There is no conflict — absolutely none — between our twin goals of putting the economy back on its feet and reducing long-term deficits. On the contrary, government could take many steps that would serve both goals simultaneously.

-Robert H. Frank, Economist, Johnson Graduate School of Management at Cornell University

>

I am total agreement with the statement above. You can simultaneously stimulate short term and reduce longer term debt.

It is a question of timing and emphasis, not mutually exclusive goals.

Towards that end, economist Robert Frank makes several thought provoking suggestions for doing both. If you recognize Frank’s name, its because he co-wrote a text book, Principles of Economics, with some dude named Ben S. Bernanke.

Frank’s approach to stimulating the economy and reducing the Federal deficit are broad based. Some are pretty standard, like increasing public investment in infrastructure, such as roads and the electrical grid. He also advocates a VAT surtax on extremely high levels of consumption, to be phased in slowly, on $500,000 per year or more of spending. “This would reduce long-run deficits while stimulating extra spending immediately” he notes.

But several of his other suggestions are more cutting edge. He thinks we should create a program to restructure consumer debt:

“Although rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.

With their debt service payments cut by more than half, consumers could increase spending immediately. And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure.”

Interesting concept. We have thrown so much money at banks, this is a way to help ordinary citizen consumers.

Most of the Carbon tax schemes are designed to help the environment. But Frank’s approach is designed to be economically stimulative. His cap-and-trade system would be gradually phased-in, and only after the economy has again reached full employment.

Frank argues this would stimulate a huge jump in private investment immediately:

“Why? Investment is currently depressed because companies can already produce much more than people want to buy. But once a carbon tax was announced, the design of nearly every existing machine or structure that uses or produces energy would be rendered suddenly obsolete. Motor vehicle engines, electric power plants, refrigerators, air-conditioners, furnaces — all would have to be redesigned for greater efficiency.

The resulting flood of research and investment would enhance our ability to cope with future energy shortages and would serve another crucial purpose. Taxing carbon could eliminate the catastrophic risk of vastly rising global temperatures by the end of this century; it would be a prudent act, quite apart from its utility as an economic stimulus.”

And, this adds nothing to the deficit, as the spending is private sector driven.

Of course, any sorts of these plans could only be passed in a nation that was a Democracy. That is a form of government where policies are debated by the populace, then voted on by their elected representatives on behalf of the citizens. That was the form of government the United States was in the earliest portion of its history.

No longer. It has since become a Corporatocracy: An elected Parliment of Whores who work on behalf of corporate interests. Any idea that conflict with those corporate interests, regardless of how innovative or potentially useful, don’t stand much of a chance . . .

>

Source:
The Choices That Pay Us Back
ROBERT H. FRANK  NYT, July 2, 2010
http://www.nytimes.com/2010/07/04/business/04view.html

Category: Bailouts, Economy, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

99 Responses to “Proposal: Stimulus & Deficit Reduction”

  1. Indeed, watch the tone of the discussion that follows.

    Frank’s mere suggestion that a group of citizens working through their democratically elected representatives could do something to help themselves will be savaged.

  2. uhmmm_doh says:

    Those are some pretty radical suggestions. I like the idea of restructuring credit card debt :)
    Wonder if the carbon tax will affect companies’ short term profitability though, leading to a larger deficit?

  3. Marcus Aurelius says:

    “The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.”
    __________________

    Borrow? The government doesn’t borrow, it prints. Yes, it does exchange its fiat for foreign fiat, with interest, but the concept of borrowing breaks down when that which is being “borrowed” is available in unlimited supply to both the lender and borrower.

    As proof of concept, I ask this: In an environment where all value and denominations of value are pulled out of thin air at virtually no cost (setting aside that all of the players are flat broke, even in the context of fiat money), exactly what are we borrowing, and where did those we’re borrowing from get the liquidity to lend to us? (A: they, too, pulled it out of thin air).

    Also, why should the government charge interest on something we, ostensibly, already commonly own? (A: We own nothing: the government is owned by the banks — a victim of its own participation in the scam).

    BR wrote:

    “Frank’s mere suggestion that a group of citizens working through their democratically elected representatives could do something to help themselves will be savaged.”

    As you said, BR, this is a Corporatocracy. The idea that we have a democracy (or a Constitutional Republic, for that matter), or that citizens can have an impact on the course of events, going forward, will be savaged by the 24%ers, who can’t see anything that they don’t perceive as a threat to “their way of life.” Their participation in the process of sham governance is vital to the continuation of the ongoing scam. Everybody else already knows they’re not represented by anyone (except maybe Alan Grayson or Russ Feingold) in our shell government.

  4. Lamont says:

    “With their debt service payments cut by more than half, consumers could increase spending immediately.”

    The only way that would work is if consumers line of credit was cut off at the same time. Otherwise with lower debt servicing costs, consumers would just tack on additional debt each month with the money they’d save on the lower interest payments. This would accomplish nothing but kick the debt problem down the road a bit. This idea that lower rates would allow consumers to increase debt is what the housing boom was about from 1982 onward (until lenders became really creative in the last few years).

  5. globaleyes says:

    Robert Frank’s proposal to borrow at 3 and lend at 8 sounds fantastic for debt-burdened consumers.
    However, the small but vocal produce-more-than-you-consume crowd would be disappointed to find their spendthrift ways had produced a subsidy for someone else. There’s a reason economics is called the dismal science.

  6. dead hobo says:

    Sorry, but cap and trade comes across a student research paper that works on a spreadsheet in theory, but has developed momentum because of the way to scam profits from new forms of trading. Wall Street would profit immensely but the environment would not even notice. It’s an excellent example of scamming with a straight face through the help of useful and/or corrupt idiots.

  7. franklin411 says:

    I certainly agree with the idea of stimulus now and taking measures to reduce long term deficits by making the economy more fair and less top-heavy. But this idea of a “Corporatocracy” is downright dangerous. Why?

    Because it absolves the voters of any blame for what’s going on. IE: Our current mess isn’t due to the fact that voters are idiots by choice who vote for the guy they’d most like to have a beer with. Our current mess isn’t due to the fact that voters can be trusted to forget everything that has happened, except what happened during the last 3 months before the election. Our current mess isn’t due to the fact that voters don’t care to follow politics and vote according to their interests–they can’t be bothered to keep up on current events, and they were “born Republican/Democrat and will die Republican/Democrat.” Our current mess isn’t due to the fact that most voters don’t vote at all.

    No, the individual citizen isn’t responsible for our current mess, and logically he is powerless to fix it. It’s the corporate interests that have done this to us–like the Germans in 1919, we prefer to think that we were not defeated by our own stupidity. Rather, a hated minority group stabbed us in the back.

    So no need for introspection, folks. No need to question why we pay prison guards $100k/yr and schoolteachers $35k. No need to question why we let China sell goods in America while China doesn’t allow America to do the same in their markets. No need to question why “respectable” analysts can wonder aloud whether a candidate can “overcome” the fact that he or she is intelligent and still win election. Yes, there’s no need for introspection. The “corporatocracy” did it to us.

    Nonsense. We’re in a mess because 75% of the people are vapid morons.

  8. dead hobo says:

    globaleyes Says:
    July 4th, 2010 at 10:07 am

    Robert Frank’s proposal to borrow at 3 and lend at 8 sounds fantastic for debt-burdened consumers.
    However, the small but vocal produce-more-than-you-consume crowd would be disappointed to find their spendthrift ways had produced a subsidy for someone else. There’s a reason economics is called the dismal science.

    reply:
    ————–
    Of course the 5% spread would cost 7% to administrate. Someone would then securitize the debt. Borrowers would still be charging on their cards and eventually go bankrupt just like today, causing Uncle Stupid to be holding lots of worthless paper (sound familiar?).

  9. dead hobo says:

    franklin411 Says:
    July 4th, 2010 at 10:14 am

    Nonsense. We’re in a mess because 75% of the people are vapid morons.

    reply:
    ————
    Nice call, grasshopper.

  10. jpmist says:

    “Of course, any sorts of these plans could only be passed in a nation that was a Democracy. That is a form of government where policies are debated by the populace, then voted on by their elected representatives on behalf of the citizens. That was the form of government the United States was in the earliest portion of its history.

    No longer.”

    Wow, can’t argue with that.

    Happy 4th. . .

  11. super_trooper says:

    @dead hobo, 75% based on the average responses on this blog? 3/4 chance that you fall into that categoty.

  12. Marcus Aurelius says:

    The following is OT, tangential to BR’s post, and annoying in its length, but from what I’ve read of it so far, well worth the time. (BR, I apologize — not an attempt to hijack the thread).

    Every now and then, someone REALLY paints The Big Picture. I don’t know who this person is, but they see clearly.

    This is a transcript from a conversation/address in 2002. It’s Orwellian in its prescience.

