Banks have too much cash and are taking actions to discourage savers from making more deposits. So reports The New York Times on its front page this morning.
Both big national banks and small community banks are concerned that they have too many deposits. Some banks are assessing fees on deposits. Others are dropping interest rates.
You’d think the banks would want the deposits, but the problem is that they have no place to invest the loot. The demand for loans is much lower than the demand for safe places to park some cash. The banks have to pay depositors interest even if they aren’t lending out the money, so when the banks take in too much money, their profits go down.
The fact that banks want to turn away cash proves two points:
- We need to raise taxes on the wealthy
- The federal government needs to stimulate the economy
The rightwing theory that lowering taxes puts money into the hands of job-creators just doesn’t work in the real world. When demand for goods and services is down, the rich folk (perhaps a more accurate term than the euphemistic “job-creators”) invest less in making goods and services and instead keep their money in their pockets—or in the bank.
Now I’m not saying that all the deposits in excess of loan demand in banks come from the wealthy, but since the wealthy own most of our savings, a good chunk of bank deposits must be theirs. Instead of letting them continue to accumulate cash because of the lowest income tax rates on the wealthy in the history of the western industrialized world, let’s use that money to pay off our federal deficit and strengthen the healthcare and unemployment benefit safety net for those victimized by the long economic contraction that the world is undergoing.
The federal government could also stimulate the economy using funds raised from returning tax rates on the wealthy to the standards of the 1980’s. The private sector does not seem to be up to the task of creating jobs, despite what Republicans say. If we keep taxes low or lower them more, the owners and executives of corporations will just keep more money. If we lower their cost of doing business by continuing to gut environmental regulations, they will pocket that difference, as well. If we want to climb out of the deep economic hole we’re in, it will take government stimulus, including:
- Redistributing income from the people who save it (rich) to those who spend it (poor).
- Rebuilding our ailing public infrastructure.
- Setting higher safety and environmental regulations, which will create new industries to meet the new needs of keeping people safer and trying to impede global warming.
- Supporting growth industries such as alternative energy with loans, grants and purchases of finished products.
With the government stimulating demand, the banks will benefit from both fewer deposits and greater demand for business loans.
It sounds like a win-win-win-lose, as follows: Win for banks, win for American economy, win for poor and middle classes; lose for the richest one percent, who have won the economic equivalent of the World Series 30 years in a row!
A little secret: even after paying more in taxes, our wealthiest will still be rich or very well off.