Proposed US Economic Reform Act

by Orion Karl Daley

2008 Presidential Candidate for the Balanced Party

The State of the great divide in our Economy

The economy practically crawled at a 0.6 percent pace in the opening quarter of 2007. The performance was even weaker than the 1.8 percent that was forecast by some economists. Some even speculate a recession. Considering that conservative is the safe way to go, Alan Greenspan noted that it was only at 1 out of 3, or 33% chance of a recession. It pays not to panic the world, but also pays to be able to cover the 'I warned you' part too !

Federal Reserve Chairman Ben Bernanke, however, has said he doesn't believe the economic expansion, now in its sixth year, is in danger of fizzling out. Neither does the Bush administration. We also have not had an economic cycle which is necessary for an economy's momentum.

This is also while the many in Congress, and the George Jr. administration are urging you to privatize your Social Security as the Trust fund is due to run out ! If the market collapses, then perhaps these advocates might ask 'who could believe that it could have happened ?'

1929 Stock Market Crash
1929 Stock Market Crash

Most importantly, regardless of the fairness question, a lop sided economy represented by an inflated stock market that is actually boat anchored to the depreciating US Dollar can even look more alarming than in Hoover's time.

For purchase value in the world economy, the US dollar (USD) has been falling. This is due to being burdened by extensive debt. The level of debt is greater than in Hoover's time which had ended in the Stock Market crash.

Like a snake eating its own tail, the more the gap widens between the 'haves' and the 'have nots', what holds it together will eventually snap. A market crash could be inevitable just based on fundamentals, or at the minimum, we could slide into a 3rd world economy.

The bottom line is that with out Economic Security, we do not have national security, and especially when our lenders are economic super powers like China.

Some other contributing factors that are undermining our economy is the depreciating US dollar and those things that exacerbate this including the wealth spread between the 'Haves and the Have nots', Corporate Welfare, Mergers and Acquisitions, Predator Consumer Financial Services, CEO and Corporate Board Pay, offshoring of manufacturing and services, and hiring cheap visa based foreigners for temporary local labor needs.

The Depreciating US Dollar is due to our government's indiscriminate borrowing from China and Japan; and from existing Treasury trusts like Social Security and Agriculture. It is sort of reminiscent of George Jr's saving and loan banking failure where now he is advocating to privatize Social Security.

From year 2000 to Year 2001, the Country went from a projected surplus of $5 Trillion to a deficit of over $5 Trillion. Gross Federal Debt is projected to climb from the $5.8 trillion in 2001 to $14.9 trillion in 2014. This is estimated to reach into $46,660 in debt for each American citizen by 2014. But then we also have to account for the difference in Foreign Currency that this forecast does not. In other words, for those fortunately who are employed, as tax payers can be owing much more than anticipated.

When we borrow JPY ( selling government bonds to them that are backed by only who is employed ), we have to back the difference also in market value. This debt is not paid pack in USD, but in the currency that it was borrowed in. In other words, if we borrow $100 billion from Japan, we could end up paying back $400 Billion.

Our estimated debt is subject to market rates which is not accounted for in our long term debt forecasts that look at the best case scenario. The tax payer can expect to owe more than expected. Its no wonder why the US wants China to devalue its currency.

This is to afford spending such as on the war in Iraq. The Government has also not encouraged investments in this country in terms of infrastructure. This applies to being able to readily replenish the equipment for our military. This is besides in other areas of related economy in order to achieve balance in our communities. Consider the current Automotive Industry as an example. It use to make our military tanks in WWII. Now to get armored equipment has become a challenging order to fill for needs in Iraq.

Since September 12th, 2001 the term 'Economic Cycle' has been basically omitted when addressing the economy. The cycle consists of a debt and an equity stage. They typically occur as a pair in a 12 month period.

But since 2001 there has been no cycle. The United States has been in deficit spending, where its ceiling has become fatigued. During this period V.P. Cheny in the News has promoted the message - Deficits don't matter. When hearing on the Senate Floor, that Deficits don't Matter can only encourage the bodies of government, and the people to only focus on the 'Here and Now'.

The Debt / Equity cycle in fact is like a gyroscope, that when its stops spinning for a period of time, will fall over. This further compounds the insolvency that this country, and therefore its people will be side winded by it.

Misfortune has trickled down on those who become disenfranchised due to a failing economy. It also compromises this country and its solvency; and in turn our national security with respect to foreign lenders.

As our debt becomes greater to foreign lenders, it is supposed to be paid by taxes from what work force that is becoming unemployed.

Increased taxation of average wages does nothing but recreate the equivalent of the Rice Famine of Mao's China. We can only beat a dead horse till it collapses.

Wealth Spread: can be looked instead as a great divide. In the past 10 years, our economy can be represented as 2% of the population that owns about 50% of our assets, and then the rest of us who own the liabilities.

