Tuesday, November 11, 2008
We've asked economic and financial experts what they think the fix is for the current financial debacle. But what do you think? Suzie Lechtenberg got some ideas from the general public.
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How living beyond our means helped bring down the economy. The role of personal debt in the financial crisis, and where we go from here. Get more.
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From Panama City, FL, 04/26/2009
The Worldwide DEBT is the problem.
The best solution for the present economic crisis would be a REBOOT or restart of the entire debt system for the ENTIRE WORLD.
1. A data base listing ALL DEBT, government, business and personal needs to be created. The list would need to list the debt and debt holder with a bank that could make an accounting of the debt. Included would be all national debt of all nations, all mortgages car notes and credit cards for individuals. All outstanding bond and other debt for corporations, The idea is to list ALL DEBT of any kind owed.
2. Every government on the planet would need to call a special session of its legislature. Using the same authority that governments have to use or create FIAT CURRENCY the legislatures and Central Banks need to authorize the creation of ACCOUNT CREDIT in an amount equal to all the listed debts in the world.
3. The Various governments and Central Banking Systems then need to make an accounting change equal to the debt in the form of an ACCOUNT CREDIT or CREDIT zeroing out ALL THE DEBT in the entire world, and crediting all debt-holders in the world.
The following day the economy of the entire world would restart and the Stock Markets of the world would react to the new renewed capital in the banking systems, the Capital now available to restart all business and the disposable income to the individual people would restart and grow the retail sectors and the manufacturing sectors of the entire world.
Some have commented that if this was done in a very short time the exact problem would be repeated. My answer to this idea is history does recycle and repeat itself but some do learn and avoid making the same mistake. If your wife was to back her new car into a ditch, you would immediately call a wrecker to pull it out. you would not say if I pull her out she will just do it again and leave her car in the ditch. The economy is now in a ditch.
The other objection has been the possible inflation that would result would weaken the dollar. My answer to the weakened dollar is it may be a GOOD thing to help our ability to export manufactured products and also make our manufactured products more competitive in our own country. Jobs are needed for our own citizens especially the bottom forty percent.
Allen Charles Report
http://allencharlesreport.blogspot.com/
From Little Rock, AR, 01/29/2009
Someone said this below and I agree it would be something that would certainly help. Makes sense to me, but what do I know, I'm just a regular American...
If banks need billions or trillions and Americans are struggling financially, especially to pay debts, then is it not possible to kill two birds with one stone? Give the banks $ through Americans by paying on their debt, at least the credit card debt. I saw it reported that "Americans have more than $900 billion collectively in credit card debt." Only 900b? Heck, pay it all off. The govt is spending trillions on things the average American won't even experience, or perceive to. Instead of giving money directly to banks put that towards American's credit card debt. Less debt = more money on hand; money that people will spend! And we know that the American's with credit debt will spend, that should be obvious :)
From Austin, TX, 01/17/2009
Hal McKinney's idea below -- an interest free (or minimal) government loan to home-sellers whose home-sale revenue is insufficient to pay off their mortgage debt -- is a good one. I hope it gets some traction. On a related note, I have also decided to agree with my own opinion put forth below -- harnessing 401K contributions for the purpose of debt-payoff.
From Rustburg, VA, 01/03/2009
Call me when we do something about the, by my calculations, 2.3 billion a day spent on the military not counting the wars in Iraq and Afghanistan. Until we get a handle on this I this all else is futile.
From Winnetka, CA, 11/26/2008
BANKS are not the source of wealth in this country. We don't need to recapitalize the banks so we can borrow more money. That's silly. Good jobs and good wages are the source of wealth. Workers with good steady jobs don't need to borrow anybody's money.
And who says the "supply-side" is the capital -- boy was that ever a Reaganomics brainwash. The supply-side is the LABOR that produces the goods and services, the supply-side is the worker at the bottom who actually makes something productive and earns money he can put in the bank!!!
This whole country has been bleeding jobs for years. Jobs and wages are the red blood cells of the economy, and the patient has lost so much blood he's nearly dead. It reminds me of George Washington's deathbed medical treatment.
So called globalization and deregulation (whatever that means) is a synonym for bleeding of jobs and income.
The words labor and worker (thanks to an unfortunate association with Karl Marx) had almost become dirty words, and the words credit and consumer rushed in to fill the void, and yet this has become the strange habit of our culture.
Our over-bloated, over-loaded military is causing the dollar to be too high against other currencies, that's why all the out-sourcing has been happening. We dump so many trillions of dollars into unproductive military expenditures at the same time we have lost too many civilian manufacturing and service jobs here at home -- this is the deadly combination that has made for America's financial ruin.
From Austin, TX, 11/25/2008
To be competitive, organizations need a long-lasting governance system that leads to the 3 Rs of business: i.e., everyone doing the Right things, and doing them Right, at the Right time. Early implementers are using an Integrated Enterprise Excellence (IEE) business management framework to achieve these objectives, along with significant financial benefits.
Highlights of the IEE system are:
- The creation of business value-chain predictive metrics where there is no game playing with variance-to-goal targets; e.g., the organization suffers, while some individuals takeaway huge financial gains.
- Creation of analytical/innovatively determined business strategies with built in risk assessments that lead to targeted improvements and/or design projects, which benefit the organization as a whole; e.g., the avoidance of strategies that have high associated company risk with minimal downsize exposure for golden-parachuted executives.
- Creation of improvement projects that benefit the organization as a whole, avoiding silo improvements that might sound good but have little enterprise financial impact; e.g., we saved 100 million dollars but nobody can find the money.
