The Best Way to Ignite the Economy

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The problem with the U.S. government's stimulus efforts to create jobs, and the Federal Reserve's quantitative easing to foster full employment, is that banks are the only direct beneficiaries.

There's just no good pool of jobs being formed from the trickle-down effect that first bathes bankers in bonuses and then showers shareholders with buybacks and dividends.

There is a better way.

And, in spite of the details, which additionally involve two necessary but minor structural changes that can be accomplished with the stroke of a pen, there are only two primary steps we need to take to create good-paying, long-term jobs and crank up economic growth.

Step 1 to Growth and Better Jobs

First, the two minor structural changes, which aren't minor if you're a fat-cat banker or crony capitalist, are:

    1) Eliminate the Federal Reserve's ridiculous "dual mandate"

    2) Enact the 21st Century Glass-Steagall Act and simultaneously break up all the too-big-to-fail banks that would still dominate the landscape after separating commercial banking institutions from investment banking shops.

[Please listen to my interview last week with Senator Angus King, a co-sponsor of the 21st Century Glass-Steagall Act, along with his cohorts, Senators Elizabeth Warren and John McCain. You can listen here.]

The Fed's dual mandate is to maintain "stable prices and moderate long-term interest rates," as well as to "promote effectively the goals of maximum employment." It was bequeathed to them in 1977 by Congress and a president and his administration who couldn't manage the country's downward economic spiral.

Besides the disturbing abrogation of Congress' constitutional duties, tasking the Trojan Horse Fed and its belly full of soldier bankers with being a receptacle for the government's outpouring of debt and simultaneously tasking it with managing GDP growth to engender trickle-down (from the banking fountainhead) jobs growth is a testament to how government emasculated itself.

All this became possible and desirable for our government when the Fed showed its prostituting backers their secret playbook.

By rigging the yield curve to slope steeply upward, the Fed manufactures profits for its constituent banks. As long as the interbank lending market is fluid and short-term borrowing rates low, banks can finance buying government issues (which no matter how low their yields, offer a positive carry and good return) as well as mortgage-backed securities. And the Fed can take in worthless collateral (in times of need) to keep banks afloat when they're insolvent and let banks run full-out flush at all other times.

That's the program. Benefit the banks to benefit the economy, which will foster job creation.

It starts with the banks and ends with the banks. That's the problem. Banks and financial services have become too big a component of GDP and too powerful. They are the tail wagging the dog, which is what our economy has become.

We need to do away with the Fed's dual mandate and break up the banks to make them serve free-market capitalism the food it needs to grow — namely capital. Banks should be reconstituted as utilities providing power to the economic grid, as opposed to being the owners and lever-pullers manipulating the grid.

That's primary goal number one.

Step 2 to Fixing the Economy

Primary goal number two is getting the president and Congress to create stimulus programs to directly impact jobs growth in the five legs of the economy that will serve the whole country's growth dynamic.

The programs have to include both direct support mechanisms and tax-advantaged "incentivization."

The five legs are:

  1. Revamp education and training by: modernizing delivery methods, lowering costs, radically reconstituting student loan programs, and expanding and making access easier;
  2. Rebuild, revitalize, and expand America's infrastructure;
  3. Make America energy independent;
  4. Protect and promote America's "knowledge intensive" industries: technology, defense systems, complex machinery, autos and airliners, medical devices, medicine, and environmental safety applications and green technology;
  5. Safeguard and manifest the myriad opportunities in big-data analytics.

A two-pronged approach to fostering solid, sustainable long-term economic growth is easily achievable.

If we first unclog the free market by flushing manipulative banks and a regime-fostering Federal Reserve's dual mandate power down the drain, and simultaneously get government to serve the people by directing our tax dollars into straightforward, transparent, privately managed programs that create good-paying, long-term jobs and career opportunities in areas that address our 21st century needs, we can rebuild America.

