What we all need to realize is the economy does not stand on One Leg and unfortunately Washington has crafted a bill that only deals with one of the legs.
In the simplest of terms our Economy is like a three-legged stool on one leg you have Credit for both commercial endeavors and Individual needs. On the second you have Savings which is made up of individual and institutional money i.e. savings retirement and liquid assets. And the third leg is wages. My graphic may be a bit disproportional depending on your individual view but it represents a combination of the issues and facts put forward on the economy by the Federal Reserve, Treasury and the Congressional office of oversight over the last year.
In the simplest of terms our Economy is like a three-legged stool on one leg you have Credit for both commercial endeavors and Individual needs. On the second you have Savings which is made up of individual and institutional money i.e. savings retirement and liquid assets. And the third leg is wages. My graphic may be a bit disproportional depending on your individual view but it represents a combination of the issues and facts put forward on the economy by the Federal Reserve, Treasury and the Congressional office of oversight over the last year.
What I have represented here is the following;
The Credit Leg, as you can clearly see has experienced a devastating event is threatened with being cut off completely. This will result in our economy tumbling and affecting every entity that wants and needs access to capital for start-ups, to expand, or meet expenses on the short term. To lose that ability will mean the delaying of expansion of our economic base and for current entities it would mean delaying payments, this ultimately would lead to downsizing (LAYOFFS). The results of this effect of the Credit crisis will further damage the other 2 legs of the economy in its collapse.
The Savings Leg, which includes such things as a simple passbooks, CD’s, retirement accounts (IRA’s 401K) and Money Market funds have been under pressure for some time we have in the last month and especially the last week seen huge sums of Savings money flow out of financial institutions of all kinds in order to shore up not only family expenses but also business’s day to day demands. I believe we have all heard at one point or another the fact that saving has been at an all time low in the US for decades and so any withdrawal reduces the amount of time in the future that the economy, of you and I, can sustain our selves as we continue to reduce and nibble at the savings leg as a result of the weakening economy and inflation in food and energy. This also weakens the other two legs substantially and threatens to collapse as well under the weight of a credit failure.
The Wages Leg, which is made up of hard currency and is comprised of income from a work. It is the key engine that produces the revenue that sees surpluses add to the Savings Leg, directly affects the Savings Leg. Wages have not kept pace with inflation and buying power of 98% of wage earners has been shrinking for almost 45 years. I try to equate this in the graphic to the atrophy of an unused limb the picture shows the robust overdevelopment of the top of the leg which is still functioning but shows the long term effects of the bottom 98% and the obvious risks involved by its continued lack of growth. It has become weak and threatens to become unable to support the economy and also tumble if the Credit Crisis continues and collapses the Wage leg is sure to suffer a catastrophic event in the fall.
If we are to see the stool (our Economy) restabilize we need first to realize we must repair all legs of the stool the Credit Leg must receive a new influx of capital to patch up the threat to collapse this is currently being considered in the 700 Billion dollar influx before Congress. Yet to only repair the one sector of our economy would be a mistake to ignore the other two legs and the strain they are experiencing. We must see an expansion of Wages the Lower 98% can no longer support our economy under the current wage structure. The middleclass on down ward must have sufficient cash to stop the nibbling of Savings Leg in order to prevent a secondary threat to the Economy and to begin to rebuild the cushion we need for day-to-day calamities as well as retirement.
Dealing with all three in a comprehensive way will be critical to stabilizing our foundation economy and preparing our economy to meet the new challenges we are sure to face in the coming decades. If we stop with only patching the Credit Leg we will see an eventual collapse of the economy because of the continued weakening to the Savings Leg by threatening to destabilize S&L’s as we saw in the 80’s and to some extent in our current situation yet today’s events are far more a result of large depositors pulling out of banks then the drip, drip, drip of consumers drawing down their reserves yet together they are creating hardship in the savings that go to serve as credit.
The solutions although obvious are no less a challenge then the eventual passage of a credit recovery bill yet all need to be addressed to avoid repeating the pain on Main Street. As much as I think the bail out bill presented is a part of the solution I have to agree now that I have read the 110 pages a couple of times that it does not go as far as it should to accomplish a real stabilization for our Economy and if we are putting up the cash we need to feel the confidence that our economy is once again going to be on solid footing. I think to this point I would defer to Senator Chris Dodd’s statement as right on point “at this level of commitment there is no second chance” we are putting in all of our chips.
