Saturday, July 31, 2010

$1T More Spending Please

The economy is running out of steam as the Stimulus Package winds down. The foreclosure pipeline remains full with 4mm +/-homes on the market - roughly double a stabilized inventory. We have come a long way, be we have much further to go. The Fed says it could take 5 - 6 years to return to traditional growth rates. I'd like to bring that down to two.

I'd have a new Stimulus Package spending $1T through 2011 and 2012. This one needs to be spending only - no tax cuts - heavy on infrastructure. Aid to the states to keep teachers, cops & firemen employed would be included but a lower rates than the last Stimpack. High speed rail in Florida (Miami/Orlando/Tampa) and the west (LA/Phoenix/Las Vegas triangle) would be commenced and fast-tracked with actual groundbreaking in 2012 and completion in '16. These pilot projects would bring billions of dollars to the hardest hit areas in the Great Recession and create a model for a 21st century rail network. Expanding the electrical grid to wind corridors, building wind farms and fast tracking smart grid implementation would also be priorities. The top priority, of course, would be jobs that build things that last. Projects that will leave our country richer, with something to show for the treasure expended.

Such a package can only be passed while reducing spending and the growth thereof going forward. As such, I'd have the package ready to go with the Debt Commission recommendations in November or December. If the GOP is unwilling to support a limited extension of the Bush tax cuts prior to the election, I'd let them expire altogether. We need the money and the reduced consumer spending would be more than offset by the Stimpack on Steroids. The Good Doc's goal of adding millions of modest income taxpayers to the tax roles would be accomplished.

We need to cut the available housing inventory in half - and fast. There simply are not enough owner-occupied homebuyers to go around. FHA needs to reintroduce lending for rental property with conservative underwriting standards for buyers. Individuals with solid income and FICO scores should be able to buy all the property they can get their hands on with 10% down, subject of to area FHA loan limits. Fannie & Freddie should buy such loans as well, only with a =/>25% down payments capped at the $417K loan amount. Individual limits on Fannie/Freddie loans (currently 10) would be eliminated. The policy changes would not have expiration dates and would save the system money - through an improving real estate sector - rather than pinching the public purse.

Such policies would bring back robust growth and ultimately save the US Treasury trillions, thanks to a healthy and growing tax base. A double dip recession is a circumstance that we simply cannot afford.


Eric Martin said...
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Jim G. said...

So far the Obama team has thrown the entire Keyensian playbook at the economy. We have paid people to buy cars, purchase homes, pay off their mortgages, weatherize their homes and put solar paneling on their roofs. And of course there was the original stimulus package of $862 billion, though some of that remains unspent. None of it has put America back to work.

U.S. Job Market Loses Steam
Resistance to Spending Crimps Options
Economists React: 'The Great Stall' Takes Hold
From Man-cession to He-covery
Drop in Temps Signal Trouble Ahead
Jobless Rate May Be Headed Higher
State/Local Jobs Cuts Accelerate
.The policy lesson is that you can't have a jobs recovery without private confidence and investment. The Obama crowd bet that you could force-feed private investment with government spending and politically directed credit, but the result has been to traumatize business instead. Why would a small business owner hire anyone new if he knows that taxes are going up, health-care costs are sure to rise, and the cost of each new employee is uncertain? Nor can you inspire business confidence if you demonize bankers and business.

The economy is now 2.5 million jobs short of where it would need to be to get back under the 8% unemployment rate we were promised. With the federal government running a $1.4 trillion deficit, Speaker Nancy Pelosi is calling the House back into session to pass a $26 billion "stimulus" bill to give cash to states, cities and teachers unions.

As the evidence mounts that government spending doesn't create net new jobs, the White House insists we need to double down on spending and monetary stimulus. We've now had three years of this policy, and it isn't working. Time to try a different economic model, the one that worked in the 1980s after another severe recession.

Jim G. said...
This comment has been removed by the author.
Baxter said...


We have had seven consecutive months of job growth after inheriting an economy that was shedding 700K per month. What isn't working, Doc?

Reminder: Clinton created 23mm jobs. Bush created ZERO. Why would we want to return to the GWB way of doing things?

The economy is growing again...