May 4th, 2012 
admin 
Regarding Ontario spending, debt or go against platform promisesf? I don’t know enough about economics, and the state of Ontario’s economy to offer anything useful. This summer I plan to actually attend some economic lectures at UT with Daisy to learn more. But you folks will bear with me, I’d like to offer my simple naive perspective on the issue. Ontario is currently in debt and our credit rating has dropped. To my understanding result of this is due to loses in manufacturing industries to overseas markets such as China. As a result the government is not taking in as much income as the days that Ontario was Canada’s economic powerhouse. The liberals are supported by public workers in their last campaign and promised to uphold workers rights. The provincial liberal government is currently under fire for not cutting enough of public work funds, and also angered public workers with their last budget cut. A question arises. If you are a party, in this case the Ontario liberals, who plateformed on the protection of workers rights should you uphold the values you promised even if it’ll bring the province in debt? On one hand if you go against your promise then you misrepresent, and your party no longer stands for their plateform. On the other hand looking at the economic situation of Greece, or even America…maybe breaking promises are justified? What do you think?
10 Days To New Income – Conquer Debt, Income Your Income!
False Profits: Economic Undergraduate Summary
Author: Daviana Mazzone
Daviana Mazzone
Project 2
False Profits: Recovering from the Bubble Economy
By: Dean Baker
Introduction
The nation as we know it the past few years has been currently trying to recover from the worse economic collapse since the Great Depression. All of this downturn is a result of one thing; the Federal Reserve board which was run by Alan Greenspan. Under his eye, Alan Greenspan let an $8 trillion housing bubble to increase without stopping it. The Federal Reserve also helped this along without doing anything either. Greenspan and his team reiterated that the housing market was completely fine and doing what it was supposed to be doing. Economists and other people doing market research on the economy thought and knew otherwise. Greenspan also said the mortgages banks were lending were fine as well. Greenspan and his people were convincing people to take out mortgages under these conditions. For all of the people in middle class, the biggest thing they had financially was their homes and its value. When the housing bubble collapsed homeowners and people could not borrow anymore against their own home equity. This result had created thousands upon thousands of foreclosures. Millions of people lost their homes and couldn’t pay their mortgage, while the actual price of their homes were decreases, but cost was rising. Job loss was also massively created because of this and all of the foreclosures. The people that were responsible for this did not want the public to be aware of what went on being closed doors, and that in fact the United States economy was under the worst recession and collapse since the Great Depression. They were trying to confuse the American public. The problem throughout the media was said to be a “financial crisis”. The biggest problem of the economy was the serious mal-structure and imbalance of the housing bubble. To go further into our future, we must have a reduction in the value of the dollar to restore more balance to our US trade throughout the world. The best way to stop another bubble like this would be to fire the people that were responsible, but this actually happening is very unlikely and almost impossible to do. The number of people who should have known what was going on and the steps to stop and counteract this is extremely large. Ben Bernanke, the chairman of the Federal Reserve would be the top of this number of people. Looking more into the future, the Federal Reserve must be held accountable for what they do and the prevention of asset bubbles; which includes the stock market and the housing bubble. In reality, conservatives never want to “leave things to the market” to figure out on their own they want the government to structure the market to facilitate redistribution of income upward and so on.
Chapter One: Economic Collapse: It Is Their Fault
When it comes down to the recent economic crisis the top economic leaders of the United States acted as they did not know the basic function of the economic system at all. These leaders of our financial system ignored the massive growth of the housing bubble and that when it finally would burst it would devastate the economy and millions of people along with it. There are a number of reasons why we can believe that these top economic leaders who are supposed to have our financial system in amazing hands, would do such a thing. These people were making enormous amounts of money doing what they did. Hundreds of millions of dollars in some cases were made by these men in short periods of time. All of the media, the treasury secretary and many other extremely intelligent people were not reporting about these problems. The thousands of independent economists, professors and financial leaders did not speak up against this either. No one would ever want to risk being wrong if they were to argue Greenspan’s certainty that the housing bubble was not in existence. The ignorance of the leaders that should have known better were being ignored by the millions of fortunes that were being made by them personally. The people who are now reporting on the mal-practice of the economic system today are the ones that were ignoring it between 2002-2007. The main problem is not that we lacked structure, which the Federal Reserve should have been in place for, but that it had completely and utterly did not do its job. From here on out, economic regulators and leaders need to be held accountable for their performance on the job, and their decisions that effect our economy. The book states that the people who ignored the housing bubble and potential massive collapse should be fired as well, because nothing good can come from people who will not stand up to wrong doing with something so serious as the United States financial system.