    An excerpt:
    _______________

    “What the Free Market undermines is not national sovereignty, but democracy. As the disparity between the rich and poor grows, the hidden fist has its work cut out for it. Multinational corporations on the prowl for “sweetheart deals” that yield enormous profits cannot push through those deals and administer those projects in developing countries without the active connivance of State machinery – the police, the courts, sometimes even the army. Today Corporate Globalization needs an international confederation of loyal, corrupt, preferably authoritarian governments in poorer countries to push through unpopular reforms and quell the mutinies. It needs a press that pretends to be free. It needs courts that pretend to dispense justice. It needs nuclear bombs, standing armies, sterner immigration laws, and watchful coastal patrols to make sure that it’s only money, goods, patents, and services that are being globalized – not the free movement of people, not a respect for human rights, not international treaties on racial discrimination or chemical and nuclear weapons, or greenhouse gas emissions, climate change, or god forbid, justice. It’s as though even a gesture towards international accountability would wreck the whole enterprise.”
    ______________

    http://nmazca.com/verba/roy.htm

  13. dead hobo says:

    super_trooper Says:
    July 4th, 2010 at 10:22 am

    @dead hobo, 75% based on the average responses on this blog? 3/4 chance that you fall into that categoty.

    reply:
    ———-
    I am not a vapid moron. I just look that way sometimes due to strong drink taken in excess on a frequent basis. Although my natural bad attitude hides it somewhat. On top of that, I am a scholar in the use of the Bodine theoryof gozintas of Quantitative Investments, which is the same theory used by many sales pundits on CNBC and other news outlet and back room iBank lackys.

  14. seneca says:

    Robert Frank writes: “[O]nce a carbon tax was announced, the design of nearly every existing machine or structure that uses or produces energy would be rendered suddenly obsolete.”

    This is the same class of “jobs, jobs, jobs” myopic reasoning that says earthquakes, oil spills and hurricanes are a social good because they create jobs to repair the damage. But what about the devastation to assets and balance sheets and the harm to life, property and the quality of people’s lives? Economists don’t factor in those losses when tabulating GDP so, to an economist, the losses don’t exist.

  15. Winston Munn says:

    Those millions who are without jobs will certainly be heartened to know that their bankruptcy filing will be for 50% less unpayable debt. Only in America is the problem of unsustainable debt solved with the idea of cutting the debt in half by refinancing and then doubling the amount of debt by unnecessary spending so we end up right back where we started – only owing twice as much as before.

    Our profligacy caused us to borrow incessantly to create an illusion of prosperity, which finally came crashing down around our heads. Now that this Humpty-Dumpty illusion has broken into millions of out-of-work pieces, it is unclear whether any of the king’s men would be willing to borrow enough to build a new Eggman – even at discount interest rates.

    After a 25+ years policy of redirecting productivity gains to the wealty in the form of tax incentives while flattening wages with world competition, the only long-term solution is to normalize the relationship between wages and productivity. To consistently use increased debt as proxy for wage increases is unsustainable – eventually the zero boundary of interest rates requires an alternative solution. This solution of refinancing with Treasury debt would be a short-term help, but in the end it is simply more of the same.

  16. Robespierre says:

    “With their debt service payments cut by more than half, consumers could increase spending immediately. And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure.”

    This is a great idea. It targets the population segment that will spend spend spend regardless of their real economic situation. I know this because I paid my credit cards at the end of the month and even %0 interest will do nothing to my spending habits. However, this idea will do wonders for those people who have always lived beyond their limits since it will allow them to jack up again to infinity. It will do wonders to the banks since I assume the debt of this “consumers” have will be repaid in full by taxpayers during this “one time restructuring”. Have you ever hear of BK to deal with debts that can not be repaid? O wait BK forces the bank to take theirs loses and we don’t want that. As for the cap and trade you have to be kidding me. Cap and trade is a way for corporations to paid to manufacture inefficiency and for IBs to make money. Do you want industry to invest in innovation and efficiency? Then pass a tax on gas of about $2 per gallon you will see how quick they go into efficiency.

  17. Tarkus says:

    Why 8% to the public? And why does the Fed give discount window rates only to big banks who then declare they are the “best and brightest” and deserve huge bonuses for using cheap money? What could a REAL company like IBM do with those kind rates? The cheap money for big banks only gives them incentives to become predatory on their client-base, since they actually have little to no use for a client-base anymore when they get free money.

  18. tude says:

    It is blog posts like this one, including the replies, that make TBP my favorite reading on the internet. I was just telling my husband, right before reading this, how I cried as a 10 year old kid when Reagan was elected. I know everybody thinks that Carter was the worst president that ever served, but as a child I remember Carter and what I think he tried to do for this country and for Americans, and I remember thinking that by electing Reagan we had decided to follow the wrong path. Where we are now feels a little like deja vu, we have this opportunity to change course and do the right thing no matter how hard it is, yet everyone is more concerned with loosing their “way of life”. Seriously, when did Americans become “consumers”? When did consuming become more important to Americans than living?

    BR, I don’t always agree with you, but you always make me think. And your readers always shock and surprise me with their replies, often expressing opinions and points of view I would have never thought of. I don’t think I am part of that 75% of morons, but I am happy to know that there are a bunch of people out there that are smarter than me, and can and will both see and speak the truth.

  19. comet52 says:

    I think “Parliament of Whores” would make a good title for your next book on our economy.

    ~~~

    BR: P.J. O’Rourke beat me to it: Parliament of Whores: A Lone Humorist Attempts to Explain the Entire U.S. Government

  20. wunsacon says:

    >> There is no conflict — absolutely none — between our twin goals of putting the economy back on its feet and reducing long-term deficits.

    Barry, sorry, but I want to see the government cut its spending now. Neither political party has demonstrated it can cut spending in good times or bad. I have zero confidence that spending will be reduced any time later. I want to see governments cut *now*.

    Yes, right-wing politicians (but not necessarily right-wing voters) are full-on hypocrites. Still, that’s a distraction.

    It’s not just the “deficit” aspect of this. It’s about fairness, too. The private sector has been decimated. Public sector workers cannot expect the private sector to continue paying for the now-lavish total compensation packages given to the public sector.

  21. wunsacon says:

    The only fair way to help average Americans and stimulate the economy is for Congress to bypass the Fed/Treasury structure, print some new money, and wire it monthly to each and every US citizen.

    I actually believe we could use this same mechanism to efficiently replace part of the social safety net. Friedman once said as much:
    http://en.wikipedia.org/wiki/Negative_income_tax

  22. Robespierre says:

    @tude Says:
    “Seriously, when did Americans become “consumers”? When did consuming become more important to Americans than living?”

    I wish it was only “consumers” the issue is that they have become “wasteful consumers”. No other country buys the amount of unneeded crap that American does. Look around the world and you will see American as one of the few countries (I don’t want to say the only one) where outside storage of crap is a viable business. I would love to see the opinion of sociologist on the subject. Of course the “solution” proposed by bankrupted minds is more of the same.

  23. Marcus Aurelius says:

    seneca:

    The balance sheets would be even more unbalanced if we accounted for all of the costs of (an/our/any) enterprise. Ignoring or hiding the down side of an enterprise inflates profits over the short term, but, as we are witnessing, written large in the Gulf of Mexico, will, and can only, bankrupt the enterprise in the long term.

    We don’t account for our waste stream, and as a result, we are weakening, if not outright destroying, the basis for our wealth and security. To acknowledge and pay the true cost of global enterprise, we would need to employ literally millions of people to mitigate the effects of our waste and “mistakes” on the environment. That money would have to come from the businesses that generate the waste stream, either directly of through taxation, and that won’t happen.

    How much profit would the corporations take (not make, mind you), if they had to bear the cost of cleaning up after themselves?

    Bophol, Chernobyl, the great heap of plastics floating in and poisoning our oceans (we need a name for these), Kepone in the James River, Horizon deep water, greenhouse gasses, and countless smaller but no less dangerous practices (fragmentation drilling and mountain top mining, and mercury fallout from fossil fuels, for example), are indicative of things we have written off but which will continue to cost us dearly, for generations.

  24. GrafSchweik says:

    I’ve been with my credit union for about 6 years. The APR on my credit card started out at 8.5%. It is still 8.5%. [cue Cheshire cat smile]

    Frank’s proposal on cc debt only makes sense to me only if we go sashimi on the banksters’ asses. I don’t think this is my inner Engels speaking, but if it is I don’t give a frack.

    I would end banks as share issuing entities. They should take the forms of credit unions and mutual banks owned by their depositors. Investment banks should be partnerships only. Those of you who know more or think you know more, feel free to flail away.

    But I know three things for certain:
    1 – The antics of his intellectual god children have had Adam Smith spinning in his grave for generations. The ones who quote him the most read only the first half of ‘The Wealth of Nations’ and “kinda forgot” to read the second half which deals with the moral and proper application of the principles he had discussed.

    The city fathers of Edinburgh need only to wrap his remains with copper and replace his old headstone with one that is a magnet to have a really nifty source of electrical power.

    2 – Aaron Burr killed Alexander Hamilton 20 years too late.

    3 – 35% of us are vapid morons while 40% of us are stone cold fuck nuts lazy.

    So it goes.

  25. Andy T says:

    Good article BR.

    I like the concepts about restructuring the debt on individual balance sheets. This was always the “linkage” that Benicio was missing. He dumped hundreds of billions onto banks, but those banks, aka the “Cavaliers of Credit,” hoarded the cash instead, knowing that it was time to go into survival mode.

    The great irony is that “Helicopter Ben” never really lived up to his moniker. He should have dumped the juice right on to the peeps in order to avoid deflation.

