Huge Government Deficits are unnecessary!



The collapse of employment, the stock market, financial institutions and the enterprise system was caused by the elimination of a sufficient amount of the means of exchange (money) in our economy. When financial institutions were not able to offer low enough interest rates, for the economy to refinance itself, the government has tried to increase people's disposable income with a huge deficit.

The government gave its power over the money supply to the Fed. On our Federal Reserve note is printed IN GOD WE TRUST, it should read IN THE FED WE TRUST. The Federal Reserve with its interest rate policies and the government's misguiding tax policies are the people's agencies that created the currant economic crisis. People that did not understand the dangers of credit also helped create the crisis. Add in greed and you have a perfect storm, heading for a major economic crisis.

High inflation, recession and deflation are all economic crisis, which are created when the economy becomes unbalanced. The unbalancing occurs when the amount of the means of exchange (money) is greater or lower than the available amount of products and services, in the economy.

Our concern now is the deflation that is occurring in the real estate market, mainly the housing sector of the economy. To cure the currant recession crisis, homeowners must be able to increase their disposable income by refinancing their homes at a lower rate of interest than what the banks, Freddie Mac and Fannie Mae are currently offering.

The currant rate of interest, for the means of exchange (a home mortgage), is approximately 5.5% or higher above the annual deflation rate. That means the interest rate for a home mortgage is 550% above the deflation rate and is rising as deflation increases. In the deep recession of the early 1980s the mortgage rate went to 21%, that was only 100% above the then currant annual inflation rate of 11%.

Lower interest rates can be obtained through the US Treasury. The Treasury can borrow money from the Federal Reserve, as banks do, at a very low rate of interest. Currently on the open market, the Treasury can borrow money from private investors at approx. 3%, with the 10yr Treasury note. The Treasury can fund the new mortgages, in the secondary mortgage market, at cost or at a little above cost to pay for expenses, until private investors are confident enough to buy the mortgage securities. The Treasury would then sell the mortgages they have funded to investors.

If an adjustable rate mortgage were created with a 2 to 3% starting interest rate and rose 1/4% per year, with a cap of 5%, the new low cost mortgages would jolt the economy back to life. The 5% cap is possible because we will no longer be totally relying on the Fed's high interest rate policy to control inflation and inflation psychology. To decrease the risk of future default, the person would have to qualify at the highest rate of interest the mortgage will obtain.

As people refinance their homes their monthly interest payments would decrease considerable, increasing their disposable income. With more disposable income, 90% percent of the homeowners would have enough disposable income to restart the economy. This policy will put a floor under the falling housing prices.

It has always been the 90% of the working population who spend their money and pay their bills that brings the economy out of recession. With their good credit rating, they are able to expand the money supply without the government having to create a huge deficit, there-by balancing the money supply, with the supply of goods and services in our economy. Helping the other 10% is a noble effort, but it is not enough economic stimuli to bring us out of this deep recession. The 90% can spend money on household goods and services, big-ticket items, autos and trucks ECT. With increased demand, businesses will increase production and employ the unemployed, increasing more people's incomes. When the economy comes out of recession, this will help the other 10% more than any government program.

The economy needs the real estate market. The housing sector is so important because it is the consumer and household formation that creates 75 to 80% of the economic activity in our economy. Our homes have become the value behind our money supply, just like gold was many years ago.

The reality of our modern economy is that we no longer barter to exchange our goods and services. We use paper money or credit. If it is credit that you use as a means of exchange, the collateral must maintain its value over a long period of time, similar to gold. Our homes have served this purpose for many years until people changed policies to create more available credit.

I do not want to re-inflate the economy. Inflating the economy would only cause another crisis. The lowering of interest rates will make housing affordable. It will bring more buyers into the market and eliminate the foreclosure inventory and reduce future foreclosures. With safe guards included, which are outlined in the Alternative Economic Stimulus Plan, the chance of another housing bubble occurring is practically nil.

Hugh deficits hurt the economy more than they help. With the government borrowing such large amounts of money it will cause interest rates to increase thereby hurting the recovery. Government deficits cause the price of the means of exchange to go up, increasing the cost of doing business. With the government, capitalist and the enterprise system increasing the money supply, with credit money, too much money could be created. Policies must be changed to prevent another inflation economic crisis from occurring, because it is always followed by a recession economic crisis.

Since our money is a world currentcy, we must be extra vigilant to maintain our economy in balance or we will repeat history again and help disrupt the world economy, as we did in 1929, 1980 and 2007.

Lowering interest rates does not cost anything. Low interest rates increases more people's disposable income, by a greater amount and much quicker than deficit spending by the government. This policy puts people back to work faster and the recession does not get out of control. The government's liabilities are decreased. We do not have to increase taxes to pay down the national debt or to decrease the deficit. With the correct policies enacted the economy will put people back to work and create more jobs as our population increases. When the economy is correctly guided it will produce more tax revenues for federal, state and local governments without raising taxes, as the California Congress has done. The tax increases can then be eliminated and the government decreased in size.