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Our economy is not necessarily doomed but if Obama enacts the promises he campaigned on it might be.

What should be done? I think the government should simultaneously enact a contract with the American people to eliminate the current debt and to prohibit deficit spending except in cases of national emergencies (limited to war or prolonged recession). How do we pay off the debt? One proposal I think has merit is to contract with Americans who have 401k and IRA accounts. In this proposal each citizen would decide (voluntary) to give up a percentage of their current holdings (would probably need to be 10-15%). This money would go directly to debt reduction, with no possibility of the money being used for other purposes. In return, those participating in the contract would be freed from paying tax when they start withdrawing money from their accounts. This provides the money needed to eliminate the debt and provides a very good investment opportunity for investors. The initial investment would pay back many times over the initial investment of capital since the account could grow and ultimately be used without taxes being levied against it.

This would have a tremendously positive impact on our economy. First, the government would no longer need to borrow money to pay those who underwrite our debt through government issued bonds. This money could then be used to provide businesses with capital for economic expansion and to provide individuals with capital to foster home ownership. Secondly, the money we now pay in interest to satisfy debt could be used for infrastructure such as roads and bridges or for increased tax breaks for research and development in American businesses.

Obviously, without the mandate for balanced budgets this plan would only provide temporary relief. The commitments for both deficit control and investor involvement would need to be codified into law in a way that would prevent revisions later on. I however believe we are on the brink of financial disaster and it is time to consider more daring proposals such as this.

Anyone out there with a background in financial analysis care to provide feedback?