NEWPORT BEACH, Calif. — The U.S. should adopt a combination of monetary and fiscal policies of zero interest rates and zero return on financial and real-estate assets as a way to eliminate its trade and fiscal deficits, while reducing the excessive debt in the economy and increasing American employment, assert two analysts at Pacific Investment Management Co. in a new paper.
However, "this policy would have a very deleterious affect on the funding of the pension system because the pension system as it is currently structured … favors a high interest rate and high equity market," Chris P. Dialynas, managing director, said in an interview. Mr. Dialynas co-wrote the paper with Saumil H. Parikh, senior vice president of PIMCO, Newport Beach, Calif. "So the policy would work to the detriment of the U.S. pension system."
Under the proposal, the Fed monetary policy would keep short-term rates at zero, while through other manipulation keep longer-term rates near zero, Mr. Dialynas said in the interview.
Fiscal policy would "include a tax to mitigate price gains in equities" and "a tax on real estate that that will prohibit a further escalation in prices and speculation normally associated with low interest rates," they wrote in the paper. Adoption of these taxes "provides for a wealth transfer from those in society that are asset rich to the federal government."
The combined policies would provide a disincentive to invest in Treasury securities, stocks or real estate, forcing Americans and foreigners ultimately to buy more U.S.-made products to reduce the trade imbalance and enhance employment in the U.S. economy, Mr. Dialynas said in the interview.