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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 01/10/2009 : 20:21:49
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January 8, 2009
Punish savers and make them spend money
Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively Anatole Kaletsky
Do you agree? Times readers respond
The battlelines are drawn. On one side we have the Labour Government and the Liberal Democrats, the Bank of England, the US Federal Reserve Board and the vast majority of Keynesian economists in every country - plus Barack Obama. On the other side, the Tory Opposition, the German Socialists, the European Central Bank, the Church of England and the vast majority of Marxist economists in every country - plus the British public. The question, of course, is what to do about the recession. Specifically whether the way out is “to spend, spend, spend or to save, save, save” - as David Cameron has so clearly put it.
I believe, in line with the vast majority of non-socialist economists, that Mr Cameron's campaign for savings is completely wrong; that “borrowing our way out of debt”, paradoxical as it sounds, is exactly the right prescription for our present problems. This paradox is easily explained: if governments or wealthy individuals increase their borrowings they replace weak debtors - bankrupt hedge funds, struggling businesses or repossessed homeowners - with strong ones and this helps to stabilise the financial system and sustain economic activity and employment. The country can borrow its way out of debt.
But what I think is of little importance, especially as I have been wrong about so many aspects of this crisis - as have most conventional economists and policymakers, whose views I broadly share. Of equally little importance is what Mr Cameron and the Tories think. Only two opinions matter: on one side, that of the Obama Administration and the Brown Government; on the other, US and British consumers.
Background
Darling: recovery may take longer than I said
Should puritans kick out privateers?
Cameron unveils tax cuts for savers
Leaders clash over best lifeline for savers
It may seem parochial to combine the US and Britain, but there are several reasons to believe that events in the two economies will be closely linked. First, both countries face similar problems of collapsing housing markets, overdeveloped financial sectors and higher than average mortgage debt.
Second, both have complete freedom of action on interest rates and monetary policy, as they are not locked into a single currency like so many European countries.
Third, the US and British governments, despite their reputations for reckless borrowing and fiscal imprudence, have managed their finances better than most other countries and entered this crisis with substantially lower public debt levels than Germany, France, Italy or Japan.
Fourth, Britain and (very soon) the US have decisive governments with clear majorities and proactive economic philosophies, in contrast to the slow-moving, reactive governments of Europe and Japan, where policy changes, if and when they eventually happen, will have little impact until 2010 and beyond.
Finally, there is the flow of ideas across the Atlantic, most of it one way. British public opinion will be strongly swayed by the policies of President Obama - even if no one in Wichita pays any attention to what is happening in the UK.
What then is the outlook for economic policies in the US and Britain? And how will consumers, businesses and voters react? The second question is imponderable - and may depend on whether Mr Obama and Keynes look more credible to voters than Mr Cameron and Marx - but the answer to the first is quite clear. Governments and central banks on both sides of the Atlantic will do whatever they can to increase spending and borrowing.
The Brown Government has cut consumer taxes, accelerated public spending and increased public borrowing by roughly 2 per cent of GDP, on top of £500 billion in bank guarantees - and more guarantees can be expected for loans to business and homeowners in the weeks ahead.
Tomorrow, in his first important speech since the election, Mr Obama will promise a similar programme of borrowing and spending on a far grander scale: $800 billion of tax cuts and new public spending over two years, equivalent to 5 per cent of GDP, financed by a federal government deficit that may well exceed $1 trillion.
Meanwhile, the central banks in both countries are trying as hard as they can to make people save less. In the US, interest rates on bank deposits have been cut to zero and the Fed has just announced that it may buy long-term government bonds to squeeze five-year and ten-year rates as close as possible to zero. The result is that US mortgage rates are falling to the lowest level on record and banks, which can no longer earn risk-free returns by placing money with the Government, have no alternative but to lend to businesses and consumers. Britain is are pursuing the same monetary logic, if a few months late.
At noon today the Bank of England will almost certainly cut its base rate to the lowest level in its 300-year history - my hunch is that the cut will be at least a full percentage point, to 1 per cent, or even below.
Inflation gives no further reason for procrastination and all economic indicators continue to weaken, if at not quite the catastrophic rate that some headlines suggest. The pound has stabilised and its weakness can no longer be seen as a constraint, as arguably it was last month.
The faster interest rates approach zero the sooner the Bank and the Treasury can start co-ordinating the programme of government-guaranteed borrowing and monetary expansion that Mervyn King, the Governor of the Bank of England, has suggested as the next logical step to sustain credit and boost demand.
Assuming interest rates are reduced to about 1 per cent today, it will make little difference to savers if they fall all the way to zero. To all intents and purposes, income from bank accounts will be reduced to nil.
The next logical step, although it may be politically controversial, would be to do the opposite of what the Tories suggest. Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets - or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.
