How the Fed is Getting QE2 Wrong – The Anti Wealth Effect

The Wealth Effect on Individuals suggests that the more wealth people know or feel they have, the more likely they are to spend their money. Which in turn is good for the economy.

I’m no economist. Thankfully. I try to pay attention to what is happening with the economy and create observations based on experience and common sense.  Based on that, I think the Fed is making a big mistake in how they are implementing their Quantitative Easing 2 policy.

Here is why: Companies are not spending money.  Corporate cash balances at public companies are at an all time high.

When People feel like they are getting richer, that wealth doesn’t convey power to the vast majority of the population.  They reward themselves for all their hard work and success with increasing their standard of living.

In today’s world, when companies accumulate cash they feel the exact opposite. A growing cash balance conveys a feeling of power to CEOs.  The more cash in the bank, the more power with in their industry that CEOs feel that they have.  It is not an accident that CEOs refer to their cash balances as a “war chest”.  The more cash a company has , the bigger the industry sledgehammer they have with which to make acquisitions, buy back stock and most importantly increase their own personal wealth through a rising stock price.

Not only does a big cash balance convey power to the CEO, but it also acts as a foundation for a stock price.  Analysts are quick to justify Apple’s stock price by pointing to the fact that 17pct of Apple’s market cap is in cash.  Steve Jobs has been quick to point out that there is no reason to spend their “war chest” because of the opportunity value the cash presents for acquisitions in a  very competitive industry.

Jobs doesn’t chase stock price increases. Most CEOs do. The same personal wealth greed that pushed companies to over leverage (only to be deleveraged) is now pushing companies to aggregate as much cash as possible. With cash you can buy back stock at any time, increasing the company’s stock price and your personal wealth.

With cash in the bank, you don’t have to pay to repatriate cash from overseas . You already have the cash you need.

With cash you can lay off people to increase earnings per share, knowing that if you make a mistake, you have the cash to fix it.

With cash you can borrow all the money you need at barely breathing interest rates.

Companies are not holding on to cash because of fear of political and tax uncertainty. Companies are holding on to cash because of the power it offers and the opportunity to increase personal wealth.

All that cash is sitting in the bank earning NOTHING.  Economists would tell you that if you can earn more from deploying cash than by hoarding it, you should deploy it. Not true. In this age of CEOs, power trumps return on cash every time.

If the Fed thinks that creating money to make it easier for companies to borrow money is going to stimulate the economy, they are wrong.

They are simply making it easier for companies to hoard cash.

What should the Fed do ? I’m not sure the fed can provide the solution. I don’t think they have the authority to encourage or penalize companies into using their cash. The way to get companies to spend their cash is to make it hard for them to spend their “warchests” in manners that only serve to increase their personal wealth.  As i wrote several years ago:

How to Tax Wealth = Earned vs Found Money

Aug 26th 2008 4:41PM

When you go to work, whether you get paid by the hour, or on commission, tips or by salary, you earn every penny of it. The operative word being earned.

When you invest your own sweat equity and/or money to create a company, the operative word being create, you earn every penny of it.

I think Obama is about to make a HUGE misake, if elected, by increasing taxes on EARNED income of 250k or more. 250k does not make you rich, particularly if you live in a city, say New York City, with a huge cost of living. 250k does not make you rich if you are 60 years old, hoping not to get laid off and holding on to your salary long enough to have enough in the bank to retire. 250k does not make you rich if you have 3 kids near or at college age.

The disparity in wealth in this country does not come on the backs of people making 250k, or even 500k or 1mm per year FROM THEIR JOBS. The ever increasing delta between the rich and everyone else does not come from EARNED INCOME at all. It comes from found money.

Found money is when an internet bubble hits and the options you got for 1 dollar are sold for 250. It comes from buying a stock for $1 and seeing it turn into a “10 bagger”. It comes from hitting the lottery. It doesn’t matter whether you were smart or lucky, it is money you FOUND based on good fortune.

When I sold broadcast.com does anyone seriously think I would have cared if the tax on my FOUND money was 10pct or 20pct more ? Hell no. Would I have made any decisions differently, HELL NO.