For books, articles, videos, and blogs about the IEE 21st century governance system see http://www.smartersolutions.com/blog/forrestbreyfogle/?p=455 .
From Houston, TX, 11/25/2008
Offer home owners this option:
IF they want to sell their home AND they are underwater on their existing mortgage AND they can’t currently sell their home for what they owe
THEN:
• Let the home owner sell the home for the best price they can get.
• Let Uncle Sam pay off remaining mortgage amount the seller can’t cover to the lender (less some penalty against lender for approving loan to begin with)
• Seller pays back Uncle Sam (interest free) by a (5?) percent increase in the seller’s federal income tax rate coupled with any gains made on future home sale(s) until slate is clean.
This idea gives some relief to sellers and lenders without shifting the entire burden of responsibility to the taxpayers in the form of a bailout.
Everybody possible is ultimately made whole and the system gets moving again now.
Note that I use the word “home” and not “house” so as to distinguish between primary residence homeowners and speculators.
From Albany, GA, 11/25/2008
As a small business owner of 26+ yrs I think the strength of our country is in the hands of the small & mid sized companies. Rather than rewarding large companies who have proved by their losses that they are fat spoiled and expecting to be royaly paid no matter what pitiful performance they deliver why not make some of this "bail out" money available to people who can demonstrate a qualified background in a field and an eagerness to start up a small business. The government would no doubt see an almost immediate return on their investment in tax monies generated, job growth... . I'm sick to death of my family being (for lack of a better expression) punished by means of taxation for hard work and diligence while I see others rewarded for what in reality is nothing more than pure old fashoned laziness. Throwing free money at people who have already shown their ability to lose their own money is NOT a smart investment, but then, our government has never been known to make smart investment moves. I truly wish we could get some businessmen in politics instead of politicians. Anyway, that is my opinion. Like they say that and 50 cents will get a cup of coffee.
From Salt Lake City, UT, 11/25/2008
This is an arm chair review and idea given the limited facts available to me.
My fix for the credit markets and the economy is this. Commercial banking provided much needed financial support for the economy. Money was cheap. They were not constrained by the traditional 10 to 1 banking standard ($10 lent for every $1 of deposits). In fact Bear Stearns as I recall was up to 33 to 1. Removing commercial banking created a huge credit whole in the market that we are still calapsing into today. Even government is not big enough to fill that whole. The issue that started the tumble from what I understand was not that of outstretched lending. It was started by the poor quality of the underlieing loans. When the quality of those loans deteriorated because they were risky to begin with the resulting turmoil in the real estate market caused even the good loans to deteriorate by falling market values and thus the equity positions of those loans. Now financial institutions are giving up high quality assetts at fire sale prices (which is horible to the long term health of the US financial sector) in order to meet the 10 to 1 lending standards.
To immediately raise capital without any government funds I suggest that the regulatory standard for traditional banks be raised to 15 to 1. I also suggest imposing highly regulated standards requiring a high percentage of all their loans to be high quality that is 20% or more equity in home loans, high assett to liability as well as high liquity ratios for business etc. In spite of the current market I still think that a small percentage should still be availabe for more risky start up loans as well. The idea is that all the good loans that are needed to drive the economy and provide banking security go through and all the rediculous loans that don’t make any sense do not. By raising the standard the banks themselves can fund their own loan programs, we the tax payors aren’t bailing anyone out, and the quality assetts within these institutions are still intact to grow the future economy. Raising the regulatory standard does not have to be given to all banks but could be something applied for to the government with certain criteria required of the banks to qualify for this new regulatory lending limit. This could be based on lending history, ability of the bank to regularly meet other regulatory standards, etc.
Thanks for considering my ideas.
From Bainbridge Island, WA, 11/18/2008
In looking for a fix, we need to be clear that financial failure is only the tip of the iceberg. Our economic system has also failed environmentally and socially. It is collapsing Earth’s environmental systems and driving an ever more unconscionable concentration of wealth. Spending trillions of dollars in an effort to restore this system to its original condition is a reckless waste of time and resources. The more intelligent course is to acknowledge the failure and set about to redesign our economic system from the bottom-up to align with the realities and opportunities of the 21st century.
