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5 Easy Steps to Saving the Economy
Earlier this week, the Federal Reserve, in the second part of their two-part series entitled 'Fatal Conceit: The Return of QE', announced that they would be enacting a tax of $600 billion on each and every U.S. citizen in order to appease Wall Street and the newly commissioned QE Czar in Washington (rumour is this will be Paul Krugman). The money "raised" from this de facto tax would be spent as any reasonable-minded central planner would advocate: by temporarily propping up asset markets for 6 months through monetizing the federal debt. This will effectively kill two birds with one stone for the Fed, allowing Wall Street to engage in their pursuit of massive bonuses in a hyper-liquid environment, and allowing Obama to go merrily on his way creating new jobs (WANTED: WINDOW-BREAKER (night shift) / WINDOW-FIXER (day shift)).
Although these policies will undoubtedly, somehow, possibly rescue the ailing U.S. economy from the precipice of the hyperinflationary Japanese-style deflationary spiral awaiting it, I have decided to come up with a set of policy perscriptions that the U.S. government may want to consider in the event of the surfacing of unintended consequences . Now, instead of the typical Austrian perscription (i.e., cut all spending and allow everything - including the U.S. middle/lower class - to be liquidated even though there is a massive debt overhang), my policies attempt to find balance between maintaining economic sustainability and preventing the chaos and various negative externalities that 100% austerity measures would cause. Also, my policies recognize that income and wealth inequality has been on the rise in America for decades now as a result of federal reserve inflationary policies and a system of legislation that allows the people or corporations with the most expensive lawyers to set up very high barriers of entry to the American Dream.
5 Easy Steps to Rescuing the U.S. Economy (in a Politically Feasible Manner)
1) Allow Ron Paul to have a go at cutting out all pork in the budget.
The Department of (Mis)Education, at least half of all military spending, entitlements directed at anyone beyond the poverty line, any subsidies for anything (including but not limited to college students majoring in sociology, the sugar industry, farmers), the criminalization of marijuana, social security (which is nothing but a transfer payment system anyways), all need to go. If anyone complains about not helping the weakest among us, respond by saying that unemployment programs (i.e., people are given benefits depending on their willingness to learn a new trade and prove their ongoing learning of said trade), as well as welfare and food stamp programs will either be untouched or improved. It also would not hurt to raise taxes somewhat on the very wealthy (i.e., incomes above $1,000,000) since taxes are going to have to be raised eventually anyways.
2) Declare a one-time jubilee of $X on all personal debts, with half coming from forcing the lenders to eat the losses and the remaining half coming from printing money to pay off the banks. For the rare American that is debt-free, they would get the entire amount in cold hard cash.
Where $X is the amount needed to make the average mortgage LTV ratio for the bottom 1/3 of American homeowners equal to 90% instead of the 130% it's at now. All of the ancient civilizations had to enact a jubilee at one point and it's the only way for the U.S. to maintain any semblance of a non-feudal society at this point.
There is no question that the balance sheet of the average American is in dire straits. Rampant speculation in the housing market fuelled by low interest rates and a sad ignorance of how house prices work resulted in a severe disequilibrium. Either we let all the "irresponsible" banks and homeowners go under, or we recognize two unfortunate-but-true facts. 1) The fragile banking system that exists today is mainly a product of government influence and the entire TBTF system could be torn down once at least some of the banks are sufficiently capitalized, and 2) Many Americans were forced to go into too much debt as a result of their jobs being offshored thanks to record low artifical interest rates and the slave-type conditions the Chinese are willing to accept - they deserve at least some compensation for these phenomena.
Sure, the amount of money printing and debt forgiveness required here will be very inflationary and painful, but since actual people (and not corporations or banks) will be getting the initial infusion of cash, they will benefit the most. Net creditors (i.e., mainly banks, China and Japan) and pension funds will be hurt the most, but hell, the banks deserve it and China and Japan had it coming anyways (default or money-printing, pick your poison). To avoid a complete dollar collapse, the U.S. gov would have to a) commit to never money printing like this again for the foreseeable future, and b) drastically cut all spending. Seeing as how politicians always pledge to cut spending and never do, the only way to avoid dollar collapse may be to take a year or two actually cutting spending (i.e., see policy (1) above) before enacting the jubilee. Sure, banks and some corporations will take a lot of the pain here, but these are precisely the parties that have unduly gained for decades at the expense of the American worker, thanks to government intervention, and who are sitting on record cash balances or will rapidly see higher sales anyways.
