Financing the Future

These are written as unneeded suggestions to our government to finance the future it envisions for its citizens. As the current presidential chief of staff has stated, “No crisis should go unexploited.” This one seems an extraordinary opportunity.

First energy: Currently energy generation prices at 9 to 11 cents per kilowatt-hour, where alternative, green energy comes in at 15 cents per kilowatt-hour. To level the playing field for green energy, one can pay for alternative energy by capitalizing alternative generation without subsequently charging recipients the extra 50%. The tax credits for solar and wind does just that, but this costs the government revenue.

The other manner is to create a carbon tax that raises the conventional generation expense to 15 cents per kilowatt-hour, thereby destroying the advantage currently held by conventional generation. This generates over $600 billion, which coincidentally equates to the estimated cost of universal health care. The basic problem is the label: “carbon tax.“

If instead “carbon tax” can be labeled cap-and-trade, one can generate the needed revenue without the onerous label. However, it must not be run as true cap-and-trade, since that becomes an capital outflow as detrimental than the funds sent abroad to import oil. An example of true cap-and-trade is provided by German coal-fired energy generation. There, the carbon credits for coal-fired power generation are purchased from China whose carbon credits are generated by hydroelectric construction the Chinese government was already constructing. This lowers the cost to the Chinese government at the expense of the German power consumer. The German consumer pays 150% of the true cost of generation with the extra funds not capitalizing any alternate generation he will benefit from.

If cap-and-trade revenues go to our government vs. being disbursed abroad, “we” have a continuous funding source useable for other objectives. Carbon credits can actually be printed more easily than money. Funding for alternative energy would be offset by increased power to support new electric vehicles, thus carbon credit revenues should increase. The government has created a new “sin tax” by whatever name that will continue indefinitely, and converts to consuming national commodities (coal) while decreasing imported commodities (oil).

A portion must be used to double the alternative energy generation every few years. At the current level, alternative sources generate 1%, thus moving to 2% by 2012 should not deplete the incoming revenues since 50% of power generation is coal fired. The carbon tax also includes natural gas increasing the revenue-generating percentage, and the 20% nuclear power generation could be labeled a toxin, enabling a toxin tax in lieu of a carbon tax.

Second, personal finance: Because of market decline, most 401Ks and IRAs have decreased to approximately 50% of their October 2007 levels. Because of the stimulus plan will not stimulate the economy in the short term, the chance of the market going down further seems likely, and can be talked down if policies don’t induce that effect.

Once the despair peaks, government can “rescue” both 401k and IRA retirements by valuing them at the October 2007 levels, promising a 3% return on investment, and requiring a universal 5% of earnings investment each year from employee-employer contribution. Taking over the trillions in retirement funds instantly benefits government, plus government immediately realizes a 10% increase in tax revenues (5% from employees, 5% from employers, 10% from self-employed), with the 3% return on investment offset by a 4-4.5% inflation rate. The CPI is already constructed to disguise the true inflation rate to less than real inflation of goods and services—so to limit social security and federal retirement increases. It works here, too. The 5% from employee and employer are actually less than the typical 6% 401K contribution with 6% matching by the employer. The government more than makes up the difference because it no longer defers taxes on funds the government doesn’t receive.

Initial valuation of investments at the October 2007 levels is not a problem since social security is a legal Ponzi structure, paying future benefits with future inflows, the initial valuations are merely a book entry. The funds taken in provide trillions immediately and obligations are to be paid from future revenues. By removing these funds from the market, depressed market values into the future substantiate the taking action.

Summary: These two changes provide tremendous advantage to government revenues, funding new opportunities to service and protect the populous. They deserve it, right?
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The above was written tongue in cheek (I hope). Its purpose was to alert against exactly the happenings described. There are active interests who would nationalize retirement accounts, adding monies for those who cannot. The description of the German coal-fired cap-and-trade is true, leading to not to replacement of the coal-fired plants but export of the capital needed to do so. Insanity and ulterior motive are indeed alive in the world. Our recent example was attempting to convert 30% of our food supply to replace 3% of our fuel.

I am encouraged by the administration starting now to work on how to implement universal healthcare. We pay 2.5 times as much for healthcare as other industrial countries, yet receive less results. Critics wishing to resolve the economy before attending anything else indeed miss the point that healthcare and especially the 48 million without it poses a major economic problem.

Hopefully an overall energy plan will also be considered and implemented. Energy also poses a major economic problem and our past performance has lacked sanity. After the 1974 oil embargo, some countries have implemented tremendous plans, Brazil is now an energy exporter, France generating near 80% of their power by nuclear, and profiting from recycling nuclear wastes into new fuel, and Denmark with major wind-power generation.

The United States started down an alternative and efficient path, but abandoned it when the crisis and its memory waned. Although the recent stimulus package has some first steps in energy, we still lack an overall plan, yet such a plan could indeed play a major role in an economic recovery. Hopefully, the administration will put something forward—and soon.

T. Boone Pickens proposed a bridge plan, but with no longer- range plan, it becomes a bridge to nowhere economically.