By now we should all know the urgent economic stimulus package is not an urgent economic stimulus package. Yes, it does contain immediate job stimulation to the tune of about 35% of the package (I am being generous - the Wall Street Journal thinks it is less) . Even the 35% job stimulation portion can be considered questionable depending on how it is administered.  Why will this economic stimulus package not work?  There is a better way!  To find out read on.

If you haven’t taken time to read about the package or to look at it yourself, you should. Just as in the great depression where similar spending and jobs programs actually served to extend the depression beyond what a normal recovery would have been, this package is even more toxic to the overall economy of this nation. The overall concept that government can either borrow money, print money, or raise tax revenue to stimulate an economy is seriously flawed. An economy is not a government’s economy. Rather, it is the natural cycle of commerce, trade, production, and consumption brought about by the people. Starting in the twentieth century, this natural cycle was supercharged by the money supply expansion brought about by credit.

The sudden stoppage of available credit brought the natural cycle of commerce, trade, production, and consumption – the economy – to a screeching halt. Why did credit suddenly disappear? The desire for more and bigger returns in financial markets and the rise in securitization of credit instruments brought about plentiful and easy credit. Banks and other lending institutions now had a market to place their securitized mortgage and automobile credit portfolios. This was asset backed lending at its best and worst.   The focus of this piece is on mortgage backed securitization.  The residential property as collateral was the asset.  The key is “asset” in asset backed lending - this was the equity in the deal that made the lending possible. 

The lack of credit quality brought about by the easy credit had artificially inflated the value of the collateral securing or anchoring the basis for lending. What was the “pin” that burst the balloon? It was the sudden and prolonged increase of the price of gas at the pump. This sudden dramatic increase of economic pressure on household budgets pushed the weakest of the borrowers into default. This started the foreclosure cycle. As foreclosures grew faster than the market could absorb the foreclosure sales, the supply of homes increased and the demand dropped creating a downward spiral of residential home collateral values triggering big equity lending losses for the banks other lending institutions, and insurance companies who had guaranteed the mortgage backed securities. A Securities and Exchange rule called “mark to market” forced the banks to immediately devalue the remaining mortgages held in their portfolios causing a rapid loss in capitalization. This severe loss in capitalization put the brakes on lending. The Federal Reserve requires national banks to maintain a minimum capitalization and state banking regulators require the same of state chartered banks. As the downward spiral of home values continued it created a downward spiral of bank capitalization due to “mark to market”. With the loss in capital on a downward spiral, the Treasury under Bush and Paulson with the help of Geitner swung into action and asked for TARP money from the Congress. It was intended to buy up these devalued assets so that banks would be stabilized and start lending again.

It failed! One would think that Paulson and Geitner would have known that the regulators’ regulations requiring a certain level of capitalization at the banks would force the banks to shore up capital with the money and that banks would not lend. If I knew this why didn’t they?

Now Geitner, the tax scofflaw, wants to create a bad bank to buy up these assets from the banks to stimulate lending. Why will buying toxic assets at toxic asset prices improve bank capitalization sufficiently to re-establish lending? If I have an asset on my books that was worth $100 and is now worth under “mark to market” $2, I have lost capitalization and cannot lend. If I sell that asset for $2 then I have not improved my capitalization and still cannot lend.

The Congress and apparently president Obama are apparently overly concerned with those in foreclosure, many who probably should have not been given easy credit. No one seems at all concerned with the real problem in this country – the many millions with decent credit who bought homes in the last few years who are incredibly buried in their homes financially. The home values do not allow refinancing to a lower rate and literally trap these people into their homes – they cannot sell. They cannot sell to seek a better job in another area. If they lose their job, they cannot move to take a job in a new location. These folks are in debtor prison, yet as long as they pay their mortgage as they are supposed to, they can get no help. President Obama says he is worried about the middle class. These folks are the quintessential middle class and no one is helping them.

Instead we have a stimulus package of nearly a trillion dollars that we cannot afford that is nothing more than multiple earmarks on steroids – it is history’s largest pig – it is just filled with pork – purchased with borrowed money.  Didn’t president Obama promise that this package would only contain true economic stimulation programs and would contain no pork?  Didn’t he say that he would root out the pork?  This package is not intended to stimulate the economy for all of us. It is intended to foster Democratic social engineering. It is intended to create a “nanny state” with the populace always dependent on the central government for support. This is exactly what happened for eight years during the depression – it was interrupted by World War II.