I dont have access to financial data, or maybe Im just too lazy to find it, to know how much income in this country is found money. Capital gains earned from limited risk capital. Things like stock options awards sold. I dont know what the number is, but its found money and could be taxed higher. If Steve Jobs gives himeself 1mm Apple options at a buck or two apiece, and he sells them for $175 dollars each, would anything about his actions change if that FOUND income were taxed at 20pct higher rate ? Sure Steve Jobs busts his ass to increase the output of Apple Computer. But his ass busting does really change the multiple or base price assigned to the stock. Thats a function of the market and market trends.

Im not the economist, fortunately, but if we can arbitrarily assign taxation to given income levels, we can arbitrarily define what constitutes FOUND MONEY.

I would do the following:

if an individual, in any given year, has short term capital gains of more than 1mm dollars, AND that gain is 200pct or more (remember, for your taxes, you list cost and sales price, so gain percentage would not be difficult to calculate) you pay the existing cap gains tax, plus you get hit with a “You got lucky tax of 30pct”

For long term capital gains, it would be more difficult, but I would tax it at a gain greater than $1mm or a basis equal to the compounded CPI for every year held, against a 300pct increase and reduce the GOT LUCKY percentage to 20pct.. So in the Steve Jobs example, if he had held his stock for 5 years, then sold it at 175mm a share, he would pay tax on 175mm in gains at the current rate, then a GOT LUCKY tax at 20pct of $175mm or $35mm dollars.

Will it piss off rich people like me.. Yep. But it wont affect our behavior at all. At some point you know the difference between FOUND MONEY and EARNED INCOME. That stock that went crazy, the options or warrants you got that vested just at the right time, thats where people get in to the Fuck You money territory, and most if not all recognize that paying taxes at that level is a great problem to have.

The transactions this GET LUCKY tax is most likely to impact

So what does the blogosphere think about all of this ?

=

 

41 thoughts on “How the Fed is Getting QE2 Wrong – The Anti Wealth Effect

  1. Well Jon, after everyone gives you a dollar, maybe you can donate it to me….

    That guy’s a liberal, disguised as a conservative. The most dangerous kind, if you ask me.

    Comment by Matches Malone -

  2. I can’t think of site on the internet that covers the FED and sound money better than Lew Rockwell’s excellent free market website.

    http://www.lewrockwell.com

    Comment by givejonadollar -

  3. “In today’s world, when companies accumulate cash they feel the exact opposite. A growing cash balance conveys a feeling of power to CEOs. The more cash in the bank, the more power with in their industry that CEOs feel that they have. It is not an accident that CEOs refer to their cash balances as a “war chest”. The more cash a company has , the bigger the industry sledgehammer they have with which to make acquisitions, buy back stock and most importantly increase their own personal wealth through a rising stock price.”

    economics talk:
    yes this is true, both of CEOs and other rich people. economic models using propensity to save show that those with higher wealth have higher propensity to save. joe smith, however, living paycheck to paycheck, has a much lower propensity to save (and consequently, much higher propensity to consume).

    anyway, here is what i think needs to be done:

    (1) The tax code should be simplified. Unfortunately, our current political landscape will almost never be inclined to do this. (2) The government/people should not be bailing out risky speculation that only results in huge bonus payouts in the finance industry. It can be argued that the bailouts are necessary to save the economy as a whole, but this needs to come with STRINGS ATTACHED (i.e. where is my bonus check this year?). (3) The technology is already in place to switch over our electrical energy production, but the energy used for transportation has many more questions marks. We need to focus our national might on this problem so we can end the futile cycle caused by our dependence on foreign oil. This will fix our country.

    Comment by bbqwings -

  4. One must be no economist to know, that the application of speculations cannot go well on a continuing basis. Okay. Steve busts his ass to increase the output of Apple Computer. Up to now this has gone well, but sometime once the growth limit will be reached. And then?

