Mosler’s 11 steps to fix the economy

January 8, 2010

by Warren Mosler

1.  A full ‘payroll tax holiday’ where the US Treasury makes all FICA payments for us (15.3%).  This will restore ‘spending power’ and, by allowing households to make their mortgage payments, will fix banks from the bottom up.  It may also keep prices down as competitive pressures may lead businesses to cut prices, passing on their tax savings to consumers even as sales increase.

2.  A $500 per capita federal distribution to all the states to sustain employment in essential services, service debt, and reduce the need for state tax hikes.  This can be repeated at perhaps 6 month intervals until GDP surpasses previous high levels at which point state revenues that depend on GDP would be restored.

3.  A federally-funded $8/hr job and healthcare benefits for anyone willing and able to work. The economy will improve rapidly with my first two proposals and the private sector far more readily hires folks that are already employed. In 2001 Argentina implemented this proposal, putting to work 2 million people who had never held a ‘real’ job. Within 2 years, 750,000 of those 2 million were employed by the private sector.

4.  Making banks utilities. The following are disruptive, serve no public purpose and should be done away with:

–Secondary market transactions
–Proprietary trading
–Lending against financial assets
–Business activities beyond approved lending and bank account services.
–Contracting in LIBOR. Fed funds should be used.
–Subsidiaries of any kind.
–Offshore lending.
–Contracting in credit default insurance.

5.  Federal Reserve — The liability side of banking is the wrong place to impose market discipline.

The Fed should lend in the fed funds market to all member banks to ensure permanent liquidity. Demanding collateral from banks is disruptive and redundant, as the FDIC already regulates and supervises all bank assets.

6. The Treasury should issue nothing longer than 3 month bills. Longer term securities serve to keep long term rates higher than otherwise.

7.  FDIC

–Remove the $250,000 cap on deposit insurance. Liquidity is no longer an issue when fed funds are available from the Fed.
–Don’t tax good banks for losses by bad banks. This serves only to raise interest rates.

8.  The Treasury should directly fund the housing agencies to eliminate hedging needs while directly targeting mortgage rates at desired levels.

9.  Homeowners being foreclosed should have the option to stay in their homes at fair market rents with ownership going to the government at the lower of the mortgage balance or fair market value of the home.

10.  Remove ‘self imposed constraints’ that are disruptive to operations and serve no public purpose.

–Dump the debt ceiling – Congress already votes on spending and taxes.
–Allow Treasury ‘overdrafts’ at the Fed rather than forcing it to sell notes and bonds. This is left over from the gold standard days and is currently inapplicable.

11.  Federal taxes function to regulate aggregate demand, not to raise revenue per se, and therefore should be increased only to cool down an overheating economy, and not to ‘pay for’ anything.

Comments

What!?

All of these, except maybe #4 are completely insane and just straight up Marxism. Why don’t we just skip to the chase, organize everybody into worker’s armies and have the local Soviet issue ration books.

Posted by Dave | Report as abusive
 

A couple of so so ideas, overall, those 11 steps won’t fix anything.

Posted by Rick | Report as abusive
 

#6 – Wouldn’t the Treasury only issuing 3 month maturity bills be a terrible idea? We would have to continually roll over *huge* amounts of debt and would have a ton of interest rate risk exposure.

Posted by Matt | Report as abusive
 

Eleven proposals of certifiable lunacy. Ugh! Except for its ability to “create” money out of nothing, the federal government is already insolvent. Where does Mosley expect all that money to come from, except by adding more trillions to its debt?

Posted by Ken S | Report as abusive
 

It’s absolutely amazing to me that a clawback of bonuses and forced reduction in bank employee wages, AND a massive reduction in gov’t payrolls & pension payouts isn’t even CONSIDERED here.

The problem is gov’t is funneling money to the two least productive segments of society: *bankers* and *government*.

If this s**t keeps up, all the productive members of society will either leave, or just stop producing. Why bother?

Looking more and more to me like the reset button needs pushed, and *will be pushed* in a year or so…

 

Is there any doubt these would help the economy in the short term? As long as we never have to worry about the long term ramifications, these are awesome ideas. As long as we are going to ignore the long term ramifications, a better fix is to just send every American household a check for $50,000. The economy is instantly healthier than it’s ever been and we won’t have any worries. Well, at least for 12-18 months. Then we’ll just everyone another check I guess.

Posted by Steve Roberts | Report as abusive
 

Some interesting ideas, but #9 seems a bit “off the wall”. It’s fine to let the former homeowners stay as renters, but I can’t see the value in having the U.S Government become the proerty’s owner. Can you imagine the complications and cost of having the government trying to act as a landlord? Besides, how do you determine the fair market value unless the market decides that (via auction)?

Posted by Randy | Report as abusive
 

uhh …. aren’t we already doing alot of these and precisely why things are not getting better in the real economy ?