The opportunity now is to include provisions that reward saving by implementing new tax laws on accounts of $100,000 or less in S&L’s by eliminating all taxes on interest at the State level and the National tax level this will give a real incentive for every American to share in the strength and well being of our economy for now and into our future and rebuild a safety net system based on the average individual for our economy.
Next and here comes the socialist accusations I am sure. We need to distribute the wealth and success of our economy in a more measured way I am not saying this needs to mirror the other two legs of the stool but it needs to be more like a pyramid then a Toilet Plunger We need a wage structure that does reward hard work and ingenuity and the ability for upward movement but, it must also assure incomes that provide for basic human needs at a sustainable level which must include Health Care.
In the 1950’s this was established through a private partnership reached between Industry and workers and dubbed the Detroit Treaty, We can not return to this agreement but we must revisit this premise and foundation it established. We could take a giant step with well crafted language in this credit recovery bill we can and need to reestablish a core principle that establishes levels of compensation for upper management tied to the success and performance of the entire company and we must limit upper management compensation to no more then 30-35 times the average compensation of the average employee. The one pitfall that may arise is the CEO who pads the bottom rung of employees limits middle management and pads heavily upper management to skew the middle yet with proper oversight and rules we could achieve this result. Now this does not nor should it limit owners and top executives from earning added compensation from Net Profits left over after returning a share to the investors through dividends. This would also accomplish two things American corporations would pay corporate taxes which they have avoided for decades which would help reduce budget deficits and it would through the IRS give a certain amount of over sight with out directly creating new bureaucracy and added government costs.
Next we will need to craft future legislation that deals with the issue of Living wages and we need to look at this in more regional terms not nation wide, we are all aware that the cost of living in New England is certainly higher then say the South East or the South West of the United state so what works in Birmingham may not in Hartford. This type of legislation is certainly going to be an uphill climb but, if we have learned anything from the current crisis it is that we need a strong foundation to keep our country strong.
I look at this as a challenge as great as the one we place on our young men and women who serve us in our military. What are they fighting for but the success of all families here in the United States and to date we have done a fairly poor job at honoring their sacrifice. When they look at the pain and suffering on Main Street all over this country won’t they begin to wonder just what am I fighting and dieing for. I do not think you will find to many of these young people coming from a life of silver spoons and tea at 4PM but from common American families who’s struggle to survive everyday is getting tough and tough and if the economy falls how much tough will it get.
Make no mistake Main Street is hurting it has been for some time now and no one has listened we continue to struggle to hold up our end of the economy yet most have paid little attention to our pain. Yet when large companies packed with the top 2% begin to whine we run in with everything right down to the kitchen sink. This is wrong it is time for change it is time to roll up your sleeves and get to work on new principles of the foundation of our economy. Yes lets start with patching the Credit markets but we must not stop there. I hope your listening to us all because we are mad as hell!
The Credit Leg, as you can clearly see has experienced a devastating event is threatened with being cut off completely. This will result in our economy tumbling and affecting every entity that wants and needs access to capital for start-ups, to expand, or meet expenses on the short term. To lose that ability will mean the delaying of expansion of our economic base and for current entities it would mean delaying payments, this ultimately would lead to downsizing (LAYOFFS). The results of this effect of the Credit crisis will further damage the other 2 legs of the economy in its collapse.
The Savings Leg, which includes such things as a simple passbooks, CD’s, retirement accounts (IRA’s 401K) and Money Market funds have been under pressure for some time we have in the last month and especially the last week seen huge sums of Savings money flow out of financial institutions of all kinds in order to shore up not only family expenses but also business’s day to day demands. I believe we have all heard at one point or another the fact that saving has been at an all time low in the US for decades and so any withdrawal reduces the amount of time in the future that the economy, of you and I, can sustain our selves as we continue to reduce and nibble at the savings leg as a result of the weakening economy and inflation in food and energy. This also weakens the other two legs substantially and threatens to collapse as well under the weight of a credit failure.
The Wages Leg, which is made up of hard currency and is comprised of income from a work. It is the key engine that produces the revenue that sees surpluses add to the Savings Leg, directly affects the Savings Leg. Wages have not kept pace with inflation and buying power of 98% of wage earners has been shrinking for almost 45 years. I try to equate this in the graphic to the atrophy of an unused limb the picture shows the robust overdevelopment of the top of the leg which is still functioning but shows the long term effects of the bottom 98% and the obvious risks involved by its continued lack of growth. It has become weak and threatens to become unable to support the economy and also tumble if the Credit Crisis continues and collapses the Wage leg is sure to suffer a catastrophic event in the fall.
