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October 14, 2008
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Half a decade. That's how long I've waited to
write this article.
For half a decade the only articles I've been able to
write were the ones that explained that, despite "expert" commentary
to the contrary, the nation was headed toward a major economic
collapse. And then that the collapse was beginning. And
then to repeat, yes, really, there's going to be a collapse.
And then, finally, I guess now you see what I meant.
The reason I've been able to predict exactly what was
going to happen to the economy half a decade ahead of time was not
because I'm psychic. It was because during that period, with
Republican conservatives in control of the government, there were no
significant changes of policy. And so the disastrous course
that was set beginning with the first round of Bush tax cuts just
trickled on and on, like a slow motion bullet headed toward the
nation's heart but with the nation pinned there by the GOP,
blindfolded by media nonsense, and so doomed by an easily escapable
problem.
Any significant change of policy during that time
could have headed off this disaster. But neither Republican
nor Democrat ever really hit the mark.
Until now.
Senator Obama's plan was shocking for many reasons.
So far ahead in the race, it was unexpected that he would release
such a bold, detailed plan. But more than that, it was truly
shocking to see, for the first time in a generation, a politician
hit a mark so directly on the head. Delivering exactly to the
true middle class, rather than to either the poorer people or the
richer, Obama's simple, relatively cheap economic rescue plan, if
enacted, would immediately and significantly alter the course of the
American economy for the better.
Here's why this plan blows all previous ones away.
The first part is pretty simple and only somewhat
significant. His offer of tax cuts directly tied to the
creation of new jobs - offering $3000 per new job created in
America. For years one of the things I pointed out as a flaw
in the conservative dogma was that they claimed giving tax cuts to
businesses would create jobs, but they never attached any mechanism
to the cuts that made it so. They simply handed money to
companies, which could decide to use the money for bonuses for their
CEO's - which is what they did - rather than create jobs. If
they truly wanted to use tax cuts to business to create jobs, I
wrote for years, there had to be something in the cuts that required
them to be used for hiring.
Obama's plan does exactly that. And notice the
last part of his plan - "$3000 per new job created in America."
Previous cuts allowed companies to spend their cash overseas.
Obama explicitly stops this.
What you see here is a fundamental shift - Obama is
actually looking out for America and for the American people.
The Republicans were not stupid. They knew if you just handed
cuts to businesses without specifying what the money had to be used
for, it would go to bonuses and overseas projects. They just
didn't care. They were the rich CEO's and they just wanted
companies to get richer.
What Obama proposes in this part is simple, but
massively different. For the first time in years, the American
people are not having their hands tied behind their back while the
government spits directly in their face. No lies, no games, no
looking the other way. Barack Obama knew what needed to be
done, but didn't put his trust in businesses, as conservatives do.
He, in effect, instituted oversight and regulation all within a tax
cut. And with that he got at the fundamental flaw of the
conservative economic scheme: the idea that businesses act
with America's best interest in mind, rather than for the profit of
their executives and stock holders, which we all know is actually
the case.
This part of Obama's plan is very nice. But
what he came up with next was not only brilliant, but the most
significantly positive step one could have imagined to immediately
fix what is broken in the American economy - and in such a way that
it has no real downside.
Barack's plan would allow people to withdraw 15% of
their retirement funds, up to $10,000, in 2008 and again in 2009.
Now why is this such a big deal? And when I say
big deal, I mean so big this could single-handedly save the American
economy and head off depression and collapse.
Here's the rub: the average American family
currently owes just under $10,000 in credit card debt.
What was destroying the American economy - and going
to continue to destroy it for years - was that the American people
weren't just spent out, they were overspent. After decades of
spending more than they actually had thanks to easy credit, not only
were they going to have to cut spending to get back to what they
could afford, but all across the nation, people were completely
slamming the door on spending to focus on trying to pay down all the
debt they had accumulated.
Now with the numbers we've been hearing lately,
$10,000 might not seem that much. But for your average middle
class family, to pay that off while still getting by would literally
mean years - two to five years - of eliminating virtually all
non-essential spending. Cars, vacations, even going out to
dinner, all things big and little were getting cut from household
budgets left and right. With 2/3 of the American economy
consumer spending, this was the problem that was destroying our
nation.
Now look at Barack's plan. A family can,
without penalty, immediately take $10,000 from their IRA and,
instantly - instead of crimping and cutting for 4 years - have that
debt be gone. And for those a little deeper in, they could do
it a second time right after January, since it's allowed in 2008 and
2009.