The Store of the Housing Bubble
For over 100 years house prices in the US were tracked by overall rate of increasing inflation in our country. Along with other things like food, cars, clothes, incomes, housing prices and cost of living had rose as well. Differences of these prices were different in each part of the country based on where people had lived. Throughout some years housing prices rose more than normal, or other years they did not rise at all. The huge size of the market should have been easy for economists to see that these prices were decreases in terms of the rate of inflation. In terms of demand, the two main factors are income and population. People would think these two factors would cause house prices to increase, but these weren’t the cause. By the mid 1990′s, people who would ever had the chance to own a home already did. An increase in population and demand for nice homes could not be explained by the drastic increase of these homes. Again, all economists should have seen the signs. Also the factor of Social Security and its policies were important during this time as well. Economists and people were saying that they wanted to privatize the Social Security program. After all of these signs, economists and citizens were not believing that the housing prices were due to a “housing bubble” and that supply and demand could have examined the rental market. Vacancy rates should of also been considered as well. The research of the supply and demand for homes was showing the percentage of the housing stock is actually occupied. Rental vacancy rates during this economic downturn time were another huge sign to economists that the failing housing market was in an actual bubble and no other fundamentals were in part. Alan Greenspan and many others were also trying to explain the massive decrease in low interest rates with high house prices. Throughout our economic history, house prices had not been that sensitive to interest rates, and housing prices did not tend to decrease drastically when the interest rates increased, and the other way around. Overall, the combination of interest rates and housing prices were lined up with the housing bubble that was taking place. The people that thought the low interest rates explained the high increase in housing prices should have been scared by what would happen when interest rates would turn back to normal.
The Spread of Bad Mortgages
As the price of housing increased drastically like never before, incomes of the people were not rising to stay up with this. Subprime mortgages usually have an increased interest rate that prime mortgages. The high increase in Alt-A loans were also a big factor to be looked at. For the most part Alt-A loans usually are given to people who take out the loans who have good credit but cannot verify their assets. Also, the number of small businesses did not increase like planned. Alt-A mortgages were the cause of this. On top of this, the majority of subprime mortgages with interest rates were expected to drastically increase in the coming years. All of these loans that were being given were basically a “ticking time bomb”. Banks and financial employees were being paid very little attention to the borrower’s ability to repay loans. Because of this, the secondary market exploded and Wall Street banks began to not back up Freddie Mac mortgages and securities. Fannie and Freddie Mac began to enter the nonprime market in 2005. After this the CRA had no impact whatsoever on the explosion and burst of these loans. The system that was in place that was working just fine as long as the bubble continued to grow with all of these increases. Many people that owned homes ended up re-financing them multiple times during this bubble. The massive increase in foreclosures began and increased the vacant supply of all the homes that were available on the market. Lower house prices were also directly affected the demand for houses because most homebuyers would sell their home just to buy another one. In order to not lose their home, homeowners would start working two jobs or cut back on other expenses to be able to pay for their mortgages that were on the rise. This is the time when credit records began defaulting. The number of foreclosures had increased in ways never before seen and up to 3 or 4 levels above the normal, and banks were also taking serious hits as well.
The Bubble and the Economy
This damage that was done weakened the financial system to extremely serious conditions, and worse, it weakened the real economy. The housing bubble affected the economy in two ways. The first one is that the growth in the housing market became an extreme sort of demand like never before. Housing and construction expanded to more than 6 percent of the Gross Domestic Product. The housing bubble also drove the economy by stimulating consumption. When the bubble finally did burst would make everything come to a halt. This was responsible for over 6 trillion dollars of loss in stock wealth. Policymakers and economic leaders should have saw all of this coming. These policymakers, most importantly Alan Greenspan and the Federal Reserve had no excuse for saying they were caught off guard by what was happening to the economy. This was all bound to happen by the actions taken in the close-past and they did see it coming and did nothing to prevent it from bursting.
What They Could Have Done
These economic leaders could have devoted all of their time trying to take steps to fix this problem when they saw it coming. The Federal Reserve could have given out warnings about the dangers of this housing bubble. Giving out this warning could have just laid out the matters of the housing bubble and give the truth to the people who were being manipulated by it. Alan Greenspan should have done everything he could and had in him to warn people about the housing bubble and should have given ideas to all of the people at the Federal Reserve better ideas to fix what was happening. The Fed could have also given out mortgage guidelines and policies for banks to follow. If the Federal Reserve had given vast warnings they could have also raised interest rates as much as they could to burst the bubble themselves. Doing so would of put people out of work and slow the economy but it would have been better than letting the bubble grow larger and larger which ended up with the severe economic recession we are now in.
Chapter Two: Surveying the Damage
This collapse had produced an even bigger crisis that any economic leader could have thought would happen. The unemployment rate approached the drastic levels of the Great Depression. The housing crash recession was much worse. This was all caused by the collapse of the housing bubble and not in the Federal Reserve raising interest rates like people had thought. The labor force and its structure had changed as well. Workings in the baby-boom era were more likely to be unemployed then ever before. Many employers if not laid off were dealt with a drastic cut in working hours they were given. The number of part time work increased dramatically rising above 9 million during the spring of 2009. In July of 2009 more than 15 percent of the labor force was either unemployed or underemployed.
