Fixing The Economy - Plan

[Joshua 0]

This is my new list of ideas for fixing the economy. I am contacting elected officials with it.Housing: 1. No extending term limits during refinancing. A 30 year-loan should stay 30 years, and if 15 years have been paid off, it shouldn?t be bumped back up to 30 years.2. Bailout conditions should be imposed, both on those to be bailed out, and who have been bailed out ? particularly on banks. Think about it ? how do you get to the root of predatory lending? By checking what the top dogs can profit from it. If we set as a bailout condition that companies can?t pay their CEOs more than 300 times the salaries of their average workers, how much incentive would those same CEOs have to cheat honest homeowners out of their cash? Nor will this hinder small businesses, for their CEOs aren?t making enough to be impacted by this. Free Trade:1. Eliminate free trade agreements.2. Institute a tariff to tax imports by 90% of the difference in national minimum wages (assuming the other country?s minimum wage is lower). So since Mexico?s minimum wage is $3.50 (but in pesos) while ours is $6.50 their imports would be taxed $2.70. No, this is not protectionism. It is simply leveling the playing field in one area ? worker wages. There are many reasons for this. First of all, if we do not, the countries who care little about their workers will profit ? and are profiting. China, North Korea, etc. Those countries with low minimum wages and few human rights protections are benefiting via much better trade balances because they attract corporations interested in cheap labor costs. And, thanks to free trade agreements, they can just ship goods around for little expense. Leveling the labor costs like this can be explained to other countries. We are only taxing by 90% to allow them that 10% for transportation costs. Our intent is not to prevent trade, but to ensure the better protection of workers and ability of American companies to compete. Nor will we anger our closest allies ? the few countries in the world with higher minimum wages than ours tend to be Western countries ? and most of them European. Right now, who is profiting from these low minimum wages? The workers in China who get paid $1 an hour? No, the vast bulk of profits are going to the corporations. Not only will such a law protect American jobs, allowing American companies to better compete with their foreign counterparts, but it will provide incentive for countries and companies worldwide to pay and treat their workers better. Iraq:1. Withdraw troops from both Iraq and Afghanistan. Parlay with the United Nations, both to make reparations for our rudeness in excluding them from events in the Middle East, but also to invite them to help in the governing of Iraq and Afghanistan should they ever again be willing. 2. Employ troops with service time left on home soil, and provide government employment opportunities to the rest of the soldiers, as well as programs helping them reintegrate back into society (poss. work programs, support groups, etc.). Due to our weakened economy, returning troops with no jobs will be a further stress on the economy ? which is why we can?t afford to provide them no employment opportunities upon return. We could employ some as border protectors, and others as a kind of additional police force, or create the kind of public improvement work force that Franklin D. Roosevelt used during the Great Depression. At any rate, it will be much more cost effective to employ troops within our own borders, rather than outside them. The days are gone when a war could stimulate the economy. Such happened during WWII because the whole economy had to be involved in the war effort ? men working on huge assembly lines, women sewing uniforms, etc. Now, all that is sourced out to a few corporations whose efficient machines do it all. The military is a huge part of our national budget. A single fighter jet can cost over $1 billion to manufacture. Our deficit after going into Afghanistan ballooned from $3 trillion to now over $10 trillion. It will cost less to quarter troops on home soil. We will not have to worry about transportation costs. War equipment (tanks, planes, guns) costs will be cut. Casualties will of course decrease. And furthermore, the money we are paying soldiers, as well as the money they?ve already been paid for all their service time, will now be back within the country to be spent on our own economy ? rather than overseas.

