Just give people some damn money.

[Kurt_and_Hunter]

The money supply shrinks. The fed responds by saying, hey banks, here's a trillion new dollars you can loan to someone.

If the money isn't loaned--and why would anyone in their right mind loan money on the precipice of a global depression?--then all that groovy new money doesn't become useful money in the economy. It just piles up as excess reserves. That's probably good for banks longer term but it sucks as stimulus.


http://krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/

So cut out the middle man. Send every citizen a check for $5,000... there's no real reason not to. (Aside from our Calvinist ethos.) It would be more useful (in the very short-term) than offering money to banks in hopes it somehow makes it way to a real person someday. We cannot have a healthy recovery without a healthy banking system but that's a long-term project.

The near-term crisis is a demand crisis and recapitalizing banks has turned out to not be effective demand-side stimulus. So just give people some damn money, right now. This week.

(The effect on the deficit, for those concerned about such, would probably be positive long term since nothing trashes future government revenues like a ten-year depression. And it would e a transfer to state governments as well--unlike the Feds, states get a direct cut of sales.)

And if the concern is that people will save the money or use it to pay-down debt then give everyone a free $5,000 debit card with no cash-withdrawal. (It could be used for anything you use a credit card for including utility bills and such, but not for cash advances, balance transfers, credit card payments, etc.)

[newfie11]

1. If all the money given to the banks was given to the people would we be better off.

People could have paid off the homes, cars, credit cards, loans, etc. Would this not have got rid of the problems with the banks and made life much better for the rest of us. Possibly kept people in jobs that didn't go under.

But hey what do I know. I am a podunk from rural Nebraska panhandle!

[sarcasmo]

2. Imagine every American over 18 with Ten grand, trickle up economics.

[nancyr]

3. Makes sense to me!

Giving money to banks is like pouring sand down a rathole. Our economy would perk right up if any of us had any money to spend. Of course who knows what would happen after the money ultimately runs out? Same end result probably.

[izquierdista]

4. Bankers + cattle prods

A winning combination. What's that? You can't seem to find a way to work around that foreclosure problem? Here, let me turn this sucker up to a higher voltage.....

[Voltaire]

28. I LOVE your idea

And you would only have to prod a couple of hardheaded bankers. Once the others saw that, they'd be breaking each other's necks to pony up the dough. Sissys. Narcissistic, sociopathic, sissies; every goddamned one of them.

[Kurt_and_Hunter]

42. Hard to deny it is stimulus

[Festusss]

5. My Wife said the same thing...

the other day, just completely out of the blue. She doesn't follow politics, economics, the markets, etc. She just used basic common sense. Simply brilliant!

[WinkyDink]

34. I, too! I figured some would go for cars, some for mortgages, some for college, etc. STIMULUS, Baby!

[elocs]

6. $5000 would wipe out all my debt except my car payment

and that would mean a lot when you're unemployed.

[yy4me]

7. You are right, give me a large chunk of $$ and I'll pay off 2 credit

cards. Banks happy, I'm happy. Give me just a token &250.00(Social Security recipients) and I'll pay my February electric bill-$251.00 I'm willing to put my money back into circulation. Did anyone ever do the math? How much each would we receive if the money went to taxpayers and not big banks, insurance companies and the like?

Not that I thought that would happen in a million years!

[Kurt_and_Hunter]

8. 1 trillion divided by # of citizens is about $4,000, I think.

We're a little over 300 million population so I'm assuming citizens number 250-260 million... something like that?

Maybe $6,000 to each adult citizen and $3,000 to each minor citizen. Family of four gets a check for $18,000.

Bet that would spur some activity!

[Nederland]

9. You wouldn't give the money to everyone

Just people over 18 or 21 or something like that. No sense giving my 5 1/2 year old daughter $4,000 :)

Not sure what that number is...

[Kurt_and_Hunter]

10. See above for suggestion (I added to my reply)

For practical reasons I would want minors to be represented, though probably at a reduced rate, so family household units would get a huge boost. (I have no kids so that is not self-interested.)