It requires a new policy framework favoring Main Street businesses and workers engaged in the socially and environmentally responsible production of goods and services that improve the lives of all. My articles in the forthcoming issues of YES! and Tikkun magazines set forth the needed framework. See http://davidkorten.org/content/neweconomy
From Mesquite, TX, 11/18/2008
In American history, the trend of our economic health follows our capacity to produce manufactured goods. At our best, we innovate and manufacture materials for American corporations and citizens. For example, electronic components, sub-assemblies and finished products require a supply chain and manufacturing industry that creates labor and materials. Instead, if our electronics are imported from China and India; the economic base, salaries and profit involved are enjoyed by the foreign supplier. When an American company outsources manufacturing, they may save money, which results in higher profits for the American corporation, but no direct or indirect benefit to the American economy. International trade may create wealthy large corporations, but corporate wealth won't sustain a healthy national economy. Although foreign manufactured goods are less expensive for the American consumer; we create a race to the bottom for prices and a race to the bottom for our own economy. If a product is produced cheaply overseas, then Americans exist to consume it without manufacturing. This is essentially retirement... We don't want to build, we only want to spend. In previous generations, if a man wanted to acquire wealth, he had to build a business, innovate, create products that people want and enter the American marketplace. If the demand for the product was high, the company would grow, with positive reverberating growth effects throughout the community. In today's American economy, we aren't manufacturing very much, so we don't create the market for products locally, or enjoy the benefits. In other words, we don't build wealth by building goods. Instead, every college graduate believes they've earned the right to acquire big money and its luxuries. How to generate money without actually building something? All we have left is to take advantage of each other. Creative banking and financing schemes, designed to gather cash, exist to find more money for next month's bills. Money is swindled from the consumers so we can get live well. As a result, America must bail out the effects of swindling with billions of 2008 tax dollars? That is a panicked patch on a broken economy, only buying enough time to pay off this generation of rich swindlers, while the next get rich quick scheme is sought by our ambitious and greedy. How can you buy a big house and cars if you don't actually build anything? Ideas that create wealth - without manufacturing a tangible product - can only take advantage of other citizens. This is a doomed economic strategy. Only a decade ago, our American automobile industry was innovating cost savings by outsourcing manufacturing overseas. The plan? To build up a global middle class that would allow the American giants to expand business. I suppose that if we build a car overseas for everyone in India and China in an un-naturally accelerated economic pace - we'll drive costs down until we can't compete anymore at home. Just because it's cheaper doesn't mean it will help Americans. Maybe the Ford Motor Company enjoyed some costs savings in those innovative years overseas. Or perhaps the spare parts from China helped a business in China. But why expand the world in this way? I hear a lot about the housing and economic woes in Ford's home state of Michigan, some of the worst of the American economy. I'm sure the Chinese bought enough cars to sustain the mighty Ford Motor Company - I know they did, because demand went up until I was paying $ 4 a gallon at the pump. Demand went up? That means somebody is manufacturing additional cars! So, why is Ford in trouble? Because America can't compete with those wages, and Ford needs Americans. I don't hear Ford asking India's government for bailout money. Hey, Ford, what have you done for me, lately? I mean, besides create global demand for gas?
We cannot sustain an economy where business cares more about gaining profit than hiring Americans. We harbor global companies that import cheaply and seek financial support without creating manufacturing jobs. Toys, blue jeans, tools. Our citizens can't continue to consume products without a solid manufacturing base that generates income. We've taken the middle class out of business, and replaced it with a desperate search for cash. Our economy must sustain itself with innovation and manufacturing. Stock options and creative home mortgages are not sustainable American products.
From Dallas, TX, 11/18/2008
Thanks for the engaging debate.
The universal cap on interest rates seems particularly attractive, but why not go for 4% and free up some cash to stimulate the economy at the same time? Fed $$s go to make up the difference and both banks and consumers see relief.
Speaking of stimulating the economy, what we really need is a wholesale retooling of our economy/society. These opportunities only come along once in a century, when the old paradims do not apply, and new ideas are not only needed, but necessary for survival.
We have the chance to use government investment in R&D like never before. Fuel cell cars commonplace. Sun, wind, and wave energy supplying our power. American jobs producing and exporting sustainable products and services. A "Manhattan Project" to create fusion.
What better use can you think of for $700 billion?
From Huntingdon Valley, PA, 11/18/2008
The automobile companies made the oil companies wealthy beyond belief. (What was the overall profit for all oil companies this year?) Why doesn't Exxon buy one or all of the big three auto makers and keep them running? Let them worry about management and golden parachutes...
From Reston, VA, 11/13/2008
Here's a possible solution that our government can use to help the economy.
1. Divide the country into 4 regions.
2. Select 100 top performing private companies for each region and have them listed on the stock exchange (with conditions).
3. Provide these companies with an economic package that will help to ensure their success.
4. Set the stock price at an affordable price and offer only to the tax payers within the appropriate region. Do this for all 4 regions.
5. Assist tax payers in obtaining shares of company stocks in their region by helping to complete paperwork, open trading accounts etc.
6. The tax payers must agree on some determined conditions when to trade or sell their shares.
There would have to be some new policies and regulations, but his is the kind of government intervention that could prove to have a positive return.
From Austin, TX, 11/13/2008
How about a "four-oh-TWO-k" program? As with the 401, the 402k would use tax deferrals and employer matching funds to eliminate concumer debt.
From CA, 11/13/2008
Like to expand the idea on cap for interest rate.
Cap all mortgage interest rates for 5yrs to 4%. (This include existing fix rates, variable rates, and new loans) It is for everyone with a mortgage in US. Once 5yr is over, all existing term will be reinstated.
This will provide a "stablizing" period for the real estate mkt to self correct. This still provide return for finanical institution/investors as the all other interest rates will self adjust to match the 4% rate (Bank CD, Saving accounts, Bonds, etc). No more guessing on the "toxic" loans.
For folks with exiting rate above 4%, the new added spendable income will help boost the economy.
This does not resolve the core issues of the bad loans and could just push the problem 5yrs out. But since the Housing Market already correct itself, and problematic loans have already surfaced, this will give time for the market to correct its mistakes.
We are already spending $700B to inject into the Wall Street finanical mkt. This move will allow everyone in the US to gain from the bail out.
From Mt. Pleasant, SC, 11/12/2008
If we really want people to start spending more and help the economy, we need to address the credit card debt of Americans. We should use the $700 billion towards paying off all Americans credit cards. With a clean slate and the holidays upcoming, people will use their credit cards to make new purchases. This will let the average taxpayer truly feel that their government is there to help them as much as it wants to help the banks, insurance companies, and the car industry.
