January 11, 2008

Stop me if you've heard this one before...

The recession is close... yeah, we knew that. We've known it for more than a year and frankly are a little shocked at how long it's taken to play out. So what's there to do?

If you're President George Bush, you cut taxes. Again. Because it's worked so well the last few times.

During the 'massive expansion' Bush LOVES to talk about, wage growth was minimal to non-existent. Inflation is up dramatically when you consider food and energy prices. Employment has been lousy and only rarely reaching even static employment levels (the level at which new jobs are available to those entering the workforce at age 18). The economy, for the vast majority of Americans, has not been good.Let's look at what should be done, shall we?

  • Foreclosures are at a high level and climbing. Tax cuts won't help that because it's an amortization and income issue. Most middle class people who are in this mess aren't in it because their taxes are too high. They're in it because the didn't have chair to sit in when the music stopped. They bought too much house with too little income and a sweet note that let them make small payments. They were counting on the house to appreciate and bail out by selling some other schmuck. They got caught. These folks, you can't really help. Fortunately, they're mostly limited to CA. The rest of the problem can be dealt with by dramatically expanding FHA guides under the Secure program and giving lenders liability waivers so they'll make the loans. That'll get America's massive origination market into high gear and will start to stabilize home prices. A tax cut won't do any of this. An extra $500/year isn't going to help someone in a $300k mortgage who's already 2 months behind.
  • New program to subsidize conversion of land in the south to sugarcane production through an ag credit that can be used to offset state taxes. Then force the oil companies to refine and get the newly produced cane ethanol to market, enough with the corn people. Tell the oil companies the government will leave their tax cut in place for one year if they do it. If not, the government should end it and seize assets for immediate payment. Then use the money to build refineries which can be sold off over time. You'll also have to nationalize the distribution network, either through control or paying the distributors... hell, tax dollars helped build most of the pipelines in this country, anyway. That'll bring down the cost of gasoline at the pump and give consumers some ease. Plus, it'll help our MASSIVE TRADE DEFICIT which is causing the dollar to devalue, driving oil prices up
  • Which brings me to the tax cuts from 01 and 03... kill them. ALL. In fact, institute an 80% tax on all capital gains realized in less than a year, then graduate it down to 20% over four years. Until you put the brakes on speculation, the markets will continue to be an unstable mess and real investors will be terrified of it.

    This will also stem the outflow of capital from the US and stabilize the dollar. A little known fact is that the 'rich', who've been given so much by the Republicans, have been diversifying their assets by buying non-dollar denominated securities. That tax cut that was supposed to generate jobs and massive growth (that never really materialized) generated money that actually went to buy eurobonds denominated in anything but dollars.

  • Take the increase in tax income and use it, half and half, to create a non-US invested SSN fund. Appoint people to run it, nominated by the Federal Reserve and approved by the Senate. We have to diversify SSN out of federal debt and IOU's. With the increase in tax revenues and a surplus in the federal budget, the dollar will begin to climb making it relatively cheap to buy non-dollar assets and it'll stabilize SSN well into the future without some kind of insane privatization scheme.

    The remainder of the money should be used for a massive infrastructure investment program covering schools and roads. This will create a boom in the economy, further enrich and stabilize the middle class and fix what desperately needs to be fixed, our schools and roads.

  • Some of you will no doubt think this a little radical, however it's all market based and set to privatize. What's more, it fills in where private enterprise isn't... in risky, long term ventures. As for starving out speculation by taxing the hell out of it, if you can't see the benefit of that as a price stabilizing move then you're really stupid. Seriously, go sit over there and be by yourself.

    A tax cut, George, ain't gonna cut it. The solution needs to be big, bold and actually fix the massive and looming problems we collectively face. A tax cut, in this environment, is like cutting off one's hand in and effort to stop a flesh wound from bleeding.

    It works because eventually the patient bleeds-out and dies. Maybe that IS what President Bush would like to see happen.

    These are both good plans, but they could use more money and more narrow targeting, not to mention addressing the deficit. As for the 'mortgage help', just allow people to refinance into FHA. You'll make the bond holders whole AND get these people into a mortgage they can afford. You'll actually fix the problem, rather than bandaiding it and the best part is it doesn't soak taxpayers since FHA pays for itself.

    Posted by mcblogger at January 11, 2008 01:00 PM

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