[Hello_Kitty]

12. You could set up a college fund with it. eom

[Proud Liberal Dem]

11. Just help find people JOBS!!!! It seems so obvious to me.

People aren't going to spend any money (or at least more money than they have to spend in order to make basic ends meet) unless they have decent-paying and relatively safe and secure jobs and if they aren't able to spend (much) money (or pay taxes- if they're not working) then it seems pretty obvious to me that the economy is just going to continue sputtering along and government is not going to get the funding it needs to operate, particularly at the state and local levels, and all of the bailouts, checks, tax breaks, etc. are NOT going to matter in the long run. Obama's stimulus plan to create more jobs was an excellent idea but the corporate "free market" sector is going to have to start putting people back to work HERE too for there to be any kind of significant and sustained economic recovery in this country. Of course, I'm not an economist, so I might be WILDLY off the mark but that's how it seems to me.

[Abq_Sarah]

22. Gee, I'd love to be able to hire more people

But in order to do that, my customers must have money to pay for my services. Temporary construction and IT jobs related to the stimulus package are not going to help most small businesses. Some people will be able to pay the bills they currently have but there isn't going to be some huge increase in consumer spending.

[Kurt_and_Hunter]

41. EXACTLY! I don't want help for me. I want help for my Customers.

I could have titled the OP "Don't bail ME out, just give my customers some damn money and I'll take care of the rest"

[lib2DaBone]

13. ..give the little guy a break for once.....

The chopped the interest deduction on credit cards, they changed the bankruptcy laws, they slashed all social safety nets while they plundered welfare. In other words, they did everything they could to screw the working class and make life as difficult as possible.

(All the while slashing wages and sending our jobs overseas)

May Ronald Reagan rot in his grave along with the rest of the fascist bankers and politicians.

[Kurt_and_Hunter]

18. works for me

[Jackpine Radical]

14. But of course if I wanted to save that $3k, I would just do all my necessary

spending with the Gubmint card & stash the $$ I would have otherwise spent.

This is not entirely an argument against doing what you say, just a suggestion that you may not get the results you would expect.

[Kurt_and_Hunter]

16. Very true. But even so, I'll bet you'd buy some extra

You are quite right that money is fungible and people could essentially convert the unexpected spending power to saving power.

I usually write a check for the electric bill but I could use the card and have more cash in my checking account.

But the small-scale wealth effect would probably lead to me picking up a few things at the store I passed on last month, not matter how frugal I was trying to be. It depends on whether I have been putting off any necessary purchases.

New shoes for a kid are a sliding scale nessescity... people seldom let their kids' shoes go to the very limit of the point where they no longer functions as shoes. So just how shabby do you let them get before you cannot in good conscience send the kid to school in those shoes?

I would guess that the acceptable level of shoe-wear decreases somewhat if you have some unexpected new buying power.

[Neecy]

15. well.....

I think the problem with not bailing out these banks isn't entirely the frozen credit lines, but with FDIC.

How much in deposits does Citi and BofA currently have? Those are all federally insured and if these two banks alone go down I think our potential liability is higher than the bailout amounts.

[Kurt_and_Hunter]

17. Yes, which argues more for quick aggressive action

We are on the hook for BIG $$$ if everything falls apart so being profligate today is actually long-term conservative.

The cost of juicing the economy is nothing compared to the costs FDIC would realize if all the banks went south, to cite only one example of the kind of unfunded obligations we would face in a worst case scenario.

Every tick up or down has immense implications for future spending and deficits.

[garryowenII]

19. For the cost of the stimulus bill...

The fed could have paid off nearly 90% of the existing mortgages in America. That would have surely stimulated the economy with little to no mortgaes to pay.

I'm not saying that is a good idea, but the current plan just plain ol stinks. If portions of the plan don't take effect until 2-3 years down the road can they really be called "STIMULUS?"

We would be better off if they just gave each taxpayer a $50k check. Better yet how about a $50k tax credit for each new employee hired and retained throughout 2009, or a $50k tax credit for new home purchases in 2009. There were better ways, but the bill was rushed and it stinks.

[grantcart]

21. To pay off all of the mortgages at Citibank only, one bank

would exceed 1 trillion dollars.

[garryowenII]

23. True, but...

The cost of the stimulus bill is not capped at 1 trillion. The CBO estimated cost of the plan is in excess of 4 trillion over through 2014.

