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Between a Rock and a Hard Place
02/16/09 by Nicholas Jones
Filed under Bourbon & Bayonets
There was something about the article I wrote last week for Bourbon & Bayonets that touched on a nerve with a lot of people. There wasn’t a lot of middle-ground; readers loved it, hated it, or were annoyed with me for complaining without proposing a solution. I’m glad I was able to stir the pot and get something controversial enough on paper to bring out the passion on both sides of the argument. This article isn’t written to further my points and persuade those who disagree with me. Instead I want to purpose what I see to be the best potential solution to a very difficult problem. I agree with the readers who took issue with my empty complaints. Today’s article is written for those who see the problems, but wonder what choices or alternatives we have to current policy.
Given all of that, there’s no easy solution to our current mess. I wish there was a simple solution, but there isn’t. We have cornered ourselves through decades of loose monetary and fiscal policy with those practices being taken to a recent extreme. Essentially we have left ourselves with two potential roads that probably lead to the same location. The two roads are inflation or deflation. I’ll elaborate…
As mentioned, we have gone through decades of loose monetary and fiscal policies. What I mean is that during economic downturns, monetary and fiscal tools have been used to artificially stimulate growth. In recent times, they have been used in extremes. The Clinton administration should be known for nothing other than the inventions of sub-prime lending, 40x leverage, and credit derivatives (I’m sure a certain intern will be remembered as well – haha).
Anyway, this created a massive artificial pile of liquidity that the domestic economy grew to service. The growth, not the means of the growth, is what people remember from Clinton. What should be remembered is an economy whose growth is based upon changes in money supply and outstanding credit. This growth cannot be maintained. Bush inherited this mess, but his policies only made the situation more desperate. In attempting to keep the economy running at its artificial level – he cut taxes, increased government spending, and grew the money supply. All are economic stimulants in their own right, and when combined they create a very powerful force. Like the Clinton era, these artificial stimulus worked for a while, but the new economy ran at artificially higher levels of liquidity than its predecessor.
Inflate or Die
All in all, what I’m trying to say is that an economy whose growth is based on liquidity expansions cannot last. It’s just like Adam Smith’s invisible hand. Our economy is not running at its equilibrium point and the further we get from that equilibrium, and the longer we stay there just means the invisible hand starts to push harder and harder. Natural forces are trying to push our current economy back to equilibrium. The excessive growth was the result of an expansion of liquidity (inflation), and in order to get back to equilibrium, liquidity must do the exact opposite and contract (deflation). So the question of do we inflate or deflate becomes a question of if we can’t inflate we deflate. The question of policy is do policy makers try and inflate or let it deflate? Let’s look at what happens in each scenario.
The x-factor of each “flation” has to do with outstanding debt. The U.S. government and its citizens are staring at a lot of debt. If inflation is increasing at a faster pace than interest rates represent (negative real interest rates), than the real value of debt decreases. This is in the best interest of the borrower, which is the credit card/mortgage strapped consumer and the debt laden U.S. government. Unfortunately this makes our debt look unattractive to buyers. The problem is that both parties greatly need credit lines to be open in order to keep the artificial level of liquidity up. If we choose to inflate, buyers of U.S. debt will either stop buying or demand higher interest rates. This would simply be unacceptable at a time when the U.S. and its citizens need to finance exponentially more debt than it ever has. The path of inflation leads to monetizing debt as foreign demand for Treasuries and asset backed paper denominated in dollars dries up. If we are forced to monetize our debt, the U.S. dollar will collapse and inflation will turn to hyperinflation. This is as certain as the sun rising tomorrow.
The deflation path isn’t much prettier. Just as inflation decreases the real value of debt, deflation increases it. If we deflate, the value of all the outstanding debt faced by consumers and the U.S. government will begin to increase, and increase substantially. You have to look at how far above market equilibrium we are. A rough nominal judge of that is housing prices. Housing prices increased for multiple years at double digit rates when historically housing prices increase a point or two above inflation. That created a massive pile of excess liquidity which resulted in all sorts of new demand for goods and services. Now consider the expansion of the industrial and commercial sectors that grew to service this new pile of liquidity.
