For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.Obviously tongue-in-cheek, but thought-provoking.
So why not let everyone participate?
Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on...
Because we will be making money in basically the same way as hedge fund managers, we should have to pay only 15 percent in taxes, just like they do. And since we will be earning money through investments, not work, we won’t have to pay Social Security taxes or Medicare premiums. That means no more money will go into these programs, but so what? No one will need them anymore, with all the cash we’ll be raking in thanks to our cheap loans from the Fed.
20 April 2012
"Loan everyone 10 million dollars"
From an op-ed piece in the Washington Post:
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The post's argument breaks down because the described plan removes the market for money. People can't invest anything they might borrow at zero percent, because everyone already has all the money they need at zero percent. The way it works now is: Banks get the money at zero percent interest, and then loan it at non-zero interest. In other words, the government prints the money, gives it to the banks, and the banks sell it for profit. The banks are in this case just a business that acts as a money distribution system for the government.ReplyDelete
Contrary to what the post implies, we can already invest the same way the banks can. We can any time we want sell our money to the highest bidder -- typically a bank or credit union or stock or fund that pays highest interest rate with lowest overhead costs. This is what rich people do.
The problem is when banks control and manipulate the market. This is what happened to cause the great recession, why deregulation is bad, and why 'too big too fail' is a problem.
p.s. For some reason, The current version of Safari doesn't allow me to post comments. Anyone else notice this?ReplyDelete
@Chuck--The manipulation of money is a big cause of the recession, but so are two wars wasting huge amounts of money. Then there are the tax cuts. I could go on, but you get the point.ReplyDelete
I think those contributed more to the deficit, Barb.Delete
As for the Iraq & Afghanistan wars 'wasting' money, some would argue that they have been successful implementations of longstanding U.S. strategy, and very sensible for a superpower like the U.S. 9/11 was only a handy excuse. For example, google the 'Clean Break Report', or read with interest Ledeen's 'Superpower Dilemmas' copyright 1992 (Originally published 1985) -- the date makes it particularly interesting. According to a decades-old view, the U.S.'s best strategy for the mid-east is simply to keep it destabilized. This is also Obama administration policy, by the way. Note that Obama has increased the number of U.S. troops fighting in these wars and increased spending, with almost no foreign policy change compared to the Bush administration. Is this perverse superpower strategy successful? Well, you have to admit that indeed the U.S. has done a good job keeping that region totally f---ed up. According to the destabilizationists, there was no way to lose as long as the U.S. created enough disruption to local politics and infrastructure.
Personally, I don't agree with destabilizationist policy -- I like to believe that a rising tide floats all boats, that policy makers don't have to look at everything as a zero sum game. That said, I also recognize that mine is a culturally-biased perspective, and leads inevitably to interference. What I think is 'helpful' may be considered by others to be colonialist intrusion. Strict isolationism is also no longer tenable for any first world country these days. No country, not even the U.S., has enough resources to sustain on it's own our lifestyle.
Also keep in mind that a lot of people in the U.S. made a lot of money from those wars. As Stan has pointed out before in this blog, the U.S. Military Industrial Complex is powerful, and a huge part of our economy. Crazily, endless war is now an important U.S. national interest. We can't abandon that industry now -- at least not suddenly -- without another giant recession.
If you are comfortable -- and anyone reading this definitely is compared to most people in the world -- then that comfort requires defense of the current system. And that defense is not always pretty.
-Chuck, who would like to be an idealist. Really. But finds it too hard.
It seems to me that considering the survival of millions of people more important than the relative prosperity of hundreds of thousands - and even if the numbers were the other way around - to be not a matter of idealism, but of simple, basic, concrete morals. But that's me.
Where would the more then $1,148,000,000,000,000.00 come from if every household in the U.S. got $10,000,000.00 loan? That's just more then a dozen times greater than the entire planets GDP...how could that go wrong?ReplyDelete
I agree with JDJarvis creating 1,148,000,000,000,000 USD to loan to all households would definitely be inflationary even if the government continued to tell T-bills at 2%.ReplyDelete
As best as I can tell the government loaned the banks 1.2 trillion USD at the height of the recession (they have since paid back some of it). Let's assume 350 mega-people and 120 mega-households in the US.
For the same amount of money printed (and thus the same inflationary risk) the Fed could have loaned every man, woman, and child 3,428 USD or each household 10,000 USD.
I hope everyone understands that the linked article was written deeply-tongue-in-cheek as a way of emphasizing what the government did for the banks - not as a proposed solution to current economic conditions.ReplyDelete