Helping The Economy Without Spending Anything
The recently passed and signed legislation – increasing the debt limit and outlining various complex procedures for future spending reductions – severely limits the federal government’s ability to initiate new spending programs, raise taxes, or take any active role in the economy. The Federal Reserve is also constrained in its ability to address high unemployment because all of its prior monetary expansion programs have not worked as hoped.
Most progressives, liberals, Democrats and some independents and moderates, appear to be very distraught about these new federal limitations with respect to addressing high unemployment and a stagnant – or even a declining – economy. This may not be a major concern for most conservatives, libertarians, Republicans and Tea Party groups because many believe that the private sector will magically come to life with lower federal spending.
It is open for debate whether President Obama and his advisers are concerned more about the unemployed and the overall economy, or whether they are primarily focused on reelection and therefore collecting as many campaign contributions from wealthy individuals and large corporate cartels. The disparity between what the President says and what he does is enormous.
For the foreseeable future, it is highly unlikely that any federal jobs programs – requiring additional spending – will be created. Any infrastructure bank would still need to be funded in part by federal monies which will not be forthcoming. Tax cuts have proven over the past decade – and particularly during the last two years – to be ineffective in stimulating aggregate demand and new hiring. Since the 2008 collapse, the economy has been steadily contracting. Only massive monetary stimulus by the Federal Reserve, plus a large 2009 Stimulus Bill that included tax cuts, federal transfers to states, and spending on a small number of infrastructure projects, kept overall GDP above negative numbers.
FULLY INVESTIGATE & PROSECUTE CRIMINAL ACTS ON WALL STREET
One area that could be pursued without new government deficit spending would be to seriously investigate and prosecute all the actors – individuals and enterprises – that caused the 2008 Financial Debacle, including most of the financial entities on Wall Street. To permit such massive fraud, embezzlement, theft, mismanagement, and major crimes to avoid punishment is a massive insult to the entire Nation. If most Americans feel that the criminals got away with it during the last decade, then their old ideas of social responsibility, following the law, and faith in the integrity of our justice system, were completely misplaced. High crimes will lead to lower crimes across society and a complete disrespect for our public institutions.
Sadly President Obama has done nothing in this regard. Instead he has pursued a policy of letting massive crimes by businesses to be overlooked and swept away. The U.S. Justice Department has been completely missing in this national scandal and affront to the Rule of Law. Unfortunately, there does not appear to be enough interest by most members in Congress to restore any sense of justice, fairness, equity or ethics to government and large businesses – particularly with respect to our corrupt and rapacious financial sector. Americans must accept the sad reality that the rule of law no longer exists in the U.S. and it may never return as a result of our political leaders in Washington DC.
CORPORATE TAX HOLIDAY OR NEW CORPORATE RULES
There may be a new effort on the part of Congress and the Administration to permit the repatriation of foreign income held overseas by large multinational corporations at ridiculously low tax rates levels as was done in 2004. This corporate tax holiday raised federal revenues noticeably but for only a short time. The repatriated money was principally distributed to corporate executives and shareholders and not used for any domestic job creation or investments. Reality destroyed the original arguments in favor of this tax holiday. Replaying this corporate tax holiday now would not be an effective means of economic stimulus but it would please the nation’s oligarchy just at a time when politicians are running for re-election.
It may be worthwhile to again pursue this short corporate tax holiday simply to educate Americans to the fact that global corporations will take advantage of the nation and its citizens for private gain, and not create any new jobs for Americans. Considering the sizeable hold our Oligarchy has on the Federal Government, this will likely be enacted if it so desires.
Congress and the Administration could enact legislation regulating large publicly-traded enterprises with respect to opening up Board governance, requiring corporations to serve the general welfare, increasing shareholder and labor inputs on business decisions, and requiring executive compensation to be linked to a long-term analysis of the company’s performance instead of encouraging short-term accounting tricks to maximize quarterly earnings and bonuses based upon stock prices.
However, these long-needed reforms are highly unlikely since Congress is completely bought by various large corrupt business cartels in speculative banking/finance, energy production, military weaponry and services, healthcare, and agri-business. It has become evident that this President has all the backbone of a chocolate éclair and his actions belie a strong favoritism towards the same business cartels.
PRIVATE SECTOR HAS TOO MUCH DEBT
One major factor that inhibits any type of economic recovery is the need to deleverage the high debt loads carried by individuals, households, and private businesses. The 2008 financial collapse was in large part based upon the bursting of an inflated real estate bubble due to massive Federal deregulation and lack of even minimal regulatory oversight, coupled with greed, speculation and massive fraud by the financial sector. Financial crises require a long period of deleveraging in order to pay off, modify, or simply default on un-payable debts due to the systemic lack of assets and incomes.
The principal reason why American consumers cannot spend more and increase aggregate demand is that they are carrying far too much debt in the form of mortgages, credit cards, medical bills, and student loans. Another major factor is high unemployment and underemployment across the U.S. workforce that has shrunk to its 1999 level despite population growth. The artificially low official unemployment numbers mask the real unemployment rate of nearly 20%. Another 20% of the population is working part-time or in positions far below their educational and experience levels. More than two thirds of American households admit they could not come up with $2500 in cash within a short period of time without selling assets.