All of it must contract, and it is my belief that if allowed to deflate, we would see deflation that would dwarf the deflation seen in the Great Depression. It’s rather frightening to compare the liquidity growths prior to the 1930s and prior to our current economic crisis. This extreme deflation would result in a massive growth in the real value of outstanding debt denominated in dollars. As a result, there would be enormous amounts of personal, corporate, and municipal bankruptcies. There would also be a high probability of the U.S. government defaulting on its debt.
As you can see, each situation is a mess. Obviously current policy is to inflate at all costs, but I don’t think this is the best choice. It happens to be the most politically viable choice, but that’s a discussion for another day. You don’t necessarily have to agree with the motives, but you don’t need to look very hard to see which path the U.S. and rest of the G-7 economies have chosen. Their quantitative easing has not been subtle.
Deflation with the Edge
So why do I pick the deflation route as the most desirable route? Well, I have 1 ½ reasons. Both inflation and deflation would probably result with the dollar no longer being the reserve currency of the world. Inflation will force the U.S. to monetize the debt as demand dries up. Attempting to monetize even a portion of the U.S.’ massive debt load will absolutely and completely destroy the dollar. And deflation will ALMOST surely result in a U.S. default on debt. Considering the massive amount of outstanding debt, if the U.S. defaults on its debt the dollar will be worth the paper it’s printed on. I just have to say here that this will by far be the most painful part of this economic crisis. Think you’ve seen chaos in financial markets lately? Just wait until when U.S. dollars begin to flood global forex markets – it will be like screaming fire in a crowded movie theater. A global panic among the largest holders of U.S. dollars will ensue, and for starters, resulting in a 20-30% overnight devaluation of the greenback.
So why deflation? Because it’s quicker – plain and simple. Think of it like taking a band aid off. Inflation is taking the band aid off slow, while deflation is just ripping it off. Financially, deflation will give something closer to a v-shaped recovery as opposed to an extended u-shaped recovery.
My proposition is to IMMEDIATELY stop the monetary and fiscal irresponsibility. Stop growing the money supply and defend the dollar. Raise interest rates, re-value the dollar against gold, and implement a new gold standard. Pass legislation that only allows for balanced budgets. If there’s a deficit planned, cut spending. If there’s a surplus, cut taxes. It’s simple, yet probably perceived as barbaric and inflexible. I do not want to understate the pains this will cause in the short run, but the alternative is to postpone the inevitable.
The sooner we hit bottom the sooner we can begin the recovery process. This is when we can start an economy based on real growth; an economy whose economic activity is not based on a liquidity see-saw. We will have the potential to make an economic machine that doesn’t grow because of debt creation. This would be an economy with sustainable growth and less volatility. Notice that I used a key word there: potential.
Will we learn from our lessons? I doubt it. There may be a couple decades of prosperity, but I imagine we will eventually go through another one of these Keynesian cycles. It’s human nature, and for whatever reason, it seems to be the most flawed. I’m not here to make the world a better place. I care about my family and my friends. I use what I’ve learned to make money and inform those who care to listen.
Nicholas Jones
Analyst, Bourbon & Bayonets
Don on Mon, 16th Feb 2009 8:53 PM
Hmmm, my crystal ball is somewhat vague on the future much past an hour or so from right now, but consider—we are but one of many countries in the world dealing with this economic mess. And with the exception of just a handful of countries like China, India, Indonesia, etc, all will be suffering the pangs of a party hangover that has included BIG spending well beyond common sense means for quite a while. Ergo, huge headache closely followed by doses of Bloody Mary’s and Kaopectate—the first guaranteed to help you begin to feel like the party could indeed go on, but then ultimately the ‘other stuff’ comes back into play. After all, we do have to sober up eventually, don’t we?
So what this means, friends, is that we will continue for quite some time to have hiccups of inflationary indications, closely followed by bouts of doctor-ordered tummy-soothers that just might bring us back to a less flatulent, more deflated, present.
Trust me—cloudy crystal ball and all: we will be riding a very loosely constructed roller coaster for quite some time, we carnival riders of Planet Earth. No, it won’t completely fall apart, I don’t believe; but I do believe there will be many fits and starts to this machine during our very long ride, while the mechanics attempt to fine tune the trip.
