Mark Gongloff — Larry Summers' Desperate Depression-Fighting Idea May Soon Be Reality

If you think people who save money are being punished by low interest rates, wait until they have to deal with negative interest rates.

Slashing rates well below zero to make it painful not to spend money is the desperate approach to avoiding an economic depression recently endorsed by Larry Summers, President Obama's former top economic advisor and one-time pick to run the Federal Reserve. With economic growth likely to be weak for the next infinity, the job market stubbornly awful and inflation disappearing, central bankers around the world have been toying with the idea for a while. Every day it gets closer to being a reality.

The European Central Bank is considering making European banks pay 0.1 percent interest on the cash they store at the ECB for safekeeping, Bloomberg reported on Wednesday. This would be a watershed moment in central banking, moving from the Federal Reserve's once-radical zero interest rate policy (ZIRP) into the unexplored territory of negative interest rate policy (NIRP).

Meanwhile, across the pond, St. Louis Federal Reserve President James Bullard told Bloomberg TV he thought the Fed should consider making U.S. banks pay money to park cash, too. He's been saying this for more than a year, but the idea is slowly gaining more credence.

The Huffington Post
Larry Summers' Desperate Depression-Fighting Idea May Soon Be Reality

Mark Gongloff

(h/t Charles Haydn at FB)

Wagging the dog's tail to make him happy. This is tightening rather than loosening, since it effectively imposes a tax on banks.

Marshall Auerback — Should we tax excess corporate profits?

In North America, the reversal of the net lending/borrowing position of the business and household sectors is of critical importance in understanding the evolution of financial capitalism over the last decade, with much of the speculative drive having been fueled by the growing savings of the corporate sector. It was the rentier behaviour of the corporate sector, with the latter finding it ever more lucrative to engage in financial acquisitions, which largely led to an abandoning of productive investment since the 1990s.

When an economy becomes financialised and therefore far less productive, it becomes more prone to fraud, greater financial instability, and higher rates of unemployment. But it serves the interests of the economic rentiers. Minsky was right: you need a “big government” to act as a stabilising bulwark against the financialisation of the economy. Taxing retained corporate earnings is clearly another aspect of dealing with the ravages of money market capitalism.

Michael Hudson calls it "taxing away economic rent."

Macrobits
Should we tax excess corporate profits?
Marshall Auerback | Corporate Spokesperson, Pinetree Capital Ltd.
(h/t Kevin Fathi via email)


Cant' get clearer and more succinct than this about the role of fiscal deficits:

Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).