Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

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19 April 2010

Rahn - The Rise of the Job and Savings Killers

On 14 April, Richard W. Rahn, a senior fellow at the Cato Institute and the Chairman of the Institute for Global Economic Growth, published a commentary in The Washington Times entitled The Rise of the Job and Savings Killers.  This is a very good and hard-hitting perspective on the effort of the Obama administration to destroy the savers and job-creators of America.  Rahn says:

Responsible people are fearful. Those who save for the future increasingly understand that they are the targets of the predatory class. They see the United States and most other governments running record deficits, and most implicitly understand that this will not come to a good end. Greece and California are already serving as the canaries in the coal mine.
The Federal Reserve is holding short-term interest rates below the rate of inflation, so those who have interest-bearing savings accounts or certificates of deposit are seeing their savings erode, while at the same time, the Obama administration and Congress are increasing tax rates on interest, dividends and capital gains. Governments are expropriating (stealing) people's savings.
The U.S. and most other governments of the world are issuing debt at such a rapid rate and at such high levels, with no real plans to reverse such behavior, that it is almost a certainty they will not pay back what they owe. How will they avoid paying back the money? Well, there is always the old, tried-and-true way of inflation, whereby the central bank (the Federal Reserve in the United States) prints so much money as to erode the value of the money — so the government ends up paying (in real value) only cents on each dollar it borrowed.
 His other main points are:
  • General inflation is very unpopular in the U.S. and cost Jimmy Carter a second term.
  • The European way is often to target bankers and rich people as "greedy" and simply drop the interest rate promised on government bonds or delay their maturity date to rob those investors of their contractually agreed return on their investment.  Full bond payments are made to "politically correct" groups such as labor unions.  "Obama's rhetoric attacking "greedy" bankers and insurance companies" suggests he will do the same here.
  • The government has not taken more than 15% of gross savings in any recession in the past 30 years, with an average quarterly taking in that time of about 2%, until this recession, in which it is taking more than 37% of gross savings with its super low Federal Reserve interest rates, so savers are paid less than the inflation rate and getting negative returns on savings.
  • Savings produce new factories, buy equipment, fund R&D, and create new jobs.
  • Many savers are astute and consume more and save less when the return on savings is negative or low.
  • Obama is about to raise the maximum federal tax on interest, annuities, royalties, and more by 24%, thereby forcing less investment and savings.
  • Obama is about to raise the maximum federal tax rate on dividends by an obscene 189%, raising it from 15% to 43.4%, thereby forcing a large reduction in investment.
  • Obama is raising the maximum rate on capital gains by 59%, thereby forcing a destructive reduction in investment.
  • Many state governments plan to follow his lead with similar higher tax rates.
  • As the government's induced inflation rises, many people will be pushed into higher tax brackets, though their standard of living will be decreased, and they will be taxed more heavily, sometimes at rates greater than 100%!
  • The political class in Washington and Europe "is engaged in the most massive act of wealth destruction since World War II."
As I have said many times, the Democrats are the party of Mass Destruction, not of beneficial change.  On the issue of will Obama target bankers and the rich on their investments, in further ways than those already written into the ObamaCare law and the plan to end the George W. Bush tax cuts, we must remember how he stole the money that GM and Chrysler owed to their creditors.  We also have to remember how much he admires European socialists and how badly he wants to Europeanize the United States of America.

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