This is America's destiny. Now, all we need is an honest Congress and a hard-working president to invigorate our capitalist backbone and not enslave us in a socialist sinkhole.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Tom Turton | August 13, 2013

    A third leg and possibly the most important would be to reduce the corp income tax rate to zero.
    1. Multinational corps pile on admin expenses here in the US lowering or eliminating US tax. The money is now overseas and that is where it stays. Guess where the next factory is built.
    2. With a zero tax a lot of that money would come back here with new factories being built here at a rapid rate. Jobs in the US would explode, payroll taxes would increase, gov't dependence would decrease.
    3. The stock market would probably go up creating capital gains along with dividends being paid. Dividends are currently taxed twice.
    4. Executives paid bonuses could increase. Fine, their tax rate is currently a marginal rate of 39.6%. These bonuses will be taxed at the top rate.
    5. Social Security taxes collected would increase helping with the impending solvency problem.
    6. Local property tax districts will love all the new construction and or use of vacant factories.
    7. This will eliminate all the corporate welfare that currently goes on with all the special credits and quick write offs in certain industries or sectors.
    8. The field will be leveled between the multinationals and the small cap companies that do not have the ability to transfer expenses to their US operations. S corporations would probably disappear, as dividends would be how cash coming out of the corporation would be taxed .

    • Paul Livingston | October 2, 2013

      Do you really want a solution? If yes, than change our tax code. Stop punishing production with taxes on jobs, income, savings and investments. All these taxes are finally paid by "We the People" in the form of higher prices (imbedded taxes), fewer jobs and lower dividends. Move the tax base from income, savings, investments to a tax base on consumption with a progressive tax system.

      Put on your Patriotic hat! Do what is right for all U.S.A. citizens. Reclaim our freedom as protected by our original Constitution! … Repeal the 16th Amendment …Stop direct taxation on your job and your income… and End the IRS. The solution is the FairTax® bill HR25 / S122 and not a flat tax that still needs the IRS and the 16th Amendment. Learn more at http://www.fairtax.org or call me at 904-735-7565

    • Paul Livingston | October 2, 2013

      Hi Tom,

      I like your solution. It is headed in the right direction, just not far enough.

      The more complete solution is the FairTax bill HR 25 / S122.

      Learn more at FairTax.org or call me at 904-735-7565.

  2. Ray Michael | August 13, 2013

    I would go a step further and find a way to make the economy trickle up instead of trickle down. When the lower classes have money they have to spend it. They spend it at small businesses and other businesses increasing sales and profits. If the upper classes have the money they don't have to spend all of it, and as a percentage there is fewer of them so less money is spent. As an example, if you have 10 people in a room and they all have money to spend what is the chance that a business person who is trying to sell a product or service that is needed is going to sell that to people in the room. Probably pretty good. In a second room no one has any money to spend. What is the chance that business person is going to be able to sell that product or service in that second room. Probably none. Our economy is getting more and more like the second room. Trickle down hasn't worked for the last 30 years and never will. It only makes things worse for everyone. Trickle up economics will always work because the lower classes will always need to spend their money, benefitting everyone. Good paying jobs need to be created for this to happen. The government can do this short term through tax incentives for business and adjusting the tax for upper income earners or keep paying out the same in welfare.

  3. Michael A. Abbott | August 13, 2013

    Sir,
    I would appreciate your feedback concerning the implemtation
    of what is called the FairTax. http://www.fairtax.org
    Dr. Karen Walby appears to be the contact person as she is
    the producer of their white papers .

    Thanking you in advance, Michael

  4. Michael V. Moses | August 13, 2013

    Dear Sir,
    I am Chairman/CEO of a company that will have to hire tens of thousands of employees in the near future. The first choice of employee will be the 250,000 Homeless Veterans in America!!!! Who would be better to have working than a Veteran? NO ONE!!!!
    This company uses plastic pollution to make our product so we are a GREEN company. We will provide a potential life and property saving product in flood prevention. We will provide jobs for thousands of people and we can't find funding to build a test wall for The Army Corps of Engineers.
    With hundreds of millions of tax payers dollars being given to companies like Solyndra, Evergreen Solar, Spectra Watt and 25.1 BILLION in automotive bailouts, my company can't receive $750,000.00 to build our test wall. Something is wrong with this picture.
    There is not enough room in your comment box for me to really let you know how I feel. Thank you for your time,
    Michael V. Moses
    Chairman/CEO
    MVM Research and Development Group, Inc..

