My Economic Stimulus Plan

Later today, President Bush is supposed to discuss his plan to stimulate our "weakening economy."

His plan is likely to give money back to individual taxpayers and ease business liabilities, stimulating both consumers and industry. Bush proposed rebates of up to $800 for individuals or $1600 for families, while lawmakers wanted to lessen that amount and limit who receives it (Yahoo! Finance article).

I think that this plan is stupid.

Maybe it will help the economy a little bit if each family of four goes out and purchases four new iPhones. However, I think that a simple injection of money into the economy through intending to increase consumer spending is short-sided and futile.

Instead, I believe that the government, if they are going to aid anyone, should look at the corporations.

Over the past days, weeks, and months, foreign sovereign funds have injected billions of dollar into US corporations. Most of the major financial companies have received large investments from outside sources. Japan's major investment banks are reportedly pooling billions of dollars for investment in a struggling Wall Street counterpart.

I'm not an isolationist, but why let wealth leave our country when we could easily keep it here?

Instead of dishing out money for people to buy new purses, the government should focus on preserving stock market capital, and thus, the value of millions of individual Americans' investments.

If the government doesn't want to directly purchase equity or bonds like foreign investors have been doing, there are much easier solutions; provide long-term, low-interest loans or simply open the discount window, repercussion-free, at a rock bottom interest rate (say, 2%). However, as long as qualified financial analysts looked it over beforehand, putting $20 billion of Social Security money into Wall Street could end up being an excellent long-term investment.

If the government is still interested in helping individuals, they should help financially-responsible people who were romanced into adjustable-rate mortgages. I'm sorry, if you bought a $500,000 house on $30,000 of annual income, I don't think that you deserve to keep it. However, for someone with a steady job who just can't make the adjusted-up payments, the government could step in to help those individuals.

First, the government could work through the mortgage broker to negotiate a new rate that the borrower can pay and will still provide profit for the lender. That way, everyone wins; shareholders of the big banks (BAC, who will soon own Countrywide, etc) won't unjustly miss out on profit that was already accounted for, while individuals will face a more reasonable repayment rate.

My last article discussed how the US economy is already contracting; if it's not, it's certainly slowing down. Discussing ways to improve economic conditions is the right thing to do, but simply handing consumers a check isn't.

Help out the people that truly need help - from Joe Dirt's adjustable mortgage to Merrill's write downs, there's better ways to fix the economy than to hand me $800.




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