Joined: 28 Dec 2005
|Posted: Fri Mar 15, 2013 10:59 pm Post subject: 2009: How to Spur Economic Growth - Banks
The U.S. consumer has been the main engine of global economic growth, pulling the rest of the world’s economies.
Along with TARP, to pay for the moral hazard Congress created, there should’ve been a large tax cut to boost demand and the consumption-investment cycle.
I stated in Feb ’09 [the tax cut should've been $5,000 per worker for the 150 million workers at the time or $750 billion]:
1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.
2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.
3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.
I stated in Feb 2009:
“Instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.”
In Feb 2009, GM laid-off about 20% of its domestic workforce – 50,000 people – and a total of 107,000 layoffs in the recession. GM domestic auto sales fell from about 4 million in 2007 to a little more than 2 million in 2009. GM’s cost-cutting still couldn’t make it solvent.
Taxpayers lost roughly $10 billion to $15 billion (depending on the accounting) bailing-out U.S. automakers. If the government bought $20 billion of cars from GM instead (e.g. 1 million $20,000 cars, although GM was best producing SUVs, pick-ups, and luxury cars), there would’ve been much fewer layoffs and taxpayers would have something to show for the bailout.
In WWII, government bought jeeps, tanks, ships, etc., which put Americans to work, although production went to war rather than to consumers.
Or, instead of giving away autos, the government could buy autos and give vouchers to dealerships. So, consumers can buy autos made in the USA at a discount for a limited time.
It could be a one-time event, like WWII (although, there was also WWI).
I stated before, the U.S. economy has been a “Black Hole” in the global economy, not only attracting imports and capital, but also attracting the owners of that capital themselves.
Consequently, the U.S. government has been a Black Hole in the U.S. economy, replacing efficiency with inefficiency.
The U.S. has been offshoring low-end manufacturing, for higher profits and lower prices, and shifting (limited) resources into high-end manufacturing and emerging industries.
Consequently, the U.S. not only leads the world in the Information and Biotech Revolutions (in both revenues and profits), it leads the rest of the world combined.
The only way to move from one economic revolution into the next is through efficiency.
U.S. production would’ve been much stronger if banks, over the past few years, weren’t under attack by the federal government, and given the (future) uncertainty of “too-big-to-fail.”
Congress has done an excellent job shifting blame from itself to financial institutions.
The big loser wasn’t government, because most of TARP was paid back (and all it by the banks).
Many homeowners lost their down payments or equity. However, many homeowners bought homes with no down-payment and many lived in their homes for years without making monthly payments. Moreover, many homeowners refinanced, at lower rates, and took out equity before the crisis.
The big banks were the big losers. They made money and then lost it, and more. Congress has made the big banks even more unpopular than itself.