Gambling with Monopoly money

In TaxVox, Eugene Steuerle has an essay today on Multi-Trillion Dollar Fiscal and Monetary Gambles.

Read Collusion by Nomi Prins to understand the monetary gamble. Current monetary easing on a global scale is creating money for the wealthy to play with. It has not been injected to Main Street. That was only financial stimulus, not economic stimulus. It did nothing after the Great Recession but protect wealth so that the bankers rewarded themselves, like the rich always do . The only injection is for their servants and toys.

I call this rent seeking, monetary style. The new scam to play with all that monopoly money is Bitcoin. If the monopoly players keep it to themselves, it does not affect the economy. Call it MMT for the wealthy.

This build up is only a problem when it becomes a pyramid scheme. When the rich get out, we all figure out that the new asset is worth nothing. Those at the bottom of the pyramid are holding the bag.

Why does this happen? Capital gains are taxed at 20%. Whenever they are that low bubles happen. The way out is to tax them at a higher rate.

To make more monopoly money, Mulvaney wants to make those rates lower by creating by unilaterally indexing capital gains taxes.

Asset price growth is all inflation. More money chases the same assets their price goes up. In finance, this creates a need for more junk. It can be spent down in luxury goods or sold to the masses. Because the money is fake, the Fed creates money for the middle class to buy the junk assets. When the assets crash, the Feds bail out the big banks and the middle class is holding the bag.

If the middle class borrowed to get real stuff, their debt outpaces their income and it all crashes. Then liquidity becomes an issue and the working class cannot get their real money. Panic ensues and real people get hurt. More fake money is created and the poor are holding the bag.

On the fiscal side, if we have increased spending, bond sales take away some or all of the injection into asset inflation caused by tax cuts.

Deficit hawks eventually swoop in and demand cuts in spending and taxes to keep people working harder and longer and increase make asset inflation possible again, this time with real money. They assure us that raisins taxes during a recession hurts the economy. Bosch.

Panic soon leads to regime change, but not too much change because the wealthy control both sides. The rich used some of that money to buy Congress. Even if Sanders or Warren get elected with small dollar support, until we have public financing, Congress will never do enough.

Enough what? Raising transfer payments and taxes on the wealthy to increase the real economy. This gives beneficiaries money to buy real stuff and results in growth. This could happen in the old regime, but that would mean more equality and less cheap labor. For reactionaries, that would be wrong.

To keep the poor in check, there must be an enemy to divide the lower classes against each other and not against them. Immigrants are the latest target. Trump may be more craven then stupid after all.

The answer is to end rent seeking before the crash. Increasing marginal taxs on CEOs and capital gains taxes on capital gains and dividends both end rent seeking. To really slow speculation down, scrap capital gains taxes and put in an asset tax. Set the rate at 22.5%, between the Democratic rate of 25% and the GOP rate of 20%. Cancel previous credit on taxes paid when the asset is gifted or inherited while waiving it when transferred To a qualified, broad based ESOP.

It turns out that there are really good tools to use in a recession. All we have to focus use them. If we use them now, we can prevent the crash in the first place, slowly and without disruption. If this is class war, make the most of it!