We looked at one depression solution last week: lower or suspend capital gains tax.
The common thinking about the recent economic collapse is that financial instruments, like derivatives and quantification formulas, were the reason for the collapse. This might be like blaming the fuel tank for running out of gas.
To solve our economic malaise, we need more financial innovation, not less.
pic from jacreative @ Flickr
Another day, another Dow drop.
It’s obvious that all the maneuvering and stimulating have done little to stave off rapidly deteriorating global economic conditions. Like injecting a heart with adrenaline, the programs designed to re-start the economy gave it a boost, but only treated a symptom temporarily and never addressed the disease.
Why? Government money is too diluted. It probably takes almost as much money administering stimulus funds than the actual amount that will seep into the economy.
Austerity programs will only stunt or retract an economy. It’s a great gesture, but growth is the key.
To promote growth, governments should drastically cut, if not totally suspend capital gains tax.
The move would:
Instantly boost the market.
You could reasonably expect a 10 to 20 percent rise in the stock market. You could also expect new companies striving for initial public offerings to come out in full force.
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pic by woodleywonderworks @ Flickr
To say that pessimism reigns in the market misses the mark.
Fear and panic is a better description.
Conventional theory states that cool heads prevail in periods of excessive fear, just as hot heads lose during stretches of irrational exuberance.
There are essentially four scenarios of how this economy will play out over the next few years. At least one of them will flout the conventional notion that bad economies are time to make money.
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Things look precipitous.
That means, freaking scary. As in, falling off a steep ledge freaking scary. Europe is in shambles. Oil is threatening major industries in the southeast United States (like they needed the challenge).
We’ve talked about the problems here and here, too.
Other bloggers are talking about the uncertain financial future. Most are doubtful that the world’s governments are going to have any success with either their stimulus or austerity programs. In fact, they’ll lead to more instability.
Is there a way out?
Authors Matthew Bishop and Michael Greene recognize that we’re on the Road to Ruin, but believe there’s a way out: the free market. Their book, Road to Ruin, How to Revive Capitalism and Put America Back on Top, explains their philosophy.
Pic from alancleaver @ Flickr
Taxation with representation turns out to be pretty bad, too. And Investors and traders have enough to worry about in the taxation categories. They also have enough to complain about.
There’s capital gains tax and income tax for starters.
Then, there’s the ever-controversial double taxation of dividends.
According to an article from Yahoo, governments are just getting warmed up and while investors won’t necessarily bear the brunt of most of these taxes, they won’t escape them either.
In the ever-expanding need to buoy struggling governments, politicians are discovering some weird ways to bring in money.
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We’ve been through a lot the last few years. It’s been called economic hard times, a depression, the Great Recession. And on and on.
It’s nothing.
When we see the devastation caused by the earthquake in Haiti, we see a real personal and economic tragedy. This is a true calamity. Haiti and the Haitian people have seen more than their share of misery, from revolutions to extreme poverty.
The sad truth is made even sadder after several studies and reports indicated that Haiti’s economy had been steadily improving.
For most of us, this should serve as a reality check for our own lives and finances. No matter how bad things are for us, they pale in comparison to the hardships that the Haitian people face.
I hope you spend a little time today thinking about and praying for the people of Haiti. I also hope you spend some time thinking about just how lucky we have it.
Sending help…
Click here to donate to UNICEF’s relief efforts.
Click here to donate to Yele Haiti.
Click here to donate to the Red Cross.
Clicke here to donate to Mercy Corps
Depression is more than just a name for sliding GDP numbers. True, it may be an economic condition; but, it can also be a mass psychological effect that turns into an dire economic feedback loop.
People are depressed and the economy suffers; the economy suffers and people get more depressed. And so on. Think of Japan in the 1980s.
Forget profits and jobs. We know they have been damaged. What is more frightening–and far more devastating–is that the psyche has been damaged because of the recent financial turmoil. Factories can be rebuilt and jobs can be created, but when people stop believing, the chances for recovery are slim.
There’s one more sign that our collective conscious is slipping into a deeper funk.
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Ms. President @ Flickr
The rose-colored glasses aren’t always on.
We’ve talked about the current economic problems and possible future ills… here and here.
But that doesn’t mean that the bad times are here to stay. There are some fundamental reasons to be positive about the future.
As we covered recently, recessions teach. Once we’ve cleared this dip–or double dip–we have it in our power to have an even stronger economy. This isn’t guaranteed. We can flub things up for a long, long time, but eventually markets self-repair. If you let them.
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R. S. @Flickr
The official unemployment rate bounded above 10 percent recently.
But, that’s the official rate. Some economists say that rate is deliberately doctored to make it sound better for politicians who earn their keep by promising us prosperity and endless economic opportunities. These economists say the rate is closer to 17 percent.
It doesn’t matter whether you’re one of the 10 percent, or one of the 17 percent, if you were cut from your job, you’re going through some financial and emotional upheaval. This sense of chaos and loss can lead to depression.
But, like any challenge, it can be the trigger for positive change that can create stunning success. Here are some tips to beat the unemployment blues and make this a situation that leads to real, honest change for the better.
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The Great Depression was not a singular event.
In fact, it was a brilliantly destructive ballet danced by the incompetence of both government and industry.
Most people see it as a super drop in stock prices followed by massive unemployment. That’s really not the case. As the chart from Smart Money shows, it had a “W”-shape path out of the dire economy.
According to the Wall Street Journal, the economy was pulling out of the Depression in 1933, but a series of policy blunders sunk the powerful recovery and created a “W” shape.
By 1937, the economy slid back into a deep depression.
Could this happen again?
Business Strategy, Investing, Money, Online Investing AI, US Economy
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