WASHINGTON -- Democratic and Republican congressional leaders completed a deal Thursday with the White House on an economic stimulus package that would give most tax filers refunds of $600 to $1,200. The plan also provides tax incentives for businesses and contains a measure that would help an important segment of the mortgage market.
The package temporarily raises the conforming loan limits for Fannie Mae and Freddie Mac, beyond the current $417,000, which would allow the government-sponsored companies to buy bigger loans in areas with high housing costs. The new cap, expiring Dec. 31, could be as much as about $730,000, depending on a metropolitan area's median housing price. That would help free up the market for "jumbo" mortgages, which has suffered amid a broader credit crunch.
While the stimulus package still needs to pass the Senate and be signed off by President Bush, this would dramatically assist in completing new purchase and re-fi mortgages in our area. This will help some of those in danger of foreclosure, by making more money at cheaper rates available for lending.
As we know, the devil is in the details, but since the housing sector threatens to do significant damage to the rest of the US economy and indeed, the world economy, some kind of relief was expected.
It remains to be seen whether this is a full surrender by Washington to the financial and banking sector, and whether increasingly stringent and historically sound lending practices will prevail, or if this is just a big pre-election give-away scheme by politicians which will do more long term damage to housing and the economy.
Stay tuned to The Real Blog for analysis. However, for the short term, our local real estate market will benefit and speaking as a Realtor, some freeing up of the credit market may help a lot.
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2 comments:
Economic Malady – Stimulus Insufficient
The underlying problem with the economy is an extreme maldistribution of income between the working class and the capital owners. When a CEO can make 300 million dollars while an average worker's wages haven't even kept pace with inflation what results is a dysfunctional market economy starved for consumption spending. The average American has had to fuel his/her spending with debt obtained by borrowing on the equity within their home - that phantom equity has now evaporated.
In order to correct this out of balance condition there needs to be laws in place (similar to the anti-Trust legislation) that caps the annual income of all capital owners and their surrogates (CEOs, CFOs, etc.) at a specific federal percentage above that of the highest paid worker within their respective firm. Also, we need to eliminate labor arbitrage by canceling all Temporary Worker Visa programs (L-1, H1-B, etc.), and establish tax penalties for firms that expand their workforce above some threshold through outsourcing, or replacement hiring in foreign locations.
Essentially, FDR was accurate when he characterized the Great Depression as an out-of-balance Economic malady. Rural income prior to the Great Depression was significantly lower than urban income, now (overvalued home equity) as then there was unlimited amounts of overvalued phantom equity flowing into the stock market, the income differential between labor and capital while nowhere near the current astronomical level was still much higher than sustainable. There in lies the root cause of the out-of-balance condition that precipitated the Great Depression. Any system including the market economy that gets to far out balance does not function properly. Certain constraints need to exist to keep the market economy from slipping into a dysfunctional state. Balance is the essence of stability nothing short of this will guarantee permanence.
John Maynard Keynes –
If fiscal policy is used as a deliberate instrument for the more equal distribution of incomes its effects in increasing the propensity to consume is, of course, all the greater.
Aggregate consumption depends mainly on the amount of aggregate income.
Consumption – to repeat the obvious is the sole end and object of all economic activity.
We cannot, as a community, provide for future consumption by financial expediants [stocks, bonds, 2nd mortgages on home loans, etc] but only by current output.
Capital is not a self-subsistent entity existing apart from consumption.
Consumption is directly tied to the level of employment.
My Proposed Program
• 2 year 800 billion emergency Infrastructure Investment Jobs Creation Program (IIJCP) aimed at building new interstate highways, mass transit systems, schools, bridges, public hospitals, libraries, and assorted public buildings.
• Eliminate labor arbitrage by canceling all Temporary Worker Visa programs (L-1, H1-B, etc.), and establish tax penalties for firms that expand their workforce above some threshold through outsourcing, or replacement hiring in foreign locations.
• Taxation of corporate profits in the amount of 95% for firms that exceed a threshold level of jobs outsourced to a foreign country.
• Taxation at the rate of 80% on individual yearly income received from any corporation, not-for-profit organization, or any form of legal entity where the total income exceeds the U.S. average yearly median individual income by 200%.
• Fair trade agreements that ensure nations will offer decent wages, humane working conditions, and sound environmental policies.
• A nationalized health care system for all U.S. citizens.
• An effective federally funded tuition assistance program for U.S. citizens targeted at professions in demand.
• Repeal all legislation that inhibits the right’s of individuals to organize under labor unions regardless of position or any other currently disqualifying classification.
My Observations:
• An economy can only function when a large proportion of the populace is engaged in the economy thus able to purchase what is produced.
• If price is inelastic and labor remuneration static demand will fall due to reductions by industries in their capital base (the most important being labor).
• Firms forced to compete (those that are not oligopolies) in an economic environment where demand is declining will still compete on price but efficiency gains and operating cost reductions by nature have marginal declining utility whereby a point is reached when the firm's factors of production (land, labor, or capital) must be slashed. These cuts in factors of production will have a multiplicative effect throughout an economy resulting in an ever building 'wave' of economic decline.
• It is important to keep in mind that an economy cannot continue to grow when long-term consumption continues to decline. This in turn ties directly to reductions in the factors of production to accommodate continual long-term reductions in consumption.
• When geographical barriers, constraints to the free flow of labor resources, underemployed resource utilization, similar knowledge distribution across all nation state’s, and nation state governmental inconsistency exists no global free market can exist and thereby at the nation state level no significant corresponding opportunity cost for engaging in one form of economic endeavor over another.
All comments are welcome. It is hard for me to believe that softwareeng's comment is anything more than blog spam that is sent out to every blog that has the phrase 'stimulus plan', but be that as it may, thanks for the comment. ~~Ray
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