How to Fix a Sucky Economy in Ten Minutes

Discussion in 'Economy' started by Twalbert, Aug 18, 2011.

  1. Twalbert
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    Twalbert Member

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    By now, it should be clear to everyone that the economy needs another boost.

    Growth is flat, unemployment is high, and the economy overall just sucks. That's actually the technical term, believe it or not. "The Economy Sucks" is defined as "the period that sure feels like a recession, but isn't technically a recession because people struggling to find an $8 an hour job to feed their kids don't get to define when a recession begins." Look it up!

    There are a handful of tools at the disposal of the government and government-like entities when the economy sucks, each of which can fix a different reason for why the economy sucks.

    If you're a Republican, you might argue that the government can cut tax rates on corporations. This would, in theory, free up cash and allow them to hire more employees. More employees create more demand for goods, and the economy is moving upward again.

    If you're a Democrat, you might argue that the best way to stimulate consumer demand is to give money directly to consumers. This would, in theory, give consumers cash to spend on goods, which will drive up demand and cause employers to hire more employees to handle the new demand. The economy would be moving upward again.

    If you work for the Federal Reserve, you might argue that the money supply is too tight. You would probably lower interest rates, which would encourage more spending, which stimulates demand, which causes employers to hire more employees. This gets the economy moving upward again.

    But what if interest rates are already zero (or near zero), and they have no room to go lower? This is where it gets tricky.

    If you're the antichrist, you simply print trillions of dollars, hand that money over to banks, and watch in horror as they hoard the free cash and collect 0.25% interest on what was, essentially, free money. The Federal Reserve calls that plan quantitative easing. Some call it printing money. I suppose, theoretically, that's increasing the money supply. We'll go with that.

    So these are our current options: cut taxes, increase spending, or let the Fed do something.

    Cutting taxes isn't going to help in this environment. I know that disappoints Republicans, but it just won't. Corporate America is already sitting on over $2 trillion in cash. Reducing taxes is not going to make investing that money in jobs any more enticing than it already is. The tax rate could be zero and that money would still sit there. There simply isn't enough demand to justify rationally investing in expansion.

    Increasing spending to boost demand isn't going to happen either. We tried a stimulus package once, and it got bogged down in stupid ideas (tax cuts), was too small by at least half, and didn't target the money at consumers. It's unlikely Congress, which just fought to the last man to allow itself to pay previous debts, is going to do anything positive on the spending front. Besides, Republicans have a 2012 election to win, and they're not going to fix the economy if it means letting the black guy beat them again.

    That leaves the Fed. They've already cut the interest rates down to almost nothing. There is nowhere to go on that front. We have also tried increasing the money supply. The Federal Reserve has twice engaged in so-called quantitative easing plans, where they essentially print a ton of money. QE1 was approximately $1.7 trillion in new money, while QE2 was maybe $600 billion.

    What was the net effect on the economy of all that new money? Inflation, mostly. Gold went from $750 an ounce to $1,800. Food prices have skyrocketed (I think I paid about $75 for a box of Cap'n Crunch last night). Stocks went up, but only so long as QE was either flowing or about to flow. As soon as the spigot gets turned off, stocks drop...but the inflated prices do not.

    As far as the elites are concerned, this is the only bullet left in their gun. That's why the market has already started to price-in QE3 — or as I like to call it, Gold 5,000. But is there another option left unexplored? I certainly think so. Follow with me on this one.

    Right now, the problem is demand. Consumers are not spending. They are not spending because they don't have any money and credit is not available (would you extend a credit card offer to an unemployed person? Of course not!) But clearly there is enough money in the system, as inflation is rising. The Fed has already injected $2 trillion into the economy (and loaned untold trillions more to banks to make them solvent). So who has the money?
    Corporations! They are sitting on $2 trillion in unspent, liquid assets — the kind of assets that, in normal economic times, would be invested in expansion and hiring. Right now, it is not rational for any one company to step forward and be the first to expand, the first to hire. If his cohorts do not go along and expand/hire as well, the investing company will lose out. Why? Demand won't rise enough to make the investment worthwhile.