The Distribution of Unemployment
Wages were also extremely weakened by the economic collapse. Oil and other things also were falling rapidly in the fall of 2008 when real wages were actually rising just as fast. Peoples paychecks were lasting longer when gas prices had fallen. This weakness brought wage growth to a halt. When people began to decline their purchases the economy would go into a further depression.
Lost Output and the Benefit of Pain Theory
The economy began to function well below its capable ways which was responsible for the huge number of people that were unemployed. If the unemployment rate is 1 percent higher than necessary for two years, we will end up losing 4 percent of the economy’s potential to grow. A vast number of people including economic leaders appeared to be affected by the economic downturn as well. The high unemployment and wasted resources were so high that they were nearly uncharitable. This recession impacted peoples whole careers and lives. There must be many adjustments because of this downturn. The economy must be turned away from this so-called bubble driven path and also an unsustainable environmental driven path.
The Collapse of the Housing Bubble and the Loss of Household Wealth
The huge increase in houses created more than 8 trillion dollars in housing wealth. This wealth was because the bubble could not continue to grow and eventually had to burst. People’s notions of wealth had to change as well as their financial habits. The world now looks very different after house prices adjusted to their after-crash levels. Middle class families are now poorly prepared for retirement and their total wealth in their life is projected to be on average about $240,000 in their lifetime. If this were to be the case people could pay off their mortgage loans and have about $70,000 left over to spare. The retirement picture is about the same for people born in the baby-boomer times.
Trends in Ownership Rates
Many people took advantage of low cost mortgages during this time to buy their first homes. Baby-boomers were not the only people to be affected by the bubble. Homeowner rates ended up rising to record levels especially among minorities like African Americans and Hispanics. Homeownership rates among African Americans rose to about 49.1 percent. In 2009 homeownership for Hispanics had drastically fallen to 1.3 percent after the burst of the bubble. Overall the homeownership rate in the first half of 2009 fell back to a drastic 67.9 percent. To this day foreclosures are now running at the rate of more than two million a year in the second part of this year. It is projected that in the next few years homeownership is supposed to fall much further.
Conclusion: Bursting Bubbles Are Bad News
This information was do look at the damage caused by the housing bubble alone. This portion of the book alone only merely touch the topic of the housing bubble but did not even mention the international ramifications of the crisis which were catastrophic and huge as well. The recession that has resulted from the collapse of the housing bubble is a massive disaster of humanity, and better economic policies and rules could have prevented all of it.
Chapter Three: The Terrible Tale of the TARP
The TARP or Troubled Asset Relief Program was brought together to help the threatened financial industry in time of need. The program was able to unite and bring together $700 billion bailout plan. The bill was eventually passed by Congress, because of the pressure they had put on them. The United States does not fully understand how much goes in to the TARP program. The development of this program and the pressure they put on Congress to pass the bill was definitely a remarkable feet. Because of TARP, Wall Street banks who were never fond of programs like this but they did end up getting a massive bailout when the country was suffering.
The TARP Timeline: From Calm Reassurance to Complete Panic
Starting in 2007 the financial industry experienced many catastrophic downfalls. Two months after this Fannie and Freddie were experiencing complete bankruptcy. The government ended up giving them $200 billion dollar worth of credit to save them. Bear Stearns was the next gigantic investment bank and also Lehman Brothers. Once Lehman collapsed, AIG was soon to follow. After warning the public that a small recession would take place, Bernanke and Henry Paulson spoke of complete economic collapse. The financial system was facing an enormous economic downturn. The “TED Spread” was used to measure the massive downturn. The TED Spread had shown an increased risk, rising almost 1 percentage point in the summer of 2007 when it first was known that banks would suffer huge losses. This certain situation made two different threats to the economy which Paulson, Bernanke and the TARP cheerleaders made to the media about supporting Congressional approval of TARP and what it stood for. The Federal Reserve was concerned that a full debt default by one of the Latin American countries would go bankrupt one of the already major banks. The Fed also had the ability to let everyone know about the other issues in the economy. A few days after Congress had approved TARP, Ben Bernanke had told the program that a special lending program that the CPFF would buy commercial paper directly from nonfinancial operations.
Structuring the TARP: What Were the Options?
In the middle of September after Lehman had collapsed the entire economic system had collapsed and had no hope for recovery. In order to fix the problem the institutions wanted billions and billions of dollars, without any strings attached. Paulson’s idea to help bailout the problem was a $700 billion dollar bailout plan for the government to buy the bad assets from the banks to keep them from going under. In order for this plan to improve the banks situation, the government would end up paying too much for financial assets. The Congressional party added this bill and all of the wording on loan documents as part of a way to win all of Democratic votes. All leading parties, and presidential candidates supported TARP because of the massive urgency of the economic crisis. The media also kept up with news stories repeatedly stating the importance of the TARP and it’s help. The words “recession” and “economic collapse” became household terms. Congress only made sure that the members of TARP were the ones being stressed throughout the media. Many economists believed that the public was misinformed when it came down to TARP’s was of saving the economy. TARP ended up being initially defeated. The political elites were outraged that Congress would respond to this among the elite.
