As the United States wobbles on the brink of another recession, a new report by the New American Foundation entitled "The Way Forward" outlines how the country got into trouble -- and it offers suggestions on how to make America great once again.
"The principal problem in the United States has not been government inaction. It has been inadequate action, proceeding on inadequate understanding of what ails us," write the co-authors Daniel Alpert of Westwood Capital, Robert Hockett of Cornell University and Nouriel Roubini of New York University.
So what is it that ails us? The authors describe a downward spiral that developed over the last two decades for the following two reasons:
#1- Debt, debt and more consumer debt: "Millions of Americans who took out mortgages over the past 10 to 15 years, or who borrowed against the inflated values of their homes, are now left with a massive debt overhang that will weigh down on consumption for many years to come," says the report. "And this in turn means that the banks and financial institutions that hold this debt are exposed to indefinitely protracted concerns about capitalization in the face of rising default rates and falling asset values."
#2 - The rise of emerging markets (over the last two decade): "The integration of these high-savings, lower-wage economies into the global economy … decisively shifted the balance of global supply and demand," write the authors. "The same integration of new rising economies with ever more competitive workforces into the world economy also further shifted the balance of power between labor and capital in the developed world. That has resulted not only in stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depression1920s."
In the accompanying video, Alpert joins The Daily Ticker's Aaron Task and Henry Blodget to discuss these issues as well as solutions for how to move the country forward.
As Roubini, Alpert and Hockett see it, "The Way Forward" rests on the following three pillars:
#1 - A "substantial" $1.2 trillion program to rebuild America's infrastructure over the next five to seven years, which will create jobs now and lay the foundation for "a more efficient and cost-effective national economy."
#2 - A national "debt-restructuring program" designed to "unclog the real estate and financial arteries," and featuring principal reductions or bridge-loan assistance for homeowners with a proven ability to continue making payments.
#3 - Global reforms to restore the balance of trade, as well as the balance of supply and demand. To that end, the paper calls for "the establishment of an emergency global demand-stabilization fund to recycle foreign exchange reserves now held by surplus nations," most notably China. Because any such fund would most likely be administered by the IMF or World Bank, this is likely to prove highly controversial.