Even in the direst storms, it is nice to know the sun is burning 93 million miles away…. — kavips

Despite the gloom there are some exciting bright spots in our current mess.

One, we have proven beyond a reasonable doubt that privatization of Social Security is a very, very, very, very bad idea. That argument, shown by today’s events, is now not only proven to be inane, but extremely dangerous. As briefly mentioned in the last chapter, Social Security whose purpose is to provide our nation with a safety net should the unthinkable ever happen, is the only plan that survives global economic meltdown. For it is funded (as is a ponzi scheme) by newcomers entering the plan and contributing their money. Privatization plans based on savings and investment can make no such claim of constant solvency. So despite all the problems caused by today’s global meltdown, its economic trauma should keep Social Security safe at least through three more generations, ie. those who lived through these trying times and saw Social Security’s benefit with their own eyes…. Anyone foolish enough in the near future to bring up Social Security privatization will over that span be met with a chorus of “uhh…Remember 2008”.

Two, we are now given unlimited opportunities to fix long term problems that before seemed insurmountable under the old system, because back then….. we had to play by “old rules”. One of those old rules was that Medicare and Medicaid were here to stay. As mentioned in the previous chapter, replacing Medicare/Medicaid with a national insurance reimbursing physician’s visits, opens the door to getting one costly entitlement out of way and replacing it with a less costly but far better service…..

Three, today, the collapsed economy because of its severity, forces us into a massive Keynesian economic expansion unrivaled since World War II.. The huge impact of that last expansive episode took us 17 years to get our tax rates back to normal. But because of that wise investment we made back then, the global economy got fixed, which then went on to provide a remarkable 60 years of unparalleled growth and low risk. We can be assured that tax rates will remain extremely high for the next decade in order to pay back the deficit we just recently incurred by cutting them…. And that is a good thing.

Four. It is hard to raise taxes. But that is exactly what is needed. Wealth is good for a society only as long as a portion of it is invested back into to real people, real jobs, and real things. Rewarding the pursuit of “virtual” wealth caused by placing “bets” on rising or falling values may be fun, but leaves no lasting collateral once the fun runs out…. Taxes, on the other hand, serve the noble purpose of recycling money down to where it does its best work… I know, I know; arguments have often been made to the contrary, but today we actually see results; ones we have rendered from following the tax cutter’s plans. Unfortunately today’s economy and events have proved once and for all, that despite the copious amounts of hot air once spouted aloud about their potential, their “cutting taxes” hypothesis turned out to be nothing more than simple “voodoo” economics after all…

But fortunately because of today’s crises, we can again responsibly raise taxes on the wealthy and again fortunately for all (especially the wealthy), return this nation back to real prosperity. (Editors note: For fun, some snark is embedded above but in reality we will be only talking about the increase of a measly 5%).

Likewise for five, today’s crises gives us the opportunity to expand government. Some say that is bad… To them, I say “oh, no, that’s not what bad is… Bad is when you lose 50% of your retirement in 2 weeks because funding was pulled from the regulatory agencies responsible for monitoring the markets. THAT’S BAD!” There may be a point in the future where government does again get too big and too intrusive; but that time is not now… We are now at the point where if our government can’t save us…. there is absolutely no one left who can… Our world is deep in a WWII-mode crises all over again; where only the United States is big enough to mount the adequate defense and then initiate a future counter attack…

Six. Over the past 8 years, it became obvious that our infrastructure most definitely needed reworked. This crises gives us the opportunity to fix it; for now, “progress” will no longer get tied up with cries of “over-spending”… Today’s crises put that argument far, far behind us now… We are now more concerned with getting projects moving forward in the least wasteful manner possible. To our chagrin, it would be pure irony if the winning party that won by chastising the past administration for wasting “so much money” on “their pet project”, were to open themselves to the same criticism, by recycling “the past administration’s argument” in order to justify their “pet project’s” waste of money today….. Putting every expense on line will solve it…. Just as we recently discovered our bailout money going towards a corporate jet… having the ability to sniff out corruption in short time, will over the long term, give us the trust we need to get things moving forward quickly… We desperately need that trust in order to be effective; the quickest route to achieve it…. is openness.

Seven, we have historical accounts of what did and didn’t work during a previous Great Depression and we have at our finger tips a vast information system, allowing anyone to bring forward the next “great idea” which just may turn the tide. This epistle is just one example… The tried and true proposals prescribed herein are options that have been researched against the past economic downturn, and have therefore been tested in real time. The novel solutions incorporated herein were built out of questioning why the American economy of the 1930s took so long to recover… and what eventually caused it to grow. These theories may be untested by time, but then… so is every new idea. At their core however, they hopefully have enough historical data to sway even the most skeptical towards implementing their solutions…

The greatest lesson taught by the Great Depression is that “time” is our greatest foe.. Waiting, or allowing things to break up completely before beginning to rebuild from the damaged pieces, means we live squalid lives for decades. Rapid fixes and follow-up solutions will make our lives more enjoyable… We can deal with the long term problems later. But 1933 tells us we needs to jump start it now…

The second lesson that Great Depression teaches us is that change is hard to accept. Even after receiving a mandate for change as did our current leader, FDR still tried to win over the opposition party… It was to no avail.. Eventually he scrapped his attempts at conciliatory moderation as it became obvious that they would oppose whatever he did. Still under the sway of the capitalist’s philosophy that had ruled the previous decade, Roosevelt himself was guilty of inching far too slowly towards implementing direct government involvement. It took an upcoming war to finally sway him to embrace the direct injection of government borrowing into the economy on a massive scale. That made the difference.

