LOOKING FOR SOMETHING

YOU CAN DO PERSONALLY

TO HELP THE ECONOMY

 IN A BIG WAY NOW?

Here is a new idea for dramatically helping to ease the current economic pain. 

 

Before expounding on this “silver bullet” for helping fix the economy, you may appreciate a background review:

 

First, The Background:

 

If a tax payer sold a house, or stock or almost any capitol asset in 2008, he can only deduct the loss against any gains (which were few and far between in 2008).  However, the IRS allows the taxpayer to deduct $3000 of the excess loss in 2008 and permits him to carry forward the leftover loss into future years for future deductions.

 

Now, The Idea:

For the tax year of 2008, alone, why not instruct the IRS to permit the taxpayer to deduct from income tax up to, say, 10 times the $3000 now allowed if his capital gain losses so entitle him to do so.  He then,  can carry the remainder over and the government can decide later on how much of the carry- over he can deduct, (and the government needs him to deduct) in 2009 or future years. 

The Expected Results:

What people would do with the tax savings of up to $30,000 per person is conjecture.  First, it would probably be used to reduce debt, which in its own way would stimulate spending in short order.  Or, secondly, it might be used to increase savings which would stimulate future investments in perhaps, real estate, stocks and bonds or expansion of local businesses.  Some of  this would help stimulate employment.

 

The biggest virtue would be that it would be almost instant stimulation which the government urgently seeks.  It would start with the initial announcement and be felt by the filing date of April 15 and certainly by the time people would receive a rebate from their funds deposited with the IRS in anticipation of higher tax payments in 2008. 

 

The carry over would be beneficial also for 2009 because it would reduce the estimated payments and perhaps withholding because those payments only have to match or exceed by 10% the tax paid in 2008.

 

What Taxpayers Need To Do:

 

If you as a taxpayer and concerned American think that this idea has merit, I hope you will join me in increasing the visibility  with people who can and will advocate the thought.  I do not know why it has not been advanced before, or if it has, why it has not received more circulation and discussion.

 

One reason might be that it could be perceived as helping the rich.  The exact opposite is the truth.  It helps the poor and middle class more than the rich—a maximum $27,000 tax credit is of no substantial value to the very rich, but is of enormous value to someone who is forced to sell his home because he lost his job or had to pay big medical expenses.   If he lost $50,000 on the sale of his home (which he bought for $250,000 and had to sell for distress at  $200,000) the IRS would be benefiting him and the economy instantly a lot more than it is benefiting the rich.  Also, by setting a ceiling on what can be deducted, the IRS is penalizing the rich because their losses have been in the hundreds of thousands and even in the millions, and a $30,000 ceiling against those numbers is a pittance.

 

Therefore, the argument that it favors the rich over the poor is without validity just by the mathematics alone. 

 

What You Can Do:

 

Suggested actions include the obvious: communications to President Obama, Secretary of the Treasury Geither, your congressman and senators, letters to the editors, e-mails to friends with suggestions and anything else that comes to creative minds.  Unfortunately, the idea is late in coming, so the urgency is twice what it ought to b

Finding Humor in Economic Distress

During the great depression, I’m told Hollywood produced happy movies and musicals.  The purpose was to provide temporary relief from grimness.

Judging from today’s mix of heavy drama and high action, Hollywood’s current movies must have been conceived and financed when the market was in the highest period of optimism. Shortly, we might expect some lighter fare musicals and comedy to lighten our current grief. 

In the meanwhile, economic jokes are spreading wild.  

Example: 

Man walks into bar and says to his male friends:  “This market turn down is worse than a divorce.”  “How come?” his buddies ask.  “Well, I’ve only got half of my money…and I still have my wife.”

….

A man calls his bank to ask about the overdraft notice he received in the morning mail.  This was his question: 

Does this mean I over-drafted my account at your bank, or that your bank over-drafted other banks or the government?

….

An 80 year-old man wrote this to his close friend:

It used to be that the second thing I looked at in the paper was the obituary column and I was always elated if none of my friends were LISTED.   Now the second thing I look at is the financial page and I’m equally elated if none of my stocks were DELISTED.

….

It use to be a claim that most of the contemporary jokes came from either jail prisoners or people who worked for brokerage firms.  The way things look now there could be a lot of crossovers.  Here’s hoping Hollywood can find a higher class of humor for its light escapist movies we can expect in the immediate future.  

WHEN WILL THE ECONOMY TURN UP?

Here is an intriguing prediction about when the economy will stabilize and rise again. 

 

It doesn’t come from an Ivy League p.h.d trained to read the economic signs.   Nor does it come from a government economist skilled in reading  statistics.

 

Instead, it comes from a very successful businessman who faces potential buyers and concerned employees all day long most every business day.  This is his prediction and his reasons why: 

THE PREDICTION

The economy will start to turn up once homeowners are convinced that the value of their houses have declined as far as they will likely to go.  Simple as that! 

 

Here are the businessman’s reasons:  The largest single asset most people have is their home.  Two or three years ago it was valued at,  say, $400,000 in the homeowners mind. When he added that together with his 401k’s, his savings and social security, he figured he could downsize and retire comfortably.

 

But now, he has seen similar houses in the neighborhood listed for $349,000 and not selling.   Then he sees the prices cut to $319,000 or $298,000 and still not selling.  The homeowner wonders where the bottom is, especially since he knows of more homes likely to come on the market in the next block and he knows of several people in the area who have real financial problems keeping up their home mortgages and home equity loans.

 

So-----he and his wife have cut back on their expenditures.  They are trying to save a little, by not buying the refrigerator they wanted, the new suit or taking the vacation they had planned. 

