhaps more importantly, the current chair of Greece’s Public Debt Management Agency, Petros Christodoulou, also worked as a trader for the bank in London.

Effectively, the rescue efforts of governments in the immediate past (2008–2012) have been to transfer private corporate debt to the government balance sheet, thus adding additional burdens on the states’ social and economic responsibilities. Taxpayers and citizens who rely on state support systems will see social supports and services wound back, in austerity measures that will not hurt elites with capital secreted in tax havens which add US$ 1.2 trillion each year to the existing accumulated US$ 21 trillion that is secreted in global tax havens and shelters . By contrast Australia loses over AU$20 billion to offshore tax shelters each year33.

The International Monetary fund (IMF) reports34 that G20 nations now owed a combined debt of $US 30 trillion. Economic commentator Associate Professor Steve Keen of the University of Western Sydney forecasts at least a decade of economic and social turmoil caused by an emerging contagion of debt problems across Europe and the possibility that Greece’s problems will spread to the wider global economy. In shades of the sub-prime deals and sophisticated economic architecture to conceal bad debts inherent in collateral debt obligations, financial derivatives are playing a strong role in the Greek issues. In dozens of deals across the Continent over the past decade, US banks have provided “off-the-balance sheet cash to countries in return for payments in the future. In the case of Greece, that cash return comes from traded away rights to the banks to accept airport fees and returns from the Greek national lottery35.

True reform to recalibrate global economies and ameliorate the deep social losses from speculative financial market players will be hard won, against a very highly resourced capital market based opposition, and it will take time. A financial transaction tax is the first step in making markets accountable and resourcing public accounts.

A further argument would then materialise in respect to how a resource from either a FTT or another form of macro taxation reform, could be used to best effect in the processes required to re-stimulate consumer spending into the economy.

In this regard Lord Adair Turner has proposed a form of Overt Monetary Finance (OMF) which could have the specific purpose of off-setting company tax to regenerate employment, provide manufacturers with an incentive to produce goods, and underpin a stimulus in consumer growth. This OMF option would be in direct contrast to the continuing injection of quantitative easing funding into the highly speculative, secretive and exclusive top-end capital markets that have never had richer picking at the expense of civil society. Economies urgently need a renewed balance. Elected representatives have the mandate to respond.

Conclusion.

Decades of unprecedented financial liberalisation have rendered a new global fragility built upon credit accumulation. Despite the severity of financial loss and social dislocation from the 2007 Global Financial Crisis and the past eight years of The Great Recession, governments have been, seemingly, unable to deal effectively with fragile finance. Calls for financial market reforms to regain the ground, and capital, lost by taxpayer funded bailouts the socialisation of debt has been absorbed, and remains as government debt. A FTT in the United States could introduce US$350 billion to depleted government accounts. Reforms and governments initiatives globally could ameliorate losses and give capital markets some credibility.

Refs

1Tax Havens. How globalisation really works. Palan, Ronen, Richard Murphy, and Christian Chavagneu.Cornell University Press. 2010.
2The Guardian Newspaper 6 November 2013. “China prepares to liberalise finance as hedge funds and estate agents salivate” available at http://www.theguardian.com/business/economics-blog/2013/nov/03/china-liberalise
3“Derivatives 2012.”TheCityUK. November 2012. (www.TheCityUK.com)
4“US 21 Trillion hidden in tax havens” Tax Justice Network –McKinsey Consultants. ABC News 23 July 2012
5Public sector finance transferred to cover private sector debts during recent phases of financial crises.
6Hugo Banzinger. “Did the Globalisation of Finance Undermine Financial Stability? Lessons in Economic Stability.” London School of Economics Financial Markets Group Paper Series. Special Paper 211. June 2012.
7Standard and Poor’s. “The Credit Overhang: Is a $46 Trillion Perfect Storm Brewing?” 10 May 2012.
(www.cpfinancial.net/…/the-credit-overhang-is-a-perfect-storm)
8Antony Beevor. “Beevor’s Europe crumbles.” Quoted in Review. The Australian Financial Review. 15 June 2012. (review@fairfax.com.au)
9“EU Parliament votes for financial transaction tax.” KPMG. (www.kpmg.com/…/taxandlegalnewsflashes/)
10Spiegel Online International. Banking and Finance. “Eleven EU Countries Agree on Transaction Tax.” 10 September 2012.
11John Williamson. “What Washington Means by Policy Reform”. In “Latin American Readjustment: How Much has Happened” Institute for International Economics 1989. The concept and the name “Washington Consensus” originated in 1989 through John Williamson, an economist from the Institute for International Economics, an international economic think tank based in Washington D.C. Williamson used the term to shared economic policy themes amongst Washington based institutions at the time (including the International Monetary Fund, World Bank, and U.S. Treasury Department.
12Niall Ferguson. 2011. Civilisation: The West and the Rest. Amazon Press. 2011.
13Investors borrowing at low interest rates (in low rate states including Japan and the United States) and lending long to businesses and ultimately consumers in countries where interest rates are comparatively high (Australia and European countries). “Carry Trade” finance has been a dominant form of credit distribution in developed nation states.
14Bryan J. North and Rajdeep Sengupta. “Is Shadow Banking really banking?” The Regional Economist. October 2011. (The term “shadow banking” has been attributed to remarks by economist and money manager Paul McCulley to describe a large segment of financial intermediation that is routed outside the balance sheets of regulated commercial banks and other depository institutions. Shadow banks are defined as financial intermediaries that conduct functions of banking “without access to central bank liquidity or public sector credit guarantees.” The size of the shadow banking sector was close to $20 trillion at its peak and shrank to about $15 trillion last year, making it at least as big as, if not bigger than, the traditional banking system).
15Bank for International Settlements. 2011.
16Bank for International Settlements. Available at http://www.bis.org/publ/
17http://www.informationweek.com/wall-streets-quest-to-process-dat-at-th/1992002978
19http://www.wired.com/business/2012/08/ff_wallstreet_trading/all/
20Raging Bulls: How Wall Street Got Addicted to Light-Speed Trading. Jerry Adler 08.03.12