    Comment by piksieben -

  5. One must only see what happens in Europe at the moment with the EURO. Nevertheless, the economic breakdown of Greece and Ireland has only happened because the state has given to the banks too much cash to low interest and then the banks have speculated with the money. And here no cash was hoarded.

    Comment by fenster1 -

  6. While reading the article the basic question occupies me again, what is better for the economy of a country: Shareholder Value or Stakeholder Value? Certainly, at short notice a company is always aimed on the Shareholder Value. But I do´nt think that this is the right direction for the future the USA. Behind the door is standing already the Chinese dragon

    Comment by sonnenhang -

  7. A common problem we have seen in our country is the unethical relations that CEO’s go through to become profitable. Taxes are a great notion and all but i think we really need to bring our attention to making sure our future negotiations are done so in an ethically minded way.

    Comment by wesleywilliam -

  8. I am glad that these decisions benefit my class.
    I really don’t think though that the millions of lower and mid class citizens have any say in how the Government changes tax laws. You really honestly think that my spending power will increase or decrease the market?
    Meh..
    Everyone is talking about 250k 1mm, well lets be honest here. Most Americans make 40,000/year. That is barely enough to break even on bills alone. So when I spend my dollar that I earn, I tend to be very cautious with who gets it. I know that my dollar doesn’t make one hill of beans (Texas twang for you out of towners..) on the economy. That dollar just happens to make barely any impact on how money works in this lifetime.

    Most of us read blogs, watch the news and listen to these blow hards on how they want things to be better for us.. REALLY?
    How?
    I mean if Mark Cuban gets a good break on Taxes, will I get to have a discount on tickets or concessions? I don’t think so.
    If Mr Cuban does have to pay 20% on his found money, will I get my Social Security when I retire..? I don’t think so.
    So when I lie toothless and broken, on my mattress on the floor of my one room efficiency, I will not be affected one bit by any change in the economy.
    Now I agree with some of the points in the blog, so when I win the lottery I would not mind 10% or 20%. The problem is that I pay tons in taxes, I make no money and I barely scrape by. The phat kats in office have no intention of helping me with my retirement or lowering costs of living. Now if it helps their EBITDA sure I may benefit a little.

    I guess the bottom line of my comment is this, I spend my money. I do not have a nest egg or savings because there are too many bills to pay and the cost of living is outrageous. My employer has no intention of spending more to keep me on the job. Reality, I need to make sure that those like Mark are conscious of what is good for me, so his decisions benefit me.
    Then when asked to make a decision on how to spend my 100 bucks, it will be for a Mavs ticket and not a Cowboys ticket..

    Comment by Robin Robbins -

  9. America’s problem is foreign oil. There’s 1 trillion dollars going overseas each year. We need to switch to natural gas to power cars and Wind/Solar for electricity. Read T. Boone Pickens, “The First Billion is the Hardest”. America needs to go to Rehab for its oil addiction.

    The automakers can start by making natural gas vehicles.

    Comment by growhappy -

  10. Hello Mark,

    (This is a comment from your September Social Gaming post which was now inactive).

    My associates and I have a high profile media
    play. It is pure Americana. We believe it will
    become a virally national phenomenon involving
    many exciting elements which you will find
    compelling – a promotional play with massive
    winnings, a proven word-of-mouth buzz, an
    attention getter to rival any ever attempted and a
    feel-good, do-good promotional media magnet. There
    will be also be a big bite for any needy cause
    related entity you support.

    Please join me for a teleconference call with you and
    your principals so that you can share our
    enthusiasm.

    Teleconference number: 218 339-4300
    Pin #: 269327
    Time and date: You name it

    Regards,
    Lawrence Zupan
    lawrencezupan@aol.com
    802 366-0110

    Comment by lawrencezupan -

  11. The problem with jobs in the USA is that the most guys didn’t want
    leave your State. Of course when you HomeState Ohio is you went in a big but all people too. My idea stay at your and you a job,not famous but money&family.

