President Obama announced another bailout today. This time for silly folks who bought homes with 0 down on 40 year mortgages, who are about to be foreclosed.
Imagine that. I have no money. Can't even qualify for a car loan, or furniture from the Brick on an "OAC" basis, but I can get a mortgage for a $300 or $400K home!
Now, the US government plans to bail out these very same folks, for the stupid decisions they made (and the banks made).
The so-called stimulus is NOT going to have the intended effect. Bailing out banks results NOT in more loans handed out, to stimulate a sagging economy, but rather in more banks hanging on to their money. Giving money to the people in the way of tax cuts, or "mortgage bailouts", or simple cash handouts, will NOT result in more spending. They will simply stow it away in banks, or mattresses.
So how can a government get people to spend money again (the only way to get us out of a deflationary spiral, or depression)? The government will have to spend the money FOR the people. How? Instead of handing the money directly to the people, funnel it directly into things the people need...
Create national daycares from coast to coast, so parents can keep their children in proper care programs. Fully funded daycare is like putting money in peoples' pockets, while creating jobs through the associated staffing and construction - not to mention the purchases of daycare supplies, etc.
Build new hospitals - improved healthcare for the people. This will be a huge boost to the economy. New doctors, new medical staff, new wards. Perhaps have "on call" doctors for house-calls, as they do in France. Better drug care, as in the UK. Maybe we can strike down the support of the major drug cos, in order to support the generic Canadian drug manufacturers?
Infrastructure, infrastructure, infrastructure. The people need new bridges, new roads, new data lines, new railways, new public transit...
The bottom line is: handing cash to the banks and the people directly will NOT stimulate the economy. The government will have to do that FOR the people. That is the ONLY way "stimulus" will work...
3 comments:
That's why the "middle class" tax cuts in the stimulus budget were ridiculous. That money will either go to pay off old debts or to shop for stuff from China and India at Wal-Mart.
Same for the home reno subsidies. The swindlers are lining up now to cash in on that. It's a scam they ran on the government when Chretien tried it.
The Harper budget leaves it up to individuals and local governments to decide how to spend the stimulus funding and that guarantees that it'll be ineffective and unevenly distributed.
With just a bit of vision ehre are so many projects the government could have and should have picked for real infrastructure and stimulus benefit.
It's too bad Iggy supported the budget because we won't get a chance to fork out that much stimulus spending again. For all the political considerations it still comes down to him allowing that money to be squandered.
Thanks for the comments MoS. Actually, I think there will be quite a few opportunities to spend on infrastructure. Our economy is tanking - the world is in recession bridging into deflation - then, finally, depression. Real estate values in Canada could plummet another 40% in the next 2 years.
I'm anticipating (and preparing for) a 5-10 year economic slowdown of the likes we have never seen before. This is not just a stock market crash, as in the Great Depression. This is stock collapse, bank collapses, real estate crash, and a stronger Canadian dollar thwarting exports (thanks Harper) coupled with tighter US Border restrictions choking off trade.
We're in for a rough ride. Best thing a government can do is spend money FOR the people - on job producing measures/infrastructure projects... I can see a Liberal government, two years from now (or even one year from now) spending "liberally". This 80 Billion is nothing in my opinion, considering what it will take to fix the real estate mess alone...
WG: first off, an awful lot of people were told by industry experts (with reinforcement by the US govt) that these mortgages were DESIGNED to help people move from working poor to middle class. These folks didn't understand how the loans were structured, indeed countless banks and brokers intentionally misled potential buyers and they were repeatedly told that by the time their initial 0 down term was up they could re-fi at a better rate based on the increased value of their home (since home prices kept rising).
If Greenspan and all the wonky economists couldn't predict the housing collapse why should we expect folks with high school only to foresee it. And more importantly why should they bare the brunt of the collapse when so many who vastly profited from the bubble for years are walking away with millions if not billions of bucks in their off-shore, tax sheltered accounts.
The home owner bailout disqualifies speculators, requires that applicants must demonstrate their ability to maintain the payments on a re-fi backed by the govt. It also is designed to help those who were meeting their obligations but who may now be in trouble because they have lost jobs do to the downturn.
I prefer having the govt help these people than simply pouring money into the banks who refuse to provide loans to people and businesses who should qualify.
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