ProfessorEmeritusPeterBagnolo's Blog

By The Grace of God

Professor Emeritus Peter Bagnolo

Professor Emeritus Peter Bagnolo
New York, New York, USA
February 21
CEO/Creative Director
Bio Short Bio Child Prodigy at age 6, at AGE 9 after a two-year bout with paralytic polio, was offered a three-grade skip, was a Ford Foundation Fellowship Recipient in Anthropology, & a bevy of Undergraduate and scholarships. Architectural Designer, Creative Director, in Advertising, Political Consulting in Illinois, tenured professor/chair/coordinator. Campaign Chair for Democratic Party in City in Illinois, and more. Above Bio By Professor David Elias, Literary/arts agent, culled from comments by deans, faculty, students and clients.


Professor Emeritus Peter Bagnolo's Links

APRIL 3, 2012 4:54PM

Why Raising Interest Rates Will Bring New Jobs

Rate: 2 Flag


Why Raising Interest Rates Will Bring New Jobs

Why Raising Interest Rates Will Bring New Jobs.

Low interest rates are helping only one group, the richest people in America, the greedy 1%. More on that later, right now more on why and how. However, first let us look at simple math.

If the Tea Party gets all that it wishes; ending Collective Bargaining, cuts in pensions, Medicare, Social Security, laying off millions of people, what will happen? Well, it cuts past and into the bone of commerce. The discretionary income of approximately 80 million people will be all but annihilated. The companies whom they support by buying goods and services will be diminished and those companies they were patronizing will go bankrupt and added to the present 31 million out of work and under employed will more than double making the depression of 1929 look like a lark in the park.

Right now in America there is approximately $7.77 trillion in savings. The vast majority of that belongs to the very rich, but about 40% of it belongs to upper-middle class and middle class families. They are receiving less than .005% interest earned at their banks. If the interest earned on those savings was the prewar interest of 4% - 5%, it would bring into play interest earned of $385 billion dollars, of which most would become discretionary cash and be cast into the market place where the Upper Middle, Middle and lower Classes would use for purchases, expansions, and investments. A friend told me though he has $750,000 in savings which should bring at 5% interest earned about $37,500 a year, from 2008-2015, with his present interest, he will lose about $350,000. That discretionary income would have allowed him to expand his business building a new architectural studio in Illinois and hiring additional several employees. Stuck at near zero interest earned he simply could not expand.

The figure of $385 billion dollars would see at least 40% - 50% or more spent or invested and thus pumped into the economy against the present rate of near zero interest earned pumps NOTHING into the economy and Mr. Bernanke wants to keep it that way for almost four more years. I say fire him and place Paul Krugman or even Paul O'Neil in his place, they agree with me, raise the interest rates to 7% and pay 5% interest earned in banks. the banks are getting rich on interest we should be getting and using the 0% rates to further crush growth. Look into the miracles of Argentina and Brazil or even Sweden. In Sweden there a $19.00 Per Hour minimum wage.There is no unemployed, no poverty and no billionaires and the average of the CEO's 50 top corporations is $1.8 million a year. I have said for years that anything above the figure of 25 times Average employee Compensation package is stealing from investors and that boards of directors are conspiratorial in raising each others income all out of proportion. The $1.8 million Compensation Package is less than 1/15th average CEO Compensation Package of about $27 million with salary at the low end of $11 million and bonuses and other benefits total which average to the $27 million mark, with many over $50 million to $85 million and more not counting Golden Parachute retirement Packages. Worst of all is that between 1993 and 2008, the top 1 percent of Americans captured 52 percent of all income growth in the United States.

One of the key factors in the crash of 2008, which some of us foresaw, pulled out if the market and shorted the Diamonds, Spyders and other such ETF’s representing the Financial industry; banks, stock broker’s, sellers of the same toxic mortgages that crushed America’s jobs markets.

Item number one: The low interest rates were designed, (Supposedly) to aid lower income people get mortgages, which is one reason why a small minority of alert Americas shorted the financial ETF’s. We knew that the vast majority of the toxic loans would fail, because, in the most simple, non-technical language possible, they would fail because the collateral was missing and so was the security of each loan, and because the market was stretched too tightly, because assessors/Appraisers , builders, developers, building product suppliers, contractors, and others, were all robbing blind the buyers, and the Federal Loan agencies. But an underlying truth was that they wanted to drive people away from savings, so they would be forced to invest in risky stocks  as Bernanke slipped and said earlier this year. Trouble with his theory was and remains that only a relative few were naive' enough to buy into it and they got hammered as others of us shorted again in August 2011, but the greater threat was seen as a conspiracy so the greedy depopulation nutcases could wipe them out financially, and the actions of those vampire-bat-brains, still keep that conspiracy alive.