    Comment by apollus165 -

  12. Hi dichtung160…… the answer is…. resign

    Comment by rollad165 -

  13. Ill start off by sayin I think your “get lucky tax” is a pretty good idea. It would affect a very small group of individuals each year, so the amount of people bitching about it wouldnt be large. My question is, what kind of actual money will this bring in every year for taxes? More or less, whats the point of it besides just another drop in the well?

    Comment by imshifti3 -

  14. @darrin

    QE2 has nothing to do with the nation’s debt being unmanageable. All that is occurring is the Fed is buying treasuries from the banks. This replaces the treasuries held at the banks with cash. The Fed claims that by doing this that banks will start to lend money. Of course the Fed has expanded it’s balance sheet by over $2 trillion and that doesn’t seem to be working. However, I’m not saying it think it’s a good idea, I just wanted to point out that it has nothing to do with our national debt.

    Comment by isolf -

  15. Corporate cash balances are at an all time high. But I understand that corporate debt is also sky rocketing. I think the issue revolves more around the fact that government policies are making financial forecasting difficult for businesses. Tax rates make much less difference to a company than predictability. I’m betting most CEOs are much less concerned over whether their tax rate next year is going to be 32% or 35%. But when government says tax rates next year might be 32%, then again they might be 38%, AND we may impose another 12,000 pages of regulation to get there. That’s when CEOs get nervous. And that nervousness is encouraging companies to just sit on their capital and wait until all of the pieces fall into place.

    QE2 plays into this scenario by adding to the nervousness and uncertainty. It’s essentially the Fed’s and the government’s admission that our debt has reached an unmanageable point, requiring them to take actions that they swore in the past they would never take. The Fed cannot fix this problem. The best thing government can do is to set a business-friendly monetary policy, freeze new regulations that add uncertainty to the financial picture, then shut up and get out of the way.

    Comment by darrin365 -

  16. “……when People feel like they are getting richer, that wealth doesn’t convey power to the vast majority of the population.They reward themselves for all their hard work and success with increasing their standard of living”…..that´s right, but what is with the millions of people who work her life long hard, but even though never have a chance of wealth?

    Comment by dichtung160 -

  17. Unfortunately, no jobs are thereby created in USA.

    Comment by ortho555 -

  18. A good proposal, metropolitan111, but even better is to marry richly and never again to look on the Internet.

    Comment by osti160 -

  19. Mark,

    I think you are making a connection that isn’t actually there. You are saying that the Fed is making it easier for companies to hoard cash. I don’t believe that is true. The Fed is making it easier for banks to hoard cash by giving them cash in exchange for treasuries. That might allow companies to borrow money at a lower rate than they would otherwise but I don’t see how that would incentivize them to hoard cash.

    Comment by isolf -

  20. A few years ago anyone with any type of debt got a punch in the gut. Our economy has been in a state of deleverage or cash hoarding for 3 years. As a result, the speed at which money changes hands has slowed to a crawl. Money changes hands when consumers buy, businesses make capital investments or hire people, when banks lend money.

    The government has a lot of debt (understatement). When they print money, they are increasing the supply of money when supply is too high for demand the value of the money decreases. These are old strategies the govt has used before to pay down debt to balance budgets.

    Bernanke has given us plenty of warning of what he is empowered to do, he wants to see money turn quicker, some spending and a little inflation so he does not have to print the money. He is trying to be fiscally responsible by proposing regulation that restores confidence.

    If cash hoarders don’t start spending your money, the govt will do it for you.

    Comment by elgarza11 -

  21. rhinoinsider and I are saying the same thing. NO incentives are being offered to people who are trying to pay down their debts.

    Instead, its tax, tax, tax. Then the government has the audacity to use that tax money to give people a “break”. The best break we can give our citizens is the best chance to PAY DOWN their own debts by reducing interest rates on their debts.

    No, no breaks so people can run up more debt, but low interest rate breaks on credit card debt so people can reduce their debt. This then creates more spending capability based on ones earnings that can be plowed back into local economies.

    As more cash replaces prior debt, local economies continue to benefit.

    Comment by Alessandro Machi -

  22. Unfortunately QE2 is more like TARP 2 than anything. As I’m sure many people have figured out, the big banks have a significant amount of worthless paper that will leave them insolvent without Fed backing.

