Welcome to Low Tax Ireland

Downing Street will not be best pleased that Twitter has chosen Dublin not London as its European base. Dave and Boris invested in a joint Twitter charm offensive, with No. 10 briefing the Telegraph: “All that matters is that they come to London.”  They didn’t and Ireland’s business Minister Richard Bruton says it “is a massive win and shows there is real ground for Ireland’s claim to be the internet capital of Europe”.

Twitter joins Google, Facebook, Microsoft, Linked-In, Zynga, PayPal, eBay, AOL and Yahoo in Dublin, where the internet hub is generating thousands of high-tech jobs of the future. Can you blame them? Lower corporation tax rates and lower personal tax rates made it an easy decision for Ali Rowghani, the chief financial officer of Twitter. The UK has to become more tax competitive if it wants to attract geographically mobile internet firms.

Fiscally Ireland is doing what has to be done, an expansionary fiscal contraction is well on its way, GDP growth is well above the €urozone average, there is a healthy trade surplus. If the Irish political elite would steel themselves to exit the €uro, implement a controlled default on the bank debts and re-introduce an Irish punt pegged loosely against a basket of $, £ and €, the country would be free to thrive again. With UK banks holding £133 billion of Irish debt (equal to 6% of UK GDP), much of which is secured against London property, Britain’s fate is far more closely tied up with Ireland than Greece. The €uro as we know it is doomed, it is in Britain’s interest to focus on its trading near neighbour and leave Greece to Germany.

IMF Wants More

Back in July the government won a vote to send £9 billion to the IMF by just 28 votes, the tightest margin yet for the Coalition government. Despite the best efforts of the whips some thirty-two Tory MPs rebelled against the government.

Osborne’s former bag carrier Matthew Hancock thinks this was a bad thing, others (including Ed Balls, Guido and John Redwood) think they voted in the national interest. We were told at the time that this was not like £9 billion transfer which we would never see again, it was a “contingent liability” and the IMF has never failed to repay such borrowings. The IMF has never faced a financial crisis on this scale before, the US is in no position to be the leading lender of last resort if the Euro shatters the IMF.

Christine Lagarde of the IMF is now briefing that the IMF needs more funds to deal with the worst case scenario.

Osborne and the Treasury spin that if Britain wants to sit at the top table the taxpayers have to cough up to the IMF. Isn’t it time to let other people sit at the top table. Brazil, China and India should get a better seat. The menu doesn’t look that appealing and is overpriced.

Goldbugs v FT

For years the FT has portrayed investing in gold as akin to flat-earthism, Alan Beattie at the FT is perhaps the most prominent, if not sole, media supporter of Gordon Brown’s sell-off of gold a decade ago. Guido has long lamented the FT’s tendency to follow the latest intellectual fashions and it is no surprise the FT approved of the Balls/Brown sell-off of gold reserves. It was the newspaper that was the biggest cheerleader for the euro and all things EU, of which it is less effusive about nowadays. The FT’s comment pages are full of wishy-washy, centrist, establishment, hand-wringing of the limousine liberal kind – no surprise given they are overseen by a former editor of Prospect, the monthly journal of wishy-washy limousine liberals. FT readers from the City who don’t simmer with self-loathing know it is best to skip the comment pages and read the market reports and the surprisingly good arts pages.

So how would you have done if you had invested in the stock market instead of gold? Take a look at the charts below, gold out performed the stock market by 17% last month, that is not relative out performance, that is gold was up 12% and the stock market was down 5%. Over the year gold is up some 40%, over 5 years and 10 years gold is more than 100% ahead of stocks.

Stocks of course pay dividends but likewise gold can be leased out to short sellers for an income. Alan Beattie insists gold is speculative, Guido would say, on the contrary, it is an insurance against a collapse of paper assets. So far Guido has been right for a decade and Beattie has been wrong. He now reckons the gold bubble is really about to pop this time. Guido reckons the West’s government debt crisis is about to take off big time and would rather own hard assets like gold and farmland than paper assets. You pays your money and you takes your choice.

UPDATE: Alan Beattie tweets to complain that he never recommended stocks as an alternative to gold, above amended accordingly. Nevertheless gold is up nearly 600% since the Balls/Brown sell-off, which he supported. Beattie is emphasising that his injunctions against gold purchases applied to central banks not investors. But not the central banks of India and China apparently…

UK Now Safer Haven than Germany

Over at the “evidence based” LeftFootFoward blog they have an opinion piece claiming “Osborne’s ‘safe haven’ view is delusional”. Let’s examine the evidence, starting with Sovereign Credit Default Swap rates:

Exhibit A

CDS rates reflect the cost of insuring against the risk of default. UK gilts have got their edge back, German government bunds are now seen by international markets as a higher risk than British gilts. So Osborne is right to claim that Britain is seen as a safe haven, with the resultant benefit of lower cost long term borrowing. Guido’s second piece of evidence is the disparity between German and UK government borrowing rates:

Exhibit B

German 5-year borrowing rate: 1.41%

UK 5-year borrowing rate: 1.29%

UK rates are lower, though not as low as that other traditional European safe haven, Switzerland, where interest rates have turned negative. This means that effectively you have to pay the bank to deposit Swiss francs. Below are last night’s closing money market rates for Swiss LIBOR futures, usually quoted as 100 minus the rate, they are now confusingly trading above 100 meaning that money market rates are now negative. Not something Guido has ever seen before…


Elsewhere in Europe the banking system teeters on the edge of disaster. Anecdotally there are tales of Italians driving their Alfa Romeos across the border to convert their paper euros into hard currency in Switzerland. To paraphrase Sarah Palin: How is that monetary unity thing working out for europhiles?