21Tax Havens:How Globalisation Really Works. As above
22The CityUK London Employment Survey. Global Economics Report October 2013.
23David Rhodes and Daniel Stelter. “Collateral Damage: What Next? Where Next. What to expect and how to Prepare.” The Boston Consulting Group. January 2012
24Tom Streithorst. “Debt is Good.” Prospect Magazine. 3 February 2012.
25“Shadow Banking: A European Perspective.” Conference Description narrative. City University. London.
26British Bankers Association “Calculating Interest” 17 July 2012.
27European Parliament Press Release. Financial Transaction Tax: Anni Podimata welcomes plan to press ahead. 26 October 2012.
28For background access (http://eprints.utas.edu.au/1034/
29Simon Johnson. “The Quiet Coup.” The Atlantic Online. May 2009.
http://www.theaatlantic.com
30“Financial Transaction Reporting Intensifies Italian Tax Compliance Drive” Tax-News. Global Tax News 5 November 2013. Available at http://www.tax-news.com/news/Financial_Transaction_Reporting
31Colleen Barry. “Monti backs French and German push for FTT.” Associated Press. 11 January 2012
32“Our Friends from Goldman Sachs.” Le Monde Diplomatique, Paris. 16 November 2011
33John Christensen. The Tax Justice Network. “The fight against tax havens, avoidance and evasion”. Australian Broadcasting Commission. 23 November 2011.
34Rick Wallace. International Monetary Fund Report. “Economists Differ on effect of Greek Troubles: Recovery to survive debt crisis.” The Australian Newspaper. 13-14 February 2010.
35“Wall Street Helped to mask Debt Fuelling Europe’s Crisis.” The New York Times. 14 February 2010.

*http://en.wikipedia.org/wiki/Renminbi

*A draft of this article was first published last Monday, November 11.

• Jack, in Comments: Arguing for the puritanical application of an ideal model of what free markets and capitalism could be begs a couple of questions. For just where has it ever delivered the ideal and is it actually capable of doing so? Politics and governance have become the play things of corporations in the name of the free market. This is because the intrusion of capitalism and its influence into the political class is inevitable. Wealth, power and influence will eventually buy up politics for profit as an extension of the free market and capitalist ideology. Many conservatives see nothing wrong with that at all. Most welcome it. Privatisation of public assets is the proof of the ideological pudding. The exchange of politicians between corporations and government another key indicator. Here is the irony. Once the small business you champion becomes the middle sized business and eventually the corporate titan, political intrusion and influence will increasingly be on the agenda. Businesses will be bailed out, loss socialised and the wealthy protected because of self interest. At its heart is respect for the wealth as a greater virtue than morality or even self preservation. Free markets are a free for all for those free of the burden that we live in a community, not an economy.

• davies, in Comments: A very interesting and civil debate …

John Lawrence, Tasfintalk in Comments: It needs to be remembered that the above discussion is only of relevance to a sovereign state with taxing powers and control over its own currency. To try and extend the argument(s) to cover Tasmanian politicians and institutions is a non-sequitur. The Austrian view of the world has been around for almost a hundred years and has a logical consistency. It essentially believes in little or no government intervention. But it does require a lot of faith to accept that, to paraphrase Keynes, the most unscrupulous of men will behave in such a way that will promote the greatest good for us all. Like most people, I am not convinced that governments cannot be structured to provide goods and services to benefit us all and which would not otherwise be supplied by the market. In fact without elaborate constructs of which governments are but one, society would be much poorer. The fact that most governments do infringe on our personal liberties should not be advanced as a reason for their abolition.