    My question: Why give this money right to the banks? Why don’t we overhaul more stimulus and start creating jobs for people to pay off their mortgages rather than making it easier for banks to take impairments?

    I love your work Mark, keep sharing your thoughts with the world.

    RJ Towner

    Comment by rjtowner -

  23. I think a one hit Wonder you can descripe in 2 folder’s
    1st. you stay one or two months at the top of the chart’s but after 2-3year’s nobody can remember it.
    2nd. You stay one or two weeks on top in the chart’s but after years ago everybody hear the sound & remember it

    Comment by biffar1 -

  24. The best way to save your money into the unknown future is,you save’d it under your bed….lol

    Comment by metropolitan111 -

  25. Nice post. But a lot of the cash on the balance sheet is overseas…

    http://online.wsj.com/article/SB10001424052748704469004575533880328930598.html

    Comment by Michael F. Martin -

  26. Not sure why you make the assumption they don’t know what to do with it? My assumption is they know exactly what to do with it – put it in safer savings accounts when they have more cash available and invest in riskier, but higher yielding ventures when you have less cash available.

    I also pointed to an article & study suggesting exactly the opposite of what you are claiming. Increased taxes show less savings, which to me implies more spending & investing.

    Lastly, my point was agreeing with the claim that increased cash does not mean increased spending. My point was to extend that point from corporations to individuals.

    Comment by psmcgarrity -

  27. @psmmcgarrity I have to disagree with anyone willing to give their hard earned money to the government when they themselves don’t really know what to do with it. Increased taxes usually means that people don’t spend or invest the money they’ve earned, as they have to give it away. The fear economy is rampant right now, and I think Mark has most of this analysis correct.

    Comment by Matches Malone -

  28. Even within that wiki-pedia article it is stated that the “wealth effect” is not observable in economic data, so it would lend itself to agree with the “anti-wealth effect” claim. To further generalize the argument, Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it (http://www.bloomberg.com/news/2010-09-13/rich-americans-save-money-from-tax-cuts-instead-of-spending-moody-s-says.html).

    I’m also not an economist, but I think the reason for both is simple to explain. As a individual or corporation, you have a certain profit target. By having cash in savings or in hand, you have to put less money at risk in order to achieve your target.

    In my feeble aconomic mind, it would seem the trickle down theory would support this system, saying that the savings then end up in banks, which make loans to small businesses which help to grow and stimulate the economy. To me it would seem that all that may indeed happen, but that it is a slow process and one where quite a few people get to take their cut along the way serving to widen the gap between classes.

    It would then follow that increasing taxes would require indivudals and businesses to make greater investments to meet their targets. This injects more cash flow into the economy. In my mind, it doesn’t redistribute the wealth, it distributes the savings of the wealthy.

    Comment by psmcgarrity -

  29. Pingback: theceodaily.com» Morning Update » November 9, 2010

  30. Big business does not create jobs in America. Big business is not the focus of QE2. It is solidly aimed at the housing market. We will not create jobs in America before the housing market is repaired.

    Comment by konop1 -

  31. Pingback: Economic Sense vs Common Sense « Vivre

  32. Wow. Was totally agreeing with you Mark, until your repost of the article about found money.

    If I’m reading that part right, a screenplay that I create, i.e. intellectual property, and then turn around and sell for in my case 1.5 million or more, I would get taxed at the Found Money rate. At which point, I wouldn’t necessarily be able to buy a house for my family and retire off the earned income, which I would be able to do under the current system.

    Maybe I’m not seeing the difference. A further explanation would be welcomed.

    Comment by Matches Malone -

  33. The lack of consolidation loan options out there today is frustrating for my wife and I.

    We got in over our heads for a decent reason: my wife was staying home to raise our three kids.

    She’s had to go back to work full time to help pull us out of the credit card mess that was helped by multiple banks lowering all our credit lines to where our used credit limits were and the credit card companies all jacking the interest rates up to the 30% limit.

