How About a Different Fix to the Economy?

by

John Wright

 

President Barack Obama completed his first month in office as of yesterday, February 22, 2009. A mind numbing variety of proposals, actions and expressed fears and hopes have happened during that month related to economic crisis. The Economic Stimulus Plan was approved by the Congress for around $787 billion dollars. The stock market has retreated below its lows of last November to a value not seen since 1997, with the Dow Jones Industrial average hovering around 7100. It may continue its strong descent, perhaps by as much as another 1000 points.

Unemployment continues to increase at a significant rate of between half a million to one million more jobs lost each month. The published unemployment rate is somewhere in the neighborhood of 7.7%. The real unemployment rate is a whole lot higher, likely as high as 15%, due to unreported numbers like those for previous workers who have given up looking for jobs and/or have exhausted their unemployment benefits.

Two of the largest banks, Bank of America and Citibank continue to be disasters and there is another round of government sourced cash (read that as "public funded") infusion in the works for Citibank. The subject that stands out but makes no sense is that nationalization of the banks is politically unsavory among the wealthy, but how much cash infusion constitutes de facto nationalization anyway? The argument that investors in bank stock lose their money if nationalization happens is kind of moot with the stock value of Citibank hovering around one or two dollars per share. How much money would the investors lose? Do they really expect the stock values to recover to even ten percent of their values before the crash? Isnít it obvious to everyone that the banks would go completely bankrupt without huge rescue funding Ö so the stock values would crash to zero without government intervention? Does anyone willfully take responsibility for the "toxic assets" of the banks? Are not the investors ultimately responsible? If not, then kindly return the money I lost in 2001 in the stock market. Uh, huh Ö

Note that the unethical bank officers and other high powered investors who hold bank stock do not want federal oversight of all the banking business decisions. This is easy to understand as the government overseers will meddle due to ignorance and unintentionally get in the way of progress. The problem is that the bank officers will not use government supplied money to free up the credit market if left to their own choices. I can only say that neither side can be trusted. One is incompetent and the other selfish and dishonest. This makes me wonder if we should deny all rescue money to the banks and let them fail outright while running a completely separate federal bank to cover the losses of depositors?

Most notable at the moment is the disbelief about the presidential press secretary, Robert Gibbs, letting the news media know that help for mortgage distressed homeowners will be available only if they have kept up with their mortgage payments. Hmm Ö unless I am somewhere in la la land, he just said that if you are among the worst off, have lost your job and/or are wrestling with credit card debt that suddenly carries a very high interest rate, and you have not been able to make your mortgage payment, then there will be no help for you. Only the ones who have up to the present continued to keep up with their payments are eligible to receive help, and then only so long as they continue to keep up their payments. And if a job loss makes that impossible? This is the only policy area to date where I have a significant difference of opinion with what President Obama has planned/proposed. I do understand, however, that this position is aimed primarily at keeping people from dumping their homes due to negative equity even when they can make their mortgage payments. Perhaps this area will be rethought with a better plan.

Okay, lets spell out the larger problem of bailing out banks and businesses for those who canít relate parallel but unfair situations. As a home/car purchaser you are the investor, and anything that happens to make you unable to sustain your investment is your problem Ö you lose everything and there is no bailout Ö but your creditor at least gets your house/car when your employment goes down the tubes. What does the American public get opposite the government (tax money) bailout of banks and other businesses? Nothing even remotely close in magnitude. Here is the point Ö the banks and large businesses are perceived by some to be very important because they are few in number and very large, with broad societal impact, while you are comparatively unimportant because you are very small individually and while large in numbers you and your compatriots are not part of an integrated whole/defined business whose failure will have significant impact on the economy. That presumed logic is, of course, absurd. It is instantly provable illogic and bullshit. Here is the proof: It is the sum of the individual failures brought on by your job losses and inflation that is twisting the balls of the banks and other businesses. You didnít realize your immense power in numbers, did you? Gee, do you common folks have broad societal impact too? Ahem! Arenít you what broad societal impact is really all about?

