Thaddeus McCotter - The Economy
Last Updated: Aug 31, 2011
The Great Deflation
In August of 2011, Congressman McCotter wrote an article for the National Review Online called The Great Deflation. In that article, he discusses five things that were harmful to the economy from TARP to the Stimulus and four things that should be done to help the economy.
The Great Deflation
Our prosperity stands on the precipice. Concerned Americans demand an explanation of how this happened and leadership that will walk us back from the cliff. But in the White House and along the campaign trail, the purported leaders fail to recognize or refuse to acknowledge the clear and present threat to our economy: the Great Deflation.
The failure to differentiate between an economic recession and this Great Deflation will cause an economically doomed generation.
But this need not happen. The strength of our economy — its capacity to generate employment, opportunity, and growth — is determined by the quality of its factories and its technology and innovation; by the depth and freedom of its marketplace; and by the ingenuity and efforts of its people. By these measures, we Americans should continue to have the strongest economy in history, and one which continues to grow.
So while our economic challenges are daunting, they can be surmounted. It is only a question of our will to take action.
The Crux of Our Problem
For many years, a cancer grew in our economy — a rapid rise in government spending and debt; an explosion of debt in our banking system spawned by irresponsible leveraging and fueled by in-flows of savings from China and elsewhere; and a rapid rise in home-mortgage debt driven by unsustainable increases in home prices wrought by a massive increase in leverage and lending by government-controlled Fannie Mae and Freddie Mac, and by unscrupulous lending practices. In 2008, this debt cancer decimated our financial system.
Panicking amid this crisis, Washington got it wrong. Instead of reining in government spending, requiring banks to reduce their indebtedness, and providing a plan to help struggling homeowners cope with their debt, Washington made matters worse by:
1. Using taxpayer money to bail out the managers, shareholders, and creditors of banks, and not requiring the failed, bailed-out banks to restructure to reduce their indebtedness. Washington passed TARP to protect bank bondholders and shareholders from suffering losses — and used your money and the money printed by the Federal Reserve to do it. As a result, while bank bondholders and shareholders were made whole (by the taxpayer), the banks remain over-indebted and cannot lend to new businesses. In fact, since 2008 we have been living through the very first period in modern American history in which banks have actually reduced the amount of money they lend. Now, small businesses, innovators, and workers — the primary job generators — lack sufficient access to credit to finance economic expansion and job creation.
2. Massively expanding the federal government’s size and spending on misguided and failed “fiscal stimulus.” In consequence, ratings agencies have downgraded the once premier “full faith and credit” of the U.S. government. Now, it will cost our government much more to borrow money to pay its bills. This is a national disgrace, and it will cost us dearly if we do not fully restore our credit rating.
3. Ignoring the problems created by massive home foreclosures. These include the devastating impact on families who lost their homes, falling home values in neighborhoods blighted by foreclosures, and the negative impact on the economy of families forced to drastically reduce their purchases of goods and services from our producers.
4. Ignoring our trade deficit with Communist China and its predatory, mercantilist trade practices — including selling us subsidized manufactured goods and, instead of buying our goods, hoarding our money and lending it to our government and our banks.
5. Engaging in a policy of “quantitative easing.” While we are in a period of “debt-deflation” — a vicious circle of falling asset prices begetting debt defaults, and requirements for more collateral on loans begetting yet further asset-price declines — the Federal Reserve’s policy of monetary expansion has not spurred the economy and risks eventually igniting inflation, with all of its ill effects.
The Solution
With our stagnant economy burdened by Washington’s failed responses to the Great Deflation, we must immediately commence rectifying these mistakes:
1. We must rein in government spending in a transparent and credible way. A good start would be to immediately convene the deficit-reduction committee appointed as part of the debt-ceiling deal, and ask them to quickly adopt a no-gimmicks, honest set of cost reductions that will restore investor confidence in the fiscal responsibility of the U.S. government. The members of this committee should rise above partisanship and perform their task as patriotic Americans in a time of crisis. This will inspire confidence and increase investment in the U.S. economy, which will spur job growth.
2. We must require our banks to immediately reduce their indebtedness — so they have the capital to resume lending to our small businesses — and without any more taxpayer money. If a bank cannot raise more equity capital by selling shares, then it must convert some of its non-depositor debt into equity — even if this causes bondholders and shareholders to suffer losses. Banks should be required to have 20 percent of their assets in the form of readily available capital (tier 1 capital, Basel III definition), 15 percent of it in the form of shareholder equity. Once the banks have achieved this goal, they will not only have sufficient non-debt capital to resume lending, but they will have a large equity cushion that will make taxpayer bailouts unnecessary in the future.
