Lisa Simpson
Jul 8,2010
In: Foreclosure

The Decisions that Pay Dividends

There are some decisions that pay dividends.

There are some decisions that pay dividends and give back returns like farming a fertile land. The reverse is also true.

This summer the buzz word has been ‘austerity’. At the G20 meet in Toronto all the big leaders of the world promised to make big cuts in their spending for next good number of years. In Washington the unemployment benefits were not extended for those who have been without jobs for a long period. At the local and state levels the deficit has compelled massive layoffs and cuts in spending so as to balance the budget.

This is the very last thing America needs just at a point when recovery is dangerously fragile. The nation has just passed through The Great Depression and this is hardly the tonic for rejuvenation. The goal is to make the economy roll and reduce long term gaps in the budget. The government should take such measures as will simultaneously deliver these goals.

It could craft a plan for the restructuring of consumer debt. The rates on 10 year Treasury bonds are a mere 3% but many of the consumers continue to carry credit card dues running into tens of thousands to be at least 20%. This has been stifling spending. Washington could bring it down by borrowing at 3% and lending it out at 8% to the consumers under a one-time restructuring plan for the debt.

With service payments being cut by half the consumers would immediately start to spend. The spread of 5% on the money that has been lent under this plan would make up for the costs of operations and perhaps even provide give relief to the budget woes for a short time.

The banks should not complain because the loans they had advanced would be repaid in full. Their stand about high interest rates barely covering their costs does not ring true and sounds absurd.

Another viable step would be to impose carbon tax. It would immediately lead to a spike in investment in the private sector without the government having to spend a cent. The mood of investment right now is depressed because the firms are producing more than the demand. But once a carbon tax is imposed the machines and infrastructure currently in use would overnight become obsolete. Everything (motor engines, power plants, refrigerators, furnaces, air conditioners etc) would have to be designed anew for greater efficiency.

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