Juggling Dynamite

The 2016 Panama Papers leak to world media revealed the widespread use of offshore accounts to avoid tax collection from many of the world’s wealthiest and most privileged people.  Of course, most have been greatly aided in accumulating said wealth from taxpayer-funded positions, programs, infrastructure and direct subsidies.

Nothing has happened to address this issue in the five years since the first reporting.  Now we have a second leak, see Huge ‘Pandora Papers’ leak exposes secret offshore accounts of politicians, celebrities and billionaires:

A massive new leak of documents dubbed ‘The Pandora Papers’ is shedding light on how the rich and famous are hiding their money, and how a world of off-shore tax havens is still thriving. The documents were obtained by the International Consortium of Investigative Journalists, which includes the CBC. Among the Canadians named in the documents are figure skater Elvis Stojko and race-car driver Jacques Villeneuve. 
Here is a direct video link.

Just the facts…

There’s a deeper, systemic problem in our economy that’s just as perilous as the looming debt default — and no one is talking about it. pic.twitter.com/a2HBWrTaoF

— Robert Reich (@RBReich) October 4, 2021

This Time is Different co-author, and Harvard Professor Ken Rogoff has co-authored an illuminating paper for the National Bureau of Economic Research (NBER) that estimates the downside risk that China’s over-built, over-leveraged property sector poses its economy.  They conclude that even a historically modest 20% deflation in China’s once-in-a-century property bubble would result in a 5-10% decline in the nation’s economic growth.  See it here, Peak China Housing.  Here’s the takeaway:

Hence to estimate the sum effect of real estate on the economy, we consider not only the output of real estate sector alone, but also the output share of closely related industries. Using the input-output table, we find that a 20% fall in real estate activity could lead to a 5-10% fall in GDP, even without amplification from a banking crisis, or accounting for the importance of real estate as collateral.

…In this case, the aggregate economic impact of real estate comes to 24% of GDP, whereas a similar definition gives the U.S. at about 15%.

The paper does not look at contagion risks for other countries like Canada and Australia, where property markets have ballooned with China’s over the past decade, nor does it look at the knock-on effects that a 5 to 10% hit to Chinese growth would mean for the third of global growth that has been reliant on China in recent years.  But it would be significant; here’s the why:

…As we have already discussed, real estate has an amplifying effect due to its linkage to other sectors of the economy, for example, construction, household appliances, furnishings, leasing services, etc. Therefore, a reduction in housing activities may contribute to a downward spiral in the economy, leading to further declines in employment, income, consumption, and investment.