In the absence of a savings tax - and even Mr Obama would probably balk at anything so controversial - there are plenty of other measures to boost consumption and investment. Most obvious are direct government spending on infrastructure; public guarantees and subsidies for business loans or home mortgages; or tax cuts and handouts, especially for those on low incomes who tend to spend all their money. The beauty of such policies in a world of zero or near-zero interest rates is that they are effectively cost free. In the present environment, extra public borrowing does not displace private employment or “crowd out” business investment.
There are plenty of objections to ever-increasing public borrowing, not just fairness and efficiency but also the moral hazard of creating a culture of state-dependence. But in a slump, when the alternative is business bankruptcies and longer dole queues, these objections make little sense.
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Think positive. |
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fb101
Administrator
USA
2856 Posts |
Posted - 01/10/2009 : 20:46:14
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While I do not put a tax on existing savings to be outside the realm of possibility, especially in view of the current one party control of the country, if they do, I've got 3 mattresses, and I can't think of anything I want beside gold and silver.
I think that blows that idea all to heck and back. |
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NotABigDeal
1000+ Penny Miser Member
USA
3890 Posts |
Posted - 01/11/2009 : 01:38:40
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I would have no money in the bank. fb101 is correct. Heck, buried out in the back 40 would be better....
Deal |
Live free or die.
Plain and simple.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your council or your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
- Samuel Adams |
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Bluegill
1000+ Penny Miser Member
USA
1964 Posts |
 Posted - 01/11/2009 : 12:33:44
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Failed Keynesian claptrap or failed commie Marxist claptrap. Nice choice. They both share the same criminal Fabian Socialist roots.
What about considering The Austrian School of Economics...
Even if we took all our money out of the bank and put in our mattresses or safes. Their will still be a paper trail. The IRS will just come a knockin'... 
Or easier yet, they could just add a "savings tax" to our payrolls. Or just confiscate our paychecks all together and redistribute as they see fit...
They could easily outlaw the private ownership of PM's while they are at it.
We're all frickin' doomed... 
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Edited by - Bluegill on 01/11/2009 12:35:17 |
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fb101
Administrator
USA
2856 Posts |
Posted - 01/11/2009 : 13:03:40
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quote:
Or easier yet, they could just add a "savings tax" to our payrolls. Or just confiscate our paychecks all together and redistribute as they see fit...
Yep. Not only do we have one party control of the country, but that party has a history of "redistribution of wealth" and the philosophy that more money cures all ills.
Heaven help us. |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 01/11/2009 : 14:47:10
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The author of this article, Anatole Kaletsky, obviously has had a cornea transplant, now he has rose colored corneas so everything he sees is nice and happy (provided he looks at all things Keanesian).
…“if governments or wealthy individuals increase their borrowings they replace weak debtors - bankrupt hedge funds, struggling businesses or repossessed homeowners - with strong ones and this helps to stabilise the financial system and sustain economic activity and employment.”
…………Wealthy individuals, those that are successful or who have any brains, borrow with the understanding that-
1. The debt has to be paid back.
2. Something that has value and holds its value is obtained from the borrowing.
There is no point in borrowing to buy something that could lose value, that is why borrowing to buy stocks and commodities is supposed to be strictly regulated and restricted to only a small minority of investors/speculators.
“The country can borrow its way out of debt.”
…..The ultimate oxymoron. How many countries have borrowed their way into prosperity?
“…both have complete freedom of action on interest rates and monetary policy”
…The US slashed rates on bonds to 0.25%, the Fed can’t go much lower before it starts charging negative interest rates.
“…the US and British governments, despite their reputations for reckless borrowing and fiscal imprudence, have managed their finances better than most other countries and entered this crisis with substantially lower public debt levels than Germany, France, Italy or Japan. “
………This chowder head thinks a US debt of $10.7 Trillion dollars is substantially lower public debt than the rest of the world?
“The result is that US mortgage rates are falling to the lowest level on record and banks, which can no longer earn risk-free returns by placing money with the Government, have no alternative but to lend to businesses and consumers.”
………If businesses and customers can’t repay the loans there isn’t going to be any lending going on. That is Banking 101, at least before the crazy lending/sell the junk loans to Wall Street as CDO's was going on.
'Meanwhile, the central banks in both countries are trying as hard as they can to make people save less. In the US, interest rates on bank deposits have been cut to zero and the Fed has just announced that it may buy long-term government bonds to squeeze five-year and ten-year rates as close as possible to zero."
……..(That zero interest rate should make the Chinese Government buy up every last US bond that is offered for sale, yes sir!)
“Inflation gives no further reason for procrastination and all economic indicators continue to weaken, if at not quite the catastrophic rate that some headlines suggest. The pound has stabilised and its weakness can no longer be seen as a constraint, as arguably it was last month.”
…(So the pound stabilized since last month, but that doesn‘t mean it will remain stabilized next month, or next year, or next decade. With all of the money about to hit the street via Chopper Ben, expect inflation to come back with a vengeance.)
“…Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property,
……(re-inflate the housing bubble in the UK)
shares and other productive assets
…..(buy shares in the stock market, which has lost its value over the past year)
- or simply to save less and consume more.