If our Congress and President really wanted to get this economy moving, they should work on the root cause of the problem. The continuing devaluation of residential properties, brought about by the flood of foreclosures which creates more foreclosures is the root cause.

• Take this Trillion dollars and create a tax credit for the purchase of foreclosures – a credit that is twenty percent of the purchase price – the property must be held for seven years or the tax credit must be paid back  over ten years through tax filings.

• Take this Trillion dollars and give all homeowners who owe more than their property is worth a tax credit in the amount of the shortfall. This will foster refinancing at lower rates and more suitable fixed payment mortgages. This will provide immediate relief to those millions of Americans who are trapped in their homes and who pay their bills. A detailed appraisal must be obtained for the tax filing. The tax credit must be transferred (paid as a principal payment) to the financial institution holding the first mortgage. In the future, these homeowners must declare any gain based on the now adjusted tax basis for the home, as income. Alternatively, for two years allow these homes to be treated as an investment and allow the sellers to take a capital loss on the sale and carry it forward as needed on their tax return.

• Take this Trillion dollars and temporarily modify MACRS (Modified Accelerated Cost Recovery System). Add to the acceleration for two years to stimulate business infrastructure purchases, if the purchased content is 51% U.S. originated. Examples are new equipment with a 51% U.S. production content, building renovations, equipment overhaul and refurbishing, etc. - purchases that will stimulate our economy by buying American and employing Americans.  These purchases will also prepare our business to compete in a world market in the future.

• Take this Trillion dollars and lower the business tax rate to 15% for two years and then each year over five years increase it by 1% per year to 20%. This will stimulate the economy and create jobs probably more than any one other stimulus.

Mr. President and Members of Congress, you can continue to turn this country into France, where no one can be fired or laid-off, where the economy does not grow, and the population is dependent on the government, or you can unleash this great economic machine. Surely some of you have at one time studied economics or heard the host of economists who say that you are building a bad, inflation prone, negative economic stimulus package.

The stimulus ideas found above will stabilize residential properties and stop the downward spiral of home values by creating demand – repairing the root cause of our economic crisis. It will use the “mark to market” to re-establish bank capitalization by 1) increasing home prices, providing increased equity value to the mortgage backed securities; 2) reducing exposure by fostering principal payments, paid through the giant tax credit; 3) and by reducing the number of foreclosures on the market with remaining foreclosures selling at substantially higher resale prices than today. The reinstituted lending, now that banks are adequately capitalized again, will allow businesses to borrow and spend utilizing the accelerated MACRS, creating lots and lots of jobs in the process. Only sound lending with no easy credit, please. These stimulus ideas will utilize the new lower business income tax rate and MACRS to bring production back to these shores, thus heavily stimulating economic growth and jobs for a long lasting healthy economy.

Today, Senator Obama spoke on the Reverend Wright controversy and made clear what he believes. Three points came out of his speech and I am sure he only intended one point. The biggest issue resolved was that he explained why he continued to befriend Reverend Wright and why he continued to be a part of his congregation. His explanation was both eloquent and clear. He personally understands the reasons why Reverend Wright thinks the way he does and he understands why it is different from the way he (Senator Obama) thinks. Barack Obama defined the differences so well that it had the ring of truth and clarity. This writer is convinced that Senator Obama has not exercised poor judgment when sitting through Reverend Wright’s sermons; that he successfully compartmentalized what Reverend Wright was saying compared to what he believes.

He did not address or explain the previous statements that he had never experienced these sermons personally yet now in this speech stated that he had heard the questionable sermons all along. Do we chalk this deception up to political gamesmanship? The straight talk was absent here. Two other issues surfaced during his speech, that shine a clearer light on what and how Senator Obama thinks.

His statement, that he will find a way out of the war in Iraq, did not ring as clearly as his previous definitive proclamations regarding the speed of removal of our troops if elected and taking office. Does this mean that he now understands that unraveling Iraq will be like cutting a fine diamond and that it cannot be done haphazardly or hastily? To improperly unravel or to just leave Iraq may create more world problems for us in the future than remaining and continuing to stabilize the country, which is currently happening.He needs to be pressed on this by the unbiased media – if we can find them.