[Hakkera 0]

That's not a plan for fixing the economy as a whole. That's a plan for fixing the American economy. Still, an interesting post and one I'll pass opinion on. I can't comment on the housing issue with the US, as ours is different, and you may just have the right idea on that one. However, setting a tariff on all foriegn goods is blatant protectionism. Why? you said it yourself, you are 'levelling the playing field'. In other words protecting your countries' workers from other, cheaper sources of labour. Maybe the workers in your contry should accept lower wages due to the recession which will in turn 'level the playing field', just in the opposite direction. Yes, the LEDC countries have cheaper labour costs, accept it. They have a comparative advantage over you in labour. I'm sure the US has a comparative advantage of china in some things, it's just the way it works; we are not all the same. Also as the prices of goods around the world increase - they will due to the high tariff implaced by yourselves and the theory that they will 'pay their workers more' Then the global economy would begin to break down with next to no trade. Other countries would impose tariffs on the US so instead of selling to a global market, US producers will only be selling to a domestic market. This will continue around the globe. How far will it go? Will China get annoyed at this, your damn right it will, in 10 years time will China begin building up military forces unless the situation is averted. Most likely. World War III anyone?As for your take on the 'War on Terror' Pulling soldiers out is a good idea. That war should never have been fought in the first place and I have always maintained that. from an economic point of view, unless the US is getting substantially reduced oil rates - a possibilty- the the war is completely not viable. You are spending billions on something that you are getting no economic gain from at all. Not one cent. The next issue is what to do with your troops when they come back. As you have said if they were left unemployed then it would not be a good thing, they would probably end up sponging off the state or whatever. The only solution to that I could think of is another Kaynesian approach (John Maynard Kaynes was a key advisor to Roosevelt) which is to greatly increase public spending on projects such as schools, dams, and other labour intensive heavy engineering. The only problem with this is funding the projects. Where does the money usually come from? Government Bonds and loans. Then the banks get involved again. That could be damned messy.

[harrison858 0]

I agree with the first post for fixing the American Economy, although we need to also include the rest of the world too. But, maybe if we do fix the American economy, other countries' economies may start to go up too. You never know. There are some things that economists were right about and wrong about, there's no way to predict what will happen next, so I say wait.

[networker 0]

I'd say free trade has definitly hurt Canada.It's taken awaya lot of the base industries such as manufacturing and warehousing.If they aren't here,a lot of the residual gains are lost too.They've all gone down south somewhere.In many ways the Canadian government has forgotten about the people whoactually live here. Great country Canada but the government sucks.Sometimes I think I should go back to England.

[Ash-Bash 0]

I wound agree with fixing America first seeing as they are the home of the banks, I would then suggest too fix the UK as they over rule in the stock markets, A then fix any other countries.

[flashy 0]

Ive got a better ideaEVERYBODY in england, buy 50 items from poundland - thats enough to feed an extra 3 billion pounds. (?3,047,195,600).Or an even better idea - why dont bill gates donate several billion? I reckon each of the top 100 most richest people on the planet should place foward a donation of a billion pounds (or in their currency), its a tiny portion of their pocket, and yet they dont donate anything to the world.Apart from bill cause he donates alot to charity.

[Ash-Bash 0]

flashy a good idea but kinda sucky.But some People can't afford things from Poundland XD.

[Joshua 0]

That's not a plan for fixing the economy as a whole. That's a plan for fixing the American economy. Still, an interesting post and one I'll pass opinion on.

 

I can't comment on the housing issue with the US, as ours is different, and you may just have the right idea on that one.

 

However, setting a tariff on all foriegn goods is blatant protectionism. Why? you said it yourself, you are 'levelling the playing field'. In other words protecting your countries' workers from other, cheaper sources of labour. Maybe the workers in your contry should accept lower wages due to the recession which will in turn 'level the playing field', just in the opposite direction.

 

Yes, the LEDC countries have cheaper labour costs, accept it. They have a comparative advantage over you in labour. I'm sure the US has a comparative advantage of china in some things, it's just the way it works; we are not all the same.

 

Also as the prices of goods around the world increase - they will due to the high tariff implaced by yourselves and the theory that they will 'pay their workers more' Then the global economy would begin to break down with next to no trade.

 

Other countries would impose tariffs on the US so instead of selling to a global market, US producers will only be selling to a domestic market. This will continue around the globe. How far will it go? Will China get annoyed at this, your damn right it will, in 10 years time will China begin building up military forces unless the situation is averted. Most likely. World War III anyone?