    Wonder what this guys thoughts on “Debt for Equity” swaps is? At some point we’re heading for a global debt repudiation because the bills simply cannot be paid. Creditors should be getting more proactive with the debtor nations. Countries and states will need to start signing over their various assets in exchange for debt relief.

    The whole carbon tax thing is a huge disaster. There are smarter ways to deal with rising temperatures.
    http://www.businessinsider.com/a-smarter-way-to-deal-with-global-warming-2009-5

  26. rktbrkr says:

    “The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.”

    Actually the first step is the Fed giving the money to the 19 Immortal banks at zero cost and then these banks turn around and lend to Uncle Sap at 3% – guaranteeing enormous riskless profits. Of course you may wonder why the Fed doesn’t provide the same zero cost funding directly to US – but that wouldn’t be free market capitalism! Since the Fed is the servant of these banks they couldn’t support any action like this that could eat into TBTF profitablity!

  27. Paul Jones says:

    None of this means anything without ending the war.

  28. Thats all you need. Another program for the government to stick it’s nose in that it will NEVER get out of. Just remember that income tax was supposed to be a temporary measure. How many decades has than been again?

    Why get government loaning at all? Why not just outlaw usury? Why is anybody allowed to loan at rates above 10% at all or even rates 5% above prime let alone what CC companies are charging today?

    If you insist on giving consumers a break for being stupid why let the government in on it? Talk about the blind leading the blind. There is already an entire loan consolidation industry that would function a lot more efficiently than any government would. Plus they would be providing jobs for people again if only they had a few incentives or tax credits in order to do what is proposed since something is obviously keeping them from doing it now

    I like what the guy says here:

    With their debt service payments cut by more than half, consumers could increase spending immediately.

    What?! Doesn’t he mean that they could pay their debts off much faster by keeping their payments at the same rate and increasing the amount that goes to principle? NO! Of course he’s not going to say that because it flies in the face of the debt slavery industry that just wants to seek to put more burden on consumers. They definitely do not want them thinking about a life away from debt because then their no work cash flow goes away for good

  29. tude says:

    Marcus Aurelius,
    I think in a couple generations the people of this earth will look back on the people of our generation with horror and disgust at what we have done to this planet. We produce and consume and discard without a thought to the consequences. We are killing ourselves, and trying to stop the disease with pharmaceuticals. And for what?

    Sadly, history has taught us nothing, and the future for most people is somebody else problem.

  30. dead hobo says:

    Last post for me on this …

    I’m rather surprised that few if any of the above posters, including BR, have noticed that we expect government to be the solution to bad behavior that is private in nature. Everybody wants government to continue bailing out the banks, only this time through the use of subsidized credit card debt or through the creation of cap and trade derivative profits, not to mention the synthetic derivatives that would ultimately arise.

    For an author of a prominent bailout book this is a little surprising. Why can’t business solve their own problems or suffer their own losses from idiotic business decisions? If credit card management schemes were such a good idea, you wouldn’t need government to finance it.

    Nope. I think it’s time for a serious and cleansing recession. Govt can give groceries and rent subsidies to those affected the worst, but only if they are taking steps to be retrained for something useful. Let’s turn the clock back to the time this was referred to as the public dole and was a matter of personal shame.Govt should stop giving credit junkies their regular fixes.

  31. rktbrkr says:

    I just opened an account and credit card with one of the largest credit unions and I can’t wait to notify my TBTF credit card partners “adios”, I’m sure I’ll be greeted with offers to modify the terms of my CC to meet the competition (more or less) (and then get blindsided some months down the road when they slam me with some big annual fee!)

    I feel I’m being patriotic prying these blood sucking leeches off my back.

  32. b_thunder says:

    As long as all that politicians care is to get reelected, all the pledges and promises to raise taxes or reduce spending “in the future” is simply not worth paper it’s written on! How long did it take “baby” Bush to declare something like never-ending prosperity and enact not one, not 2 but 3 tax-cuts? (and then a bunch of tax-refunds, and one-time $600 bribes?) As soon as the GDP and employment show steady gains, the by then controlled by the GOP Congress will continue on the GOP favorite “supply side” path by cutting MORE taxes. Barry, I’m sure that after your talks on the Kudlow show you know better than most that in “their” collective brain the supply-side ideology is as alive as ever.

    That was my “global” take. As far as the details go, well, the reduction of consumer debt by gov’t doing low-interest re-fi’ would be an excellent idea, something that would finally have regular folks (and not the primary dealers for a change) benefitting from the ultra-low rates, but can you imagine the stink about how it all amounts to covert “socialism” and the “nationalization” of the industry? I can even imagine your “friend” Kudlow screaming into the camera about “Socialist-Obama” and the oncoming end of the world! If they could spin the biggest giveaway of public money, and delivery of 40 million of new, paid for by the government mandate “customers” to the privately-owned health care industry as “socialism,” imagine what they will do with a program that, in its core, is an actual takeover of an industry by the government? Not to mention the banking/credit card lobby would never let it happen.

    It all has to start with a comprehensive political reform and firing every member of congress, member of the Cabinet, and new presidential election. July 4th is appropriate date to start new revolutionary movement!

  33. rktbrkr says:

    If Congress can’t summon the courage to legislate meaningful financial reform after what we’ve gone thru the next couple years then I see ZERO probability they will act on anything like this that could potentially negatively impact TBTF profits.

    They’ll lobby & bribe the congress into knots and we’ll end up in a situation where US will pay a surcharge to the TBTF for any loans made at less than TBTF sticker.

  34. Here is a better idea. How about letting American loan up to $100K of their wealth to other Americans at the rate that CC companies are charging. Make sure the loan is handled by a third party and include credit counselling.

    That way, instead of government being the co-signer(as how it would work in the original suggestion), you could have the money flowing from irresponsible borrowers to responsible ones instead of the other way around. If the USG co-signs for the people who are too stupid to know better anyway then the money will flow from the responsible to the irresponsible when the latter defaults a second time.

    At least if you do it the way I propose you will make the ones who will be paying for the deadbeat stronger for the day of reckoning

  35. ACS says:

    Franklin, 75% may not be actual morons but by definition 50% are below average in intelligence and apparently that’s enough.
    The long term solution to government deficits can only be accomplished by ending the Imperial project and shifting away from transfer payments. Miltary spending must be cut: no more World policeman, no hundreds of bases all over the Globe, no wars to spread Democracy or build nations or whatever the current excuse is. If transfer spending is to be cut it needs to start with corporate and middle class subsidies. That means the average American must save and invest, not borrow and spend. A program that converts debt one time would be helpful but the temptation to make it permanent would be too strong for politicians to resist. Besides, the current situation is part of the program to re-liquify the banks so good luck changing that. There are some areas where taxes can be raised but are Americans really under-taxed or is the problem over spending by government?

  36. mns3dhm says:

    “The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.”

    This idea scares me to death. My guess is a substantial number of these consumers would simply stop paying their new government loan off, just as many consumers have stopped paying off their mortgages. All these plans to prop up lending institutions and borrowers are the worst sort of stimulus as they perpetuate the exact behaviors that led to the problems we have now. Everything the government is doing should be directed at stimulating private sector job creation.

  37. makingmoney says:

    “The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.”

    This is the best argument for getting rid of that blood sucking drag on the economy, the FED.

    Just have some low level bureaucrat in Treasury type in, say $3,000,000,000 in a computer, like I just did, and presto $3T is available at no interest. Not 1% or 3% but 0% cost.

    Lend the money at 3-5% to taxpayers. That would spur even more growth than that dimwit Frank’s recycled idea.

    What if the gov would create all it’s money that way? No interest to the TBTF banks, let ‘em blow up, and the debt would get lower faster than Franks run of the economic mill thinking.

    Start 10 new US gov banks with $10T, it’s as easy as me typing $10T. $1T for each bank at 8:1 ratio that’s around $80T new money to lend to good customers.

    Nah, too simple. Not enough bribe money to pay for the next election cycle of scumbags.

  38. Tony61 says:

    “With their debt service payments cut by more than half, consumers could increase spending immediately.”

    Ya, BAILOUT NATION, baby!

  39. dwkunkel says:

    There is a major problem with this idea that others have alluded to.

    A large number of Americans don’t understand how finance works. They have no clue how loan amortization works, don’t understand the power of compound interest, and don’t fully comprehend that credit card debt has to be repaid.

    I know it sounds bizarre, but I have met a surprisingly large number of people that fall into this category.

  40. DL says:

    “The federal government could reduce [consumer debt] by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan”.

    I agree with some of the others… this is an absolutely horrible idea, for several reasons, not the least of which is that the “one-time” debt-restructuring would quickly become a long-term entitlement.

  41. bondjel says:

    Great post, Barry. But most of the replies I just read are pretty disappointing. Blaming the guy in the street for being a moron is the height of something or other. There have been a vast series of decisions taken by government in cooperation with large corporations since the last half of the 18th century that have put corporations in the drivers’ seat and kept them there and the gov unfortunately is still at it. Who do you think it is who has encouraged the little guy to spend, spend, spend? Did it have anything to do with advertising corporations doing the bidding of other corporations who wanted to sell more stuff?

