Tax on Thrift

Two problems: Banks are in very poor condition with the deposit insurance grossly underfunded. The federal deficit interest takes a growing and significant portion of each year’s tax revenue.

The honest solution: Raise taxes and where possible reduce spending, trying to avoid making the recession worse.

The chosen solution: An old geezer tax. The Federal Reserve has set the discount rate at under 3%, allowing banks to push interest rates on CDs down to under 3%. But the prime rate is 6% and loans (if they are available) cost 8% to 10%. Banks profits are up. Being able to borrow at less than 3% and loan at greater than 6% means big profits. With high bank profits, bank defaults are less likely.

Furthermore, the federal debt can be financed with short-term 3% Treasury bills and notes that the same old geezers glumly continue to purchase. The 3% differential between the discount rate and the prime rate is an indirect voodoo tax on purchasers of CDs and short-term government securities.

Read my lips: It is a tax on the retired, the thrifty and the conservative. It continues to provide little or no monetary stimulus to the economy.

BYRON EDWARDS

Orange