    So, we felt like we had two ways to go:

    Go bankrupt

    or

    Stop paying our bills until the credit card companies worked with us to get a payment plan together that works for us.

    It sucks to have to screw your credit rating. But, we did get a couple of the credit card companies to do deals with us for 0% while we make reasonable payments for the next few years.

    It would have been nice if it didn’t have to come to that to work something out……..

    Heck, if someone would have given us a consolidation loan at a reasonable rate, that would have been fine, too.

    Comment by rhinosinsider -

  34. I am a married, construction worker making significantly less than $250 thousand a year as a household. The state I voted in (like many) voted largely for the GOP this term. My opinion, from talking to a lot of coworkers and friends is that the issue you are blogging about had no reflection on their vote. My point to start this ramble is that fear, not logic or solution was the focal point of the GOP’s campaign. 2 years ago we collectively voted for a change and because we are largely a people with short attention spans, when that change in the economy and our jobs didn’t happen in 2 years, we looked at who the majority was and voted them out. What plan for economic reform did the GOP run on this term? Don’t worry I’ll wait🙂.

    I’m not sure that a total overhaul on tax code is the solution either. The President (my opinion) made it clear Sunday on 60 minutes that billions of dollars can be made from not extending the Bush tax cuts for households over $250k. In your blog Mr. Cuban you called it raising taxes for these households, when in fact its just eliminating some deductions and loopholes they were allowed to use. I don’t see it as a HUGE mistake and in fact it can’t be worse than what we’ve had in place over the last decade.

    Your “Found Money” tax seems like a great idea. As a part of that tax bracket it would appear that you know what you are talking about. At least you have an idea for change. The country’s debt, economic and job issues cannot be solved by switching percentages around. Instead, sometime in my lifetime I would love to see Personal Finance be a required class taught in every high school. The government actually investing in “going green” products and ideals (see china). A regulated political campaign funding program which doesn’t allow special interest groups to buy their government officials. Each individual in the USA has to live within their means. Taking our money out of big banks that have made their fortunes off of our own stupidity and greed. Loaning people money they can not afford to pay back and capitalizing on the interest and failure of mortgage (sounds like the mafia). I applaud Obama’s attempt to continue to make a change and hope that Republicans will put political campaigning down for 2 years and actually join him.

    Comment by anxiousfan -

  35. Hi Mark,

    I found this blog via twitter and am glad to hear the views from someone of your wealth. As to the second post in August 26th, I have read some articles to this effect. A lot of people that fall in not the highest bracket but rather $150k range are small business owners or mid level executives. They do have significant wealth in the large picture of the spectrum of workers in the United States but they do have considerable expenses that you have laid out that dilutes the wealth as they earn. Articles have suggested to further define the tax brackets. An New York times article posts the fact that Lebron James and his dentist pay the same percentage of taxes depending on the location when Lebron files in Floria ( no state income tax same situation you find yourself in Texas). Would you abject to a tax on the ultra wealthy individuals such as yourself?

    Your second post today is how the Fed is handling the excess cash they are having due to good third quarter numbers that companies are producing. I think that share buybacks with the excess cash does not produce the effect on their stock they would desire at this point in time. Earnings per Share would be artificially high obviously due to the reduced outstanding shares since the cash is now spent and they are in turn a more highly levered company. This would in turn make the stock more risky requiring a higher return on the equity. This might not be the desire result most companies want. AAA rated companies such as ExxonMobil has the cash as you have described yet do not issue the debt at levels they provide equity. The pressure on financial managers is lessened since they never have to worry about missing interest payments on their debt but it is inefficient in our tax environment with corporate taxes. Just thought I would add my two cents, I will continue to follow this blog from now on.

    Comment by cjseichter -

  36. These questions on taxation are all wonderful, but it’s all just wishful thinking anyway. The tax code is inextricably broken. There is no way to fix it because those that control our government with campaign money and kickbacks (lobbies, corporations, unions, and other special interests) are all benefiting from the status quo. I’ve read a number of posts on this blog and others that all had good, thoughtful ideas on how to adjust the tax code, but none of them will ever get done because those ideas don’t help the people who command the most money on one side of the issue (i.e. the oligarchy).

