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Simon Johnson makes a very compelling case in his analysis of the crisis during his appearance on the Bill Moyers Journal. The world has turned upside down when the former chief economist of the IMF sounds like Noam Chomsky. I suggest watching the video, not just reading the transcript.
I haven't had a chance to watch it yet, but last week's Frontline episode on how the crisis happened also looks very good.
Saturday, February 21, 2009
Worth Watching on the Crisis
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Paulson failed. Here's the answer.
Two Part Solution to the economic crisis
1) Suspend all Federal taxes for one year. Phase them back in over the succeeding years. Use an inflation trigger of 5% or more to start reinstatement earlier if needed. Advantages - a) No new bureaucracy needed. The mechanism is already in place. b) The impact will be immediate because people will see a significant increase in their paychecks immediately. This will lead to increased spending which will jumpstart the economy. This will create jobs and decrease unemployment. The additional money will also help people pay their mortgages.
2) Issue "Hope” Bonds (they would be like war bonds). People who buy the bonds will receive a guaranteed return on the bonds, say 4%. The proceeds of the bonds would be used to buy up bad bank debt at the rate of a penny on the dollar. Advantages - people will have a safe and secure investment, and banks will be able to unload bad loans. Why a penny on the dollar? Since no one wants them, I gave a them a value of just over zero.
How will we pay for this? The US government has already demonstrated a desire to go in debt to solve this problem. The loss of approx 2.3 trillion in revenue will match the amounts mentioned in programs now, but the results of this program will be immediate
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