…..(or simply save more for a rainy day in piggy banks instead of local bnaks and spend less.)
In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.
…..(With the risk of a job loss, why spend? Spending means confidence in tomorrow, and confidence is something sorely lacking at this point in time. )
….“The beauty of such policies in a world of zero or near-zero interest rates is that they are effectively cost free.”
…..(Cost free for now, let the children and grandchildren pay for it with crushing government debt.)
As far as the wisdumb of Gordon Brown we get this interesting article-
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Gordon Brown's Gold Sales, 10 Years On
By Adrian Ash
THIS COMING MAY will mark 10 years since Gordon Brown chose to sell well over half the UK's national gold reserves - some 415 tonnes all told - at what would prove rock-bottom prices…..
...Well, if gold only gains during inflation, then that's what we must have been suffering since the "Brown bottom" of 10 years ago -
an inflation in house prices, consumer debt and credit derivatives that finally burst into the consumer price data in 2008.
The Gold Price in Sterling, for instance, has since returned 13% per year on average. Bank of England base rate, in contrast, has held just 1.9% above inflation on average - less than half the level of real returns paid during the 1980s and '90s.
Now as 2009 begins, real interest rates have been slashed well below zero in the UK, Japan, Switzerland, Taiwan and United States...and it's here you'll find the one common factor between this decade's bull market in gold and the 20-fold rise of the Seventies. Because low returns paid to cash remove the one big disincentive to using gold to store wealth: the fact that it doesn't pay you an income.
...If the race is on to pay zero to cash savers, then ever-more cash savers might want to reach the finish line first...and jump straight into that non-paying, non-defaulting investment asset - the same asset which Gordon Brown thought had no further use back in May '99:
Physical gold bullion.
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keys
Penny Collector Member
383 Posts |
Posted - 01/15/2009 : 20:30:32
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Someone else thinks punishing savers is a bad idea-
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Punishing savers is no way to help the economy By MoneyWeek Editor John Stepek Jan 12, 2009
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Punishing savers is not the way to help the economy
Take the idea of taxing savings, as proposed by Anatole Kaletsky in last Thursday’s Times. Let’s ignore any of the moral difficulties with this idea, because it just confuses things. The key point is that it wouldn’t work. It completely misunderstands the psychology behind saving. The more you try to prevent people from saving, the more effort they will put into finding ways to do so.
If you tax declared savings, then be prepared for a massive rise in the sale of mattresses, safes, and safety deposit boxes. And even those who don’t attempt to evade the tax are likely to pay it rather than spend their money. If people feel their savings are under attack, then they will simply cut back even further, in order to try to stay ahead. And it’s not just non-doms who can take flight from repressive governments – if the state starts confiscating our savings as well, then be prepared for a big rise in emigration.
Savers will only spend when they feel they have built up a big enough cushion to shield themselves from disaster. The more you try to prevent that, the harder they feel the need to save.
Worse still, you are creating the ultimate in “moral hazard”. By punishing people who have prudently saved up in case of hard times, you are effectively rendering saving worthless in the future. |
I change with the times-
but like silver coins found in your change
I stay the same.
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The United States of America started out as the new Republic of Rome.
Will The United States of America end up as the New Imperial Rome? |
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NotABigDeal
1000+ Penny Miser Member
USA
3890 Posts |
Posted - 01/16/2009 : 06:24:11
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Due to all the bail-outs, I feel like they are already punishing the savers....
Deal |
Live free or die.
Plain and simple.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your council or your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
- Samuel Adams |
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swusc
Penny Hoarding Member
USA
553 Posts |
Posted - 01/16/2009 : 11:01:10
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We already have a savings tax... It is called inflation.
I agree replacing weak borrowers with strong ones will help the financial system, but it doesn't solve the root problem. Why in the world did we think everyone owning their home was a good idea or possible?
Demand for things is greater than supply. That is a fact of life and no one is going to change it other than God. Don't believe it? Look at how many offspring animals have, but populations stays fairly stable. Well there is only so much space, water, and land, so some don't make it. (Note the human population has grown, but other animals have suffered for that growth... resources are limited)
Unfortunately, that is life. Everyone can't own their house. Everyone can't eat steak every night. This is why socialism equals everyone having a low standard of living. There isn't enough stuff for everyone to have a high standard of living. There are 6+ billion people in the world. (You must be logged in to see this link.)
Money isn't a real thing (I mean it guess it is real in the sense it is paper, metal, or electrons) . It is a medium of exchange. If the U.S. government creates $2T out of thin air, then that doesn't create food. If they spend that money on food, then it just cause the price of food to increase, and maybe someone might try to grow food for the next season. Yet, that person was likely doing something else with their time, so we really just changed the allocation of our production. We don't make stuff out of thin air. Money is a tool that should allow resources to be allocated well (not perfect, but at least better than chance).
-SWUSC
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`Everybody is ignorant. Only on different subjects.' Will Rogers
"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." Alan Greenspan, 1966. |
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Punish Savers and make them spend money
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