fixing the economy


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I was asked by a reporter to state how I’d fix the economy in 500 words and replied:

Fixing the Economy

1. A full ‘payroll tax holiday’ where the US Treasury makes all FICA payments for us (15.3%). This will restore ‘spending power’ allowing households to make their mortgage payments, which ‘fixes the banks’ from the ‘bottom up.’ It also helps keep prices down as competitive pressures will cause many businesses to lower prices due to the tax savings even as sales increase.

2. A $500 per capita Federal distribution to all the States to sustain employment in essential services, service debt, and reduce the need for State tax hikes. This can be repeated at perhaps 6 month intervals until GDP surpasses previous high levels at which point state revenues that depend on GDP are restored.

3. A Federally funded $8/hr job for anyone willing and able to work that includes healthcare. The economy will improve rapidly with my first two proposals and the private sector far more readily hires people already working vs people idle and unemployed.
In 2001 Argentina, population 34 million, implemented this proposal, putting to work 2 million people who had never held a ‘real’ job. Within 2 years 750,000 were employed by the private sector.

4. Returning banking to public purpose. The following are disruptive and do not serve no public purpose:
a. No secondary market transactions
b. No proprietary trading
c. No lending vs financial assets
d. No business activities beyond approved lending and providing banking accounts and related services.
e. No contracting in LIBOR, only fed funds.
f. No subsidiaries of any kind.
g. No offshore lending.
h. No contracting in credit default insurance.
5. Federal Reserve- The liability side of banking is not the place for market discipline. The Fed should lend in the fed funds
market to all member banks to ensure permanent liquidity. Demanding collateral from banks is disruptive and redundant, as
the FDIC already regulates and supervises all bank assets.
6. The Treasury should issue nothing longer than 3 month bills. Longer term securities serve to keep long term rates higher than
otherwise.
7. FDIC
a. Remove the $250,000 cap on deposit insurance. Liquidity is no longer an issue when fed funds are available from the Fed.
b. Don’t tax the good banks for losses by bad banks. All that does is raise interest rates.
8. The Treasury should directly fund the housing agencies to eliminate hedging needs and directly target mortgage rates at
desired levels.
9. Homeowners being foreclosed should have the option to stay in their homes at fair market rents with ownership going to the
government at the lower of the mortgage balance or fair market value of the home.
10. Remove the ‘self imposed constraints’ that are disruptive to operations and serve no public purpose.
a. Treasury debt ceiling- Congress already voted for the spending and taxes
b. Allow Treasury ‘overdrafts’ at the Fed. This is left over from the gold standard days and is currently inapplicable.
11. Federal taxes function to regulate aggregate demand, not to raise revenue per se, and therefore should be increased only
to cool down an overheating economy, and not to ‘pay for’ anything.


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US Government will go “bankrupt” if health care bill doesn’t pass


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The stupidity of the rhetoric (from both sides) just keeps getting worse:

President Obama: Federal Government ‘Will Go Bankrupt’ if Health Care Costs Are Not Reined In

President Obama told ABC News’ Charles Gibson in an interview that if Congress does not pass health care legislation that will bring down costs, the federal government “will go bankrupt.”

The president laid out a dire scenario of what will happen if his health care reform effort fails.

Gibson Obama“If we don’t pass it, here’s the guarantee….your premiums will go up, your employers are going to load up more costs on you,” he said. “Potentially they’re going to drop your coverage, because they just can’t afford an increase of 25 percent, 30 percent in terms of the costs of providing health care to employees each and every year. “

The president said that the costs of Medicare and Medicaid are on an “unsustainable” trajectory and if there is no action taken to bring them down, “the federal government will go bankrupt.”