Regards,
Don G.
keith B. on Mon, 16th Feb 2009 9:34 PM
A rational mind and analysis will find the large U.S. banks are really ‘insolvent’. The FDIC must ‘intervene’ and shut them down, split the carcass up, moving the good meat into viable smaller banks, take the stinking stuff into a ‘long term work-out’ institution like the Resolution Trust Corporation was. Only then will consumer and commercial credit markets recover and allow resumption of normal commerce. Those commercially viable non-bank institutions and organizations with large amounts of the rotten stuff in their pockets may need to be allowed to work it off over a period of years lest they be forced into bankruptcy and liquidations -destroying many otherwise sound and profit generating jobs. If the organization is not profit making, liquidation is inevitable and sooner is better. No need to waste precious time and capital–both human and financial flogging a dead horse.
Housing (and commercial building) foreclosures are so much more complicated that any ‘solution’ has to be crammed down by the Federal Government. If a mortgage or construction loan has been aggregated into a ‘pool’ and that pool then used to back CMO’s and then those used to back CDO’s, it is legally impossible for anyone in the chain to write down the loan to real value. The only path allowed by their contracts is foreclosure- and the systemic cost of that is tremendous.
The FHA or ?? has to go to each debtor and property and arrive at a realistic ‘market/true value’ for the property and offer the debtor a very low interest rate long term loan, with refinance and appreciation sharing off-ramps along the way say at 5 year intervals. Of course the devil is in the details and it will be frightfully unpopular with the debt holders and carrion eaters who pick the carcasses clean in foreclosures. This is a situation where many otherwise sound mortgages are now busted because of external events that could not be reasonably anticipated by the borrower. EVERYONE involved must share in the losses, and the programs must be administered that way to prevent as many ‘deaths’ as reasonably possible.
Raymond W. on Mon, 16th Feb 2009 9:39 PM
Thank you for the hard facts on this painful subject. Something I have been trying to prepare for as best I can. Unfortunately, I agree that this is going to come at us very quickly and that many many people are going to be set back on their heels. That said even I and my family could be in that mix. The cake is baked and now we have to pay the baker.
Painful it will be.
john r. on Mon, 16th Feb 2009 9:49 PM
All economies have boom and burst cycles unless interfered with, that is the natural order of things. We go through periods of great pleasure and excess and then times of pain and suffering to atone for our lack of good judgement. Enter Mr Politician who wants to get elected for another term and then does everything in his power to see that his voters back home suffer no discomfort even if it is their due. Mr P injects his diseased talons into the pie and soon we are all sick. It matters not to him if he has no clue as to what he is doing or the harm he brings to his country.
Alan I. on Mon, 16th Feb 2009 9:53 PM
I may be commenting on a combination of both articles.
I am hopeful but not certain you may have already, struck the delete key before you even read my comments. Just in case you have not deleted and are still reading:
Credentials: MBA, owner of 6 different businesses, 40 year entrepreneur, 13 years on Wall Street, the rest on Main Street—
My guts tell me that we are not in unchartered territory. On a relative basis, a fairly high percentage of today’s unemployed, have severance packages, 401k’s (although diminished), and insurance benefits—all that can be depended on for from 6 to 18 months….
The “new” or “not so new” reality, is that there are available jobs. The other “old” reality, is that more new businesses will be launched over the next 5 years than at any time in our history…
While Obama’s stimulus package “reeks” with socialist overtones, and the loans to banks and banking institutions, smells more like a back room good ‘ol boy deal, all signs point to a revival of pure Capitalism—self-reliance, self-determination, control of ones fate, by efficiently using intellectual capital, relying on a network of associates cultivated over the years, and a burning desire, to launch this “idea” to provide a service, or create a solution driven product, that has just been handed to the recently “laid off.”
Employees who find there way back to work, will learn new skills, some will become contract hires, will take challenging tasks at a lower base starting pay and benefits package…and the result will be an increase in GDP, greater profits (lower labor costs), lower inflation (cost less to provide services and deliver profits), and the chug, chug—correct that the “whir” “whir” (alternative energy source) of the economic engine “shifting” forward….