The Elite Regroups
The defeat of the short-lived was washed out of excitement fairly quickly. The elites and leaders still had all the control to use. The stock market begun to plummet about 10 percent each day. This led to a huge loss of over $1 trillion dollars of stock wealth. The elite people of TARP did not care about policies and procedures or making policies on the day to day movements of the stock market. Many people actually hold portions of stock through their retirement accounts. These people saw their accounts take a huge plummet and they believed TARP made this happen. People believed that many people in the country have been able to believe the stock market is a measure of the health of our economy. The people that voted for TARP could not be able to be blamed by the outcome of them. if the economy had crashed the people who had voted for TARP could not be blamed because of their good vote policy. The economy still made a complete downturn after the passing of TARP. The structure and foundation of TARP ended up hurting the people who brought it together. Many people who had critiqued TARP wanted banks instead of going into foreclosure modify their loans instead. There was no policy in place for these loan modifications and because of this many foreclosures began to take place in 2009. House prices continued to drastically fall all over the United States.
The Fed Side of the Bailout
Congress allowed TARP to give the banking system $700 billion dollars. A public transaction of these existed in the documents. Anyone could go on the Treasury website and see what money was given and how much. The Federal Reserve gave out an unimaginable amount of money during this time of crisis. The Federal Reserve had more than $1.6 trillion to more than ten different leading institutions. The public had no way of knowing if the money had been spit up to hundreds of institutions or just between a few. Several banks borrowed tens of billions of dollars from the general public with the FDIC’s guarantee. At the end of May in the year 2009, over $350 billion dollars in loans were given out. AIG was the last huge financial institution to end up being bankrupt and one of the largest. It gave out trillions of dollars in credit default swaps, many against mortgage-backed securities. AIG had no where enough capital to cover themselves throughout this financial crisis. The decline in house prices lead to a large number of rapid rise in the rate of defaults it was accumulated with many claims it could not backup. In the following months AIG made more than $150 million dollars in payments to banks and other institutions based on their commitments from CDSs and other measurements. In all, the $700 billion in loans from the TARP may have been the least important route through that taxpayers subsidized failed the banks and actual bankers. The Federal Reserve always the power to give any financial institution or bank any amount of money they wanted to. Ben Bernanke just wanted to be backed up with a congressional stamp of approval for taking this plan of action and TARP and the passing of the vote for it gave him this approval.
Conclusion: Lessons from the TARP
In order to completely restructure banks there will have to be a new political strategy to be able to withstand the TARP and anything it does in the future. First it would have to prevent the same structure as the TARP proponents they used to pass the bill in the first place. Other alternative media may make it attainable in the future to stop reports that characterize the certain coverage of TARP. Also, they have to deal with the insider game. There must also be a political leader who can vouch for this restructure. Politicians for the most part care about re-election, if people can help get them reelected. With the passage of the TARP, the banks were able to secure for themselves hundreds of billions of dollars in taxpayer subsidies with very few strings attached. They accomplished the task after the economy has been thrown into the worse economic crisis it had ever been in because of the greed of the bankers.
Chapter Four: Will They Ever Discover the Housing Bubble?
The countries most notorious economic leaders managed to not pay attention to the housing bubble as it expanded to more than $8 trillion dollars. These leaders did not recognize the bubble and adjust housing prices accordingly, the ignored the problem all together.
Bubble-Inflated House Prices: Who Gains?
At the most basic level of the housing market people need to understand that the house prices are extremely out of sync. Homeowners that ended up purchasing their homes before the bubble have gotten enormous gains, but not the other way around. As long as the bubble continues, homeowners will view this “fake increased wealth” as real wealth. This bubble does not encourage the idea of homeownership but the opposite. For example, if houses sell for twice the price it will be harder for new homeowners to become homeowners. The large gap between sales prices will also give landlords a reason to turn rentals into ownership. Keeping the bubble going will not be possible. The best thing to happen would be to return prices back to where they should be. After the bubble had ended up bursting know one even tried to make an effort to decipher the housing policy and markets where prices did not return to trend levels.
Rent-Based Appraisals
The best way to push house prices toward where they should be is to have Fannie Mae and Freddie Mac take on a new policy of using rent-based appraisals in their purchases of mortgages. The basic idea is straightforward: Fannie and Freddie would set appraised prices as appraised annual rent, instead of raising appraisal directly on selling prices. By using appraisals, Fannie and Freddie can be absolutely positive that prices on mortgage loans are supported in the market, and have nothing to do with the bubble. In the future house prices throughout the nation have averaged 15 times the annual rent on a home. This can be used to determine whether to buy a specific mortgage.
