Will An Economic Stimulus Package Work?

[CompoundInterestFan]

Am I missing something here? From what I've gathered, the whole point of this package is to ward off a recession. I'm no economist, but aren't recessions a natural part of the economic cycle? Aren't we just postponing (and making worse) the inevitable? And worse still, our "solution" to this is a shopping spree?

Maybe I'm just incredibly naive, but this all just seems pretty ridiculous to me.

[REWahoo]

Compound, I'm not defending Doctor Ben and the Fed, but I think the idea of the stimulus package is to prevent a recession from being a recession.

Analogy: the flu vaccine may not keep you from getting a particular strain of virus going around, but it could build up antibodies to prevent you from getting really sick and having to be hospitalized for a long time. Then again, you might have a reaction to the vaccine and you would have been better off never taking it...

[FinanceDude]

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Originally Posted by REWahoo Compound, I'm not defending Doctor Ben and the Fed, but I think the idea of the stimulus package is to prevent a recession from being a recession.

I believe the term is "soft landing".........

Quote:

Analogy: the flu vaccine may not keep you from getting a particular strain of virus going around, but it could build up antibodies to prevent you from getting really sick and having to be hospitalized for a long time. Then again, you might have a reaction to the vaccine and you would have been better off never taking it...

Interesting..........I got a flu shot a week ago Tuesday, and have felt like crap since Saturday, I guess in the end I'll be better..............first flu shot in 10 years................

[barbarus]

Quote:

Originally Posted by FIRE'd@51 Exactly! Two married teachers could easily make this income, or considerably more in places like the NY city suburbs. In a nice NY city suburb, a starter home easily runs 750K-1M, so it is virtually impossible to buy a home without a jumbo mortgage. I'm sure this is true in LA or SF, as well. One of the problems in the current housing crisis has been that jumbo loans (those greater than 417K) have been carrying mortgage rates of 0.75%-1.00% higher than the conforming ones which Fannie and Freddie currently buy, even for folks with good credit who could make a 20% down payment.

Another problem is that those houses are not intrinsically worth a million dollars and recent buyers who paid that much are in for grim times ahead as a bloated market at last corrects.

[Retire Soon]

Democrats in the senate are refusing to agree to the Stimulus package that that has already gone through the House, because it would exclude as many as 20 million Americans who are living "chiefly" off of Social Security. According to the House version, this subset of the population would not receive a rebate check unless they had $3,000 in earned income or had other income such as dividends, interest, or a pension plan.



SignOnSanDiego.com > News > Business -- Senate Democrats mull adding retirees to rebate plan, extending jobless benefits

[cute fuzzy bunny]

I guess I'd have to question the stimulating effect on the economy from giving people who have totally, completely hosed their retirement planning to the extent that they rely on social security alone.

I'm sure they could use the money more than anyone, but...

[W2R]

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Originally Posted by cute fuzzy bunny I guess I'd have to question the stimulating effect on the economy from giving people who have totally, completely hosed their retirement planning to the extent that they rely on social security alone. I'm sure they could use the money more than anyone, but...

I only WISH that my SS would be big enough to live on! It looks like mine will scarcely cover the groceries (once I start getting it).

Some people get a whole lot more than I will, though. Oh well. I guess that if that is one's only income, one would qualify for food stamps and the SS could then go towards utilities. There, but for the grace of God go I.

[Independent]

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Originally Posted by FIRE'd@51 Exactly! Two married teachers could easily make this income, or considerably more in places like the NY city suburbs. In a nice NY city suburb, a starter home easily runs 750K-1M, so it is virtually impossible to buy a home without a jumbo mortgage. I'm sure this is true in LA or SF, as well. One of the problems in the current housing crisis has been that jumbo loans (those greater than 417K) have been carrying mortgage rates of 0.75%-1.00% higher than the conforming ones which Fannie and Freddie currently buy, even for folks with good credit who could make a 20% down payment.

If I lived somewhere where it took $750k to buy a starter house in a "nice" suburb, I'd either:
1) Try to figure out why my definition of "nice" is so different from the average American's*, or
2) Move to someplace with moderate housing costs.

As a taxpayer who might end up bailing them out, I'm not anxious to see Fannie Mae or Freddie Mac supporting the bubble or supporting people who think that they have to buy high priced homes.


* According to the National Association of Realtors, the median price for a single family home in "New York-Wayne-White Plains" is $551, for "Long Island", $486. I'd guess that "starter" houses are significantly less than median houses.
http://www.realtor.org/Research.nsf/...MSAPRICESF.pdf

[Wags]

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Originally Posted by Want2retire I only WISH that my SS would be big enough to live on! It looks like mine will scarcely cover the groceries (once I start getting it). Some people get a whole lot more than I will, though. Oh well. I guess that if that is one's only income, one would qualify for food stamps and the SS could then go towards utilities. There, but for the grace of God go I.

CNN money article
Senate Democrats mull expanding stimulus plan - Jan. 26, 2008

I beleive that's why the Senate Democrats are holding out for a stimulus package which will give retirees on SS tax rebates, extend unemployment benefits, boost heating subsidies for the poor, and temporarily increase food stamp payments.

In this current economy some of our seniors and persons with disabilities on limited incomes are really suffering and the tax rebates and other benefits that they might receive from the stimulus pkg would be a big help in making their lives a little better.

