Stimulus in action
Letter to the Editor
By Inman News, Tuesday, October 6, 2009.Re: 'Wheels of stimulus spinning in place' (Oct. 9)
Dear Editor:
Since taxpayers will ultimately pay the price for the bailouts paid out to the nation's companies that are responsible for this economic tragedy, wouldn't it make more sense for them to repay something they actually receive in return?
Consider this: If each citizen were to receive an amount, perhaps $50,000, a family of five would receive $250,000. With this money they could pay down their mortgage so that they could then refinance at the current affordable rates. They could also feel secure enough to add that pool or patio, putting people and industries to work.
They may also be able to buy the auto or other products they feel they need. With their homes secure, there would be fewer abandoned houses. Foreclosures would be reduced. Depreciation would stop and neighborhoods would be saved. Economic stabilization would begin.
Small businesses could continue. Unemployment would drop. There would be less waste by these recipients ... than what we have seen in the corporate world.
Lance Martin
Coldwell Banker Pioneer Real Estate
Moreno Valley, Calif.
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Submitted by Jay Thompson on October 7, 2009 - 5:56am.
Lance -
There are currently 300 million US citizens. 300 million x 50,000 = 15 Trillion dollars.
That's 3 trillion more than the current US national debt.
Where do you suggest this $15,000,000,000,000 payout come from? Just fire up the printing presses, *completely* whack the money supply, and double the debt?
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Abe Ulug on October 7, 2009 - 3:10pm.
Per Jay's math, handing out $50K per US resident is not feasible. With this formula, one couple with 2 children would walk out with 200K way more then necessary to hold the flood of foreclosures. However, I think Lance is suggesting a per household or homeowner type of a deal so 15 Trillion becomes 5 Trillion (100M households) or even 3 Trillion (65-69% home owners). These numbers are in the ball park of what has been done in stimulus and extra liquidity pumped into the banks.
Secondly, this 50K does not need to be pushed out all at once to have the desired effect. For instance, the upside down homeowners, (or those with maxed out credit cards) can get it upfront and others can opt to get it over 3 years (they would be rewarded for for this of course). Also note that we are trying to fill an aggregate demand shortfall of around 1T/year so 3 trillions over 3 years actually fits the bill almost perfectly.
With this scheme we would have had a small fraction of the downturn we are living through. Still some banks would not have made it (oh well!). Risky investments would have lost value (oh well again!!!) Most of the manufacturing and service sectors would have gone on with minor pain, unemployment would have been no where 10%. In fact, construction would have suffered some loses but the rest of the economy would have gone on without getting dragged down. Credit flow would not be as critical as the cash infusion into the economy would have flown into the banks in one form or another (mortgage prepayments, credit card payments etc.). Well, with a small number non-performing loans most banks would be fine. Fannie, Freddie, FDIC would all be saved. Capitalist system would have been preserved. Govt' would not be owning banks, AIG, GM. Bail-out would not be "most popular term of the year" and most importantly millions would have been spared severe personal hardship.
Lance, I think you might be onto something here. Unfortunately, Washington went down a different path and it is probably too late to adopt a nice and clean idea like yours. However, there is still a chance another stimulus will be necessary and this can be done by converting some of the liquidity put into the banks to this purpose.