Fair enough, and all valid criticisms, but ones I've already thought about - in depth. However, if it is protectionism, who is it protecting? Not just America - but workers worldwide. You see, many of the countries who are trade partners with the U.S. and have drastically lower minimum wages are not European at all - China, Venezuela, the Koreas, Saudi Arabia... In short, countries known for human rights abuses feel few qualms about providing lower minimum wages, since it then attracts more corporations interested in cheap labor, more business.

 

Who does free trade help? The poor workers in China getting 50 cents an hour? What results is lower wages worldwide, so that communist dictatorships who don't protect their people with decent minimum wages are empowered, and the profits go increasingly to companies - not workers. America can defend this policy by pointing out that leaves off 10% of the difference to cover transportation costs between countries, and that those countries with low or no minimum wages ought to be protecting their people better ANYWAY.

 

Who will America anger with such a policy? Its allies? Unlikely. Those few countries with higher minimum wages than America are almost exclusively European.

 

http://forums.xisto.com/no_longer_exists/

 

It is the countries who already dislike America, such as China, Russia, and Venezuela who will dislike this move. Those with whom America has the closest ties are almost overwhelmingly the ones with equivalent minimum wages. And it is those countries, China in particular, who have been most benefiting from disproportionate trade balances with the U.S.A. China is one of the two neck-and-neck trade partners with the U.S., Canada being the other, and is the one taking away manufacturing jobs from both the U.S. and Canada - as another poster just pointed out.

 

This bill could create incentive for other countries to follow America's lead, so that China and other communist countries will treat their workers better, provide minimum wages, and thus their workers will not keep getting paid slave wages.

 

Again, I think China, Russia, and North Korea will be the ones angered by this, whereas European countries if anything, will likely follow suit with their own similar tariffs. It might eliminate trade with those communist countries, but hardly disrupt worldwide trade. And I think it could be argued that China and North Korea are ALREADY dangerous, and ALREADY dislike America.

 

As for your take on the 'War on Terror' Pulling soldiers out is a good idea. That war should never have been fought in the first place and I have always maintained that. from an economic point of view, unless the US is getting substantially reduced oil rates - a possibilty- the the war is completely not viable. You are spending billions on something that you are getting no economic gain from at all. Not one cent.

 

The next issue is what to do with your troops when they come back. As you have said if they were left unemployed then it would not be a good thing, they would probably end up sponging off the state or whatever. The only solution to that I could think of is another Kaynesian approach (John Maynard Kaynes was a key advisor to Roosevelt) which is to greatly increase public spending on projects such as schools, dams, and other labour intensive heavy engineering.

 

The only problem with this is funding the projects. Where does the money usually come from? Government Bonds and loans. Then the banks get involved again. That could be damned messy.

Agreed. Many of the soldiers would likely have to be involved in a massive public works program. I'd imagine some could be used as support for the national guard, or even police/border reserves.

 

However, it won't be as difficult to fund as you'd think. You see, we're ALREADY spending 600 billion for the military, and only 130 billion of that is on the actual soldiers. The rest goes to procurement of military services, building equipment, etc. We're ALREADY paying them, we'd just be paying them now to be inside our country, instead of out of iit, and to actually work on our own economy - rather than economies overseas.

 

http://forums.xisto.com/no_longer_exists/

 

Actually exiting those countries will mean we spend less, since we don't have to buy the military equipment anymore (and what we have built can be stocked away), don't have to transport soldiers and goods around the world, don't have to quarter soldiers in foreign countries, etc. Plus, the money the soldiers earn and have been earning for their time in those middle eastern countries can now be put into our economy! And, since they'd stay employed, and thus not a drain on the work force, that could prove a huge, and vital, boost to our economy.

 

In short, we'd be paying them what we're paying them already, but to stay in our country and use the money they've already been paid to help get our economy back on track! And as much as the public works stuff might cost, it would most certainly still be cheaper than the hundreds of billions of dollars spent on military non-payroll stuff. In fact, that glut of homes on the market which is driving down home prices? Some of the returning soldiers might even buy some of those homes and help fix that problem...