AS the cycle renews itself, and the spirit of the capitalistic world is renewed, the talking heads, the wagging tongues, and those at their keyboards, will be applauding the “stimulus” packages, and citing the spirit of self determined people every where to pick themselves, recreate their lives, provide jobs, new methods, and new technologies.
Very few will look at the individuals that took the plunge, some with an idea, some with an idea and a bank roll, who went forward, determined, to create value from a service, a product, new lab research, and maybe even by accident.—This is the real stimulus.
Bank loans, business angels, and deeper pockets would have been welcome, however the energy of this new breed, believed in themselves and their ideas so much and are so focused on achieving their objectives, that they created their own stimulus.
The outcome, new jobs are created–new independent contractors were hired, and other new businesses were started to serve and meet the needs of the new businesses that had just been created, and the real “trickle” down effect begins to gather momentum. The previously “crushed souls” start to rise up, perk up, and begin to find meaningful jobs–
I just thought someone might be interested in another point of view….
Alan I.
Plano, Texas
Henrik U. on Mon, 16th Feb 2009 9:57 PM
You are absolutley right! Spot on! Deflation is MUCH preferable to inflation. It is much better to adjust prices and wages to reality, than to make a hopelsss attempt to twist reality to fit in with arbitrarily high prices, arbitrarily high wages and an arbitrarily large supply of fiat money. All that inflation accomplishes, in the end, is to destroy the currency, savings and vast amounts of real wealth. Read the works of Ayn Rand!
philip on Mon, 16th Feb 2009 10:34 PM
very good article. well wriiten and right on the money. So what’s the best play. Gold Gold and more gold?
Alwyn L. on Mon, 16th Feb 2009 11:40 PM
The American Eagle morphed into an octopus, stretched out its tentacles and dragged the rest of the world into the abyss
The Anti-N.W.O. on Tue, 17th Feb 2009 12:31 AM
I really REALLY want to believe Alan Isenberg’s idyllic take on the economy rebounding on our own efforts, but at my ‘tender’ age, life experience has taught me to take the pragskeptic point of view of John Redmond instead.
My take on it is skewed by the history of the future, as written in the answer section at the back of the ‘good’ book, our Holy Bible. In Revelation, we see, in the near future, (hopefully AFTER the Rapture and my selfish hiney’s been beamed up and out of the frying pan) that the International Bankers, and their cohorts in crime – the politicians, have set the stage for either the collapse, or revocation of the world’s fiat cash currency supply. The result is, that no man might buy nor sell, save he that hath the Mark of the Beast in his right hand or forehead. The acceptance of this ‘Mark’ is our express ticket to Hell. We will have abrogated our freedom of choice, with that one last flawed choice. I realize that the alternative is a beheading, but like the old saying goes – better dead than red. And the N.W.O. has their backfield in motion on that one too. Go to Alex Jones’ prisonplanet and check out ‘boxcars with shackles & guillotines’ for a little light reading.
That speaks to me of a debit system, wherein we either have the ‘credits’ in our account or we don’t. The semantics of how those ‘credits’ are credited to us is probably going to be based on our individual net worth, prior to the staged crash. There will be no credit, as is evidenced by the fact that the majority of the remaining world population will be out and out slaves. Rev. 6:6 proves that thusly – “And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine”.
The scholars interpret this as being that when John was writing Revelation, a measure of wheat was what was required for a loaf of bread. The penny offered for it, was representative of a man’s daily wages then! So if a man will work a day for a stinkeen loaf of bread, if that ain’t slavery, you can throw me out!
The part about the oil and the wine refers to the fact that there will still be a few fat cats around who can enjoy the luxuries, but the slaves daresn’t spill any of it, because they’d probably have to pay for it with their lives.
Sorry folks, but in regards to the economic situation of the world, to parrot the last words spoken by George Clooney when he played the role of the skipper in The Perfect Storm – “She’s not gonna let us out’.