    Just to take one of a million issues one could select from: try reading Robert McChesney’s “Telecommunications, Mass Media and Democracy: The Battle for Control of US Broadcasting”. It was Herbert Hoover as Sec. of Commerce in the 1920s who turned radio over to a few large broadcasting companies who discovered advertising as a great way to make money and consolidate their control of the only mass medium that existed at the time. Hoover could have just left it alone with many, many stations competing for our attention but no, that would have been too much competition, so Hoover, one of those great lovers of the “free” market and “American Individualism” (title of one of his books) handed control over to a few large corporate broadcasters and that was the end of meaningful competition in the mass media. This was a decisive decision because at one and the same time it stifled competition among broadcasters and established advertising as a huge business with which to manipulate the “vapid morons” who had nothing to say about this.

    We were lucky that Public Broadcasting got a start in the late 1960s but the Republicans in Congress (with the help of some ConserviDems) have made it impossible for PBS to really be a competitive force by holding on tightly to their control by disallowing any long term independent funding for PBS. No, they want to hang onto control of PBS by forcing it to come before Congress annually with hat in hand so they can kill it if it has the temerity to broadcast something too independent. If you don’t believe this then you’re one of the “vapid morons” because it has continuously been Republican administrations (Nixon, Reagan, Bushes I and II) who have wanted to throttle PBS.

    Without independent voices in mass communications to educate the “vapid morons” they of course will stay moronic because they will only hear and read what the corporatocracy wants them to hear and read. And they will be encouraged to spend, spend, spend on crap they don’t need by corporations and their minions. Who in the world do you think is responsible for all those credit card ads that come in your daily mail? I can assure you it’s not this vapid moron whose been sending them to you.

    Where did right wing talk radio and Fox “news” come from? We owe them to Ronald Reagan and Bush I who first killed the decades old “fairness doctrine” that made it necessary for broadcasters to provide equal time to opposing points of view when putting on political positions. Reagan came into office determined to kill it and he did first by appointing a head of the FCC who got rid of it and then both Ronnie and GHWB vetoed bills twice passed by Congress trying to make it a law rather than just an FCC rule. Also, it was government again that made the controversial decision that Murdock could buy an American broadcaster during the 1980s even though he was Australian and there was a rule against foreign ownership of American media.

    But I’m likely wasting my time. As with most things political, those who agree will continue to do so and those who disagree will also continue to do so.

  42. Marcus Aurelius says:

    dwkunkel:

    It’s not that they don’t understand, it’s that they’ve been defrauded. They’re still waiting for the trickle down they were promised, so that they can settle the debt they assumed on the expectation that their personal prosperity would be forthcoming.

  43. DL says:

    “[The U.S. government] has since become a Corporatocracy: An elected Parliment of Whores who work on behalf of corporate interests”.

    This statement is only partly true. One should also consider the influence of other groups such as the trial lawyers, environmentalists, and labor unions. Given the current makeup of the Congress and the Administration, I would argue that these groups collectively are having at least as much influence on new policies as are the corporations.

    Of course, a more representative democracy would be far superior to what we have now. But if we are going to have the trial lawyers, environmentalists, and labor unions exerting a significant influence on the government, I think that the corporations act as a useful counterweight to those interests.

    J6P doesn’t stand a chance in any case.

  44. DL says:

    How the Common Man Sees It @ 12:01

    “How about letting American loan up to $100K of their wealth to other Americans at the rate that CC companies are charging”.

    Interesting idea. I might actually lend money to people if I had the power of the IRS to confiscate property in the event that the loan weren’t repaid.

  45. napster says:

    The “so-called” Common man says:
    “How about letting American loan up to $100K of their wealth to other Americans at the rate that CC companies are charging. Make sure the loan is handled by a third party and include credit counselling.”

    What you propose are called loan sharks, and they existed historically in this country one hundred years ago. And then you want to include a third party, and another entity called “credit counselling”. Who is going to “regulate” the practices of these “so-called” private middle-men? Why would wealthy American’s make consumer loans unless there is collateral that is tangible to the value of the loan? What is to keep these loans to consumers to getting sold off to credit consortiums that might lower the interest but then extend the payments so that the consumers pay more?

    How come you cannot envision government involvement without private intermediaries taking a cut from the revenue stream? You demonize government and worship private actions to the point where you make inaccurate statements and posit completely farcical schemes in order to avoid the big bad government.

    For instance, you glibly say the income tax was supposed to be temporary : which is not true, at all. Taxation existed to raise the funds of the government in many different ways before the so-called 16th Amendment and the decision to fund world war two with payroll taxes in the early 1940′s. TAXATION WAS A RIGHT IN THE FRIGGING CONSTITUTION YOU MORON. The Constitution enabled Congress to decide how to raise taxes, and until the early 2oth century those taxes were raised from excise (alcohol and tobacco) taxes, parcel post taxes, and the selling of land in the West. Once the population grew and the land of the West shrank, these means of raising taxes became untenable. The only restriction with the Constitution was that all direct taxes decide upon by Congress had to be equally portioned amound the states. All the 16th Amendment did was remove the need for the income tax to be apportioned among the states on the basis of population. There was taxation before the 16th Amendment.

    In other words, all Congress has to do is vote and the income tax would be gone. It has always been up to Congress. Your attempt to make the “income tax” some evil attempt by government to steal from the common man is probably by design. It is also not true, and you need to stop spewing this nonsense.

    Your use of an incorrect version of history to support your political philosophy is inappropriate. The fact that you are also crass and arrogant in your maligning of historical facts is disgusting. You have a right to your opinion, but not if that opinion completely ignores or misrepresents historical fact.

    And your chosen moniker of “the common man” is just another strategem in your game of misrepresentation. You are just a shill for a debunk philosophy, or some covert operative trying to resurrect the dream of a libertarian paradise, so you pretend to represent the view of “the common man”.

    Ha, what a joke.

  46. Andy T says:

    “[The U.S. government] has since become a Corporatocracy: An elected Parliment of Whores who work on behalf of corporate interests”.

    BR, which corporations rammed the Health Care bill, one of the most sweeping pieces of legislation in the last several years, down our collective throats? That one seemed hatched in the minds of a few high minded politicians acting against the will of the vast majority.

    Which corporate interest rammed Sarbanes-Oxley down the throats of business? You remember that bill right? That was the one that imposed huge legal and accounting costs on ALL public corporations.

    The progressive/populist rhetoric is becoming a bit of “schtick”…

  47. flipspiceland says:

    @Comet52

    “Parliament of Whores”, already taken as a book title by, P.J O’Rourke, which is outrageously funny and sad all at the same time.

  48. flipspiceland says:

    Thinking that there are more than bandaids to solve our global financial crisis is the mantra of the anti-deleveraging crowd.

    Deflation is nothing more than de-leveraging, which is taking place all across the globe.

    Programs such as Franks are just one more prop to forestall, delay, or put off this unwinding, likely giving those with the greatest stakes in the status quo more time to get out for less losses or reduced profits before the whole shootin’ match caves in.

    All the rest is just conversation.

  49. oji says:

    Rather than a straight carbon tax, I much prefer James Hansen’s proposal for a fee and dividend approach.

    Basically, it preserves market mechanisms, puts responsibility (and rewards) onto individuals, incentivizes the desired behavior (lower fossil fuel use), is relatively cheap and easy to administer, and would likely act as a progressive tax.

    http://www.carbontax.org/blogarchives/2010/04/25/scientist-james-hansen-proposes-%E2%80%9Cpeople%E2%80%99s-climate-stewardship-act%E2%80%9D-a-simple-carbon-fee-with-revenue-returned-to-americans/

    Sorry for the long URL.

  50. Its_Science says:

    I enjoy some of Frank’s work, but some of his reasoning here is just wrong.

    First off, the 3 percent that the government borrows at is not static. If it starts lending programs that ignore appropriate risk premiums, like lending to overleveraged Americans at 8%, it could rise. And it could rise unexpectedly fast (see Europe for examples).

    (Also, I do find it ironic that the author of Bailout Nation supports bailing out consumers. Are consumers not subject to moral hazard? It would be nice if some American consumers learned some sort of lesson from their dive into a negative savings rates)

    His cap and trade proposal to make currently productive assets obsolete is a great example of the broken windows fallacy. The environmental consequences of our energy consumption may be an important consideration, but enacting such a law to stimulate spending is wrong-headed and will lead to bad policy.

    I do like the progressive consumption tax (not really a VAT). He has argued elsewhere that this could replace the federal income tax. I’m in favor. Replacing the income tax with consumption tax encourages savings (something Americans desperately need), while taking away direct disincentives on labor and investment.

    Finally, BR remarks that the US is a Corporatocracy, implying that the citizen’s needs are not best served by the elected government. I agree. But why would we then trust such a government to interfere in the economy in the many ways that Frank is proposing, even if we thought the ideas could pass? Frank lacks any useful theory of how the government operates, which why he often places so much trust in it.

  51. DL says:

    On the subject of the influence of corporations on the Federal government,

    the Chairman of the business roundtable believes that Obama is somewhat hostile to corporate interests:

    http://tinyurl.com/28qelps

    Jeff Immelt echoed this view recently as well:

    http://tinyurl.com/2b5sd5s

  52. Marcus Aurelius says:

    Andy T:

    As is demonstrated in almost every other industrialized country, a simple single payer or public option — as was originally proposed by what might be described as the left-wing — would have worked well for the interests of our society. After all, you don’t see people from these countries rioting in the streets because their “rights” have been violated. those same countries also pay far less, net, for healthcare services than we do.

