Solve a Stimulus Package Problem with the Orange Money Plan

The Problem

In just about any recent stimulus provided to the American people, the biggest challenge has been that a large number of people do not spend the stimulus but rather simply deposit it in their savings/checking account, thereby defeating the purpose of the stimulus to restart the economy. A poll last year on the Bush stimulus found that “About half of Americans don't have spending in mind, with . . . 24 percent planning to save it.” (GfK Roper Public Affairs and Media poll for CreditCards.com.)

The Flash of Lightning

The other day I was in an A&P supermarket doing some food shopping. I had a number of coupons in my hand because that particular day A&P was offering to triple their value! One such coupon was for soup. The scary part of this story is that I have enough soup stored in my pantry and garage to last me through a nuclear winter. I think it is actually enough to even feed my neighbors. Nonetheless, the coupons were expiring THAT DAY! I either had to act or miss the opportunity. Needless to say, I bought the soup! Now I just need a nuclear winter.

The Transference of a Working Business Model - How to get the Public to SPEND via the Stimulus Bill

Using the very successful coupon model, what if the following idea were initiated to ensure greater spending.

1. The Federal government issues the stimulus checks to the general population.
2. Each recipient must take the check to a bank in order to receive the monetary equivalent of the check. The check may not be deposited. it can only be cashed/redeemed.
3. The payout is in $20 bills, a very “spendable” denomination.
4. The $20 bills are ‘ORANGE’ and are imprinted with bold lettering, “After Jan 1, 2010 the value of this bill drops to $10!”

If the long and successful history of coupons is any indication, the public will spend this money before it loses its value. This will immediately improve the amount of cash being infused into the economy by 24% based on the GfK Roper Public Affairs and Media poll.

Additionally, there is an element of psychology that must be addressed with the stimulus. People are afraid to spend and are holding on to their money, similar to what the banks did when the first round of stimulus money was released. The stimulus must also help change the way people think. The “game-like” quality of orange money will break people from their typical belief systems and patterns associated with “green money” further improving the chances of success that it would be spent

As might be expected, there will be an increase in consumer spending when the checks are initially issued. However, as January 1, 2010 approaches, a secondary bump in spending can be expected, as citizens that have been holding on to their orange money will not want to lose the value it holds prior to the expiration date.

Accompanying this late term bump will also be the numerous retail promotions that accompany the holiday season between Thanksgiving and Christmas. Target (TGT), Wal-Mart (WMT), Costco (COST), Macy’s (M) and the plethora of other consumer goods retailers that typically offer huge sales at that time of year will now have an extra incentive to promote sales to people to get them to spend their ‘orange’ dollars before they expire. Restaurants will have special ‘orange’ meals. Supermarkets will run ‘orange’ “buy one get one free” deals.

Taking the Orange Money out of Circulation

The following are two possible processes to take the ‘orange’ money out of circulation.

1. The money can simply expire, like a coupon, after the stated expiration date.
2. The following collection process can be followed.
   1. Up until the expiration date, banks are not allowed to take ‘orange’ money for deposit or redemption.
   2. After the expiration date, the ‘orange” money may be brought back to any bank for redemption at its decreased value ($10).
   3. Any bank can then redeem the ‘orange’ money they have collected at any of the national banks that received “bailout” money from the government.

As an incentive to take the money and an acknowledgement to the smaller banks for the collection labor, “bailout” banks will redeem this money at 1% over the reduced value ($11)

The national banks can then redeem the ‘orange’ money with the Federal Reserve, but ONLY to pay down their debt to the government. As an incentive to do this, the government will recognize the value of the ‘orange’ money at $12.

Additional Value to The Orange Money Plan

1. There is an additional incentive to this proposal in that there is a significant amount of people that will want to hold on to some ‘orange’ money as a collector’s item, thereby saving tens of millions of dollars to the federal government.
2. The final redeemed value to the federal government is discounted 40% over its initial issued amount, thereby building in a recognized savings of $400 billion (on a trillion dollar stimulus plan).

Stock position: None.

Comments

[Prudent Man...:]

How silly and irresponsible. Everyone wants a gimmick rather than a discipline.

Why not do what we did in 1962, when every other house on my block was in foreclosure, and 1982 when unemployment 1was 10.9% without many two paycheck families - cut taxes!

Great bureaucracy with the orange money. I am sure Wall Street will create an ETF. Just what we need, another gimmick. Does anyone believe in saving money, doing productive work, despise government handouts today? Too many paper pushers in our economy with dumb ideas.

Maybe closing the MBA schools, Law Schools, Social Workers Schools and we could become a productive nation of engineers, physicist, mathematicians, carpenters, plumbers, nurses, etc.

Mar 08 12:04 PM

[Ned Williams:]

Really dumb idea.

