Hyperpat\’s HyperDay

SF, science, and daily living

A Drop in the Bucket

Posted by hyperpat on January 29, 2008

The economic stimulus package, as currently set by the House, will do darn little to actually improve the US economy. First, the amount of the individual ‘rebate’ is a comparative drop in the bucket – $600 or $1200 is, for most individuals and families, less than one months rent or mortgage payment. Versus the size of the economy, it represents a miniscule percentage of the GDP. Second is the timing. The earliest we can expect these rebates to appear in our mailbox is May, assuming the Senate quickly agrees to this package without significant changes that will cause more wrangling and delays. By the time May rolls around, the first of the interest rate cuts by the Fed will have had time to actually percolate through the economy, and which will probably be more effective than the paltry rebate sums planned. If this scenario plays out, the rebates will merely act as an inflationary impetus, and we’re back on the rollercoaster of loosening and tightening the money supply, trying to tread that fine line between recession and run-away inflation. If, however, the economy has not already started to dig its way out the hole by then we are likely to be facing a full blown recession, and the money slated for these rebates would be more usefully used as funding for federal job creation and unemployment compensation.

About the only really useful part of the currently planned package is raising the amount that can be funded as ‘normal’ mortgages, up from the current $417,000 to $730,000. There are several areas in this country where this small change (which costs the federal government almost nothing) could have a big impact, as the difference in loan interest rates between ‘conforming’ and ‘jumbo’ loans is significant, and often is the make or break item in whether a particular house is affordable by prospective buyers. As almost all urban housing in places like California and Hawaii exceed the $417,000 figure, this one change could help restart the housing market in these areas. This particular part of the stimulus package should be enacted regardless of what happens to the rest of it, as the maximum size of a conforming loan has not been adjusted for inflation or high cost of living areas since 2005.  In addition, this item should be made permanently adjusted for inflation and median local housing prices so that it does not (again!) fall behind the actual need for appropriate loan sources for purchasing homes. And the nice thing about this change is that it could be implemented immediately, and not have to wait till May.

But as far as the rest of the package, it’s too little, too late.


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