  5. Mike Reardon | August 13, 2013

    Shah,

    That will certainly help, but the main problem that eliminates jobs is the pressure on public companies to maintain a certain level of constant growth and hence increase their share price. Employees/salaries are, at base, an expense, and the easiest "low hanging fruit" to eliminate to decrease cost and increase the bottom line.

    And put that along with the other "wrongs/issues/deceits" Wall Street has created and maintains, privatization of companies is the route to job creation, as well as getting back to economic sanity instead of manipulation. I realize these private companies still have to perform, grow, innovate (to a certain extent depending on the industry sector), and stay competitive, but taking away the pressure to increase the share price each quarter will do wonders for employee retainment. How many times do we see public companies reporting excellent net profit (sometimes in the $billions), only to have their share price drop as it did not meet projected earnings? And next we hear this same company has announced a reorganization, cutting expenses, including a large layoff. My heart breaks for these employees being laid off. Simply (though not easily at this point of entrenchment) take the control away from Wall Street…

    MR

  6. don | August 13, 2013

    Good suggestions by Shah. Good responses; although, some may be self-serving.

    Flush the predator banks? That opportunity was passed when TARP bailed them out; which was a HUGE Mistake!

    Why would we want to reward, bad – – even, unlawful behavior; by eliminating Corporate Taxes? Build new Plants here? Well, maybe. But, not with current excess capacity; and Slave Labor. (One wouldn't be in China any more . . .)

    Not sure whether anyone, but true creators, dreamers, and, idealists; want to go through the hard work it takes to really Produce anything – – anymore! The Financial Sector has moved the Nation rapidly toward Financialization; because it is easier to destroy; or, "hook or crook," others in pursuit of Wealth; than it is to Produce anything Real. Studies have indicated that Wall Street has a Culture of Criminality; too Big to Fail has come to mean, "too big to Prosecute;" and the System tends to reward failure, power, and influence. "Cronyism," is the operative word today: Crony Democracy, Crony Capitalism; Crony Legal System; in essence, a slick, sleight of hand, Culture; in which TRUST has been the biggest Casualty. Tough to Produce anything in an Environment like this. Sorry!

    • Frank Morton | August 13, 2013

      Force all public owned corporations to pay our minimum wages wherever they go. This would show a little regard for workers and bring back many jobs.

      Stop giving big banks billions in 0% loans and make all government guranteed loans directly for a small interest. This, in the long run, would greatly reduce house notes and leave trillions wiyh our people instead of thieving banks. We cannot continue letting the Federal reserve to control our money supply and interest rates.

      It has been obvious for some time that giant non producers run our country and it is equally obvious they are destroying it.Banks, wall street, hedge funds, insurance companies and commodities speculators own our government. These pigs produce nothing and rape our economy. For example: Goldman Sachs, Morgan Stanley and one other control 80% of all oil trades.

      If we don't force real change The giant economic leaches will soon have us in depression and chaos. You can't run a country for the benifit of 1 or 2% without destroying it.

  7. Dana | August 13, 2013

    How does your fix fit in with the US Perpetual War For Perpetual Profits paradigm we've been embroiled in for over a century Shah ?

    Your ideas are sound but nowhere near broad based enough, and frankly, not realistic.

    Credit built this country, and credit will bring it to it's knees.

