The government would be better off forgetting deficit reduction during this recession and to focus on increasing employment so that citizens can earn the money which can be spent into the economy in order to help it grow.
Or, the economy could be stimulated in the manner that Michael M. Thomas suggests in an article on Naked Capitalism; that is, distribute tax-free money to every US taxpayer so that trillions of dollars can directly support the people just as trillions of dollars have supported the banks and large corporations (with TARP, discount window borrowing, QE infinity, etc.)
Michael M. Thomas' [sic] Solution to the Crisis
By Michael M. Thomas - Naked Capitalism
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Institutionally, what should be done immediately is to separate the good assets from the dubious. In the case of the “banks,” hive off depositary operations and wealth management from trading and arbitrage. At AIG, put a fence around the real insurance operations and let the CDS commitments go. Wipe out derivatives contracts that had no real third-party assets at risk (possibly as much as $30 trillion of “naked” puts,) that were nothing more or less than bets against the solvency and credit rating of insurers like AIG and Lehman, and let the rest negotiate settlements as best they can. All the crap can go into what I heard one English financial analyst on WNYC call “a giant international cesspit,” and let the scavengers fight over it like rats in a garbage dump. Isn’t this the kind of market solution propounded by (speaking of rats) the likes of Larry Kudlow?
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So let’s go back to the “Three Guys” scheme, as history will doubtless christen it. At $2.5 trillion, the money’s about the same as Washington plans to spend. Any way you cut it, relief is going to be funded in the people’s money, so why not let the people decide how to spend it? To some taxpayers, $25,000 will be a lot of money and will be spent on life’s necessities or to ease household financial crises: to pay off debts, to pay tuition, to catch up on mortgages. Others may use a sum like this as a down payment on a house. Businesses can be launched on $25K. To some, $25K won’t be that big a deal, so they’ll invest it or put it into a bank. Along the way, as it passes from hand to hand, as one person’s expenditure becomes another’s revenue and profit, it will become taxable, and Uncle will start to recapture his investment.
It really doesn’t matter how and where it gets spent and saved, because never forget, children, that every dollar spent is somewhere saved. The key is to keep that money hopping. To keep breaking it up into pieces, and moving those pieces along. If it coagulates in financial companies anxious to build up capital to support their CDO/CDS garbage, the main if not the entire purpose of the exercise is defeated. And this is exactly what is happening now.
It has got to stop. Parents of my generation were raised to understand that children are not to be rewarded for bad behaviors. Sadly, that view has faded. It’s time to turn back the clock and give the money to the 99,000,000 of us that had nothing to do with this mess!