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lowrentyieldmakessense(honest!)

The Last Paper Bubble To Pop

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False assumptions in correlation are prevalent as it pertains to sovereign debt. Somehow we believe the problems in Europe will not find their way to us. Unfortunately, we are experiencing a global sovereign debt crisis. Every single Western government is in debt up to their eyeballs. All bankrupt nations have lent money to each other in a complicated web that can be addressed only through default. Therefore, in the long run, all sovereign debts are correlated.

Failure to Predict Second and Third Order Effects

Perhaps the tendency that underlies policy mistake after policy mistake is the failure to think beyond first order effects. Politicians are especially adept at thinking at a linear level. Let me give you an example.

Imagine you are the governor of California and your state is bankrupt (doesn't take much imagination). Say you want to raise your revenue by $100 million dollars. The easy solution is to tax the arbitrarily defined "rich." Suppose your definition of "rich" is anyone with an income of over $1 million. Assume that the revenue derived from this demographic at current tax rates is $50 million. Simple arithmetic will dictate that you double your tax rate and your problems are solved.

Perhaps people don't believe this could possibly be the fantasy world our politicians live in. But this is essentially what the state of Maryland did. Millionaires promptly went "missing."

Our leaders fail to see potential second and third order effects of debt monetization; the subsidizing of the auto, housing, and financial industry; and the ad hoc disregard of the rule of law. If these trends continue, I am 100% sure capital will flee America. We need to start thinking beyond propping up failed corporations and running up our national debt; this course is unsustainable.

IT ALREADY HAS/IS

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But this is essentially what the state of Maryland did. Millionaires promptly went "missing."

IT ALREADY HAS/IS

Second order effect would be that Maryland millionaires quickly dispose of their real estate to escape taxes, and MD top-end property prices took a sizeable dip dragging mid-range and low-end properties with them too.

I can only applause such 2nd order effects even if unintentional.

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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