Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)
Dear President Obama:
I listened to you talking about the need to extend unemployment insurance this morning 1/7/14. I agree unemployment benefits should be extended. At the same time we should change a couple of our income tax laws to help prevent the next financial crisis, and to increase the financial strength of the middle income people, and the working poor.
The question is : Are we using the correct tool to maintain economic growth?
Hi my name is Chris Hall. I have been in the real estate market since 1970 when I bought my first home.
I am writing you not to tell you my story, but the story of millions of families that have been affected by a flaw in our economic operational and guiding polices.
I believe “the flaw” is one of the reasons why poverty in our economy is increasing and the middle class is shrinking .
We need to use the income tax code to correctly control Inflation and inflation psychology and not only rely on the Federeral Reserve’s monetary policies. We need to change a couple of our income tax laws to help prevent the next financial crisis, and to increase the financial strength of the middle income people, and the working poor.
Enclosed you will find a short article outlining the income tax changes that are needed before the Federal Reserve changes monetary policy, which will increase interest rates! Higher interest rates could trigger another financial crisis.
Please stroll down the page at http://www.taxpolicyusa.wordpress.com to read the other articles about “Household Formation and Why We Have A Failure To Launch Generation”– “Government Policies That Keep You Homeless And Make Your Money Worth Less” and “ Underwater Mortgages Resolved Without Inflating Asset And Primary Home Prices”
Would you please sponsor the legislation to enact the 2% Appreciation/Inflation Taxation Policy, and the other tax reforms needed to improve the operation of our economy, and to maintain the value of our money (debt). If you can’t do it for America, please pass this information on to someone who will. Thank you
The Federal Reserve Cannot Control inflation, Inflation Psycholgy and Economic Bubbles By Themselves!
Ninety seven percent of our money is created by private banks as they make loans. Financial crisis are created by the excessive creation of private sector debt. (money) Therefore we should be concerned with how much private sector debt is being created in the private sector, and in which economic cycle it is being created, to control economic bubbles, high inflation, and deep recessions.
The question is: Are we using the correct “tools” to maintain economic growth?
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 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. This monetary policy is known as Quantitative Easing, which has the effect of lowering long term interest rates.
Low interest rate have benefited Wall St. and investors. In some US housing markets investors have bought more than 40% of the single family homes for sale. Single family home prices have increase, in some markets, as high as they were before the financial crisis occurred, due to investor demand. Encouraging investors to invest in single family homes with tax incentives, and other financial ploys during a recession is shortsighted, and could lead to another sell off in single family homes. The single family home market should only include the families that want to live in the homes. Single family home prices should reflect their purchasing power, not the greater purchasing power of investors.
The tax deduction that investors currently have, that allows investors to deduct the cost of repairing a house should be given to homeowners. so neighborhoods do not deteriorate. Homeowners will hire contractors to do the work, thereby reducing unemployment and neighborhood blight.
Investors have many opportunities to invest in multi-unit housing. All tax incentives in the tax code for investors to invest in single family homes should be eliminated. If an investor does buy a single family home in an area that allows multi-unit housing, they will quickly build multi-unit housing on the land, which will increase the housing supply during the high appreciation cycle.
We have had one primary home bubble, do we really want to repeat history again?
Consider this, If we could create an economy that allowed people to stay housed, employed, and productive, taxes would not have to be collected, or increased to pay for a larger government “safety net.”
We should eliminate the high appreciation/inflation cycle, and deep recessions, control the creation of economic bubbles, and the excessive creation of debt (money) with the “2% Appreciation/Inflation Taxation Policy.”
History has shown us that the Fed does not have the correct tools to control high appreciation/inflation rates, or stimulate the economy correctly. In the last 50 years prices have increase 1000%. If the 2% Appreciation/Inflation Taxation Policy had been enacted 50 years ago, prices may have increased only 100%. Even if prices had increased 200%, our wages would have maintained their purchasing power with affordable raises, and our manufacturing capabilities would have remained in the USA. Our production jobs would not have been outsourced to other countries. Our wages, and products would have remained competitive in the world market place. We probably would not have become a debtor nation.
We need good paying jobs in our economy. Not policies that create “paper profits” and higher prices. We need to enact the “2% Appreciation/Inflation Taxation Policy,” Now!!!; before the Fed changes monetary policy, and interest rates rise further. Higher interest rates will decrease the value of all the money (debt) that has been created with a lower interest rate. This situation could create another financial crisis as money (debt) investors sell their money investments, in a panic, to preserve their wealth. We need to create a sustainable recovery on Main St.
The 2% Policy would work like this: If asset, and real estate prices were increasing more than 2% a year, the tax on savings and money investments would decrease based on the appreciation/true inflation rate. At the same time the interest tax deduction would decrease based on the appreciation/true inflation rate. This tax policy reform change would automatically change the tax code as our economy changes from the recession cycle towards the high appreciation/inflation cycle. This change in the income tax code would reduce the stimuli in the tax code for people to create excessive amounts of debt (money), which creates high inflation, and high appreciation rates. Money (debt) would become more valuable because of the lower tax rate on money investments and savings. More real wealth would be created. Our economy would become more productive, and less speculative. After annual appreciation/ inflation rates returned to 2%, the tax rate on interest income , and the interest deduction would automatically return to their previous tax rate and deductibility, to maintain demand.
It is a major flaw in the financial operation of our economy to rely primary on the Fed to stimulate, and control inflation and inflation psychology with interest rate changes. Instead of interest rates changing by excessive amounts, the 2% Policy would help maintain interest rates in a much narrower range. This would allow businesses, and consumers to make long term financial decisions. The middle class, and working poor would be able to stay employed as the economy balanced itself. They would be able to retain and increase their wealth, and climb the economic ladder. The 2% Policy would reduce government’s interest cost on the national debt, government social expenditures, and decrease government deficits by reducing unemployment insurance cost, food stamps, Medicaid, and welfare usage.
With the 2%Policy enacted we would not be relying primarily on the Fed to stimulate the economy, and control inflation and inflation psychology with lower, or higher than necessary interest rates. Changing interest rates excessively up, or down has proven to be very damaging to a capitalist economy by creating unemployment, foreclosures and bankruptcies, as higher interest rates reduce demand from the bottom of the economy, which reduces the ability of people to climb the economic ladder.
Very low interest rates increase senior poverty. With lower interest income, seniors deplete their savings, they then turn to government programs to sustain themselves, increasing government dependency, and their deficits. With less interest income senior’s demand for products and services decreases when the economy needs more aggregate demand. The baby boom generation is retiring by tens of thousands in this decade and beyond. It will be very important for our economy to increase employment, that seniors are able to maintain themselves, and increase their consumption as the next generation matures. The baby boom generation will remain a very large portion of our economy for many years. Their consumption will add many jobs to our economy if they remain economic viable, and do not become government dependent.
This is a shortened version of the complete article posted at http://www.taxpolicyusa.wordpress.com ” Government Policies That Keep You Homeless And Make Your Money Worth Less”
You will find the other articles posted there also.
Please share this article with your friends, to get them involved. Ask them to send this letter to their representatives in Congress to show their support. President Obama’s e-mail is: whitehouse.gov/contact We don’t want to keep repeating history. There, has to be a better way than Gloom, Boom, and Doom economics. What are your ideas! Please comment!