Thursday, 8 January 2009


yo...the bollox are back in town...innit!

stardate : capitulation day

...desperate times call for desperate columns... would appear that anatole has himself been crunched...

...what would mish say?...

...all roads lead to would seem...

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

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....

...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.



beuhla : too daft ta laugh at innit!

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