From Plymouth Meeting, PA, 11/12/2008
The answer is simple. We need to cut taxes, end burdensome regulations, and decrease government spending, so that people can keep more of their money. If this was the case, people would spend more money, make more banks deposits, and make more investments, all of which grows the economy and provides jobs. The loans only allow government to raise taxes, spend more money, and grow with out consequences. For example, with loans, Grandma can afford paying $10,000 annually property taxes while living on a $1200 monthly social security check, inner cities residents could get more money to live and pay for the higher cost of excessive government despite having no jobs and rising energy cost, and businesses can afford to pay for government mandated payroll requirements that grow every year. The financial crisis is a result of out of control excessive government abuse, at all levels and not by capitalism. Fix that and you fix the problem.
From Quincy, CA, 11/12/2008
Cap variable interest rates. As a first proposal, legislate that all variable interest rates on loans for single family dwellings originally purchased at $750,000 or under during the period 2002 through 2007 will be capped at an interest rate of 6%.
Why? Here are the bullet points:
1) Mortgage distress is at the core of global economic uncertainty.
2) That distress did not begin until interest payments rose, often independently of Fed rates.
3) Mortgage workouts are slow, administratively expensive, and often impossible when ownership of the property is ambiguous.
4) An interest rate cap can be effected quickly and at little administrative expense to debt servicers, and the loss of mortgage income to banks would be worth it to staunch the flow of foreclosures.
5) A cap is justifiable under an ethic of personal responsibility, since no one is automatically saved.
6) A cap is broadly justifiable under an ethic of fairness, relieving the lower end of the market.
7) The first month change of income flowing into mortgage based securities will create a benchmark to reassess risk and value, helping to resolve the "mark to market" versus "mark to model" issue.
8) Homeowners and investors alike would be able to turn paralyzing uncertainty into calculable risk, and every other relief effort would become easier and less expensive.
9) Freezes on prices and wages under political leaders as diverse as FDR and Richard Nixon provide precedent for a comparable emergency measure now.
10) Homeowners who were wise and paid their bills may be unhappy to see others get relief, and some speculators would be rescued, but this sacrifice is justified by the emergency, and later workouts might be designed to exclude owners of multiple homes and patterns of flipping houses.
From Loveland, CO, 11/11/2008
Let's keep this simple and build incredible public trust and confidence. Let us begin by ELIMINATING all Congressional and Senatorial pensions, that's right the retirement of your congress person and state representative. After all how many of these hooligans really need a fat check for the rest of their life. Most are already well off enough to support themselves and if they are not, well there are wonderful government programs and food stamps to get them by. Now I am being serious. The money saved from eliminating these folks fat retirement would really help an ailing economy and government and give a huge boost to the people who put them in office. Let's also quit paying a President and past presidents, the office should be and honor not a pay check for life, I think Bill has done OK doing speech tours. Every dollar counts. But lets not stop there, let's also stop them from going to work for a lobbying group for 10 years (I believe it is 2 years now) after they leave office. This would keep them from using their past experience and "buddy system" to bully. I can also think of one more American incentive for the people all these fine folks represent. Let's make the take home salary for your congressman/woman, Senator or representative the median income of the state or district the represent. The median income in my city is around $48K, and that is what my representative would take home every year they are in office. This would not only help them remember who they "work" for, but help them remember what it is like to buy a loaf of bread and a gallon of milk. You can ask anyone of them and they will gladly tell you they are in office to serve their people, now lets give the power back to the people. I was asked this election year which party I was a member of and replied "Neither,because I would be embarrassed to be either." Now I may be wrong but I really like to vote for the person who I think will do the best job, and if the person I vote for isn't big enough to walk across the isle and work together to make my country better I ask them why their even there. WE THE PEOPLE need to take back OUR country.
From CA, 11/11/2008
CORNER CAFE COFFEE CUP DEMOCRACY: The People's House. How many people know the name of their US Representative? Or of any US Representative? Do you feel that you are a stakeholder? Do you feel the process is evolving? It's time for a little bit of democracy in the midst of a republic. Make the people's house truly the people's house. In a congressional election year, a registered voter may voluntarily have their name entered into a lottery. If randomly chosen, they will be a US Representative. The purpose of these new legislators will not be to create new bills or serve constituents. But through the budgetary process, vote 'Yes' or 'No' to the proposed budget put forth by the Presidency. Negotiated & finalized between the Presidency & the US Senate. The President & the US Senate should be able to argue the merits of their proposed budget by winning a simple majority of these new US House of Representatives. As well as supplemental spending bills. Over the course of time all segments of American society could be represented. From a single parent, to a vet, to a teacher, a small business owner, a student, a nurse, homeless, and so on. Society at large would be hopeful that they would be represented after the polls have closed and the votes tallied. A private citizen, would remain primarily a private citizen as a US Representative, and would return to their private life at the end of their term. Let the individuals who live with the outcomes of Washington have their opinions and voices heard. They will know the importance of their vote directly since they will have to live with the outcome of their vote. These new US Representatives would make an appearance in Washington prior to the President presenting the budget. They would take an oath. Meet with members of the Executive Branch and US Senate, who would hear the hopes and needs of these new US Representatives. Hopes for themselves, their family, their community, their region, their state, and their nation. There would be no need for an individual to raise large amounts of money or have large wealth to run for office. These new US Representatives could be part-time representatives. Temps and community could be utilized to support their jobs, or business, and commitments. Confidentiality would be utilized in dealings between the Executive Branch, the Senate, and these new US Representatives. The primary contacts for these new Representatives would be the President, Vice-President, Cabinet Secretaries, and US Senators. Hopefully this will be a humbling and a uniting experience for all. It could bring about the end of gerrymandering. New US Representatives would not have to associate themselves with a major party or any party. They would be remain a private citizen. One person. One vote. Ten day delay and the hopes of a new foundation for democracy. If the President and US Senate approve a budget or supplemental spending bill, and the new US Representatives vote to reject, it will not become law for ten days or until a compromised is reached. The Presidency and the US Senate would poll individuals separately as to why they voted for or against. The nation would know if the budget was approved or rejected by the new US Representatives. But the resources of government would still continue. There would be a greater concentration of power in the Presidency and the US Senate. But with this power will be greater visibilty. The nation will see which policies or leaders are advancing the needs of the nation. A need for a major party to distinguish itself from the others. The media would have to concentrate its resources on the elected and appointed officials. Not the private citizen who volunteered there name for the possibilty of selection as a new US Representative, and was so chosen. There would be no need for 435 elected officials, who wish to remain in that office, to scurry in raising funds over the next two years and busy themselves with constantly running for office. The citizens of this country need to witness the US government at the apex of its elected offices. And this new US Representative process would give them this chance. The Presidency, the US Sentate, and the new US Representatives would all a have a view from street level. Anyone in this country can grow up to be President. But just think of the more that will have the opportunity to be involved with this new process.
