An idea for the economy

markmarc

Spent some time listening to people bounce ideas on getting the economy going again. One of the more interesting I heard involved the gov't paying to lower the interest rate only on all first mortgages to 4%.

I did a bit of checking and found figures on the number of homes with 1st mortgages (I took the average) which is 51 million.

Then I asked a mortgage broker what the average cost would be to lower the interest rate only, principle stays the same for the average mortgage. The figure I got was $4,000. I decided to pad that number to $5,000.

Here is what I came up with when multiplying 51,000,000 by 5,000
$255 billion dollars.

For argument sake, that would save the average homeowner $400 a month, or $4800 a year. Being Americans a healthy chunk of that would go back into consumer spending.

Here is where it gets interesting: a portion of that the IRS would get back as less mortgage interest would be taxed.

Anyway, it seems to me that if we are going to do bailouts, this seems pretty logical, as it puts money into the hands of a majority of Americans each month for years to come, can make an impact on reducing the foreclosure situation, and is much less a drain on the deficit.

Thoughts guys?

comfortablycurt

This is kind of what I've been thinking the entire time myself.

Another possibility would be to give small businesses low interest loans. Small business makes up the vast majority of all industry in this country.

For instance, I run a tree service with my family, which only has 4 employees. Small business could be considered anything even up to a company with 65-70 employees though. If small businesses are able to get low interest loans, it would jump start the economy like you wouldn't believe. Like I said, I run a tree service...and if we were able to get some good low interest loans, we'd probably be going out and buying a new boom truck, new dump truck, new wood chipper and any number of other things. So would thousands and thousands of other small businesses across the country.

With all of these small companies going out and spending money, it would really help get things rolling again. Production lines would be getting busier, things would be selling, people would be buying. That seems like the obvious answer to me. Not all these corporate bailouts that have been going around lately...Putting the money in the hands of these huge corporations can only go so far...those huge corporations are by no means the majority of industry here. As I said...small business makes up the majority. Not these huge multi-gajiillion dollar a year corporations.

dkg999

I say just give every US citizen (with some qualifications such as age, length of residence, etc) $100,000 with the stipulation that it has to be used to pay outstanding debt (again a priority order) and can't be spent on hookers & blow (sorry Doro!). If you're going to print money, then do it to pay off debt and free up disposable income, then limit the ability for credit to be used to fund excess.

Yes, it's a dream. I'm just worried that someone is going to see the $10 million in the stimulus bill that I have asked for to be used for audiophile rehabilitation

comfortablycurt

That plan would work, except I would prefer to spend my 100,000 on hookers and blow.:p

Using it to pay off outstanding debt is only going to go so far though, it still doesn't get industry rolling again, which is basically priority one.

Also, giving 100,000 to every person of age in the US would equal out to something more like 30 trillion dollars...lol...Which is a bit higher than the current bailout plan.;)

With the current plan divided between all tax paying Americans over the age of 18, it would equal out to roughly 4500 dollars per person. Sounds good to me though...I could use 4500 dollars right now. I could build a pretty badass HT setup, and still have the money left to build a badass 2-channel setup as well. :eek:;)

nooshinjohn

speaking of mortgages... if they went to just a simple interest type at say 6%, rather than the compound types of today, a 150k home would be paid off in just 12 years rather that 30 and the house payment would stay the same!!! a sayings of 200k+

I could do a lot of damage in this economy if I had that kind of scratch to toss around:D:D:D

shack

nooshinjohn wrote: »

speaking of mortgages... if they went to just a simple interest type at say 6%, rather than the compound types of today, a 150k home would be paid off in just 12 years rather that 30 and the house payment would stay the same!!! a sayings of 200k+

I could do a lot of damage in this economy if I had that kind of scratch to toss around:D:D:D

That makes no sense. Virtually all mortgages are simple interest.

PhantomOG

I could totally see this happening now that I'm about to pay closing costs to refi at 4.75% :rolleyes:

I know there is a supposed need for all this bailout crap, but I can't help but feel we're just shifting the consequences of poor decisions from those who made them to those who didn't.

comfortablycurt

PhantomOG wrote: »

I could totally see this happening now that I'm about to pay closing costs to refi at 4.75% :rolleyes:

I know there is a supposed need for all this bailout crap, but I can't help but feel we're just shifting the consequences of poor decisions from those who made them to those who didn't.

