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TheOldBarn

1.38 - The Cost Of Capital And Finance

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Currently, the US is still a good bet for investment. 1.38% is the rate we pay now - which is pretty darn tooting good. When I was in business school, what finance was basically about was the cost of capital.

Today, and there is no argument, our corporations are not wanting much for capital. What holds them back from spending is largely uncertainty. Uncertainty of demand, uncertainty of the future cost of capital.

What drives a US economy in the long run is investment in schools and basic R&D. What should drive the US economy now is not cutting on R&D spending, not cutting government jobs for the most part.

Sure, we are in debt big time. This is obviously something we need to address big time. Republicans always talk about keeping the tax rate the same, or even lowering tax rates. But doing this takes a reasonable amount of spending reduction, and spending reduction by the only entity that can spend outside of private business is absurd. The simple reason is jobs.

If you want to increase revenue, cutting taxes when they are already at all time lows is foolish.

 

Corporations look at their cost of capital, now it's pretty darn incredibly low. There's a lot of investors out there with their 401K's and the rich. Believe all the economist in the world when they say you can easily raise capital gains taxes by quite a few points before it hurts investment.

It is true however, that small business is strapped. The banks aren't lending to small entities much. Small business relies on the bank for borrowing. Bring back Glass Steagall and build some public infrastructure. The banks will start loaning to small business.

Raising the tax rate to say 40 percent for the top ten percent is a great idea because the world sees that the US is serious about paying down its debt. Do that along with modest cost cutting on things that are really not worth the government dime.

 

Yes, do take bold steps in cutting government spending long-term. Do this by really taking a look at where you can cut without pain for the average and the poor long-run. And then, invest in the things that create better commerce. Bring back reason and fairness - transparency if you will. Do this, and success here will spur a world economy that is currently falling apart.

 

 

In the long-term there are no two ways about it, we need green renewable energy sources - provide the basic research to help make that happen.

In the long-term, we need better public education, meaning better well trained teachers who can operate a school in a new way. Teachers, good ones, should be coveted and they need to make good salaries. Public school should be great for every kid no matter whether or not they come from rich families or poor families.

In the long-term, we need a better infrastructure big time.

In the long-term, we need A-1 Healthcare that is cost competitive and available for all.

Politicians should talk about the cost of capital more. We all should.

 

 

Peace!

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The problem is that raising it to 40% on the top only brings in about a trillion dollars over ten years. These the President's own numbers from his budgets. When you are spending on average 1.3 trillion over budget every year a trillion 10 years ain't all that much. Now if you said we were going to cut spending by a trillion a year while raising taxes then I could get on board with that. But if all you are going to do is raise taxes without reducing spending then what is the point?

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The problem is that raising it to 40% on the top only brings in about a trillion dollars over ten years. These the President's own numbers from his budgets. When you are spending on average 1.3 trillion over budget every year a trillion 10 years ain't all that much. Now if you said we were going to cut spending by a trillion a year while raising taxes then I could get on board with that. But if all you are going to do is raise taxes without reducing spending then what is the point?

 

You make a fair point but I was talking about raising taxes bit more than the Presidents idea of restoring the tax rate to Clinton's era. I would also raise capital gains to about 35 percent - and the 40 percent individual payroll tax would start lower than 250 K per year - it would progressively be reduced from 40 percent all the way down to 150 K depending on family size. All things being equal, I would certainly do what I could the help small business out. Serious investment in sane infrastructure spending would be a huge step in that direction. All easily affordable and doable things the government can do now --- with no less private investment whatsoever/ actually it would increase private investment. It's about growth where growth is needed.

 

Also, this is constructive because it is seen as a sign to investors around the world that the US is serious about reigning in debt without cutting back on government spending in a way that would deepen a recession.

 

Peace!

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