    To deny that lobbyists for Big Healthcare weren’t involved in influencing the lose-lose bill that was eventually passed, is to deny reality. Regulatory capture at its finest.

    Here’s a link to who is who in the healthcare/government arm of the Corporatist structure:

    http://medicaleconomics.modernmedicine.com/memag/article/articleDetail.jsp?id=121323

    The high-minded politicians lost to the Corporatist cabal.

    As for Sarbanes-Oxley, you’re goddamned right it was shoved down the throats of Corporate America, and for good reason. That reason is Enron and the thousands of people who lost everything they owned because of corporate malfeasance and criminality. I agree that the paperwork imposed by Sarbanes-Oxley weighs heavily on corporations. A much simpler solution would to be to ban corporations altogether, as their only purpose, in the end, is to shield criminals from justice (If you think there’s another purpose corporations serve, I’d like too hear it).

    The progressive/populist schtick is what will return us to prosperity. Laissez Faire Corporatism will not.

  53. napster says:

    Andy,

    Are you serious? Or just ignorant?

    The medical health industry, the petroleum and chemical industry, the financial industry has multiple CEO’s and many different persons who own large quantities of stock in these wealth extraction (and profitable) industries. These people fund various lobby groups and various “non-profit” think tanks that mobilize their interests in the form of opinions and the funding of politicians who will speak and do the work for these corporate interests.

    If you do not understand how the problem we face is systemic because of the commingling of corporate interests than you have nothing to add or say that has any merit. Your lack of understanding causes you to portray events through some deranged political prism that is not accurate, truthful, or lucid at all.

    For example, the so-called Tea Party moment is funded by a multiple variety of corporate organs. They sell tee-shirts and slogans. They purchase the buses and hire the speakers and pay for the prearranged events that they mockingly call an organic uprising. They pray on the vulnerable and ignorant and puff up their prejudices and anxieties, then they send them on paved tour and call this democracy.

  54. Marcus Aurelius says:

    flipspiceland Says:

    “Thinking that there are more than bandaids to solve our global financial crisis is the mantra of the anti-deleveraging crowd.’
    ___________________

    In a fiat monetary system such as ours, money cannot be created without leverage. Our money is borrowed into existence with interest due. That interest cannot be paid without the creation and lending, with interest, of more money. Ad infinitum.

    The system can never fully deleverage.

    That said, there is really no need to deleverage or deflate in a fiat system.

    To make a medical analogy: we don’t suffer from anemia, we suffer from poor circulation.

  55. DL says:

    Marcul Aurelius @ 2:25

    Total debt (Federal + state + corporate + individual) is something like 300% of GDP.

    Which leads to the question, what are the limits, before something “bad” happens?

  56. @bondjel Says: July 4th, 2010 at 12:46 pm

    Who do you think it is who has encouraged the little guy to spend, spend, spend? Did it have anything to do with advertising corporations doing the bidding of other corporations who wanted to sell more stuff?

    That argument would be valid if everyone had succumbed to the ads. These people chose to be in debt for their own self gratification. Many didn’t

    @napster

    What you propose are called loan sharks, and they existed historically in this country one hundred years ago.

    What I propose is to allow regular Americans to do exactly what a bank and CC company does. Are you calling them loan sharks?

    And then you want to include a third party, and another entity called “credit counselling”. Who is going to “regulate” the practices of these “so-called” private middle-men?

    There are simple solutions to these questions which makes me wonder your motive here

    Are credit counselors not already regulated?

    How about your average escrow service? And there is no reason why they couldn’t come under the regulation of the current bank regulators.

    Why would wealthy American’s make consumer loans unless there is collateral that is tangible to the value of the loan?

    Why do credit card companies make the same loans at 22% interest? Assuming they complete a credit report I don’t see the default rate any different than what credit card companies are currently experiencing. There is also no reason why you couldn’t take on collateral for the future of these loans

    What is to keep these loans to consumers to getting sold off to credit consortiums that might lower the interest but then extend the payments so that the consumers pay more?

    Pretty simple, you don’t allow them to buy these entities. You make it available to individuals only. That is also why I suggested up to 100K because then you would be limit the risk for each individual as well as keeping sharks like billionaires out of the pool by reducing rewards relative to size

    How come you cannot envision government involvement without private intermediaries taking a cut from the revenue stream? You demonize government and worship private actions to the point where you make inaccurate statements and posit completely farcical schemes in order to avoid the big bad government.

    Government has NO INCENTIVE to succeed. Unlike granny Jones down the street who could be loaning $1000 and thus has an incentive to be as sure as possible that the person on the other end will repay her

    For instance, you glibly say the income tax was supposed to be temporary : which is not true, at all.

    That is irrelevant to my point. My point was that whatever government tends to start, even as a temporary measure, almost always becomes a permanent fixture. Try refuting that

    In other words, all Congress has to do is vote and the income tax would be gone. It has always been up to Congress. Your attempt to make the “income tax” some evil attempt by government to steal from the common man is probably by design. It is also not true, and you need to stop spewing this nonsense.

    Income tax is a very inefficient tax. Sales taxes are much more effective and would remove billions of man hours of compliance from the US population. Those hours could be used much more productively

  57. Andy T says:

    MA and Napster.

    Shaking head.

    Yeah, those evil corporations that employ millions and millions of people are just plain awful and serve no societal purpose. We should dismantle all corporate entities and ban them from making any financial contributions to politicians. The same companies should not be allowed to fund anything that promotes their ideas or concepts because they are blood sucking evil people. Also, the millions of employees of those corporations should not be able to contribute or have a “say” either because their souls have likely been corrupted by the evil companies they work for.

    In fact, because the corporations only have greed and blood-sucking ambitions, we should think seriously about seizing their assets, especially the big oil companies and the Agri-businesses. It’s our natural resources that they’re STEALING from the people in order to make money. It’s flat wrong. We own the resources. The government would probably be able to run those assets better. Then, we could take the profits that otherwise would have flowed to the evil corporations and fund “worthy” projects, like more food and medicine for the poor.

    Viva la revolucion!

  58. napster says:

    To follow up on the James Hansen cap-and-trade versus fee-and-dividend debate. I got this from the London Guardian, which interviewed Hansen back in January 2010. Here is a snippet:

    ~~ Hansen’s letter advocates using the fee-and-dividend approach to reducing carbon emissions, rather than cap-and-trade. Fee-and-dividend is a “transparent, honest approach that benefits the public”, he says, in contrast to cap-and-trade, which “is a hidden tax … because cap-and-trade increases the cost of energy for the public, as utilities and other industries purchase the right to pollute with one hand, adding it to fuel prices, while with the other hand they take back most of the permit revenues from the government. Costs and profits of the trading infrastructure are also added to the public’s energy bill.”

    [http://www.guardian.co.uk/environment/2010/jan/12/james-hansen-carbon-emissions]

    BTW, Hansen is the NASA scientist that the Right-wing machine bashed in 2009 for allegedly “sexing up” the data on Global Environmentally data. If you google “james hansen fraud” you can see how much of a tissy there was. One blog calling itself “plancktime” got ahead of the steam roll, commenting “james hansen is BUSTED – A Complete Fraud” as early as November 2008 . The blog goes on to say this:

    ~~”They’ve made a horrendous (but purposeful) scientific BLUNDER!!! The reason for the freak figures was that scores of temperature records from Russia and elsewhere were not based on October readings at all. Figures from the previous month had simply been carried over and repeated two months running. THEY USED AUGUST records for October and declared global warming was more serious then ever! But – they got caught.

    [ http://plancktime.blogspot.com/2008/11/dr-james-hansen-is-busted-complete.html

    Napster here. This is funny when you understand what the fuss was really all about, and gives you an insight into how atrociously unconcerned these folks are about accuracy and intellectual integrity.

    Mind you this is the same James Hansen who in 2005/2006 was threatened with “dire consequences” by Bush Administration appointed officials if he continued to call for prompt action to limit emissions of heat-trapping gases linked to global warming.

    As for the uproar about “fraud” consider this August 2007 piece in the Washington Post:

    ~~Average annual temperatures are based on readings collected from many different sites. To compare these readings over time, scientists adjust them to take into account factors such as urbanization. Hansen said the mistake occurred because NASA scientists thought some readings they used in determining the average annual temperature after the year 2000 had been adjusted, when they had not been. Hansen said that the corrected figures show that the past six years were 0.15 degrees centigrade cooler than reported. Hansen said that the change is insignificant in terms of global warming and altered the overall global mean temperatures by one-one-thousandth of a degree.

    [http://www.washingtonpost.com/wp-dyn/content/article/2007/08/14/AR2007081401677.html]

    In case you didn’t get that last sentence, THE CHANGE ALTERED THE OVERALL GLOBAL MEAN TEMPERATURES BY 1/1000 TH OF A DEGREE.

    You see the rabid mongrels were pouncing on an excusable error of 1/1000 th degrees, and then using this perception to trash the entire Global Climate Change Science as a fraud.

    Can they see how insane this is?