Are appraisers and assessors corrupt? A good many people believe that they are either corrupt or know nothing about architecture, neighborhoods materials which are used and let me say, neighborhoods should have NOTHING to do with the value of a single home. The only way that red-lined neighborhoods were restored was to allow people to build better homes in questionable neighborhoods.  What appraisers are doing wrong is that they are appraising poorly designed homes with skid-row materials, (Fake wooden floors, thin vinyl, thin aluminum, Oatmeal board, a nail popping, glue heavy board made up of sawdust and chunks of debris wood, siding, wasteful forced air heat which filters which were once wholesome many of which are now emitting a variety of toxic chemicals, and more all of which emit carcinogenic formaldehyde or worse) and appraising them through the roof.

In one community on a lake front lot of expensive homes, a three bedroom home with vinyl siding, a microscopic sized lot, cheap forced air HVAC, and loaded with severe, carcinogenic formaldehyde out-gassing was appraised at $795,000, while solid brick homes with high quality materials, and larger were under a million dollars. The people who bought it were price swindled and later lost the home, as the taxes went from $4,000 later to $15,000. Highway robbery? I think so. 

During the bubble. housing and land prices were often marked up 300% - 1,000%+. Land bought at $2100 or less an acre, after "development" was sold at prices up to and more than $290,000 per acre. Houses with poor HVAC Efficiency, over priced building materials, over priced lots, over sized homes and lots, with minimum square footage, in many subdivisions, of 3,000- 4500 sq. ft. These factors lead to much higher taxes, taxes which buyers could not afford, houses and land they could not afford. However, the real question is who were the people making bona-fide the most obvious highway robbery involving the greediest people on the planet?

Were assessors in bed with all of the above? Even now, honest real estate people have told me that homes, now like automobiles, lose 20% - 30% and more of their value the moment their deals have closed. Even now in some areas, a house selling at $500,000, immediately upon closing, sags to a value of  $350,000 - $400,000, and yet residents are paying taxes based upon the selling price of $500,000. With that reality in place, were even the governments  of state, county, city and townships are taking advantage of the fraud by imposing ever-higher taxes and blowing the money on needless building and No-Bid contracts to supporters? In my community, a far upscale one, but for a Republican community, a thrifty one, has dropped real state taxes on many homes by 5%, while other surrounding communities, are raising their taxes, and in many suburban communities vacant lots have taxes of $7500 - $14,500.

So, who are really killing the building industry? Everyone involved in setting the fraudulent development, building, selling, assessing, lending, and even the taxing bodies of many communities. Further, retail spaces in in three western suburban taxing districts of Chicago refuse to drop their prices for rentals, some asking for as much as ten year rental contract, which often includes paying a portion of the real estate taxes, services, including garbage collection, cleaning, and yet requires the renters to do a final cleanup, despite, promising the new renter, the owners would clean-up after the previous renters. In seeking temporary studio space, my reply was simple, "I will pay your taxes on the space, but I want  equity of 8.3% each month." Meaning that at the end of one year I would own the property. Their answer was a solid, no answer.

The chances of anyone who takes out a low interest loan  defaulting within a few years of owning the home for many of the above reasons is higher than not. So, still the people buying homes are either those who do not need a low interest loan and those who do, and most of which will go into default. How do we fix these problems? There are several ways. The minutely low interest paid on those Americans who have some savings, is driving them closer to poverty each day. At the present time 50% of all Americans are (Re: Census: 1 In 2 Americans Is Poor Or Low-Income ). ( U.S. Poverty: Record 49.1 Million Americans Are Poor According To this...

There are three factors involved in the wreckage of this economy: The fascist-like G W Bush Administration, The fascist-like Barack Obama Administration and the fascist-like organization known as The Tea Party.

Now let me tell you how raising interest rate on savings earned is a better idea than keeping them low. 25% of Americans have no savings at all. The average American has $117,000 in debt; the combined debt of Americans is $2 trillion Dollars.

