Monday, October 19, 2009

Fiscal Stimulus Transfer Money from Savers to Spenders (and Wall Street Investment Bankers )

Governments are flooding the economy with money to create monetary and fiscal stimulus. This lowers interest rates and Wall Street hedge firms and others use this to make money. As Martin Sloan says, they use leverage or "borrowed money." The result is that savers get little interest if they keep their money in prime money market fund or treasury bills. But it is not just Wall Street Investment Bankers with their big buck bonuses. It is a transfer of wealth from savers to spenders, that is individuals who borrowed big for the too-large home. And much of this has been going for a long time, and one of the problems is that government officials such as the fed did not do anything about asset bubbles, thinking that just reducing inflation sufficient. A share economy eliminates asset bubbles as people make their money off the revenue from their investments not by buying and selling them.

Of course, the money transfer should go directly to the businesses. This is what Ann Petifor and the New Economics foundation would say. Mark Warner advocates allocating some of the TARP bailout to small businesses. He beleives that the banks provide a due diligence. If Congress directly allcoated the money, there would be political pressure to lend to certain businesses in certain districts... John Edmund's book, Brave New Wealthy World excoriates the inefficiency in the developing world when government connected banks make loan decisions to crony capitalists. The reporter pointed out a business that had the same loan for thirty years and has been paying each payment on time. The bank is now calling the loan, apparently to shore up its balance sheet. Yet obviously, he never paid it off. Would not that business be better off with a share loan, the bank takes a share of gross revenue.

But government stimulus can be distributed by sortition juries. They would check and watch each dollar, each business receiving a government loan, to ensure that the money is put to constructive purposes.

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