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Summers supports Obama administration policy stupidity


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Banking and the entire private sector in a capitalist society is necessarily procyclical. Only the Federal government can be countercyclical, and,
indeed that’s it’s role in supporting aggregate demand in a slowdown. The blame for current conditions falls unambiguously on current policy. Comments below

Obama Plans to Press Banks Monday to Start Lending Again

Dec. 13 (CNBC) —President Barack Obama’s economic advisers are talking tough about the banks ahead of his meeting Monday with heads of financial institutions.

Larry Summers and Christina Romer say Obama will press bankers to ease lending to help Americans get back to work.

As Summers put it, bankers need to recognize that “they’ve got obligations to the country after all that’s been done for them.”
He says no major bank would be intact without the government’s bailout of the financial sector, and now they need to do all they can to get credit flowing again.

Why would we want to demand releveraging of the private sector and not growth through increased incomes via my proposals for a payroll tax holiday, per capita revenue distribution, and an $8/job for anyone willing and able to work to facilitate private sector expansion as demand is restored?

Only one reason- the usual deficit myths.

Summers spoke Sunday on CNN’s “State of the Union” program.
Romer, on NBC’s “Meet the Press,” said Americans are still paying the price for Wall Street excesses.

No, we are still paying the price for poor policy response due to disgraceful flawed mainstream economics mired in deficit myths that has blocked the obvious means of supporting aggregate demand readily available.

On Saturday, Obama singled out financial institutions for causing much of the economic tailspin and criticized their opposition to tighter federal oversight of their industry.

Why does he care if “they” oppose any particular policy?

This shows a profound weakness of leadership where he can’t use his bully pulpit to lobby congress to do the ‘right thing.’

Unfortunately, however, due to the lack of a fundamental understanding of banking and the financial sector in general the administration’s proposals fall far short of the mark even if they did get them passed.

While applauding House passage Friday of overhaul legislation and urging quick Senate action, Obama expressed frustration with banks that were helped by a taxpayer bailout and now are “fighting tooth and nail with their lobbyists” against new government controls.
In his weekly radio and Internet address Saturday, Obama said the economy is only now beginning to recover from the “irresponsibility” of Wall Street institutions that “gambled on risky loans and complex financial products” in pursuit of short-term profits and big bonuses with little regard for long-term consequences.

Its just barely stopped the slide from a too little too late fiscal adjustment that added precious little to the work done by the fiscal ‘automatic stabilizers’ of rising transfer payments and falling incomes due to the slowdown.

Not to forget Fed policy that further removes personal interest income, which should be a good thing as it allows for lower taxes for a given level of federal spending. But of course that’s not recognized and therefore the 0 rate policy is instead a wet blanket on demand.

“It was, as some have put it, risk management without the management,” he said.

Right back to you.

The president also told CBS’ “60 Minutes” that “the people on Wall Street still don’t get it. … They’re still puzzled why it is that people are mad at the banks. Well, let’s see. You guys are drawing down $10, $20 million bonuses after America went through the worst economic year … in decades and you guys caused the problem,” Obama said in an excerpt released in advance of Sunday night’s broadcast of his interview.

Right back to you.

The only question is whether this is innocent fraud or subversion.

(feel free to distribute)


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Obama vs the banks comment


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Looks like a lapse into behavior not becoming a President- name calling, cheap shots, demonizing, and failure to recognize the behavior in question is a consequence of incentives built into the current institutional structure.

The legislation in question completely misses the point.

More and more voters are beginning to believe this is deliberate.

>   
>   (email exchange)
>   
>   Of course, your reform is vastly superior to anything that is out there.
>   
>   But this criticism of the banks is sheer hypocrisy on the part of Obama.
>   It’s kabuki.
>   
>   It might even be deliberate: see Matt Taibbi’s evisceration of the Obama
>   financial reforms. He’s usually on top of the prevailing zeitgeits.
>   
>   This legislation will be totally ineffective. Interesting today that the
>   bank stocks went UP on passage of the bill.
>   

yes.

Policy just keeps getting worse.

I’ve about lost hope that he can ever get it right, unless accidentally.