  59. @napster and common man: there are peer-to-peer lending where individuals loan to others and cut out the banks. Check out lendingclub and prosper. They aren’t loan sharks as napster believes. Those who loan get better rates than letting money sit in a money market while borrowers get lower rates.

    As to this post, I thought it was a joke at first. Then I realized it is July 4, not April 1. Regarding the government loaning to individuals, this clearly violates the governments role as dictated by the Constitution. Anyone who would recommend this has zero understanding of that. But putting the political theory aside and looking at it practically, the government would never get it to run as effectively as Frank estimates. First, once the government starting borrowing to loan this money out, rates would probably rise from 3%. Second, the government would start to realize early that defaults would eat a substantial portion of their margin up. Third, the new bureaucrats hired to handle this would only be marginally productive compared to the private sector so admin costs would be double the estimates, especially after the government workers get the benefits package. And for those who think the guv is as productive as the private sector has never worked in the public sector.

    Second, using this logic, we might as well have the government makes cars and computer chips as they can borrow at substantially lower rates than GM or Intel.

    As far as cap and trade, I won’t get into the global change debate or the Constitutionality of the government deciding how much energy we use. Let’s get into application. Just look at the recent global climate change conference in Copenhagen. A handful of House members went over to the conference to check out the action at Copenhagen. The cost was $4 Million to the taxpayer despite the fact that these House reps brought family, girlfriends, and other non-government reps. The reps could only stay for two days, but they paid for a full week at $1,000 per day at the Marriott because the Marriott only had weekly rates. Well, the House member shouldn’t be there at all since it is the President and Senate that negotiate treaties. But more importantly, how can we trust these politicians to craft a treaty and find a solution for a complex problem such as global climate change when these folks can’t even negotiate with the Marriott? Cap and trade will be a nightmare for all except those who develop the market for selling energy credits.

  60. napster says:

    I want to restate what Marcus Aurelius said earlier, because it is the first simple statement about macro-economics I have probably ever read.

    ~~In a fiat monetary system such as ours, money cannot be created without leverage. Our money is borrowed into existence with interest due. That interest cannot be paid without the creation and lending, with interest, of more money. Ad infinitum.

    The system can never fully deleverage.

    That said, there is really no need to deleverage or deflate in a fiat system.

    To make a medical analogy: we don’t suffer from anemia, we suffer from poor circulation.

    _ _ _ _ _ _
    In other words

    … the upper 0.1% (the 99.9 th percentile, or 1 per 1000) people own 99% of the wealth (assets + income),
    …the median income (half above and half below) has been stuck at $33,000 – $35,000 since Nixon was president.
    … the lower 99% of the population makes less than $100,000 dollars
    … 40% of the population since 2007 has either lost a job, had to take a lower paying job, or had to work part time to find a job (and all of these people are in the lower 99%)
    … the real income gains for the lower 99% has been stagnant for 40 years, but the upper 1% have made 20 to 35 per cent gains every year or so.

  61. @SUTW,

    there are peer-to-peer lending where individuals loan to others and cut out the banks. Check out lendingclub and prosper. They aren’t loan sharks as napster believes. Those who loan get better rates than letting money sit in a money market while borrowers get lower rates.

    Exactly. Whatever the government can do the free market could probably do better. That is not always true but I have been around long enough to know it is a pretty good rule of thumb. I think the guy’s article was more a shot at taking all those debt slaves and changing the destination of their economic lifeblood from CC companies to the USG. We all know how desperate the government is getting these days for revenue

  62. napster says:

    Swim upstream,

    Please keep swimming. I don’t have the time to completely destroy the ridiculousness.

    Funny how you guys work in pairs. Like whack-a-mole. If you make a reasonable argument, another mole pops up spewing nonsense to distract you.

    Your statement, “Regarding the government loaning to individuals, this clearly violates the governments role as dictated by the Constitution. ” is the first sign of willfully making statements not supported by anything.

    Where in the Constitution is this “clearly” being violated? The Commerce Clause? Ha, it exists nowhere, because there is no such “violation”. The government has been making loans to individuals through the guise of private banks for a long time. That’s what a student loan is. The government buys the loans that are set up by the private banking institutions. Hello, what is so hard to understand?

    Ever hear of the Small Business Administration, or the Export-Import Bank (I’m assuming you consider Corporations individuals) ?

    Mr. Upstream, please go away. You will make no converts here.

  63. Marcus Aurelius says:

    Andy T:

    Disjointed rant if there ever was one.

    Nothing is accomplished by a corporation that could not be accomplished by a contractual partnership (except, of course, the shield from paying for criminal actions committed at the direction or on behalf of those who profit from such actions).

    You can shake your head until it falls off, but you still haven’t answered my question: What purpose do corporations serve, if not as a shield against civil or criminal liability?

  64. Andy T says:

    @napster.

    Yeah, life sucks here, doesn’t it? Do you sit around at your cocktail parties and lament the tortured existence we have because of the greedy capitalist pigs who are raping our planet?

    Before you jump off a building under the strain of our horrible existence, consider the following excerpt:

    http://news.yourolivebranch.org/2010/07/01/the-rational-optimist-by-matt-ridley-a-book-excerpt/

    It might cheer you up….

  65. napster says:

    Common Man,

    Your statement “Whatever the government can do the free market could probably do better.” makes a big assumption.

    The market is not “free”. It never has been. Government has always set the laws and the framework within which markets exists.

    You presume government and this entity called “the free market” are competitors, existing in separate worlds, so that more one automatically takes away from the other.

    Either this is an oversight you have, or you are just mouthing off the pap your bosses give you to type on this blog (and probably many others). You and upstream are probably in the same computer bunker typing as fast as you can to create the illusion of serious persons discussing serious issues.

  66. Andy T says:

    MA,

    You’re SOOOO right.

    When people decide to incorporate, the main purpose is to commit fraud without any risk of prosecution.

    WTF man? Are you insane?

  67. napster says:

    @Andy,

    I have to say almost nothing. The truth is there for all to see.

    For what it’s worth, happy Fourth.

  68. Marcus Aurelius says:

    DL Says:

    Marcul Aurelius @ 2:25

    Total debt (Federal + state + corporate + individual) is something like 300% of GDP.

    Which leads to the question, what are the limits, before something “bad” happens?
    _______________

    DL: Big numbers aren’t a problem when you have an inexhaustible supply of free zeros you can tack onto the end of any number.

    The imbalance you cite is a matter of synthetic scarcity, and is much more dangerous (socially and politically) to a fiat system than inflation will ever be. Fiat does only one thing, and that thing is inflation. Inflation is the reason for fiat. Again — the bad that happened (is happening) is a matter of allocation more than scarcity.

  69. Marcus Aurelius says:

    Andy T Says:
    July 4th, 2010 at 3:22 pm
    MA,

    You’re SOOOO right.

    When people decide to incorporate, the main purpose is to commit fraud without any risk of prosecution.

    WTF man? Are you insane?
    ____

    Maybe I am insane, but you can’t seem to answer the question. Are you a dipshit?

    Stop putting words in my mouth.

  70. That interest cannot be paid without the creation and lending, with interest, of more money. Ad infinitum.

    Actually, this is a common misconception. I used to think that way too.

    Though the interest is payable it can be paid via barter. At the end of the day paper money facilitates that barter. Assuming you go to work and earn $25. You then go to the baker and buy $25 worth of bread. If it cost him $10 for the goods + $1 to borrow the money to pay for those goods then he had still made a profit trading his goods for your labor.

    At the end of the day he still has $14 worth of profit that he traded to your for labor. Tomorrow he can now make more than $25 worth of bread with the $14 he has remaining. He no longer needs to borrow the money from the banker because his profit margin has allowed him to trade his goods for someone’s labor or someone else’s goods that they labored to produce.

    Now the baker goes to the farmer and buys $14 worth of goods. The farmer could employ the original laborer and pay him $14 (his own money originally). This money can then be used to pay the baker for another smaller amount of bread.

    There has now been three transactions of $14 and four transactions total. Everyone got paid what they thought they were worth yet only one required an interest payment of $1 which was swallowed up in markup. Money was just used to facilitate barter

    BTW, the baker is a crook

  71. Marcus Aurelius says:

    How the Common Man Sees It Says:

    “Exactly. Whatever the government can do the free market could probably do better. That is not always true but I have been around long enough to know it is a pretty good rule of thumb.”
    ____________

    You been around the block a couple of times, huh? Name something business has done better than government. One thing. I will add this one requirement: the business you name cannot be subsidized by the government in any way, or have government contracts. Hell, even without that requirement, I don’t think your powers of observation are very good.

    Please make the case that Blackwater is a better, cheaper, more effective use of our resources than our own military.

    Please explain how we ended up in our current situation DESPITE all of the deregulation that has taken place over the past 30 years.

  72. Andy T says:

    The reasons for Incorporating are similar to forming a partnership. As a corporation, it might be easier to raise funds by offering stock or issuing bonds to the public.

    You seem to be implying that employees working for a corporation are somehow shielded from the law. Can you cite a specific example where the government did NOT proceed with case against an individual DUE to the company’s structure?

    Because, on the contrary, I can cite NUMEROUS examples where the government as successfully prosecuted executives, managers and simple employers on Fraud statutes.

