Putin Front Runs QE, Proposes Taxing Investment Outflows
Putin Front Runs QE, Proposes Taxing Investment Outflows Author: Tom Luongo for Gold, Goats and Guns
Russia is going to be a destination for safe-haven flows in the post-COVID-19 world. It will be due to its vast savings, prudent fiscal policy and maneuver room available in monetary policy.
The biggest reason, however, for why I think Russia looks attractive to foreign investors is simply because of its political stability. Putin deftly proposed to devolve power out of the presidency and reorganize both his cabinet and the current government before the outbreak.
And while the final vote on these changes has been delayed because of COVID-19 they will very likely pass without incident when the worst of the crisis in Russia is over.
The same cannot be said for Russia’s neighbors in Europe, where the response has been both heavy-handed and inadequate to stem the tide against the virus.
And given the extreme fragility of the European banking system the response on the financial side both fiscally and through monetary policy will destroy what little confidence exists there.
When no less than former ECB President Mario Draghi is writing in the Financial Times to justify dropping the fiduciary equivalent of a nuclear bomb on Europe, you know things are desperate.
You only bring out the big guns when things are ready for substantive change.
Read Draghi’s words carefully and you’ll notice the only time he references the past is to justify, what else, war spending. There is no other way to fight this fight.
We must print all the money in the world and destroy the futures of our grand children in order to save ourselves today. It’s typical apocalyptic rhetoric from someone who was the architect of the current system’s fragility in the first place.
Draghi actively destroyed not only real capital and real wealth with negative interest rates he destroyed the sovereign debt market in Europe by buying up whole swaths of it.
Christine Lagarde came in this morning to continue Draghi’s work, pushing down European bond yields after the U.S. Senate approved the biggest stimulus package in our history.
And into this mess Russia will also be spending money. Most of this was money already earmarked for this year. Putin is no Austro-libertarian or anything. There’s going to be stimulus in Russia.
And that’s why, at the same time, he’s looking to shore up Russia’s tax reciepts by shifting some of the tax burden to those looking to take advantage of what are now very high real rates of return on Russian capital.
Putin is putting a 15% tax (or tariff) on dividends paid to foreign entities as a way to front run the influx of capital fleeing the destruction that’s happening around Russia.