For the moment, the Economy seems perfect for the rich. Certain entitlements are awarded to the well off by the Government. This includes tax breaks that do not even scratch their investment portfolios. But comparably, could be worth as much as what the rest of us try to pay in taxes which includes the perceived tax gap.

As the USD falls, this special 2% are empowered to hedge investments. This is in order to protect themselves while small investors could loose their shirts. An example is in trading in the Foreign Exchange derivative markets. This insulates fortunes by being converted to other currencies that can reside in foreign or offshore accounts. The following example can help explain this dynamic:

If you bought Japanese Yen (JPY) in 1998 it was 300 JPY to 1 USD. Today, it is 100 JPY to 1 USD. In other words, you would make 3 times what you invested in less than a few years. Normally good investments in a stable stock market go at a 6% rate per year.

This makes wealth management relatively immune to the liability side of the falling USD for a period of time. That is, until a market crash.

Meantime, there is an overinflated market, where the unemployed and/or bankrupt are considered the consumers either directly, or indirectly of the industries that are traded in the market exchanges.

In other words, if there is no customer, ultimately the value of the stock must take losses. Because it was over valued in the first place, and the actual USD cash value is less than it should be in the world markets, the value of the stock is actually like vapor.

When put to a test of market endurance it will evaporate if it does not have good underlying fundamentals in its equity debt ratio. But when the value of the USD is boat anchored in debt, this is like an investment being overcome by a whirlpool that will sink it.

Corporate Welfare has not really helped the economy either. This consists of jimmy rigging pork barrel projects in Congress and obtaining special tax breaks and wired deals.

Examples of Corporate Welfare is the Government's no bid contracts to some of the largest corporations that have based themselves for the time in the US. In essence, to be eligible for Corporate Welfare, you just buy the votes in Congress that you need for obtaining your business goals. Some simple examples are:

 

  • In federal government this is seen in the cost plus no bid contracts awarded to the Defense, Environment, Petroleum / Energy, Agriculture, manufacturing and service industries like Haliburton just to note a few.
  • In the retail industry Wal-Mart received over $1 billion in public subsidies from state and local governments. In this case local merchants payed tax dollars to subsidize their biggest competitor.

Policy, and laws in Congress as an example have justified corporate welfare as in helping 'entrepreneurs', and enabling the Reagan Trickle Down Economy model to trickle some drops into our communities in order help business provide jobs. Unfortunately, these 'drops' tend to evaporate in a dry economy.

Comparatively as well, for Reagan, Lockheed was considered what an entrepreneur was more than a small business start up. Large corporations like Lockheed do have communities of employees, but the profits do not go to them.

Mergers and Acquisitions (M&A) has further pruned the who's who list of the wealthiest. Its repercussions include adding more of the middle class to the unemployed and/or bankrupt. When business is supposed to regulate itself, M&A can be used for:

  • For building larger banks that can offer both commercial and institutional services. This is where the money flow goes from the profits of predatory lending and consumer banking services as capital into their institutional investment side. Until recently this was not permitted by the government for many purposeful reasons like the WorldComm fiasco. This also prunes labor forces to only what is still needed. During bank mergers and acquisitions, to be cost effective duplicate labor is generally fired to join the unemployed.
  • In order to liquidate another companies assets, if they show little debt and little profit for market value to obtain cash for other investments. Labor forces are again fired.
  • To obtain another companies liabilities, and therefore write it off as your own to protect the profit side of your business. Obviously the existing labor force will join the unemployed.

For portfolio investors, M&A deals can look good, but in their wake can devastate whole towns that have depended on an industry for employment and capital flow into their communities.

CEO Pay currently ranges up to $98 Million per year such as in the case of United Technologies CEO George David, to a mean of about $14 Million on the average. This is considered due to raising stock prices, and in raising profits by reducing costs.

Off Shoring is another major move that most companies which can, will do in order to reduce costs. Off shoring or wage gouging( nickel and dimming for cheap foreign worker local labor rates ) on employment offerings with preferences for visitors with Green Cards and migrant farm or factory workers has caused an earthquake in our economy. This is in terms of unemployed Americans.

  • Off shoring ships about $800 Billion USD out of our country each year as opposed to having this flow through our communities. In essence, our communities are shorted $800 billion in their empowerment for their quality of life. For States and local municipalities, this means less taxes for infrastructure and transportation systems investments, and less quality service to the people. Even Mayor Bloomberg in New York City had to close down many firehouses as a result of our economy. This put many communities at a loss in adequate protection. In New York, Police pay is at an all time low.
  • Off shoring on its present course ultimately backfires on US industry. When collectively off shoring, they are disenfranchising their potential consumers who are the growing blue and white collar jobless in our nation.
  • Further compromising wages, and increasing ongoing unemployment, regardless if it is not statistically recognized as the 'Unemployment Number', further disenfranchises the citizens of the United States.

