My thought is that we need an automatic tax policy neutralizer that will help make the Fed's monetary policies more effective. It can be done by changing the tax code automatically as the economy changes from the recession cycle to the high appreciation/inflation cycle. This automatic change in the tax code will help reduce economic cycles of deep recessions, and high appreciation/inflation rates, and help keep people employed. This automatic income tax policy would help maintain normal consumption, and production. thereby maintaining the standard of living, and the income, and wealth of the middle class, and the working poor. Thus reducing the need for a large government "safety net".
The automatic tax policy neutralizer I had in mind is the "2% Appreciation/Inflation Taxation Policy." I will explain in a little bit how this policy will work. First lets see what it will do. This reform tax policy would automatically change the tax code from encouraging debt creation, and discouraging saving, and money investment, to a tax code that encourages saving, and money investment, during the high appreciation/inflation cycle.
The tax code should discourage leveraging credit to make unproductive investments, during the high appreciation/inflation cycle. And then automatically revert back to it's original tax rates when the economy obtains an appreciation/inflation rate of 2%. This change in the tax code would help maintain stable prices, and full employment. Unlike the Fed's changing of monetary policies, which can create higher interest rates, unemployment, foreclosures, bankruptcies, and a recession.
Monetary policies can also increase a country's trade deficit if interest rates are increased to fight inflation. It would be much better for our economy if we used the 2% policy to help control inflation, and inflation psychology. By using the 2% Policy to fight inflation, we would be able to maintain employment, and not increase the value of the dollar with higher interest rates. With a weaker dollar relative to other currencies our exports would increase, employment would increase, and the dollar would appreciate as our balance of trade payments improved.
Why excessively high, or low interest rates, and large government deficits, in a global economy, are very counter-productive to global, and domestic economic growth rates is explained here in more detail in these free video lectures.
https://class.coursera.org/ucimacroeconomics-005/lecture
Please view all video lectures. Pay close attention to Lectures 10 and 11. "Power Of Macroeconomic: Economic Principles Of The Real World".
What is money in an modern economy?
Any discussion on how we correctly maintain the value of the US dollar, increase employment, and stabilize our economy must start with the question: What is money in the United States of America? Ninety-seven percent of our money is created by private banks as they make loans. Three percent of our money is represented by paper Federal Reserve Notes, and metal coins.
Because private banks create the majority of our money with debt, we must be primarily concerned with how much money is created by private banks, and when they create the money (debt) in the private sector. We must change what people invest in, and when they make those investments during the high appreciation/inflation cycle to correctly control inflation psychology. In real estate it is "location, location, location!! In macro economics it is timing, timing, timing!!!
In September 2008 our nation's economy, and the world's economies experienced the worst financial crisis since the Great Depression of 1929.
The US economy is slowly improving, but it has come about by housing, and asset prices being inflated with very low interest rate money created with the Federal Reserve's (Fed) monetary policy of quantitative easing. The Fed is currently purchasing between 70 to 80 billion dollars of Mortgage Backed Securities, and Federal Government Debt combined, per month (Jan 2014). This monetary policy is known as Quantitative Easing, which has the effect of lowering long term interest rates.
When the Fed reduces the amount of Government Debt and Mortgage Backed Securities, that they are purchasing, interest rates may rise. If interest rates rise, all the debt (money) that was created with a lower interest rate will decrease in value. It is very possible, if interest rates rise too fast another financial crisis could be created as people sell their (debt) money investments in a panic, to protect their wealth. A financial crisis could also be created if the collateral that is the security for the debt decreases in value!
Sign in or register to Coursera.org for free video lectures by economics Prof Mehrling. It is all explained by Professor Mehrling in these free video lectures. Pay close attention to lectures 21-6,7,8,9&10 Part 2
class.coursera.org/money2-002/lecture Part 2 of "Economics Of Money And Banking".
It is very important that tax policy is changed before the Federal Reserve changes monetary policy to increase, or decrease interest rates, now, and in the future.
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