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I am much more concerned with the legislative gridlock than I am afraid of the results of any Congressional agreement.
The US Congress, however, needs a housecleaning… Either the President or the People need to insist that there needs to be forceful deadlines that have some teeth. If a ‘super committee’ cannot come to an agreement, then they should not be allowed to continue in Congress. We have moved for term limits, let’s go for expulsion or for a penalty censures committee members with a black mark that *ends* their political career.
The pain of legislative failure must outweigh the political reward of legislative failure… At this point I am more afraid of ‘no decision’ than I am of any compromise between them… If they cannot agree, fire them all and start again…
…as for the President’s suggestions last evening… I listened carefully and found nothing that will (in my humble opinion) be effective. This criticism is not just with the President’s proposals, it is with *everybody’s* proposals
- he kept talking about how different government actions would put money back into the peoples pockets (except for the Warren Buffetts of the world)…. and that is not really the problem. Having the money *in* their pockets does not solve the economies problems… it needs to be *spent*, and spent quickly
- in the economic universe there are a few “laws”… one is the “quantity theory of money” which reads: M * V = P * Q
- …or the supply of Money (actual dollars and demand deposits…) times the quickness that the money changes hands (Velocity) [this is the demand side of the monetary equation: let’s say that the money supply is $1,000 and everybody spends their share of it roughly every three days for a velocity of 100 times per year… you now have the purchasing power of $100,000]
- = the Price of goods and services times the Quantity of goods and services [this is the supply of dollar denominated stuff available to buy… let’s say we have 50 houses at $2,000 each which equals the $100,000 worth of goods in our little economy… everything is in equilibrium]
- now comes the crisis and everybody (even rich people and working families) get spooked in a bad or uncertain economy… they postpone buying anything discretionary and those who are in fear of their jobs stop all spending and just hold onto their money… The ‘V’ in the equation drops from 100 to, say, 35… NOW we only have 35 * $1,000 or $35,000 chasing those $100,000 worth of houses, so the price of the same number of houses falls fast and far (that is where we are today… too many houses being chased by too few dollars)… the new equilibrium is $35,000/50 houses = $700/house down from the original $2,000 (ouch!)…
- What the stimulus programs have done so far is add to the Money supply, have done *nothing* to improve the Velocity, little to the Price of housing, and nothing to the Quantity of houses (which nobody is building, so it is actually decreasing)… so now the supply of Money is $1250 times 35 = ?? * 45… so now the price of a house is $972… we are in a classic deflationary spiral (why buy a house today when it will be less expensive in 2 months?) [computers have been in this deflationary spiral because the power and features keep improving even if the price remains the same… like getting a bigger house for the same money if you just wait a few months]… *and* both the methods created by the stimulus are inherently “inflationary” [not bad if you can control it]… and they still don’t fix the problem
- with lots more Money in the economy, if the Velocity comes back, then the economy quickly becomes overheated (too much money chasing the same amount of goods) and the problem with too much money is that you cannot take the money *out* of the economy nearly as easily as you put it *into* the economy [you have to sell bonds… only now there is a substantial inflation premium]
- and all these “shovel ready infrastructure repair projects” do not increase the actual ‘output’ of the country so even though there are more people with more money, they are still chasing the same number of houses as before (it is the same effect if you give everybody a 10% raise without any increase in output, now everything costs (surprisingly) 10% more… only here, with our government, that 10% ‘raise’ does not go to you, rather it extends unemployment or refinishes a bridge, so, surprise, if you have the same pay, your pay now buys 10% *less*…
- two alternatives to really fix the economy:
- you need to entice everybody with money in their pockets to spend it NOW, not later… in the retail business this is called a ‘sale’ and there needs to be real value associated with the ‘buy it now’ value proposition. Recently, I made one policy/economic suggestion where everybody could fully depreciate anything bought in 2011 and 2012 in the year that it was purchased (just like expensing your car or business building)… Here is the link to that suggestion…
- Something like this will increase the velocity, spend some of the money that is ‘sitting on the sidelines,’ reward successful businesses, hopefully get some additional people hired *and* add some output to the economy (more cars, houses…) so that when Velocity does increase, the economy will already have some additional Q in the economy to keep prices somewhat in check… something like $1200 * 90 = ?? * 55 … now houses have risen back to $1963 each, prices are on the rise, Velocity is almost back to where it was (some of us think that it never will go back to where it was), the housing market is growing and stable…
- …but nothing mentioned last night addresses velocity, and unless (perish the thought) we have an event like WWII, we will have the same lethargic non-recovery that the US had during the entire *decade* of the 1930s…
- The only person in government that fully understands this is our Fed Chairman, and he does not seem to be saying much…
- Net, net, I don’t like anybody’s proposals right now.
