The most important post you will read on the economy today.

The state of the U.S. economy today is perilous. It is teetering on the brink of a long fall into night. The saddest part is that it is correctible quickly and relatively painlessly if there were someone in charge at the Treasury Department who has an understanding of the markets and the underlying cause of the problem.

We were sold a bill of goods last week with the ‘bailout’ plan that needed to allocate 700+ trillion dollars to buy up government backed mortgage securities. What they didn’t tell you is that they wouldn’t get around to actually buy ANYTHING until mid-November or thereabouts. What is going to happen in the meantime? Fear, uncertainty and doubt. That path will shake the world economic system to its roots and may bring us to the point of no return in credit markets.

I won’t go into the long history of how we got here, that discussion would take entirely too long and would have me fending off charges of partisanship until the cows came home.

Here is the action plan that would put a stop to the panic immediately and give the economy and markets breathing space to adjust asset valuations.

  1. Immediately modify mark to the market accounting rules. A five year window with a decreasing allowance eventually returning to current levels will immediately bolster the balance sheets of institutions with large holdings of mortgage instruments which are now illiquid and of unknown value. This will reduce further failures in the financial industry until market valuations of those instruments can stabilize.
  2. Cut the Fed Funds rate to 1%. That is half the current rate and will pump money into the economy. This should remain in effect for a minimum of six months.
  3. Immediately announce plans to auction oil drilling leases. These leases should be for areas off both coasts of the United States and in the Florida Straits between Florida and Cuba. Oil price shock was the primary trigger of the economic downturn, immediately putting forth these plans will drop futures prices in oil and decrease current prices further and faster than any other conceivable government action.

This is an action plan that will work using market forces to do the heavy lifting without large infusions of government money. The bailout plan that we were sold will probably not work in time to prevent a major recession.

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2 Responses to The most important post you will read on the economy today.

  1. Toothless Dawg says:

    Dan

    I shared this post at another forum I attend and asked for comments. The following is from a bro with similar credentials to yourself and posted with his permission.

    ~~~~~~~~~~~~~~

    As to will these suggestions help: They all have merit.

    1. This would give a breather to the market and allow some areas to stabilize. California is starting to experience some buying in the market as homes are finally getting down to a reasonable level. There is still going to be pain in the future. This will help some banks but not all. I am for getting the pain over with.

    What should be encouraged is a renegotiation among struggling homeowners on the terms of the mortgage. This should only be done for people who have a reasonable chance of making it. It should not change the principle amount as that was the deal. Maybe help with length and other terms. Some of thee people want to pay their loans and need a little help and will make good given the chance.

    2. If the Fed does cut the rate it should be no more than six months. It would help the liquidity issue for some. I mainly concerned about help for small business and keeping people working. Nothing but time will help the housing market. The construction side of the picture will not help until the current supply of houses is filled by paying people and those who can not give up their homes and get an apartment.

    The serious problem I fear from the fed using low rates is the fear of inflation. This is a real possibility.

    3. With the economy of the USA and the world facing a recession the demand for oil will fall. This is a perfect time for the USA to begin the development of offshore oil. By the time the economy does turn around the hope would be some of these fields would begin producing. It will also help give us time to get alternatives and renewable energy in place to come online.

    Finally if Congress dose not change the laws which created this housing problem in the first place then all we are doing is wasting our time. When the economy recovers the same ole crowd will be screaming they are being discriminating against because of sex, race, ethnicity etc. and are not being given a chance to own a home. Back to square one. The only criteria should be can you afford the loan and can you make the payments.

  2. SassySuz says:

    Dan
    Brilliant simply brilliant, I intend to share this with friends

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