Edited February 6, 2009 by Joshua (see edit history)

[Veradesigns 0]

sorry for my English but *bleep Bush shouldn't of took troops to Iraq in the first place we wouldn't be in this mess.

[Joshua 0]

sorry for my English but *bleep Bush shouldn't of took troops to Iraq in the first place we wouldn't be in this mess.

And as one of those who voted against him in 2004, how much do you think we, the American people, could do about it? There were mass protests in the U.S. against the war.

https://www.serve.com/nukeresister/135daybyday.html

[flashy 0]

Blame Gordan Brown - it started going like this as soon as he became prime ministerEven though it may not be his fault, everything is laid into his hands and he should be telling us what to do.Why cant the banks just post a huge cheque? "And here is ?9999999999999" - problem solved!

[Ash-Bash 0]

Yeh Golden brown has caused this we must go to number 10 and *($($*&$& Him!

[EchoTang 0]

No government would even consider such policies/measures in place because governments are heavily HEAVILY influenced and basically run for the interest of big businesses and not for the people as you may think.JFK was lobbying against the greedy bankers of America and was assassinated because of it. You think any future presidents will try meddle with their interests again?

[Quatrux 4]

Well, I just wanted to add an article I read some time ago, but in different language, I seem to find it on google on English too, it's a conspiricy article, but in some way it explains some facts about the crisis, I will quote it here:

Shah Gilani writes: Are you shell-shocked? Are you wondering what's really going on in the market? The truth is probably more frightening than even your worst fears. And yet, you won't hear about it anywhere else because “they” can't tell you. “They” are the U.S. Federal Reserve and the U.S. Treasury Department, and they can't tell you what's really going on because there's nothing they can do about it, except what they've been trying to do – add liquidity.


At the exchange rate yesterday (Wednesday), 35 trillion British Pounds was equivalent to U.S. $62 trillion (hence, the 35 trillion Pound gorilla). According to the International Swaps and Derivatives Association , $62 trillion is the notional value of credit default swaps (CDS) out there, somewhere, in the market.

This isn't the first time Money Morning has warned readers about the dangers of credit default swaps. And it won't be the last.
The Genesis of a Derivative Boom

In the mid-1980s, upon arriving in New York from Chicago with an extensive background trading options and futures (the original derivatives), I was offered a job at what was then Citicorp [today's Citigroup Inc. ( C )]. The offer was for an entry-level post in the bank's brand new OTC (over-the-counter, meaning not exchange traded) swaps and derivatives group. When I asked what the economic purpose of swaps was, the answer came back: “To make money for the bank.”

I declined the position.

It used to be that regulators and legislators demanded theoretical, empirical, and quantitative measures of the efficacy of new tradable instruments being proposed by exchanges. What is their purpose? How will they benefit the capital markets and the economy? And, what safeguards will accompany their introduction?

Not any more. In the early 1990s, in order to hedge their loan risks, J. P. Morgan & Co. [now JPMorgan Chase & Co. ( JPM )] bankers devised credit default swaps.

A credit default swap is, essentially, an insurance contract between a protection buyer and a protection seller covering a corporation's, or sovereign's (the “referenced entity”), specific bond or loan. A protection buyer pays an upfront amount and yearly premiums to the protection seller to cover any loss on the face amount of the referenced bond or loan.
Typically, the insurance is for five years.

Credit default swaps are bilateral contracts, meaning they are private contracts between two parties. CDSs are subject only to the collateral and margin agreed to by contract. They are traded over-the-counter, usually by telephone. They are subject to re-sale to another party willing to enter into another contract. Most frighteningly, credit default swaps are subject to “ counterparty risk .”

If the party providing the insurance protection – once it has collected its upfront payment and premiums – doesn't have the money to pay the insured buyer in the case of a default event affecting the referenced bond or loan (think hedge funds), or if the “insurer” goes bankrupt ( Bear Stearns was almost there, and American International Group Inc. ( AIG ) was almost there) the buyer is not covered – period. The premium payments are gone, as is the insurance against default.