The Impact of Rent-Based Appraisals
If Fannie and Freddie had insisted on rent-based appraisals, getting financing to sell houses at bubble inflated prices would be impossible. If Fannie and Freddie had followed the regulated policies and procedures during the middle of the bubble things would not be as bad as they are today. By drastically bringing up prices in the bubble, markets back down to their average levels and will stabilize. A short drop in house prices in the bubble inflated markets would benefit the economy. Homeowners would have a more ideal sense of their real wealth and would be able to adjust their savings and financial decisions. The drastic decline in house prices will increase the number of mortgages that default. Homeowners would not be worse off if their house price falls 20 percent tomorrow than it falls 20 percent over the next year. The leaders of Fannie and Freddie and almost all banks pretended as though this housing bubble did not exist during its years of rapid increase. Fannie and Freddie had full support of the Obama Administration and Congress continued through the fall of 2009 to carry out their lending policy as though the bubble did not exist at all. This made unnecessary losses to taxpayers and a slower adjustment in the housing market.
Helping Homeowners: The Complicated Way and the Simple Way
Both the Obama and Bush administrations have had plans to change up mortgages to help homeowners keep their homes. Bush put forward many plans to call for changes that did not involve any public funds. Obama developed ideas that are voluntary on the part of lenders but can include several thousand dollars from taxpayers. Both plans to give banks incentives to modify mortgages will be complex and will give money to banks not the actual homeowners. The alternative to give banks enough money to avoid foreclosures is to simply change the balance of power between banks and homeowners. The first way to do this is bankruptcy reform where judges would be allowed to change home mortgages in the case of bankruptcy. Second thing is “right to rent” this would give homeowners facing foreclosure the option to remain in their homes for a good period of time. Bankruptcy reform would also benefit homeowners through two routes. The more obvious route is that a certain number of homeowners would actually declare bankruptcy and have a portion of their mortgage debt relieved by the bankruptcy judge. The benefits from these changes are likely to be limited. Bankruptcy can be costly for many homeowners and requires hiring a lawyer and spending more money in the legal process. If judges were tended to make rulings that did not reduce debt substantially, the value to homeowners of the threat to declare bankruptcy would be reduced. Also, the spokespeople for the banks could argue that having made a temporary change at least once that lenders would always fear similar things happening in the future.
Chapter 5: Stimulus: It is Just Spending
Once the financial panic in September of 2008 hit, it was obvious that a stimulus plan became clear and apparent to the whole country. After the collapse of AIG and Lehman, the jobs quickly started to diminish and people were losing their jobs as well. Thousands of jobs were lost which include, in October of 2008, 380,000 jobs were lost, and then in November and December another 1.3 million jobs were lost. In December of 2008 the employment rate was 7.2 percent which was a giant increase about the October unemployment rate. Even though the economy was falling apart, Washington and the government didn’t do anything because of the current election. Obama ended up winning the election but did not start his reign for a few months later. Aid to state and local governments would have been something obvious that that congress could have encouraged. This lead state and local government to cut service jobs and raise taxes, these two actions only worsen and weak economy. Republicans started to talk about a plan called the stimulus package to help local governments although there was no agreement on one. In the last two months of the Bush Administration, the members of this supervision mainly went out of business when it came to economic policies. One President Obama came on office, him and his direction was able to put a more wide-ranging map in position.
