Stimulate, not simulate.

A means of economic stimulus that does not rely on decades of public debt and would provide the needed market and economic stabilization required would contain the following:

 

1) An executive order freezing all mortgage foreclosures for 180 days. This would apply to all federally backed mortgages. Fannie,Freddie,VA, etc.. Such an executive order would be allowed under the auspices of national security for two reasons, the massive number of foreclosures currently on the books is a clear and present danger to our economy by virtue of the public guarantee’s and the huge debt that will be added if they continue. Secondly, millions of suddenly homeless, and the empty structures caused by the evictions, are both unacceptable risks to life and a huge unfunded burden on the law enforcement and emergency services needed to secure and protect both the human elements and the vacated structures.

2) All federally backed mortgages would immediately be converted to fixed rate standard contract mortgages. This would end the ARM and balloon lunacy that is exacerbating the problem. This could be done by executive order, also under the national security banner. Such an order would most likely not stand a court challenge, but the interim relief would be of great benefit in mitigating the ripple effect we see in housing now. While the order is winding its way through the courts, congress would have time to address the problem appropriately and draft law that would back the order.

3} An immediate freeze on all federal entitlement spending. This means no new monies appropriated for increases in entitlement programs. All budgets stay as is for a period of at least three years. Cuts where appropriate would help, but using local service businesses to do the work instead of federal employees would be better.

 

4) Scrap the TARP. Its original purpose may have slowed things a bit but it is too late now. That genie is out of its bottle. 700 billion was never going to solve a 600 trillion dollar problem. The CDO and derivative farce that caused this meltdown are an economically insurmountable problem. The fraud committed by the big banks on the market and the world are now no more than fancy toilet paper. They have no value on their own and the taxpayer has no dog in that fight. Perp walks for Wall street and the regulators that allowed this debacle to fester are the best we can hope for. The CDO and derivatives cannot be salvaged by anything less than the bankruptcy of the United States. As a nation, we should not even try. The fraud was committed by Wall Street and D.C., not Main Street and Joe the Plumber. The affect on the remaining banks would be harsh, but they did this to themselves and they, not the taxpayer, should pay the piper. Dissolving the mark to market rule would mitigate the situation somewhat,but hard times are upon us all thanks to the few.

5) The currently offered stimulus plan is a bogus attempt at increasing government spending under the guise of helping the economy. Don’t buy the lie. New computers at the State Dept. will do nothing for New Mexico car dealers or Florida orange growers. While I am generally against federal make-work programs, the example of TVA and even the federal highway program are definitely worth revisiting. There can be no doubt that our roads,bridges, schools and other necessary cross state infrastructure are in dire need of repair and upgrading. 30 billion is ludicrously ineffective at dealing with the situation though. That is less than 3/4billion per state (though we all know the goal was to address only those states whose votes were needed to pass the federal boondoggle), we rubes of the flyover states were to be left out.

My suggestion:

85 billion to revamp the highway system nationwide.

10 billion to increase public rail systems

25 billion to modernize rural school systems

15 billion to modernize city school systems( two programs to deal with two separate logistical situations)

20 billion to deal with the federal and state prison systems.

10 billion to deal with coastal infrastructure (seawalls,breaks,levies, etc.. Katrina has shown that the cost of doing nothing is far higher)

15 billion to build and operate advanced technical and trade schools for five years. After that they become self sustaining. Two reasons here, first, we need the techs and trades people to stop the influx of these skills from overseas. Second, lets face it, our schools suck. They graduate idiots whose goals are to sell dope and rot their brains in front of the boob tube. A decent school close enough to get to, may get some off their duff and into a useful role.

15 billion to modernize power transmission and develop alternative sources of power in differing regions. This burden should be shared with the companies that are already working on the problem of energy. The taxpayer should only be asked to help advance the work, not do it all and give it away.

Drop the capital gains tax to a flat 10% for five years. That would bring back a lot of investment dollars into the economy quickly.

Flat line the income tax system. 15% across the board for five years. There is little benefit to shelling out billions just to take back a third.

The cumulative effect of such a more geographically widespread infrastructure program has two primary goals. Rapid materials and manpower mobilization and diverse skill set requirements.My suggestion would employ not only the traditional “hardhat” tradesmen typically associated with large scale building programs, but modern construction is heavily dependent on such broad based businesses that the effect would be far wider than most realize. Modern commercial construction requires accountants, insurers,truckers,steel manufacturers,lumber companies,safety equipment and personnel,vehicles,heavy equipment,fuel,tires,inspectors,payroll companies,benefit administration companies,estimators,the list is almost as diverse as the landscape.

Notice that my suggestion is expensive, just not as expensive as the one currently offered. Also notice that my plan gives the taxpayer a lasting asset for their investment. Yes, my plan is almost entirely a federal building program, however, there is no other way for government to directly affect broad based economic activity. Sure, the tax moratoriums will have some stimulative effect in the short term, but they leave nothing behind it for posterity. If we are going to try to stem a coming depression, we should at least give it a real attempt.

 

Good Luck and God Bless

Zane Howe, CIO, TNTrader Group