Debt Relief - Part I, Plank One

This is a high-level overview of the first of three planks of Debt Relief. Sharpshanks contributed to this particular plank and Mitya K is currently working on planks two and three. We believe these policies are necessary, and at the current time, they make good political sense. If you want to flood the polls with your voters, you'll be for debt relief in the coming elections.

Debt Relief; (Saving America's Middle Class)

Plank One: Retail Debt Relief
Plank Two: School / Home / Medical Debt Relief [coming soon]
Plank Three: Small Business Debt Relief [coming soon]

Retail debt means credit card, store card, etc., debt of household consumers above the age of 18. Total debt estimated at current time is: $672B (not including business credit cards or no-interest cards). Retail debt has the highest default rate for consumers and is therefore the highest interest debt burdening America's great consumer class. There are two ways to go about restructuring this debt, one gentle, the other heavy-handed. The policy goals of retail debt relief are: a) increasing solvency (and eventually savings) of America's households and b) aiding state governments strapped for revenue to fund higher education.

The gentle approach uses tax incentives and banking regulations to induce banks to offer lower interest rates. Over time, as consumers become aware of the lower rate offerings, a great chunk of this debt will be transferred to lower interest accounts, freeing up vast amounts of capital and increasing demand. The incentives for credit card companies will be additional tax credits (cents on the dollar) for every dollar saved through lower rate transfers as well as less restrictive regulations for participating banks.

We would like a two-point concession targeting 1/10th of outstanding bank credit card debt (or approximately $67B) to be achieved in two years. This restructuring would free up approximately $3B in annual interest payments made by consumers. It would also free up about a point of available credit to American consumers, or approximately $10B. Obviously the impact to the economy would be enormous. A significant infusion of sales tax receipts to our state and local governments would be another benefit. Also, by of using the soft approach, banks will compete for the restructured or transferred business merely through the use of tax and regulation incentives. Equally obvious is that banks will oppose this, which is why the federal government must make the pot sufficiently sweet. If it isn't enticing, they won't bite. After assessing the two-year impact, a more aggressive restructuring could commence if there is sufficient evidence it will work. Again though, if the deal isn't sweet, they won't take it.

The heavy-handed approach could be used at any time but we prefer it to be used only if the gentle approach doesn't achieve the desired two-year results. The heavy-handed approach raises taxes on all banking institutions that do not offer credit rebates to their clients. For every dollar of debt, clients will be offered $0.18 of rebate from participating banks, up to a maximum of around $2,500 (or the present average retail debt / person plus 8.5%). Note: for those thinking this is quite high, remember the feds gave $400 back to everyone w/dependents for the Bush tax cut, this is merely $450 for every card-holder.

The tax increase under the heavy-handed approach will not be prohibitive, but it will account for the loss in free-floating capital with an increase in treasury receipts (perhaps for every dollar lost, $0.10 in receipts). Any banking institution showing signs of distress from participation in rebate plan will be allowed a one-time write off and restrictions on the mergers of distressed banks will be removed. This isn't a pretty picture. Some banks will fail. But with hardwork, only a few of the already high risk banks will be exposed and the benefits to the longterm health of the economy will more than make up for it.

The above is Plank One of the Debt Relief Proposal. The other two planks will be unveiled within the coming days. Please discuss...