The longer term risk is fiscal tightening. So far it’s not actually happening.

A driving force behind tax rate hikes is the misread that the Clinton tax rate hikes ‘worked’ to both spur the economy and drive the budget into surplus.

I suppose a repeat of the massive expansion of consumer debt that reached maybe 7% of gdp by 1999 could
somehow materialize isn’t impossible, but sure seems highly unlikely in the current environment.

Apart from the fact that it’s also not my first choice for supporting output and employment.


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Orszag attending Obama Afghan meetings


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Yes, the deficit reduction polls are likely having a lot of influence on policy going into the 2010 elections and are a major obstacle to any kind of meaningful recovery.

And, worst of all, it was reported that Budget Director Peter Orszag was also sitting in on these discussions:

Obama to Give Afghan Strategy Decision on Dec. 1, Official Says

By Tony Capaccio and Roger Runningen

Nov. 24 (Bloomberg) — President Barack Obama will announce his decision on the next steps in the war in Afghanistan on or about Dec. 1, according to a U.S. official familiar with the issue.

Defense Secretary Robert Gates, Secretary of State Hillary Clinton and Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, are expected to discuss the decision before Congress that same week, and General Stanley McChrystal, the top U.S. commander in Afghanistan, would testify the following week, the official said.

White House Budget Director Peter Orszag has estimated that each additional soldier in Afghanistan could cost $1 million, for a total that could reach $40 billion if 40,000 more troops are added.

This is clear evidence that budget myths are, indeed, influencing national security issues, and therefore posing a security risk. I’d go so far as to say the deficit terrorists are currently the greatest risk to both national security and national prosperity.

Voters Continue to See Deficit Reduction as Top Priority (Rasmussen) While official Washington has seen many twists and turns in the legislative process this year, voter priorities have remained unchanged. Deficit reduction has remained number one for voters ever since President Obama listed his four top budget priorities in a speech to Congress in February. Forty-two percent (42%) say cutting the deficit in half by the end of the president’s first term is most important, followed by 24% who say health care reform should be the top priority. Fifteen percent (15%) say the emphasis should be on the development of new energy sources, while 13% say the same about education.

1 in 4 Borrowers Under Water (WSJ) The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%. Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American. Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don’t have any mortgage, according to the Census Bureau. More than 40% of borrowers who took out a mortgage in 2006 are under water. Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home’s value.


AP-GfK Poll: Debt turning shoppers into Scrooges (AP) 93 percent of Americans say they’ll spend less or about the same as last year, according to an Associated Press-GfK poll. Half of all those polled say they’re suffering at least some debt-related stress, and 22 percent say they’re feeling it greatly or quite a bit. That second figure is up from 17 percent just last spring. 80 percent say they’ll use mostly cash to pay for their holiday shopping.


PC shipment forecast raised as 3Q sales pick up (AP) A rebound in purchases of personal computers worldwide will lead to a 2.8 percent increase in shipments this year. Gartner Inc. sees worldwide PC shipments topping 298.9 million in 2009, a reversal from its prior forecast of a 2 percent decline. PC shipments fell in the first half of this year. Gartner sees shipments for 2010 rising 12.6 percent to 336.6 million. But the value of computer sales is expected to drop by 10.7 percent to $217 billion this year because manufacturers are cutting prices to move product.

Businesses still cautious on borrowing (Reuters) The Equipment Leasing and Finance Association’s capex financing index fell to $4.3 billion in October, down 32.8 percent from last October and down 8.5 percent from September. The group said the percentage of borrowers delinquent 30 days or more on their capex loans, leases or lines of credit rose to 4.2 percent last month, up from 3.6 percent last year but down from 5.6 percent in September. Charge-offs as a percentage of all receivables rose to 1.7 percent in October, from 1.36 percent last year but down from 3.01 percent in September. Only 66.2 percent of applicants got the green light from lenders in October, down from 71.7 percent last year and 67.9 percent in September. More than half the money invested in plants, equipment and software in the United States in any given year is financed with loans, leases and lines of credit.


