Economy

Corona solos, forced mortgage: torture chamber of financial repression

It has not been easy for savers in Germany and elsewhere for a good ten years. His best, most loyal friend has run away: the interest. This loss of pain is called an “investment crisis”. The a The question that millions have been asking themselves since the Great Financial Crisis is: where should the money go? Although there would have been lucrative alternative investments in the past decade, many investors would not have been so sluggish and resistant to advice. Shares, real estate, precious metal – when interest rates fizzled out, all of this rose in value quickly, at least until the corona crisis escalated two months ago.

A roughly simplified rough calculation makes it clear, however, how dramatically the situation has changed in just one generation for all those who, on the advice of the government, try to close their “pension gap”.

who thirty years ago had a million marks on the high edge, had taken care of things. With an assumed interest rate of six percent, the monthly income was 5,000 marks (before taxes and inflation). With such an income you could not serve vintage champagne for breakfast every day, but you could live decently. You had your livelihood, you could have a car, go on vacation, and now and then you could chatter.

who today one million euros (almost double) has to come to terms with a different reality of life. If he’s lucky and can use 0.001 percent of a call money account, he’ll receive ten euros in interest for his new year’s eve. For the whole year. And of course also before capital gains taxes, solidarity surcharge, possibly church tax and inflation (currently 1.4 percent). The most Swabian of all housewives should be challenged to support their loved ones for a year.

Financial repression is when politics and the central bank purposefully expropriate citizens

It hurts. But the only thing is zero interest a Example of so-called financial repression, redistribution on a large scale by the state, when politicians or central banks deliberately expropriate citizens. You do this as subtly and inconspicuously as possible. As far as possible so that savers cannot defend themselves or even flee. Because whoever escapes – evades the control of the tax authorities, i.e. emigrates – is no longer available for painful financial procedures of all kinds.

Anyone who feels “investment need” today because of their mini interest should pause. “Need” is a relative term, and the catalog of financial repression has something else in store for it besides falling interest rates. All old school, by the way, not reinventions of ingenious, insane culprits in politics and high finance. Such measures could soon drive some traditional savers with a penchant for “safe” investments such as overnight money or concrete gold into despair. Because states need money during and after the corona crisis. Much Money. Beyond the classic, downright boring means of tax increases across the board, there is a lot that could come.

The idea of Property levy was already warmed up by Saskia Esken, when some people thought of Corona about beer or smoke cigar. Esken, formerly the state parents’ council in Baden-Württemberg, has been co-leader of one of the traditional German parties, the SPD, which is currently co-governing the state, for almost five months. The question of how brightly the candle of economic knowledge burns at Esken could be discussed controversially, what we want to save here for the sake of space. The point here is different. The Esken religious community evidently acquired its economic expertise in Duckburg. It seems to cling to the idea that “assets” like in Dagobert Duck’s money store are lying around in sacks from which the state can easily pick up a few handfuls; is still enough afterwards. Duckburg, you might have to remind, is fabulously cute, but not real.

A typical German large fortune is not lying around in accounts, but is in companies

In the real world there is money and wealth Not physically in bags (or digitally on accounts). A typical German large fortune can be found in companies rather than equity. It should bring returns in good times, of course, and secure the company in bad times, that’s part of it. It’s not liquid like the giant billionaires in comics. And this fortune is melting like ice in the sun in the wake of the Corona crisis. In many companies, equity dissipates just as interest did for savers. So a levy on overcoming the economic crisis?

Difficult. Which hardly changes the fact that a property levy is likely to come in some form. If taxes are to be paid by a minority (“the rich”), in a democracy they are usually waved through by the majority (the voters and the parties that campaign for them). One would wish that someone important would classify such orgies of property sales. After all, Chancellor Angela Merkel already knew in 2012 that one had to be careful “that the rich don’t all go elsewhere, but that a few rich people still live with us” (“Handelsblatt”). However, she is also the one who likes to argue with “no alternative” when necessary. Let’s wait and see.

The interest is gone, but the saver has another loyal companion – the Soli

The saver’s old friend, interest, is gone. But he has had another loyal companion for a long time, the Solidarity surcharge. The “Soli”, de facto a tax surcharge, was introduced in 1991 by Merkel’s predecessor in office, Helmut Kohl, to finance German unification and other major projects, initially limited to one year. Three decades later, in 2021, according to the coalition agreement, it should finally be deleted. However, the complete deletion has been deleted, and the solos continue for “higher earners”.