 

This businessman’s theory is that once the homeowner realizes his home price has reached the bottom and has stabilized, he will become more secure in his thinking .  He then will begin making his spending and retirement plans based on the reduced “expected” price that his house will bring when he does want to sell it.  Once he has that secure feeling, he will then reconsider spending for the refrigerator, the suit or the vacation. Meanwhile, if he hasn’t become unemployed, he will pay down credit cards and may be able to increase his savings. 

 

 Where will he invest his savings?  Who knows? 

 

How safe is this homeowner’s job?  This same businessman who has his “boots on the sales floor” has an insightful look at what is really causing a lot of the unemployment, and what will bring unemployment to a realistic fix-- not based solely on bailout monies.

The result eventually could be more business efficiency and greater business expenditures and growth.

But ---that is a subject for a separate blog.

How Can Lower Oil Prices be used to Reduce Terrorism?

Lower crude oil prices could do more for us than just reduce the cost of filling the gas tank.

If the powers in the Arab world are as smart as we think, they will see that lower oil prices seriously curtail their ability to create mischief for the west (while lowering the living standards for many Arabs to a danger point).

And the Arab powers, including the powerful clerics, might just conclude that one way to stop the major decline in oil revenues is to stop the mischief and terrorism they have fostered.

Can the Arab thought leaders actually stop terrorism?  If it is true that they generated it in the first place, then it follows that they can stop it.  Actually they probably are the only ones with the power, know-how and local authority to halt or reduce terrorism unless, of course, it has grown more powerful than they are - - which is doubtful. 

Can anyone recall a single cleric who ever criticized terrorists or threatened the families of terrorists??

With crude prices down 75% from the recent high, the decrease has to hurt, or will hurt the living standards for all in the oil-influenced world.  And this could get threatening and put added pressure on the Arab thought-leaders to reduce their encouragement of “pain and suffering” for the west.

RELATED QUESTION/ACTION

Already oil prices and terrorism have driven the western powers to replace or reduce their need for oil.  And the effort will continue unless the west foolishly believes a $40. or even $50. a barrel will be the going rate.  That would be the second time in recent times that we “wasted a crisis” to quote others.  The west works hardest to replace oil when high oil prices make the job easier and more urgent.  The west should not relax its effort on temporary price declines for crude.  In fact, there is some justification for putting a surcharge on petro when gas prices drop BUT with the discipline to use ALL the oil surcharges to invent our way out of the current need for so much oil.  Then we should use whatever profit comes out of the successful research for oil reductions to create a new – technology that would up world wide living standard and repay the western world surcharges.

The key is to discipline ourselves to carefully book keep so all surcharges go to meaningful research for oil replacement/reductions and then repay those surcharges with profits from the savings from whatever is developed/invented.

If the west can’t so discipline itself, then it must accept the consequences of undisciplined weakness.  And it, therefore, must accept the continued threat of terrorist mischief financed by oil prices the west can’t control.  

The Upside to a Downside Economy

Could the current economic crisis generate, on its own, a truly higher living standard for the world overall? And a more peaceful and productive world as well?

And could the reliable and repeatable laws of need, supply and profitable exchange be harnessed to stimulate a better and more stable world?

There is early evidence that a new kind of economy could emerge – and that it could make life brighter everywhere.

Here’s how:

Because of the speeded-up information flow, much of the world is coming to believe a fact that was not always accepted and certainly not universally. That fact is that most of the world economy is so closely integrated that it moves rapidly in sync, lock-stepped one to another -- and fast.

The world has clearly seen how swift a credit crunch in the U.S. can affect housing prices inLondon or net export prices from India. How migration from the Chinese farms can influence prices in Wal Mart in the U.S. or oil prices in Canada and food prices almost everywhere. And eventually jobs in most places.

This newly-dramatized interdependence of national economic systems could be used to reduce political differences as well as to generate a new level of profitable international activity and mutual synergies. All of this is driven, not by altruistic intent, but by hard economic reality and necessity. (The toughest master, but the most certain). The end result could be a new and special economic closeness that would stimulate the affected economies to produce a better living standard for all, and likewise reduce wasteful political tensions.

A most recent example: Taiwan and mainland China, after 65 years of dangerous conflict, now being pulled close to each other by economic needs and desires that over ride their political differences (producing even a timely gift of Pandas).

A reduction in nation-to-nation strife eventually could reduce the funds earmarked for mutual defense, those funds, redirected to pursuits that improve the lives of humans everywhere. (DoesCosta Rica have a better life than its Central American neighbors because its only known military is a big local police force?) Is it therefore possible that the new awareness of mutual economic dependence could be harnessed and do for human kind what the world hoped could be accomplished by the United Nations 60 some years ago? The major difference is that the UN was motivated by good intentions while the interdependence of nations is driven by the hard facts and the laws of economics that are mostly motivated by ingrained human behavior as opposed to intentions, however well-meaning. One accepted way to better understand history is to follow the real motivations of the forces behind the past events as opposed to the publicized or popular motivations cited at that time to justify the actions taken.

Therefore it may turn out that the tough rules and laws of economics could do for the world living standards and peace what the UN was chartered to do at the outset. After all nations shouldn’t pick political wars with their best customers or their necessary suppliers or even with nations whose bonds reside in their treasuries or bank accounts of their citizen-owners of major business and income producers.

In fact that should be the goal of fixing the current world economy; indeed it would be a very low tuition to pay.

The remaining question is this: How or who can provide the encouragement and discipline to let the new awareness of economic inter-dependence lead us to a new happier world? It’s a big job and the stakes are high.