A short and preliminary and highly limited summary of what has happened in the past year is that insurance and auto businesses and banks have been fed huge amounts of money via government spending of present and future tax dollars, in the neighborhood of one and one half trillion dollars so far, to keep them operating, despite their being in trouble from greedy and stupid investment/operation choices. The common folks, however, have seen no relief except for the amount and time limited unemployment benefit that doesnít begin to come even remotely close to previous earnings. There is something wrong with this picture in a major way, and this article is intended to look at pending consequences and, alas, changes that could make sense if they were fleshed out and implemented. Consider this Ö the entire value of the subprime mortgages was only one trillion dollars. What would have happened if the federal government elected to be a guarantor of all of those mortgages before letting the economy go into a broad and deep recession (now a depression) via a collapsed housing market (no thanks due to jackass Bush and his criminal cronies!)? Far less money at that time would have averted the much larger disaster regardless of anyoneís personal beliefs about the rightness or wrongness of giving the idiots who signed up for subprime mortgages a free insurance policy. And, of course, the economic stimulus package would not have had to be considered and then passed. "A stitch in time" Ö as the saying goes.

There is an obvious tearjerker that partially invalidates what I said above about saving the day by having the federal government become a subprime mortgage guarantor. It seems the packaging of those loans with other more stable loans in a derivatives market led to absurd valuations, such that the real chaos within the large banks, insurance companies, etc. is in their exposure to loss of pumped up derivatives values. Thus, there is substantially more than one trillion dollars involved Ö and it was pure gambling. Too bad. I am not crying.

Keep two thoughts just below the surface as you read on Ö people with jobs that donít pay well, or, no jobs at all, canít keep an economy running by ever increased borrowing, for eventually everything implodes, as it has obviously done within the past 18 months, a.k.a. the housing market, and also the credit card market, especially since corporations have been permitted to offshore good jobs or to import cheap labor for decades. There was no reason to tolerate either offshoring or immigration, as the ultimate outcome was so clear and negative for the USA citizens that it should be totally obvious even to a child. Where are the adults? Go back and read my book, Destiny, where I told everyone all about it ten long years before the fact of the present disaster. A simple denial of the USA market to any company that offshored jobs was the only way to go, and the USA federal government committed treason towards all job dependent USA citizens within our borders by allowing, indeed promoting offshoring and immigration. In short, Globalization my ass!

Guys like Bill Gates were attributed with veiled threats re. forward location of their business operations. He presumably let our federal government know that if they did not relax their position re. H1B visas, allowing Gates to import cheap, talented labor, then he would simply move Microsoft® operations to India. Can you believe that tripe? Is it not obvious that anyone who would threaten the USA with leaving should then be welcomed to leave at the legal cost of completely losing the USA market? Maybe you are starting to understand why free trade agreements were such a well-conspired criminal undertaking that were certain to lead to disaster for we common USA citizens. Once in place they guaranteed that our government could not do exactly what I said above. Is it okay for any business to dictate to government ways to improve their short-term profitability at the expense of the very citizenry presumably represented by that government?

Okay, the lead-in paragraphs above were/are intended to function as a limited baseline set of statistics and current realities early in 2009 that will have value in future times when our memories of this global and national economic debacle dim. I attempted but failed trying to keep my personal beliefs out of those paragraphs. Iíd say at this moment that the stakes re. Civil unrest are too high to fool around, and the timing far more critical than most people in power appear to realize. There is no acknowledgement of this potential disaster in the media by those in power. Only a few reporters and other lesser figures have raised the specter of disaster if we fail to feed, clothe, house and medically care for those who are in the process of losing everything due to job loss.

Perhaps an analogy will help explain why this environment is so dangerous. Think of the patience exhibited by people now in severe financial difficulty based on their belief/hope for assistance through Barack Obamaís programs to save the economy. Think about how that patience will wear thin the longer the period of financial difficulty continues without substantial help. It is like a fuse that burns slowly at first but then increases in combustion rate, leading to a disastrous explosion when it gets to the dynamite Ö but no one seems to think about a fuse exhibiting an accelerating combustion rate. I believe that those in power think the poor to be too ignorant and too disorganized to cause much of a ruckus.

