January 28th, 2008

Moose With Mug

It Ain't Gonna Work

Just a quick thought on the "stimulus" package that Congress is trying to hammer out right now (the Senate is now working on it and the House has already passed their version): it ain't gonna work. It doesn't matter how well they target this $150 billion package, it's not going to make a difference in terms of staving off a recession. Why? According to an article in Fortune on Friday:

Given the scale of losses tied to the collapse of the housing bubble - the decline in real estate prices in coming years could cut household wealth by $4 trillion to $6 trillion, according to some estimates - economists say it's understandable that the Fed is doing what it can to support growth.

Too many people were treating their homes like ATMs during the bubble -- a significant percentage of that $4t in wealth was cashed out in home equity loans that are now defaulting at record rates. That $150b is nothing compared to $4t.

The coming recession is going to be long, and it's going to be ugly. I don't think that you need an econ degree to see that.