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The White House is Hoping to Re-inflate the Bubble

By       Message Craig Harrington     Permalink
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opednews.com Headlined to H3 4/17/09

President Obama urged millions of Americans to begin refinancing their home mortgages during an address on April 9.  The President believes that the ability to refinance at a lower rate is the silver lining of the economic downturn.

      

"We are at a time where people can really take advantage of this," Obama said. 

      

As the government wrestled with the financial collapse the Federal Reserve lowered key interest rates and flooded the economy with money.  This pushed fixed mortgage rates to near-record lows which are hovering around 4.80 percent on 30-year fixed plans.  If people were to refinance their mortgages they would be able to do so at the lowest rates seen in over a generation.

      

Unfortunately, there is one glaring problem with the President’s logic: we already did this refinancing fiasco, it was called the “housing bubble,” and it has bankrupted our economy.  The all-time records were set just a few years ago, and the economy has fallen apart since then. 

      

The whole point of refinancing a mortgage is to give the homeowner more money to spend – because less will be spent monthly on mortgage payments.  It is possible that a homeowner could use this downturn to get a very good deal on rate reductions and, if the rate is guaranteed at a fixed number, they will not have to worry about the horrors of rate increases down the road.  It all sounds well and good, but it does not address the underlying problems of our economy.

      

First and foremost, the President has championed increasing consumer spending.  That is why he wants to cut taxes, that is why he passed the $787 billion stimulus package, that is why he is pushing for people to refinance.  All of these programs put more money in our pockets for the purpose of spending and “stimulating the economy.”

      

The problem is, over two-thirds of the goods consumed in this country are purchased overseas, thus over two-thirds of any “economic stimulus” leaves this country.  If the President succeeds in getting more people into the malls and shopping centers of this country, he will only be speeding the flow of money out of this country.  The evidence of this is in a report recently released by the Bureau of Economic Analysis a slight decrease in our monthly trade deficit from January to February of 2009.  The recession has hit families so hard that they can no longer afford anything, even cheap goods from overseas.  Once the stimulus checks begin to pile up, the trade deficit will increase along with them.

     

The White House is trying to re-inflate the burst bubble, and it has been attempting to do so for well over a year – this includes both the Bush and Obama administrations.  Instead of addressing economic fundamentals, girding itself up for tough times, and pushing for fiscal responsibility, the government prefers coaxing us into a false sense of security by artificially inflating the economy.

      

If millions of Americans do refinance their homes it will definitely give them more cash on hand – assuming of course that banks stop hoarding their government bailouts and allow people to actually borrow money again.  Nonetheless, it will not help our economy one iota unless something is done about the lack of production in this country. If millions of Americans continue using that money to buy goods predominantly from overseas, we will find ourselves back in the same situation.

      

The government needs to give direct stimulus to American producers, instead of the banks, and direct Americans to buy the goods put out by American workers.  That is true economic stimulus, and it will lead to recovery.  Anything else is just more wasted effort.

Click here to contact your Representative in Congress.

 

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http://www.economyincrisis.org/
Craig Harrington is pursuing a degree in History and Political Science at The Ohio State University. He is also a journalist for EconomyInCrisis.org.

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