Obamanomics – “We the People” can solve this crisis better than any bailedout CEO
Given the reaction of businesses and households to the recent Government intervention plans, I’ve rethought the next approach. There are three options for bailout money; give to businesses, give to households or give to State governments. The next question is which businesses, households or States should receive these funds. What if we gave the American public the power to determine what companies deserves money through regular mall purchases. The power of the households at the cash register is more powerful than any ballot box.
Our problems stretch across so many industries because of the rapid business 
growth. Businesses are currently bigger than U.S. households can support with cash or credit. As long as households were spending beyond their cash holding, due to increasing property values, businesses grew. Now if the government supports the current business model of over heated overhead to stave off layoffs, we will not fix the problem, just delay the inevitable shrinkage. Especially given the fact that the American people need to take a financial management course that emphasizes the killing only what you can eat and saving a strong nest-egg.
People are not spending money due to fear of lay offs, hence the consumer sentiment index is lower than it has been in its 41 year history. Unlike Reaganomics of the 1980′s, which gave concessions to the wealthy and businesses in order to give them a greater ability to provide jobs, Obamanomics is a term created by political pundits that places the concessions with the majority of the American middle class. Instead of top down politics, Obamanomics contemplates a bottom up approach where the vast majority of Americans are empowered to create their own opportunity as opposed to waiting on the slave owners to have money left over from yacht and personal jet purchases to throw us a bone. $400 billion should go directly to households…
What if President Obama solidified Obamanomics into an ideology by making policy that allows businesses to collapse or shrink if households do not value the excess of products and services they attempt to brain wash us into believing we need. Through our vote at the cash register we the people may hold the power. So we should coordinate a campaign to notify the people to be diligent with their spending dollar and not fret the loss of income, as $400 billion dollars will be used as an unemployment insurance supplement for anyone who loses their job due to layoff (not firing or quitting). The government will pay them additional funds over and above normal unemployment insurance to equal a total of 80% of what their average income was for the past 12 months. This 80% would decrease by 15% every 5 months. Remember our net (take home) income is only 75% to 85% of our gross income. The rest goes to taxes and benefits. Also the current unemployment insurance rules are different for each State. Yet California unemployment payments are the lower of 50% of lost income or $450 per week. The payments continue for 26 weeks, or up to one year during a national crisis such as this one. Most households use from 40% to 60% of their net income to pay for housing. So the fear of losing your job is real, even with unemployment insurance many people could end up homeless.
Regarding the banking system who first failed the American people with sub-prime loans, and later with getting Federal funds and still not helping customers, the Federal government should cut all bailout assistance and allow these banks to fold and merge. The Federal Reserve bank should offer loans directly to the people. The surviving banks can buy existing loans from the Government just as they buy money from the Government to loan to households. Remember, with the income guarantee by the Government supplementing unemployment insurance, credit extension will be simplified with reduced risk of default.
Regarding the Auto industry, see my article on the Auto industry posted on December 11, 2008. I may add, if any of the three companies file for bankruptcy, the bankruptcy court should grant the Government the first right to purchase assets. The Government paid funds will go to paying auto industry supply chain. Yet at the back-end of this issue, the Government should sell all of the assets to the strongest U.S. Corporation that bids with a business plan worthy of the U.S. trust. This plan should outline top management, labor relations and Green modernization with U.S. ownership and operation. This is similar to what the City of New York did with the bidding to rebuild the twin towers. The bidding was not based on price, but aesthetic benefit to the people of New York.
Given the reduction of property values, layoffs and reduced spending, States are financially strapped as well. I’m in favor of Federal money to States immediately to stimulate job creation, reduce State layoff threats and to affect Green initiatives. I feel that part of the funds should go to States with good action plans for the funds with a caveat to trim fat in the long-run.
If embraced with income confidence, consumption may increase to sustainable levels where business revenue will return and reduce the need for layoffs and bankruptcies. But do you think the money grabers will allow money to pass by the CEO bonus pool? “We the people” with the power of the cash register vote, coupled with good money management dollars and sense, are in the best position fix this problem permanently.
I’m agree with the Obamanomics contemplates a bottom up approach where the vast majority of Americans are empowered to create their own opportunity. The top down politic approach that we have been using has never worked because the fat cats after the yacht and personal jet was purchased now their friend has an investment idea, then junior needs a loan to start a business, then the wife needs a boob job. You see, that bone never get thrown, the middle and lower class sees a bigger business they work for a raise that just keeps up with the cost of living.
I certainly agree the “We The People” can solve this crisis better that any bailedout CEO. However, we part ways from there. How is it that we can look to the state for a solution when it is the state that created the problem in the first place? It seem every “solution” I encounter today involves massive expansion of public debt. But who will finance this debt? The Chinese, with a collapsing industrial base and falling USD reserves from lack of exports? The Arabs, with oil at $35 a barrel? The Russians don’t like the USD they have now and are covertly buying gold through the LME. There is only one buyer left. The Federal Reserve will “purchase” treasury bonds with freshly printed $100 bills and electronic ledger entry equivalents. How can we properly prescribe a solution without properly diagnosing the problem? The problem lies in the inherent fraud of the fractional reserve banking system that is glued together by an ever expanding monetary base. Combined with super low short and long term interest rates allowed banks to leverage up their balance sheets 40, 50, sometimes 60 to one. This combined with Interest Rate Swaps and Credit Default Swaps (derivatives) now exceeding $1 quadrillion have created the perfect economic storm. There is no “fixing” this just as one cannot rebuild a ponzi scheme once confidence is lost. The next “solution” will be the “nationalization” of the banking system of the United States. The system is being held together long enough for the banking masters and foreign creditors to exit the system and leave “We The People” holding the bag. Soon, we can also expect a bank holiday. Sometime after the bank holiday, the FDIC will fail. This is no problem for the powers that be as they do not keep bank deposits. They hold T-Bills, other treasury debt, and gold. Only the poor (everybody else) keep wealth in banks. Regrettably, the only real solution is to abolish the Federal Reserve System, default on all treasury debt, let all banks fail, and rebuild the capital structure of the United States upon the solid rock of gold, just as the Constitution calls for. In addition, “We The People” need to execute a clean sweep of the federal government and elect our friends and neighbors to Congress. The sooner we make these very painful decisions, the better. We need to do this for our children and grandchildren. Our current system of perpetual debt and negative compounding interest only works to make slaves of the populace. At the same time, I do agree with you in that $400 billion should go directly to households. Why not? Since the start of this collapse, the government has distributed enough funds and guaranteed enough debt to pay off every single residential mortgage in the United States. In that case, why not send $4 trillion to households, or $40 trillion, or $40 quadrillion? Why not just hyperinflate our way out all outstanding debt with freshly printed $1billion notes? Seems to be working great for Zimbabwe.
You speak of cleaning house, and who is to blame. What makes this a perfect storm is that we all played a part in this mess, and there is no one more to blame than anyone else. The rich were greedy and did not practice due diligence, the middle class took second mortgages and spent like crazy, the lower middle class bought houses they could not afford, and the poor are still poor with their hand stuck out.
My suggestion on giving directly to the people is simple, it is their money anyway. You wouldn’t max out your highest rate credit card to buy the CEO of that credit card company a gift, right. That leaves him a robber, a receiver of a nice gift and you are left with grease running down your leg. By attempting to shore up consumer confidence, we may not have to spend nearly as much, and we wouldn’t be giving money to companies to produce unsellable goods for the sake of jobs. That is definitely restarting a ponzi scheme.
Nationalizing the banks really doesn’t matter one way or another. The only people affected by that would be the wealthy who earn by investing in banks, and you’ve stated that wealthy don’t hold money in banks. But no matter where they held their money last year, it is 40% less now.
The notion that Government is inefficient is an issue, but private sector is greedy and exploitative, so either way flaws will be evident. It’s not a matter of which way is the right way, it’s a matter of which way is the lesser of evils.