Well, in the above instance ability of ordinary humans to deal positively with financial difficulty can diminish rapidly and transform into anger and then actionable rage without much warning. This can and does happen when naïve trust is abused or ignored and people actually go hungry. It can and probably will happen in our current environment with ease as the bad guys who caused the problems are so easy to identify, so the developing anger and rage will have a specific focal point, i.e., a target. It can happen now, as opposed to fairly meaningless riots that happened earlier in our history (1968), because the population caught up in this disaster has a much higher component of experienced and intelligent people in far greater numbers, not just the ignorant and disorganized poor folks.

Lets move on to some positive ideas. The scant mention earlier about what the federal government could have done a.k.a. the subprime mortgage market before the housing market meltdown is a clue to what is to come in this article.

One huge problem is healthcare costs and the associated health insurance costs. The solution? It is really very simple. Look to what happened to the housing market Ö once the source of money to sustain high prices dried up the price of homes began to plummet. Zero healthcare insurance from any source, including government will have exactly the same effect on the cost of healthcare. It will plummet. It will be completely affordable. All arguments about the impossibility of that approach or of the threatened decline in service quality are complete bullshit. It is greed and greed alone that make healthcare costs high, and fools who are willing to pay the high prices through insurance keep that cost high. Kill the insurance and you kill the cost, not the patient. This also includes pharmaceuticals. No insurance coverage equals low cost. That, my friend, is essential capitalism. It has been socialism in medicine that has driven the costs up too high. Kill the socialism. Eliminate Medicare and all private and employer provided healthcare insurance. Keep Medicaid only for the indigent. Throw the cost for the elderly back onto their families where it belongs.

Now lets tackle the subprime mortgage issue. The federal government pays off all of those mortgages based on current home values and in the process establishes new mortgages run by a federal bank. That is how you control the mortgage interest rate and how you penalize all people who attempted to profiteer from the unwary fools in our society. Those who fail to make their mortgage payments under the new and fair federal program are kicked out into the street with no compensation, while the houses are auctioned off at no less than 90% of real market value, with the incentive to the buyer of getting a guaranteed federal mortgage if a cheaper one canít be found in the private sector. Yes, government can be used to halt out of control capitalism, and the private sector can be used to beat the government in efficiency and cost to the consumer if it so chooses. Isnít it about time we woke up to these realities and insisted on them?

One short thought about credit card debt Ö lets force a national fixed interest rate of 8% or less on all revolving credit card balances, and lets set credit limits based on a 30 percent limit of payments monthly opposite after tax monthly income, and that also includes mortgages and car loans. No financial institution should have any privilege at all to change the credit card interest rate for existing balances, for any reason. Late fees and overbalance fees must end.

What President Obama wants for education, research and infrastructure improvements, along with aggressive environmental controls, is essentially perfect. Follow his lead and do what he tells you to do. He is the first politician in my entire life that makes any sense at all. He speaks clearly, candidly and with an obvious holistic vision for our future. Pay attention. He is a true leader. Follow him, and be grateful for the day he was born and for all that has happened to allow him to become our president. Uh, I think, however, that you might want to get prepared for a massive devaluation of USA currency as our government deficit rises to the three trillion dollar level. We wonít be able to borrow our way out of that level of debt so we will create funny money, and that has a huge price going into the future. Remember Ö Obama is a man, not a god. No other person could do better but a lot of neocon idiots did and could do a lot worse.

It is kind of late to get into precious metals, at least for this cycle, but keep an eye on gold and platinum for the next temporary downswing. Swiss francs will also be a good currency to hold as the USA dollar loses value. Even a Swiss franc denominated stock trading account, left unused, can provide protection from the major currency devaluation we will experience.

Getting back to the point of this article, the despicable behaviors of our banks, insurance companies and very large corporations like the automobile companies and our medical/healthcare companies have destroyed our economy and are degrading the quality of our lives. It is time to smash them in manners I described in earlier articles. We can use the power of government for the people, but only if we finish the job of indicting, trying and imprisoning the individuals primarily responsible for our present disaster, including the entire arena of lobbyists. You know it is kind of funny/ironic when you think about it. Have you ever known any wealthy criminals who werenít, at the heart, uncontrolled capitalists? Have you known any uncontrolled capitalists who, at the heart, were not criminal in their exploitation of ordinary people to gain massive personal wealth? What would you do to rein in that kind of disgusting behavior?