The honest truth of the matter is that the US economy is in a world of hurt.  The fiscal policies of the last 7 years have painted the Fed into a corner.  If they cut interest rates, the dollar is in danger of tanking.  If the dollar tanks, inflation is likely to raise it's ugly head. 

If they don't cut rates, then the economy stagnates.  The worst case scenario is when we have both, inflation and stagnation at the same time.  This happened in the 70's and the term "Stagflation" was coined to describe it.

This is how come the Fed hasn't rushed into cutting rates.  They don't want to a "stagflation" scenario.

So, what can be done to right our economy and specifically, to "fix" the housing markets?   Below, I will outline 4 concrete steps that our government, if they have the balls to do it, can take to right our economy.

1)  Stop coddling the oil companies.  

The truth of the matter is that the technology to switch to a hydrogen based economy has been around for decades.  In 1969 NASA not only operated a fuel cell vehicle, they flew it to the moon and televised it bouncing around on national television.

Several major automobile companies have cars that are ready for production RIGHT NOW that are powered by hydrogen.  As the ad for the BMW Hydrogen 7 says, "We're ready for the world, when the world is ready for us!"

The only reason that we're not ready for them is that the oil companies wouldn't make as much money selling hydrogen to us as they do selling us gasoline.  The truth of the matter is that the oil companies are terrified of a hydrogen based economy because there is actually very little keeping people from being able to manufacture their own hydrogen!

Well screw the oil companies.  It's time for our government to look out for the good of the people as opposed to looking out for big money special interest groups such as the oil companies.

2)  Stop spending money like a drunken sailor on a Saturday Night Shore Leave!

When the Bush administration took office 7 years ago the US government was actually running a surplus.  The big debate was whether we should cut taxes or pay down our debt.  Well, the tech bubble burst and government revenues declined, so this kind of became a mute point and going back to running a deficit wasn't 100% George W's fault.  However, since that time government spending has increased on a percentage basis faster than it ever has before.

True, the economy did continue to perk right along, but as I've written about before, you can throw a hell of a party on a charge card!  The problems don't arrive until the bill becomes due.  Well, guess what?  The bill is here and it's a whopper!

If we combined points one and two above by immediately establishing a nation wide distribution network for hydrogen, we could cut our trade deficit (a huge amount of our trade deficit is directly related to our purchase of overseas oil) and by lessening our dependence upon this foreign oil, we could cut back on our military expenditures in the middle east.  The only reason that we're there is because of the oil.  Don't ever let anyone ever tell you anything different!

3)  Increase the government's income.

Part of this would be to rescind the tax cuts for the wealthy.  They don't need them!

I'm not saying to go back to the days when rich people were taxed at ungodly rates.  You don't have to screw them, but it's ridiculous for Warren Buffet to only being paying 17.9% in federal income taxes whereas his secretary is paying around 30%!  Not only is it not "fair" it's stupid!

Part of the reason that Mr. Buffet only pays 17.9% is because he can afford accountants and lawyers to make the tax code work for him.  This is not something that the other 90 percent of us can do.  

No matter how you do it, we need to make the rich pay their fair share in taxes.  I personally think that a national sales tax system would be the way to go, but no matter how it's done, this is something that needs to be done now!

Another thing that we can do to increase the governments income is to legalize and tax recreational drugs.  Not only would we NOT spend the billions of dollars a year that our society currently spends on the War On Drugs, we could tax it.  

Think how much money the government could raise if it simply legalized pot.  Pot could be sold at or near the same prices that the 30 million Americans who currently purchase pot are paying and instead of inflated profits going to criminals, a fair profit would be earned by the US farmers who grew it and of say the pharmaceutical industry who would distribute it.  The government would collect the difference as tax income.

4)  Stop pussy footing around with the credit markets.

The only reason that the US housing market is in trouble is because the credit markets are in trouble.  If there had not been a credit meltdown, most if not all of the various US housing markets would still be buzzing right along. 

The government needs to create a temporary agency, similar to the Resolution Trust Corporation, to purchase these sub prime mortgages and to get them off of Wall Streets books.  This would free the credit markets up to go back to lending people money to buy houses in a responsible way.

After the agency bought the mortgages (at say .50 cents on the dollar) they could renegotiate the terms of the mortgage to where people could afford to keep their homes.  For example, a person who bought a home on a 2/28 at 7% could have their mortgage turned into a 30 year fixed rate at 7.5%.

Their payment would go up, but not nearly as much as it's going up now.  After the borrower made their payment for 24 months in a row, the mortgage could be resold onto the secondary mortgage market at full value.  The profits from these sales would go to offset any losses that would be incurred from mortgages that were not able to be rehabilitated.

The Whole Outweighs The Sum Of It's Parts

If we were to do all four of these things, our deficit and debt would shrink, our environment would improve, we would be more secure and consumer confidence would improve.  If all of that were to happen, then the housing market would go right back to where it was at and buying a home would return to it's proper place as one of a person's best investment opportunities!

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc. 

Bob Mitchell is the president of ValueList Real Estate Services, Inc., St. Louis' largest discount/full-service real estate and mortgage company.  To find out more about Bob, ValueList or our flat-fee listing program please feel free to visit our web page, valuelistre.com