Questions, Questions
Will the U.S. economy start to recover before the cost of intensive care bankrupts it?
(No, the economy isn't running "normally" yet, not with 0% interest rates -- to the banks, not consumers; continued government bailouts; and burgeoning transfer payments for things like unemployment insurance.)
Can the U.S. afford the ICU bill it's rung up to date?
And, how did the "patient" get sick -- was it poison, some organic disease, or just a case of really bad flu?
No answers . . . but at least there's a consensus about what the (very big) questions are.
Showing posts with label economic stimulus. Show all posts
Showing posts with label economic stimulus. Show all posts
Wednesday, June 17, 2009
Tuesday, February 10, 2009
Tax Credits vs. Low Rates
The Right Stimulus for Housing
There now seems to be a clear consensus that, to help the economy, government must first do something to help housing. However, there's still no consensus about what.
The two leading strategies are:
One. Using taxpayer money to basically subsidize mortgage rates down to some previously unheard of number, like 4% or even lower.
Two. Using tax incentives to motivate prospective home Buyers. There are various proposals being floated, but the basic idea is to give Buyers up to a $15,000 tax credit.
The debate isn't just over what will stimulate housing the most for the least cost, but which strategy will help housing the most long-term (or perhaps, hurt it least).
In that vein, some critics of the "cheap money" approach are concerned that that will just set up housing for another fall down the road. It's one thing to qualify for a mortgage, they point out, but completely another to be able to afford that mortgage if home prices drop and/or the economy contracts.
Lenders in Florida, Southern California, Las Vegas, Arizona and many other locales can you tell you all about that . . .
There now seems to be a clear consensus that, to help the economy, government must first do something to help housing. However, there's still no consensus about what.
The two leading strategies are:
One. Using taxpayer money to basically subsidize mortgage rates down to some previously unheard of number, like 4% or even lower.
Two. Using tax incentives to motivate prospective home Buyers. There are various proposals being floated, but the basic idea is to give Buyers up to a $15,000 tax credit.
The debate isn't just over what will stimulate housing the most for the least cost, but which strategy will help housing the most long-term (or perhaps, hurt it least).
In that vein, some critics of the "cheap money" approach are concerned that that will just set up housing for another fall down the road. It's one thing to qualify for a mortgage, they point out, but completely another to be able to afford that mortgage if home prices drop and/or the economy contracts.
Lenders in Florida, Southern California, Las Vegas, Arizona and many other locales can you tell you all about that . . .
Friday, February 6, 2009
Big -- and Little -- Ticket Purchases
Recession, Uncertainty Hammer Big-Ticket Purchases
What to know what's selling today? Not big-ticket items.
On a scale of 1-10 (1 is the lowest, 10 is the highest), here is a shorthand -- mine -- for the magnitude of various consumer (and business) purchase decisions. Just like the Richter scale, this scale is logarithmic, kind of (8.0 is a much bigger purchase than 6.0).
Anything ranked over 3.0 has seen a dramatic slowdown; anything over 6.0 has fallen off a cliff.
A. Consumers
Basic Necessities; "Sundries" (toothpaste, gallon of milk, candy bar): 1.0
First-run movie: 1.5
Nice Restaurant: 2.0
Tank of gas: 2.0
Clothes: 2.0 - 3.0
Appliances: 3.0 -4.0
Furniture: 3.0-5.0
Used car: 4.0-6.0
New car : 5.0 - 7.0
House: 10.0
B. Business
Capital equipment (commercial plane, agricultural combine, bulldozer): 10+
Publicly traded company (buyout): 10+++
To my armchair economist's eye, big-ticket purchases have been killed by: 1) economic uncertainty, including job (in)security; 2) financial pressure (and in some cases, hardship), caused by falling housing and stock prices, and rising unemployment; and 3) concern about falling asset prices.
Interestingly, any one of these can chill demand for houses: even people who are relatively flush and feeling confident about the future logically may hesitate to step up and buy if they're convinced housing prices have further to fall. That psychology explains why markets tend to overshoot (a phenomenon also associated with stocks): to coax people out of their defensiveness at market lows, bargains often have to become screaming bargains.
Of course, the companion to wanting to buy is being able to.
Fortunately, the federal government is increasingly focused on steps designed to address that. Those include: a fat tax credit to first-time home Buyers; very cheap mortgage money; and lots of fresh capital ploughed into Fannie Mae and Freddie Mac (which should then "irrigate" the housing market with added liquidity).
Will these steps work? Stay tuned. . .
What to know what's selling today? Not big-ticket items.
On a scale of 1-10 (1 is the lowest, 10 is the highest), here is a shorthand -- mine -- for the magnitude of various consumer (and business) purchase decisions. Just like the Richter scale, this scale is logarithmic, kind of (8.0 is a much bigger purchase than 6.0).
Anything ranked over 3.0 has seen a dramatic slowdown; anything over 6.0 has fallen off a cliff.
A. Consumers
Basic Necessities; "Sundries" (toothpaste, gallon of milk, candy bar): 1.0
First-run movie: 1.5
Nice Restaurant: 2.0
Tank of gas: 2.0
Clothes: 2.0 - 3.0
Appliances: 3.0 -4.0
Furniture: 3.0-5.0
Used car: 4.0-6.0
New car : 5.0 - 7.0
House: 10.0
B. Business
Capital equipment (commercial plane, agricultural combine, bulldozer): 10+
Publicly traded company (buyout): 10+++
To my armchair economist's eye, big-ticket purchases have been killed by: 1) economic uncertainty, including job (in)security; 2) financial pressure (and in some cases, hardship), caused by falling housing and stock prices, and rising unemployment; and 3) concern about falling asset prices.
Interestingly, any one of these can chill demand for houses: even people who are relatively flush and feeling confident about the future logically may hesitate to step up and buy if they're convinced housing prices have further to fall. That psychology explains why markets tend to overshoot (a phenomenon also associated with stocks): to coax people out of their defensiveness at market lows, bargains often have to become screaming bargains.
Of course, the companion to wanting to buy is being able to.
Fortunately, the federal government is increasingly focused on steps designed to address that. Those include: a fat tax credit to first-time home Buyers; very cheap mortgage money; and lots of fresh capital ploughed into Fannie Mae and Freddie Mac (which should then "irrigate" the housing market with added liquidity).
Will these steps work? Stay tuned. . .
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