Paul Craig Roberts: ' A compassionate government would handle the economic crisis in this way:'

[seafan]

Another Real Estate Crisis is About to Hit

By PAUL CRAIG ROBERTS
January 22, 2009

.....

The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.

.....

A compassionate government would handle the crisis in this way:

The trillions of dollars in credit default swaps (CDS) should be declared null and void. These “swaps” are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.

The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.

The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.

Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.

To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.

The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.


This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.

This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.

I am no economist, but this is along the lines of what I would do:


1. Get out of Iraq and Afghanistan, and cut the gargantuan Defense budget. Steer this money into rebuilding our infrastructure.

2. Start manufacturing in America again. This would revive our labor force and domestic use of our raw materials.

3. Impose heavy tax penalties on American companies that headquarter offshore and also when they try to re-import their foreign-made goods to sell back to Americans.

4. Rescind Bush's tax cuts for the wealthy.

5. Raise wages.

6. Halt the flow of TARP money to banking institutions, and instead, steer it into home mortgage refinancing for people in default.

7. Extend Medicare for all.



If people can keep their homes, have jobs that pay a living wage, have guaranteed health care, and our President and Pentagon aren't running around with imperialistic wars in mind, we will have the prescription for economic recovery.

[cliffordu]

1. That's EXACTLY what I'd like to see happen. K&R.

[ayeshahaqqiqa]

2. This makes sense

I hope it happens. Only thing I would change is to make Medicare more open as to what they deem "treatment". There are certain treatment protocols that have been shown to have medical value that Medicare still won't acknowledge and won't pay.

[tbyg52]

3. Sounds like a plan to me. nt

[Why Syzygy]

4. . Marking to read more later .. thx! nt

[Hawkowl]

5. Don't raise interest rates

The economy couldn't handle an increase in the interest rates right now. That's the only thing I disagree with. He may not realize it but arguing for an interest rate hike IS supply side economics. Interest rate hikes should only be used to stop hyper inflation.

Everything else sounds good but the implementation is tricky. Once all credit swaps are declared void, nationalization of the banking system on a global second is inevitable because all large banks would be insolvent. Indeed, it would be better to nationalize first, wipe all the fake assets out second, and then shatter the banking system into hundreds of small banks. (Re-privatization would have to be in the medium term future). Never again should a private bank be allowed to grow so large as to threaten the national economy.

[.... callchet ....]

6. Close but no cigar

You left out a massive progressive tax increase on the above $250k.
Your moderate programs will not let the USA work it's way out of this mess.

[.... callchet ....]

7. The reason the jobs left the USA

was cheaper labor. Raising wages here will make it impossible to compete overseas unless we have a massive tax increase to subsidize our labor

[Generic Brad]

8. Just curious - how do we raise wages?

As much as I would like to see wages raised across the board, how do we make that happen? The owning class is not going to do it unless they are forced by the government to redistribute their wealth. Is that what you are suggesting?

[seafan]

12. If employers no longer are responsible for health insurance benefits, wages can increase.

If wages are increased, employees tend to be retained longer. Less turnover means less hiring and training expenses for employers.

The government providing universal single payer health care would have a direct effect on improving wages of employees in that it frees up employers from having to provide health insurance benefits (that are nontransferable to the next job anyway...).


Just so there is no confusion, I am referring to universal single payer health care and NOT 'health insurance'.


Taking the profit motive out of health care has all kinds of nice effects for regular people.

[Generic Brad]

13. Thanks for the clarification

[mrreowwr_kittty]

15. I'm totally for single payer health care but I'm not sure that it would raise wages.

If employers know that people will work for X salary, what incentive do they have to pass along the savings from not having to pay insurance to them?

[mrreowwr_kittty]

14. Tariffs for imported goods and a living - not minimum - wage for people who work here. nt

[HamdenRice]

16. The fastest most durable way of raising wages is unionization

That was certainly the consensus from the 40s to the 70s -- you need big labor to negotiate with big business. And it worked. We should also encourage this globally so that unionized American workers are not at a competitive disadvantage.

[Joe Chi Minh]

9. In this case, compassion is matched by practicality .

[Bigmack]

10. I like this, especially YOUR last 7 items, but

I keep wondering hoe we "bail out" banks OR mortgage holders, with out propping up the housing bubble of VASTLY inflated housing prices? Ms Bigmack

[Bigmack]

11. Damn,,, hoe should be "how"!!!!!

[katty]

17. thanks yet again PCR

[bstender]

18. wow, that was dumb

The article is laughable.

1. CDO's are gambling in one way of looking at it, but most people look at it as "insurance". Though declaring them null and void is hilariously stupid, they are going to collapse under their own weight anyway, so it is practically mute.

2. "The bailout money... should be used to refinance the defaulting mortgages" this guy is really shooting from the hip. the amount of money needed to refinance these overpriced homes is not even close to sufficient. (were such a thing legally feasible or fair or even desireable)

3. "Mark to market" has effectively been suspended, but it is to the detriment of the marketplace attempting to right itself. (good for bankers though! of course) and his reason for allowing the banks to lie about their assets is so that they can pretend to be solvent...hello, what do you think they have been doing??? this guy is a hoot.

4."Interest rates have to be raised in order to encourage saving" this much is absolutely true. it is our only hope. but to finance elderly people? nice sentiment, but weird

5. of course

6. "The trade deficit can be significantly reduced by bringing offshored jobs back to America." sure, but by taxation? like throwing gasoline on the fire. why not just ban people from buying cheap foreign stuff? <sarcasm> offshore stuff is CHEAP, its that simple. how did WalMart get so big? CHEAP STUFF. basically, there aint much you can do about that fact until youre willing to work for $2 a day and/or give up having stuff. the US has consumed itself into a corner, the deficit goes down when we quit consuming on a massive scale and start working extra hard and saving. ask any entrepreneur how it is done. we could do that, but it looks like we are instead demanding that the Federal Govt. to do some magic math and make it all better.