Recently the U. S. House of Representatives voted 244 to 188 to pass the Economic Stimulus package; and every Republican lined up against it… As an observer of history it is interesting to note that the same Republican party made exactly the same political error during the Roosevelt’s first term, virtually guaranteeing a one party system over the next 14 years… It is somewhat sad to see history repeat itself… Republicans, apparently are neither familiar with history, …..nor the internet.

Eight, we have at the top of our government, an extremely gifted group of individuals who are charged with bringing major changes to bear in their respective areas. It would be hard to note a more talented cabinet thorough out our history… ( I can maybe think of perhaps two…) Perhaps we should thank the economic crises that brought this group together.. With current challenges being great, political differences were put aside in the interest of saving our country. Our past president’s litmus test was loyalty. This president’s…. is expertise. There is great deft of political instincts now surrounding this president, as well as expert wisdom, unparalleled in recent executive branch appointments. It’s ability to listen and think, seems to become the defining character trait we will forever associate with this administration..

Nine, we finally have a Congress working in sync with the Executive Branch in order to pass the necessary changes required by today’s events. Thanks to the American people, we were not given a stalemated Congress… Truly, the American people deserve their lion’s share of credit for making quick progress possible… It was they who ascertained that the “right president” backed by the “right” party in Congress, would be the only solution to move this nation forward. Yes, they can change their minds in two years.. but for now when timing is at its most critical, our two branches can work in sync as they were designed to by our Constitution. The antique politics of loyal interference, received a big thumbs down by the American people on November 4th, 2008. The voters were wise. Thanks to the American people, we are given a two year window of opportunity to right our ship of state, repair its structural damage, and unfurl its sails once more to set a course for greatness not even fathomed back in the August of last summer.

This economic cloud does indeed have its silver lining.

But…. sometimes…. just the opposite occurs. We see the silver lining…. and forget the dark cloud lurking underneath…. Today there are several proposals working their way through Congress which could cause harm even in their attempts to brighten our financial landscape.

One is a tax check to spend at will, … most of which will go to pay bills in order to stave off bankruptcy and will do nothing to generate either new manufactured products or new services.

Here it becomes clear just how far removed contributing authors to main stream media publications are from the reality that pervades the livelihood of everyday Americans.

Mr. Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy, is president and CEO of the Lindsey Group. In a piece written to the Wall Street Journal, he uses this statement to demote the economic stimulus package that was dissed by every House Republican…

For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker!

This bragging about $1500 dollars, shows us they don’t grasp the scale that’s needed. The manager of my almost empty hair salon does… Her plan is exactly the same as Lindsey’s, but adds an extra zero. In her words, “if they would just give us $15,000 dollars to pay our debts, the economy could be rolling in 30 days.”

That’s the need… Sure, anyone desperate for cash will take one tenth of it, or $1500 dollars, for it will buy some time. It won’t create a turnaround in the economy, especially if a person is unemployed and not working. At best, the one tenth we receive will keep us from dropping…”as much..”

(Giving $15,000 to every American household irregardless of income level…at 117 million households: costs twice the Iraq War: $1.75 Trillion.)

But Lindsey’s plan is really aimed at providing bonuses to his base (business interests) . For if you read the details under his plan, they too will get $1500 payroll tax deduction for every employee. Have 10 employees? They just got the $15,000 that you said you needed. His plan sucks money out of the economy; it does not put it back.

Remember this: no business has to make money in order to survive. They just have got… “not to lose it”. On the other hand, working people DO have to make money in order to survive. For them, just “not-losing-money” is not an option that they have.. Whenever money is given out to any business, the benefit is political, not economic. Our economy is not bettered by corporations or companies making excessive profits. In fact, as one can see from the “Roaring Twenties”, the Reagan/Bush1 years and the Bush 2 years, excessive corporate profits are just the symptoms of a swelling bubble that inevitably bursts spectacularly. We’ve seen it three times; just before each time, corporate profits soared. On the other hand sustained long termed growth as accomplished by plans formulated during the Eisenhower and the Clinton years, forces corporate money thorough fear of higher taxes back into the companies themselves, in order to hide their profits from being taxed. That re-investment created jobs, which then created more demand for goods and services, which created more re-investment, which then created more jobs, and the economic circle begins climbing.