If we are to see the stool (our Economy) restabilize we need first to realize we must repair all legs of the stool the Credit Leg must receive a new influx of capital to patch up the threat to collapse this is currently being considered in the 700 Billion dollar influx before Congress. Yet to only repair the one sector of our economy would be a mistake to ignore the other two legs and the strain they are experiencing. We must see an expansion of Wages the Lower 98% can no longer support our economy under the current wage structure. The middleclass on down ward must have sufficient cash to stop the nibbling of Savings Leg in order to prevent a secondary threat to the Economy and to begin to rebuild the cushion we need for day-to-day calamities as well as retirement.
Dealing with all three in a comprehensive way will be critical to stabilizing our foundation economy and preparing our economy to meet the new challenges we are sure to face in the coming decades. If we stop with only patching the Credit Leg we will see an eventual collapse of the economy because of the continued weakening to the Savings Leg by threatening to destabilize S&L’s as we saw in the 80’s and to some extent in our current situation yet today’s events are far more a result of large depositors pulling out of banks then the drip, drip, drip of consumers drawing down their reserves yet together they are creating hardship in the savings that go to serve as credit.
The solutions although obvious are no less a challenge then the eventual passage of a credit recovery bill yet all need to be addressed to avoid repeating the pain on Main Street. As much as I think the bail out bill presented is a part of the solution I have to agree now that I have read the 110 pages a couple of times that it does not go as far as it should to accomplish a real stabilization for our Economy and if we are putting up the cash we need to feel the confidence that our economy is once again going to be on solid footing. I think to this point I would defer to Senator Chris Dodd’s statement as right on point “at this level of commitment there is no second chance” we are putting in all of our chips.
The opportunity now is to include provisions that reward saving by implementing new tax laws on accounts of $100,000 or less in S&L’s by eliminating all taxes on interest at the State level and the National tax level this will give a real incentive for every American to share in the strength and well being of our economy for now and into our future and rebuild a safety net system based on the average individual for our economy.
Next and here comes the socialist accusations I am sure. We need to distribute the wealth and success of our economy in a more measured way I am not saying this needs to mirror the other two legs of the stool but it needs to be more like a pyramid then a Toilet Plunger We need a wage structure that does reward hard work and ingenuity and the ability for upward movement but, it must also assure incomes that provide for basic human needs at a sustainable level which must include Health Care.
In the 1950’s this was established through a private partnership reached between Industry and workers and dubbed the Detroit Treaty, We can not return to this agreement but we must revisit this premise and foundation it established. We could take a giant step with well crafted language in this credit recovery bill we can and need to reestablish a core principle that establishes levels of compensation for upper management tied to the success and performance of the entire company and we must limit upper management compensation to no more then 30-35 times the average compensation of the average employee. The one pitfall that may arise is the CEO who pads the bottom rung of employees limits middle management and pads heavily upper management to skew the middle yet with proper oversight and rules we could achieve this result. Now this does not nor should it limit owners and top executives from earning added compensation from Net Profits left over after returning a share to the investors through dividends. This would also accomplish two things American corporations would pay corporate taxes which they have avoided for decades which would help reduce budget deficits and it would through the IRS give a certain amount of over sight with out directly creating new bureaucracy and added government costs.
Next we will need to craft future legislation that deals with the issue of Living wages and we need to look at this in more regional terms not nation wide, we are all aware that the cost of living in New England is certainly higher then say the South East or the South West of the United state so what works in Birmingham may not in Hartford. This type of legislation is certainly going to be an uphill climb but, if we have learned anything from the current crisis it is that we need a strong foundation to keep our country strong.
I look at this as a challenge as great as the one we place on our young men and women who serve us in our military. What are they fighting for but the success of all families here in the United States and to date we have done a fairly poor job at honoring their sacrifice. When they look at the pain and suffering on Main Street all over this country won’t they begin to wonder just what am I fighting and dieing for. I do not think you will find to many of these young people coming from a life of silver spoons and tea at 4PM but from common American families who’s struggle to survive everyday is getting tough and tough and if the economy falls how much tough will it get.
Make no mistake Main Street is hurting it has been for some time now and no one has listened we continue to struggle to hold up our end of the economy yet most have paid little attention to our pain. Yet when large companies packed with the top 2% begin to whine we run in with everything right down to the kitchen sink. This is wrong it is time for change it is time to roll up your sleeves and get to work on new principles of the foundation of our economy. Yes lets start with patching the Credit markets but we must not stop there. I hope your listening to us all because we are mad as hell!
