Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke posit that a $700 billion federally funded rescue package is necessary to avoid "economic armageddon." Implementation of such a package, however, would saddle generations of American taxpayers with enormous obligations.
The great majority of taxpayers had nothing to do with the genesis of the problems requiring the massive bailout. The great majority of taxpayers never benefited from the ill-conceived home loans that politically correct lending laws, such as the Community Reinvestment Act, forced banks to make to incapable borrowers. Why, then should the great majority of taxpayers be forced to foot the bill?
There is a better way to clear up our financial crisis, which would enrich the American people. It would eliminate America's $15 trillion debt-$9.6 trillion extant, plus Freddie Mac and Fannie Mae's $5.5 trillion.
What is this economic silver bullet? Instead of thinking small, like bankers Paulson and Bernanke, and write only $2,300 in additional IOU's for each American (the $700 billion), let's think bigger, much bigger. Let's call it an even $1 million for every man, woman and child in America.
But let's not call it debt. Let's call it equity, the "Great American Dividend." Instead of Congress authorizing hot checks for $700 billion, it should authorize a once in history "dividend" of one million dollars to every American. This would amount to a staggering $300 trillion in government spending, sure to get the world's attention.
Of course such a spectacle would make "shock and awe" look like a Fourth of July fireworks display at the local country club. Foreign governments and investors, who were unfortunate (unwise?) enough to purchase from the United States Treasury dollar-denominated bills, notes and bonds, would be dismayed. But American citizens would rejoice. 2008 would go down in song and story as "the Jubilee Year," when each American became debt free, when each American became a mortgage-free property owner, when America truly embraced capitalism.
Readers of the Old Testament will recognize "the Jubilee Year" as that special fiftieth year when all debts were forgiven, and each debtor made a fresh start. America's fresh start would not begin, however, with America's debts being forgiven. It would begin with America's debt being paid off.
After each American family received its dividend check (just a bigger stimulus check than the silly little checks sent out last spring), they would, of course, pay off their mortgage, credit card, auto-loans, student-loans, and any and all other debts taken on during the debt binge of the last twenty years. Of course, other than for paying off dollar-denominated debts, the dollars, in fact, all dollars would be worthless. Not simply worth less, truly worthless. Worth less than even those Iraqi dinars floating in the wind after the 2003 invasion. Worth less than whatever the North Koreans use as currency.
Foreigners would pout; articles would declaim the utter ruthlessness of such economic "warfare." But Americans would not care. They would own, truly own, one hundred percent own, their cars, their homes, and their lives. They also would own their 401K stock portfolios and all other forms of equity they owned before. Of course, coupon clippers would be miffed, particularly those who had not diversified their holdings into equities.
Once the month-long party of debt repayments ended, and a refreshing, once in a lifetime sleep was had by all newly enriched Americans, all of the excess dollars would be drained from the system by the Federal Reserve. All outstanding debt obligations of the United States Treasury and all American agencies, and even states and municipalities, would be repaid in cold, if not so hard, cash. In China's case, literally boatloads of the stuff.
Then the future would begin. Never again would any person, foreign or domestic, accept debt denominated in U.S. currency. But they would accept payments in commodity-based currency.
Commodity-based currency? Sounds complicated. But it is very simple. Every item that can be bought or sold, such as oil and oil changes, tires and trucks, hamburgers and buns, copper wire and electricity, houses and shopping centers, or labor and management, has a value in terms of every other item. One barrel of oil is worth a certain number of pounds of hamburger at a certain point in time. Each commodity's value (in terms of a currency or in terms of every other commodity) constantly changes with the supply and demand for that commodity. But that does not mean that every person would have to be aware of all values at all times in order to buy and sell any good or service. That is what computers are for.
Buying and selling anything in the post-dollar world would be as simple as running a smart card through a reader connected to the banking system, which would have a password protected, encrypted record of a person's holdings in all commodities at all times. A default portfolio of holdings would be established, denominated in "credits," "units," or whatever name caught on-how about "freedoms?" The new "freedom" currency unit would be updated continuously, and in the background. All the consumer would have to know is how to check his balance.
One significant benefit of this system of computer-enhanced bartering is that it would be free of the government's ability to inflate. Also, government would never again be able to run a deficit, at least in its own currency. If government needed money, it would have to get it the old-fashioned way, by selling an asset or collecting a tax. If government absolutely had to borrow, it would have to post-collateral-navy ships, oil leases in the Gulf or Yellowstone-or borrow in a currency that it did not control.
Thus, control would pass from the elites, who have performed poorly, to the people, in whom the Constitution originally placed it.
Jay Zawatsky is chief executive officer of havePower, LLC.