  73. @napster,

    You are too busy defending you mind from an ideology to effectively discuss the merits of an argument. You need to open your mind more

  74. Andy T says:

    “Nothing is accomplished by a corporation that could not be accomplished by a contractual partnership (except, of course, the shield from paying for criminal actions committed at the direction or on behalf of those who profit from such actions).”

    I’m not putting words into your mouth MA. You’re the one who is implying some sort of “shield.” PLEASE cite at least ONE example so that we can all understand WTF you’re talking about.

  75. [...] “You can simultaneously stimulate short term and reduce longer term debt.”  (Big Picture) [...]

  76. napster says:

    Common man,

    Ha ha ha now that is funny.

    I’m the one that has to open my mind. You haven’t even bothered to show me or anyone else how the points I made are defunct or incorrect. You just move on to something else and then accuse others they aren’t discussing anything while you completely forget the thousands of discussions previous in which you were shown to be WRONG.

    Nice touch with the sounding all eloquent and stuff.

  77. You been around the block a couple of times, huh? Name something business has done better than government. One thing. I will add this one requirement: the business you name cannot be subsidized by the government in any way, or have government contracts. Hell, even without that requirement, I don’t think your powers of observation are very good.

    Why the caveat? Government does have a role and function. It is to create a level playing field.

    Here is something the corporate world is better at doing than government:

    tax amnesty

    There is no way on earth that you can say the USG created and runs that industry better

    I’m out of here for now folks. If you want to carry on the thread I’ll be on later

  78. napster says:

    Andy, andy, andy, … this statement by MA bothers you?

    ~~“Nothing is accomplished by a corporation that could not be accomplished by a contractual partnership (except, of course, the shield from paying for criminal actions committed at the direction or on behalf of those who profit from such actions).

    When corporations go into bankruptcy they are no longer liable for various lawsuits. When corporations incorporate in Bermuda, they can also no longer liable to pay certain taxes. When corporations get state legislatures to put tort reforms on the state registers, then citizens discover they have no rights to actually sue when corporations are shown to be negligent.

    Okay, I’m through here. I actually have so fun to do today, and unlike the various trolls, I don’t get paid to sit on my rump and type nonsense all day.

    Are you folks proud to be Americans when you prostitute Democracy in the guise of a sponsored public relations campaign?

  79. Marcus Aurelius says:

    How the Common Man Sees It Says:

    “Actually, this is a common misconception.”
    _______________

    Actually, you should study up on how the Fed and Treasury operate. Our money is borrowed into existence. As far as I know, The Fed does not accept chickens as interest on a debt (they will, however, as of late, hold worthless assets as collateral).

    Your story:

    “If it cost him $10 for the goods + $1 to borrow the money to pay for those goods then he had still made a profit trading his goods for your labor.”

    Where did the baker or the person he borrowed it from get the $10?

    then:

    “Now the baker goes to the farmer and buys $14 worth of goods. The farmer could employ the original laborer and pay him $14 (his own money originally).”

    The money originates with the Fed. In essence, the Fed lends dollars, backed by nothing, to to the Treasury.

    If there was no skim via interest, bankers would be mid-level bureaucrats.

  80. Marcus Aurelius says:

    Andy T Says:

    “Can you cite a specific example where the government did NOT proceed with case against an individual DUE to the company’s structure?”
    __________________________

    Columbia/HCA fraud cases
    Numerous New York Times stories, beginning in 1996, began scrutinizing Columbia/HCA’s business and Medicare billing practices. These culminated in the company being raided by Federal agents searching for documents and eventually the ousting of Scott by his fellow board directors.[11] Among the crimes uncovered were doctors being offered financial incentives to bring in patients, falsifying diagnostic codes to increase reimbursements from Medicare and other government programs, and billing the government for unnecessary lab tests.[12] Scott was never charged with any wrongdoing. In 1999, Columbia/HCA changed its name back to HCA, Inc.
    In 2001, HCA reached a plea agreement with the U.S. government that avoided criminal charges against the company and included $95 million in fines.[4] In late 2002, HCA agreed to pay the U.S. government $631 million, plus interest, and pay $17.5 million to state Medicaid agencies, in addition to $250 million paid up to that point to resolve outstanding Medicare expense claims.[13] In all, civil law suits cost HCA more than $1.7 billion to settle, including more than $500 million paid in 2003 to two whistleblowers.[4] HCA wound up paying fines and settlements totaling $1.7 billion.
    ____________________

    This was fraud against the taxpayer. Rick Scott oversaw the scam, and kept $300 million of the ill-gotten money, BECAUSE the criminality was confined to the corporation. Now, he’s running for governor of FL.

    Tell me, exactly who LOST the $300 million now in Rick Scott’s bank account?

  81. DL says:

    Andy @ 3:19

    You’ve got some funny stuff here today.

  82. Andy T says:

    Ok. Have fun napster….

    Yeah, Some of us our paid trolls who receive money to type corporate propoganda on blogsites. BWWHAHAHAAHAHHAHA.

    That last comment was quite revealing about your ‘state of mind.’
    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    Now, relax and have some good BBQ. Take enjoyment out of how easy it is to accomplish a really nice BBQ on the back of the capitalistic system that brought it to you. When you light those Kingsford briquets, maybe give a small thanks to that bastard greedy capitalist Henry Ford who built the first charcoal plant in the America. What a jerk.

  83. Andy T says:

    MA.

    Um. Ok. You’re citation makes no mention of Rick Scott or $300mm. All I see is the bit where the company paid 1.7 BILLION dollars to various states and agencies to compensate for it’s wrong doing? So, in your mind is that a good thing or bad thing? Doesn’t that show that the USG does go after companies who commit wrong doing? Doesn’t it show that they can extract large sums from firms guilty of wrong doing?

    So, what’s the point?

    I don’t know how Rick Scott came to receive $300mm? Was he a shareholder in the firm in question? Did he create large profits for the firm over many years? Is that he came to receive his money? If so, how much of his $300mm came as result of him growing a really successful company? How much came on the back of the fraud? Was he financially harmed because of the fraud? Did he lose out on much more money because of his actions?

    Who “lost” the $1.7 billion that went to the States and various agencies in the form of fines?

  84. Marcus Aurelius says:

    “The reasons for Incorporating are similar to forming a partnership. As a corporation, it might be easier to raise funds by offering stock or issuing bonds to the public.”
    _________________

    Incorporation makes neither of those things easier. It simply shields the assets of the officers of the corporation (from criminal/civil actions and/or shareholders). A privately held business cannot be looted by those holding it, as they would only be looting themselves. A corporation can be looted, because it is separate entity from those in a position to loot it (or to use it to transfer wealth to themselves and liabilities to the etherial corporate being)

  85. Marcus Aurelius says:

    “[12] Scott was never charged with any wrongdoing.”

    But he oversaw the company and profited from the criminality, more so than anyone else.

    The $300 million has been reported by numerous sources.

    Here’s the best analysis of how and why Scott used the corporation to rip us off:

    http://www.miamiherald.com/2010/06/26/1703036/rick-scott-and-his-role-in-columbiahca.html

    That should answer all of your questions.

    I could find many more examples of criminality under the cloak of incorporation (you can’t swing a dead cat without hitting one), but I’ll leave that research and analysis to you and subject to your intellectually honest interpretation of what you find.

  86. gbgasser says:

    Very interesting post and I agree with much of what Franks says (his authoring a book with Ben Bernanke is a black mark in my book though) but we are still in fantasy land when discussing deficits and debt. Why must we continue with this incorrect gold standard type thinking that gets us nowhere?

    We cannot run out of money or ever be unable to pay off debt denominated in US$…..PERIOD. Any discussion about deficit debt that doesnt state this up front is tantamount to discussing sex without talking about pregnancy.

    Reducing the debt BY DEFINITION will be a loss of private sector financial assets. Is this good? Depends on if you are the one or not that loses your financial asset. If you think the rich are the only ones who are going to sacrifice to pay down the debt your seriously deluded. The payback will be on the backs of middle and lower class.

  87. Andy T says:

    MA,

    I’m going to go and enjoy all the fruits of capitalism today.

    I’m going to light my Kingsford charcoals on my Weber, both inventions of great American entrepreneurs. Although, both companies are probably run by slimy corporate interests who only exist to rape the planet and bilk the public.

    Then, I’m going to grill some big fat steaks that were brought to me by large Agri-businesses who are also killing the planet and engaging in other nefarious acts meant to destroy America.

    Then, I’m going to drink a lot of beer from a corporation that was formed in order shield generations of company officials who are no doubt looting their shareholders.

    Have a good one.

  88. bondjel says:

    How the Common Man Sees It:

    @bondjel Says: July 4th, 2010 at 12:46 pm

    Who do you think it is who has encouraged the little guy to spend, spend, spend? Did it have anything to do with advertising corporations doing the bidding of other corporations who wanted to sell more stuff?

