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The problem is not the
collapse of the stock market
which simply reflects the
deflation of the bubble economy.
The problem is the oncoming
recession/depression caused by
the absence of an economic
engine to generate new producing
power. |
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The
crashing stock market has given its
verdict. The financial rescue plan
currently being implemented by the U.S.
Treasury Department and the Federal
Reserve System will fail to revitalize
the producing economy, even with
continued interest rate cuts. This is
because the banking system is
essentially a supply-side, trickle-down
mechanism with a currency based on a
pyramid of bank lending and debt. All
the current plans being suggested by
economists and others to save the
financial system by varying degrees of
tinkering are useless. Similarly useless
is the pumping in of credit or liquidity
by Treasury or the Federal Reserve
because it is no more than new debt to
roll over old debt.
The cause of the financial failure is
that the producing and consumer economy
is “maxed out” and is unable to
repay existing loans much less new ones.
This is
because purchasing power in the U.S. has
collapsed.
Purchasing power has collapsed not only
because we have outsourced our industry
abroad and allowed our infrastructure to
crumble, but also because of structural
defects identified decades ago by C.H.
Douglas and John Maynard Keynes. These
defects occur due to the need for
retained earnings (i.e. savings) to
overcome the Law of Diminishing Returns.
This leads to insufficient aggregate
demand; i.e., the gap between prices and
purchasing power that is endemic in an
industrial economy.
The
problem is not the collapse of
the stock market which simply reflects
the deflation of the bubble economy. The
problem is the oncoming
recession/depression caused by the
absence of an economic engine to
generate new producing power.
Keynesian plans for top-down creation of
jobs by government deficit spending has
never worked and has always
ended in an attempt by the government to
inflate its way out of debt. Everything
being suggested by the Obama/McCain
campaigns is based on the failed
Keynesian formula.
An
entirely new paradigm is needed. This
can be provided through dividend-based
economics like the Alaska Permanent
Fund, the 2008 tax rebate stimulus, and
the basic income guarantee (negative
income tax) discussed during the 1960s
and 1970s.
Following is the “Cook Plan”:
1.
Non-taxable vouchers should be
issued at the rate of $1,000 per
month per adult and $500 per month
per child which may be used for
food, housing, fuel, communications
media, utilities, and educational
services provided at outlets within
the U.S. Distribution of vouchers
may be delegated to state and local
governments.
2.
Vouchers will be deposited by
service providers and vendors only
in a new network of local chartered
savings banks—one for each county in
the U.S. Deposits will be made to
the bank in the county of the local
point-of-sale.
3.
Banks will lend locally at
zero-percent interest using voucher
deposits as capitalization. The
banks may create loans at a 1:10
reserve ratio with borrowers paying
administrative fees only. Borrowers
must provide a 20% down payment as
collateral or purchase default
insurance at 2% of the loan
principal.
4.
Lending will be made only to
business entities, including family
or commercial farms, operating from
an established location within the
county.
This
system will create a grassroots
“bottom-up” economic infrastructure to
parallel the “top-down” Federal Reserve
System which is collapsing. Transfers
between local savings banks and the
banks of the Federal Reserve System will
be denominated in U.S. dollars with
vouchers redeemed within the banking
system.
The
system could be implemented within a
matter of weeks through seed-money
provided by the federal government. It
could be replicated by any other nation.
It is
requested that readers give this plan
the widest possible distribution.
