Can America Afford the Economic Stimulus Plan

 

Obama is working hard to get both parties to agree to an economic stimulus/recovery plan. 

The following are possible provisions/amendments that may go into the bill:

 

US senate

1. A low 4% interest rate subsidized by the government. As interest rates increase this will cost the tax payers more and more.

Jen says:
Interest rates are already incredibly low. Remember the 1980s when people paid 18% for a home loan? So we are going to subsidize loans that we will need to repay in higher taxes? Those who don’t purchase a house will be subsidizing home loans for those who do purchase. How does this help our economy in the long run?

 

2. Give individuals making less than $75K a $7500-$15,000 house purchasing credit that doesn’t need to be repaid (currently it does) as long as the homeowner waits at least three years to sell.

Jen says:
This $7500 credit is currently an interest free loan from the government for first-time homeowners. The amendment would give the money away to any one purchasing a home.This is taking money from the left pocket and putting it into the right pocket. The only redeeming aspect of this amendment is that it encourages people to stay in their homes longer. 

 

3. Hold off on foreclosures for 90 days to provide time for homeowners to renegotiate their loans.

 

Jen says: 
This could be helpful IF the homeowner is already working with the lender to negotiate better terms and if number 4 (see below) is enacted. This could be another 90 days of free rent at the expense of lenders and tax payers. Lenders currently are notoriously slow at selling homes in foreclosure. This is an issue where the government  needs to step in and force lenders to sell foreclosed homes more quickly.

 

4. Force lenders to reduce house payments of delinquent borrowers to 31% of their gross monthly income by increasing pay back periods to 40 years, decreasing interest rates (subsidized by the government).

 

Jen says:
Reducing payments is a great idea if it doesn’t cost the government additional money. Reducing payments by locking homeowners into lower interest rates (not subsidized by the government) is a great idea. In fact, increasing payment years to 40 and refinancing at the current low interest rates is a “no-brainer”. Perhaps the $7500 credit should go toward helping people refinance. 

Full Story by Jeanne Sahadi, CNNMoney.com senior writer

 

Additional Resources:

Economic Package Stimulates Quests For Change
“The goal is to shape a package that is more targeted, that would be smaller in size and that would be truly focused on saving or creating jobs and turning the economy around,” said Sen. Susan Collins, R-Maine. She said ideas like $870 million to combat bird flu should be dumped.

Avoiding Japan’s Stimulus Miscues
Here’s the critique in a nutshell: Japan in the early 1990s, like the U.S. today, saw a real-estate bubble burst, spawning a banking and credit crisis that drove the whole economy down, hard. The Japanese then tried stimulating the economy with giant doses of government spending, which didn’t pep things up — but did bring on deficits that required tax increases later, dragging out Japan’s problems for years. Read more.