Jump Starting Our Economic Engines

THE CENTURION CHRONICLE
Special Issue - Apr- 2009

JUMP-STARTING OUR ECONOMIC ENGINES
(without flooding them out with….paper)

When it comes to economic and financial matters, perhaps my less than perfect academic immersions in these two fields often block my real understanding of them. Then again, it may be I just have a Simple Simon mind, and also, have to take my boots off to count to twenty.

Of course, I do have some first hand experience about starting up, building, and developing several business enterprises in my time. All of them initially successful and very promising during their entrepreneurial start-up phases. Where my partners and I ultimately failed with these enterprises was when we had to make those quantum steps up into the next level of development….as full scale commercial enterprises. We learned the hard way that:

• Trying to build any business on shoe-strings and by boot straps, may be great fun, but it’s hard on the fingernails!
• Leverage, is only as good as your positive cash flow, which has to be more than just breaking even, to make it work for you, and, most important, shouldn’t exceed more than 50% of it.
• Lastly, without accruing some kind of rainy-day contingency reserve eventually you go….broke!

Nothing very “academic” or “MBA-ish” about such lessons. Which brings us to our present situation with the government’s “stimulus” plans, which appear to completely disregard those lessons.

Frankly, I don’t see much “stimulation” from them. Essentially, what it’s doing, is attempting to “leverage” our economic engine into cranking up again, that is, going into ever more debt, by spending like sailors on shore leave after six or more months at sea. After all, there’s another payday coming later….er…isn’t there? Or so seems to be its thinking on the subject.

And compounding that gambler’s Hail Mary bet to recoup accumulated losses, our government “experts” want to pile up more and more debt by freely printing out more and more “markers” to cover that bet (a suckers’ bet?). Well, such is our perspective. Who knows if they’re right? Long shot bets sometimes do win, but given our present situation perhaps there are some less pepto-bismol approaches to consider.

So here are some alternative solutions for jump-starting our economic engines:

1. Rather than printing more paper, let’s lock up the Treasury’s printing presses for the duration (four years).
2. Let’s reduce government spending, limiting it to essential services (Fixed Expenses). For that, let’s institute a policy of – Proportionate Distribution – of any deficits between all three branches of the government, based on their respective percentages of the total budget. As an example….if the Executive branch accounted for 60% of the budget, it would have to “eat” 60% of the deficit. In turn, it would distribute that share of the deficit slice among its various departments, agencies, commissions, etc., using the same proportionate approach. The result would be that a lot of wastage would disappear, and we’d have a leaner, meaner government apparatus giving us a better bang for our tax bucks.
3. Concurrently, as a leadership-by-example call for “belt-tightening” and “sacrifice”, let’s require everyone from the Presidency down through all the departmental heads, to take a 10% pay cut for the duration (four years), and also, attempt to prevail on Congress to do the same; and, if it did not do so voluntarily, call on popular pressure against them to shame them into doing so.
4. Also, concurrently, let’s propose a 10% tax rate cut, across the board, for all individual and all business taxpayers for the duration (four years). That, in itself, would probably do more than anything else to get our economic machinery going again.
5. The only “bail out” move applied to the banking and financial world would be to buy up all of their so-called “toxic” assets, at 50% discount, invoking the principle of “eminent domain”, for insisting on such a discount. Those that declined would not be “bailed out” and left to sink or swim. Meanwhile, such “bought out” assets would be renegotiated with the individual debtors involved, at levels they could afford to pay. The object of that being to produce a positive cash flow… directly back into the Treasury….even if it’s on the very longest terms necessary. Since the government has already seized entities like Fannie Mae, why not used it as the financial mechanism for that purpose?

What would be the net result of such action?

First, the cost of government would be reduced, at least for that period of time. Second, such an across the board tax rate cut would pump more REAL money back into the system, rather than just printing it. Third, making a forced discounted “buyout” of those so-called toxic assets, would loosen the credit jam-up, enough so that business and enterprise could slowly crank up again. The financial institutions would have to absorb whatever losses such a move would impose, by recapitalization from investors, or mergers, but the government would not become involved in their equity/ownership. Lastly, the inflow of cash from those renegotiated toxic “debts”, would further aid in offsetting and reducing our deficits. As economic activity accelerated, that process would also accelerate. At some point, we might even begin to see something called “surpluses” again.

If this is as wild a gamble as what they’re attempting to do for us with their approach, at least it has the merit of not going further into debt, while offering a stronger possibility of getting our economic engines purring again. Besides, if all else fails, we still have our printing presses….ready to roll again!

CENTURION