Tuesday, March 3, 2009

The Proper Way to Fix the Economy

Yesterday, the Dow Jones slid almost 300 points to close at a horrifying 6764.81; a number not seen since 1997. Over the last six months, the federal government has frantically tried to keep the economy propped up by bailing out financial companies mired in bad mortgages. It’s not working. Over the winter, there have been millions of layoffs and these financial companies keep coming back to the federal government asking for more money. The markets currently have no confidence in the Obama Administration’s plans to fix the economy.

President Obama inherited quite a mess and since Inauguration Day, the economy has gotten worse. It is not entirely his fault. The Democratic majorities in the House and Senate passed a “stimulus” package that on the surface meant well, but the details showed that it was loaded with pork and items that will do nothing to stimulate the economy. The stimulus bill added hundreds of billions more in the federal government’s current budget deficit.

So, what do we do? How do we fix this broken down economy? Here’s one man’s idea to stimulate the economy.

1.) Eliminate the capital gains tax – if there is one “to do” that will help broken markets and large private corporations, it is eliminating the capital gains tax. Such a move would put money in motion. Eliminating the capital gains tax is often derided as a move to help rich people, but it is not just rich people who are in the markets these days. Capital gains tax cuts influence investment decisions. Eliminating the capital gains tax would send a serious message that the Obama Administration truly wants to fix the markets.

2.) A six month federal tax holiday – A six month federal tax holiday would’ve been cheaper than the stimulus bill passed by the House and Senate and signed by President Obama. Three things would happen if this were ever implemented: People would spend more money because they had more of it in their pocket. They could’ve put it in a savings account, which frankly – is that a BAD thing for people to focus on these days? Lastly, people could’ve taken the extra money and invested it 401Ks, Roth IRAs, and or stocks. Investing money in the stock market = increasing buy activity, which would raise the levels of the indexes! This certainly would be a lot more effective than any stimulus bill that could be passed.

3.) Enough with the utopian discussions about investments in green energy and fighting global warming. It’s not the time for it. What we need is to focus on the fundamentals; the broken sectors of the economy, not invest in potentially dubious technology. To put it in blackjack terms, I’d rather hold when I have a 16 and the dealer is starting with a 5, than trying to see if I can get a 5 and get to 21. It’s the better move.

4.) Send $3,000 rebate checks to every family. Hopefully, by doing this, it will help stave off a family defaulting on a mortgage or help pay some overdue bills and keep them afloat.

5.) Extend unemployment benefits for 6-9 months. Millions of people are out of work and it will take time for companies to start hiring again. The goal here is to keep people afloat and prevent further mortgage foreclosures.

6.) Enough with the bailouts. Other than AIG, which has its tentacles in many segments of the economy and could cause a severe negative impact (they are the largest insurers of planes – airlines would be grounded across the country if they failed). However, some banks need to fail. Why should poor performance and management be rewarded, when these banks show no signs of reform or turning around their performance?

I firmly believe these six steps would go a long way towards getting America moving again and getting those unfortunate to be laid off back to work. These moves will also help stimulate markets and get people focused on investing in 401K’s and looking forward to retirement again; which as of right now, seems like a pipe dream to most of us.

1 comment:

Nick McNulty said...

I have a 1 step plan to fix the economy;

1)Throw all RINOs and Democrats out of elected office coast to coast.

That should do it.

Obamelosi do not want to "fix" the economy, they want to "fix" the government, the same way Vladmir Lenin fixed Russia's government.