3. We need to resolve our mortgage crisis. Nearly 30 percent of homeowners have mortgages that exceed the value of their home. This is not necessarily their fault, as we have lived through the largest decline in home values in our history. Life savings have been wiped out. We need to take action to stop this devastation. When lenders foreclose on homes, they typically suffer losses that exceed 30 percent of the value of the home Therefore, we need a voluntary program to offer homeowners a deal whereby, in exchange for reducing their mortgage debt to a level equal to 90 percent of home value, they would commit to pay their lender half of any future sale or refinance proceeds they receive.
This should not cost the lenders anything, because they would save on foreclosure costs (through reduced foreclosures), and gain from future appreciation in the value of the homes. Fannie Mae and Freddie Mac, which currently own over half of home mortgages and are controlled by the federal government, should immediately make this offer to all their customers, and our bank regulators should adopt a rule assuring any bank that makes this offer to its mortgage borrowers that it will not suffer a reduction in the regulatory capital value of the mortgage. Any issues arising from implementing this proposal for mortgage-securities pools should be addressed so as to remove the obstacle. This plan will end the devastating foreclosure fever and stem the erosion of home values, once and for all.
4. We need to comprehensively combat Communist China’s predatory trade practices, including its currency manipulation, which unfairly enables its manufacturers to undercut our manufacturers and allows the PRC to accumulate savings that fuel debt in our financial system.
Once implemented, these urgent reforms will mark the beginning of the end of the Great Deflation; and the end of the beginning of restoring our prosperity and affirming American exceptionalism in the 21st century.
2012 Presidential Campaign Website Statements
Restoring Economic Freedom and Jobs
The current tax system penalizes employers and slows the creation of jobs. The U.S. corporate tax rate is the highest of any developed country in the world. We must reduce this burden on our economy, and return to the free market policies that made the American economy the most innovative and competitive in the world.
Our government must simplify the tax code, must eliminate loopholes that allow some to avoid tax obligations that the rest of us pay, and reduce maximum corporate and individual tax rates, while providing economic incentives to businesses that invest in U.S.-based jobs.
The individual-tax system must be fairer and flatter. If we also control government and reduce its spending, repeal Obamacare, and commit to repairing Social Security, we will balance our budgets and reduce the national debt that threatens our and our children’s prosperity. Manufacturing jobs are the foundation of the United States economy. We have the world’s strongest, largest and most productive manufacturing economy., which we must preserve and grow.
We need a new approach to regulation in Washington – one that reduces onerous and pointless rules that hamper businesses, without sacrificing the maintenance of competitive markets, safe work environments, and clean air and water.
We must seek to restore vibrancy and prosperity to the American economy and the American middle class by dismantling destructive concentrations of power – in banking, in government and in education – and by ending Communist China’s mercantilist trade policy. By allowing American workers and entrepreneurs to compete on a level playing field, we will see how well they perform and how much we all prosper.
Voting Record
Small Business Jobs Tax Relief Act of 2010
In June of 2010 the House voted to pass the Small Business Jobs Tax Relief Act of 2010. The act passed 247-170. Thaddeus McCotter voted against the Small Business Jobs Tax Relief Act of 2010
Thaddeus McCotter voted against the Small Business Jobs Tax Relief Act of 2010
Wall Street Reform and Consumer Protection Act of 2009
In June of 2010, the House voted on the Wall Street Reform and Consumer Protection Act of 2009. The act failed to pass in a . Thaddeus McCotter voted in favor of the Wall Street Reform and Consumer Protection Act of 2009.
Thaddeus McCotter voted in favor of the Wall Street Reform and Consumer Protection Act of 2009.
TARP Bonuses
In March of 2010, the House voted on legislation to impose an additional tax on bonuses received from certain TARP recipients, and for other purposes. The legislation passed the House 276-145. Thaddeus McCotter voted in favor of the legislation to tax bonuses to TARP recepients.
Thaddeus McCotter voted in favor of the legislation to tax bonuses to TARP recepients.
Small Business and Infrastructure Jobs Tax Act of 2010
In March of 2010 the House voted to pass the Small Business and Infrastructure Jobs Tax Act of 2010 246-178. Thaddeus McCotter voted against passing the Small Business and Infrastructure Jobs Tax Act of 2010.
Thaddeus McCotter voted against passing the Small Business and Infrastructure Jobs Tax Act of 2010.
Wall Street Reform
In late 2009, the House passed the Wall Street Reform and Consumer Protection Act of 2009. The legislation consolidated many financial regulatory agencies, increased transparency in the derivatives market, regulation of credit rating agencies, and a "resolution regime" to resolve insolvent banks. Thaddeus McCotter voted against the Wall Street Reform Legislation.
Thaddeus McCotter voted against the Wall Street Reform Legislation.