    But what if ALL that money could be put to good use? What if we made it rational to spend that money on expansion and hiring, as opposed to having it sit in an account and earn meager interest? What if we made it rational to hire across the board? To invest across the board? To spend on increasing inventory and ramping up production? Wouldn't that stimulate the economy?

    The question becomes, then, how we make it rational for a company to invest when market conditions say not to invest (or at least, don't be the first to invest)? We tax liquid corporate assets.

    If I were President Obama, I would come out the day after Labor Day, right when Congress comes back to work, and introduce a bill to tax idle corporate cash (and cash-like instruments) at a 10% rate. The money from that tax would be diverted directly into the unemployment compensation fund. Ideally, he'd never see one penny from that tax, as employers would now find it extremely rational to go ahead and hire, expand operations, and so forth.

    This would jump-start the economy in a way that no tax cut, no spending bill, and no Federal Reserve smoke and mirrors could. It would have the net effect of negative interest rates for corporations (another plan I'd be more supportive of, if it could work in the United States) without punishing the savings or credit of working Americans.

    Politically, it's a no-brainer. Let the Republicans defend their corporate masters over working Americans in a sinking economy. Let them explain to the American people why a quarter of American males of working age are not only out of work, but out of options. Let them tell the media how corporations deserve a giant bankroll, even if it means the economy is screwed for a generation.

    Be bold, Mr President. This is the last, best chance you have to fix the mess you inherited.


    Source: Benzinga
     
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  2. uscitizen
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    uscitizen Senior Member

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    Why is congress on vacation? Keep em working till they fix things.
    I will bet some of them are playing golf and went to Martha's Vineyard.
     
  3. AquaAthena
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    AquaAthena INTJ/ INFJ

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    ["How to Fix a Sucky Economy in Ten Minutes" [/B]

    Elect Representative Allen West, for president.
     
  4. uscitizen
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    uscitizen Senior Member

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    There is no quick fix for the corner we have taken decades to work ourselves into.
     
  5. AquaAthena
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    AquaAthena INTJ/ INFJ

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    Obama WANTS them on vacation, so he can justify his OWN. He knows how bad that would look if they were back at work and he and the kids were eating ice cream cones, on the shore....:eusa_whistle:
     
    Last edited: Aug 18, 2011
  6. Truthmatters
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    Truthmatters BANNED

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    I think legalizing pot nation wide would help the economy more.
     
  7. flacaltenn
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    flacaltenn USMB Mod Staff Member Gold Supporting Member

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    Sounds like "a" plan.. A truly dictatorial one at that. Until you realize that you've just encouraged corporations to hold NO LIQUID ASSETS.. Which will create a TRULY sucky enviroment if you are a bank, trading company, or small business saving up for expansion. And the chance of that emergency tax ever getting rescinded? Zero of course..
     
  8. editec
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    editec Mr. Forgot-it-All

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    THAT is for damned sure.

    Demand is down because the working classes are going broke.

    The working classes are broke because for the last 40 years we have systematically shipped jobs offshore by granting FREE TRADE benefits to third world nations that we were PAYING OFF for NOT becoming communist nations.

    I'd say these trade policies have cost this nation 30,000,000 decent paying jobs.

    That number represents not just the jobs that actually left this land, but the jobs that never happened here because of our trade policies.


    Add to that the wasteful EMPIRE WARS we've been involved with my entire lifetime, and the insane tax cuts we've given to Billionaires and naturally the national economy and the FEDERAL and STATE BUDGETs are moribund.
     
  9. uscitizen
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    uscitizen Senior Member

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    What politician will get elected for telling the prople the truth?
    that there is no quick fix for our problems....
     
  10. Defiant1
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    Defiant1 Gold Member

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    It's easy. Shut down the EPA, cut the upper tax brackets by 5% and make them permanent, and cut extended unemployment benefits.
     
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