[grantcart]

24. The total value of all mortgages in the US exceeds 9 trillion dollars

The stimilus bill is capped it was passed for a specific amount.

You may be thinking of actions of the Federal Reserve which, as an independent authority, is given legal authority to take certain actions but is not capped, except by its ability to secure loans.

http://www.bis.org/publ/wgpapers/cgfs26lehnert.pdf

[Nicholas D Wolfwood]

45. Your proposal would cost a minimum of $15 trillion.

Nice try though.

[grantcart]

20. One of the problems is that they aren't really excess reserves at all

On the balance sheet the banks are still holding on to a lot of worthless paper. In fact virtually every bank in America is 'underwater'. If the normal standards were applied then they would all taken over by the FDIC. So when the chart shows 'reserves' it is highly deceptive because the main assets of the bank (the loans they have given out) at an artifically high level. If the loans were adjusted for their real market worth there not only would be no reserves but the banks would be in negative territory.

Bank of America and Citigroup together have a combined balance sheet of 1.9 trillion dollars.

The top 10 banks in America account for 50% of the total bank deposits/lending in the US.

I wish that there was a quick radical fix, but I don't see it. More "very shovel ready infrastructure projects" would be helpful, but most projects will take months to bid out and get going.

Your specific suggestion would solve some of the problems in the short term and would also help the factories in China but I find it hard to see how it will help creat American jobs.

A more immediate answer to the problem that you have diagnosed would be to give banks 'vouchers for loans' instead of loaning or buying shares in their company. They would get money that would have to be loaned.

The problem is much much larger than is currently perceived.

[nbsmom]

25. Where did Roubini get his ##s then?

RGE Monitor estimates $1.7 - $1.8 trillion

[grantcart]

26. I am guessing that they projected a 20% loss based on total mortgage value (9 trillion)

Your graph makes my point about the OP numbers. The graph for the OP shows 'excessive reserves' at 800 billion. Using your numbers the banks actual reserves, if the losses were taken on the books, would mean that the banks are 1 trillion underwater.


This is why banks aren't loaning money. From their point of view they need another 1 trillion dollars to become "balanced" and allow them to start loaning again.

This could take the form of deposits, bonds, government loans, etc. While this looks very depressing it should also be noted that if there is even a small recovery in the property market then that would also significantly reduce the 1 trillion shortage.

[Kurt_and_Hunter]

32. The immediate-term role of employment is not so large

If we could have full employment tomorrow, even if people were being paid to watch TV, that would be a huge change.

But no employment measures are that dramatic. Jobs are central to a sustainable recovery but they are relatively slow to develop in practice and not central to the most pressing demand problem.

Something like 85% of employed Americans say they are worried about losing their job and the numbers suggest they're serious, because they're hoarding money.

In terms of overall economic activity that effect is probably much larger short-term than whether actual unemployment is 8.3% or 8.9%.

A dramatic psychological circuit breaker is needed, IMO, because the mass psychology can get so bad in the next year that it will be a profound drag on any attempted recovery.

I am seeing small companies go out of business without a fight... like the owners cannot even imagine things getting better. They seem almost relieved. People are buying canned food and survivalist gear because unemployment is 7-8%? Yes, they are.

And fire-sides chats don't do it in the TV age.

Anything that is big and hits very nearly everybody and with minimal hassles is fine with me. Cash payments, refinance everyone's home (won't work if it isn't everyone), refinance $10,000 of consumer debt no questions asked... 50% personal income tax rebate TY-08 up to $200,000 of income in this years current refund cycle... whatever.

[grantcart]

36. Whatever solution is considered it is clearer and clearer that

liquidity will not return until property prices bottom out and make even a symbolic return.

Even a 3-5% increase in property prices would be dramatic.

The psychological issues you are talking also effect the banks. Banks will not loan more money out while they see their assets (their loan value) diminish every month.

For this reason I think that the dramatic circuit breaker that is needed must be jobs because when people are employed they will make their mortgages and start buying property again.


Even a substantial cash wash, which would bring some much needed momentary relief, will not solve the liquidity problem.


