Montreal, Canada

At exactly the wrong time many governments around the world are raising taxes to boost depleted coffers amid a spending binge since late 2008. Costly bailouts are compelling politicians in the West to raise taxes – probably the dumbest policy mistake amid a deflation in household assets and surging unemployment.

Other nations, in order to curb speculative excesses are now introducing excise taxes on currency (Brazil, Indonesia) and stock trading (Brazil). In the United States, Barney Frank wants to tax currency derivatives – another stupid initiative designed to cause more harm than good.

Most financial crises in the past have resulted in poor policy initiatives by government, which only exacerbate a challenging and difficult economic environment. The 1930s saw a host of such blunders – though some were actually positive, like Glass-Steagall (1933) and the 1940 Investment Company Act, but overall a series of new tariffs and trade restrictions made the situation only worse and prolonged the depression.

The only major government in late 2009 that seems to understand what domestic consumption needs now is Germany. Starting next year the Germans will cut tax rates in a smart effort to grow the economy – something that the late President Reagan understood when he was elected in 1980. The Germans, historically ambivalent about inflation and deficit spending, are nevertheless biting the bullet and growing big deficits to finance tax cuts. They understand the big picture.

The Reagan Revolution did cause a long-term acceleration of U.S. deficits in the 1980s. But at the time the United States was so badly mired in stagflation that the only way out was to boost consumption and encourage business capital spending. What resulted was a tremendous bull market for stocks starting in 1982 that lasted until 2000.

Unlike the 1980s and 1990s – the greatest decades for stocks since the 1950s – the 2000s will go down in history as the worst ten-year period for stocks – even surpassing the 1930s "Lost Decade."

Yet the United States, struggling to keep the financial system afloat with staggering government bailouts is convinced higher taxes is required to fix the economy. Obama is intent on raising taxes; after the Bush tax cuts expire next year, a badly fractured economy that's struggling to recover will face even more hurdles as individuals are left with less after-tax income.

The attack on tax havens is also bad politics. Major Western governments are attacking tax havens en masse over the last several years as they aim to grab lost tax revenues from evaders or undeclared accounts in countries like Switzerland. If governments would tax citizens and corporations less and let their populace keep more of their after-tax income then people wouldn't feel compelled to dodge taxes or hide money in the first place. Governments just don't get it.

History has clearly shown that low tax countries benefit enormously from such a regime and encourage capital inflows, foreign investment and ultimately result in an economic boom. This was the case with Ireland until recently and still the case in Hong Kong.

The jury is still out whether the ongoing debate and future introduction of tax hikes in many countries will serve to boost the global economy. In my view, it will serve the opposite purpose and prolong the economic agony for many businesses and those folks looking for a job. The government has its brain in the wrong place – somewhere the sun doesn't shine.

I'm off to Vienna next week and then London for meetings with hedge funds, convertible bond specialists and managed futures advisors. I'll report from Vienna on Tuesday. Dugald will blog on Monday. Have a good weekend.