Capital Controls Come Again

The US and European countries are poised to do battle over who gets to tax international giants Google and Apple. The general agreement in place since 1928 is that taxes should be levied where value is produced rather than where it is realized. The claim of Apple, for example, is that the real value of the company is in intellectual property produced in Cupertino (nevermind the fact that their products are actually produced in Asia.) On the other end, countries like France are arguing that they should get a cut of tax revenue since Apple sells products in France.

Apple could soon be instructed to pay billions, triggering a showdown between Europe and the US and a potential breakdown of the international tax system. This sounds apocalyptic but it is a decent bet.

https://next.ft.com/content/7414a126-c41d-11e5-b3b1-7b2481276e45

Also, nations with emerging economies are being forced to introduce capital controls to prevent capital flight. Emerging markets are increasingly under the gun. And, even the IMF is behind the usually taboo use of capital controls.

https://next.ft.com/content/36cfcc66-c41b-11e5-808f-8231cd71622e

We might be entering a period of protectionism wherein countries batten the hatches and try to ride out the coming storm. If so, one way it might play out is that money flows into the US searching for stable returns. I believe this is why the US Dollar is holding strong right now. This will drive up bids on things like Treasury Bills until they return nothing. Ergo, safe money pays no returns. Emerging economies will be left sitting on the vine. Eventually, after recession or depression things will rebound and money will flow back into emerging economies in pursuit of higher profit rates. This will probably have to come with some military guarantor. I.e., we might see a lot of African and Asian leaderships replaced in the coming decade.

Of course, that’s just one possibility.