3) Eliminate any tax that dissuades the hiring of Americans (e.g., payroll tax, social security, etc.), introduce tax credit and deductions for hiring Americans, and tax firms for every worker they hire that is not American.
Labor-arbitrage must be stopped, even if it means making American corporations less competitve. An eroding middle class is not sustainable and will only lead to feudalism, given the quantity of impoverished workers in the world willing to work for peanuts. Americans simply cannot compete with poorer foreign workers, and every nation needs to look after its own populace first and foremost before considering charity. Of course, the other (and better, albeit not as politically feasible) alternative is to allow free trade but to make the income tax system significantly more progressive or to even consider equalization payments between tax brackets. Severe levels of wealth inequality are simply unfair. Even if you believe that people deserve what they work for, it is a fact of life that money is made not only through creating value, but also through cheating, being lucky and inheritance. Given that these cannot possibly be measured reliably, they must be estimated and applied uniformly (through a progressive taxation system, for example). The level of "acceptable" wealth inequality is of course determined by the electorate in any democracy, through their voting. To the extent that the electorate is willing to forego economic growth in exchange for fairness of result, a progressive tax system is ideal. People must understand that this depression did not happen overnight for most Americans, but has been in place for decades and only hidden by increasing levels of unsustainable leverage.
4) Declare that no bank is too big to fail. Set up a government-run and free electronic money system whereby depositers no longer have to rely on the banking system to receive money or make payments/write cheques.
The whole concept that the government must insure the deposits of banks and that a massively leveraged banking system is required for capitalism to function efficiently is absurd. As Nassim Taleb likes to say, nature gave human beings two lungs and two kidneys for a reason. In any free society, people should be allowed to deposit their money somewhere and money should function as a store of wealth, free from the effects of a banking system that is prone to over and malinvestment during times of euphoria, as any group of investors is apt. Thus, the government should set up the electronic infrastrure required for people to deposit money in accounts and use their money as they wish, without the money being borrowed or used surreptiously. Sure, lots of banks will fail, and some may need to be taken into receivorship if the crises escalates. But at least a lot of parasitic banks/bankers/executives will be purged from the system and unable to gain access to an almost cost-free source of funds (God knows the FDIC underprices their insurance...)
5) Once the effects from the jubilee, budget cutbacks, labor arb tariffs and banking system remodelling policies are observed, and the financial system and American people are on somewhat solid ground, bring back the Gold Standard and alter the mandate of the Federal Reserve such that it solely engages in macroprudential supervision/research and must seek the permission of congress, the President and more than 50% of the U.S. population prior to printing any money - money that will be given to each and every American in equal instalments (see Policy 2 above). Then, allow interest rates to rise and be determined by market forces. Let the chips fall where they may.
Any questions?
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Splitting the nation into 4 smaller nation states is probably a good sloution also. Northeast. The South. Jesusland with Texas as the capital encomassing the plain states all the way to Utah. And lastly the West (CA, AZ, NM, NV, OR, WA, ID)
Not sure the folks in ID would be too thrilled having anything to do with CA. And CA might not be happy with the high-volume water users on the east side of the Colorado River. Let the Navajos et al work with Mexico on AZ & NM and maybe even NV.
Since I already in the middle of Jesusland, I won't have to move once the divvying up commences.
Something like this???
http://switchboard.nrdc.org/blogs/kbenfield/the_nations_of_north_america...
Also - google "Nations of North America"
Pretty interesting link there R. Thanks.
if Greater Texas cut a pathway to Lake Michigan, this Nation would have it all.
I like it.
I agree with the other commenters - #2 is stupid. It shouldn't matter that the borrowers of home mortgages are underwater or not. They agreed to borrow $x amount of dollars, and the house is simply collateral in the event that they cannot pay. So, if they lose their job and get foreclosed on, the house goes to the bank (who loses because they are not asking for additional collateral when the collateral value goes down). Best case the bank and the debtor mutually agree to some modification. They don't get to put the loan back because they can still afford to pay off the $x they agreed to but the collateral happened to go down in value.
NO ONE should get to just write down their debt because their collateral value went down - they agreed to pay a debt, they need to be held to it.
It may not be there willingness but the ability to pay.
For banks it may be a choice of getting something or nothing.