From Delray Beach, FL, 11/11/2008
A fix? Any fix will have to be deployed rapidly, scalable, accountable and transparent. It should be able to target genuine homeowners and not simply reward speculation and greed. It should start with our most vulnerable homeowners and work upwards. Any fix must be done using green metrics and the latest in sustainable technology.
I have come up with a unconventional model that could be a part of the solution. A fix driven by volunteer energy that can power a new green economy, a fix that needn't wait for a more systemic fix from government. Take a peek here;
Green Future; A Synergistic Approach to the Triple Bottom Line (*TBL)
A project to build community and more participatory political and economic systems and a green consumer base using a synergy of people, commerce and social objectives.
http://imaginegreenfuture.blogspot.com/
From Meridian, ID, 11/11/2008
Let's have an economic summit of all our American experts. Bring them together in one room for two or three days. I'm sure they could come up with better solution than the heads of governments worldwide.
From NJ, 11/11/2008
Way back in January, I published this:
http://eclectic.freeshell.org/if-i-were-president.html
Even at that time it was clear
to me that the real problem was
unsustainable debt, and what is
everybody proposing? More debt.
It's likely that only a few
people have read the above
article, but it probably
wouldn't make much difference
even if the president himself
read it, for people will do or
believe what they are predisposed
to because of their ideology,
upbringing or herd mentality. The
nature of society is such that new
ideas only get considered during
upheavals when there is no other
choice. In normal times, they get
ignored, censored or violently
suppressed.
In the 10 months since the above
article went live, many of the
subjects discussed therein have
come to a head. See the footnotes
below. Now, the private sector
debt defaults, due to irresponsible
leveraging, are cascading into all
levels of government. Here again,
what is the favored answer? More
debt.
I fear there will not be a painless
way out of this mess. But the only
long term solution starts at item
one in the above article and goes
on from there.
Footnotes.
o The food price rise due to corn
being re-directed to fuel.
o The fact that farmers are still
getting subsidies even with the
high prices that their products
are fetching.
o The confusion of complex financial
instruments, ie: no one knows the
real cost of the mortgage debacle,
not even the experts whose job it
is to understand these things.
o The recent book on obfuscating and
redefining government statistics
for the benefit of the incumbents.
Three specific items come to mind:
Gross National Product being
replaced by Gross Domestic Product
when the external balance of
payments became not so favorable;
the re-definition of durable goods
from 5 years to 3; and the narrowing
of the definition of unemployment
to make it seem like the economy
is better than it is.
o The recent story of contractors
from CACI working side-by-side with
government employees but costing
the taxpayer 27% more.
o The endless parade of politicians
convicted of corruption, favoritism
and financial mismanagement. The
recent case of Newark, NJ mayor
Sharp James comes to mind; also the
shenanigans of the NY city council
creating non-existent organizations
to channel funds.
o The decline in the value of the US$
has pushed prices of essential
commodities up with no end in sight:
a classic result of debasement of
the currency by fiscally
irresponsible governments.
o Some people are arguing for the
demise of the penny because of its
lack of value, but that is the
reverse of what should happen:
the currency should have a worth
comparable to the goods it can buy.
o The recent case of the prisons in
upstate New York that need to be
closed due to lower inmate
population, but that were kept
alive by politicians that
reinstated the funding to keep
them running. Influence of the
prison-industrial complex?
o The gimmicks that are being talked
about: tax holiday for the 18c/gal
federal gasoline tax, the much
smaller NY state gasoline tax,
the "stimulus" checks, which are
for most people but a fraction of
a month's rent/mortgage instead
of meaningful (in financial terms)
reform.
From NJ, 11/11/2008
Way back in January, I published this:
http://eclectic.freeshell.org/if-i-were-president.html
Even at that time it was clear
to me that the real problem was
unsustainable debt, and what is
everybody proposing? More debt.
It's likely that only a few
people have read the above
article, but it probably
wouldn't make much difference
even if the president himself
read it, for people will do or
believe what they are predisposed
to because of their ideology,
upbringing or herd mentality. The
nature of society is such that new
ideas only get considered during
upheavals when there is no other
choice. In normal times, they get
ignored, censored or violently
suppressed.
In the 10 months since the above
article went live, many of the
subjects discussed therein have
come to a head. See the footnotes
below. Now, the private sector
debt defaults, due to irresponsible
leveraging, are cascading into all
levels of government. Here again,
what is the favored answer? More
debt.
I fear there will not be a painless
way out of this mess. But the only
long term solution starts at item
one in the above article and goes
on from there.
