The New Way: An American Renaissance

[originalpckelly]

1. National Debt Amnesty: At the very least, we could let the people who owe the government debt in small amounts (less than $100,000) from all sources and education related debts (of any amount) erase these debts. We could consider it a form of stimulus, and it might lessen the burden so many students are facing these days when they do graduate from college.

We might also establish a government backed fund to pay lenders a percentage of debt they are owed for individuals in small groups who would benefit the most from this. Individuals who are low income are prime targets. Health related debts as well. The companies could choose to pursue collection, or they could go to the government fund to make themselves whole again. This alternative form of stimulus would get money out there, get people free of debt, and back on the road to success in life. It would be a double stimulus, the people who have debt forgiven would be free to go out and live their lives and more of the money they make can go to their expenses, and the companies would also get money which they might not otherwise get without going through a long legal process.

2. Real Banking Reform: We can dramatically improve the our nation's economy by changing the way that banking is done. During the Great Depression, a small group of economists from the University of Chicago developed a plan to eliminate fractional reserve banking from the American banking system. Banks, under their proposal, would no longer loan out their money, but keep all of it. Customers would no longer have to worry about losing their money, without the government having to shoulder massive liability from the WOEFULLY UNDERFUNDED FDIC system. Under this system, banks could act as an agent of a new Federal Monetary Authority to make new loans of inflationary money. To reduce the problems of hyperinflation, we could institute new rules to make sure that beyond checking type accounts, people would have time deposit type accounts. These accounts could offer inflationary interest in exchange for taking a larger amount of money out of circulation for the length of time of the deposit.

These new CDs would allow people to invest for their retirement in a stable reliable way with a predictable interest rate, without having to worry about losing money in the stock market, while at the same time performing the service of reducing liquidity should there be too much inflation.

The main benefit of this system is that we could essentially eliminate foreclosures, because a central bank like their proposed Federal Monetary Authority, could at its choosing allow a debtor to suspend loan payments. This discount rate could be a part or all of the loan payment. If someone is on unemployment, then they could receive an automatic reduction in their loan payment, so that we can help put the unemployment insurance money to good use elsewhere. The mortgage holder would still be on the hook for the loan payment, it would just be deferred. There is no reason we could not do this, because in this new system, the central bank wouldn't have to worry about deriving income from loans to pay its employees or investors.

This new system of "soft default" would also help end the problem of deflation in the housing market, as we would not throw an entire can of gasoline on a fire already burning. We need to end the accelerant nature of traditional default, we can do this and we must.

In addition, we could take a lesson from the negative interest experimented with in the local currency of Wara during the Great Depression. I believe that the main benefit of this local currency, was not necessarily its local nature, but the idea of negative interest. That people would lose money as time went on, forced them to stop hoarding it in my analysis, which stimulated demand. If I have a $1 and 50 Cents tomorrow, I will spend what I have today. This is an extreme example of negative interest, but a less extreme version could be implemented on accounts as an inactivity fee. In other words, if I'm storing up a bunch of money, I should actually be charged a fee (which would act like the negative interest of Wara) and it will cause me to spend what I have today, for fear of losing more money. This hoarding behavior was observed during the Great Recession, as can be see in Federal Reserve data on the amount on money in demand and other accounts at banks.

The problem with money is that it is an inverse relationship with a drop off in demand for goods/services. Its value increases as deflation increases, so this causes people to keep holding on to it. In addition, fear of losing one's job can cause a person to spend less, actually increasing the intensity of the deflationary spiral.

To this end, we must also encourage lending in these deflationary periods. I'm less likely to buy a house today if I fear that the housing market in my area will continue to drop. The Federal Monetary Authority could offer an adjusting principal which would float with the value of the house. This would also act as a brake on the economy during times of excess lending and inflation. If principals adjust upward during this period, people might just be less likely to buy a house. If it adjusts downward during deflation, I'm more likely to just buy the house and not worry about being upside down on my loan.

All of this happens, because changes that occur in the denominator of the price (i.e. price of good/value of dollars of good's price) are inverted in their relationship to numerator changes.

We also need to implement a universally accepted electronic currency. This along with subsidized purchases of new POS devices, would allow business to no longer have to worry about paying fees to service providers, while allowing people to have the convenience of bank cards.

[originalpckelly]

1. Um, yeah.

Self-promoting kick. I know, I'm bad, bite me.