"A Modest Proposal"

 

For members of Congress desperate to avoid recession, the takeaway message that Fed Chairman Bernanke delivered in his testimony this week was that a successful stimulus package needs to be rapid and targeted. By this he meant that money would need to be delivered quickly to those individuals who would be most likely to spend, and withdrawn when and if the need for stimulus ebbs.

For those who believe that this strategy is prudent and effective, the debate now becomes choosing the most effective technique to deliver the cash. Proposals include middle class tax cuts or rebates, extension of unemployment benefits and expansion of funding for public works. However, for those who want to engineer spending, the problem with these ideas is that the people who receive the funds may not decide to spend it immediately, if at all. They may, god forbid, elect to pay down existing debt or most perniciously, actually save it instead.

Fortunately, the government has very modern and effective tools available to deliver funds and micromanage spending. Just recently, the Treasury Department launched a program to streamline Social Security payments through the use of debit cards. The same idea could be used for fiscal stimulus. The Government could distribute millions of "Economic Stimulus Cards" to citizens, which could function more like retailer gift cards rather than debit or credit cards. Here's how they would work:

When the government wants a quick, fast stimulus, it authorizes expenditures on the cards which can only be used for consumer purchases and only for a set time frame. Knowing that they must use or lose their newly authorized funds, Americans will run to their nearest retail outlet and spend, spend, spend. The beauty of the system is that the consumers will spend exactly how much the Government deems necessary. What's more, the government could decide to direct the spending to specific areas of the economy that it deemed particularly strapped. For example, it might target specific types of merchandise that may be purchased or particular retailers where those expenditures would be authorized, with the political benefits being the icing on the cake.

When the economy has been sufficiently stimulated, the government could leave the cards idle with no purchasing power. Better economic micro-management through technology! The minute consumers seemed to be running out of purchasing power we could have a quick fix simply by pushing a few buttons. No need to waste all that money on paper or ink, or fuel for the helicopters!

The only downside to the plan is that it will completely clarify the fundamental component of any and all fiscal stimuli, namely the government creating money out of thin air and giving it away. Of course, the other negative effect would be higher consumer prices with price spikes particularly pronounced immediately following any additional government authorized spending. After all, what rational retailer would not raise prices during those times in which the new consumers were holding exploding gift cards? However, a few more adjustments to the CPI should take care of that problem lickety-split! As Richard Nixon once said, "No politician ever lost an election by creating inflation."

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse."

 

 

(Sep 18, 2007)- "If the dollar loses value too quickly, it could wreak havoc on the economy and financial markets - driving up interest rates and inflation and slashing Americans' purchasing power" -Peter Schiff 

 

 

(Sep 19, 2007)- "People keep talking about Fed bailouts as if there is no cost. All the Fed can do is create new dollars. What that does is diminish the value of all the dollars everybody already has. They try to socialize the losses among all the holders of dollars" -Peter Schiff

 

 

Jan. 16 -  The underlying rate of inflation remained uncomfortably high in December, new data showed on Wednesday, highlighting the risk the Federal Reserve is taking as it turns its focus to fighting recession risk. The so-called core inflation rate, which excludes food and energy prices, rose 0.24 per cent during the month. Meanwhile, the whole year data showed that overall consumer price inflation was 4.1 per cent at an annual rate in 2007, the highest since 1990. The higher-than-expected rise in core inflation will trouble the Fed, and raises fears of stagflation, as slowing growth in the US economy is complemented by higher rates of inflation. However, it is unlikely to divert the US central bank from cutting interest rates aggressively to ward off the threat to growth............

 

(Aug 16, 2007)- "The housing bubble has burst. Prices are going to collapse and sales are going to fall through the floor." -Peter Schiff 

 

 

(Sep 21, 2007)- "With the Federal Funds Rate cut, the Fed revealed that it has no interest in defending the dollar or containing inflation. This kind of irresponsibility is all gold needs to move higher from its current levels unless the Fed somehow finds its backbone within a year or two, then gold has a good chance to take out its inflation-adjusted high of nearly $2,000 per ounce within this decade." -Peter Schiff

 

"Gold And Platinum Near Historic Highs" - Rueters
 

(July 31, 2007)- "It's going to soon hit $90 and go north of $100 next year. We should see $150 to $200 oil in the next two to three years because of the drop in the dollar.'' -Peter Schiff