Footnotes.
o The food price rise due to corn
being re-directed to fuel.
o The fact that farmers are still
getting subsidies even with the
high prices that their products
are fetching.
o The confusion of complex financial
instruments, ie: no one knows the
real cost of the mortgage debacle,
not even the experts whose job it
is to understand these things.
o The recent book on obfuscating and
redefining government statistics
for the benefit of the incumbents.
Three specific items come to mind:
Gross National Product being
replaced by Gross Domestic Product
when the external balance of
payments became not so favorable;
the re-definition of durable goods
from 5 years to 3; and the narrowing
of the definition of unemployment
to make it seem like the economy
is better than it is.
o The recent story of contractors
from CACI working side-by-side with
government employees but costing
the taxpayer 27% more.
o The endless parade of politicians
convicted of corruption, favoritism
and financial mismanagement. The
recent case of Newark, NJ mayor
Sharp James comes to mind; also the
shenanigans of the NY city council
creating non-existent organizations
to channel funds.
o The decline in the value of the US$
has pushed prices of essential
commodities up with no end in sight:
a classic result of debasement of
the currency by fiscally
irresponsible governments.
o Some people are arguing for the
demise of the penny because of its
lack of value, but that is the
reverse of what should happen:
the currency should have a worth
comparable to the goods it can buy.
o The recent case of the prisons in
upstate New York that need to be
closed due to lower inmate
population, but that were kept
alive by politicians that
reinstated the funding to keep
them running. Influence of the
prison-industrial complex?
o The gimmicks that are being talked
about: tax holiday for the 18c/gal
federal gasoline tax, the much
smaller NY state gasoline tax,
the "stimulus" checks, which are
for most people but a fraction of
a month's rent/mortgage instead
of meaningful (in financial terms)
reform.
From Plano, TX, 11/11/2008
It may be a simplistic way of looking at it, but let the American public tell the Big three if they want them to survive or not by giving the car buyer today a reason to purchase their cars.
If the suto industry wants money let them sell their way to it, and if an economic stimulus is needed let it be in the way of a rebate to the manufacturer by giving the purchaser an average of a$5000 rebate to the buyer.
The plan would work something like this,
on a car under $20,000 give the customer a $2500 rebate, $20k to $30k a $5000 rebate, and over $30000 a $10,000 rebate.
This will tell the US auto industry if the American public wants them to survive or not.
If the auto industry wants $50,000,000,000, an average $5000 rebate would mean sales of 10,000,000 automobiles putting people back to work and stimulating the economy again. Enough said.
From Bastrop, LA, 11/11/2008
I believe that the government should make not only the interest on home mortgages tax deductable, but also the principal for the next 5-10 years. This could be done with a decreasing percentage of deductibility so that there is not another bubble to burst at the end of the period.
This would help people stay in their homes and it would also improve housing market because it improves the value of home ownership. This would also encourage people to build up equity in their home by making extra payments to their mortgage.
Another advantage of this method of helping home owners is that it cuts out several layers of bureaucracy so we get the most bang for the buck on a bailout using taxpayer money. The money goes straight to the homeowner with out the banks having to pay someone to administer the funds. The banks benefit from the decrease in home loan defaults.
From Ithaca, NY, 11/11/2008
We need to take a long term view, and do something that both educates citizens about their government and reigns in superfluous spending.
I believe we need a constitutional amendment to put the "power of the purse" directly in voters hands, rather than in the hands of lobbyist-controlled elected officials. There is an easy way to do this.
The IRS already gathers a vast amount of information from tax-paying citizens. It would be a small step to include a "taxpayer census" that would let us directly decide how much of our taxes should be spent on which sort of programs. The government could only spend the amount the taxpayers allotted, but the taxpayers could choose to increase or decrease the services they received. It should be done on a per-voter basis, and not on a per-tax-dollar basis, so that everyone would have an equal vote on how the country's money was spent.
It would probably be catastrophic to implement this in one fell swoop. Instead, we would allow 20 years (one generation) for people to learn how this worked. Each year, 5% less tax revenue would go to the congress to spend, and 5% more would be controlled directly by the citizens. During this time, we would learn that our decisions have consequences -- if we choose to spend no money on transportation infrastructure, the potholes would multiply and the future years we would learn to increase our spending on these items. We would be forced to learn things like the fact that we spend far less on foreign aid than the average citizen would like.
Federal earmarks would go away, because only general categories of funding would get enough support to have a real budget. Best of all, the plan would greatly reduce the griping over taxes, because each person could specify their priorities for how the tax money was spent. Those too lazy to fill out the form would have no say, but most would have the good taste not to complain about the outcome if they didn't do their part in voting.
From Pineville, NC, 11/11/2008
So much depends on housing prices stabilizing and going back to near where they were. How to do that?
In one sentence:
Sell off existing residential inventory before adding new homes for sale.
Pick an arbitrary date, say two weeks from today.
No homes (whether from individuals or developers) not currently listed as for sale may be listed for X-period of time (say 3 months).
Rehabbers, fixer-uppers, bottom-fishers and flippers will get in and buy. And soon normal sales volume and price appreciation will have an opportunity to assert themselves again.
There will be legal problems, logistical problems, cultural problems. All soluble.
It's a linear cause-and-effect common-sense solution.
