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posted on 26 September 2017

Cash-Back: Equity For Consumers

by Carmine Gorga, The Somist Institute

Are cash-back programs multiplying under our eyes? Is anyone keeping track of this progress systematically? The last report I saw is very encouraging. It seems that corporations are quietly joining the band-wagon, and that is a good thing.

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Cash-back programs are a unique silver lining on an otherwise bleak horizon. Observed by just a few specialists, it seems that a financial crisis of unheard-of proportions is galloping toward us. You have to listen to them to see the inevitability of the crisis. The question is not if, but when.

Bill Bonner is one such specialist. His credentials are impeccable. He predicted the collapse of the Soviet Empire, the savings-and-loan debacle, the crash of the dot-coms, the bursting of the housing bubble. He keeps a steady eye on the burgeoning debt of families, corporations, and governments, here and abroad. He has created a compact research organization that analyzes complex records with an open, unbiased mind.

In his latest private publication, When the ATMS Go Dark (2017), Bill Bonner offers not only a detailed chart of past financial crises worldwide. Most importantly, he offers a step-by-step analysis of the effects of the bursting of the debt bubble.

Bill Bonner also offers a detailed list of remedies for the individual person of means.

In certain circles, it is said, “Forget Saving ‘The System' - Save Yourself."

But there is no such thing as safety for the individual person. Even assuming that such a thing is possible, to which world will this person emerge when he finally gets out of the bunker?

Civilizations have died in the past.

Sixty years ago, in the context of intense conversations fostered by the Lisle Foundation, I was fingered as an “incorrigible optimist." I still am.

How can I not be?

How can I not be grateful for my life and grateful to the Lisle Foundation for having lived that marvelous experience twice---through instant recall?

Let us see whether we can prevent the dissolution of our present civilization. There are many wrongs in it - and those we should try to correct. But there are also many goods in it, they make the effort to save it worthwhile.

In the relatively recent past, I have proposed two systemic solutions; accordingly, I have developed two Internet petitions - here and here - to gain support for them; and I have - oh, so incredibly - obtained a letter of support for these remedies from the Federal Reserve (!).

Here, however, I will not go over them. I would rather like to emphasize that cash-back programs can be another way of gently deflating the bubble from within so that we might end up escaping the impending catastrophic financial crisis with relative impunity.

Corporations have accumulated inordinate amounts of cash in the recent past. As I have pointed out elsewhere if these corporations were to spend these funds whether on capital or consumer goods we would be engulfed in the traditional flames of inflation.

These hoards can, however, be put to good use by gradually transferring them onto the hands of penniless consumers. Cash-backs are indeed a silver lining on our bleak horizon. But this transferal has to become general and systematic.

The legal vehicle is the Consumer Stock Ownership Plan (CSOP). It was conceived by Louis O. Kelso, the genial lawyer/financier who also designed the Employee Stock Ownership Plan (ESOP). While ESOPs have quietly assumed a major role in our economic life, CSOPs are still dormant.

The number of people covered by ESOPs is now larger than the number of people covered by labor unions. To recover their erstwhile, necessary, status, I have for long suggested that unions have to learn how to tie their dues, not to higher wages, but to a more even distribution of profits - a task achievable through ESOPs.

While ESOPs are on their unstoppable way to success, burgeoning cash-back programs might inject much-needed life into CSOPs.

CSOPs might, after all, supply consumers with that amount of cash, which at the burst of the debt bubble cannot, at least temporarily, be received from ATMs any longer.

Checks sent by corporations (shh: out of their “savings" - or out of their creditworthiness) directly to their customers as cash-back for their year-to-date expenditures might provide sufficient money to prevent the collapse of our commercial and industrial organizations. In a pinch, grocery stores and department stores will surely accept these checks as money.

If generalized, in the future, a CSOP civilization - born out of the self-interest of generating loyal consumers - will reveal that cheating the consumer is cheating oneself.

Let the financial behemoths of the world collapse - not too much damage will be done, provided central banks are no longer cajoled into providing them with financial artificial resuscitation at the expense of taxpayers and/or bank depositors.

Employees of financial behemoths have enough financial resources to retire to personal safety; on the other hand, if they so wish, their enormous technical know-how will make them invaluable employees elsewhere; they might even conceive of starting their own new ventures.

The silver lining in the incoming crisis is the possibility of a soft-landing due to consumer cash-backs.

This also appeared at Talk Markets with the title: Cash-Back: A Silver Lining 18 September 2017.


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