I just thought I’d put this out there on the table, ‘cuz everybody else seems to want to go the way of man, and worse – the politicians – to figure out the way we should go to save ourselves. There’s only one way to go. And that’s to get right with our risen Lord & Savior Jesus Christ. Eternity is a lot longer than the here & now. Man is unable to right the ship in this perfect storm. The system’s sinking, and we’re all mature enough to know that in our hearts. So let’s quit rearranging the deck chairs on the Titanic, and either have a spiritual revival GLOBALLY, or have a personal one of our own.
That being said, the miracles that would have to happen, WITH God’s help of course, would be for the governments of the world’s nations to revoke all trading pacts with each other. Yes, this means a return to protectionism. Protectionism from the profiteering on slavery in China, the Nam, and all the other 3rd world hell holes. Protectionism from having all those slave made widgets being dumped on our shores, whilst our own people walk around either unemployed, or selling insurance to each other on the street corners. Where’s the profit in that?
We also need an honest government, that will release the papers Tesla put out on free energy, created from the ‘ether’, and beamed via radio waves to our emission-free electric Tesla cars. Don’t worry, oil will still be required for plastics, fertilizers, paints, ad infinitum, ad nauseum.
Just think though, about what kind of a wildly fluorishing economy we’d have, if people had the expendable income left in their pockets from not having to pay for utilities like electricity, and auto fuel! Obviously the government doesn’t think we should have to pay for them anyways, ‘cuz they don’t include those costs in the cost of living index.
There’s already FAR better green technology out there than that. In March of ’86, I saw a guy on the Carson Show, wondering why he was being given short shrift by the U.S. Patent Office on his ‘over-unity’ device. That’s a device that’s like a perpetual motion machine only better. A perpetual motion machine only returns the units of energy required to get it started, whereas an over-unity device gives back multiples. In this guy’s particular case – 23 TIMES as much! Think what that could do for our industrial RE-revolution?! For our reduction in greenhouse gas emissions?! For our dependence on ‘furriners’ oil?!, and by extension, foreign trade policy period?! Our balance of trade deficit!? America would be able to pull it’s bath tub fleets home, and kick the Mescans out of the country with the abundance of troops looking for something constructive to do. They could stand shoulder to shoulder along the U.S. Mescan border and not only stop the illegals overnight, but we could eliminate the amnesties too!
So those are just some of the miracles I feel that we need in order to get America’s, AND the world’s economies, rebooted.
Like the automakers’ E.stimated M.iles P.er G.allon stickers say, “Your results may vary”.
Tim on Tue, 17th Feb 2009 5:06 AM
1 – Let them go! Put the borrowed money into building up newer more efficient banks, companies and institutions. Let the banks go belly up. Their CEOs won’t get bonuses for that. Will they?
2 – Reset any ARMs to the same or less interest. It is better to keep people in their houses, paying rates and taxes. Interest expectations are down, besides extra money coming out through higher interest, is likely to be drawn out of the economy and not spent.
3 – Consider the US state taking equity in some home loans.
4 – There are institutions that failed due to a lack of revolving credit, also iconic and strategic businesses some limited help. Those alone MAY be worth bailing out.
I believe US treasury would be wise to use me as a consultant. There are times when common sense is preferable to theory.
Good luck America
Henk on Tue, 17th Feb 2009 6:13 AM
Deflation is worse! rising unemployment,bankrupties,millions of people loosing their assets,homes etc.People will start saving,if they are fortunate to have a job,instead of spending.Poverty becomes a reality.
Inflation:Governments prohibit speculating on Gold etc.They already do with prohibiting “shorting”.They will manipulate cost of living figures.The whole world is now in the same situation as
the Anglo-saxon countries,where the problem originated.We will struggle through it with slowly inflating the economy.It will not take a couple of years but most likely 15 years!!
Floyd B. on Tue, 17th Feb 2009 6:58 AM
I agree with your conclusions. However what is the best place to put your money if the paper becomes worthless? Do you buy inflated fixed assets or what???
Dahn M. on Tue, 17th Feb 2009 8:06 AM
This is a very insightful article. I like it a lot. Thank you.
The question here would be: is it possible that the inflation attempted by the government with all the stimulus and other spending programs could quite well combat the deflationary pressures exerted by a falling economic environment? In other words the deflation that occurred in the Depression was exacerbated by the lack of liquidity insertion by the FED. Maybe the two would just balance each other out.
