Keith Ljunghammar, EA, CFP
How to Cut the Recession and Improve the Economy.
When I was selling securities at a brokerage house the primary client had money that was about to move. An inheritance, under performing investments, or an increase in personal income through a promotion or graduating from college.
When I was exploring the mortgage industry my schooling said to look at a mortgage purchase approaching or recently passing a two year timeframe. Also a credit rating improving and lower interest rates can be a double plus for the homeowner. Both counted together or separately can be potential clients.
When helping to preparer tax returns I noticed my income can improve when I prepare more tax forms. This would be either by paying attention to the taxpayer or advising for tax changes which the taxpayer would benefit from and have a smaller tax bite and more than likely more forms for tax reporting.
When insurance agents interview clients the degree of support and the reduction of risk or spreading of risk is what is being offered.
When Congress wishes to influence the flow of funds either for helping the economy or moving social concerns tax manipulation is the tool Congress uses with great enthusiasm. Home mortgage interest, education credits, mortgage interest credit, tax-free interest, low-income housing credit, lower capital gains rates and more are the tools which Congress has used in the past to help in establishing National goals.
In order for Congress to truly recognize what is ailing the economy they must see where the weakness is in the macro economy and see what type of tools have or could be used or create to help the macro and the micro weaknesses strengthen. What can stimulate. What can help.
First what can be strengthened with a little bit of effort and have the greatest amount of pull. Can the solution for the macro be concentrating in a few segments of the micro. But the conclusion from finding what can strengthen the problems in the economy must be seen. What or where are the weaknesses.
The frustration in the economy as I see it was created in the mortgage industry. Now the mortgage industry is hurting and another industry related to the mortgage industry is the construction industry. The creation of a mortgage document does not create wealth but the actual construction process so let’s look at the construction industry.
Weakness in the construction industry can be seen by the months of inventory waiting to be sold. At the present time six months is the length of time between a house being on the market and sold. When this happens the construction industry may go to home improvements if the home owners have the money to do this. The homeowner who has extra money but is not moving may want a little bit more room. Then they are happy. More on this later.
One other industry which when it moves from weakness to strength move with little effort. This is in both directions. Good to Bad and from Bad to Good. Historically when the overall economy moves by five percent the durable goods industry can move by fifty percent.
One of the booming industries at the present time is the energy industry. From oil and now to farming. Farming is a new contender. Segments of the energy industry are; oil, gas, dams, nuclear, corn or similar, coal, shale oil, ethanol, methanol, heating oil, solar, wind, water wave power, geo-thermal. All of these and more have attached infrastructures and are steady and in great demand as the economy improves. They slip as the economy goes down.
Dynamic changes in the macro economy are not stagnant and will never be stagnant ever again. China and India are increasing demands of oil. So even if our economy traditionally decreases instead of the price of oil decreasing it will increase and our economy will slip further and this dynamic change will decrease our economy even more.
If our economy needs pushing can there be some type of a tool where by using the tool the economy will not be hurt and ideally helped. Is there some method where the risk of consuming “oil” will not hurt our economy. What will stregthen without causing risk. Can something be moved from one area of the economy without causing things like wage-push, inflation, deflation, exhaustion of a segment of the economy. Is the risk low. Can the move create taxes by stimulating one are without taxing in another area. Any solution which hurts the helping segment cannot be a solution. Can the solution reduce imports or reliance of goods and services of finances from foreign governments or foreign investors. Can this be done safely and as close to risk-free as possible.
One major caveot is to make sure the U.S. dollar does not weaken further. Traditionally one way the federal reserve increases the value of the dollar is to increase the federal reserve rate so loan interest reates are higher. But then durable goods manufactured in the U.S. cost more in foreign countries. As our $ improves the foreign governments currency decreases.
Reviewing all of this and comping up with an economic solution – oh my. Is there a palace in the economy which can do all of this.
Yes, there is.
The alternative energy industry has had dynamic discoveries in the recent past. A group of MIT reserchers are in the process of developing an ion battery which can give a 450 mile electric car battery performance and a recharge time of fifteen minutes. Solar celll discoveries have recently increased the effectiveness by ten times. From the start of the wind industry efficiencies have increased effectiveness by five times. These discoveries are like finding a major oil deposit and they renewable and not depleting.
This can help some of the energy segment and some of the construction industry and some of the durable goods industry. But can this be thrown into the dynamic arena without taking away that much from another area. What area is moving slowly and if it moved faster would not be hurt.
Let’s consider funds which are setting in a low return area. Traditional IRAs, pensions and Roth IRAs. Not moving and not expected to move. But not just moving from one security to another will not move an industry in a dynamic fashion. Increasing the supply without moving the demand only decreases the cost of the supply. Moving demand and supply at the same time can be the only solution. It must by dynamic.
The alternative energy segment demand should be stimulated but by the homeowner. Construction and the construction industry needs a stimulus. Taking money out of a pension, IRA or Roth IRA for installing alternative sources can be the only solution. Homeowners can manufacture their own sources of heat and electricity and sell the extra back to the energy industry. Thus the taxpayer/homeowner can make money, reduce taxes, have no tax consequences, stimulate the durable goods industry, hire excess cosntruction workers capacity, not harm or decrease the value of the dollar, increase alternative fuel energy durable goods industrial base capacity, lower the price of alternative fuel because of the increased capacity and supply and helps in increased capacity to be sold overseas and helping our economy and strengthens the economy. And finally it gets stagnant money to move this stimulating more than the economy. Every dollar made equals $12 in the economy.
But to do this no tax consequences would have to be showing on the individuals return. No withdrawal income tax or ten percent penalty. If no taxes then a repayment schedule would have to be legalized. If it costs $15,000 to $20,000 for the house construction then a $1000 per year repayment should not be a harmful affect to the economy. Allow income from the creation of excess energy rebates to pay the “loan” back to themselves needs to be written into the law. Or repayment of the “loan” at the time of the selling of the homeowners house. No harm, no foul.
Let’s do it. Move the money. Stimulate an efficient source of energy. Reduce the cost of living. Get the construction and alternative fuel source industries active and increase the strong dynamic aspects of exports.