There are a number of very important things to notice
about this plan: unlike a tax cut stimulus plan, this doesn't
cost the government a massive amount of money the nation would have
to borrow. This plan allows people to help themselves get out
of the mess they made. And, at the same time, it both:
1)1 injects a bunch of cash into the economy, particularly helping
fend off bank collapses by having people be able to pay off their
debts - all without government borrowing - and, 2) gets people
instantly out of the holes they are in, enabling them to begin
spending again, and so instantly reviving every layer of the
economy, from the corner pizza store to the car dealer.
The best part of this again, like with the first part
of Barack's plan, is that more than just being a new policy, it is
an important change of philosophy and a more advanced, doubly
positive solution. Rather than the government bailing out
those in trouble, this allows people to be bailed out but instead by
themselves. Beyond this being better for the nation's economy,
it is the philosophy of self-reliance and responsibility.
Most notably, this plan, unlike previous plans
offered by Democrats, which helped only the poorer among us, or by
Republicans, which helped only the richer among us, this plan
directly hits the mark of helping the one group that always gets
missed: the true middle class. If you are poor, this
part of the plan won't help you at all. You won't have much of
a 401(K), if any, and so won't have any funds to draw on. And
if you are rich, $10,000 won't mean much one way or another.
But for the hard working people in the middle, people
earning typically from the $30K's all the way up to $200K, this will
be a lifesaver and game changer for each and every household.
Even for families that can only withdraw $2000, that would still be
years worth of paying down credit cards, since families with less
would be able to pay less each month, and would be caught in the
credit card interest cycle. Suddenly, boom, $2000 gone in
2008, another $2000 in 2009. Back in the game.
And for the others who can take more, they can either
knock out credit card debt or, for those who mortgage woes, use that
$10,000 a year to stay afloat for a while - $10,000 can buy a lot of
time for a mortgage holder.
And again, since the funds are personal funds and not
a tax handout, it is like a massive stimulus program and bank rescue
program combined with no real cost to the nation whatsoever.
That is true brilliance.
This part of the plan could put people back on their
feet in an instant and save countless banks and lenders by enabling
people who would have otherwise gone bust to meet their obligations.
The only question anyone could have about this plan
would be won't it hurt at retirement time? But truly, if
everyone keeps crimping their spending for years to pay down this
debt instead of doing it the way Barack's plan does, so many people
would lose their jobs due to economic retraction that they would be
far worse off come retirement time.
It's been a long time since I've been able to write
an article that had any positive economic news in it. It's
been a long run of dire and dark. But now there is hope.
If this plan is enacted, combined with Obama's claim that he would
launch an all out drive to build a new alternative energy economy,
not only can America avoid a massive depression, but America could
pull out of this recession in rather short order and, even better,
climb to economic heights never seen before by bringing home all the
wealth that's been going over to the Middle Eastern oil cartels,
Russia, and Venezuela.
The third part of Obama's plan is also very sharp.
State and local governments are in dire straights. Declining
property tax, etc are sending numerous of them toward bankruptcy.
Obama's plan would set up an emergency loan agency just for state
and local governments. You know where they've had to go
before? To a company called AIG - yes, that one we've had to
bail out twice now, while it spends half a million on posh retreats.
No more would local governments have to go to AIG - nor go bankrupt.
Again, philosophically, Obama is ending the era of
putting America's trust in business. No more trusting AIG to
back our governments. We are instead going to trust our
government over the businesses. A fundamental shift, and not a
moment too soon.
The last part of Obama's plan is a bit of a snoozer -
a 90-day freeze on foreclosures. Not something too exciting
one way or another. But it does buy some time for the other
parts of the plan to be enacted, as well as for people to make plans
for dealing with their mortgage situations.
It can not be overstated how important and miraculous
this plan rolled out by Barack Obama is. And for a candidate
who was far enough ahead in the polls that he could have played it
safe and avoided putting any plan out there, it was a brave move,
and much to the nation's benefit.
Politically, by truly putting tangible economic
turnaround out there for the entire American middle class - pending
the election of Obama and Democrats so they can pass this bill right
after the election - Obama has won the pocketbooks, and likely the
hearts and minds of millions of middle class voters. They say
people always vote their pocketbooks. For millions, this plan
would lift misery and stress and replace it with a return to normal
life, with no bill left to pay down the road. With a vote for
Barack meaning $10,000 will instantly be put in their pockets, it is
hard to imagine anything but an even more massive swing toward
Obama's candidacy by middle class voters. Look for a possible
bluing of many currently red states, from the plain states to parts
of the south.
I don't know where this idea came from for Obama - if
it was Warren Buffet or another advisor who gave it to him.
But for Obama to choose the plan that exactly hit the mark, and in
the gentlest, smartest possible way, he has shown in one of
America's most desperate moments ever that he has the vision and
leadership to right the nation's ship amidst the wildest storm.
Bravo. And thank you, Barack, for at last
allowing me to write an article about a potential positive
development for the American economy.
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