A workout is nothing new for commercial banks, just apply the same to consumers.
Agree. The ENTIRE real economy MUST serve the banks and bankers. That is why it exists.
All people who are not in banking should work and get back on their hamster wheel in order to generate profits and bonuses for bankers. After all, bankers provide an INDESPENSIBLE service of lending money they don't actually possess, fictitious capital conjured from thin air, and they DESERVE to be repaid in REAL work and REAL productivity and REAL wealth.
The universe ORBITS around banking and not real economic activity. We must not lose sight of that fact. We only exist to serve bankers and banking. NOTHING whatsoever should ever be permitted to stand in the way of a banker and his profits and bonus.
If the hamsters can't run fast enough, all their assets should be divided up amongst the bankers who conjured credit to lend to them.
THIS is justice. If you can't come up with the collateral, then cut the organs out of your children. The free market will decide the appropriate ratio of your child's kidneys to the number of FRNs a banker wrote onto an accounting ledger to "lend" you. There will also be a market on pounds of flesh. People who work for a corporation and lend money on its behalf that it doesn't actually even possess SHOULD justly receive the fruits of everyone's hard labor.
NOW GET BACK ON THAT WHEEL and run motherfucker. Get your children on that wheel. The bankers and their heirs need electricity to power the hyperbaric sauna with big screen 3D HD plasma and keep the Cristal in the sauna fridge cool.
@trav777
In your opinion, when will the entire charade collapse? What does the end of the game look like?
Is it a random moment when a treasury auction doesn't go as planned? Is it a terrorist attack or a war that puts the dominos in motion? Is it a revolution by the citizens? Is it some random support level in the DXY that triggers a run? Some random ratio of GDP to interest on debt that suddenly spooks everyone? Jenna Bush elected president?
If you don't mind, please give some insight into the end-game from your point of view.
Respectfully...
this is easy - it's when oil supply begins its terminal decline.
The "end" is already happening all around us.
There isn't going to be an "event" unless there is a collective repudiation of debt and its moneyness. In practical effect, this would look like Argentina or Weimar. Even these took years and went in fits and spurts.
This regime's supporters have said "they have lacked the bullhorn moment." Needless to say "we should be glad for that." Clint Eastwood said famously "a man has to know his limitations" and it's always good to see in the blogosphere as with tv "we can ignore such eccentricities" but government simply doesn't work this way. Policy "in the negative" only works through "personification." In short "unless you're gonna hang someone forrgetttabouttit." That's why I say "keep it simple." Go after Bernanke Rand Paul "if you mean it" otherwise "stay stuck in abstract hell." And "since the incoming Speaker called out the Administration's entire economic team and basically got them all it is only trend spotting having gotten all the underlings he go for the last man standing in the form of TS Geithner." I personally thought TS Geithner did a "superhuman" job this spring and said as much as few to no others did in preventing a total catastrophe in fixed income. To call this recovery "anemic" however is not mere understatement. When coupled with soaring commodity prices across the board especially including oil the word "catostrophic" comes to mind. I also firmly believe that the "weirdness that is the Treasury market" is in the process of "revealing itself." What did Buffet say? When the tide goes out?....
What is with the random usage of quotations for phrases throughout your passage?
Damon Vickers says it's when China announces "No More Buy-ee..."
Mark to Unicorn.
maybe the method is whacky but the goal of #2 is right on
A consumer version of chapter 11 would be HUGE for getting the animals spirits going again. In other words free up consumer cash flow.
Don't worry banksters uncle Ben has got your back.
Once the Jubilee is over, then Americans who are savers and got nothing except perhaps a valuation increase on homes, will be allowed to by credit card bonds at 22% interest backed by the US GOVT in Gold.
If that happens, I'm all in...
edit I would use this instead of giving us cold hard cash. Imagine buying 20% , 30Yr bonds in 1981 for people over 50. It also increases the incentive to save. If other Americans want to go on another debt based spending orgy, then let ordinary Americans benefit , not the banks.
right. so all of our fellow americans who binge spended for decades while the rest of us worked harder, sacrificed, saved, researched, and went without (along with our foreign creditors) ...well, they get to keep their borrowed BMW and McMansion in a "jubilee" because this solution reflects the very character they possess. which is to say, none what-so-ever.
lets simply prosecute the criminals who both gave and received illegal bailouts and get our money back. "we saved capitalism", they say. HIGH TREASON, I say.