There about $4 trillions in savings among the other 75%, of which 75% belongs to the upper 20% of Americans, of which 65% belongs the top 5%, of which, 50+% belongs to the upper 1%.

Thus among the middle to upper middle class Americans which make up about 70% of the population have only 25% of the savings, which comes to $1 trillion dollars. Those with the remaining $3 trillion are well rewarded with far better than a 5% interest rate, but the rest are lucky to draw a .25% interest rate. If they raise interest earned rates on savings to 5%, as it was a decade ago, a person with $100,000 in savings would earn an additional $5,000 a year. That person is now earning .0025 or twenty times less or sans compounding to keep it simple, $250 a year.

A person with $250,000 savings at 5% would earn $12,500 a year; a person with $750,000 would earn $37,500, but now earns only $750 a year.

That money earned would be discretionary income and would be either invested or spent. 75% of those with that much discretionary income would eventually spend it and any more profits they made by investing, according to records, placing, nearly $60 billion plus and other into the market place (including the approximately $1 billion ad one for those who invested well.

That would spark the economy and create 50k new jobs. Placing a high excise tax on outsourced jobs would bring in another 20 million jobs. Sanctifying Geothermal HVAC in homes, office and factories and going from 3.5” walls to 6” – 8” walls, going from the present R-13 to R-30, and from the current R-R-20 in ceiling increasing to R-50-65 would create a decrease in power use of more than 30% a year bringing also nine million more jobs putting the nation at a 94.6% - 96.25% employment level, the highest since WW II.

Ending the wars would save $1.25 Trillion a year. Shutting down 75% of our 900 military bases around the world would save an additional $325 Billion a year, giving America a surplus with again in four years, the first surplus since Bill Clinton’s $5.9 trillion surplus. In memory no Republican administration since Teddy Roosevelt has had a surplus. Want to talk about spending? The Republicans give away contracts with a record amount of No-Bid contracts.l .

“The United States has had a public debt since it’s founding in 1791. Debt relative to GDP rose rapidly during the 1980s under president Ronald Reagan, whose economics policies increased military spending and lowered tax rates. Gross debt in nominal dollars quadrupled during the Reagan and Bush presidencies from 1980 to 1992. The net public debt quintupled in nominal terms. Debt held by the public had declined from 28% to 26% of GDP in the 1970s; by contrast, it rose to 41% of GDP by the end of the 1980s.

“Economist Mike Kimel notes that the five former Democratic Presidents (Bill Clinton, Jimmy Carter, Lyndon B. Johnson, John F. Kennedy, and Harry S. Truman) all reduced public debt as a share of GDP, while the last four Republican Presidents (George W. Bush, George H. W. Bush, Ronald Reagan, and Gerald Ford) all oversaw an increase in the country’s indebtedness.[10] Economic historian J. Bradford DeLong, former Clinton Treasury Department official, observes a contrast not so much between Republicans and Democrats, but between Democrats and "old-style Republicans (Eisenhower and Nixon)" on one hand (decreasing debt), and "new-style Republicans" on the other (increasing debt). Bruce Bartlett, former domestic policy adviser to President Ronald Reagan and Treasury official under President George H.W. Bush, attributes the increase in the national debt since the 1980s to the policy of "starve the beast" and an aversion for tax increases. Similarly, David Stockman, director of the Office of Management and Budget under President Ronald Reagan, as op-ed contributor to the New York Times, blamed the "ideological tax-cutters" of the Reagan administration for the increase of national debt during the 1980s.
Together with the budget deficit, the political climate at the time was one of the reasons given by Standard & Poor's to revise the outlook on the US sovereign credit rating down to negative on April 18, 2011. Standard and Poor's downgraded the credit rating by one notch from AAA to AA+ on August 5, 2011, for the first time ever. The long-term outlook is negative and it could lower the rating further to AA within the next 2 years. The downgrade was met with severe criticism from the Obama administration, commentators, and other political figures. The US still has a AAA rating from other ratings agencies.

G.W Bush debt increase was higher that that of Obama. The total debt incurred by H. G. W Bush Sr. and G.W. Bush was the highest of any three presidencies in US history.


Author tags:

raising interest rates

Your tags:


Enter the amount, and click "Tip" to submit!
Recipient's email address:
Personal message (optional):

Your email address:


Type your comment below:
Good analysis Professor. It's good to see you back.