Once investors begin to doubt the real return available on sovereign liabilities, the speed with which they can respond becomes important. Modern financial wealth can be reallocated almost instantaneously. An investor dissatisfied with cash or government bonds can move into foreign equities, commodities, gold, property funds or another currency without waiting for wages, consumer prices or conventional money velocity to adjust. Monetary distrust can therefore appear first as a portfolio movement rather than as an immediate surge in spending on goods. This makes attempts to suppress sovereign yields potentially less stable. The wider the gap between the return investors believe they require and the return governments are willing to permit, the stronger the incentive to move elsewhere. In earlier periods, geographical, institutional and technological frictions slowed that process. Today, capital can react to a deterioration in expected real returns within seconds.
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Samizdata quote of the day – Capital Flight & Financial RepressionOctober 6th, 2026 |
 2 comments to Samizdata quote of the day – Capital Flight & Financial RepressionLeave a Reply |
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…and that’s a good thing, because if…sorry WHEN Andy Boredom tries a massive pre-election bribe funded by post-election taxes that he knows has to happen but also knows would stop him getting re-elected, the markets can rapidly hammer the government to make them think this is not a good idea before they even move the writ.
I suspect that’s part of the reason that Andy bottled it recently and dismissed calls for a general election to shaft the workers on behalf of the shirkers.
No point going to all that bother just to lose your majority. Having a mandate is useful, but there are limits to the price politicians are prepared to pay, precisely because of the very timely response of the markets.
When the socialists took over the once great American city of Milwaukee (and it was once a great city) then said to industrialists “what are you going to do – pack up your factory in a suitcase and take it with you?” – well over time most (although not all) of the factories did close (although the Democrats are at least as much to blame for that as the official Socialists) – but it took a long time, decades.
With financial services it is much quicker – there is no factory, there is just an an office (or even, perhaps, working from home), that can (in the computer age) operate just as well from Monaco as from London, from Miami as from New York City.
So higher taxes and more regulations – can be answered (answered by leaving) much more quickly. The City of London – or at least that part of the City of London that is not just the disguised welfare payments of the Bank of England – is going to go (not at once – but over time), you can run insurance companies, or metal exachanges (and so on) from other places. And New York City is actually worse than London – it is insane for “Wall Street” companies to remain there, and, eventually, even they will come to understand that (it is not 1913 – you do have to be in physical walking distance of everyone in the financial industry).
The British government is also pushing internet regulations – using the “it is to protect the children from porn” excuse – the government could not give a damn about children seeing porn, or being raped for that matter (as the unelected government has shown for many years in relation to the Islamic rape gangs in Britain), what they care about is children (and adults) not seeing and hearing political-dissent – and they are using “protect the children from porn” as a cover for the desire to crush political-dissent.
The problem with this “Cunning Plan” is that internet companies will move out of Britain – we have been told that farming, mining and manufacturing “does not matter” because the future is going to be “financial services – and the internet” – but both of these things are going to leave Britain, try running a financial services company in London when the government introduce their “Great Wall of Britain” firewall to keep out things they do not like on the internet. China can do this because China depends on manufacturing (not financial services and the internet) – but British manufacturing is a busted flush.
As for wild government borrowing……
The socialists of Milwaukee had to be relatively fiscally prudent – not because they wanted to be, but because lenders were wary of doing business with them – which meant that (ironcally) Milwaukee under the Socialist Party had a relatively low debt – it is the modern Democrats who have crippled the place with debt.
The British socialists (of all parties) do not need to worry about that – as they have the Bank of England and so can pile up as much debt as they like.
Although this does mean that the British Pound will end up being utterly worthless.