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Tuesday, July 23, 2019

Is There Too Much Capital ?



Most economists recognize that income inequality is too high and problematic for the well-being of the population.

That is true today regardless of which country is considered.

One of the secondary effects of high income inequality is a rise in savings; people with high incomes have extra cash to save or invest.

The ratio of Bank Deposits to GDP is about 60% for Brazil and over 80% for the USA. The St. Louis FED has prepared charts which are available at these links:


USA - https://fred.stlouisfed.org/series/DDOI02USA156NWDB

BRAZIL - https://fred.stlouisfed.org/series/DDOI02BRA156NWDB

There is so much cash floating in the banking systems that interest rates have fallen to just about zero. It can be argued that interest rates this low obscure the real cost of projects and encourage marginal investments.

Interestingly, the marginal income tax rate in the US was cut from 70% in 1984 to under 30%. The current USA marginal tax rate is about 39%

The ratio of bank deposits to GDP peaked at about 70% then, fell to historical levels of about 55% in 1995 and then rose to current levels.



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