To a chorus of “the economy is bad”, “the economy is bad”, we wake up every day… Yes, that may be true, but since most have already accepted it to be so, based on their own day to day experiences, what good does it do to harp on it?

I decided very little. Of course others can write reports on its demise and still others can read those accounts and weep. Whereas I will acknowledge that cries like this are very important before some actions are taken ie those actions leading us down dangerous paths, such as “let’s deregulate bundled loans”, or “let’s decrease the money received by the Treasury by Tax Cuts during an expensive war”; once those actions are taken, comments, though well meant, have no other use except to say, “See, I told you so”, and/or make Republicans wince.

Being vindicated may make one feel good, but it does little to alleviate the hardships being faced by all.

So as my title asks……how are we going to fix it?

First step is: make sure it doesn’t happen again or to be put another way: Cut off its source of fuel…..

Our current calamity occurred because of deregulation…. Rampant speculation was allowed to continue, further pushing a bubble outward until someone realized it was just a thin membrane, full of nothing but air…. Rampant speculation is always the problem behind a collapse of an economy…. Before we understood economics, the world had panics and bubbles bursting all the time…. Each time it burst we learned more and we regulated more. Then, someone eventually found a loophole, an area unregulated, and suddenly all resources race to that spot, creating another aneurysm until it too bursts. Afterwards, that area comes under regulation.

The Great Depression caused banks to be regulated. The Savings and Loan Crises and subsequent bailout, caused S & L’s to come under regulation. Obviously we need to now regulate the bundling of loans and other unregulated securities….

That….. is the first step, which helps us, the sufferers, very little. However it is needed to keep the trend from getting worse…

Next, we deprive the Depression of its oxygen: “we need to forgive us our debts…..” Right now as I write, the Fed’s are forgiving debts of several banks and financial corporations who speculated poorly. As we see with this year’s stimulus package, when money goes directly to financial institutions, there is nary a ripple in the economy…. I think we all knew this would happen…. It was all over the news when the stimulus package was announced.. Any smart person would use an unexpected bonanza to pay down debt instead of allowing it to grow exponentially as we spend it on trinkets….

But trinkets are what keeps our economy afloat…. So how does one stimulate an economy so heavily saddled with debt, that the debt just sucks up every attempt to jump start it? Easily…. You forgive the debt for a while until the economy seems healthy and then return to normal…. It’s just another form of stimulus package.

The first argument AGAINST doing so is this: you are teaching people that not paying back what you owe is ok… Valid point. But equally valid would be this rejoinder: by doing the alternative, bailing out insolvent corporations with taxpayers money, you are teaching corporations that making bad loans will cost them nothing, yet gain immense profits.

Under our current system we reward bad behavior from those giving out bad loans, which in turn, penalizes good common people who actually saved nest eggs, by wiping out a large portion of the value of their holdings. ( Anyone checked their 401K lately?)

Therefore what is needed is a simple way to rejuvenate the economy, in a way that rewards good behavior yet punishes those who misbehaved, not the other way around.

Unfortunately for Delaware, credit cards are one of the easiest way to accomplish that. Here is how it could be done.

A year of no interest. (this is theoretical, so finish reading before responding.) Pay back all principal owed, but not the reward that a bank receives for lending you its money….its interest.

What does this do to banks? For one, they stay open. They remain solvent; they do not have to shut down or get bailed out with money we are borrowing elsewhere from the Chinese… During that year, the financial institutions write off their books, all of the amount of interest they had anticipated receiving from all previous loans. Which means that we never have to pay that amount back. When the year starts anew, we pay the full amount again. As for the missing year of interest: the banks will eat it.

But…. new loans will not be part of the deal… Loans made during that year will be charged interest, or fees, as they normally are. This gives banks some form of income. And once this year has passed, banking returns back to normal…

Some safety nets can be provided. One, for example, would be to lend a small bank an interest free loan from the Fed, if it was unable to meet its payroll or other expenses and stay open due to its lack of interest coming in. After the interest-free year was over, that amount would be paid back in interest free installments as well…

What this interest-free year does, is keep institutions open, keep a Great Depression at bay, puts money into the hands of buyers, money which cannot be spent on debt, and which must go for goods and services.

As the demand for more products increase, so does commercial lending. For to increase production, new and newer loans will need to be negotiated, Each new loan thereby gives banks more income.

The bad news is that banks won’t make tons of profit. No problem, this year, they wouldn’t anyway, And without this new type of stimulus package, as we saw during the 10 year Great Depression (when there just wasn’t any money anywhere to get things started….). things stayed bad year after year after year.

And one additional side benefit? It would teach a lesson to all, that lending money to someone who obviously can’t pay it back….CANNOT now be done with impunity….. The burden is finally placed upon those who did the sin… and not on the innocent suffering silently….

(I look forward to your comments and challenges…..)