Wednesday, February 19, 2014

Second thoughts on Rajiv Sethi's Personal Reserve Accounts

As things stand now, Treasury gets the money -- the profit earned by the Federal Reserve. That money goes to Treasury. Under Rajiv Sethi's plan that money goes instead into personal accounts for everybody with a social security card. For the year 2012, that number was $88.4 billion. Divvy that up among 312.8 million people in the U.S. in 2012, and people get about 283 dollars each. Less than we got from George W. Bush back in 2008, the stimulus check everybody supposedly saved, maybe you remember.

If people let that money sit in their accounts at the Fed, it does nothing for the economy. If people spend the money, it boosts the economy some. But the money didn't come from nowhere. It's the money Treasury didn't get. If the government spending doesn't change, then the economy gets a boost when people spend the money.

But if the government cuts back its spending by $88.4 billion so as not to increase the deficit, this cutback undermines any boost there might have been from the people spending that money.

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