Your OP graphically showed the problem. Banks appear to be hording cash. Why? Because they have no confidence of the asset side of their balance sheet. The poster up thread that showed the 1.8 trillion in bad debt still being held in bank books show why.

Banks are afraid that 2 months from now they will have to start writing off these debts and they will be out of business.

[Kurt_and_Hunter]

39. I don't think employment can be a circuit breaker for practical reasons

Though you and I may be thinking of different circuits. (I hope you know that I always incorporate what you have to say into my general picture of things, though it sometimes take a while to settle. When I state the obvious in replies it's for the benefit of hypothetical people reading an exchange, not for your benefit.)

If the government reached full employment fast by brute force (putting people on the payroll with no job beyond existing), sure. That would break any circuit. But real jobs are too slow.

You and I may be thinking in different time-frames. What I propose is comparable to FDR's bank holiday... a big tactical/symptomatic attack on the most malignant symptom to stabilize matters short term.

I agree 100% that the perception that jobs are easy to keep and easy to get is central to recovery in 2010-2011 but what could possibly create than impression in 2009? (Short of mass-creation of make-work jobs)

A perceived bottom in housing would be a big help, as you say. But such a thing takes a while to happen, more of a while to be detected and an even longer while to be integrated into mass-psychology.

On the other hand, we could turn water-cooler talk into "what will you do with your check?" very quickly.

I am looking at consumer crisis-psychology, employment and bank stability as overlapping tranches. Call it six months, two years and five years.

The banks are not going to lend no matter what because, as you note, they cannot really afford to.

The amounts of short-term money it would take to get banks to lend is much larger than the loans generated. 20%, 40%... whatever it is, it's not 90%. I think there is much to be said for the proposition that expecting the banks to address consumer demand merely stresses out everybody.

The government can address short-term demand unilaterally while letting banks rebuild their balance sheets in a less frenzied way.

There really is an ugly Calvinist dynamic in play. Paying someone to breathe is less useful to the economy long-term than paying them to build a bridge but short-term it's not such a big difference. And it is obviously easier to create breathing jobs than bridge building jobs.

The difference is the perception that some ordinary person might get something for nothing.

Unfortunately people consider stimulus checks an approach that was tried and failed. The quarterly 2008 GDP numbers tell a different story. The stimulus checks did as much as could be reasonably expected from $150 Billion.

Had that program been 800 billion instead there is no telling where we would be today.

But this much is likely given what we know now: 800 billion of stimulus checks instead of 150 billion would have saved the government a lot more than 650 billion in the long run.

[grantcart]

43. Even if your correct I don't see any political calculus that would get it passed

Another 800 in shovel ready infrastructure has the caveat that even if it doesn't have the stimulus effect that was expected it will leave a bridge or a building for the next generation.


What the numbers in this thread show (i.e. 800 billion in 'excess bank reserves' and the 1.8 trillion in bad loans from the bank) is that nothing is going to happen on the liquidity front until there is bottoming out of the property market.

I think that the administration now sees this as well and that is what is behind the effort to help mortgage payers in yesterday's plan.


I find your threads to be the most informative and the various comments by repliers to be very thought provoking. My lateness in response is due to windshield time and not lack of interest.

[Kurt_and_Hunter]

47. I can see the political will for this:

Tax Year 2008 full refund (including FICA) up to $5000 for individual filer ($8000 for joint filers)

Kind of like the Obama tax-cuts but way bigger.

Nobody would get anything above what they paid.

Checks would start going out fast.

Republicans could not possibly maintain uniform opposition to it. (Nor would I expect uniform Dem support)


BTW, this article/paper is pretty intriguing. (The first and last sections in english... the equations in the middle are well beyond my ken.) Lays out a case for inducing inflation and somehow convincing markets that the inflation will remain in place going forward.

http://web.mit.edu/krugman/www/japtrap.html

[cwcwmack]

27. absolutely...

$5000 per individual, $12,500 per household.

I'd pay off debt, buy the family new clothes and shoes and replace the tires on the car and eat some fresh healthy food for a change...

in other words... the money goes back into the local economy where it is taxed and fixes schools, roads and hires more police. Is this REALLY so difficult?

