Fixing the Economy
1. A full ‘payroll tax holiday’ where the US Treasury makes all FICA payments for us (15.3%). This will restore ‘spending power’ allowing households to make their mortgage payments, which ‘fixes the banks’ from the ‘bottom up.’ It also helps keep prices down as competitive pressures will cause many businesses to lower prices due to the tax savings even as sales increase.
2. A $500 per capita Federal distribution to all the States to sustain employment in essential services, service debt, and reduce the need for State tax hikes. This can be repeated at perhaps 6 month intervals until GDP surpasses previous high levels at which point state revenues that depend on GDP are restored.
3. A Federally funded $8/hr job for anyone willing and able to work that includes healthcare. The economy will improve rapidly with my first two proposals and the private sector far more readily hires people already working vs people idle and unemployed.
In 2001 Argentina, population 34 million, implemented this proposal, putting to work 2 million people who had never held a ‘real’ job. Within 2 years 750,000 were employed by the private sector.
4. Returning banking to public purpose. The following are disruptive and do not serve no public purpose:
a. No secondary market transactions
b. No proprietary trading
c. No lending vs financial assets
d. No business activities beyond approved lending and providing banking accounts and related services.
e. No contracting in LIBOR, only fed funds.
f. No subsidiaries of any kind.
g. No offshore lending.
h. No contracting in credit default insurance.
5. Federal Reserve- The liability side of banking is not the place for market discipline. The Fed should lend in the fed funds market to all member banks to ensure permanent liquidity. Demanding collateral from banks is disruptive and redundant, as the FDIC already regulates and supervises all bank assets.
6. The Treasury should issue nothing longer than 3 month bills. Longer term securities serve to keep long term rates higher than otherwise.
7. FDIC
a. Remove the $250,000 cap on deposit insurance. Liquidity is no longer an issue when fed funds are available from the Fed.
b. Don’t tax the good banks for losses by bad banks. All that does is raise interest rates.
8. The Treasury should directly fund the housing agencies to eliminate hedging needs and directly target mortgage rates at desired levels.
9. Homeowners being foreclosed should have the option to stay in their homes at fair market rents with ownership going to the government at the lower of the mortgage balance or fair market value of the home.
10. Remove the ‘self imposed constraints’ that are disruptive to operations and serve no public purpose.
a. Treasury debt ceiling- Congress already voted for the spending and taxes
b. Allow Treasury ‘overdrafts’ at the Fed. This is left over from the gold standard days and is currently inapplicable.
11. Federal taxes function to regulate aggregate demand, not to raise revenue per se, and therefore should be increased only to cool down an overheating economy, and not to ‘pay for’ anything.
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December 23rd, 2009 at 4:30 pm
Yeah, Mr. Marx, more government control and intervention is exactly what we need.
December 23rd, 2009 at 6:01 pm
Thanks for letting Warren chime in on your blog!
December 23rd, 2009 at 6:43 pm
You had me going for a bit. Still, by the end, it is clear the beginning is too convoluted. Your system can be done more simply:
1. A full federal tax holiday. No one pay any taxes. People spend more in the economy!
2. A $ 100,000 per capita distribution to states so everyone can get a state job and the states and localities can have property and sales tax holidays too.
3. A federally funded $25/hour job for anyone who can hold a pen or send in an e-mail. Maybe pay people for being on facebook or something.
4. Eliminate banks and instead have the fed give money directly to every resident so they can spend it more quickly without any disruptions or harshing of mellows by suggestion of repayment or productive use.
5. Again, screw the member banks, let the fed “lend” directly to the people. The government already regulates the legality of larceny and theft so all will be fine.
6. Shorten it up, the treasury should not lend at all, just issue its own currency paying zero interest. With no treasury curve to price things on, the interest rate for private long term lending will just fall to the current spread over treauries, right?
7. Once you eliminate the banks and make money available to residents direclty from the Fed, the FDIC becomes superfluous .
