The Global Economy is Rigged

By now you’ve probably heard about the so-called Panama Papers. A couple decades’ worth of offshore transactions were released, showing that political elites from Europe, Russia, and Asia were stashing their wealth in Panama banks.

Something like 215,000 shell companies had been set up to help hide wealth. People named include current and former leaders of Argentina, China, Qatar, Saudi Arabia, Pakistan, and Ukraine. The prime minister of Iceland has already stepped down after he was named. 

Of course, the transactions themselves aren’t technically illegal (though the United States, France, Germany, Australia, Austria, Sweden, and the Netherlands have opened investigations). Wealthy people will always seek to protect their wealth… 

Still, these transactions stink. Because they are a stark reminder that the world isn’t a level playing field. It’s a rigged game where the rich elites play by a different set of rules, rules that they create to benefit themselves. They avoid paying the taxes that the rest of us pay.

And they get first dibs on investments that most of us never see.

How to Become a Millionaire

Did you know that insider trading is not illegal for U.S. congressmen and women? It is perfectly legal for them to make investments based on information they get in Congress.

They can pass laws that benefit certain companies, invest in those companies before the new laws take effect, and make money before you and I know what’s going on.

Senators who sat in on secret meetings with Treasury Secretary Hank Paulson and New York Fed President Timothy Geithner in 2008 walked right out of those meetings and sold stock and bought ETFs that would make money when stock prices fell. They got advanced warning about just how bad the economy was, and they acted to profit from it before any of us had a chance. In fact, we were the ones left holding the bag. 

How many congressmen become millionaires while they are in office? Pretty much all of them. Plus, they’ll get a lifetime of pensions and health care. That’s how it works. That’s the game.

Meanwhile, I pay over $500 a month out of my pocket for health insurance for my two kids and me. I’m sure you’re probably in the same situation…

Yeah, I know I probably sound naive for thinking the same rules should apply to everyone. But frankly, I find it both depressing and enraging to spend a lot of time thinking about how the world’s elite continually use there position to protect and grow their wealth while the rest of us just do the best we can.

Offshore America

Surprisingly, not many Americans were named in the Panama Papers. But don’t worry, it’s not because U.S. elites have an honest streak. It’s the fact that it’s so easy to set up shell companies in states like Delaware, Wyoming, and Nevada. One economist said: “Basically, we have an onshore haven industry in the U.S. that is as secretive as anywhere.”

The Washington Post says, “The U.S. now appears to be among the most lenient and secure destinations for the fortunes of the global rich.”

How lenient? Well, the paper reported about one address in Delaware — 1209 North Orange St. in downtown Wilmington — that serves as the official address for 250,000 shell companies.

The Tax Justice Network ranks the U.S. third in terms of the secrecy and scale of its “offshore” industry, behind only Switzerland and Hong Kong. And these offshore companies like the ones registered in Delaware allow the owners secrecy to avoid taxes and make investments anywhere in the world. 

The Washington Post also reports, “The U.S. has not signed on to new global disclosure standards that are forcing anonymous companies to reveal their real owners around the world.” 

The Post goes on to say:

Too often, however, shell companies are used as a vehicle for criminal activity — disguising wealth from tax authorities, financing terrorism, concealing fraudulent schemes, or laundering funds from corruption or the trafficking in drugs, people and arms. A report published by Global Witness in 2014 detailed some of the nefarious purposes shell companies have been used for in the U.S., including setting up sham companies that tricked elderly people into investing in worthless business schemes, laundering millions of dollars from Mexican drug cartels, accepting political bribes, and circumventing U.S. sanctions against Iran.

And what is our Congress doing about all this? Not very much. But maybe these Panama Papers and the increased attention they are causing for the U.S. “offshore” havens will change that. 

There’s a lot wrong with how America works these days. You can talk about government debt and spending all you want. But the real problem is this type of corruption. This is the source of income inequality, and it’s behind the general anger at unfairness that is fueling both Sanders’ and Trump’s presidential bids.

Congress doesn’t need to act to give handouts to Americans. All they need to do is make the system fair. 

For instance, if Congress really cared about Americans, why don’t they act on their promises to change the corporate tax code? It is absolutely outrageous that major corporations can dodge taxes, while most small businesses are forced pay a 39% tax if they have taxable income over $100,000. Cut that rate, and I guarantee you U.S. GDP improves…

But of course Congress won’t. They’re too busy looking out for themselves.

Until next time,

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.