A Radical (Yet Serious and Sensible) Solution to Fix the Economy.

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Bear with me through some predicates here.

Predicate #1: The stock market is not going to turn around, not ever, until there is some good economic news from somewhere. It’s not going to happen through some magical shift in psychology, some confidence that comes out of nowhere. We need a month in which reported home sales are up versus the same month the year before, or in which retail sales have an uptick, or in which the amount of lending in the financial system is seen to increase. Then and only then will the market bottom out and begin its comeback.

Predicate #2: If the stimulus package and the bailouts work, as we all hope they will, it will be some months from now (at the shortest) before their positive effects in the economy are seen.

Predicate #3: We have become a nation of stock investors (through our pension funds and 401K plans), and when stocks go down, it’s therefore not just a few million Americans who retrench their spending — practically every middle-class American does so. And that drives the economy further into the ground. A cratering Dow means that GM isn’t going to sell any cars. A cratering Dow will prevent the stimulus package from working, even if it otherwise would have.

My solution: Suspend trading on all American stock markets now. And suspend it indefinitely. Freeze stock prices where they are. If it takes six months for the stimulus plan and/or the bailouts to begin to show a positive result in lending, home sales, employment, or retail, wait the six months. If it takes a year, wait the year. However long it takes. When we begin to see some good news in the economy, such that investors might feel confidence that a rebound is beginning to happen, then and only then unfreeze the stock exchanges and let trading begin again.

Otherwise, all that will happen is a further declining stock market, which will make it impossible for good news ever to happen. The downward cycle needs to be short circuited. It’s all well and good (and true) to say that the Dow won’t go up until somebody buys a car, but nobody’s going to buy a car while the Dow is still going down, so nothing will stop the Dow from going all the way to zero. (As for today’s report that new car sales were off in February by 41% compared to a year ago, the only thing that surprises me is that it means that some people are actually still buying new cars. Who are these people, and are they insane?)

During this freeze, what do we do about those folks who must sell their stocks in order to have money to live? We allow them to sell 1% of their shares a month if they must, for 85% of the frozen market value, and the buyer will be the government. The government (we the taxpayers) will then own the shares, and as taxpayers we will all benefit on the day the market is unfrozen at 100% of its value, because we will have made a profit on those shares instantly.

That will cost the government some money in the short term, but will it cost any more than the bailout money we’re now flushing down the toilet?

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One Comment on “A Radical (Yet Serious and Sensible) Solution to Fix the Economy.”

  1. rovronr says:

    Oh. My. God. Communist! No. Pinko. Communist! No. Totalitarian. Communist! Overturning all Reagan’s great work at ending the Evil Empire. Bastard! Free markets forever. Gotta love the consequences.


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