8. The treasury should directly print its own currency to give to people to buy houses with.
9. Homeowners should have the option of having the government discharge any existing mortgage lien with money created especially for that purpose.
10. Remove the additional self imposed contraint of the Federal Reserve and just have the bureau of engraving and printing print whatever amounts the treasury needs to make sure everyone here has enough to be happy.
11. Instead of re introducing taxes to influence aggregate demand, the treasury could just declare certain types of currency no longer legal tender or could order people to exchange one kind of currency for another, maybe a new one that removed all the extra “zeros” cluttering it up.
December 23rd, 2009 at 7:22 pm
It does sound like my good friend Warren Mossler, with whom I agree about 95% of the time. Warren, you probably will see a great number of sarcastic responses from people who haven’t the foggiest notion how the government works. Just keep going.
I very much like your ideas, with one exception: #6. Please explain why a government, with the unlimited power to create money, should borrow its own currency.
And, for all those snickering about #1, visit http://rodgermmitchell.wordpress.com/2009/09/08/ten-reasons-to-eliminate-fica/ to receive a full explanation.
Rodger Malcolm Mitchell
rmmadvertising@yahoo.com
December 23rd, 2009 at 7:44 pm
Green shoots? wow…
http://www.tulsaworld.com/news/article.aspx?subjectid=11&articleid=20091223_54_A1_Amanwi223508&archive=yes
December 23rd, 2009 at 8:01 pm
OK… you’re as crazed as a Mad Hatter.
Implement all or part of this and see gold rocket to the stratosphere.
December 23rd, 2009 at 8:58 pm
Excellent post. Guest Author understands how a modern (post August 15, 1971) monetary system operates in practice. It’s time to bury the myths based on a convertible fixed rate monetary system that no longer exists and accept the reality of the non-convertible floating fx world that we are now living in.
December 23rd, 2009 at 11:59 pm
Goofy cartoon that makes sense at first, #1 payroll tax cut and #2 per-capita state support are no-brainers. Cheers for #3 Minsky Jobs. In an extended period of high unemployment, we need to get young people into some sort of work. Print for Youth, not for Banksters! [insert here your lurid Maoist graphic of choice]
#4 Narrow banking, check.
The rest is over my head or nonsense (though I suspect Tom Hickey is correct.) Here are my ideas.
5. Given that my state receives back eighty cents on every dollar sent to DC; given that the two senators from Wyoming represent 500k people and the two senators from my state represent 37,000k people, thus a leverage ratio of 74:1… WTF??? We need to kick the Senate upstairs and create a new deliberative body based on urban conglomerations where the real action occurs.
6. Given that tax codes are nothing but playgrounds of The Powers That Be, we need radical simplification. Eliminate taxes on employers, eliminate corporate welfare, end ag subsidies; finance government with consumption tax.
December 24th, 2009 at 10:19 am
A tax holiday on all 401K etc withdrawals during 2009.
December 24th, 2009 at 8:30 pm
ARGENTINA!! Now that’s an economy worth emulating. WTF!
December 25th, 2009 at 9:26 am
Debt hawks enjoy reciting country names, without knowing each country’s unique circumstances or why these unique circumstances are applicable to the U.S. problems. So, in addition to Argentina, here are a few more names of countries that have undergone economic crises: Zimbabwe, Germany, Japan, China, Brazil, Mexico, Italy, Iceland. Feel free to recite them in your next discussion of U.S. economics.
December 26th, 2009 at 4:36 am
this window is open .. so I’ll chime in .. I thought most of the top sounded sain
.. I would also expect with #4 .. some booktalkers would slam this talk / to halt a future shovel job
.. but this money and paper pushing for living stuff .. I don’t understand it totally
#1 FICA tax holiday – hearing of borrowing by the USgov to do this that over time – time it gets repaid by others
…. ellidc’s #1 – full tax holiday – and how do we pay Haliburton and Blackwater to do half the foreign war stuff?