“The difficulty lies not so much in developing new ideas as in escaping from old ones” Keynes

The minutes from the last month’s meeting of the Federal Reserves reaffirmed their commitment to supportive monetary stimulus. It almost feels strange they are so cautious in the face of the optimism the world shares for the outlook for the US and global economy overall. Alongside the threat of rising prices, one would understand if the tone had become even the slightest bit hawkish. What is even more surprising is the reaction from the bond market. The yield curve has actually flattened in the past week as longer-dated yields have fallen. Possibly less surprisingly the US dollar has weakened in the past seven days.

The IMF have met this week, on the plus side they have become more optimistic for the outlook for the global economy, increasing their forecast for economic growth this year to 6% and for 4.4% in 2022. What is much more concerning is this idea that global leaders, as a result of Janet Yellen’s call for a unified corporation tax floor, could look at this and other ways to tax the recovery in a coordinated manner.

The UK has been the poster child for watching many a socialist government spending, borrowing and taxing, when has that ever ended well? Never. Rampant inflation, penal interest rates is the end game. The idea that global leaders could engage in a coordinated policy based on this theory to help restore their balance sheets is flawed beyond comprehension. This policy may work for a while whilst the global economy grows but as soon as an individual economy hits a few buffers, will they look to break ranks? I think you can be sure of that. The lunatics are taking hold of the asylum.

In a textbook, one can understand the theory that taxing the money makers to restore the finances of the governments makes sense, but in the real world, it does not work. Why any economist, who will have spent far more time than I will do, studying the levers for the global economy can believe this is a way forward to recovery is beyond comprehension. Janet Yellen described this as the Bretton Woods moment for the global economy, we saw how that worked out. The reality is that American policy under Biden is to reverse reductions in corporation introduced under Trump, and while they do that they want the rest of the world to come with them, to maintain their competitiveness.

The only way governments will balance the books for all this largesse supporting the global economy in the past year is by doing all they can to support the capitalist system, not looking to punish the entrepreneur.