Thursday, September 23, 2010

Child's Play

Remember when you were a child and you and another child were going to split a piece of cake? Your mother said one of you can cut the cake and the other gets the first pick of which piece to take.

I suggest we do a variation of that idea for the next stimulus/job creation bill. The party in power, the Democrats, should come up with how much to spend, and the Republicans can choose how to spend it. No tax cuts for the really rich allowed.

As I recall, the biggest problem with the last stimulus bill is that the Republicans thought while the country needed a boost, the funds were being spent on pet Democratic social programs with little boost for the economy. The Democrats also thought that the economy needed a boost and so what if it went for things they had wanted for some time( I think they call that a "two-fer").

By forcing them to "split the cake" in this way maybe , they will start acting like adults.


Friday, September 3, 2010

Rut Buster

What we really need to get the economy going again is a form of "TARP II". I know that's an inflammatory term, and as such I used it on purpose. However a TARP- like solution is about the best we could do in these times of slow growth and rising deficits.

Should we stimulate with more spending or should we rein in the deficit?

What I propose is something completely different which would stimulate without much spending (actually none, if it was successful), and therefore not increase the deficit. If it failed, it would be costly, but as you will see, if we are careful it shouldn't fail to any significant degree. The money in a spending stimulus on the other hand would be gone, whether it worked or failed.

Let me explain what it would be and why it makes sense now. The economy is stuck in a rut and needs a boost to prevent any more backsliding, let alone a double dip recession. Everyone says a stimulus is out of the question either, or both, because it doesn't work to create private sector jobs or that it will add to the deficit. Same for tax cuts, albeit from a different political perspective.

Banks aren't lending or businesses are not borrowing; take your pick. All I know is that we appear to be stuck in a rut.

Enter my TARP- like solution. The Federal government should offer to provide credit support to lenders who make loans to businesses to stimulate growth which in turn would lead to creation of jobs.

Right now things are at an impasse. Lenders have become so conservative ( twice burned?) and are reluctant to make even marginally risky loans. A degree of credit support from the government could put "close" but still too risky deals over the top and enable business to get much needed financing for growth. Since the credit support would be in the form of some level of guaranty to the lender, there would be no cash outlay by the government. The banks would be lending the money, the government would just be partially guarantying the borrower's repayment.

If these loan are as good as everyone who bemoans the banks reluctance to lend says they'd be, the government would never have to pay off on it's guaranty. Of course there would be some losses, but likely not very much. That's what happened with TARP; the government got all of its money back, plus a significant return, from the TARP loans to the banks.

In my scenario the government would not even have to make any loans to the banks; rather provide credit support (for a modest fee even) for credit worthy loans; just to break the current economic stalemate. If all went even reasonably well, there would be no increase in the deficit since no money would be put out and this kind of "pump priming" just might get the economy going again and reverse the viscous negative cycle in which we find ourselves .

Sadly our leaders and the media have so demonized anything that even seems like TARP, that this probably could never happen. We need to reverse the "big lie" that TARP was a government giveaway for the Fat Cats Bankers on Wall St. that did nothing for Main St.

It's a shame that as a result of demagoguery and political and media distortion this kind of low cost solution has become too "radioactive " to be used to get us out of this economic quagmire.