Nouriel Roubini tells the FT…

“Until last year policymakers could always produce a new rabbit from their hat to trigger asset reflation and economic recovery. Zero policy rates, QE1, QE2, credit easing, fiscal stimulus, ring-fencing, liquidity provision to the tune of trillions of dollars and bailing out banks and financial institutions – all have been tried. But now we have run out of rabbits to reveal.”

Only Believe in Gold

The inevitable is now in process, policy makers are not going to be able to avert inflation and economic retrenchment, markets are starting to recognise reality. The credit of the United States has been downgraded, the euro is in a death spiral, nations teeter on the brink of bankruptcy. Power and wealth are shifting eastwards on a tectonic scale. Ever since the 2008 credit crisis and the doomed attempt by central bankers to solve the underlying debt crisis with more debt and inflation. All predictable, in the case of the euro almost every eurosceptic from John Redwood to Nigel Farage predicted it down to even the exact catalyst – Greece – a decade ago.

Step forward Andrew, Lilico formerly at Policy Exchange, who is equally as pessimistic as Guido, as long ago as 2009 he predicted a double dip with“double digit inflation and probably a recession in 2013 – stagflation.”

At the same time Guido argued that

Mervyn King even talks about the threat from deflation – Guido sees that merely as an excuse to justify printing even more money via quantitative easing (QE). QE means inflation is inevitable. 

Get your wheelbarrows out, stock up on gold and baked beans. If you can, buy a productive asset, like farm land – it is an inflation hedge and you won’t go hungry. 

Here comes inflation – as it always does when governments turn on the printing presses…

Guido wrote in 2008

“holding gold will be insurance as much as an investment. If you have apocalyptic fears, holding physical gold coins is reassuring.

In 2009 Guido marked the

“symbolic of the end of the twentieth century Anglo-American dominance of the world” with “the purchase by the Indian Central Bank of  200 tonnes of gold from the IMF.  The Indian Central Bank paid an average of $1040 per ounce.”

Mr & Mrs David & Maureen Somers must be doing pretty well now.

Told you so…

See also : The Bank of England’s Great Inflation SwindleComing Soon : Double Digit InflationDouble Digit Inflation is a Black SwanBank of England Pension Fund Surges Betting on InflationYo Dude, Where’s the Deflation?UK Dec CPI Posts Largest Jump On Record to 2.9%Growing Unease About Old Lady’s SecrecySomething Odd in the Banking Bill

Mirror, Mirror on the Fall

As speculation matures into full-blown witness statements and accusations, Trinity Mirror have called in the law firm Herbert Smith and launched an investigation into phone-hacking across its titles. Until now there have been only present tense denials of such actions.

One shareholder told the FT they expected “nothing less” than an investigation, but it hasn’t come in time to stop the company’s share price going into free fall, with a 9.8% plummet on Monday since Guido, swiftly followed by the BBC, and grudgingly some other papers, began lifting the lid. He’s not sure a mere review is going to do much to reassure investors…

+++ Labour Votes No To £9.5 Billion to IMF Bailout Fund +++

A few moments ago in Committee Room 14 at the usually staid Statutory Instruments Committee, Labour members voted in the national interest.  Government whips got it through 10/6. Something very rare happened in what is usually the dullest of committees. A dozen or so Tory non-members of the committee came and spoke against affirming the instrument. Government whips cajoled the pliant Tory and LibDem members of the committee to vote to affirm the instrument while Tory MPs spoke from the floor against it. Promising new boy Steve Baker and backbench eurosceptic Douglas Carswell were among those who spoke against affirming the instrument. If Guido’s grasp of arcane parliamentary procedure is correct this will now have to go to a silent vote of the whole house without a debate.

Cross-Party Rejection of IMF Increase

As Guido mentioned yesterday, the Statutory Instruments Committee meets today to debate the £9.5 billion the government proposes to export to the IMF en route to Greece and probably the ECB. He hears it is a lively debate and that […]

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IMF Bailout Billions to be Debated

Tomorrow morning the Statutory Instruments Committee in Committee Room 14 of the Commons will consider for 90 minutes the extra £9.5 billion the government proposes to export to the IMF en route to Greece and probably the ECB. That is […]

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Inflation Outlook: Lindsay Lohan on Monetary Policy


Monetary policy arguments can sometimes seem other-worldly, the modern equivalent of the medieval intellectual battle over how many angels can dance on the head of a pinhead? Guido (neo-Hayekian) has been rowing with Will Straw (neo-Keynesian) for years – our […]

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Ed Balls Take Note, Obama’s Keynesian Stimulus Has Failed

It seems a long time ago that Will Straw, the former Treasury spin doctor under Gordon Brown now turned blogger and think-tanker, was arguing about the need for the Balls/Brown tax, borrow and spend stimulus plan. The voters and the […]

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