Terry with the greatest respect, the details of Obama's plan are on the table.

I agree entirely with your article but for this point.

Obama intends to attempt to remove the toxic mortgages from the Banks Balance sheets.

He is donating one trillion US taxpayers dollars to investors (Mostly to Hugo Rudd's evil neo-con Fundmanagers)in the hope they will buy those mortgages. He intends a lending ratio of $US6 (taxpayers) to every $US1 private equity. He is relying on the banks to value the toxic mortgages at ... get this for it is very significant, for all the wrong reasons but mostly because of the damage it would do to the US economy ... at $US0.30 in the dollar. He uses the logic that when the market recovers the value of the properties backing those mortgages will rise and the fundmanagers will make a killing.
He on his figures he estimates (Wrongly) the toxic debt held by banks is only about $US6 trillion. Think through the consequences IF the banks agree to write off 70% of the toxic mortgage debt or about $US4.5 trillion.

Obama might be godlike to some but he can't walk on water nor persuade bankers to give away assets that that may one day recover to a value and mean they won't lose.

It's all just 'blowhard' nonsense from Obama and cannot work. Once the market factors in the eventual ramifications it will collapse just as it did after realising stimulus packages don't work.

I don't understand where Obama is going with his comprehensive all-inclusive plans for the economy. Since I am not an economist in any sense of the word, I don't feel too bad about my lack of understanding because based on the article by the "brilliant" economist, Terry Miller and comments by Keith, Obama likewise is in the dark.

My problem is this: This mess has been underway for almost a decade; where have these brilliant economists been? Why couldn't they have had some influence in preventing the chaos that has developed? Furthermore, what is their solution now that the problem is severe? If they really have the answers, where are their powers of persuasion to set us on the right track?

Hi Joe,

Ibecame aware of the looming (still looming disaster three years ago after reading reports in the NY Times and Washington Post. Many commentators, both professional and, like myself and you, totally amateur were aware of what has come and what's still to come.

My solutions simple. John McCain and recently, Obama maintain the fundamentals of the US economy are still good. What they mean is that the industry and activity actually creating the wealth or creating the means to create wealth, and in the process providing most jobs, are still strong.
Industries reliant on consumerism, old technologies, methods and conditions will founder.

Let them. We've lived with the basic conditions of capitalism for a couple of hundred years ... it works.

Capitalism a la USA always coped with change.

Bank bailouts ... stuff them ... let them fail. The market will handle that. Other Banks and well run existing banks will replace them. The short term consequences will be terrible for everybody, with assets, but they will be nowhere near as dramatic or painfully drawn out as the consequences of propping up failing businesses artificially.

Just let things take their course. Stop Government meddling. They know bloody nothing. Stop the Federal Reserve meddling. Abolish it. It only looks out for the interests of it's member banks. Return the responsibility for printing money to Congress ... where it Constitutionally belongs. Re-instate the Glass-Stegall Act. Abolish the Community Re-inforcement act and re-jig the powers of the FDIC to comprehensively maintain regulation and oversee of the banking system.

Jobs will be lost but others will be created, over a relatively short period, and any adjustment won't take 20 years as it did following the Government meddling in 1929 and the 1930's.

Stimulus packages and infrastructure spending are peeing into the wind. They don't create wealth but merely send existing wealth spining through the economy. That's not what will get us out of this crisis. Actually creating wealth will.

Probably not comprehensive but I think you'll get my gist. Hope that helps

Regards Keith

In a modern monetary economy like the US (and Australia), sovereign - federal- government must spend before any net increase in financial assets can occur. Stimulus packages, especially infrastructure, are helpfull for replacing the demand that has become deficient in the private sector. I'm not crazy about the Obama plan though.

Government is an absolutely critical part of the process of stable, long-term wealth creation.

Obama is leading America into a socialist dictator ship. Ie so reminds very much of Ayn Rands novel Atlas Shrugged. The stimulus will not work and he will ask Americans to makes sacrifices like a good socialist always does. Life imitating art. Now days all economies have two steams - Trade and money .The stimulus will not work as the troubles have started in the Money economy and banks trying to recapitlise have denied the trade economy funds. Essentially if the US banks followed regulation which they are trying to avoid with mark to market accounting and revalued their assets to reflect their true market value which they have not done yet , if applied now all US banks including JP Morgan and other banks that look solid would actually be insolvent. The best course for capitalism and the one with the least moral hazard is to let the banks fail. It would be extremely painful now however as most junkies know the longer you leave it the harder it gets to recover when you do finally accept the cure. The looming problem with all these trillions floating around is they must be paid back to lenders( probably Japanese and Chinese) and whether they will keep lending to the US at the current rate is another problem. Given that we may get through this crisis and that we have a crisis in US banking every 10 years will the next 10 years be long enough time to recover for the next crisis and given the amount money governments have forked out for this one will there be anything left to go around next time?