This still does not resolve the issue of the extra liquidity present in the market once the global economy regains its footing and the deflationary pressures subside.
Richard F. on Tue, 17th Feb 2009 8:40 AM
We made our big mistake when we went off of the gold standard. It would be very good to know that our dollar would be backed up by gold which is stored at Fort Knox or any other destination. What is it backed up with now—a lot of debt?
bruce o. on Tue, 17th Feb 2009 9:11 AM
In my own humble opinion and only my opinion I agree with both sides of your argument. But we need to be a society with debt. Debt is one of the major factors that distinguishes us from a third world country. If we did not have debt we would not be a country of equality. 98% of the people that currently own a home, auto and other big ticket items would not have them. I forget the country but I believe it is India where one man lends about $200 US Dollars to the women of the villages to purchase a sewing machine and they pay it back weekly/monthly and begin to have a better life….because of debt. We as a nation, as we normally do, go over board. We have gotten our growth on debt which is not what it was intended for. It is a cotton candy type of growth and the fluff has been taken out of it and now is all we have is the cotton candy that was squeezed to it rightful size. How do we get out of this mess? From the bottom up. require the banks that we as tax payers bailed out to take another look at ALL thier outstanding home, auto, commercial, credit card loans and reevaluate them in real values. Bring the home loans down to the 4% (treas to begin lending the 7 yr note at 3 1/2 % to banks) over a 40 to 50 year loan. Incorporate all debt into it to pay off auto, credit cards, mortgage with the requirment that the home owner is not allowed to get another credit card only through that bank and it is acutally monitored to hold them and the bank accountable for crdit based upon thier income. Just a thought. Thanks
bruce o. on Tue, 17th Feb 2009 9:15 AM
To help get consumer confidence back in the stock market we need to level the playing field. Therefore we need to get the UP TICK RULE back. Why doesn’t anyone bring this topic up?
TOM F. on Tue, 17th Feb 2009 9:24 AM
I love how republicans try to link all our problems to Clinton
and totally ignore eight years of the most incompetent president of this century if not ever. He blew the equivalent of several stimulus packages in Iraq not to mention the human cost. I thought you were wiser than your latest articles indicate.
Thomas B. on Tue, 17th Feb 2009 10:06 AM
Keep up the good work. I consider myself well read and go out of my way to seek intelligent resources. Your commentary is in line with what I discover.
Thank You!
Pete on Tue, 17th Feb 2009 10:33 AM
Can we recall Superfly?
Casey0 on Tue, 17th Feb 2009 12:08 PM
Finally, someone pointing a little closer to the source of the current economic mess – manipulation of the money supply. The definition of nearly every measure of the economy has been altered over time to make it seem as though the economy is healthy when all the measuring tools are elastic. The reporting agencies no longer define the consumer price index the same way. When energy and food costs are rising, they are excluded, when they are falling it’s proof that things are fine. Previous measures of the money supply, M3 for example, are no longer compiled – at least for the public and who knows what fudging is done with the numbers that are published.
So how do we minimize the manipulation? In my opinion the best solution is to close the Federal Reserve Bank and return to hard money. Realistically that is not going to happen. However, if we restrict the FRB to managing inflation with consistent definitions, the ability of the FRB and the government to allow persistent money supply growth without added real value within the system would be somewhat checked.
ross on Tue, 17th Feb 2009 12:41 PM
why don’t you consider this a a barrel of STUFF…pile each issue on top i.e. banking + the Bankers, the Fed, That Wall st bunch, Congress and the NEWPresident, and THE PEOPLE, with the housing et al.NOW, HERE IS THE ANSWER..,SIMPLY TURN THE BUCKET UPSIDE DOWN RE THE MONEY…RESULT THE PEOPLE GET THE MONEY NOW…AND THEY SPEND IT….AND SOME of the banks go broke (some deserve it because of their own ineptness)…WHY IS THIS NOT AT ALL REASONABLE….TOO MUCH PROTECTIONISM AT EVERY LEVEL.
