I just read Obama’s Secret Plan over at Of Two Minds.

I see two possibilities: either Obama really is just another standard-issue tool of the Financial Plutocracy, and Volker resigns in disgust within a year to protect what’s left of his once-sterling reputation, or Obama is giving the Banking Plutocracy all the rope it needs to hang itself. In that case Volker is the “Trojan Horse” in the system, the one who will emerge after the extremes have finally goaded the public to an anger which cannot be diverted by propaganda and “entertainments.”

As much as I would love to believe a Democrat could be shrewd, it has not seemed to happen in the decades I have been around, so I am unconvinced. Even so, I am surprised that the Democrats are not trying to fix the economic problems.

I had expected that the Democrats would rightly raise taxes and rightly increase regulation to fix the obvious problems with unfettered capitalism. This would play into the GOP plans; allowing them to defeat Obama in 2012 (or maybe 2016). In either case, the GOP would have raised themselves another generation that believes Democrats raise taxes and cause depressions, giving them another 30years in power to complete their plans.

If Obama does not try to fix the problems, but instead lets the GOP policies play out to their conclusion, he has a small chance of rightly blaming the GOP: painting them as capitalistic plunderers that cause depressions.

If this is Obama’s plan, it has a poor chance of working: The GOP funded circuses control the message: Blame for the depression *will* be assigned to the Democrats. After all, under Obama, the small stock market collapse was allowed to spread to the general economy AND he wasted the 4/8 years to fix the problem.

Now, I do believe the Volker test to be a good predictor of Obama’s intentions. Of course, I assume Volker is not senile.

I guess we do not hear about the smaller bank failures that are depleting the deposit insurance fund:

U.S. federal regulators are expected to more than double the fees they charge banks in an effort to replenish the government’s deposit-insurance fund…

UPDATE: More detail at CNN Money:

On Thursday, the Federal Deposit Insurance Corp. said bank failures caused its deposit insurance fund to fall to $18.9 billion at the end of the fourth quarter, a decrease of $15.7 billion from the end of September…

I thought Buffet was going senile, but it turns out he is a clever as I hoped he would be:

He tells the people to buy America. The people buy, because they want to be just like Buffet. While they buy, Buffet sells.

Buffet was also smart with the GE stock purchase:

Berkshire, based in Omaha, Neb., is buying $3 billion of preferred shares of GE, which carry a 10 percent dividend.

Who else can manage to force a 10% dividend in this economic climate? GE’s cost of operations just jumped by 300million annually, while facing the worst economic crises in a century. Good luck to anyone else holding GE shares!

Maybe, as a general rule: Whatever Buffet touches, sell!

From Obama’s speech:

“…it’s important for us to have a bill of sufficient size and scope [800 billion] that we can save or create 4 million jobs.”

That works out to $200,000 per job!

I could save up to 4 times as many jobs with less money! I will give every person that lost their job 50K over the year, effectively employing them directly. This would put money directly into the local economies affected most by layoffs. With next year’s stimulus expected to be just as high, I would do the same again.

Of course I am being sarcastic: I would balance a generous employment insurance program with needed infrastructure spending, if only to take advantage of lower labour costs. Employment insurance should also be contingent on skills improvement (aka go back to school).

Helping your fellow citizen is hard for a politician to sell. The vast majority of the public suffer from the Dunning-Kruger effect. As a consequence, they believe everyone else has it easier, including the unemployed. The logical conclusion is that the unemployed are lazy. With this mindset, a politician can never convince the public it is the national interest to help the unemployed. Only if enough of the population is put into position of unemployment will there be enough voters to sympathize with the unemployed.

For now, it is easier for government to pour money into the corporations: Despite all their drawbacks, at least corporations have Jesus on their side, why else would God have let them be so profitable?

I can understand the government wanting to bailout the poorly run banks on the verge of collapse. I think it is anti-capitalist, and a waste of taxpayer money, but I understand government motivations: Failing banks look bad on the “free market” ideology. If the idols of capitalism fail, there is a real risk of people (correctly) concluding capitalism has some weaknesses.

The talking point regarding “bailouts are needed to free up credit” are false, and I think this is just starting to become apparent now. Banks, and lenders are not using their bailout money to make more loans. This is because most new applicants are a high credit risk in this poor economy: The average business and consumer have too much debt already.

I advocate bailing out all human** individuals equally, probably taking the form of a series of cheques during the depression:

1. Those that have not borrowed can save/invest or purchase more products. This extra spending will improve the market, and keep employment up.
2. Those that have borrowed can use their cheques to pay off some of their loans and become a lesser credit risk. This gives money back to the banks to free up credit, and increases the number of credit worthy applicants.
3. Those that borrowed way too much will not find the cheques much help, and will probably default anyway. But at least the cheques will still flow, and can be spent on products and services instead of loan repayment. This benefits the economy generally, and only hurts the poorly run bank that made the risky loan.

So I am clear, I do not advocate the human bailout exclusively; there are other targeted portions of the economy that need help, for example Employment Insurance, but I will not deal with them here.

** I must use the word “human” because “individual”, “entity”, and “person” all legally refer to corporations. I am against bailing out corporations because I believe in the capitalism’s power of creative destruction. I also do not believe in privatizing profits while, at the same time, publicizing losses.

Here was an interesting article, If the state can’t save us, we need a licence to print our own money. The case for a local currency is the same as the case for a national currency: Monetary policy can adjust to local conditions to help local markets. But the determents of a local currency, like exchange rate spreads, and local economic collapse, are greater than the benefits. A currency should have sufficient economic output to back it, otherwise it will become useless. Aggregate economies are less likely to fail, if only because of statistical stability.

What I find most interesting is

…should issue their own currency. To discourage people from hoarding it, they should impose a fee (called demurrage), which has the same effect as negative interest. The back of each banknote would contain 12 boxes. For the note to remain valid, the owner had to buy a stamp every month and stick it in one of the boxes.

I like the idea that currency should reduce in value over time if not maintained, just like all other human-made assets. This has the benefit of taxing the rich on their cash assets with out the detrimental effects of inflation. Money should be used a medium for exchange, not used as an asset itself.

Now, I am against the fractional reserve system of banking: I would prefer the state to issue all currency directly; adjusting the amount as needed to maintain a stable exchange rate with other countries.

With that in mind, local banks borrow money from the central bank at an interest rate, which may be the very same “demurrage” mentioned before. All banks must pay the demurrage held in their accounts (costs forwarded to account holders of course), all paper money should also be designed to expire (so to prevent hording of paper money).

I have not thought this all through.