How to Save the U.S. Economy

How to Save the U.S. Economy

Richard C. Cook
Global Research
October 10, 2008



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.

stock market

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.

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.

* A d v e r t i s e m e n t
* Endgame

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 banksâ€"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.

http://www.globalresearch.ca/index.php?context=va&aid=10508