Stimulus Package - A Deception

The President's economic stimulus package passed the Senate (02/07/08) with a number of changes. It would dribble out to taxpayers $600 to $1,200 in rebates and $300 to some social security recipients, low-income people and disabled veterans.

Not included in the package are jobless benefits, heating aid for the poor and subsidies for certain industries, in the form of tax breaks. Republicans opposed these inclusions. They did agree to include them in the House passed bill. 

There will be no breakout of the amount of the subsidies to businesses, however. These recipients , home builders, developers and a host of mortgage companies are gratified with the assistance, but for those who have already gone under there is nothing, nothing.

While the Federal Reserve lowered interest rates it really dodged the fundamental problem facing this economy. Over the past 9 years real estate assets were inflated by artificially low interest rates in an attempt to stave off serious consequences from the Tech Bubble Bust and the Bush 2001 recession. As house prices rose and interest rate policy descended to lower standards, the sub-prime debacle gathered hurricane force. Now, foreclosures are the tsunami of the financial world which will relegate the stimulus package to another mindless addition to the national deficit.

What should have been included is a provision to lower home prices from 20% to 40%, (approximately half the cumulative rate for inflated new home prices over the past 8 years), freeze interest rates across the board to 5.5% for 5 years, thereafter, adjusting to market rates with no further adjustment in home prices. These actions would generate savings for all, forestall massive expansion in the number of foreclosures, ignite the home building industry, and reduce the rate of economic contraction, by bolstering employment and, therefore, direct consumption.