How to solve the economic crisis: Punish savers and make them spend money

[jeffrey]

Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively.

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...

Punish savers and make them spend money | Anatole Kaletsky - Times Online

[kork13]

We don't even need to balk at this.... if you look at the comments section below Mr. Kaletsky's article, i couldn't find a single commentor who agreed with his position's merit (except one guy who simply agreed with the writer, and subsequently went on to rave about a separate issue).

In short, "He's a loony..."

[Investing First Steps]

I think you're using questionable logic if you think the solution to a country that hasn't been saving enough is to create more disincentives to saving. (There are plenty already)

[disneysteve]

Originally Posted by jeffrey

the Government could tax all bank deposits and other risk-free savings.

What a stupid article.

As far as taxing savings, I don't know if it is still true, but the city of Philadelphia used to have a personal property tax that imposed a tax on your investments each year. It wasn't a tax on earnings but on the investment value itself.

I don't think this would work anyway. People would just stop putting money in the bank and stash it in a safe instead. It would be better to earn zero interest than to earn a negative return due to taxes.

[Investing First Steps]

There's a lot of thinking going on right now that the solution to this bubble popping is to try and keep it going. Mercifully politicians seem to be at least somewhat willing to go ahead and take our medicine now. It is somewhat outrageous that in a liquidity crisis, I can't find a decent CD rate though.

AmtrustDirect has dropped all their CDs to 1%, I guess in the hopes that people won't pay attention and will let them auto-renew.

I do sometimes feel "punished" for keeping cash.

[disneysteve]

Originally Posted by Investing First Steps

It is somewhat outrageous that in a liquidity crisis, I can't find a decent CD rate though.

AmtrustDirect has dropped all their CDs to 1%, I guess in the hopes that people won't pay attention and will let them auto-renew.

Check bankrate.com. I think the top 1 yr CD is at 3.75 APY.

[jIM_Ohio]

I did not read the article, but the top post of the thread has a point and that is one reason that interest rates are lowered in a recession (to spur investment).

A third point would be to punish politicians, but you cannot get the people which sign legislation to create legislation to punish themselves.

[Investing First Steps]

Originally Posted by disneysteve

Check bankrate.com. I think the top 1 yr CD is at 3.75 APY.

Yeah, there are other places to move the money, but even if you look at Bankrate, you would think in a liquidity crisis you could get better rates. I have several CDs with GMAC bank and I'm tired of having to dodge their terrible rates too. Thinking it's time to simplify my ladder.

Originally Posted by jIM_Ohio

I did not read the article, but the top post of the thread has a point and that is one reason that interest rates are lowered in a recession (to spur investment).

I'm all for counter-cyclical policy, however I feel that if during a liquidity crisis the government has basically created no incentive to get deposits (their policy being 0% interest rates plus a willingness to buy the loans after they're made), then you're really perpetuating the thinking that got us into the problem in the first place.

Tax cuts (or rebates, or whatever) are fine and government spending on works are fine. There's some interesting argument on what the quickest way to turn government spending into public benefits as well as employment (I'd argue the military), but basically reducing incentives to save seems a questionable maneuver to me.