Posted by bob connors | Report as abusive
 

WTF

 

Without an understanding of the the dynamics of a modern monetary system which underlie these proposals, they can seem like lunacy. I would urge all of you to go to Mr. Mosler’s website, moslereconomics.com, and start with the link at the top to “Mandatory Readings”. Post any questions you might have to the blog – Mosler and those of us who hang out there are usually pretty good about answering questions.

Posted by Jim Baird | Report as abusive
 

FINALLY SOMEONE WHO UNDERSTANDS HOW A MODERN NATION’s ECONOMY WORKS! AND WHILE MOSLER SWIMS AGAINST THE CURRENT, THE GENERAL OPINION JUST SITS THERE LAUGHING AT HIM. BUT IN THE END, LOGOS AND RATIO WILL PREVAIL… IN THIS BEST OF ALL WORLDS…

Posted by james | Report as abusive
 

In a world where many call themselves leaders, but very few truly are, Mosler gives birth to a perhaps new, perhaps long forgotten idea of leadership that goes beyond conventions… the return of public purpose is near Mosler tells us… and while the general public and its conventional wisdom “enjoy the comfort of opinion without the discomfort of thought”, Mosler is relentless in his thinking and his logic. Refusing to succumb to this myth of how our national economy supposedly works, Mosler is not afraid to look beyond the “clichees of our forebears”, to look beyond “a prefabricated set of interpretations” and to look this “great ennemy of truth” straight in the eyes and spread the word of logic…Thank you Mr. Mosler!

Posted by james | Report as abusive
 

Right on Warren! Right on to the White House in 2012!

Some of you dudes need to hit the “Requred Reading Section” LOL!

Posted by Dave Begotka | Report as abusive
 

jeebus, Rolfe, did you get a group rate?

 

Warren, I’m sure you’ve noticed that those who specialize in sarcasm and insults, not only never offer specific data to support their comments, but they never have anything constructive to say.

Their stock-in-trade is to claim that any new idea is “insane.” Every great mind through history suffered the same thing. All great new ideas have been jeered by the hyenas.

Keep fighting.

Rodger Malcolm Mitchell

 

He’s a loon.

In a time when our “innovations” are blowing up in our faces, Mosler wants *more* innovations.

LOOOOOOON.

Posted by Justin | Report as abusive
 

In every situation, successful contingency management eventually has to be driven by data reporting operational reality, not ideology. The level of knee-jerk, ideological scorn heaped on Mosler’s well-reasoned and operationally-based suggestions underscore the dire straits of our electorate. Any group having dug itself into a hole will look upon rational change as foreign and distasteful. Hopefully all the current critics will repost after actually reading the background to these suggestions – originating from years of work at http://www.moslereconomics.com
If nothing else, start with “The 7 Deadly Innocent Frauds” http://www.moslereconomics.com/wp-conten t/graphs/2009/10/SDF.doc

Posted by Roger Erickson | Report as abusive
 

Finally, people start listening to Mosler. This is not some loon, this is a former bank owner and brilliant economic mind who actually understands how the modern fiat monetary system works (as in you don’t “borrow” anything to make fiscal payments…it’s absurd that people still think that way…gold standard is long gone people!!!) You would be well advised to check out Mosler’s economics page before dismissing his ideas.

Posted by jason | Report as abusive
 

I really hope this catches some sane person in the national media so it can get some publicity. Sorry it takes some background to understand, that’s why the avg person isn’t running a bank and why Mosler is raking in $’s and fortunately willing to share his ideas with the rest of us.

Posted by Tom | Report as abusive
 

Go Warren!

Posted by Jill Korenaga | Report as abusive
 

Before any of you numbskulls start screaming socialism or Marxism I encourage you to do your homework and challenge yourself to read in detail Mosler’s mandatory readings. It is about time our conventional wisdom catches up with reality. Humanity’s history is littered with examples of times when we held onto our historical misperceptions of reality which did nothing but hold us back. Didn’t some think the world was flat, a quicker rout to India could be found by sailing to the West, or my personal favorite, the establishment ridiculing Billy Mitchell after WWI saying airplanes would never be a factor in waging war.

Posted by PaulM | Report as abusive
 

Brilliant!

Too bad it takes 100′s of years to change obsolete institutional structures as people are comfortable with what they know even if it leads to failure.

It doesn’t make it any easier that very powerful people have a lot of money invested in the current status quo.

Posted by David | Report as abusive
 

The electorate is in dire straits. How could it be otherwise, when they’ve been “educated” to believe that any damn fool’s opinion is a good as anyone else’s; when their “education” is nothing more than a species of brainwashing; when they largely read nothing and spend their time watching the television; when “thinking” for them means mental maneuvers that elicit comfortable emotions; and so on and on and on. For heaven’s sake folks, this is a country that re-elected George Bush! How stupid and passive and brainwashed can you get?

Posted by Sam | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •