If you have "no place to go," come here!

Give Main Street the money. We won't piss it away. Unlike the banksters.

L. Randall Wray:

So here's the best policy. Unwind the $23 trillion committed by the Treasury and the Fed. Let the market operate. It wants to close down all the "too big to fail" institutions. The market is right—these institutions are not necessary, indeed, they represent the biggest problem facing the financial sector. Their CEOs instinctively recognize that these institutions serve no useful purpose—which is why their efforts are directed to creation of ever more dangerous and socially destructive financial products. As I have said before, Washington needs to get on the right side of the leverage ratio: for every dollar of real productive activity and income generated, there can be $30 or more of leveraged financial bets. Rather than trying to make all of those good, it makes far more sense to allow default to wipe out the bets, and then work to save the productive activity, jobs, and income.

I know that Wall Street's protectorate, led by Geithner, Rubin, and Summers, will claim that failure of the behemoths will create an economic disaster. But that is not true. All real economic fall-out can be contained and the economy will emerge much healthier. Replace Wall Street's life support with support for mainstreet. Start with a payroll tax holiday (don't collect any payroll taxes from employers or employees for the next two years); add $500 billion for direct job creation to immediately get to full employment; add another $500 billion for relief of state and local governments distributed on a per capita basis; and give all mortgaged homeowners the option of immediate default with a "rent to own" plan. True recovery would begin immediately, and we'd be out of the mess by summer.


Remember: With the 2009 bankster bailout bonus money, Dems could have created 5 million jobs at $30K each. And the bailout bonus money was our money. So why did it go to the banksters, not us?

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CMike's picture
Submitted by CMike on

I don't think he gets it.

Now I do agree with Wray's recommendations that $500 billion in federal relief should be doled out to state and local governments on a per capita basis and that "all mortgaged homeowners" should have "the option of immediate default with a 'rent to own' plan."

However, his "payroll tax holiday" would be a disaster for those who want to see Medicare and the Social Security systems survive. It would be tough enough to start collecting those taxes again in good times, what would Congress do if times were still tough when the holiday ended?* As it is, those two programs are hanging by political threads now. Future entitlement revenues shortfalls are being blamed for our past and current deficit problems as we speak, though they are financed with dedicated income streams paid for with the taxes of the future beneficiaries who should have a sense of entitlement to them but don't.

How often do you hear that point being made - that those systems have been subsidizing military and other government spending? Instead, all I hear is how those programs are going to start running out of money in the near, or not so near, future. Once Social Security and Medicare are un-moored from dedicated financing they'll quickly become "welfare programs" in the minds of the electorate with different age and income groups being played off against one another.

As to the money for job creation, we're trying to fill up a colander with water. The strong dollar and GATT means stimulating the economy just leads to higher trade deficits. And those at the top of the food chains in the growing finance and health care sectors are sponging up too much of the rest of any growth in the economy. There is no solution to the mess we're in that's going to be in place "by summer."

*That said, I would like some of the dedicated financing for Social Security and Medicare to start coming from a tax on oil, or all fossil fuels. However, it's key to keep collecting a payroll tax for both programs and for the left to make the point "you've paid for your benefits."

jumpjet's picture
Submitted by jumpjet on

Withdraw from it, if that's what it takes, and start putting up tariffs again. I don't care about accusations of hypocrisy-creating jobs and spreading prosperity is too important.

beowulf's picture
Submitted by beowulf on

Randy Wray wrote a fairly mind-blowing post last fall.
Memo to Congress: Don’t Increase the Government’s Debt Limit!

In a nutshell, Wray explain how there is never a need for the federal government to sell Treasuries to finance deficit spending-- the only reason Uncle Sam sells Treasuries is to control interest rates. However, even that is no longer necessary now that the Federal Reserve can control interest rates by paying banks interest for holding its excess reserves (one good thing the TARP bill did was giving the Federal Reserve authority to pay IOR a couple years ahead of schedule).

To tease out the consequences of that:

1. If Congress allows the Treasury Dept. the same authority to overdraft its Fed reserve account that it gives banks (its unclear to me whether Treasury already has this power, or whether Congress will have to amend the law), deficit spending can be accommodated dated by simple overdraft on the Fed account. Wray points out that Fed operations such as overdrafts are NOT counted in the federal debt limit.

2. Treasury will have to pay interest to the Federal Reserve for its overdraft, but even this week's increase of the discount window rate to .75%, the interest costs will be far lower than the 2.6% or so average interest on federal debt. As Treasuries expire, instead of rolling over the debt to new issuance of Note or Bonds, Uncle Sam can just add to its overdraft at a lower interest rate. Heck, Treasury could call in bonds early (average interest of these long term instruments, over 6%) and "refi" at .75%.

3. If current debt was converted (and future debt would go) to reserve account overdrafts, the $300 billion in current debt service (estimated to rise to $700 billion a year within the next decade) is extinguished. As for the lower sum that Treasury must pay to Fed as interest-- since the 60's, the Fed has been required to pass on its net profits to... the Treasury. In other words, federal spending essentially would be financed by interest free loans.

4. Since the $300 to $700 billion a year in debt service has already been accounted for in the federal budget, Congress could allocate that sum to the Medicare Part A Trust Fund (ideally, after its been renamed the Medicare for All Trust Fund) without increasing the budget deficit or taxes.

5. Social Security is presently off-budget (Medicare used to be). If the Medicare for All Trust Fund was put off-budget (but still funded via Treasury's Fed Account) and all current federal spending on healthcare was transferred to the Trust Fund, suddenly the federal budget deficit would drop by over $1 trillion a year (by deducting Medicare, Medicaid, SCHIP, FEHB, Tricare and various other healthcare outlays)-- see page 24 and 25 of the Weiner Amendment. Treasury could just overdraft whatever its needs, if it leads to higher interest rates (which the Fed would manage by increasing IOR, and not by selling Treasuries), Congress can always raise taxes if it prefers.

I still think the smarter play is first passing Americare, Pete Star's premium-funded Medicare buy-in and once the insurance industry is put on a lead sled, then go after the bankers by changing Federal Reserve operations to replace the need to collect premiums. One war at a time, as Lincoln would say. :o)