Money works as a medium of exchange, because it is a store of value. You have artificially created an expectation of 100% inflation on a specific date.

The day those bills are issued, stores will be happy to redeem them for the $10 they will drop down to, not the $20 listed.

How about cutting their value in half every week and calling them Weimars? Bring your wheelbarrow.

Mar 09 08:30 AM

[Mad Hedge F...:]

No one understands how bad this is. The markets continue to behave like a spoiled child throwing a tantrum because the global response to date has been too little, too late. China did the right thing with a stimulus package amounting to 16% of GDP over two years. But the US has so far come up with a package worth 6% of GDP over three years, which is clearly not enough. $881 billion sounds like a lot of money, but in this world it is only the down payment. Treasury Secretary Hank Poulson promised to ring fence toxic assets but never delivered, buying into the banks instead. Policy makers are not equipped to deal with the globally synchronized nature of this melt down. In 1988 world trade accounted for only 5% of GDP. Last year it was 33%, but is going to hell in a hand basket with stunning speed. More global coordination is necessary, no matter how distasteful that may be.

Mar 09 01:10 PM

[TellasisPatel:]

The proposed “Orange Money” concept is innovative and interesting. “Orange Money” will be similar to “store gift cards” that diminish in value over time if owners donot use them in a timely fashion - stores charge monthly administrative fees causing reduction in the card value over time. The gift cards usually are not and cannot be redeemed for cash.
I think it will be less expensive to issue similar Government Gift Cards (orange colored?) with owners’ names than to print “Orange Money” and distribute the money using services of middle men. These gift cards could be used anywhere in the country. It would be great if the cards could be coded in a manner that every week or every month, the card value goes down automatically. That feature can save administrative costs. Our economy can be revived fairly quickly if people use these Government gift cards to buy American made products only. Other money we can spend any way we please. Thank you.

Mar 15 08:32 PM

[TellasisPatel:]

The proposed “Orange Money” concept is both innovative and timely. Since stores, after a certain period, charge monthly administrative fees causing reduction in their card value, “Orange Money” will be similar to “store gift cards”. The gift cards usually are not and cannot be redeemed for cash.
I think it will be less expensive to issue similar Government Gift Cards (orange colored?) with owners’ identification than to print “Orange Money” and distribute that unique money using services of middle men. The Government issued gift cards could be used anywhere in any store within the country. It would be great if the cards could be coded in a manner that every week or every month, the card value goes down progressively and automatically. That feature can save administrative costs too. Our economy can be revived fairly quickly if people use these Government gift cards to buy American made products only. Other money we can spend any way we please. Thank you.
TellasisPatel

Mar 15 08:34 PM

[Theodore La...:]

You know when gimmicks work-they become the solution!!

www.usatoday.com/money...
Chinese City Bolsters Scant Consumer Spending With Free Vouchers ...
Mar 19, 2009 ... In an economy where consumers tend to be less eager shoppers, officials hope the coupons will stimulate buying and avert the worst of an ...
nytimes.com/2009/03/19... - Similar pages -




On Mar 08 12:04 PM Prudent Man CFA wrote:

> How silly and irresponsible. Everyone wants a gimmick rather than
> a discipline.
>
> Why not do what we did in 1962, when every other house on my block
> was in foreclosure, and 1982 when unemployment 1was 10.9% without
> many two paycheck families - cut taxes!
>
> Great bureaucracy with the orange money. I am sure Wall Street will
> create an ETF. Just what we need, another gimmick. Does anyone believe
> in saving money, doing productive work, despise government handouts
> today? Too many paper pushers in our economy with dumb ideas.
>
> Maybe closing the MBA schools, Law Schools, Social Workers Schools
> and we could become a productive nation of engineers, physicist,
> mathematicians, carpenters, plumbers, nurses, etc.

Apr 06 10:33 PM

[Theodore La...:]

Your proposal is quite interesting and might just work!!! May have a problem buying products made in USA -in Walmart, Target,Kohls etc.


On Mar 15 08:34 PM TellasisPatel wrote:

> The proposed “Orange Money” concept is both innovative and timely.
> Since stores, after a certain period, charge monthly administrative
> fees causing reduction in their card value, “Orange Money” will be
> similar to “store gift cards”. The gift cards usually are not and
> cannot be redeemed for cash.
> I think it will be less expensive to issue similar Government Gift
> Cards (orange colored?) with owners’ identification than to print
> “Orange Money” and distribute that unique money using services of
> middle men. The Government issued gift cards could be used anywhere
> in any store within the country. It would be great if the cards could
> be coded in a manner that every week or every month, the card value
> goes down progressively and automatically. That feature can save
> administrative costs too. Our economy can be revived fairly quickly
> if people use these Government gift cards to buy American made products
> only. Other money we can spend any way we please. Thank you.
> TellasisPatel

Apr 06 10:51 PM