Why hasn't Obama repealed the patriot act which allows the president to declare marshall law at a whim.Currently the US is far from being a democracy.Why is Obama bringing in compulsory military traning for all 18-25 yr olds? Is he preparing for war?

"In a modern monetary economy like the US (and Australia), sovereign - federal- government must spend before any net increase in financial assets can occur. Stimulus packages, especially infrastructure, are helpfull for replacing the demand that has become deficient in the private sector. I'm not crazy about the Obama plan though.

Government is an absolutely critical part of the process of stable, long-term wealth creation."

Fozz, this is anti-economic nonsense. According to that theory, the way a nation makes wealth is by printing paper. It is precisely the printing of all those paper dollars, backed by nothing, that has caused the economic dislocation in the first place.

"My problem is this: This mess has been underway for almost a decade; where have these brilliant economists been? Why couldn't they have had some influence in preventing the chaos that has developed? Furthermore, what is their solution now that the problem is severe? If they really have the answers, where are their powers of persuasion to set us on the right track?"

Joe in the US: you have hit the nail right on the head. The economists who are now telling us that the solution is for the government to run the printing presses are the ones who caused the problem by saying, like Fozz, there's 'deficient demand' which needs to be cured by government running the printing presses.

http://blog.mises.org/archives/009664.asp

Why aren't they giving the right economic advice? Because the truth is there is nothing the government can do to fix the problem it has caused, but get out of the way: and that would leave the economists without their government-funded jobs.

We all know that printing more money is folly.It is exactly what was done during the 1930's to no avail.There comes a point where the toxic asets and debt must be bankrupted.All Obama is doing is prolonging and intensifying the downtown.

Reduce the size of Govt,get out of Iraq and then Afghanistan.Sack the Federal Reserve and allow congress once again to isssue currency.

Jardine K. Jardine -
"Why aren't they giving the right economic advice? Because the truth is there is nothing the government can do to fix the problem it has caused, but get out of the way: and that would leave the economists without their government-funded jobs."

With all due respect, Jardine, simply getting out of the way does not offer an answer to the current dilemma. That would be like saying, after driving the tractor in the ditch, leave it alone and it'll get out on its own!

Joe
The problem with that analogy is that there is no reason to trust the driver who got it there in the first place.

The economy is not a tractor in a ditch. It is a mistake to think that the spontaneous order that arises from the voluntary transactions of millions of individuals can be centrally planned. Government does not have, and is not capable of obtaining the knowledge it would need to fix the problem. It is the false assumption that it can, that gave rise to the massive exercise in price-fixing that caused the whole problem in the first place.

People assume the government can fix it, and that's why they assume that 'experts' must know the answer. But these experts have been in charge of monetary policy the whole time, and have their own interests to serve too. If they're such experts, how come they didn't see this coming? How come it happened?

The simple remedy is for the businesses that are running at a loss, to go broke. That way
a) no-one else is forced to pay for them to lose money
b) other businesses which are capable of providing the service without making a loss can do so without government stopping them
c) the resources that are now being wasted on loss-making businesses, can go into providing stuff that people actually want.

All government interventions do is destroy wealth while penalising productive activities and rewarding unproductive activities. It is simply mistaken to assume that government has a magic power to be more economical than the markets. If it could be, why only do it during a recession?

President Obama is saddled with the legacy of a failed presidency, and a war that should never have happened. The money spent on Iraq and Afghanistan that should have been spent at home, is the real cause of the world economic crisis.

The United States and Australia both should have a guaranteed jury trial system, but both have an enormous number of Jewish lawyers and bankers, who have set out to totally undermine their Constitutions. The financial crisis we have is manufactured by the Jewish banking lobby. It can be simply fixed by putting every house in crisis on the market at auction, and financing its real value to the current tenants. This is not happening because the grass roots political meetings that used to organize such things, ( a Justice and a jury) are now run by lawyers and fellow travelers. I am talking about jury trials, and the equity of redemption that jury trials guarantee.