Developing a stimulus Package
Obama’s first order of big business once we won the election was to develop a stimulus plan which was bulky enough to have a blow on the economy, but also pass through congress speedily. The stimulus plan should be able to inspire the economy hurriedly but also have eternal effects. The outcome of this plan was different and used all aspects. Obama’s plan was lacking due to the loss of order from the housing crash. The administrations stimulus package included an improved of spending and tax cuts, and in 2009 and 2010 is paid out over $800 billion. It just wasn’t great enough to make a lifelong notion on the economy. In 2009 and 2010, the economy was in a short fall of $450 billion from the lack of housing construction, $600 billion to $800 billion in reduced consumption, and $200 billion in the end of the housing bubble, this all adds up to a loss of $1.3 trillion in the economy. About half of the wished-for federal stimulus was counterbalanced by an boost in taxes at the state and local level. The Obama stimulus plan was too small because they thought it was less of the difficulty of the downturn. They used the calculation that the joblessness rate would summit at just over 9 percent in 2010. Usually, unemployment decreases at a rate close to 4.5 to 5 percent. Usually, it takes 2 percentage points of the GDP growths to decrease job loss by one percent. So it was unattainable for Obama’s stimulus plan to get economy back to full service. It would take close to $1,800 billion in stimulus over two years to bring the economy back up to full employment; this is about twice over the quantity in the Obama stimulus plan. Politics is an apparent reason for warning; both the democrats and republicans have diverse ideas of economic policies. Matching the budget and fiscal responsibility became the supreme economic asset and almost no one had the headship to set up against it. Even as the economy was collapsing, no one was raising the question about the desirability of balancing the budget. This gave Obama the challenge of pushing along a stimulus plan in an environment where the deficit was looked at negatively. This caused the political constraints to limit the size of the stimulus. It was essential for the stimulus package to include an increase of generosity of unemployment benefits and be restructured to include part time workers. These new policies made it hard for mothers who had children to be excluded from unemployment benefits all around. The stimulus was also focused to cover almost 65 percent of healthcare insurance for the unemployed, this was extremely needed because few workers that didn’t have jobs could afford to make their payments. The funds from this plan included fusing the country’s grid, computerizing health records and making public and private energy uses more practical. $80 billion was also dedicated to infrastructures projects. It also included more than $ 200 billion in assistance for state and local governments. This money they had put in place for state and local governments worked immediately and you could see a change. This led local governments to reverse layoffs and tax increases. Most of these tax breaks were used for low and average families as far as income. These people in this bracket usually spend their tax cuts versus people who had an increased income, because they wanted to save. Obama’s idea to have this stimulus plan pass congress with bipartisan support did not work, no Republican ended up voting for this bill in the house he was only able to gain the vote of 3 Republican senators. The republicans believed that this would put a huge burden on our children and grandchildren. They often said that the stimulus proposal “was just spending, not stimulus”. Spending equals Stimulus to be exact. If the government would be able to fund people to anything they wanted it would be inventing a job that didn’t really work or exist. Unfortunately, it is not clear to the public what stimulus spending actually is, and people do not understand what this actually means and how it works. The public also looks down at TARP spending, and it is hard for the public to see the difference between tarp and stimulus spending. Because the public is unclear about the stimulus package republicans made it clear and didn’t think they should back up the president in what he wanted. In order for Obama to get the votes that he needed to pass this bill, he had to cut back the all ready too small proposal. The final stimulus package cam to $780 billion, which was only slightly less than his original proposal. Unfortunately, to get the republican votes that the proposal needed to pass the Senate was to cut funds for state and local governments. These funds were cut by about $100 billion, which is about half the amount that the president requested.
Reviewing the Batter over the Stimulus
It is safe to say that the passage of the stimulus place was quite something to be proud of in the scheme of things. Even though is package was too small, it is still quite a substantial package to get through congress. And it’s safe to say some changes will be stuck to, like the change in unemployment eligibility. Unfortunately this did not lay the ground work for other stimulus plans that are needed. President Obama never gave the American people a basis of economy so they could know what this package actually symbolized and what it was supposed to do. The majority of American citizens did now understand the deficit and did not want it when they thought about the future of their families and how they would live at their age. The debt if not a remotely good measure of generation equality. The future lives of people depend on how the economy grows and as a society who went through this hardship, good ideas should be passed down. The stimulus package, still was far too small.
The Debt and Inflation Scare Stories
Many conservative economists and politicians began thinking that the future deficits would ruin the United States and their credit risks in the future long-term. The current interest burden is less than 2percent of the GDP. Back in 1991 the interest burden peaked at 3.3 percent of the GDP and Standard and Poor’s did not even threaten to lower our credit rating then. The threat of Standard and Poor’s was more of a political act rather than an act of the creditworthiness of the US government. The price of credit default swaps have increased drastically without any stopping. A holder of a CD faces two situations, either the bond will default or the bank that issued the CDS will survive to honor its commitments. If the U.S. defaulted on its debt, it is clear to say that not many banks would survive to support their commitments on CDs. This would cause almost every major U.S. bank to fail, as well as almost ever financial institution in the Western Europe. Today, the interest rates have lower standards than ever before. Large trade and current account deficits have been created because the US has been importing instead of exporting which is much different than before. If investors stopped buying US dollars the Federal Reserve would act to keep interest rates low by buying more long term treasury bonds. The purchase of these long term bonds would keep interest rates down but pose the threat of inflation. With the drastic decrease in our economic system, financial institutions we are not likely to see a high demand and probably will not ending up raising prices. Unlike this, imported goods are raising drastically in prices because of a decreasing price of our American dollar. In the future we are likely to see an increase of inflation in the future because of the drastic increase in import prices. A modest rate of inflation, about 3 to 4 percent, is the best way to take debt burden off of tens of millions of home owners. Inflation would also end up ruining the real value of the government’s debt.
Chapter 6: Real Stimulus: Progressive Programs to Boost the Economy
Because our country knows how to prevent joblessness there should be no reason why our unemployment is so high. Such an increase in unemployment rates can be traced back to the government and their lack of demand. We need to create a lot more demand of everything to fix our growing unemployment problem. With an increase in demand more people would be employed and have jobs and buy more things in order to meet the demand. This would lead to more output and more employment, jobs and an increased growth all around. It is better to employ people to do something we can all benefit from so there would be an short term increase in both growth and demand when it comes to our economic system.
