^ Traders seeking speculative winnings : they will have less to do if we apply some sensible balanced-budget investment rules
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For quite a while I’ve held a deficit Federal Budget to be a good thing. A deficit Federal budget means increasing the supply of Treasury bonds and bills, the world’s safest investment, upon which almost every financial institution relies as foundation of asset stability. $ 16 trillion of Treasury bonds and bills also act as clearing house for much of the world’s economy; their stability keeps the world economy on track. I’ve also favored increasing the supply of “Treasuries” because in economic crisis times, the only way to sustain vulnerable Americans is to borrow the money they need for survival.
All of these purposes remain in the mix. Yet today I am rethinking my preference. I’m not sure that $ 16 trillion of investors’ money should be parked in safe investments. Couldn’t at least a big part of that $ 16 trillion better serve our economic future by committing to innovation enterprise, research, and experiment ? Risk investors do play their part already, yes; more than a trillion dollars of venture capital money juice start-ups and second-round newcomers. Still, it’s not enough. For every start-up or newcomer that secures investor money, ten to 100 don’t receive it. Research gets put on hold, or fails altogether, because the funds simply aren’t there. Unleashing a fair portion of the $ 16 trillion would benefit many.
For that reason, I am thinking that a balanced Federal budget has found its moment. Maybe Federal budget drafters should even seek a surplus and use that surplus to pay down part of the $ 16 trillion., It happened during the Clinton years; why not again ? I opposed the Clinton surplus at the time because interest rates were much higher then, and many investors relied on Treasury bond interest for an ongoing income. Today, however, interest rates have fallen almost to zero; and even the upcoming Federal Reserve interest rate hike won’t do much to make Treasury bonds income-productive. meanwhile, that money sits parked.
SO : is it time, finally,to go all in for this major monetary policy change ? You would think so; but there’s a pretty strong counter argument : much investment today goes to arbitrage — algorhythmic speculation that benefits no industry, and no workers, only speculators who spin their huge pools of money through one rinse after another. Speculator money never touches the ground., It provides neither innovation commitment nor stability. It must be curbed.
To that end, I propose the following Federal Reserve rules and Tax law changes:
- the tax rate on trading profits should be three-tier (today it is two tier) : profit on investments held longer than five years gets the 15 percent rate now in effect
- the tax rate on investments held for one year up to five gets the 28 percent tax rate now in effect
- the tax rate on investments held less than one year get a 50 percent tax rate.
- stock investments cannot exercise shareholder voting rights unless held for more than five years. Stock held “in street name” can only be voted, even then, pro rata by individual investors in hedge funds,etc. according to their share of the entire fund
- Margin requirements for purchasers of derivative instruments should be the same as currently for stocks. The Federal Reserve should have power to set those margin requirements and be able to do so up to 100 percent if it deems the need
- require all-purpose banks to apply savings depositor funds only to investments requiring a five year holding per,iod.
These changes would make it far less attractive for speculators and “activist investors” to bogard publicly traded companies and difficult for them to pursue a strategy of speculation — a use of money that benefits no one but the speculator.
Come to think of it, my suggested reforms ought to be enacted regardless. Our nation needs to commit to innovation, research, and experiment, including the huge task it will be to transition, even in part, from fossil fuel energy to alternatives. Balancing the Federal budget and changing our financial policy seems the right step to get us to this next phase.
A final note : you may be thinking “this writer favors Bernie Sanders and his anti-big banks agenda.” You would be wrong to think so. I have no problem wit.h bigness in banking. The world’s banks are consolidating rapidly; ours need to do so as well in order to maintain our nation’s position is the world’s financial clearing house and to keep our dollar the world’s reserve currency. Breaking up the big banks would damage us internationally. The reforms that I have suggested will work everything worthy in Sanders’s agenda without bringing on the mistakes he seems unaware of.
—- Mike Freedberg / Here and Sphere