How Much Will you Get from Stimulus Bill?
President Bush signed the $168 million economic stimulus package into law this week. Â Along with tax breaks to businesses that invest in capital equipment and a personal income tax cut for 2008 in the form of a rebate to be mailed to taxpayers this summer, the plan will make it easier to obtain large size mortgages through the FHA. Â
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How much this modest stimulus will impact a $3 trillion dollar economy is open to debate. Â A much better use for the money would have been to extend unemployment benefits for its longer term impact on the economy, but I suppose if we all go out and buy ipods, blue jeans, and other consumables the stimulus would have done its job.
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 Want to know how much you are getting this summer?  Fill your information into this calculator and find out:
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Sphere: Related ContentCompared to Bernanke Greenspan Had it Easy
GDP at .6% annualized Rate, Inflation on the rise and Fed’s hands are tied.
The Commerce Department reported today that GDP rose at a seasonally adjusted .6% annual rate in the final quarter of 2007, citing the housing slump, a deceleration in consumer spending, inventory liquidation, and lower overseas sales as forces dragging on the economy. Economic growth was not only significantly slower than the previous quarter, but well below Wall Street’s already modest expectations. Of perhaps the greatest significance was the price index for PCE (personal consumption expenditures) which increased a staggering 3.9%, more than double the previous quarter.
What does this all mean? Despite the Fed’s newly aggressive rate policy it appears we are barreling head on into a recession. The question is will it be the mild brand that we’ve experienced over the past several cycles or a deeper more painful one, ala 1982?
Ben Bernanke certainly has his work cut out for him. The challenge facing him is far greater than anything Alan Greenspan—who worked primarily in an environment devoid of inflation—faced. Bernanke can’t train his focus on stoking the flames of the economic engine with nary a worry about inflation as his predecessor could. He has to balance the plunging dollar, collapse of the housing industry, decelerating consumer demand, credit crunch, exploding inflation with an economy in dire need of a capital infusion—how to manage one without submarining the other will be a very challenging task indeed.
Sphere: Related ContentThe Credit Bubble has Popped. What can be done?
Pop! Sssssssss. Â
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That’s the sound of the credit bubble deflating. The Federal Reserve, acting as an enabler, has kept rates too low for too long allowing an obscene credit bubble to inflate. Now we are feeling the pain. This abnormal policy created a distortion in capital flows making credit nations with low propensities for consumption our “dealersâ€, by taking their excess savings in the form of capital and channeling right back into the US economy, essentially allowing us to spend their savings as if it were our own. This created the illusion of prosperity, allowing Americans to maintain their high standard of living despite Washington’s lush spending habits.Â
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An unintended outgrowth of this debt subsidy was the creation of an underground financial system in the form of sub-prime loans, SIVs, CDOs, etc, bringing capital to places it wouldn’t otherwise have reached. This helped perpetuate a housing boom with prices rising by more than 20% annum. Homeowners were thus able to tap into their newfound riches in the form of home equity loans, funneling the money back into the economy and fueling the economic boom. As is want to happen in any bubble, excess ultimately built up in the system.Â
Sphere: Related ContentThe True Cause of our Economic Crisis: You Must Watch This!
Sphere: Related Content3/4 Point Rate cut will have Unintended Consequences.
It’s a tricky game the Fed has to play in assuaging market fear through the manipulation of rates - they need to show the market they take the problem seriously and will do what is needed to keep the wheels from coming of the economy, but they need to keep investors calm as well, for panic and the market don’t mix well.  While Fed Chief Bernanke certainly conveyed that he takes the problem seriously with this mornings 3/4 cut, I think he failed on the panic side of the equation.  3/4 a point is such a histroically enormous cut, particularly in light of our depreciating currency, that it is likely to make investors fear our policy makers are fleeing the theater screaming “Fire!”  All this cut says to me is that we are in much bigger trouble than anyone thought.  It certainly doesn’t motivate me to call my broker advising him to “buy buy buy”. The question now is what impact will this rate cut have on the falling dollar?  It is likely to put more pressure on the currency, which will only excacerbate those problems the Fed was trying to ameliorate.  At least we can stop worrying about what is ahead because the barrel has just tipped into the falls and there’s no turning back.Â
Sphere: Related ContentWake Up! Economic Catastrophe Ahead
America is in a dire situation with our economy imploding and the traditional tools with which to fight the crisis unavailable due to fiscal mismanagement. We are approaching a tipping point, yet nobody seems to be discussing these issues, focusing instead on tears, nuance, and innuendo. The Dow is down another 100 points this morning and over 1200 points this year-that’s in 3 short weeks. The stock market is reacting in part to the collapsing housing market and a report this week showing that new home starts are down by more than a third. Food costs are soaring as we see the impact of $100/barrel oil finally working its way through the economy. Our currency is collapsing and no longer able to withstand our countries irresponsible fiscal policy. 
The falling dollar is inflationary as it drives up the cost of imported goods. With banks mired in the sub-prime mortgage crisis and unwilling to loan money, real estate prices continue to drop with those combined factors causing foreclosures to mount. Add to that witches brew the rising unemployment rate and we have some real trouble on our hands.Rising food and energy costs, coupled with insecurity over the economy and employment prospects, coupled with declining equity and the inability to tap into our only form of savings-our real estate-to offset these forces is having a chilling effect on consumer spending-the engine that has driven this economy for several years. So we’ve heard this all before, right? The Fed will cut rates, stocks will rally, housing will pick up, and all will be like before. Lets just say Perhaps Not. Read more
