May 19, 2011

Looks like I was right (again)

Recently I said: Even democrats concede economic reality in a crisis: "Taxes matter. Regulations matter. Capital flight is a reality. Not just from state to state but from country to country."

According to The Wealth Report from The WSJ:

The Rich Are Moving More Money Overseas

If there is one overwhelming investment trend among the American rich, it is capital flight.

Rather than investing in the U.S., they are putting more and more of their money abroad.

A new survey by the Institute for Private Investors of families with $30 million or more of investible assets showed that the families have one third of their assets overseas. One in five wealthy families has more than half their investments overseas. Most of them are buying overseas stocks, while they also are buying into hedge funds and private equity with exposure abroad.

Additionally, wealthy investors are moving away from the U.S. dollar. The IPI study showed that one quarter of respondents are managing currencies or hedging currency risk.

Spectrem Group, of Chicago, shows a similar outmigration of money from the rich. More than 60% of investors with $25 million or more are investing overseas, Spectrem found.

You can’t blame them, of course. Capital follows growth, and the strongest economic growth is in the so-called BRIC (Brazil, Russia, India and China) nations and other emerging markets. Some may talk about the broken “social contract” of the American rich, who are taxed at low rates on capital gains and dividends in order to encourage them to invest in the U.S. and create jobs.

Yet the rich don’t sign any social contracts when they get rich. And so far, the flight of wealthy investors hasn’t stopped the U.S. stock market from roaring back to life after the recession. In fact, wealthy investors are at the forefront of the current tech bubble.

Since the wealthy control an ever larger share of the country’s wealth and investments, their aversion to the U.S. could create a vicious cycle–the wealthy don’t reinvest in the U.S., so the U.S. suffers from underinvestment and slower job creation, which slows economic growth and drives the wealthy to invest even more overseas.

Earth to Democrats: Capital flight is real. Capital follows growth. This is easier now than ever before. Consfiscatory tax rates and draconian regulation encourage capital flight. Unless or until you figure this out, you're going to turn the whole country into California or worse, Greece.


Posted by Duffy at May 19, 2011 11:16 AM | TrackBack

Comments  (We reserve the right to edit and/or delete any comments. If your comment is blocked or won't post, e-mail us and we'll post it for you.)