The Economic Reform Plan

The welfare of the Nation is by definition for me, the welfare of the People, and it is a financial matter.

The level of Economic Solvency of the Nation is the foundation for the financial welfare of the people. Consequently, there is no way for the people of the nation to assured of their health, safety and welfare unless the Nation as a whole is sound financially.

  • There is no way to have a Safe Nation without Fiscal Soundness.
  • You cannot make a fair living, have a vision for your tomorrow, let alone even consider having a job tomorrow with out fiscal Soundness in the Nation. There is no way to enact and to back all the the federal programs needed with our fiscal soundness. As consequence, our communities suffer, and we suffer; but most importantly, our children suffer.
  • There is no way to further business development in this country if there is not fiscal soundness, and there is no way to recover lost jobs with out this.
  • There is no way for the Nation to have independence and autonomy, and standards in its foreign Policy if the nation is not fiscally sound.

It is not a solution to just Tax more, although some should be able to pay more; nor is it a solution to just borrow more Foreign Money and then hope for the best. It is not a solution to attempt to close Tax Gaps on those who have outstanding taxes, as in this economy, they simply might not have the ability to pay. It is not a solution to further lose the value of the U.S Dollar, or to offshore while telling you in the same breadth to go out and get new education and training in order to replace the job that you lost.

Simply, Deficits do matter, and it is the commitment of this Administration to achieve Fiscal Soundness, and in this way to achieve Economic Solvency.

The debt of the United States in lacking a horizon is owned by foreign interest, which subjects our level of Economic Security to their agendas.

A Super Power in today's world is not a Super power if it becomes a 3rd world economy with foreign owners of our debt. Our Nation must be an Economic Super Power in the 21st century in order to be viewed in today's world as a sustained Super Power.

By having a more local productive economy, we can in turn more readily address our foreign debt which enhances our level of National Economic Security over all. It is in this productivity where the United States can Anchor itself against the forces that are encouraging it to become insolvent.

It is in the opportunity of productivity that this country can supply itself, feed itself, provide employment, and improve infrastructure for the standards of living that are inherent in a Solvent Economy.

The Economic Reform Act is based firstly on a tactical move for enabling an economic cycle of debt and equity, secondly on new trade policies, and finally, a strategic plan for economic solvency.

We must first stabilize the US Dollar, then the out flow of our economy, and provide its strategic future. This requires in addition to a specific Economic Reform Act, that Government Reform and Corporate reform likewise must be embraced. We then can invest in our country. This is in terms of our environment, renewable energy alternatives, and in lowering the cost of transportation and infrastructure. This empowers our communities to be employed, provide a financial means for our educational systems, and provide a health care plan that we can all count on. What's more, we can ensure our Social Security system as an assured annuity in addition to other new investments in our new borns.

1- Tactical Reform: In scope consists of cutting spending entitlements and earmarks and corporate welfare, tax Capital Gains, and reverse the tax cuts of the wealthiest 2% of our population . This is estimated to recoup over $300 billion dollars for the current year. Additionally we are to close the tax gap through proactive remedies. The tax gap represents an erroneous and uncollect-able amount of personal tax issues.

Government Reform must take place in order to stop borrowing and compounding foreign debt. The Government in of itself also has to become cost efficient. This is addressed firstly in the means of its information management, and is seen to be able to cut 65% of its overhead for a more efficient and effective system while providing a better service level to the people.

Corporate Reform must take place where it has been self regulating in creating consumer demand and dependencies, and in over all business practices such as M&As, and CEO/Board Pay. By limiting the scale of M&A we provide a means for more participants in building the economy and benefiting from it. By limiting profit incentives, business can be strategically more stable in its contributions to our economy.

2- New Trade Policy: is achieved through what is termed 'Balanced Trade'. It is an intended means to provide fair parity in world trade, re-instill incentives for local manufacturing, limiting foreign imports, promoting more competitive local goods, and encouraging parity in labor and wage internationally.

By limiting import volume into the United States, the price of the import would increase due to level of availability and in order to obtain a reasonable profit margin. This is simple supply and demand mechanics.

This in turn would additionally dampen volume; provide less incentive for moving manufacturing operations off shore; while not having to be compromised in back room negotiations on import price with foreign governments based on our debt obligations to them.

When volume is the gating factor, then the volume that is normally coming through our ports would have to go elsewhere to be sold.

If China cannot sell excessive volume to the US, as a simple example, China will have to eventually sell to China. This in turn would require their standards of wage to increase in order to afford their own TV's and other finished goods.

