Epiphanyblog

All about ideas…

Could Andy Jackson have been right?

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Andrew Jackson Andrew Jackson had a deep-seated animosity towards bankers, as did Thomas Jefferson. He just didn’t trust them to do what was right for the American people or the Republic. So, what has changed over the last 200 years, and in particular over the last 80 years since the bank-caused Great Depression, to make Americans to trust them now? Have we been led astray by economic theorems that are misguided at best and totally wrong at worst?

A great many new economic theorists are beginning to put forward ideas that debunk the ideas of the past 30-plus years. And they may be right.

Ever since the global economic crisis, I’ve studied and read economics in an effort to learn how to break the back of our deep Recession. From China and India to Sweden and Germany. From Adam Smith to Milton Friedman to Kenneth Galbraith and Keynes. Even new economist who posit that markets are do not always seek equilibrium but are subject to the vagaries of animal spirits, i.e., emotions such as greed, lust, ego gratification, etc. One thing of which I’m absolutely sure is that the economic theories as posited and practiced over the last 30 plus years do not work. They’ve been an abysmal failure and will not lead the U.S. out of this deep and ongoing Recession.

One of the little noted things FDR did to break the Depression was to raise tax rates to 70 – 90% on all personal incomes. The high rates had the immediate effect of ending the “greed” factor. Bankers and corporatists no longer saw much point in increasing their personal incomes beyond a certain point as most of it went to the government. In other words, that high tax rate broke the back of the “greed” factor that had taken hold in the financial industry. I’m not advocating a 70% personal income tax rate on all incomes a person accrues, but it could be much higher, especially on what Warren Buffet calls non-earned income, for the top income earners, those top 2%, to break the “greed” factor which has become such a destructive force in our economic society.

Regardless of the Wall St apologists, and their corporate and Chamber of Commerce lobbyist cronies, statistics show that the reduction of non-earned income and higher rates for the top 2% has absolutely no negative effect on the nation’s economy. On the contrary, the higher rates, within a measure of equilibrium, appear to boost the economy.

Now, if we combine a much higher personal income tax rate on all incomes of the top 2% while reducing the tax rate on businesses to the global median, the U.S. would break the back of “greed” as a driving factor while increasing global business competitiveness. Of course, other business tax laws would have to change to drive businesses to invest in the U.S. rather than outsource, but that should be fairly easily to analyze if not accomplish.

The second economic policy change is to increase interest rates. Now, I know that sounds like heresy given the economy. But here is why.

Banks, particularly the largest, are borrowing from the Fed at nearly 0% interest. They then turn around and buy Treasuries at a 2 -3% risk free interest gain. Thus, they have no incentive to loan to businesses or families. They’re able to make too much, risk free money on the taxpayer’s dime. In 2009, Bank of America made half a billion dollars using this scheme.

If interest rates increased to just a mere 4%, banks would no longer make money on Treasuries. They, essentially, would be forced into loaning money to businesses and families because the cost of borrowing from the Fed would be higher than their returns on Treasuries.

Now you might say that will hurt me and my business if interest rates go up. But think about it. Are you able to borrow now?

Your credit card rates have already gone up, even though it costs the banks nearly nothing to borrow short term from the Fed. If banks push their credit card rates much higher, they might very well see a reduction in customer accounts. That is a risk they take with every increase, particularly when every major retail bank knows that the majority of its profits stem from credit card usage.

They know that the higher the interest rates, the more their customers will cash out and go somewhere else. I used to work for VISA and B of A. I know how they think…as should anyone who understands market competition.

So, if the U.S. is to break out of this economic “malaise” and put its financial house in order – which it must do to reduce the deficit and the mind-boggling interest on the deficit – it must increase taxes on all earned and unearned income on the top 2%, incentivize businesses with a globally competitive income rate while reducing the desire to offshore profits and jobs, and increase interest rates that make it more profitable to loan money rather than collect interest on Treasuries.

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Written by Valerie Curl

August 24, 2010 at 8:37 AM

One Response

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  1. duuuuuuude, wassssssup

    avg free download

    September 11, 2010 at 7:39 AM


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