sookster
DP Veteran
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- Jun 12, 2011
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So this maybe a long one, but I want to thoroughly explain my train of thought when talking about this particular regulation. I think it is really important to explain everything as best I can, because I can already anticipate people from a certain ideology not liking this regulation. But with this regulation not only will the gap between the rich and poor decrease, but there will be less struggle experienced when interest rates are manipulated to combat price trends.
My current understanding of the flow of money (it could be way off), is that The Fed loans an inflationary amount of money to the U.S. Government for treasury bonds and interest that is printed. In order for there to be economic growth there has to be inflation. We all know too little or too much is not good for the economy, but an increase in the amount of available money allows for people and organizations to accumulate more wealth. When the government, through deficit spending, releases money into the economy, the method by which money is removed from the economy is interest rates. Interest rates takes a sum of money and transfers it to the banking sector. When more and more money is taken out of the economy, there is less available money which inherently increases the value of the dollar. This means the rate of inflation decreases whereby keeping overall prices down. Another way to think it through, is that if there is higher interest on loans, there is less disposable income which forces businesses to keep their prices down. Therefore the opposite is true. When there are lower interest rates there is more disposable income which allows businesses to increase prices; there is more money present in the economy decreasing the value of the dollar.
There is more to it of course, but this is where I want to focus for this post. If we were to take the most recent stimulus bill for I believe 780 billion dollars, that capital was pretty much infused into the economy. With such a large influx of money, there generally is enough money for business owners to increase their prices to obtain more profits. The next logical step is to increase interest rates to battle the increase in prices. The problem is that with increase in overall prices, there is less disposable income to payback or obtain another loan. Loans are the driving force for the economy. Not only do they provide funds for various projects that contribute to the economy, but loans are the prime mechanism by which the money supply expands. Without an expansion of the money supply, there is no more economic growth. This can be bypassed by issuing loans with no interest, but this still does not battle the price problem. Essentially, people have to struggle with less disposable income. When getting a new loan it has to be with a higher interest rate, and people have to pay for goods and services that just cost more. For some people, it is a double wammy so to speak.
But this struggle of having less disposable income due to inflation and interest rates, could be minimized if we were to regulate the amount of money a company reinvests into its labor force. In other words, I believe we should force profitable companies to reinvest their profits to their employees. With the added income for employees who work for solvent businesses, the increase of funds would allow for more disposable income. It would also allow for more loans to take place. More loans, more money for the banks, more money for the economy, and more stuff to fuel economic growth. The struggle because of inflation and interest rates would decrease. Finally, the gap between the rich and the middle class would decrease, which would in turn combat inflation for everyone; it would benefit everyone.
I know this regulation would go against principles with regards to big government. I do agree that we need to watch what we regulate. Simply, freedom is crucial for economic growth. In the same token, too much freedom can result into systemic risk. But I think basing decisions solely on whether or not there is expansion or contraction of government power is too simplistic. I think there are good times to increase government regulation, and I think there are bad times to increase government regulation.
I think it would benefit everyone if we forced solvent businesses to payback to their employees.
What do you guys think? Are there any other ideas? Do you think the majority of people would get behind a regulation like this?
My current understanding of the flow of money (it could be way off), is that The Fed loans an inflationary amount of money to the U.S. Government for treasury bonds and interest that is printed. In order for there to be economic growth there has to be inflation. We all know too little or too much is not good for the economy, but an increase in the amount of available money allows for people and organizations to accumulate more wealth. When the government, through deficit spending, releases money into the economy, the method by which money is removed from the economy is interest rates. Interest rates takes a sum of money and transfers it to the banking sector. When more and more money is taken out of the economy, there is less available money which inherently increases the value of the dollar. This means the rate of inflation decreases whereby keeping overall prices down. Another way to think it through, is that if there is higher interest on loans, there is less disposable income which forces businesses to keep their prices down. Therefore the opposite is true. When there are lower interest rates there is more disposable income which allows businesses to increase prices; there is more money present in the economy decreasing the value of the dollar.
There is more to it of course, but this is where I want to focus for this post. If we were to take the most recent stimulus bill for I believe 780 billion dollars, that capital was pretty much infused into the economy. With such a large influx of money, there generally is enough money for business owners to increase their prices to obtain more profits. The next logical step is to increase interest rates to battle the increase in prices. The problem is that with increase in overall prices, there is less disposable income to payback or obtain another loan. Loans are the driving force for the economy. Not only do they provide funds for various projects that contribute to the economy, but loans are the prime mechanism by which the money supply expands. Without an expansion of the money supply, there is no more economic growth. This can be bypassed by issuing loans with no interest, but this still does not battle the price problem. Essentially, people have to struggle with less disposable income. When getting a new loan it has to be with a higher interest rate, and people have to pay for goods and services that just cost more. For some people, it is a double wammy so to speak.
But this struggle of having less disposable income due to inflation and interest rates, could be minimized if we were to regulate the amount of money a company reinvests into its labor force. In other words, I believe we should force profitable companies to reinvest their profits to their employees. With the added income for employees who work for solvent businesses, the increase of funds would allow for more disposable income. It would also allow for more loans to take place. More loans, more money for the banks, more money for the economy, and more stuff to fuel economic growth. The struggle because of inflation and interest rates would decrease. Finally, the gap between the rich and the middle class would decrease, which would in turn combat inflation for everyone; it would benefit everyone.
I know this regulation would go against principles with regards to big government. I do agree that we need to watch what we regulate. Simply, freedom is crucial for economic growth. In the same token, too much freedom can result into systemic risk. But I think basing decisions solely on whether or not there is expansion or contraction of government power is too simplistic. I think there are good times to increase government regulation, and I think there are bad times to increase government regulation.
I think it would benefit everyone if we forced solvent businesses to payback to their employees.
What do you guys think? Are there any other ideas? Do you think the majority of people would get behind a regulation like this?
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