    That argument would be valid if everyone had succumbed to the ads. These people chose to be in debt for their own self gratification. Many didn’t

    Common Man,

    That is what is referred to as a non-sequiter; your conclusion does not follow from your example. People are often doing this. They cite an exception or a few exceptions and then argue that that proves that the rule is wrong. “Everyone” does not have to succumb to the ads for my generalization to be accurate. There are very few general rules that don’t have exceptions. Presumably if one shrimp fisherman survives in business after the BP oil spill you’ll argue that the rest could have stayed in business if they just wanted to badly enough. You’re also denying the power of influences like advertising and blaming the victim: “These people chose to be in debt for their own self gratification.” Was it the people who clamored for say, buying on credit or long term mortgages? No, I don’t think so; these were marketing gimmicks that the common man had to be trained to use not something he demanded. Perhaps you should call yourself “How the Ruling Class Sees It”?

  89. BDW says:

    Andy T, you are equating corporations to employees. They are not equivalents. A corporation protects the holders of ownership from liability due to the actions of the corporation. It actually creates a possible hypothetical where the holders of incorporation can employ people to break laws and claim no responsibility for those actions while those employed still can be prosecuted for the crimes and the corporation can continue to exist. Incorporation also allows a person to bankrupt a business that he has majority ownership while risking none of his personal wealth beyond that invested in the corporation. He can maintain ownership while moving all of the debt to the company (see for example how Manchester United is “owned”). But basically you are being disingenuous and a prat.

  90. scepticus says:

    “Why the caveat? Government does have a role and function. It is to create a level playing field.”

    That has never been the function of government in all the history of mankind, and never will be.

    The function of government is to create and perpetuate a **sloping** playing field that slopes from the cultural periphery to the core, since it is only that slope that prevents the civilisation in question from simply disintegrating and the consituent parts going their own way.

    That holds true for early mesopotamian civilisations and it remains true 5 millenia later.

  91. You’re also denying the power of influences like advertising and blaming the victim: “These people chose to be in debt for their own self gratification.” Was it the people who clamored for say, buying on credit or long term mortgages? No, I don’t think so; these were marketing gimmicks that the common man had to be trained to use not something he demanded.

    Are you trying to tell me the banks forced these people to take on debt? The last time I checked 30% of them were debt free. Face it, debt has become a status symbol. It is almost impossible to argue with people about the dangers of it. I should know I have been doing it for over a decade having seen debt, its lure and its lifestyle from both debt slavery and freedom from debt.

    And don’t tell me the oil spill is anywhere close to the ‘need for debt’ in America. I am an average worker who is debt free (even though I do live in Canada which is arguably a more expensive place to live in or was up until a few years ago). It can be done as long as you are willing to live without a few perks in life. It is about priorities and, as I already stated, self indulgence.

  92. @MA

    The money originates with the Fed. In essence, the Fed lends dollars, backed by nothing, to to the Treasury.

    Yes, the money originates with the fed but it is traded between people for goods and services. Money facilitates and eases bartering. It is not the sole source of economic activity. One dollar may be created with debt but it could be used 100 times for goods and services before it returns to the bank that created it. Therefore it has been traded in barter for $100 worth of goods and services. Each of those transactions is creating markup along the way and this is what can overcome the interest expense

  93. philipat says:

    @BR No longer. It has since become a Corporatocracy: An elected Parliment of Whores who work on behalf of corporate interests. Any idea that conflicts with those corporate interests, regardless of how innovative or potentially useful, don’t stand much of a chance.

    I do SO agree with this. But as an alien, what I don’t understand is why “We the people” don’t do something. Is this not widely understood or does nobody care? Ultimately, in a democracy, the people get the Government they deserve.

    In a related issue, the discussion seems not to recognise that cap and trade will make a ton of money for the vampire squid, who will be “Just and honest market maker”?

  94. bondjel says:

    Common Man:
    “Are you trying to tell me the banks forced these people to take on debt? The last time I checked 30% of them were debt free.”

    You apparently believe that such a thing as “influence” doesn’t exist. If someone didn’t hold a gun to their heads (“force”) they were “free”. This is a very black and white way of seeing the world. Does your wife have to hold a gun to your head to have a strong influence on you?

    And apparently you didn’t get my point about the BP oil spill because “debt” seems to be an obsession with you. I wasn’t comparing the oil spill to the need for debt. I was again underlining the point that you have a black and white manner of viewing what animates people’s actions; either they are “forced” or they are completely free to make whatever decision they choose. You apparently don’t see that people are very frequently strongly influenced by advertising and what they are exposed to in the media and the types of influence that powerful bodies in the society exercise. Apparently you’ve been able to overcome problems with debt so that means to you that anyone is equally able. That’s like rich people saying what’s the matter with the poor, I did it, why can’t they? Many people fail to see the advantages they’ve been blessed with that enabled them to achieve what they did and underrate the burdens others have that make them much less able to achieve the same things.

  95. Andy T says:

    @BDW.

    “But basically you are being disingenuous and a prat.”

    Um, ok. Sticks and stones may break my bones, but your words will never hurt me.

    C’mon man. Grow up.

    Corporation are actually living breathing entities that can be composed of shareholders, bondholders, directors, managers, employees and stakeholders (vendors).

    If you formed a corporation with yourself and your brother-in-law because you had a really good idea and wanted to incorporate to be able to easily bring in outside investors, what is the corporation? Is the corporation just a bunch of nobodys who don’t care and are trying to limit liability? Or, is the corporation a couple of guys who really care about the business and are doing the best they can to grow the enterprise? Maybe you were just a couple of guys who decided that a “corp” was the best way to move the business forward?

    If you and your brother-in-law then hire 15 people because business is going well, does it really change what the corporation “is?”

    If you and your brother-in-law then hire 150 people because you’ve gotten a big investor who really believes in your product and wants to “ramp” the business, does it really change the nature of your corporation? Aren’t you and the brother-in-law still sort of “owners.” Wouldn’t you care about the business in the same way, if not care about it even more because there’s even more money at stake?

    And, then, what if you decide that business is so promising that you want to really take things to the “next level” and you sell a few shares to the ‘public’ in order to raise permanent capital to create a much larger enterprise?

    If you and your bro-in-law end up owning 60-70% of a public corporation that’s worth a few hundred million bucks, started with your own capital and ‘sweat equity,’ how different is the company, really, than when you started it? Wouldn’t you care about the “say” that your firm has towards policy, rules, regulations and taxes? When your firm lobbies local politicians on matters that might affect you, would it be “you” the individual lobbying, or would it be your “corporation?” Should your “corporation” be entitled to less rights than “you” as a citizen of the United States?

    Fortunately, the U.S. Supreme Court has ruled on this matter. And, fortunately for the people of the United States, commenters like Marcus Aurelius and napster are not on the high court….

    Bless us all for that.

  96. baychev says:

    A little bit of Marxism + a little bit of not so modern Socialism + a little bit of Free Lunch theory and the economy is fixed. Isn’t this economist aware that the net effect of 3-5% saved interest on outstanding consumer debt amounts to less than $125bn?

    How about such a scheme: A new government program that assumes consumer debt (bar mortgages) from banks and other lenders. The annual installment shall not exceed 10% of gross household income and the debt would be with a full recourse provision. The length of such debt restructurings shall be kept short 3-5-7 years at the most. The idea is to help all househods that want to become debt free, to do it at twice faster rate.
    This way a typical household with $20k debt and $80k annual income can purge its debt in about 5 years at much lower interest rates and the effect on consumption would be much more pronounced because a much smaller percentage of income would go to debt servicing(primarily interest).

  97. rktbrkr says:

    OK, so the Fed guarantees a huge profit center for the TBTF banks by lending them money at zero cost which the TBTF lend back to the US at about 3%. This is special care & feeding of TBTF by the Fed & Treasury (remember “systemic risk”) and if the US plans to subsidize end user loans the TBTF will demand their pounds of flesh, rest assured.

    Of course special care & feeding of the TBTF begins there and doesn’t end there, special tax shelters are created ad-hoc to protect TBTF profits from taxes.

    The Wall Street Journal, citing an independent tax analyst, estimates Wells Fargo could reap a tax savings of about $19.4 billion (buying Wachovia). To put that in perspective, the 0.1991 shares of its own stock Wells Fargo is offering Wachovia comes out to around $6.24 per share, or roughly $13.8 billion. Yes, Wells Fargo gets a $19.4 billion tax break for a company it’ll pay just under $14 billion for (if the deal closed today).

    In other words, Wells Fargo didn’t pay anything for Wachovia: The IRS paid it more than $5 billion to take it.

  98. Jim67545 says:

    Surprised that nobody suggested the already established place(s) for the “borrow at 3% lend credit cards at 8%” proposal… Freddie/Fannie. They are already doing lending on that basis and are set up to service the loans. And, considering how well things have worked out there…

    Has anyone noticed that, aided by computers, credit scores, customer profitability models, that people have become much more aware and sensitive to who their “best customers” are? The 20% that represent 80% of sales? So, politicians cater to certain special interests, banks have tiered rates and “preferred” customer programs, companies offer better terms/discounts to their “better” customers, businesses pay their common employees $35k and their “preferred” or “key” employees $35MM. It is a growing trend that has exacerbated the haves and have nots situation noted by some above.

    And, there is something Capitalistic in this. Several of the above contain tips for, or desires for, “preferred” treatment. It’s an interesting ying/yang. Is it one for all or all for one?

  99. [...] Yes we can stimulate the economy while reducing the deficit, just need to be less captive and more creative.  (TBP) [...]