  8. mark | August 13, 2013

    If the tarp money would have gone to all the citizens, Let's say 10-20k a person, on a 0% ,20 year loan, with the condition that you had to pay down debt with the money first. The paying of debt would have saved the banks. Anyone with no debt could have used it to stimulate the economy or invest with. Student loan debt would have been paid down or underwater housing would have been less underwater. Anyone who did not want the money would be paid 1000 dollars to opt out. That would have been the correct way to stimulate. It's too late for a do over now. Paying taxes to bail out banks is just plain stupid, and if you die before you pay the money back your estate would have a claim against it.

  9. baryoboy | August 13, 2013

    In stead of the crooks in Washington trying to stimulate the economy ,give 100,00 dollars to every American of voting age to spend on American made products ,not food or cars or liquor or gambling but on furniture ,remodeling there home and that goes for landlords. And a chance to buy a home if they qualify ,but not a second home. The money would be on a special credit card just fore this purpose ,and things bought with this should be tax exempt . NO NONE CITIZENS

  10. Vincent F. Celli | August 13, 2013

    I can endorse your efforts with gusto. If programs similar to what you want are initiated we would have a more efficient working government that would be a model for the rest of the world. We need to ask more of congress to really do some hard productive work.
    You also continue to hit the nail on the head when you rightly put the blame for the mess we are in on the backs of the banks. They have become a bigger share of the economy and by doing so have simply sucked the life blood out of America (as well as many other nations)
    Bravo for your efforts. VFC

  11. Paul Livingston | August 13, 2013

    Do you really thing our present system of politicians picking winners and losers will ever work? If you truly want a jobs and economic stimulus that works then change the tax code. Stop punishing production with direct taxation on jobs and income.

    Put on your Patriotic hat! Do what is right for all U.S.A. citizens. Reclaim our freedom as protected by our original Constitution! …End the IRS…Stop direct taxation on jobs and income…Repeal the 16th Amendment and…The solution is the FairTax® bill HR25 / S122 and not the flat tax that still needs the IRS and the 16th Amendment.

  12. Ryan N. | August 13, 2013

    Shah, I like your insight into banking. A couple banking reforms I support are:

    Convert the "Commerical" Investment Banks like GS and MS back to partnerships. Do you think that the partners would allow them to take the level of risk that caused the 2008 panic?

    No more bailouts. Period.

    One issue I do see is that some of the majors like JPM, WFC and BAC bought distressed assets like Bear, Countrywide, etc under what I belive to be major influence (gun to their head) by Hank Paulson and Ben Bernanke during the panic. Is it fair to force them to buy a distressed asset and then force them to diverge it later?

    Just my rambling musings.

    Ryan

  13. Frank Morton | August 13, 2013

    We have socialism for the wealthy! Instead of controlling our insanely greedy corporate and financial systems, we aid them with special treaties and tax breaks for outsourcing. Too many of our prostitute politicians are owned. We have given our nation to a totally corrupt corporate and financial system.
    When the CEO of Disney made 600 million in salary he had children working in Haiti for 12 cents an hour. Our government not only condones the evil that is destroying America, it enables and encourages the pigs.
    In the one year I know about the Saudi royal family mad 250 billion on our crooked market while 401ks were tanking. The Emir of Kuwait has several hundred billion in that same market. We send troops and spend lives and fortunes defending these two ruling powers that run their countries like company stores.
    The real question is: When will "we the people" force this government to give at least equal concern for those it is elected to serve??

  14. Ed the Grocer | August 14, 2013

    Remove personal income tax which will put wealth back in the hands of people who work in America. Install a VAT to replace the income tax. This would place US workers and manufacturers on the same footing as importers. Impose a 'clean food act' which would put a vast array of farmers back to work producing real food. Stop ag subsidies. This would dramatically reduce the wasted effort in corn and soy. Stop the endless and aimless war. Move to a full metric system so that our students will be able to compete.

  15. Robert H.Bushnell | August 14, 2013

    Ed the Grocer
    Do not hide metric in the end of your remarks.