Bavaria’s Prime Minister Markus Söder recently introduced an immediate and complete end to the solos to stimulate the economic misery in the debate. An interesting objection, but presumably not capable of reaching a consensus. It is more likely that the solos will last forever and possibly elevated becomes. Of course, that would require a bit of marketing, a skillful sprucing up of the nomenclature. A “Corona solos“Was already wafting through the media; an obvious suggestion, though, well, sounding kind of sick. More promising would be smart political labels like “Europe solos“Or”Justice solos“, Which should be well received by some voters – because who would dare not to show solidarity with” Europe “, to find the beautiful word” justice “vague !? That this is a permanent tax hike? No matter. At this point one has to recall a bon mot from the American Milton Friedman, one of the great economists of the 20th century: “Nothing is as permanent as a temporary government program.”

Forced mortgages would really put money into the treasury

Incidentally, when it comes to tracking down gushing sources of funding, representatives of the people are blessed with genius and terriery. A government in need of fresh funds ideally looks for an object of taxation that is firstly substantial, secondly cannot flee, and thirdly is already properly recorded somewhere. In short: the property in the country.

Real money would flow into the state coffers if the idea of Forced mortgage Celebrate resurrection. A compulsory mortgage is an extra debt entered in the land register, an additional tax on property ownership (and therefore also a property levy). Since a large part of the Germans’ belongings are in their own homes, that would be lucrative and, politically opportune, it would primarily affect the relatively “rich” – those who have their own four walls.

At a Forced loan in turn, another instrument of financial repression, the state forces its citizens to lend it money to cope with an extraordinary crisis – typically on unsavory terms.

Gold and other precious metals, famous as a “safe haven” in times of need, are also not safe from the financial torture of the state. So far, when buying physical gold (investment coins, bars) none has been paid value added tax on – unlike silver, platinum, palladium, for example. The increase in value is in turn for everyone who has owned their investment metal for at least a year Capital gains tax freed. Both could be changed quickly, but would be comparatively harmless. More drastic – and considerably more painful for security-oriented investors – would be one Prohibition of private ownership of gold. They would then have to surrender their precious metal in exchange for payment of compensation, usually a less tempting one.

Some people will object at this point: ‘Nonsense, all of this is unthinkable in Germany, it would be a massive encroachment on fundamental and property rights!’ Therefore it is far from impossible. On the one hand, we (and other democracies) have seen in the past weeks of exit and contact restrictions how vulnerable fundamental rights can be. On the other hand, a look at the history books is helpful:

Compulsory mortgages ordained (West) Germany a. a. in the early phase of the Federal Republic. She was an element of the Load balancing the post-war period.

• On Forced loans continued the Weimar Republic in the early 1920s. Since the hyperinflation of the time made the bonds worthless in a short time, it was de facto an expropriation.

• The hyperinflation also led to a in Germany Gold ban – as well as a ban on silver, platinum and even foreign currency. Fundamental rights enshrined in the Weimar constitution (protection of property, inviolability of the home, confidentiality of letters …) were suddenly more of a theoretical nature. Overall, private gold ownership in Germany (East and West) was illegal for three decades in the 20th century. There were also gold bans in phases u. a. in the USA, France, Great Britain, India and in many totalitarian states.

Anyone who complains about an “investment crisis” in view of their zero or negative interest rates today has to put up with the accusation of a certain crying indignation. In the larger order of things, what financial repression we’ve seen so far has been a tea party. Once the corona pandemic is over and the costs of the current global economic crisis come into focus, the question will be who is financing countless company failures, unemployment and the unprecedented rescue measures by politicians and the central bank. To put it biblically, it will be howling and chattering teeth. Zero interest rates will have been the saver’s least of all problems.

Michael Braun Alexander is one of the most prominent financial journalists in Germany. He has been writing about the stock market and economics since 1995, a. a. as a correspondent in Mumbai and New York and as a columnist for Bild am Sonntag, and has published numerous books on investing (“When money dies”, “So goes gold”, “Really rich”).

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