His statement that we need to stop corporations from sending jobs out of the country just for the sake of profit demonstrates a glaring lack of understanding of how capitalism works and creeps up upon a socialist agenda. Under capitalism with some controls, the better the environment for profit, the better the environment for growth and prosperity.This means jobs – good jobs! The jobs are leaving because the corporations need to make profit to survive and will seek out the most advantageous environment to make that profit, even if it means to create and manufacture elsewhere. It is the responsibility of a government in a capitalistic economy to foster an environment to entice corporations both foreign and domestic to produce here thus creating good jobs and plenty of them.You cannot regulate jobs unless you are in a failing communist or socialist economy where the standard of living misery is balanced and widespread.

He should be seeking to change the health care system by relieving corporations of this burden and ameliorate the corporate tax rates to foster a profitable environment for corporations producing in this country and trading with the world.This should be the fix he seeks. This will place corporations doing business in this country in a position to grow and sustain good paying jobs. Remember, corporations do not pay taxes they collect them for the government from you in the form of higher prices, but in the world trade environment they cannot pass these taxes on so they become uncompetitive. When they are uncompetitive they move to an environment where they can be competitive and move the jobs elsewhere. He should not be condemning profit, which is the engine of prosperity and standard of living as long as it is heavily laced with successful world trade.

Senator McCain, you must find a way to remain in the forefront of the public consciousness, while Senators Obama and Clinton are busy trying to earn their party’s nomination and the press is fawning all over the Democratic Party race.

Why not hold a series of public, invitation only, forums on a number of the issues facing us today?  You should hold meetings with bipartisan experts from their respective fields on:

• Oil/Energy - what is the fastest and most effective way for this country to shed its oil addiction?
• Jobs/Trade - what is the fastest and most effective way to turn this country into a world trading juggernaut and bring manufacturing jobs back to America?
• Social Security - what is the most effective way for us to secure, preserve, and enhance social security to ensure that is meets the needs of current recipients, near recipients, and the young people paying into it today.
• Immigration - what do we do with the current population of illegal immigrants after the border is controlled?
• Education - do we really need the Department of Education at $60 Billion annually?  Don’t the states have qualified people to manage education, is there a redundancy?
• Health Care - can it be fixed so as to cover most everyone in an affordable and effective manner?
• Housing - what is the most effective way to stave off deflation of housing values?  Keep the housing values high and you will have a chance of getting out of this mortgage mess.

Broadcast these meetings on the internet.

Senator, no definitive results will come out of these meetings, yet

• you will have given yourself a template for action, if elected
• you will have demonstrated a clear desire to solve these problems, creating hope
• you will have kept your activities in the media, while polishing a domestic agenda image

How would your attempt to address these issues in a presidential manner, while your opponent is mired in a fight for the nomination be viewed?I hope someone in your campaign with a little forethought sees this message and conveys it to you.

Why is populism so popular today? What are the real challenges facing the next President?What kind of leader do we need?

Let’s start with populism.People are unhappy with the ever lowering of their standard of living.Food, fuel, medical care, and schooling cost more each day.These are the basics to a happy and successful life.The gap between the have and the have-nots is widening.The middle class is disappearing but you would not know it because we keep redefining it.The unemployment rate is still pretty close to what has in the past been defined as virtual full employment, yet we are slipping.

The tsunami of problems we face as a country today is knee buckling.

A goodly portion of the world seeks our demise.An entire movement of millions wants us all dead.

Hostile nations can, overnight, be in control of more than half the world’s oil exports.

We consume more than half the world’s oil exports, while making unfriendly nations richer and more powerful.

Fierce worldwide trade competition has brought about a $200 billion trade deficit.We can no longer compete on the world stage.Plentiful good paying blue collar middle class jobs are gone.We no longer make much of anything in this country.

We have opened our borders – at least our government has – to just about anyone who has the temerity to sneak into our country.This uncontrolled illegal immigration has created even more pressure on state and local governments, by increasing the cost of schools, hospitals, police, fire, and all sorts of social services.

The next President must tackle two problems that are not mutually exclusive.He or she will have to change our energy culture.We must shake our oil addiction.This effort could consume an entire Presidential term of office.Multiple millions of Americans use oil for transportation, to heat their homes, and work in oil heated places of business.