Credit default swaps are not standardized instruments. In fact, they technically aren't true securities in the classic sense of the word in that they're not transparent, aren't traded on any exchange, aren't subject to present securities laws, and aren't regulated. They are, however, at risk – all $62 trillion (the best guess by the ISDA) of them.

Fundamentally, this kind of derivative serves a real purpose – as a hedging device. The actual holders, or creditors, of outstanding corporate or sovereign loans and bonds might seek insurance to guarantee that the debts they are owed are repaid. That's the economic purpose of insurance.

What happened, however, is that risk speculators who wanted exposure to certain asset classes, various bonds and loans, or security pools such as residential and commercial mortgage-backed securities (yes, those same subprime mortgage-backed securities that you've been reading about), but didn't actually own the underlying credits, now had a means by which to speculate on them.

If you think XYZ Corp. is in trouble, and won't be able to pay back its bondholders, you can speculate by buying, and paying premiums for, credit default swaps on their bonds, which will pay you the full face amount of the bonds if they do actually default. If, on the other hand, you think that XYZ Corp. is doing just fine, and its bonds are as good as gold, you can offer insurance to a fellow speculator, who holds the opinion opposite yours. That means you'd essentially be speculating that the bonds would not default. You're hoping that you'll collect, and keep, all the premiums, and never have to pay off on the insurance. It's pure speculation.

Credit default swaps are not unlike me being able to insure your house, not with you, but with someone else entirely not connected to your house, so that if your house is washed away in the next hurricane I get paid its value. I'm speculating on an event. I'm making a bet.

The bad news is that there are even worse bets out there. There are credit default swaps written on subprime mortgage securities. It's bad enough that these subprime mortgage pools that banks, investment banks, insurance companies, hedge funds and others bought were over-rated and ended up falling precipitously in value as foreclosures mounted on the underlying mortgages in the pools.

What's even worse, however, is that speculators sold and bought trillions of dollars of insurance that these pools would, or wouldn't, default! The sellers of this insurance (AIG is one example) are getting killed as defaults continue to rise with no end in sight.

And this is only where the story begins.
The Ticking Time Bomb



What is happening in both the stock and credit markets is a direct result of what's playing out in the CDS market. The Fed could not let Bear Stearns enter bankruptcy because – and only because – the trillions of dollars of credit default swaps on its books would be wiped out. All the banks and institutions that had insurance written by Bear would not be able to say that they were insured or hedged anymore and they would have to write-down billions and billions of dollars in losses that they've been carrying at higher values because they could say that they were insured for those losses.

The counterparty risk that all Bear's trading partners were exposed to was so far and wide, and so deep, that if Bear was to enter bankruptcy it would take years to sort out the risk and losses. That was an untenable option.

The Fed had to bail out Bear Stearns.

The same thing has just happened to AIG . Make no mistake about it, there's nothing wrong with AIG's insurance subsidiaries – absolutely nothing. In fact, the Fed just made the best trade in its history by bailing AIG out and getting equity, warrants and charging the insurance giant seven points over the benchmark London Interbank Offered Rate (LIBOR) on that $85 billion loan!

What happened to AIG is simple: AIG got greedy. AIG, as of June 30, had written $441 billion worth of swaps on corporate bonds, and worse, mortgage-backed securities. As the value of these insured-referenced entities fell, AIG had massive write-downs and additionally had to post more collateral. And when its ratings were downgraded on Monday evening, the company had to post even more collateral, which it didn't have.

In short, what happened in one small AIG corporate subsidiary blew apart the largest insurance company in the world.

But there's more – a lot more. These instruments are causing many of the massive write-downs at banks, investment banks and insurance companies. Knowing what all this means for hedge funds, the credit markets and the stock market is the key to understanding where this might end and how.

The rest of the story will be illuminated in the next two installments. Next up: An examination of the AIG collapse, followed by a look at how bad things could get, and what we can do to fix the problem at hand. So stay tuned.

original source: http://www.marketoracle.co.uk/Article6335.html

[Ash-Bash 0]

It is Golden browns fault thow, This all started after he took over even Tony Blair was better than this, And least he kept jobs and money coming in for families.