GOD BLESS

[FIRE'd@51]

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Originally Posted by Independent If I lived somewhere where it took $750k to buy a starter house in a "nice" suburb, I'd either: 1) Try to figure out why my definition of "nice" is so different from the average American's*, or 2) Move to someplace with moderate housing costs. As a taxpayer who might end up bailing them out, I'm not anxious to see Fannie Mae or Freddie Mac supporting the bubble or supporting people who think that they have to buy high priced homes. * According to the National Association of Realtors, the median price for a single family home in "New York-Wayne-White Plains" is $551, for "Long Island", $486. I'd guess that "starter" houses are significantly less than median houses. http://www.realtor.org/Research.nsf/...MSAPRICESF.pdf

I guess I would conclude that you are fairly unfamiliar with the suburban NY city market. The median prices you have referenced cover fairly wide geographic areas. In many parts of Westchester County in NY or Fairfield County in CT within reasonable commuting distances of NYC, you would be hard-pressed to find a starter home (single family house) for 550K. Oh, and BTW, someone lucky enough to find such a place would still need a jumbo mortgage, assuming he put 20% down.

[Independent]

You are correct, I'm not familiar with NY specifically. But I have lived in other cities. In those cities, it seems that expensive areas are expensive because they are more appealing. They have a better location, view, or "neighborhood". Houses are generally bigger with more amenities. Most people in the metro area would like to live in these areas. They don't because they can't afford to, so they "make do" with something less appealing. Nobody is forced to live in expensive areas.

Maybe there is something unique about NY that forces people to live in more expensive areas than they would prefer, but I can't imagine what it would be.

I think that people who have the money and want to spend it on expensive houses have every right to make that decision. I just don't think they should expect gov't aid when they do.

(To be consistent, I should say that Fannie Mae is just the tip of the iceberg, there's a lot more money in the mortgage interest deduction. I'd be happy if Congress put a cap on it.)

[FIRE'd@51]

Quote:

Originally Posted by Independent You are correct, I'm not familiar with NY specifically. But I have lived in other cities. In those cities, it seems that expensive areas are expensive because they are more appealing. They have a better location, view, or "neighborhood". Houses are generally bigger with more amenities. Most people in the metro area would like to live in these areas. They don't because they can't afford to, so they "make do" with something less appealing. Nobody is forced to live in expensive areas. Maybe there is something unique about NY that forces people to live in more expensive areas than they would prefer, but I can't imagine what it would be. I think that people who have the money and want to spend it on expensive houses have every right to make that decision. I just don't think they should expect gov't aid when they do. (To be consistent, I should say that Fannie Mae is just the tip of the iceberg, there's a lot more money in the mortgage interest deduction. I'd be happy if Congress put a cap on it.)

I believe the higher prices of homes reflect the (considerably) higher salaries earned by lawyers, wall streeters, etc. who work in NY. Many folks move to the suburbs to get their kids out of the NYC school system and into better suburban schools. Thus, supply/demand has led to higher prices.

No one is arguing for subsidizing the upper income folks who buy these houses. The increased caps part of the stimulus package was championed by Barney Frank, hardly a proponent of policies that favor the rich. Rather, the jumbo mortgage part of the market has basically seized up, and Congress is trying to address this problem.

BTW, there already is a cap on the mortgage interest deduction and has been since the mid 1980's. Interest on a mortgage larger than $1 million is not deductible. Also, remember the schedule A deductions begin to phase out at joint filer's AGI of 160K.

[mb]

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Originally Posted by FIRE'd@51 I noticed the bill includes allowing Fannie and Freddie to purchase loans up to $700K instead of just $417K. IMO, this should be helpful to the housing situation.

This is the part that Silicon Valley seems to be excited about,

MB

[Independent]

Quote:

Originally Posted by FIRE'd@51 I believe the higher prices of homes reflect the (considerably) higher salaries earned by lawyers, wall streeters, etc. who work in NY. Many folks move to the suburbs to get their kids out of the NYC school system and into better suburban schools. Thus, supply/demand has led to higher prices. No one is arguing for subsidizing the upper income folks who buy these houses. The increased caps part of the stimulus package was championed by Barney Frank, hardly a proponent of policies that favor the rich. Rather, the jumbo mortgage part of the market has basically seized up, and Congress is trying to address this problem. BTW, there already is a cap on the mortgage interest deduction and has been since the mid 1980's. Interest on a mortgage larger than $1 million is not deductible. Also, remember the schedule A deductions begin to phase out at joint filer's AGI of 160K.

Okay, I can buy an argument that says this isn't meant to be a permanent subsidy to people buying expensive houses, but only a temporary means of getting the market functioning. I'll try to remember to watch what they do a year from now.

As you'd guess, the $1 million cap is so high to me that I forgot it even existed. The President's Panel on Tax Reform says that there may be a public policy argument for encouraging home ownership, but not for encouraging big houses. Their cap is the median price for the "area", but the real dollars are in replacing the deduction with a 15% credit. Seems like a better idea to me.

[P.S.]

postponing the inevitable, and wasting money in the process.

if we would get it, we would just save it anyways. unfortunate that this will just encourage the consumption of more stuff.
The Story of Stuff with Annie Leonard

[Retire Soon]

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Originally Posted by P.S. postponing the inevitable, and wasting money in the process. if we would get it, we would just save it anyways. unfortunate that this will just encourage the consumption of more stuff. The Story of Stuff with Annie Leonard

This was very inspiring. Thank you for sharing.
More people could become FI if they would only buy less and waste less.

[chinaco]

People in higher income brackets will have to be satisfied with the boost their investment due to the economic stimulus.