- Can your mind wrap itself around the ‘quantity theory of money?’ This *will* be on the test!!
What did you think of all the proposals? J
Personally, I believe that the interest difference between AAA and AA+… is due to Congress’ malfeasance. I suggest we take the difference out of their pay for as long as it takes [let’s see… $100 billion / (535 Congressmen/women * $200K/year) = 935 years]… that means we will have a volunteer congress til almost the 31st century… Maybe we should ‘clawback’ their pensions too… that’s a good start. Let’s let them feel the pain resulting from their fiddling.
Posturing and rhetoric no longer have a place at the legislative budget negotiations. The time has come where our representatives’ personal pain of no agreement needs to be greater than their pain of pissing some people off.
I suggest jail time, say 30 days in stripes for all of our representatives, including the President, for ‘economic malfeasance’ or, more generally ‘legislative malfeasance’ if there is no agreement by 11:59pm Sunday, July 24th, 90 days if no agreement by the end of the 26th, 180 days for failure by the 27th… you get my drift… Let them spend their campaign and vacation time behind bars for the next few years hobnobbing with people who cannot vote (felons). They wanted this job, let them perform or face hard time. The message needs to be “find a timely agreement or go to prison.” There is a point where brinkmanship is distinctly unpatriotic. Now is that point.
The question is how to trigger such a painful measure to get to a solution, and for what reasons. I would suggest that there needs to be some judgement about what would constitute a critical legislative event and a critical timetable. Federal Government has known for months about the debt ceiling and about August 2, 2011. I would suggest that the Federal Reserve could select the topic and trigger the countdown. Another option would be that the President could initiate the action, and a third option would be the Judicial Branch could arbitrate the solution. We have ‘checks a balances…’ let’s use them.
As much as there are pockets of representatives holding specific ideological perspectives, everybody needs to be ‘encouraged’ to come to the middle. I profess some rather unpopular opinions about government and its role, but there are times when all ideology must take a back seat to the welfare of the whole… the greater good. This ‘back seat’ is called compromise. Not moving toward the middle is a legislative form of blackmail… and right now there is no place for this legislative blackmail.
There is precedent for this kind of action. In the working world, if Labor and Management cannot come to an agreement where a strike would cripple the Nation, then the President can call for a “90 day cooling off period.” Well, this suggestion places those 90 days for cooling off be *after* the crisis solution, not before. We need the belligerents at the negotiating table, working toward a solution. We need the clock to be their worst enemy… more than a block of ‘no compromise’ caucus members. We need cooperation to have a chance to prevail over our adversarial form of government.
Our legislative process has succeeded in finding solutions to difficult issues in the past, but it has also failed (slavery comes to mind… and more recently both immigration and energy policy). I want to take ‘failure’ off the table.
I am reminded of a old business saying: “The beatings will continue until moral improves…” OK, you suggest something better to ‘get to Yes’ on difficult legislation.
Citizens, it is time to let the belligerents know that there is one thing worse than compromise… and that is not to compromise… and to that end we will lock your sorry ass up with real criminals if you do not get the message. What is it about ‘come to an agreement in a timely manner’ that you don’t understand?
The Debt Ceiling resolution is being poorly handled… If the public would just demand a ‘conclave’ (yep, like the Catholic Church does to select a new Pope), the Country would have a solution to our budget crisis in hours! Lock them in an un-airconditioned closet with no rest rooms, a couple of cots and feed them old dry sandwiches and water. Instruct them that they will be released only when they slide a bill with all their signatures at the bottom that can be presented to both House and Senate. Give them their freedom til an affirmative vote is taken and the President signs the damn thing… If that doesn’t happen, then lock them up again and continue the process til they get it right. I’m guessing that if the sandwiches don’t get to them, the lack of press attention will.
I like this ‘conclave’ idea for two reasons:
- It keeps all the players from talking to the press while the negotiations are in process
- It forces all the players to stop talking to their constituencies and start the process of compromise