Sheila Bair, former FDIC chair, has made the following proposal (WaPo), in part, to illustrate the absurdity of what we view as sound economic policy.
The set up:
Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore.
Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)
Of course, this brilliant plan would solve multiple problems, ranging from that pesky 1 percent (we would all be 1 percent) to education and social welfare (who needs it, if we are all members of the investing class). As for the long-term fiscal implications (not that anyone cares any more), we could simply print more money.
If it works for the financial community…why wouldn’t it work for the rest of us. This summer could be “recovery summer.”
Well played, Ms. Bair.