Oil is our Achilles Heal!Each of our Presidents since Richard Nixon, Republican and Democrat, have know this to be our Achilles Heal and have not addressed the matter directly, thanks to the U.S. Oil interests and environmentalists.They have instead relied on international leverage of force and financial persuasion.This prescription is proving to be disastrous; as we are already experiencing serious side effects.The use of nuclear energy, using the newest technology with very low waste reactors, must become a national priority – it is the fastest way for us to replace oil imports with an inexpensive alternative.

The next President will also have to restructure our ability to effectively trade in the world.We have neglected this for nearly twenty years.No, not more agreements.This President must rebuild our ability to compete in the world trade market.We must be able to manufacture and sell to the world.We must remove all obstacles to low cost domestic production of goods and services, including low cost energy.Only then will we be able to add quality good paying blue collar middle class jobs and start this country back on its way to a sound economic footing.Get back to a sound economic footing and the desires of the populists will be achieved.

We need a leader who recognizes these two critical issues, who is passionate about these two issues, who can cut through the entrenched resistance to effect energy and trade change, and who can unflinchingly stand his or her ground.He or she will also need a Congress that understands that our survival as a great nation depends on these changes happening sooner rather than later.

Read more of this type blog at Ken Moyes' weblog

In economics books it is called Comparative Advantage.It is the underlying key to successful trade among nations.In non-economist terms, it is what can I offer that the other guy can’t that will give me an advantage in trading so I come out on top.

When the United States was very young, we had unbelievable amounts of natural resources.As we approached the twentieth century we had a powerful work force achieved through the immigration of people looking for a better opportunity.These people were both adventurous and driven to succeed – they made a productive work force.Oh yes! we still had abundant natural resources.In the second half of the twentieth century, after the two world wars, Asia and Europe were devastated and without infrastructure, and they were in need of all things manufactured as they were rebuilding.The comparative advantage of the United States was its gargantuan manufacturing infrastructure resulting from the build up to produce for World War II, and the many technical achievements gleaned from the war arsenal.We had a customer – the world – ready to consume any and all that we could produce.In effect we not only had a comparative advantage, but also an absolute advantage – we could only prosper – we could literally phone it in.It was all about us!

By the close of the twentieth century both Asia and Europe, with the exception of the iron curtain countries and the Republic of China, had rebuilt their infrastructure, and in many cases with more up to date and productive manufacturing facilities than we had.The United States had fewer desirable / usable natural resources.Our coal reserves became unpopular and our desire to not spoil our planet kept us from fully developing our oil reserves.In the mean time, oil was becoming the key natural resource in the world for the later part of the twentieth century and the early part of the twenty first century.

In the second half of the twentieth century, we became oblivious to the world – remember it was all about us!We paid our people ever increasing wages in manufacturing, added many unproductive work rules, and taxed our companies to the point that all three events took away our comparative world trade advantage in manufacturing.We were now at a trade disadvantage – yet our appetite to consume was still feverish.During this period, it became more advantageous for our manufacturing companies to move manufacturing overseas. If they had not done so, they would not have been able to compete on the world stage and be profitable. During this period, one bright spot in our comparative advantage was our strength in technology and highly educated and well trained engineers.Our use of technology gave us a comparative advantage in productivity.We continued to utilize our comparative advantage in the trade of technology – we thought it up and it was manufactured overseas.Over the last quarter of the twentieth century and the beginning of the twenty first century, Asia caught up, only with a twist – same or better engineering with lower wages – the comparative advantage shifted in their favor.We also allowed our schools to lose their leadership in delivering a strong education from K through 12.

Today, what do we offer: restrained under utilized resources, a broken education system, uncompetitive costs on a world scale due to high wages on the remaining manufacturing jobs (auto industry), a declining infrastructure, comparatively high taxes on companies attempting world trade, and a voracious appetite to consume manufactured goods and oil from overseas?Yet our political leadership continues along as if we remained the pre-eminent holders of all things comparative trade.Our free trade agreements are good, yet we entered the trade arena with a handicap – we have no comparative advantage, so they are NOT good for us at this time.Protectionism will not work, because the nations of world can get along trading among themselves – they no longer need us.

What do we need to do?