EXCEPT NOT DEALING WITH THE REAL ISSUES…NAMELY THE BANKERS THE CONGRESS ET AL FOR SIMPLY OVER SPENDING THE PEOPLES MONEY/
dan w. on Tue, 17th Feb 2009 6:50 PM
I fail to hear anyone addressing the real issue. Rather than GIVING billions directly to banks and other industries,more appropriately the money should be given in the way of subsidies and targeted vouchers to individuals who could then choose how to use their voucher and/or subsidy.
Vouchers of $2500 per adult to be used only on mortgage payments would catch many up on their payments while infusing the mortgage holder with the needed funds.For those who don’t have mortgages,the voucher could be used in housing acquisition. If they don’t wish to use the voucher for either of the above scenarios,it could be used in buying a car, but at only half the rate for housing.$1250 per buyer would help the auto industry substantially.If they don’t make that choice, they would be eligible for a $500 cash payment.
The next part of the plan should, at little longterm cost, help the employment situation while helping to create permanent jobs, unlike the currently passed legislation.
The government could subsidize for up to two years added employees in the manufacturing sector.This could easily be monitored, since companies pay FICA on all their employees and roughly 2000 hours equals an employee.If the additional employee is subsidized at the rate of 2 or 3 bucks an hour, we could conceivably bring a job or two home from China,the unemployment rolls would be reduced,saving a portion of the new labor cost,and instead of transferring all of our handouts overseas by buying China goods or Mideast Oil,a larger portion might then remain at home where it could be recycled into a stronger economy.
There are, therefore, many things that can be done to turn the ship around.This is by no means an all inclusive list, and I am certain there are many great ideas, but it seems there is a paucity of such in the Administration now in power.
Fred P on Tue, 17th Feb 2009 10:46 PM
I vote for deflation, but not without some help. It would be like forcing a heroin addict to go ‘cold turkey’. It would not be pretty. Americans have been trained to spend more and more over the past 2 decades by the availability of easy credit. The banks, credit card companies, and mortgage lenders kept telling us it was OK, and we believed it. And we got hooked. We used our homes as bank accounts, and drained out all the equity, but were told not to worry because real estate would always go up in value. It doesn’t really matter who was to blame, the Republicans or the Democrats, because bad policies by both parties have gotten us to where we are now.
So, how do we fix it, or can we. I don’t believe that we can spend our way back to prosperity, because that’s how we got into trouble in the first place. But, pulling the plug and letting things collapse will probably drive many people into permanent poverty. Obama made a major mistake by letting Nancy Pelosi and a spend crazy Democratic House and Senate draft the bailout bill. I am all in favor of the government spending money on infrastructure improvements, thus putting people to work temporarily. But we don’t really all want to work for the government, do we. Don’t they call that Socialism. Even George Stepanopolis doesn’t know the difference between creating work and creating jobs. The government can create work, but businesses and entrepreneurs create jobs. One thing I do agree with is trying to save the US auto companies. Our country, over the last few decades, has given away our manufacturing edge to other countries, and has instead focused on being consumers of cheap foreign products financed by mortgaging ourselves into oblivion. We need to remember what made us great as a nation, and focus once again on making things of value, thus creating jobs and wealth. We need to become the leaders in the development of new technologies, alternative energy, and the things that will lead us into the future. If the government is going to spend money, it needs to be on these type of things, and not ‘pork barrel’ projects like what is in the bailout package.
Thanks for reading my ramblings,
Fred
C. Fowler on Wed, 18th Feb 2009 5:03 AM
Certainly makes sense to me, though I sure wish you were wrong. At some point would you mind telling us what the TRUE reason was for Washington’s declaring gold ownerahip by citizens illegal bask in the 30s? I know it was in conjunction with our going off of the precious metals standards for our currency, but WHY make it illegal to own??? Was that so we’d have no interest in it and therefore would not keep up with its actual market value, or what? I just cannot seem to fathom what HONEST purpose that served.
S. Loy on Wed, 18th Feb 2009 5:05 AM
question: would now be a good time to buy a Blue Chip index fund? My father owns Dell.I will never know why he bought it.Should he get out and get into something else? Would AIG be a good buy? Would shorting the indexes be a good idea?