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Punish savers and make them spend money - The Times
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poppy10_2
Posts: 6,588 Forumite
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5469589.ece
Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively
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.
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.
Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively
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.
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.
poppy10
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Comments
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what a load of utter c rap.
typical lefty nonsense. punish the sensible.
and look whos ok, thats right, the scum layabouts collecting their benefits.
look who has no income, the sensible people who saved all their lives.
this country is so screwed up.0 -
Why would anyone invest in property when house prices are spiralling downward?0
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this makes me waver a little. Kaletsky is a good economist. I do understand the logic, but I am also held back by a fear:
1) we've sailed into uncharted territory. The "rules" of economics are creaking.
2) I'd like to paddle for shore, and say "let's not do that again" rather than continuing into the wide blue yonder - out there, I fear "there be monsters".
oh well, I suppose that makes me a natural conservative. (except that there are some pretty odd bedfellows - religion, marxists and socialists. Aargh, I want to be with the brave explorers!)0 -
Why would anyone invest in property when house prices are spiralling downward?
Reward-hungry gamblers, betting on inflation. I think we have a problem that there is a sizeable (too-big) proportion of the population that have now got the taste of blood, and have seen that wealth comes (most) easily from timing your run properly into a highly geared environment. And if you miss-time your run, you can always go BR.
Maybe I'm too young to know that this happens every time, and that the point of the long bear market is to eradicate that meme. Which is why I'm not convinced by the quick crash, then HPI again argument. Something in me thinks we need to let the culture of HPI (geared twice over by borrowing and BTL) die-out.0 -
Certainly thinking outside the box as it were. An unpleasant prospect for me as I have substantial savings.0
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I am strong. I made my decision in 2006 and I am sticking with it.
I am not buying a house. Fact.
Even if the interest rates are 0% and I am charged for them to hold my money, I am not buying a house. Nor a car. Not a holiday. Nor things.
... and you can't make me until you make me a job.
So ... Mr Gumment ... go make some jobbies0 -
Kaletsky is a good economist
:rotfl:Are you joking? He's one of the most ridiculed economists out there! Private Eye have a regular feature in which they point out his ludicrously bullish views. All last year he was telling us that the credit crunch was a 'storm in a teacup' and that there would be no recession because of America's strong economy - see for example here and here.
He's the Comical Ali of economic journalistspoppy100 -
PasturesNew wrote: »I am strong. I made my decision in 2006 and I am sticking with it.
Who was it who said "when the facts change, I change my position"? Oh, it was JM Keynes. But it's a good principle, all the same.0 -
:rotfl:Are you joking? He's one of the most ridiculed economists out there! Private Eye have a regular feature in which they point out his ludicrously bullish views. All last year he was telling us that the credit crunch was a 'storm in a teacup' and that there would be no recession because of America's strong economy - see for example here and here.
He's the Comical Ali of economic journalists
Might have been.
So for the record, this is a bad plan. For a variety of reasons, from a variety of perspectives. I wonder where we'll see it next. :think:
PS - okay I confess, I'm trying to blag this. I thought he was good, from the admittedly little I've read of his work - should spend more time with Private Eye rather than council papers. Would quite like to, come to tihnk of it...0 -
I'd agree when the facts change, but a quick bluff isn't a fact changing.Who was it who said "when the facts change, I change my position"? Oh, it was JM Keynes. But it's a good principle, all the same.
I'm quite the obstinate little Hector.
I am here watching the facts. Looking for trends. Trying to spot if/when I'm wrong and need to change my tactics. Present Plan A is to buy in 2011/2012.0
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