One must remember that there are two kinds of investments. One, is investing in the building of a manufacturing plant or service industry that employees people… The other, is simply making bets that certain stock certificate will rise in value… One adds money to the economy, causing the economy to grow. The other, is “virtual”. It does not affect the GDP. It does not create jobs. It has as much effect on the economy as betting on a horse.

For the recovery, if it is to happen, hinges on jobs. We need people who buy things. Giving loans to those at the top, for example a corporation like Macy’s in order to keep that brand afloat, will be wasted because those who do the buying, are the ones who still won’t have any money… Therefore in principal, if we are going to borrow a full $3000 dollars to give to every employee, in order to increase their spending which we hope will generate growth, it only makes sense to put that full $3000 directly into the hands of that employee. Splitting it 50/50 with a business dilutes its impact by half.

Republicans bet. Therefore their policies always help out those who play and bet with them.. Democrats don’t. They work. Therefore their policies always help out those who work hard with them.. That is an over simplification to be sure, but if you are approaching this issue for your first time, this simplification gives you some insight and structure into how each party’s actions correspond directly to their supporter’s motives.

Now back to having a tax check to spend…. Didn’t we just have one of those? Someone once said that insanity is doing the same thing over and over again and each time expecting a different result…

Has anyone ever thought of looking at the economic data from last summer and seeing what it’s net effect was then, then modeling it on what impact it might have on today’s economic situation?

What, no?

Well, now might be a good time! The stimulus of last summer was largely saved or used to pay down debt, despite George Bush imploring us to spend it as fast as we could. What was an annualized stimulus of 3% of GDP in the second quarter — which is quite large — only kept GDP growth positive for 1 quarter.

Considering the past quarter, it’s long term effects were nil. Its impact on savings were wiped out. It’s impact on debt was inconsequential.

As we see from these results, the Economic Stimulus Plan did little but raise the 2nd Quarter GDP 3%. After the funds were used, the collapse continued. All a stimulus plan does if it is not big enough, is buy three months of time…

We need something much bigger. Here is why. In November the average credit card debt alone amounted to $8320 dollars per household. Dropping a measly $1500 down off your credit card bill, will unfortunately, accomplish as little for the economy as if one dropped zero $0 dollars down. For if you still owe, … you still owe… Your minimum payment stays the same. The economy does not improve if everyone’s average debt drops from $8320 down to $6820. In fact, the economy actually gets hurt by those banks dependent upon the monthly 1.5% interest. Under this scenario, they lose (per household) $22 dollars in interest. Times twelve months this drop in income costs banks $264 dollars and if every household were to apply their stimulus check to their credit card bill, the yearly net loss to the banking industry would amount to 30.9 billion dollars; right at the time we are throwing money at them to keep them solvent.

The concept of stimulating the economy with a tax rebate is principally flawed. It is extremely flawed when consumer confidence is at an all time low such as it is now…. Tax cuts work only if the consumer spends all the extra amount that they receive. If the check just gets signed over to a bank, either in the form of an increased savings account… or of paying down debt,…. it doesn’t really help the overall economy.

But one would think so however. After all, with that much money available to be lent out, the supply cost for credit should drop, causing the price of credit to inch downward, thereby increasing the volume of it that is bought and used… The increased borrowing should in principal eventually spur the economy forward….

Aye, now here’s the rub.

If everyone is afraid to borrow because of sagging consumer confidence, the money just sits there. It does not get lent and there is no resulting positive impact upon the economy. Businesses have no customers and won’t borrow; at this time they certainly do not need to invest in new plants and equipment (which is why they need a tax cut least of all). Likewise a consumer who anticipates losing his livelihood, won’t spend and will instead, salt away every bit possible to enable him to survive should that happen.

The only people who will benefit from a tax cut and rebate… are the poor who live day to day.. Give them even a little money; it is spent that day. Unfortunately most of the items that they buy come from China, so the tax cut spurs little domestic manufacturing on these shores.

Realistically there are only two things that actually make the economy grow: population growth and gains in productivity. The former carries a lot of costs; the second is the only real fountain of prosperity. Tax cuts do absolutely nothing to aid our productivity.

On the other hand making a choice to use that money for infrastructure spending, for example rebuilding that I 35 bridge across the Mississippi, does increase efficiency by causing products to move faster between two points and actually does something solid to improve productivity.

For a tax cut to work, it has to spur consumption. The last one didn’t and now that consumer and business confidence is even lower, obviously, this upcoming one will not either…

As mentioned earlier, those touting for the passage of a tax cut stimulus check, are not really looking out for the average American’s interest. Other nefarious motives must be lurking behind their support for the receipt of a stimulus check in the mail….

For if they were truly concerned about our welfare, instead of wringing their limp hands over tax cuts, they should be working together to come up with something serious that eliminates our debt.