President Obama has opened a dialogue with Iran, and should instead of increasing the presence of alien soldiers of a faith repugnant to Muslims, turn Afghanistan over to Iran, and offer to buy all the heroin Afghanistan produces until Iran stops the production there. It would be cheaper than the war, in both lives and money. Likewise if Pakistan cannot control its terrorists, it should be encouraged to ally itself with Iran, help police Afghanistan, and eliminate the religious protests that fuel the insurgency.

Perhaps Obama is not going to succeed, but he has one thing going for him, he is a Christian as is Kevin Rudd. If both of them lead their respective countries back to the fundamentals of good government enshrined in their respective Constitutions, with all major local political decisions made locally, as was the guaranteed process when their respective Constitutions were made, then both countries will recover and prosper.

The Holy Bible KJV in Luke 11 verses 46 and 52 warns Christians explicitly against lawyers. For 498 years from 1372 -1870, lawyers were banned from Parliament in England. The British Parliament let them back in. Was that a mistake?

Hi Joe,

When people talk of 'economists' it is a generalisation.

Get to the nitty gritty.

After the Congressional/government meddling with the credit conditions of many banks in thje Senate with changes to The Glass-Steggal Act and the Community Re-investment Act, the next biggest meddler was the Federal Reserve.

Those are the people who bought us to where we are. Few are economists.

Look mostly at the Fed Res now as they are the biggest promoters of solutions. Particularly Bernanke.

His original solution was to bailout the banks, supposedly to get them lending. Remember the original seven hundred and fifty billion dollars given to the Banks. Net result the banks didn't lend one cent but improved their balance sheets.

Now Bernanke is saying give the Investment funds easy government credit to buy the toxic loans from the banks., to get them lending. Net result the banks won't len, it's not in their interests, and they will merely seek to improve their balance sheets. And bet your bottom dollar their balance sheets will still carry those toxic mortgages, nicely hidden among their Investment Fund assets, and at their inflated values

I suspect the (Fed Res) banks have already invested heavily in Investment Funds ... who, it is proposed by Obama/Geithner/ Bernanke, will buy the Toxic Mortgages from the banks(themselves in other words) at $0.30 cents in the dollar. They thereby improve both their short term balance sheets and will use taxpayers money to recover their $0.70 cent in the dollar write downs over the longer period as the economy recovers and the toxic mortgage securities, ie houses, prices recover.

Brilliant and simple and benefits the banks only. The rest of us will still not get the credit we need, we'll carry the problems resulting from low asset values, consumer inflation, wage restraint and job losses.

Stuff the Fed Res and the bloody greedy and sly banks. Let them fail, it's what they deserve. They are merely manipulating the latest bunch of stupid politicians and using this financial depression and taxpayer money to profit their business.

Bernanke should be tried for treason. The US voters who voted for the incompetent OBama and his idiot cohorts in congress need be shown their folly ... by the totaly biased US media fools. Fat Chance eh? Ha what a massive sick joke! That just won't happen and the Banks will prosper where they should have gone the way of all incompetent businesses.

Why can't you see the complete idiocy currently gripping America?

You are right Keith.The awareness is accelerating.Ron Paul now has the support of 46 congressmen to audit the Fed Res.The Fed is taking money from the tax payer and buy up the cheap assets which they help create.The money should be going to business.

The Fed is an abomination and they along with the IMF,World bank should be put into liquidation.

Jardine K Jardine,

You are misunderstanding the nature of a modern monetary economy.

Sovereign (federal) governments MUST spend before any new net monetary wealth can be created. Sovereign governement is the ultimate source of money, the genesis. They and they alone, are empowered to create and destroy money and they do this on a daily basis. Economic growth is ultimately tied to the willingness or unwillingness of sovereign governments around the world to create new money through their spending.

The world has greatly changed since neo-liberalism first started becoming popular around 30 or so years ago. Advancing technology has allowed governments to treat money much more like what it really is - an idea. An extremely usefull idea, but nonetheless only an idea, not a real, physical thing.

When a (federal, not state) government taxes you, the dollars subtracted from your account do not go anywhere. The taxation is not used to pay for anything and there is no stock of tax dollars sitting in any federal bank account. No transaction is made. The sovereign simply waves it's magic wand and compells that sum of money to "un-exist" when it electronically debits the account. A structure exists to account for this but it is an accounting structure for the purpose of recording who was taxed what, that is all. It does the same in reverse when it spends.

Sovereign governments spending is not constrained by currency reserves - they do not need to tax or borrow in order to spend. If they did, economic growth could not continue in the long run.