    • Ed the Grocer | August 16, 2013

      ? The US system is already a copy of the original French litre. Most of the rest of the world is metric including your largest trading partner, Canada. Most of the world has already adopted a decimal currency, for a reason. The metric has basically two measurements, gram and litre. Everything is a decimal function of those two units. The archaic US system has dozens of measurements more or less pertaining to each industry. It leaves one group not able to convert to another format. Dumb. And that is how the young will stay. !/1000 inch, inch, foot, yard, rod, chain, furlong, mile, and many more. Do you recognize which area you function in?

  16. Brad M | August 15, 2013

    So many problems, where does one start? Well, how about 1) dissolving the Fed. 2) restructuring banking and financial institutions and their regulation 3) dissolve all federal taxes and go to a national retail sales tax 4) evaluate education costs and waste and get training and knowledge a bit more on par with what job market is requiring 5) do something about student loan debt 6) evaluate our defense spending and particularly all overseas bases and conflicts ( time to get out in many of these cases I believe ) 7) achieve the energy independence we are more than capable of having 8) create some realistic, not idealistic or agenda full, answers to health care 9) evaluate and restructure social programs with a goal to slowly chase away future dependence while making them solvent in short term 10) lead the space race again. And now look at our current government and you ask… how would this possibly happen… oh yeah I almost forgot 11) term limits for senators and reps! and 12) some serious laws on how lobbying can be done. Oh well, dare to dream! Probably close to time to hide gold and find some shelter instead!

  17. Mike | August 19, 2013

    Education and training will continue to fail as long as public unions control America's unionized diploma factories … outlaw public unions, cut their pay and benefits, lower tuition.

    • Roger H | October 3, 2013

      So you intend to improve education by degrading teachers? Sounds like you haven't a clue what a teacher deals with everyday trying to educate your delightful "little darling offspring".

  18. Jan Stevens | August 21, 2013

    The term "honest Congress" will remain an oxymoron until we
    end the practice of allowing big money to buy elections, and their
    lobbyists to buy legislation. None of Mr. Gilani's pipedreams will
    come to fruition untill this first step occurs.
    Also, having the Fed manage the money supply for the benefit
    of the banks, doesn't sound like socialism to me.

  19. Brad Ellis | October 1, 2013

    While I agree with the 5 points you outline, just who will do that? Without government, it cannot happen. And without at least a portion of the opposition understanding that, those who would make those things happen are effectively prohibited from doing so.

    Yet, you continue to appear on the shows of folks who are the roadblocks. Do you get paid for those appearances, and if yes, how are you any different from Congress?
    Brad

  20. Wayne | October 4, 2013

    Jan and Brad. you have laid out the real problem in a nut shell. Our government has been so corrupted by the "big money" interests that the first reform has to start with reforming the way that elections are financed. But that will not happen until the voters realize that THEY are responsible for making it happen, they are responsible for investigating what big money interests support which candidates and how the "big money" influence will affect their (the voters) interests.

    The next step to making Congress responsive to the people is to make them abide by the same rules and participate only in the same pension , healthcare, and ALL laws that pertain to the "regular" citizenry of the U.S.. In other words, take away their "elite" status.

  21. Alan Steinbronn | October 14, 2013

    Shah, you're 100% about the bankers being the problem. I see it like this – the responsibility of our sovereign government is to distribute the national currency to account for all the productivity of Americans. This is to be done FOR the people, BY the people, through their treasury dept. Meaning, THIS IS SUPPOSED TO BE A PUBLIC SERVICE. Somewhere along the time-line Americans lost control of their own currency distribution system and got a PRIVATE BANKING SYSTEM grafted onto their government. This 'graft' is a PARASITE that RENTS (at interest) to Americans their own currency. This is INSANE and must be stopped immediately. The self-interest and profit motives of these private bankers are in DIRECT CONFLICT with the well being and prosperity of American citizens. Cut off their US Gov financial subsidy (their right to create US currency at will). Make these private bankers operate their business like every other business – with their own capital. Our government needs to create an agency within the US Treasury who will distribute the nation's currency to Americans at NO cost – as a public service – with transparency and accountability. 'nuff said.

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