JBD

My buddy Ross Nash forwards to me an "alternative bailout" that in effect says that instead of spending $85 billion on bailing out AIG (or $700B on mortgage-based credit and security firms) why not just send that money to the people, and let them spend it?

See below the fold for the "plan". Click where is says "more"

Sounds good, right? One problem - this idea is simply inflation. If you want to see what happens when countries try this without having a counterbalancing commodity-based hard-currency income (oil, diamonds, ag goods, etc) try, for a recent example, Zimbabwe.

In comparison, these "bailout" plans we're seeing, including the $25B for the automakers, the nationalization of Fannie & Freddie, and the various other multibillion dollar deals you've read about in the last few weeks, are not direct give-aways of tax dollars, they are instead sub-standard investments made by the government that replace the the good investments they normally make.

So instead of (for example) selling Treasury bills, the Fed has purchased ownership (equity positions) in these failed enterprises, or has guaranteed loans for them (reducing the effective cost of that loan) and will over time earn a return on those investments that is lower (sometimes much lower) than the return everybody expects.

The result is that the everybody who normally borrows money from the Fed will find less of it, causing the cost of money will go up without any attendant core reason (like crop failure, oil shortage, speculation-caused scarcity, inflation), and as a result the economy will slow down and shrink - a recession. This is the same effect as if the Fed upped the prime rate - money costs more for everybody, so they have less, and can do less. This is what happened in 80-81 when the Fed killed inflation with high interest rates while Reagan boosted the economy with lower taxes.

Eventually, the Fed will sell off the bad investments and return the money to the good investment pool, or our national productivity growth will catch up and wash out the effect of reduced available cash, and the economy will start growing again.

What the "plan" below calls for is a larger form of what we saw this spring - straight cash payments to taxpayers, from taxes collected last year, requiring the Congress to either reduce spending (hah!) or add to the budget deficit.

What this "plan" fails to realize is that pumping cash into the system without a rational basis for the value of the cash is, by definition, inflation. Goods would become more expensive because people will suddenly have cost-free money to spend, and, instead of paying their mortgages or saving for college as the "plan" envisions, people will keep their current leveraged debt, and spend the new money.

So, fugedddaboudit.
This idea sounds just crazy enough to possibly work, so naturally it  
won't be given serious consideration.  How great is our bureaucracy!!


Hi Pals,

I'm against the $85,000,000,000.00 bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 to America in a We  
Deserve It Dividend.

To make the math simple, let's assume there are 200,000,000 bonafide  
U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman  
and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billion that equals  
$425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It  
Dividend.

Of course, it would NOT be tax free.

So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in thei r pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it'll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent's medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else


Remember this is for every adult U S Citizen 18+ including the folks  
who lost their jobs at Lehman Brothers and every other company that  
is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead  
of trickling out a puny $1000.00 ( "vote buy" ) economic incentive  
that is being proposed
By one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every  
adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here's my rationale. We deserve it and AIG doesn't.

Sure it's a crazy idea that can "never work."

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in  
Washington DC

And remember, The Birk plan only really costs $59.5 Billion because  
$25.5 Billion is returned instantly in taxes to Uncle Sam.

Ahhh...I feel so much better getting that off my chest.

Kindest personal regards,

Birk

T. J . Birkenmeier, A Creative Guy & Citizen of the Republic

PS: Feel free to pass this along to your pals as it's either good  
for a laugh or a tear or a very sobering thought on how to best use  
$85 Billion!!

Posted by: JBD at 08:54 PM | No Comments | Add Comment
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