[Voltaire]

29. I like the idea in principle

But there would be jacklegged companies springing up overnight with the sole purpose of parting fools from their money. Many folks would be no better off even if they did get a cash infusion. Gotta factor stupid in there someplace.

[cwcwmack]

30. it's ok...

the money would go SOMEWHERE.

If they buy more BEER, then the Beverage company truck driver earns OT

If they buy a big screen TV, BEST BUY hires some more kids.

Hell if they buy dope from the grass slinger on the street corner... the grass slinger goes and buys Doritos, Taco Bell and rents Dumb and Dumber at BlockBuster...

it's ALL good.

[WinkyDink]

35. Better than factoring in graft and grand larceny (like those billions are all going to be accounted

for!).

[Ediacara]

31. That would be awful

I'd have $5000 worth of crap I don't need.

And all my credit card and student loan debt.

If I could use $5000 to pay down my debts, then I'd have more free cash with every pay check to buy stuff.

[Kurt_and_Hunter]

33. Nobody would force you to blow it

You could use the card to pay for your groceries for the next 3, 4, 5 years. You could use it to pay your utility bills. Using it for necessities would free up cash for saving, paying down loans, etc..

Or you could have a riotous spending spree or frivolous vacation.

Maybe you would spend the whole thing at the grocery store to fill up a food-bank.

[Geek_Girl]

50. I'd rather see the money go to a major public project

That would grow the economy longterm and give some people good paying jobs.

[jeanpalmer]

37. It worked in the spring of 2008

somewhat. The $600 checks sent out were credited with propping up GDP in the 2nd quarter. It seems to me Obama's program takes too long. By the time it takes effect, it may be too late. Every day the downward spiral continues. A sense of urgency is needed.

So yes, send out the checks. $5000 to every household would cost about $650 billion. Send that out now, and another $1000 per quarter for the three following quarters. A $trillion is relatively small compared to the overall amount now being directed at the problem without much effect. Obama is making it too lengthy and complicated. He should have one goal -- arrest the downward spiral -- forget all these other goals until the main one is achieved. Tax rebates and other forms of direct payments have been used frequently in the past in recession. It's way past time to do it. Can't figure out why they're not doing it.

[Kurt_and_Hunter]

40. Precisely! The stimulus checks did as much as $150 Billion could possibly do

From today's perspective we can see what a joke $150 Billion was... that's practically a bail-out rounding error!

But the fact that the checks were way too small to change anyone's prospects does not invalidate the concept.

[MadHound]

38. Oh yeah, let's rack up another 1.5 trillion in debt

While simultaneously cranking the inflation rate up, possibly to hyper-inflation levels.

Do you really want to saddle our kids with more debt? Do you really want to kick off a round of hyperinflation on top of everything else?

Do you really understand basic economics at all?

I think not.

[BreweryYardRat]

44. Yeah, that's the problem.

Give people $5,000 cash, and prices of basic goods will skyrocket as retailers seize the opportunity to gouge.

Since I don't understand much more about economics than how basic hyperinflation works, can you answer something for me? If that $1 trillion had gone to pay down people's debt, mortgages, or rent, instead of a direct funding of banks, it wouldn't have produced hyperinflation, correct?

[Kurt_and_Hunter]

49. would probably have roughly the same effect either way

If people's debts are lower they spend more. f people paid off debt and did not spend more then it would be somewhat less inflationary and thus less stimulative. We actually need some inflation, not as a side effect but for its own sake.

We have a sinkhole of asset destruction and we are shoveling money into it.

Some say, "this will lead to terrible inflation" because common sense suggests that. But the sinkhole is a once-in-a-lifetime prefect-storm kind of thing that nobody can analyze with confidence.

Nobody really knows how much money the hole can eat so we need to keep shoveling until we see some sort of inflation. Then we can worry about how to proceed.

Since the Fed has no interest rates left to cut we have plenty of means to fight inflation, but are running out of means to spur growth. In that environment inflation is--though never something to be taken lightly--a distant and relatively manageable threat.

[earth mom]

46. Yep-Give the money THEIR OWN money!

:thumbsup:

[Baikonour]

48. 5,000 dollars would be a god send.

And I think most other Americans would agree.