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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Bank tax proposed to help Greece bail-out

Posted by WARREN MOSLER on July 20th, 2011

Gets stranger by the day as all sides seem to be struggling to merge the political with the pseudo economic.

A Greek bailout adds nothing to aggregate demand, as it doesn’t result in any increased spending from current budgeted levels.

However, and while not all that large, this bank tax both removes net euro financial assets from the private sector,which lowers aggregate demand, and raises the banking system’s overall cost of funds.

Bank tax proposed to help Greece bail-out

July 20 (FT) — A proposal to tax eurozone banks to help pay for a Greek rescue has emerged as the possible central pillar of a new bail-out programme. The plan, which advocates believe could raise €30bn over three years, could help satisfy German and Dutch demands that private holders of Greek bonds contribute to a new €115bn bail-out. It would also likely avoid a default on Greek debt. Both Berlin and The Hague are still insisting that other options for private bondholder participation be included. Officials said those proposals – which include a government-financed bond buy-back programme, a German-backed bond swap proposal, and a French plan for bond rollovers – could be included as a “menu” of options available to bondholders.

8 Responses to “Bank tax proposed to help Greece bail-out”

  1. Neil Wilson Says:

    Except of course the one area that the EU has no jurisdiction is tax policy.

    They’d have to get taxation passed in every country in the Union.

    There’s more chance of juggling smoke than that happening.

    Reply

  2. Adam2 Says:

    Isn’t taxing bank assets the same thing as lowering the interest rates. But without the benefit of lowering the cost of funds.

    If that is the case ECB, should just lower interest rates.

    And as Neil says – it must be done in all countries to be effective.

    Reply

    WARREN MOSLER Reply:

    if all the banks are taxed the same it results in a ‘price hike’/interest rate hike vs not having that tax in place

    Reply

    Unforgiven Reply:

    Your solution seems much more doable. Simple, effective, nicely targeted.

    I think we need some t-shirts printed up… “Gyros not Euros”!

    Reply

  3. Rodger Malcolm Mitchell Says:

    “All our ignorance brings us nearer to death” T.S. Eliot. Could he have been predicting 2011 America?

    Rodger Malcolm Mitchell

    Reply

    Unforgiven Reply:

    Yes, the godless sharp-toothed yellow-threat will come to harvest the organs of our great-great granddaughters for sale on the black market. All to satisfy the stupendous debt we owe for our careless spending ways.

    I’ve got a better idea. Free America from BONDage.

    Reply

  4. Kostas Kalevras Says:

    Mr Mosler taking the opportunity from the proposed bank tax i ‘d like to ask a question on bank capital. Are Tier-1 capital along with retained profits (i think they also count as tier-1) deposited in a central bank account or are they just considered a normal deposit?

    My view is that most financial assets are more or less used at some point for purchasing a product/service. Savings are usually used for consumption or buying something like a house while company retained profits are usually used for investment. On the other hand a bank’s profits are retained and add up to their capital so that it can produce more loans. So instead of the usual Money-Production-Money we have a Money-Loand-Money with bank profits working rather as a leakage from the money stock (in the sense that they aren’t actually used to buy anything).

    Is the above correct?

    Reply

    WARREN MOSLER Reply:

    banks have liabilities of deposits and shareholder equity, and assets such as loans, and generally a few dollars in short term deposit’s like fed funds for ‘liquidity’

    the shareholder equity is the capital. there is no separate deposit called capital.

    yes, increases in bank capital and reserves constitutes a demand leakage.

    as does all that corporate cash piling up

    which is inherently a good thing- means we can have lower taxes for a given size govt.

    but our fearless leaders don’t know all that, and instead continue to grossly over tax us for the size govt we have

    Reply

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