Potential Sources of Stimulus
During economic decrease and crisis the government has the chance to research new programs. Normally scary projects and programs are looked down upon because in turn they might make a higher tax dollar increase. The main goal of all of this is to increase demand, this will change everything. The below ideas are things that the federal government can give to provide an increase to our economy if they continue to spend. We need to get money into our economy fast and efficiently to create jobs and increase demand.
- A. Aid to State and Local Governments
To get more money to state and local governments should always be a top goal of any stimulus agenda. In 2010 and 2011 states are facing a budget shortfall of more than $ 300 million. Most state and local government are required to balance their budgets. Stimulating state and local government would have a direct impact on the citizens. The federal government does not have to make up all of the governments, but they need to give enough money so they do what they need to, to get the job done correctly. This should be a top priority when it comes to all stimulus plans.
- B. Extension of Health Insurance
Obama put into place a health care package through all of congress that he wanted to be paid over s 10 year timeline. A raise in taxes in the future will stop later spending cuts when it comes to this package. This package seems to be a useful idea to help stimulate our economic system. This spending can also be looks at as a useful boost to the economy.
- C. Public Fund Clinical Drug Trials
In today’s society the research of drugs and new medicines do not work very well at all. This is because medicines and their research are extremely expensive and on the rise. In a competitive market drugs sell for 3 or 4 times as much as they would normally. Drugs and healthcare are something that the average and lower families on an income level cannot afford. The US plans to spend about $300 billon, which is about 2 percent of our GDP, on drugs in 2012. These same drugs would be extremely less costly than without patent protection. Most research these days looks for generic ways to produce drugs or use other drugs as a basis to copy others. Drug companies also keep a tight control over their research findings. The only reason they release their findings is to market their product. Putting in place a new system would save the government and people a large amount of money and may even make healthcare much better in the United States. Less expensive drugs would also be available to be purchased by people in up and coming countries which would increase our exporting.
- D. Subsidies for Public Transportation
These days in our country, citizens use public transportations more than 10 billion times per year. This has a great effect on our country in many ways, including cost. As a country we use less gas, less pollution is produced and less energy on the amount of traffic produced everyday. Subsidies could be used to help the people using public transportation everyday which would lower these costs for riders in their day to day life. The subsidy would end up drastically increasing the use of public transportation.
- Internet-Aged Support for Writers, Artists, and Other Creative Workers
Another stimulus that can be used is one for our Internet based world. Congress can make $10 billion a year for state and local governments to support creative and artistic works, in fields of creative things like journalism and movies. This should be available and used as public domain. The creative workers would have a choice to either stay on the system of public funding or they could get copyright protection, but they cannot do both. The $10 billion could employ 200,000 people at about $50,000 each. This specific work for these people would be available for different types around the world to use off of the internet. This would help against the much complained about copyright system. - F. Funding for Development of Open Source Software
The government can also invent a program that helps public domains by creating an open software program. This can also help systems that are already in place like Linux. A total of about $200 can be saved on each computer by putting something like this in place. A group of people that use software would help build this program up and the government would be using and saving money in the long run drastically.
- G. Paid Time Off Tax Credit: The other Route to Full Employment
A great way to get people jobs is to put together a stimulus package that helps the decrease of excess jobs that are not needed. Using a whole workforce would be much more efficient than just a small percentage. Unemployment would not be a problem and would create a short term stimulus and would keep everyone’s pay the same. This can work by giving tax money credit to certain employers that would normally get time off. This could start right away and start helping the economy immediately. the economy and it would be more family friendly.
- H. Possible Long Term Benefits of a Paid Time Off Tax Credit
Paid vacation is used in laws throughout the world when it comes to employers. Sick days and family vacations that are paid are also used. In the United States many companies do not use this rule and millions of people never get time off, paid or unpaid. A tax credit could be given to help cover the time that is given off and help families in need as well when they need vacation time. In turn the US would have a shorter job work week than most. Because many employers provide benefits for their workers like health insurance, many employers would opt to pay them time and a half rather than hire a second worker. A tax credit might be an incentive for employers to push back the hours a worker works.
Chapter 7: Reforming the Financial System
The United States is shelving out a lot of high money for the mismanagement of our funds in that industry. Banks and financial institutions have failed and they expect the government to help them and bail them out. Banks have such an influence over everything including our politics that they may always win their case know matter what it stands for. We need to reform the Federal Reserve because it controls and issues money over our money system and it is the program in the center of all of the crisis, good or bad.
