Reich is right.

[c1ue]

Re: Reich is right.

Well no. Not at all. What leads to the financialization of the economy is the unlimited extension of credit via fiat currency issued by a central bank. Last time I checked, that is where "money" came from.

Actually, GJ, what Dr. Michael Hudson points out is that your credit scheme cannot work unless the existing cash flows are redirected into the banks.

Specifically - if the government has X % of public cash flow - for example property tax, the banks cannot create an asset price spiral unless the X % of property taxes are reduced to Y. The difference (X-Y) is then what drives additional debt which in turn drives up asset prices.

Without low taxes, there isn't the cash flow to start a bubble. After all, the credit which created our last 2 bubbles was created by banks, not by the Fed although certainly the Fed encouraged it.

Only now is the Fed directly creating credit... or re-creating credit.

[grapejelly]

Re: Reich is right.

Grape,

Two things

You are right in that PORDUCTIVE investment makes everyone's life better, more things at cheaper prices, What is not to like.

But You are wrong when it comes to rent (rentier income), this takes money/goods/services out of the economy with no benifit to anyone other than the rentier.

That is why the two types of invesment have to be treated seperatly.


If I invest in a company that makes widgets a provides a dividend of 10% are year and employs 10000 workers is that different than investing in a hedge fund that pays a 10% dividend and makes nothing and employes six people? I would say yes, in the first case you are using your capital for productive purposes and Yes, you should keep that.
But in the later case you are just earning money because you have money (no it is not the same as the first case BECAUSE you are providing a productive benifit to society), and that should be taxed to provide and INCENTIVE for people to use their money as outlined in the first case.

Even Ayn Rand points this out.

Capatilizm is supposed to reward strength and productive uses of capital. Our present system rewards WEAKNESS and non-productive uses of capital, you can't have an economy like that (for very long).

I don't get this. The hedge fund example is a red herring. It is ONLY possible with limitless expansion of credit via a fiat central bank. There were blind pools of SAVINGS that were allocated to investment before the days of the Fed, but there were no "hedge funds" per se.

Actually, GJ, what Dr. Michael Hudson points out is that your credit scheme cannot work unless the existing cash flows are redirected into the banks.

Specifically - if the government has X % of public cash flow - for example property tax, the banks cannot create an asset price spiral unless the X % of property taxes are reduced to Y. The difference (X-Y) is then what drives additional debt which in turn drives up asset prices.

Without low taxes, there isn't the cash flow to start a bubble. After all, the credit which created our last 2 bubbles was created by banks, not by the Fed although certainly the Fed encouraged it.

Only now is the Fed directly creating credit... or re-creating credit.

who wants an asset price spiral anyway? Why is this something desirable? Shouldn't we get AWAY from this?

[c1ue]

Re: Reich is right.

GJ,

You're getting the point now.

Dr. Michael Hudson's view is that an asset price bubble is not possible without first disintermediating cash flow away from government (and the services it provides).

Agree with his socialist world view or not, it is an important observation.

I've posted elsewhere on a graph of the various states in the US with property tax as a % of median real estate prices...and lo and behold, the bubble states have the lowest %.

This is simplistic to some degree, but it does show in broad strokes the impact of policies like Proposition 13 in California.

Or at least it should - why on earth would a median home cost $200K+ in Fresno? With its historical 12%+ unemployment rates and average incomes in the 30K to 40K range?