Bruce Kasting on a transaction tax

Bruce Krasting warns Dean Baker and the 99%'ers to beware of what they wish for.

Read the post at Zero Hedge, Enlightened Self Interest by Bruce Krasting

Krasting concludes:

I’m half serious and half joking this morning. I’m looking at the TV and all of the OWS stuff that is happening around the world. This is gathering speed very quickly now. Anyone who thinks this is going to go away in a few days is just nuts.

One global response from the “Deciders” to the current protests could be a transaction tax. That would be “popular”. It might just be something that is done as a way of appeasing the crowds. Whatever one thought of the possibility of a transaction tax a month ago, those estimates have to go up today. The bigger the protests, the greater the probability that the tax is implemented.

A transaction tax would be like Prohibition. The Volstead Act just made crooks rich. It cost the government billions in lost revenue. The population came to hate it. It was bad policy that was adopted because of a visible protest movement of that time.

The left side of my brain is with Rogoff. A transaction tax would kill liquidity/capital formation. That would result in a huge spike in volatility. This, in turn, would result in broadly lower equity multiples. The connection between stocks and the economy is too tightly correlated. A very sharp downturn in the economy would have to follow. For these reasons, I’m violently apposed to a transaction tax.

The right side of my brain says, “Bring it on”. I’m confident that I can survive and thrive in that environment. Fortunes were made in the 30’s. What may come will be no different.

I do want to be clear about this. The 99% have been pushing the transaction tax. They may get what they think they want. But in the end it will result in more pain for the 99’ers. The concentration of wealth in America will just get higher and higher up the ladder.

A transaction tax that limits liquidity will not create jobs, it will end up costing the government net tax dollars. But guys like me will do just fine.

Be careful of what you wish for.

Is it the case that "a transaction tax would kill liquidity/capital formation," as Rogoff claims?

Or is the real issue effective demand?

Yves Smith understands OWS while most remain clueless

The title of her post at Naked Capitalism says it all. But the rest of the post is well worth reading, too. Yves shares her own experience with this process.

On #OccupyWallStreet and the Power of Open Source and Consensual Processes

What I would add is this is not new. It is the way the countercultural movement was organized in the Sixties, and it is derived from ancient tribal cultures worldwide.

It is also how all the organizations in which I have participated since then have been organized. It's cumbersome at first, but it works by building consensus, mutual appreciation and trust, clarity, and coordination. It is based on interpersonal group dynamics and increasing adaptability rate by freeing exploring options.

Those who participate in this movement are going to learn a lot that will stand them in good stead for the rest of their lives. It sure changed my life. I got involved in this after coming out of the military, which is about the most top-down, hierarchical, and authoritarian organization in existence. What a contrast.

It is also how things work in the blogosphere through the interactivity of comments. It's one reason I am here. It works.

Update:

Bruce Krasting at Zero Hedge, I go to Zuccotti Park

With pictures.

Keith Olbermann Reads The Statement Released By The Wall Street Protesters - 2011-10-05

Bruce Krasting — Mortgage relief in the works?

Go back a week to an article in the NY Times (Link). The guts of this story is that the Administration is working on a plan to Re-Fi residential mortgages on a massive scale.

Bruce Krasting, More Hints Of A Giant Housing Cure Backed By Obama And The Fed

This could be big if true. It's long overdue, and it should have been done when so many people were asking why Wall Street got loans and not Main Street. Until the housing market clears out, the recovery won't get legs.

(h/t to Andrew P commenting at Pragmatic Capitalism for this link)

The cage is rattling

Dean Baker is OK with the US reneging on its debt.

Defaulting on Debt Is Not the End of the World

Bruce Krasting thinks this is a terrible idea:

Dean Baker - "let's Just Default"

Meanwhile, back at the ranch, Bill Gross is not only out of US debt but short and holding a record amount of cash:

Exclusive: Bill Gross Is Now Short US Debt, Hikes Cash To $73 Billion, An All Time Record

Complicating matters, gold, oil, and commodities are soaring:

Premarket Summary: Inflationary Hysteria

Should be an interesting Monday morning. The natives are restless.