Posted by Michael A. Kamperman on October 30, 2010
The way to solve problems is to come up with creative solutions. Since Keynesean economics is off the table in Washington in 2011, then other ideas for federal economic aid will need to be implemented. The best form is not tax rate cuts, but flat tax refunds. The Treasury should spend one trillion dollars and mail every American who files a tax return a $3,000 check. For example a family of four would receive $12,000. Some will save the money and many will pay down debt, but many will also spend all or a portion of the money they receive. Current consumer spending will create jobs. Plus, those that save or pay down debt create the opportunity for greater spending levels in the future. It would be inflationary, but we need a little inflation right now. The core inflation rate in the preliminary third quarter GDP report is down to .6%. Deflation is less than 1% away. Since the Fed is about to print one trillion dollars anyway the tax-refund wouldn’t add directly to the debt. Lowering tax rates places most of the money in the hands of the wealthiest who are the least likely to spend it because they already earn more than they spend now. This form of stimulus would continue automatically every 6 months until the unemployment rate drops below an average of 8% for the trailing six months. Then it would be written into the statute that it automatically ends.
The idea can be sold as a bi-partisan compromise whereby everyone is a winner. It takes conservative principals and achieves liberal goals. It is certainly pro-business. Imagine being from a conservative district voting against a tax-cut refund, or from a liberal district voting against passing out checks to the poor and unemployed. While there might be more effective ways to spend one trillion dollars to boost the economy, none of them have a snowballs chance in hell of passing. This idea does. Considering we are in a debt-induced deflationary depression, then we can let those who fuss about heading down a moral slippery slope voluntarily return their checks to the Treasury. Those that think they don’t need the money and it should have been directed more wisely can donate the $3,000 to the charity of their choice.
The last thing the country needs after the pending 2010 mid-term wipeout of the should have focusing on jobs, jobs, jobs Democrats is for the President and Congress to engage in a two year war of grid-lock. That would be irresponsible and may a plague fall on both their houses. It would almost certainly ensure a third-party candidate emerges for the 2012 Presidential election. Such a candidate would be greeted by a voting public very much in a third party mood. Despite all the punditry the mood of the public is simple to diagnos. The official unemployment rate has remained in the 10% range and the true unemployment rate has remained in the 17% range for nearly two years. Five years ago any political analyst for the Republican or Democratic party given a hypothetical of one party control of Washington coupled with the highest unemployment rate since the Great Depression would have predicted the party in power would get wiped out in the next election. Hoover and the Republicans learned this lesson the hard way in 1932. As the saying goes, those that fail to learn from history are doomed to repeat it. Let’s pray everyone remembers history in 2011.
Posted by Michael A. Kamperman on October 19, 2010
The Fed will begin printing money large amounts of money come November 3. At first they will print hundreds of billions, eventually trillions. The reason they will need to print much more than they realize is a combination of the size of the deleveraging taking place in the economy, the political paralysis in Washington, and the Zombie Banks failure to lend. While the coming political paralysis is being well chronicaled, the failure of the Zombie Banks to lend to small buisinesses continues to slide under the radar. That may be about to end. The Zombie Banks have insisted over and over again that they have plenty of money to lend to small businesses and the reason small business loan totals have fallen is that demand for those loans simply isn’t there. This lie has now been exposed by a recent survey conducted by the New York Federal Reserve. In the survey 3 out of 4 small businesses that requested credit in 2010 were turned down for some, or in most cases all, of the money they requested. While there is no doubt some of these potential borrowers are not credit worthy, it is highly unlikely the banks are justified in turning away 3 out of 4 small business borrowers. Bottom line, the unjustifiably tight credit conditions are costing the U.S. economic growth and jobs. Now we learn the banks don’t even know how to properly document and foreclose on a mortgage igniting yet another crisis. The Fed need the banks to lend, otherwise they are simply pushing on a string.
The reason for the tight credit conditions is the banks are sitting on hundreds of billions of unrecognized loan losses. The Whitehouse may have saved the bank bond holders and many of the bank stock holders, but they have done this at the expense of consumers, small businesses, and job seekers. They never established a ‘bad bank’ to handle the problem loans because they perceived it was too risky politically. But their attempts to sweep real problems under the rug have exasperated the depression and by playing it safe they are about to pay an extreme price at the polls. Unfortunately, it doesn’t seem as those the Whitehouse is getting the real messagge….”it’s the economy-stupid.”
