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> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in moti

> The thing is, when you hoard wealth as numbers on a balance sheet rather than spending it, you are actually destroying that wealth. Money which is not in motion is not money. This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. A small fraction of it might be allocated to equity, and a smaller fraction of that might be allocated to startups, etc. Setting aside the UBI goal, even if they weren't returning the money to the investment cycle, your funding scheme is difficult to implement. The importance of cash reserves varies from company to company: 1. Some have pretty much no reserves, and when the overnight market collapsed in 2008, their ability to make payroll was suddenly in question. Otherwise productive companies had operations jeopardized by their financial arrangement. A tax on cash reserves would create additional incentive to produce more risky companies. 2. Banks have huge liabilites and cash reserves in the form of deposits. They're even required to keep certain amounts of money in liquid cash reserves. Do you propose offsetting cash on hand with liabilities owed? 3. Apple actually took out a huge loan against overseas money to fund a dividend. Overseas money is currently not taxable, do you wish to change that? Do you even need to tax reserves if you do? 4. Using the same company for another example: Apple is reputed to finance their supplier's manufacturing facilities. Do you want non-Apple companies to make investments in their company, their supply chain, etc. they currently aren't making? One has to assume boards don't approve capital investments aren't profitable. If the choices are pay a taxable dividend, hold as highly taxable cash, or invest it at a slightly negative, we may see more unproductive investments. Note that I'm not against UBI, but we have to think about how changes to tax law results in changes in behavior.

notaharvardmba 11y ago
These are all good points. It should also be pointed out that the Fed is now paying interest on excess reserves, and has been since 2008. This is basically free money to banks who retain extra reserves on their balance sheets. This was put in place to incentivize excess reserves to hopefully counteract the losses on mortgage backed securities until the housing market and wage inflation could catch up with all the money that was printed with mortgages and derivative securities between 2001 and 2007. Unfortunately everyone was caught somewhat unaware, because while it seemed like inflation was low, it actually was too high. At lot of it went into the oil markets as well. What the Fed is doing now is simulating low inflation by having a sort of reverse black hole of interest on excess reserves. They are going to track that up as they raise interest rates and that will give them a new tool to control the money supply. Lower that rate, and the banks will have to invest it elsewhere, stimulating investment. All of this is only necessary because Congress won't increase government spending, which has been the traditional way we've gotten out of these things.. We needed more like a 10T stimulus to really fix stuff..
- dnautics 11y ago
  Tl;Dr the Fed doesn't know what the f--- its doing, and empirically there's no sign things are going to get better. What makes you think they would have been able to manage an even bigger stimulus any more effectively
  - chadzawistowski 11y ago
    That's not a good tl;dr. The Fed only controls monetary policy and does not affect fiscal policy, which is Congress' responsibility. The Fed is doing a seemingly good job with the only tools available to them.
    - dnautics 11y ago
      If you define "good job" as the rich getting richer and the poor getting poorer, then fine.
deleted 11y ago
[deleted]
kristianp 11y ago
> This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. A small fraction of it might be allocated to equity, and a smaller fraction of that might be allocated to startups, etc. Reinvesting cash in low return investments is not what a company should be about (unless it's an insurance company). It's basic company finance that if you can't reinvest into the company to increase earnings at a greater rate than a bond, then you should get rid of the cash (pay dividends). I'm not talking about apple here, just pointing out that reinvesting into low risk treasuries isn't much different to putting it under a mattress.
eli_gottlieb 11y ago
>This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. Quite true. But if the government then takes the cheap bond-prices, turns around, and implements fiscal austerity (because it ostensibly has too hard a time paying back those low-risk, low-interest bonds!), well then we've got a very funny situation. Then we've got the situation that people are being taxed so that the government can pay for-profit firms to hold their money while producing fewer public services and goods than before. Or, in very short, we've then got a situation in which the public is being forced to pay tribute to large financial firms.

notaharvardmba 11y ago

These are all good points. It should also be pointed out that the Fed is now paying interest on excess reserves, and has been since 2008. This is basically free money to banks who retain extra reserves on their balance sheets. This was put in place to incentivize excess reserves to hopefully counteract the losses on mortgage backed securities until the housing market and wage inflation could catch up with all the money that was printed with mortgages and derivative securities between 2001 and 2007. Unfortunately everyone was caught somewhat unaware, because while it seemed like inflation was low, it actually was too high. At lot of it went into the oil markets as well. What the Fed is doing now is simulating low inflation by having a sort of reverse black hole of interest on excess reserves. They are going to track that up as they raise interest rates and that will give them a new tool to control the money supply. Lower that rate, and the banks will have to invest it elsewhere, stimulating investment. All of this is only necessary because Congress won't increase government spending, which has been the traditional way we've gotten out of these things.. We needed more like a 10T stimulus to really fix stuff..

dnautics 11y ago
Tl;Dr the Fed doesn't know what the f--- its doing, and empirically there's no sign things are going to get better. What makes you think they would have been able to manage an even bigger stimulus any more effectively
- chadzawistowski 11y ago
  That's not a good tl;dr. The Fed only controls monetary policy and does not affect fiscal policy, which is Congress' responsibility. The Fed is doing a seemingly good job with the only tools available to them.
  - dnautics 11y ago
    If you define "good job" as the rich getting richer and the poor getting poorer, then fine.

deleted 11y ago

[deleted]

kristianp 11y ago

> This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. A small fraction of it might be allocated to equity, and a smaller fraction of that might be allocated to startups, etc. Reinvesting cash in low return investments is not what a company should be about (unless it's an insurance company). It's basic company finance that if you can't reinvest into the company to increase earnings at a greater rate than a bond, then you should get rid of the cash (pay dividends). I'm not talking about apple here, just pointing out that reinvesting into low risk treasuries isn't much different to putting it under a mattress.

eli_gottlieb 11y ago

>This money is not simply sitting under a mattress. It's being reinvested, often in low risk treasury bonds, lowering the cost of borrowing for the government. Quite true. But if the government then takes the cheap bond-prices, turns around, and implements fiscal austerity (because it ostensibly has too hard a time paying back those low-risk, low-interest bonds!), well then we've got a very funny situation. Then we've got the situation that people are being taxed so that the government can pay for-profit firms to hold their money while producing fewer public services and goods than before. Or, in very short, we've then got a situation in which the public is being forced to pay tribute to large financial firms.