From Portland, OR, 11/11/2008
In a word 'inflation' is the only way out of the financial crisis. Fortunately for us the U.S. dollar is the world's reserve currency...for now. But this may accelerate what Mohammed El-Erian calls the handoff of economic hegemony from western industrialized countries to Asia, primarily China. Since banking plays a special pan-industrial role in an economy it can no longer be allowed to engage in behaviors that threaten entire economies or even significant sectors of economies. "Shadow banking" must be precluded. The destruction banking has caused is way beyond anything Osama bin Laden could have dreamed of causing yet they are still rewarding themselves and with the help of the government. Leverage and compensation must be strictly controlled to prevent bubbles, fake alpha and "moral hazard" on a grand scale again. Since government (Clinton, Summers, Greenspan, Rubin, Bush, Bernanke, Paulson, and so on) enthusiastically embraced "regulatory capture" we will need something like institutional review boards (perhaps in academia) to monitor the regulators. Just as in less developed countries governments in western industrialized countries can no longer be trusted to act for the good of society as a whole, and for the same reasons.
From Pocatello, ID, 11/11/2008
Slow down our foreign oil imports and investing in our own energy resources will create thousands of jobs. Have the new Chief of Staff, Rahm Emanuel, continue pushing the Pickens Plan to President elect Obama. Have the senior member of the Senate Energy Committee, Sen. Byron Dorgan’s (D-ND), continue introducing aspects of the Pickens Plan to the Senate. Its all good for the economy!!!!!
From Tacoma, WA, 11/11/2008
If these experts know what to do now, where were they then? It's like listening to the Neocons who lied us into Iraq talk about foreign policy.
The consumer sector is not going to be the engine of growth, so stop talking about money from helicopters. Even stabilizing house prices is only going to prevent things from getting Depression bad. The public sector must be the engine of growth. It is still Capitalism, but we're buying goods like planetary survival, education, infrastructure.
This is going to get a lot worse, but I suggest we rebuild America by rebuilding America.
From Seattle, WA, 11/11/2008
I think that the best economic stimulus would be to forgive all outstanding federal student loans. The payments on these loans represent a huge drag on the buying power of young, educated people - people who could be buying houses and (alternative fuel) cars and investing in entrepreneurial ventures - if they had the cash available. These people are often at the beginning of their careers, and making less than older folks, so student loan payments eat up a disproportionate part of their paychecks.
From Yorktown Heights, NY, 11/11/2008
Why not offer the American public the opportunity to invest their remaining savings in the $700+ billion being loaned to the banks, investment houses, and corporations? By buying special US government bonds, whose interst will be paid by the borrowing institutions and guarranteed by the US Government, Main Street America can recoupe some of their losses brought on by these very same offending entities.
From Mesa, AZ, 11/11/2008
From the other responses I can see that there are a lot of good ideas out there. But the bottom line is, how are we going to pay for the recovery? I'ver bee thinking about it for three years, and studying the history. I believe that it will take at least 10 trillion dollars to build the new economy. That's not chump change! We could start with a windfall profits tax on those hedge funds which have been clening-up with credit default swaps. However, that won't get us enough to do much. The great depression only ended with WW II, and we financed it war bonds. However, we would need to get the wealthy in this country to dig deep in their pockets to get that kind of money. The only way to compel them to cooperate is through the threat of the A-Bomb of taxes. An accumulated wealth tax might be impossible to create or administer but the threat of such a tax might get the high rollers to pony-up the re-construction money. Once you have the cash flow, you can re-build all the roads and bridges, cover every Wal-Mart parking lot in the southwest with miniture solar power plants, convert auto plants to build solar reflectors and generators and electric cars. You can even use convict labor to build and maintain the solar infrastructure. They already have free midical, and they might stay out of prison if they leave with some skills and a few bucks in their pockets. Thats the way I see it!
From McKinney, TX, 11/11/2008
Our whole economic failure is the result of a change in our business priority away from creating value, and instead letting someone else create the value and focusing on grabbing the value they created. Like instead of creating more widgets to increase value and profit, making the same number of widgets but cutting the income that people earn by making them. People now have less to spend on widgets themselves. An honest days work is worth less. Economic downturn.
Another aspect of the more profit without more value are all those creative investments where they churn the same mortgage backed securities round and round, collecting fees every time they go around again but no new value is created.
And with people having less income to spend they have been using debt instead, but that is running out because people cannot afford to use their cards with interest rates in the high 20's%, so they have to spend less on things of value and pay more for inerest rates. Interest rates don't make value like making widgets makes value.
With less income people took out loans on their home equity but that is running out.
Our economy cannot thrive on paying politicians to help businesses take someone elses value. It must go back to getting money the old fashioned way, by earning it.
From San Antonio, TX, 11/11/2008
Homeowner bailout - I think all of the banks should let the homeowners keep their houses by refinancing their mortgages at a 7% rate for 50 years. The banks will still make money and the homeowners will not default and still keep their homes. Sounds too simple doesn't it?
From MD, 11/11/2008
I feel that people have been extended too much credit. We need a pay as you go philosophy. Credit can be extended on big purchases, such as a house or a car, but in all cases, a sizeable down payment should be required. Also, stock markets should not have so many complicated instruments. I think "KISS". Lastly, retirees and near retirees need to understand that the time for risk taking with their nest eggs is over.
From San Diego, CA, 11/11/2008
First we need to start taking our medicine, meaning bad companies that made bad decisions need to be left to go away. No bailouts to companies that have no hope for revival.
Second we need to start thinking infrastructure, we need better public transportation (electric light rail), more renewable energy public works, more long term research to energy solutions.
At third, we need a change in mindset for the nation. Instead of the buy, buy, buy, more, more, more...we need to understand the happiness that comes with freedom from debt and the joy of simple things like a day in the sun. We need our Government to lead the way and to lead by example. Live within our means, stop pushing off our parent's debts to our children...our generation is going to be faced with hard decisions and sacrafices. Maybe we will be getting the short end of the stick getting out from under our deficit but the sooner we tackle it, the sooner the world gets better for the next generation of Americans.
that should be the new American Way.