    There is a glass ceiling in this country between the middle class and the upper class, and it gets bigger all of the time mostly because of our tax code. The wealthy in this country have access to lawyers and accountants and political protection that the upper middle class does not have access to. If you raise taxes on the rich, they don’t pay more taxes – they get their lawyers and accountants already on the payroll to crunch some numbers and pull some legal strings and they get away with it. At the same time, the increased taxes absolutely crush the upper middle class – the small business man who employs most of the people in this country.

    The best thing we can do as a country to both increase tax revenues and spur on the economy is to SIMPLIFY the tax code. If a high school graduate can look at his W2 at the end of the year and do a single calculator equation to figure out what he owes to the government, then you’ve freed an entire class of people from a needlessly complicated tax system that enslaves them. The truly progressive income tax is to make everyone pay the same percentage across the board with no exceptions, no exemptions, no deductions and no separate classifications of income. If it’s money that became yours during the course of the year, it’s all taxed the same.

    Comment by patrickdobson -

  37. I have no idea of the numbers but the “got lucky” portion may be smaller than we think. At some level the rich are indifferent to tax rates. Whether we measure it by annual income, net worth, or “got lucky”, the definition of “rich” has to be set high enough that you don’t deter the middle class from working hard to get to the next level.

    Comment by Mike Hart -

  38. QE2 and taxation are two different things.

    QE2 is about currency devaluation or the lack of other countries allowing their currencies to increase in value vs the dollar. Surely the timing has to do with the G20 meeting this week (http://bit.ly/d9oqwT).

    That being said, I agree with your taxation approach. Part of taxation is to pay for government services and part of taxation, at least in America, has to do with wealth redistribution. What you’ve suggested is an excellent approach to both, which almost guarantees that the government will never do it.

    As far as your quibbling with the $250,000 bracket, if your household earns $250,000 or above, you are in the top 1.5% of income earners in United States.(http://bit.ly/e9wI) If you believe that part of taxation should be redistribution, that is not an unreasonable cutoff, though it seems to me it should be lower. Top 10% or $125,000 seems reasonable to me.

    Is it unfair to redistribute money that people work their asses off to earn? Yes. One works significantly less hard to earn $125,000 in the US then someone would in the Democratic Republic of Congo. There are only a vanishingly small number of countries where one’s abilities and efforts would be better rewarded than in the US. That is a price worth paying, whatever your income level.

    Comment by ameyer32 -

  39. There is a difference now when it comes to savings. The ultra rich, defined as billionaires for my purposes), are still getting the best rate of return, even on their savings.

    This is destroying the economy.

    We need a reverse interest rate structure to start to even out an economy that has turned into nothing more than multi-level marketing, those at the bottom get less than scraps, those on top get more and more, even if they do nothing.

    People with savings of under a hundred thousand dollars get a nice juicy interest rate of 7 percent, those over a billion get the lowest rate on their savings, 1%, with a sliding scale in between.

    Next, incentivize credit card debt reduction by offering super low interest rates of around 2.9 percent for any consumer that is actually paying down their overal credit card debt every month.

    Re-rack everybody’s home mortgage interest rate to 4% without all the paperwork.

    None of these ideas require bailout money, but all of these ideas take the squeeze off of the consumer without forgiving any of their debt.

    Comment by Alessandro Machi -

  40. The whole point of QE2 is to demonstrate to the CEOs of the world their war chest will be worth less in the future thanks to increased inflation. The fact that Bernanke hasn’t committed to higher inflation targets is proof to me that QE2 won’t work.

    Comment by dereksthered -

  41. Mark – like my 84 year old Dad says – banks only lend money to those that don’t really need it. With all the money on the sidelines waiting to get into the game I agree that President Obama should not treat them like they are sitting on the end of the bench.

    People that make $ 250K do not want to be lumped in with the super-rich as if they are part of the problem. They are actually part of the solution.

    Comment by markkolier -

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