A Morally Correct Stimulus
The demise of the USA economy is a reality. Fingers of guilt have been pointed in many directions. Actions taken to alleviate the problems (bailouts and stimulus funding) and to presumably turn the economy around do not truly address the fundamental causes. The root causes are the loss of good jobs and the failure to control financial institution greed, hence failure from current recovery efforts is guaranteed, for the root causes have not been properly addressed. The massive debt represented by the bailouts and stimulus packages is a disaster piled on top of earlier mistakes. The consumer is, historically, two thirds of the economy GDP, so it will be the consumer who will provide the ultimate solution, but only if the consumer population is gainfully employed. Financial and other corporations created the disaster with the complicity of multiple terms of the Congress and past presidents Ronald Reagan through George W. Bush. Offshoring was/is the largest contributor to our demise, followed closely by usury practices in credit cards and subprime mortgages that raped the public with no government protection.
So much for the lead-in summary. We need economic stimulus to employ our citizens and we need controls over corporations and banking to halt and reverse their destructive practices. I will not address the employment issue in this article. What I will address is stimulus to cause those employed to become savers in such a way that our economy is saved over the long term. That will be most interesting, wonít it?
It is often difficult to see the forest because of the trees. We keep finding tall but rotten trees but nothing out of Washington or from our corporations or the banking industry has shown any vision whatever for actually solving our problems. So it is up to people like me and you to figure out workable and morally sound paths to returning us to economic viability. Letís begin Ö
No matter what steps we take a.k.a. manufacturing jobs or revision of free trade agreements decades will pass before we can return to the good times. In the interim we need the employed populace to create the monies needed to get most of us back on our feet financially. We do not need funny money created by government. How might that be done? One answer is in reversing the primary problem areas, one of which is and has been usury practices.
Letís recognize that credit card interest rates are completely out of line with all other credit vehicles. That is where we start to correct the wrongs forced on our common citizens. First, credit card banks must be forced to simultaneously be savings banks for anyone who wants to invest their earnings at a profit. Specifically, one half of all profit from credit card interest rates will be given to the investors, who will be the general public responsible enough to save money. They will not be stockholders, but lenders. They, along with some larger private investors, not the Federal Reserve, will be the normal primary source of money for lending, and they will reap half of the rewards for being diligent savers.
The credit card banks make enough money simply in the fees they charge to merchants (up to 4%) to cover reasonable operation costs of the business. Thus, forcing them to yield half of their interest income profits to small as well as large investors will certainly not damage them very much Ö but it will start to impact their inconsiderate greed and readiness to turn the public into indentured servants. Letís look now at some of the truly interesting ramifications.
Suppose any private individual is allowed by law to have an investment account of value up to $25 thousand dollars in any given credit card bank, which at that point must be drawn down to a maximum of $20 thousand dollars, or less. The monies withdrawn must be spent to stimulate the economy, not reinvested to expand the account, or any other account, above $25 thousand dollars. Taxation of the interest will simply be at the level of present long-term capital gains taxes, specifically 15%.
Now, if a credit card bank charges itís customers an interest rate of 18%, then that means the small investors as well as the large investors are earning 9% on their money. That is a serious reason to save, knowing there will be profit money available routinely that heretofore was simply kept by the bank and used for ridiculous bonuses and extravagant business expenses. There is also a strong incentive to beat on the banks if they attempt to give irrational credit to probable future deadbeats.
Note the competition that will be intense between the credit card banks. If you charge too much interest you gradually lose your credit card customers by balance transfers. If you charge too little interest you gradually lose your investors, who will transfer their savings to a different credit card bank, with no tax ramifications. All investors must by law be common citizens or well to do individuals, not other institutions. The sheer volume of eligible employed common citizens makes the point Ö If only one third of our total population of roughly 300 million people had jobs, and only half of those people chose to participate, then fifty million people saving perhaps $6000 per year from their regular job income would generate annually some $300 billion dollars as new money invested in the credit card banks.
Note that the larger investors would, as now, make up any difference between what is needed to loan to viable credit card customers and what the small investors save. The beauty of this plan is that large investors are contained in their profits exactly the same way as the small investors and the banks Ö an interest rate of one half the interest charged to credit card customers. Even better, the Federal Reserve is out of the picture for normal business funding. The Federal Reserve could be used to smooth out temporary irregularities in available funds for borrowing, but would be repaid at, for example, 18% interest (whatever the bank charges itís credit card customers), thus removing any profit motive for a credit card bank to seek Federal Reserve funding for expansion.
Note also that a saver may also be a credit card customer Ö with a net interest rate only one half of that paid by non-savers, provided the savings account balance equals or exceeds the borrowed amount. And if you think about it, it is similar in part to the practice where some customers today are required to have funds in a bank to have and use their credit card, which is good only up to the deposited amount. But the obvious stimulus for responsible credit purchases is in the loss of a lot of interest money if one is a profligate spender. But if you pay off your bills on time you are a real winner.
This stimulus to save is the long-term salvation of the economy, as it promotes sensible and population/job regulated growth in the credit card industry. Opportunistic immoral people who today are raping the public with absurdly high credit card interest rates will clearly be disempowered. The game playing and taking advantage of the weak will end. To do this we must force, and I do mean force the federal government to pass the required legislation.
There is a less obvious but very important side consideration. If our governments at federal and state levels do not protect our jobs then the banks will be severely limited in the amount of business they can do. This can be accomplished by setting limits to the amount of funding that a credit card bank can receive from individual large investors as a percent of their total business.
This type of change is long overdue, for our governments, banks and other corporations have engaged in what can only be called a disincentive to save for the common citizens. Yet they claim that common citizens are simply greedy and irresponsible. What a sham! Give our citizens a decent profit motive and they will respond accordingly.
Think about my ideas and comment, and do remember I referred to this program as a long-term solution. It could take up to thirty years to totally eliminate the damage done to the citizenry by credit card banks. And do let me know of any innovative ideas you may have for helping to solve our national financial problems.