The Stimulus
After the Senate passed the Stimulus package, the House voted on a passage of a conference bill to join the House and Senate versions. Thaddeus McCotter voted against the unified version of the Stimulus bill.
Thaddeus McCotter voted against the unified version of the Stimulus bill.
The Stimulus
The Stimulus bill (The American Recovery and Reinvestment Act of 2009) passed through the House on January 28, just days after President Obama\'s inauguration. The bill got no support from Republicans and 11 Democrats voted against it as well. Thaddeus McCotter voted against the Stimulus when it passed the House.
Thaddeus McCotter voted against the Stimulus when it passed the House.
Helping Families Save Their Homes Act of 2009
The Helping Families Save Their Homes Act of 2009 was a program designed to assist those who may be able to remain in their home with a modest amount of government assistance. The bill got wide bi-partisan support in the House and passed 367-54. Thaddeus McCotter voted in favor of the Helping Families Save Their Homes Act of 2009.
Thaddeus McCotter voted in favor of the Helping Families Save Their Homes Act of 2009.
Auto Industry Financing and Restructuring Act
In December of 2008 the US House voted to pass the Auto Industry Financing and Restructuring Act. The act provided a loan to GM through TARP funds and set up a plan to allow the company to receive more if they demonstrated a path back to viability. The act failed to pass the Senate, but was used as a guideline for the GM bailout for the Obama administration. Thaddeus McCotter voted in favor of the Auto Industry Financing and Restructuring Act.
Thaddeus McCotter voted in favor of the Auto Industry Financing and Restructuring Act.
Troubled Asset Relief Program (TARP)
The TARP program was designed to prevent the failure of large banks by purchasing their "troubled assets" and allowing them to move them off their records as liabilities. The vote on the legislation passed 263-171 Thaddeus McCotter voted against the TARP Program.
Thaddeus McCotter voted against the TARP Program.
The Bush Stimulus
In early 2008, the Recovery Rebates and Economic Stimulus for the American People Act of 2008 was passed in an attempt to stimulate the economy. Also known as the Bush Stimulus, the act consisted largely of checks sent to individuals. The bill received wide bipartisan support and passed the House 385-35. Thaddeus McCotter voted in favor of the Bush Stimulus.
Thaddeus McCotter voted in favor of the Bush Stimulus.
Bankruptcy Reform
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 completely redefined bankruptcy in the United States. The bill made it much more for people to walk away from unsecured debt, such as credit cards, and permitted the court to award some compensation to creditors in the event that a bankruptcy was awarded. The bill got moderate bipartisan support and passed 302-126. Thaddeus McCotter voted in favor of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Thaddeus McCotter voted in favor of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Sponsored and Cosponsored Legislation
Small Business Paperwork Mandate Elimination Act - Cosponsor
Amends the Internal Revenue Code to repeal a provision (added by the Patient Protection and Affordable Care Act) that extends to corporations that are not tax-exempt the requirement to report payments of $600 or more.
Accurate Accounting of Fannie Mae and Freddie Mac Act - Cosponsor
Requires the receipts and disbursements of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of: (1) the federal budget submitted by the President; (2) the congressional budget; or (3) the Balanced Budget and Emergency Deficit Control Act of 1985 (Gramm-Rudman-Hollings Act). Requires the costs of purchases of mortgages, and mortgage-backed securities issued, by Fannie Mae and Freddie Mac to be calculated by adjusting a specified discount rate for market risks under the Credit Reform Act of 1990. Subjects to the statutory public debt limit the face amount of obligations issued by Fannie Mae and Freddie Mac and outstanding at one time.
No Cost Stimulus Act of 2009 - Cosponsor
To stimulate the economy and create jobs at no cost to the taxpayers, and without borrowing money from foreign governments for which our children and grandchildren will be responsible, and for other purposes.
European Bailout Protection Act - Cosponsor
Amends the Bretton Woods Agreements Act to: (1) prohibit U.S. loans to the International Monetary Fund (IMF) for assistance to any European Union (EU) member state until the ratio of the total outstanding public debt of each member state to its gross domestic product (as of the end of the most recent fiscal year of the member state ending in the preceding calendar year) is not more than 60%; and (2) direct the Secretary of the Treasury to oppose any IMF loans to member states until all member states are in compliance with such debt ratio.
Small Business SOX Compliance Extension Act - Cosponsor
Directs the Securities and Exchange Commission to modify its regulations under the Sarbanes-Oxley Act of 2002 (SOX) for annual management assessments of, and reports on, internal financial controls. Requires such regulations to provide that a non-accelerated filer does not have to provide management's report on internal control over financial reporting until it files an annual report for its first fiscal year ending on or after December 15, 2008 (thereby extending the current moratorium on such requirements for small businesses).
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