From Long Beach, CA, 11/11/2008
By definition the credit crisis/freeze means banks are not lending money, so why is the interest rate at around 6%? With a lower supply of credit the cost of credit should be higher given demand, if demand is high and supply is low, the cost should be higher. Lets say to have equal supply and demand the interest rate should be at 10%, now anybody with good enough credit and can afford the 10% interest rate can get credit. This is what is known as decreasing the demand, alternatively you can increase the supply. To do this the fed would have to increase the money supply to the banks to such a point that banks could do whatever they need to do with the money and still have enough to lend out at 6% to people with good enough credit. But this still might not be enough to stop the root cause, which is the fall in home values. For that you would have to both increase the supply of money and increase the demand for money, which would mean lowering the interest rates, now the fed already lowered the interbank interest rate about as much as it could to 2%, what needs to be lowered is mortgage rates to say 4.5%, again for people with good credit (don't need to create another sub prime problem). Okay, so how can they do this? One way is to stop selling government bonds for a while and even buy some back, this has the effect of raising bond prices and in turn lowering interest rates. Another way is to artificially lower interest rates by injecting even more money into the banking system, now I'm not talking about just giving the money away, but all the fed has to do is say to the banking system that any money the banking system needs, the fed will lend to them at the discount rate, then the banks should feel free to loan it out to just about anybody (again with good credit). But you say, if the fed is injecting all this money into the money supply, won't that increase inflation? Well that is to be expected, after all we cannot possibly be sending around 500 billion dollars a year out of the country in the form of the trade deficit, and not expect higher inflation, in fact, this is the real root cause. This is why foreign countries like China buy our government bonds, they want to keep our inflation rate low, so that the exchange rate will stay high for them, that way we will be able to keep buying their products. In a real free market world economy the inflation rate should be allowed to float, that way over supply from other countries will eventually balance out. China is not only holding their currency artificially low, but at the same time by buying our government bonds, they are holding our currency value artificially high. This has the effect of creating a very large national trade debt that (I don't have any numbers) could be comparable to the nation debt itself of around 11 trillion dollars. There is no way this could possibly continue indefinitely, especially given the effects of compound interest, though it might continue for quite a while longer. Something will eventually spook this bond market (like the threat of hyper inflation), and the whole system will come crashing down (then there really will be hyper inflation as the system tries to rebalance itself). Government bonds at that point will become totally worthless, iBonds might be a little safer. At this point the dollars value will be much lower than it would have if the inflation rate was allowed to float. The real weapon of mass financial destruction is the amount of our nation debt that other countries own. Biggest example being China. Of course, they could never unleash this weapon, because it would have the effect of not only destroying our financial system but at the same time also destroying their own financial system (since we would no longer be able to buy any of their products). So in effect, the US government bonds that China holds are already worthless (since they can never sell them without causing this mass financial destruction). The trick here would be for China to hold massive amounts of iBonds, now if China were to sell off the regular bonds it holds, inflation would skyrocket, in turn causing those iBonds to explode in value, then if China decided to try to redeem those iBonds, the government might have to default, since even more money would have to be created to pay those iBonds, further increasing inflation and further increasing the value of the remaining iBonds, in a viscous never-ending cycle. Now this could be a real national security problem, since China would be very upset if we had to default on our national debt, which could cause real mass destruction, not just financial mass destruction.
In conclusion, the two main problems are, the fed is trying to manipulate interest rates instead of letting interest rates float and controlling the money supply. And the government is holding the dollars value artificially high by maintaining a high national debt, which in turn causes a high trade debt.
One solution, like I say, would be for the fed to allow the banking system to borrow as much money as they want at the discount rate, and let them use it for whatever they need it for, including using the money to buy government bonds, such as 30 year treasury bonds (I think those are around 3%), so they would be able to borrow the money for 2% and buy bonds for 3%, making 1% on the difference, this would have the effect of injecting huge amounts of money into the bond market, and therefore lowering real interest rates, by at least 1%.
From fanwood, NJ, 11/11/2008
Ban, stop, outlaw- (whatever needs to be done) HELOC's (home equity lines of credit) and home equity loans. Those vehicles were a huge reason that so many Americans are in trouble. They were offered to Americans with abandon and Americans used them with abandon- to buy flat screen TV's, hot tubs, fancy furniture, fancy appliances, cars etc. etc. If Americans actually had to save to buy what their heart fancied or go to a bank for an actual loan based on income, savings and the ability to repay, then the savings rate of Americans would rise substantially and many would not be "upside down" on their home loans.
From Casper, WY, 11/11/2008
We need to break up the big companies in this country. Get rid of "too big to fail" Let Adam Smith's business cycle play out. As industries mature, big companies become too large and cumbersome to be efficient in the marketplace. If the government is going to "bail out" the big banks and automakers. They should take them over and then break them up into smaller more efficient companies that can react to the market without going into crises mode.
From NYC, NY, 11/11/2008
US Govt, Just need to tell American corporations to think Local and ask them to STOP sending any kind of Jobs ( IT or Manufacturing ) outside our country, by doing this, there will be 80% of Economic Problem Resolved Immediately and can see results in one quarter.
Just STOP Outsourcing and Offshoring, get confidence in people about the Jobs, we need to get Jobs back to our country which we lost during 2005 / 2006 and 2007 as part of Outsourcing and Globalization.
Basic thing for Economy / GDP growth is Job's, Once Job market is strong everything will be good.
Jobs are primary for everything to get rolling. !!!!
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