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JF Kennedy 1962 speech


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JFKennedy in his 1962 speech at Yale addressed these very same issues:

“For the great enemy of truth is very often not the lie–deliberate, contrived and dishonest–but the myth–persistent, persuasive, and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought. Mythology distracts us everywhere–in government as in business, in politics as in economics, in foreign affairs as in domestic affairs. But today I want to particularly consider the myth and reality in our national economy…..”


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Goldman disclosure controversy


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Looks like it all comes down to whether Goldman violated the law by not disclosing what it was obligated to disclose.

There is no question the institutional structure that leads to this type of activity is flawed in that it doesn’t work for public purpose.
In fact, large elements of the financial sector do not serve public purpose.

Much of the financial sector is set up, by law to function as a casino, where each bet necessarily has a long and a short, presumably towards so further public purpose to allow public/private partnerships including banks, pension funds, and insurance companies to participate.

Unfortunately it’s never discussed at this fundamental level in the public debate, which is one of the reasons I’m running for President- to bring that debate back to public purpose- the fundamental behind government and the institutional structure:

How Goldman secretly bet on the U.S. housing crash

By Greg Gordon

WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.


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NY-23


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I view this as a populist revolt against the power elite in Washington that’s seen as a conspiracy between govt, big business, labor leaders (at the expense of union members) that enriches itself at the expense of people working for a living. The saw their local party nominate what they considered a Pelosi friendly candidate who would not have won in a primary over Hoffman, who would have won and ran as member of the Conservative party. With Scorzzafava not only dropping out but supporting the Democrat after a meeting with Pelosi representatives and presumably cutting some kind of deal, and Hoffman moving into the lead in some polls, the national conspiracy suspicions appear to have been confirmed, which should further support this ‘national uprising.’
Last I saw what’s called the Tea Party (anti tax) movement is about 20% Democrat, 30% independent, and 50% Republican. And it looks like they reject all party leadership (including the Newt, see below) and seem unresponsive to leadership in general. There are a few organizers who work from the bottom up to organize turn outs, an effort they proudly refer to as akin to ‘herding cats.’

The national media, for the most part, is dismissive, insulting, and in general does not get it and misrepresents what’s happening. All of which increases the support and participation of this rising revolt.

Sarah Palin, for example, commands 45% of voters in national polls (last I checked). The media, which is necessarily composed of ‘intellectuals,’ attacked her (and President Bush) largely on the grounds of not being smart enough to deserve any votes, contrasting her with the highly intelligent and well spoken President Obama. However, this is also perceived as bullying by the large segment of the population who either share some of her views, or simply don’t like bullying in general, and particularly from the media. When the ‘intellectuals’ in leadership positions act like this and see their power threatened by what they make clear they consider ‘inferiors’ they can quickly get in a battle they can’t win and can take all of us to a very bad place.

Gingrich Condemns Conservative Leaders For Driving Moderate GOPer Out Of NY Race

The Plum LineGreg Sargent’s blog

Sign of the times. Newt Gingrich, himself long considered a leader of the GOP’s conservative wing, is now condemning conservative leaders for driving moderate GOPer Dede Scozzafava out of the race for NY-23, warning that if national conservatives keep bigfooting local races the GOP will continue to wander the wilderness around the country:

“This makes life more complicated from the standpoint of this: If we get into a cycle where every time one side loses, they run a third-party candidate, we’ll make Pelosi speaker for life and guarantee Obama’s re-election,” said Mr. Gingrich, who had endorsed Ms. Scozzafava…

“I think we are going to get into a very difficult environment around the country if suddenly conservative leaders decide they are going to anoint people without regard to local primaries and local choices.”