By losing the offshore incentive, US manufacturers would not need a domestic tax Incentive, while also not needing to lose their workers.

The same principles of Trade Volume in Manufacturing and textiles, can be applied to agriculture, as well as the outsourcing of technology labor.

3- Economic Solvency: is sustained and achieved strategically through an Investment Based Economy. It is viewed that only through economic solvency do we have true 'National Security'. The premise to this is 1 - Wall Street knows that it is better to invest the dollar than to spend it, 2- To make the US Government the most treasured client on Wall Street, and 3- to put the world financial markets to work for bettering the US economy. It is intended to pay down interest rates radially, and eventually pay off foreign debt.

The Bottom line is that The US Treasury is to become the most cherished investor as our proxy on Wall Street by Institutional banks. The intended collateral affects are:

  • Regaining of investor confidence through Wall Street's demonstrates performance for the Treasury dept.
  • Obviating the need for more SEC overhead due to compliance incentives on the part of the market makers
  • Institutional and market investment strategies evolve through the liquidity of funds
  • For the Economic Gyroscope, to create momentum in the world economy due to new momentum on Wall Street

The paradigm for the US Treasury on Wall Street consists of three (3) basic components:

    1- A Perpetual Investment Engine: This is to be composed of the institutional banking systems of this world, commercial investment firms and companies; Most of which make significant returns on their investment strategies, regardless of the state of the Economy.
    2- The Government/People: A Client of this Perpetual Investment Engine. In other words, let the Money Managers do what they do best for you, but "under A Performance / Bid Commitment"; Either make money or pay the equivalent from the money they made. Simply, if they make money, we make money. This also assures an impetus for a predicted return and the needed momentum on Wall Street.
    The Government is an investor or representative investor ( of American tax dollars ) but who is actually hands off except for such purposes as investment performance audits by the Treasury Dept. which is not a regulator as much as a preferred client with an assured return.
    Market makers bid to commit the highest return on the use of small allocations on a quarterly basis. The one with the highest bid for return to the Government is awarded the quarterly contract.
    If the market maker earns more on the use of the monies than was committed in the bid, then the market maker keeps the difference. If the market maker earns less, then it comes out of the market maker's pocket to make up the difference.
    3- The Return On Investment: A Reinvestment, and then going to pay for such things as the principal behind the National Debt. This then twiked by Interest rate regulation at this point would really mean something; and then towards existing costs; and eventually as a return to what was the 'Tax Payer', but now a monthly Investor I.E. 'We the People'.

 

As much has we still have needs for carts, we can't outright drop taxes and that is not what is suggested here, but investing in our country; and when considering the No-Win of expected escalating trillions in debt, and then assuming that who ever is left from layoffs per month to pay for it all, we can instead evolve to a more productive Investment Based Economy for the 21st Century.

We are in the position to fund all federal programs in a similar manner over a period of time. This is intended to address the funding our Environmental , Energy, transportation, industry and agricultural reform, and for investments for our Health Care and Educational Systems. Here The Government Bond is treated differently than has been normally issued that is backed now by tax payers.

Further, the tax gap is be remedied by:

 1- closure by financing with diminished penalty and interest there by obtaining a realistic gap that has a payment schedule; and then

2- filling that gap in the interim by selling debt bonds to the institutional banking Fixed Income markets for financing closure.

It is my view that any investment in the nation should be tax exempt. These bonds are to be available to the public at large and to be purchased by institutional banks on Wall Street. They are for improving our strategic future, physical health and intellectual capital of this country. These bonds are to be used in Environment, and Energy Programs, Transportation cost reduction and for our health care, and educational systems, as well as to close our extensive tax gap.

Normally, the Bond issue is to be about 4 times what is needed. While 25% is liquid for immediate cash flow for the specific purpose or program, the other 75% is to be applied into the Perpetual Investment Engine as described earlier. The ratio of profit vs debt is adjusted accordingly by being tax exempt. This make is on par with other investment vechicles.

Government Bond Funded Grant Programs: are intended to instill a new era of investment in our nations future. It is intended to provide incentives to entrepreneurs in answering many of our needs, and to finance sustainable solutions for the needs. The scope of this includes, but is not to be limited to 'Environment, Energy, Transportation and Infrastructure'. Each of these areas are considered opportunities for economic boom when handled in a ethical and regulated manner, and invites venture capital from the private sector when seen as proof of vision. Debt financing for bonds, and equity financing of venture capital can be structured further in the institutional markets.

In this manner, we can eventually achieve a very efficient economy that can effectively serve us while lowering the cost of taxes, and what FDR had seen for America, an 'Economic Bill of Rights'.

This is my Commitment for Economic Reform for our Nation,

Orion Karl Daley
Presidential Candidate for 2008
for the Strategic Future of our country
Balanced Party http://unity2008.org