There is a simple solution to the problem. Have Fannie and Freddie refinance every above-water mortgage in America for 30 years at 4% and refinance every below-water mortgage in America for 2%. Do not appraise properties. Do not run credit checks. If someone is behind on the mortgage, then simply roll it into the principal of the new mortgage. If the mortgage had a valid title policy, then accept it as proof of title and do not require a new one. While this sound radical to many consider the benefits. First, it will put tens of billions of dollars of savings back in the pockets of consumers, who can then spend, save, or pay down other debts and repair their balance sheets. Second, by lowering the payments on all mortgages,especially under-water ones, it increases the chance the existing borrowers will be able to pay their mortgages. Third, it will quickly remove a vast number of potential foreclosures from the market stabilizing home prices. Fourth, it will instantly pay-off many problem loans at the Zombie Banks freeing them up to start lending again to consumers and small businesses. Finally, offering a concrete long term solution to the busted real estate market will restore confidence in the economy. There are of course dozens of objections based on moral hazard…but we can’t afford to stand by and watch a house burn to the ground because the owner didn’t pay his $75 fire dues. There is no reason to worry about the tax-payer, they are already on the hook for bailing out over 90% of the current mortgage mess between Fannie, Freddie, the banks, and the pensions the federal government guarantees. Why not try something where everyone is a winner and there are no losers?
Posted by Michael A. Kamperman on October 1, 2010
The Federal Government is our spender-of-last-resort. Because of the sour mood of a confused public we will soon send to Congress memebers who are not spenders. And a clear message has been sent to Republicans that if they spend they will be taken out by Tea Party types in the primaries. Senators and Congressman whose seats were presumed to be safe have discovered they were only safe for the Republican Party and not for them. So you can bank it that there will be no Keynesean style fiscal rescue of the economy for at least the next two years, and possibly for a generation. Sadly, the fault rests not with the public but with the economists. Chief amongst the guilty is the Whitehouse economic team. They totally lost the debate and to this day have not put forward a coherent argument the public can understand for why we need more stimulus. Instead they mistakenly have backed the President into a corner by having him launch a Deficit Cutting Commission. Much pain is coming. Perhaps the best thing that could happen would be for a preacher of the Austrian Economic Gospel to win in 2012. When the people discover the devil they don’t know, namely austerity, is much worse than the devil they do know they will perhaps come their senses and we can then end the depression.
To this day no one on the Obama economic team is explaining to the public that the economic rules that apply to everyone else simply do not apply to the federal government. They do not have to balance the budget and they don’t even need China’s money. The federal government not only has the power to print money, they are printing a little now. Come November 3 the Fed will initially start to print a few hundred billion dollars over the next year. Before this depression is over they will print many trillions. Yet this money will not bring the greatest bang for the buck because politics have paralyzed the federal government from effectively spending it. The 99′ers are getting cut off now. Next year the States will be cut off too. Plus the payroll tax cuts in the stimulus bill will soon end as well. It’s going to get ugly before its all over.
The coming cut spending tsunami is a direct result of the incompetency of the Whitehouse economic team. Summers and Romer are gone and Geithner needs to go. The blame lands squarely at their feet. When it was obvious the stimulus bill was not creating jobs and bringing the unemployment rate down they foolishly argued it was saving jobs rather than that we needed another one. Now 60% of the American public believe if the federal government would cut spending it would create jobs. They have gone around claiming they avoided another depression when we are clearly in the middle of one and the unemployed public knows this. And they have sat on their hands for 18 months without putting forward a single serious job creating idea considering the magnitued of the crisis. In reality what has the Obama Administration actually done? The TARP, the Fannie/Freddie bailout, the auto bailout all happened under the Bush Administration. The Pelosi and Reid led Congress were sending a stimulus bill to the President’s desk no matter who won the 2008 election. The Bernanke led Fed were going to do quantitative easing no matter who won the election. The single biggest contribution from the Obama team was the smoke and mirrors Bank Stress Test which has left us with Zombie Banks that don’t lend, some contribution. After the election the President has an opportunity to clean house and bring in some heavy weights. Instead, the signal he is sending is he plans to stay insular and stick with those he knows. Those who have failed to bring down the unemployment rate and have allowed Keynesean concepts of economics to get trashed in the public’s mind. The reality is we would be in much worse economic shape without the bail-outs and the stimulus. President Obama is a trained lawyer, yet he has failed lawyer 101. When you have the law on your side argue the law, when you have the facts argue the facts, and when the law and the facts are against you just argue like hell. With the laws of economics and the facts on their side they have failed to win the argument. Worse, they are not even out there arguing like hell.