• Business: stop taxing our domestic businesses engaged in manufacturing, give them a financial trade advantage as they will still be paying higher wages for manufacturing workers than their world competition; remove the health insurance financial burden from business and move it to a national health insurance system; move to a consumption tax and stop taxing the businesses that need to trade to grow so they can build and offer more good paying jobs – we need to put our domestic businesses on a level playing field with the rest of the world.
• Children:target our children by giving them all a top flight education and by challenging them with a tougher curriculum, and longer school years just as advantaged world trading nations do.
• Energy:drill for and refine our untouched domestic oil reserves in the short term; utilize nuclear, clean coal, and solar in the mid-term; develop wind, geo-thermal, advanced solar, tidal and hydrogen fuel in the long term. We need to lower the cost to produce and transport.

If we don’t rebuild our lost comparative advantage we will never hold a free trade advantage, we will continue to become a nation of past successes and a second tier nation at that. Remember it is a world economy now and the competition is fierce.

read more like this at http://www.brokengovernment.wordpress.com

Sounds confusing, doesn’t it. The cry around this country to “get those dastardly corporations – they are the cause of all our troubles” is so misplaced that it is almost like saying don’t put prisoners in prisons, because prisons are unsafe because there are too many dangerous people in prison.

Have I now cleared all this up? Okay it is simple, even if Senators Obama and Clinton appear to not get it. Corporations factor in the income tax rate into their cost of sales and thus the price they set on what you buy at the point of sale. So, go ahead and tax the living day lights out of these corporations, they just collect their income tax for the government from you. There is one hiccup with this plan. These corporations are unable to incorporate their income tax into the price on sales overseas or in Canada and Mexico.

Senators Obama and Clinton, please pay attention here as this is important and you act like you have never heard this before. When you tax a corporation and it cannot pass on that tax it either cannot survive internationally or it adapts by closing plants in the United States and opening these plants in another country. Are you still listening? When they do this, they create jobs in other nations and terminate jobs in the United States. This is called free enterprise. We could try to regulate corporations and force them to keep the jobs in the United States, but then they will not make any money and the investment capital will move to a company in another country and not here. It is like squeezing a balloon. Squeeze one end and it gets bigger on the other end – squeeze too hard and it breaks.

Our tax code and the fact that we tax our corporations at the second highest rate internationally may have something to do with out trade deficits and the loss of good paying jobs in this country. So yes, when we tax a corporation they bill us for the tax through domestic sales or sell us merchandise made in another country where the bulk of the profit is taxed at the other country’s favorable rate and the taxes go to the other country.

Senator Obama has a socialist solution for this conundrum. Instead of lowering taxes on domestic corporations so they can manufacture in the United States and create good paying jobs. These are jobs that make you more financially viable, jobs that make our economy healthier, and jobs that help us export to other nations. Senator Obama’s solution is to support the Patriot Employer Act. This act is right out of the socialist play book – we all know that the socialist economic system is failing all over the world. It is the second worst economic system, on how people benefit, only when compared to communism.

The Wall Street Journal quotes Peter Merrill whom they refer to as “…an international tax expert at PriceWaterhouseCoopers…” as saying “…Apparently Mr. Obama believes that by making U.S. Companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.” http://online.wsj.com/article_email/SB120407121574294919-lMyQjAxMDI4MDI0ODAyNzgxWj.html

Honestly, they must have taught international economics at either Columbia or Harvard when Senator Obama attended. If he knows better and is sending us down the wrong path just to get elected, then he does not deserve to be President. If he does not know better, then he does not deserve to be President. The same should apply to Senator Clinton. The solution, Senators Obama and Clinton, is to help these corporations become as competitive as we possibly and then turn them loose on the world. This will create the right kind of jobs for this nation – we will not have to settle for jobs where you must learn the phrase – Do you want fries with that?

Senator Obama, drop your support of the misnamed Patriot Employment Act which is a form of reverse protectionism – it protects the world from us – and lower or eliminate corporate taxes. Yes, we all will personally pay more income tax which will be offset by lower prices for goods, since the tax will no longer be included in the price. This will stimulate domestic production of all kinds of goods and improve our standard of living by allowing us to hold better jobs. Aren’t you and Senator Clinton about jobs?

For more commentary like this go to http://www.brokengovernment.wordpress.com