If you obsess about making sure every lazy person or lawbreaker is punished, you won't have time in your life for anything else.
What the Federal government has to do is focus on what is best for the macroeconomic picture. It is a moral hazard of course. I wouldn't want people to be able to walk away from secured debt and keep the collateral - that is just silly.
I would expect this kind of program to take the form of overly-generous bankruptcy proceedings rather than just cutting everyone a ginormous check.
as i continue to say around these message boards: i soundly recommend that we panic, continue buying guns, freeze-dried food, and precious metals. I hope we are all having a good laugh about how wrong i was sometime in a few years.
Much like the former USSR, our system is unsustainable. Big Government "Solutions" are a broken window fallacy. "Progressive" Democrats and Republicans have further accelerated our demise by undermining State and local government rights and individual liberties in order to concentrate evermore power within both our Wealth Redistribution Complex (Washington D.C.) and our Wall Street Industrial Complex (New York City) which have evolved into vehicles for white collar crime in virtually every facet of their parasitical existence.
Of course, as we have talked about many times, the key culprits are centralized money planning, fractional reserve counterfeiting, and faith-based paper money. It is our debt-based monetary system which allows for illegal leverage via fractional reserve counterfeiting that gives the international banking cartel and their cronies significant power and influence over our lives. because we compete against these newly printed Federal Reserve Notes with our existing FRNs that we have earned through providing valuable goods/services, we are subjected to a system which favors the existing rich, hurts the existing poor, and creates strong headwinds to upward mobility in our economy.
if FRNs were not the only 'legal tender', then they could not be counterfeited. you would only need to deal with other honest business people at your own risk, and so would other individuals. in other words, nobody would have an unfair advantage.
The Welfare State, for example, cannot exist without keynesian money printing within a debt-based monetary system. keynesian money printing is dependent upon infinite amounts of loans expanding exponentially. obviously, this is not sustainable. this is a sick, twisted system of fraud, with the promise of "free lunches" all around and a "chicken in every pot". Obviously, these promises are on the eve of being broken and leading us ever-closer to economic collapse by the moment.
a rule of law protecting your property from other monkeys is paramount. 'more government regulation' is not. this is sleight of hand misdirection that only results in making your life more difficult and never results in solutions. namely, end the private federal reserve gosbank, outlaw fractional reserve lending, and open up regional economies to competing asset-backed currencies including gold and silver.
bigger centralized governments are not the solution. they simply succeed in creating large public coffers to be raided by corporate and labor cronies and their lapdog politicians. starve the beast and place our government workers in soup lines immediately so we can go back to being sovereign men who are responsible only for not imposing upon the liberty of our neighbors and other global inhabitants.
Further, if Trillions of $USDs were not tied up in U.S. Treasury Bonds supporting the Welfare State, this capital would be in the private sector because it would have no other place to go. The Dow Jones Industrial Average would be at 100,000 and everyone would have a helicopter in their back yard. Hurricane Katrina victims, for example, would not need to rely on central planners who currently have a monopoly on both "force" and incompetence. The abundance of wealth would increase the generousity of fellow Americans to unseen levels, and dwarf financial outpourings towards Haiti's hurricane victims and Bali's tsunami victims by comparison.
instead, we are paying ever-expanding interest payments on nearly $15 Trillion with approximately $160 Trillion in unfunded liabilities to the further enrichment of The Federal Reserve and extended members of the International Banking Cartel.
how's this working out?
#2 is beyond stupidity.
yes, those little serfs MUST PAY!!!
GET BACK ON THE WHEEL, HAMSTER!
Wont solve the issue. Because that is not the situation.
The fact is that US citizens compete among themselves over the general environment the various generations in the US have participated in developping.
This general environment, as it has benefited from such an influx of resources from all over the world, has simply grown too expensive for many US citizens to afford living on it.
Once again, outsourcing in the Western world, is the result of internal pressures.
Foreign workers only allows some US citizens to remain competitive, the foreign work is somehow a subsidize to them.
Forcing a nationality law wont change the fact that standard of life is largely determined by the general environment.
In the US developpment model, the sweeper can work on Park Avenue (at night, when few are left to see him) but he cannot live on Park Avenue.
That is the consequence of the US developpment model, a model supported by many in the US accross the ages.
#2 is absurd. But the other points are sound.