Gingrich had endorsed Scozzafava, so this was in some ways to be expected. But it’s interesting that someone once considered a spokesman for the fire-breathing right is now condemning conservative leaders for mounting ideological purges.

And right on cue, DNC spokesman Brad Woodhouse sends over a statement using Scozzafava’s decision to drop from the race to elevate Glenn Beck and Sarah Palin, who endorsed conservative Doug Hoffman, as the face of the harsh, uncompromising opposition:

What this says — emphatically — is that the true leaders of the Republican Party like Sarah Palin, Glenn Beck and Tim Pawlenty have said to all moderates and independents — when it comes to being part of our party you need not apply. The only acceptable Republicans these days are those who subscribe to division, obstruction and a rigid far right wing ideology.

The NRCC and the House GOP leadership, meanwhile, put out a joint statement backing the conservative: “We look forward to welcoming Doug Hoffman into the House Republican Conference as we work together for the good of our nation.”


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Obama Trickle down policies would make Reagan blush


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Looking for more of the same with the preponderance of ‘top down’ initiatives.

Wall street banks dividing up tens of billions in bonuses, as fees and net interest margins remain wide, helped by income lost by ‘savers’ due to fed rate cuts, while unit labor costs plunge with productivity high and wages stagnating.

Negative headline CPI means no social security increase, unemployment near 10% and jobs still being lost, foreclosures running at record levels, and mortgage delinquencies continuing to climb.

And now with real GDP growing at maybe 3% and lower income groups still going backwards, a larger chunk of the output has to be going to the top.

Wealthy U.S. Shoppers Boost Spending 29%

By Cotten Timberlake

Oct. 16 (Bloomberg) — Spending in the U.S. on luxury goods and services spurted 29 percent in the third quarter from the previous three months, as consumers with the highest incomes unleashed pent-up demand, according to Unity Marketing.

Spending among 1,067 consumers with average annual income of $228,800 rose to $18,826 each in the three months ended in September from $14,554 a quarter earlier, the Stevens, Pennsylvania-based luxury-market research firm said today. Shoppers cut spending by 3.2 percent in the second quarter and spent $13,429 in the third quarter of 2008.

The increase was driven by consumers with the highest income levels, starting at $250,000 a year, said Pam Danziger, Unity’s Marketing’s president. Spending was strongest in the home, travel and dining segments, she said. The wealthy curbed purchasing earlier this year because of Wall Street job cuts, lower home values and volatile financial markets.

“No question that this quarter’s spending increase is good news for luxury marketers,” Danziger said in a telephone interview today. “Many affluent consumers returned after sitting on the sidelines for a year. However, the richest are few in number, 2.5 million households, so competition will be fierce to win their attention.”

MasterCard Report

U.S. luxury sales rose 3.4 percent to $891 million in September from a year earlier, the first such gain since August 2008, according to figures provided today by credit-card company MasterCard in its SpendingPulse report. Last month, those sales fell 13 percent from the previous year.

The luxury category covers apparel, leather goods and department-store sales at the highest 10 percent of prices. SpendingPulse measures retail sales across all payment forms, including cash and checks.

United Marketing said purchases increased in all but three of the 22 product and service categories it tracks.

The highest-income group spent an average of $43,111 in the latest quarter and the lowest-income group tracked, with earnings of $100,000 to $149,999, spent $10,423. The three categories that didn’t gain were fashion accessories, fashion apparel and art, Danziger said.

Gains in confidence among luxury consumers, meanwhile, slowed, Unity Marketing said.

The researcher’s luxury confidence index rose 1.6 points to 75.9, after jumping 18.6 points to 74.3 in the previous quarter. That index peaked at 113.2 at the end of March 2006. Its low was 40.3 in September 2008. It started at 100 in January 2004.

The findings were based on a survey conducted among adults aged 24 to 70 with income of at least $100,000 from Oct. 2 to Oct. 7. Unity Marketing does not calculate a margin of error. It plans to publish the survey results Oct. 19.


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