Since 2008, it has become glaringly apparent that all Federal efforts to remedy the massive housing bust – along with its millions of foreclosures and massive property devaluations nationwide in both commercial and residential real estate – have been complete failures. The principal goal of the Administration and Congress has been to protect the banking and financial sector from the natural fallout in a free market. Instead they have propped up too big to fail financial institutions, allowed new accounting tricks to hide worthless assets, and continued the “extended and pretend” policies so that the same financial institutions that created this huge recession do not have to take any losses or bear any burdens for their prior frauds, incompetence, greed, mismanagement, and criminal activities. All prior “voluntary” efforts to permit the modification or discharge of mortgages on principle residences have failed miserably for the vast majority of home owners.
In 2011, total student loan obligations now exceed total credit card obligations in America. Millions of students graduate from college and graduate schools deeply in debt. Many adults return to school and also incur large student loans in the hope of improving their skills to obtain new employment. People between the ages of 18 and 25 currently suffer the highest unemployment rates in the U.S. and will likely continue to suffer high unemployment because the US economy is simply not creating enough new jobs to even keep up with population growth. What few jobs are available often pay poorly, are temporary and part-time positions, and most do not come close to providing enough money to cover basic living expenses – yet alone large student loans. Furthermore, student loan debt is not dischargeable in bankruptcy and remains a personal obligation until the person dies.
CHANGE THE BANKRUPTCY CODE
There is one last major policy area in which Congress and the Administration could focus their attention that does not deal with taxes, spending, new government programs and regulations, or anything that will disturb the recent compromise legislation on federal debts and deficits. It would permit individuals, households, and private sector businesses to resolve some of the huge outstanding debts among themselves on a level playing field without any specific governmental interference or mandates. It would require some modest modifications to the US bankruptcy code but he would not increase governmental spending or taxes.
Article I, Section 8, of the U.S. Constitution authorizes Congress (just after the famous “commerce clause”)…to establish…uniform Laws on the subject of Bankruptcies throughout the United States…
The US bankruptcy code has been modified numerous times over the past 200 years. The last major legislative changes were enacted in 2005. As a result of intense lobbying by banks, financial institutions, credit card issuers, and debt collection agencies, a Republican Congress and President George W. Bush enacted a severe set of rules against debtors, consumers, individuals, households and small businesses. The legislation was strongly opposed by many groups representing consumers and by prominent bankruptcy and legal scholars. It became effective at the beginning of 2006 before the bust of 2008 so its highly punitive and complex provisions against debtors, consumers, and households were not immediately felt.
In order to help individuals and households deleverage the massive amounts of un-payable mortgage and student loan debts, the bankruptcy code must be changed accordingly. Making major modifications to the anti-consumer 2005 bankruptcy legislation would probably be too much for our completely partisan, ossified, paralyzed, and dysfunctional political system. However, changing the bankruptcy code to permit existing U.S. bankruptcy courts to modify or discharge first mortgages on primary residences, and to discharge or modify student loan debts would not require many statutory changes. It would require only a handful of pages to write.
TEACHING THE ELECTORATE ABOUT POLITICAL PRIORITIES
From one perspective, this legislation would not touch the tax code nor would it require any new spending. However it is likely that the entire banking and financial cartel would descend upon Washington with its thousands of lobbyists and its millions of dollars in campaign contributions to destroy this type of proposal. At the very least, pursuing and debating these simple, straightforward and extremely beneficial bankruptcy changes would be highly instructive for the general public in the 2012 elections.
If the President turned his focus and energies principally on these two bankruptcy code modifications for the remainder of his first term, he might have a chance of getting both houses of Congress to support these very important and key provisions that would benefit the vast majority of Americans. This policy change would be highly beneficial to most citizens, debtors, consumers, and households across the U.S. and it would significantly improve the overall economy. Unfortunately a very small, powerful, selfish, and wealthy constituency would not be pleased – our Oligarchy and financial sector.
Many people might doubt the President’s negotiating skills, but this would be an opportunity to redeem his reputation, and create a worthwhile national campaign discussion on how the U.S. should proceed after the 2012 elections.
If President Obama does not undertake this no-cost policy change, Americans will quickly realize that his interests are with our corrupt oligarchy and large campaign contributors. If he does support it fully, yet Congress defeats this proposal, it will be equally instructive for the American electorate that their elected officials in Washington DC no longer serve the needs of most Americans or the country as a whole. Instead their principle concerns are reelection and protecting the interests of our corrupt oligarchy which are their largest campaign contributors.
In that the Obama administration and the Congress have significantly limited their options with respect to addressing high unemployment and the stagnant US economy, these bankruptcy law changes would be one of the few options that would significantly improve and speed up the nation’s need to quickly deleverage the massive and unsustainable debt by individuals, households, and small businesses in the private sector. Without reducing the massive private debt that decreases aggregate demand in the US economy, the nation will continue to stagnate or fall into another recession or possible depression within the next two years.
Submitted on August 3, 2011 by Marc Pascal ranting from Phoenix Arizona. (email@example.com)