The concept behind it is not absurd. The #1 problem with our economy is too much unpayable debt (personal, government, and banks). Any plan that doesn't address these is not likely to help much.
The way I would do this "jubilee" is to just set it up as generous bankruptcy laws and make it easy for people to write down debt, and I like the idea of reimbursing the banks. The problem is that this will set up quite a moral hazard -- so people smarter than me will have to figure out how to make this temporary. I think the 2005 bankruptcy tightening is part of the problem we're having (though quite tiny).
What is really killing us is the OTC derivatives - I have no idea how to handle that apart from nationalizing the big banks and using all the existing employees to help with the resolution process.
#2 is exactly what the banks having been getting. Do you mean is absurd for citizens to get this debt-break for a change? Isnt debt-free jubilee at the expense of tax payers exactly what we are giving the banks? Why not have bankrupt banks take it on the nose for a change? Like he says, Neo-fuedalism is what we have instead.
Agreed that #2 is absurd. It rewards all the gamblers who've used leverage to the hilt, and punishes those who have saved. Those who have (and still are) using low, or virtually no, down payment loans are as much of the problem as the Wall Street Banksters. Those folks took the risk, and they need to own up to their bad bets.
It's funny how many of them (especially the Chamber of Commerce types) are the first to whole-heartedly embrace Socialism when it's their losses, and are dead set against it when it impacts someone else.
#2 is the only point that was sound the rest were either questionable or absurd. The Jubilee used to be every 50 years in ancient times you know. it worked pretty good for over 1,000 years.
Double post.
Why? That is what TARP and bank bailouts were, a jubilee for banksters only!
Where is my handout?
The economy is doing fine even though not all of QE1 has been used. QE2 is done probably to psyche out the bears .
Yes, and we have always been at war with Eastasia. Carry on, O'Brien.
OOOOOoooohhhhhh! Good one! Just finished that for the unpteenth time. Never fails to chill.
How is the economy doing "fine"? In what ways and by what metrics??? I can't believe you posted that drivel here, but I would like to know WHY you think the economy is fine when it is clearly fucked.
Here are some metrics ! Bottom line....the U.S is already a long distant memeory of its glory days.
From the Gradich letter...
http://www.grandich.com/2010/11/to-all-followers-of-the-dont-worry-be-ha...
The following are 24 statistics about the United States economy that are almost too embarrassing to admit….
#1 Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.
#2 The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the U.S. has fallen to 12th.
#3 In the 2009 “prosperity index” published by the Legatum Institute, the United States was ranked as just the ninth most prosperous country in the world. That was down five places from 2008.
#4 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.
#5 The economy of India is projected to become larger than the U.S. economy by the year 2050.
#6 One prominent economist now says that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
#7 According to a new study conducted by Thompson Reuters, China could become the global leader in patent filings by next year.
#8 The United States has lost approximately 42,400 factories since 2001. Approximately 75 percent of those factories employed at least 500 workers while they were still in operation.
#9 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.
#10 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#11 In 1959, manufacturing represented 28 percent of all U.S. economic output. In 2008, it represented only 11.5 percent.
#12 The television manufacturing industry began in the United States. So how many televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero.
#13 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time that less than 12 million Americans were employed in manufacturing was in 1941.
#14 Back in 1980, the United States imported approximately 37 percent of the oil that we use. Now we import nearly 60 percent of the oil that we use.
#15 The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. That means that by the end of the year approximately half a trillion dollars (or more) will have left the United States for good.
#16 Between 2000 and 2009, America’s trade deficit with China increased nearly 300 percent.
#17 Today, the United States spends approximately $3.90 on Chinese goods for every $1 that China spends on goods from the United States.
#18 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#19 American 15-year-olds do not even rank in the top half of all advanced nations when it comes to math or science literacy.
#20 Median household income in the U.S. declined from $51,726 in 2008 to $50,221 in 2009. That was the second yearly decline in a row.
#21 The United States has the third worst poverty rate among the advanced nations tracked by the Organization for Economic Cooperation and Development.
#22 Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power.
#23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent.
#24 The Congressional Budget Office is projecting that U.S. government public debt will hit 716 percent of GDP by the year 2080.
Sorry my friend, Citigroup sees a super goldilocks economy, and I see a great bull market coming your way. Please cover your shorts.
http://abetterwaytotradestocks.blogspot.com/2010/11/citigroup-sees-super...