Reform of the Fed
As of now the Federal Reserve Board is mainly under the control of the financial industry. The banks control the process of choosing our presidents and our economic leaders which shape our countries system, which controls all operations of banks and our money.. All these banks sit on the Federal Open Market Committee, which controls the country’s monetary policy. The FOMC makes decisions on interest rates and determines the nation’s short term growth. The district banks also have a large amount of regulatory power, especially in New York because if its importance to the nation’s overall financial sector. So therefore, the regulator is under the control of the industry it regulates. The Federal Reserve is responsible and was responsible for keeping the economic growing during our huge recession we went through. They also were in control of bailing out and giving funds to AIG and the largest financial industries in the world. The Federal Reserve kept everything quiet and did not even share the information that they were doing to people on Congress. Hiding of records were done throughout this whole process and only made available to the public when Alan Greenspan made them public about 5 years later. The centered goal of this reform would be to regulate and take away the financial system’s power to pick the number of District Federal people on the board. Guidelines, rules and policies should also be put in place when it comes to this, very strictly. The monetary policy is not a science so it requires a judgment call, and the FOMC member will be more concerned about the risks of inflation rather than unemployment. Although most people would disagree and be more concerned about losing their job. Congress needs to put together a program or board of people that review what the Federal Reserve is doing at all times. Many analysts and economists think that congress should not be allowed to make decisions when it comes to our money and economic system. Our United States citizens have lost their jobs, been pushed to work part-time and millions of families have lost their jobs and savings in a matter of a few short years because of the Fed’s decisions.
Financial Transactions Taxes: Reining in Bankers and Speculation
Congress and the general public have a renewed interest in the creation of a financial transactions tax (FTT) because of the major economic recession our country has just gone though. The financial institutions and economic system will fight this and look down up on but in turn it will raise money and make our economy grow.
This could raise more than $100 billion dollars a year if put in place. This act would decrease the financial industry and increase its regulation. The London Stock Exchange still remains one of the largest in the world in spite of the stamp tax. It is obvious that the benefits are much greater than the negative things about their system. There security cannot be traded unless the taxes have been previously paid. The amount of revenue that could be raised by this is an amount above measurement. Many average families have stocks and funds they would use that they would not have to pay any taxes on.
How a Financial Transactions Tax Eliminate Economic Waste
A tax on any financial transaction tax would raise the market and help its duty to increase growth. This would help people with jobs require less capital than before. The financial industry needs to serve like its supposed to and do its job, other than that it will be a waste. Also, firms should have better availability to capital markets. An FTT would help the economic boost itself and people would be able to tweak their spending and save more over the time in which they live. Reducing our imports and exports would seriously hurt our economy. This tax would be believed by the financial industry would lead to the end of our economic function as people on Earth, but this claim has no research to back it up.
Other Reforms of the Financial Sector
Many people have talked about reforming our financial system ever since we had to go through and are still feeling the effects of this economic crisis. There is much need for improvements none the less throughout this system. Everything should be public so people know the basis for what they are dealing with and large institutions would not be developing unruly financial plans and products for our people. To make sure something like this never happens again, derivatives need to be put in place and regulated so that trades are immediately given to investors and know one in between.
The Problem is Regulators, Not Regulations
The United States is not in need of a better set of financial regulations. Inadequate regulations are not the excuse for the housing bubble and the resulting economic collapse. The regulars, mainly the Fed had all the tools that were needed to combat the bubble, but they simply chose not to face the problem. The fundamental problem is forcing regulators to do their job, even if it means clamping down on powerful financial firms. Rules are only helpful of they are enforced. The best way to change the regulators behavior is to fire many of them who did not take any action during the housing bubble. If we do not change the culture of impurity than we cannot expect good changed to good policy or good regulation. Regulators should be required to pay the price for going along with powerful financial interest, even if they know it will lead to a disaster. If no one gets fired, we will do nothing to prevent a future economic crisis.
Chapter 8: Remember the Housing Bubble
If people who supported the ideas of liberals and radicals would have been the cause of this economic meltdown their views would be banned from the public for an extremely long time. The people and leaders that caused this economic crisis were able to get out of the trouble they were in because there were so many people involved and never gave the truth and facts. The only thing these economic leaders have stated to the media is “how complicated” everything that went into this crisis was, which is obviously false. A major media editor from the Washington Post believes that we need a clear understanding and truthful facts so we can understand how we got to this point. The then chairman of the Fed, Alan Greenspan, was fully understanding of the housing bubble and chaos they were creating but know one did anything to stop it or prevent it. It is extremely vital we remember the people who did this the next time people warn us about a stimulus package in the future. The top executives and CEO’s of these companies still remain the most wealthy and powerful people in terms of our country. Our financial system is seemingly corrupt and millions and millions of people have suffered in their day to day lives because of Wall Street decisions. These top executives need to be held responsible for what they have done to all of us and a total reform needs to be taken place. If we, as American people do not learn anything from this economic meltdown and housing bubble, failure is the extent of our economic future.
Article Source: http://www.articlesbase.com/college-and-university-articles/false-profits-economic-undergraduate-summary-5373517.html
About the Author
Daviana Mazzone