That's almost exactly what it is. All these big corporations weren't running their businesses well, so now they're at our doorsteps crying to be bailed out. It's not our fault, why is it our problem now?

nooshinjohn

shack wrote: »

That makes no sense. Virtually all mortgages are simple interest.

actually they are not.... if they were, they would figure out more like car payments...

100k house at 5% over 30 years = about 275k in payments at 875 a month
100k car loan at 5% over 12 years = 138k in payments at 900 a month

my point is why does the government allow consumers to get screwed in the ground and out of a huge amount of cash. owning a home is the single biggest rip off scheme in america with the way loans are packaged in the first place...:eek::eek:

sucks2beme

Comsumer debt at 99% of income made this crash unavoidable.
How could they keep up that trend? This will have to run it's course.
The lesson for companies and consumers is to keep your debt down.
Investments that promise huge returns for little risk are too good to
be true. Banks and businesses that engage in risky practices need to
fail. Bailing them out does nothing. They should of stuck to the original
plan for uncle Sam to buy up the toxic loans, bundle them, and then
auction them off instead of just handing the banks wads of cash.
They seem to have made a lot of cash vanish without a trace.

shack

nooshinjohn wrote:

actually they are not.... if they were, they would figure out more like car payments...

100k house at 5% over 30 years = about 275k in payments at 875 a month
100k car loan at 5% over 12 years = 138k in payments at 900 a month

my point is why does the government allow consumers to get screwed in the ground and out of a huge amount of cash. owning a home is the single biggest rip off scheme in america with the way loans are packaged in the first place...:eek::eek:

You don't know what you are talking about.

Mortgage loan - $100,000 for 30 years at 5.00% interest - monthly P&I payment is $536.82
Car loan - $100,000 for 12 years at 5.00% interest - monthly P&I payment is $924.89

Amount of interest paid during the FIRST month of the mortgage loan = $416.67 - prinicpal = $120.15
Amount of interest paid during the FIRST month of the car loan = $416.67 - prinicpal = $508.22

The amount of the principal reduction starting with payment #1 is the difference. NOT the method of interest calulation.

rayslifecycle

Although I like your premise - the reality is that your (our) intentions are the opposite of those in charge. They want us to owe more, own less, and work harder for less money.......that is how they keep a workforce motivated.

markmarc wrote: »

Spent some time listening to people bounce ideas on getting the economy going again. One of the more interesting I heard involved the gov't paying to lower the interest rate only on all first mortgages to 4%.

I did a bit of checking and found figures on the number of homes with 1st mortgages (I took the average) which is 51 million.

Then I asked a mortgage broker what the average cost would be to lower the interest rate only, principle stays the same for the average mortgage. The figure I got was $4,000. I decided to pad that number to $5,000.

Here is what I came up with when multiplying 51,000,000 by 5,000
$255 billion dollars.

For argument sake, that would save the average homeowner $400 a month, or $4800 a year. Being Americans a healthy chunk of that would go back into consumer spending.

Here is where it gets interesting: a portion of that the IRS would get back as less mortgage interest would be taxed.

Anyway, it seems to me that if we are going to do bailouts, this seems pretty logical, as it puts money into the hands of a majority of Americans each month for years to come, can make an impact on reducing the foreclosure situation, and is much less a drain on the deficit.

Thoughts guys?

phuz

shack wrote: »

You don't know what you are talking about.

The math is wrong too.

shack

phuz wrote:

The math is wrong too.

Eedited to point that out as well....

To further clarify:

Interest paid in the SECOND month of the mortgage loan = $416.15 - Principal = $120.66
Interest paid in the SECOND month of the car loan = $414.55 - Principal = $510.34

etc...etc...etc...

Both calculated via the simple interest method.

phuz

shack wrote: »

Eedited to point that out as well....

I almost did the same thing, but figured it wasn't worth the time.

Jstas

dkg999 wrote: »

I say just give every US citizen (with some qualifications such as age, length of residence, etc) $100,000 with the stipulation that it has to be used to pay outstanding debt (again a priority order) and can't be spent on hookers & blow (sorry Doro!). If you're going to print money, then do it to pay off debt and free up disposable income, then limit the ability for credit to be used to fund excess.

Yes, it's a dream. I'm just worried that someone is going to see the $10 million in the stimulus bill that I have asked for to be used for audiophile rehabilitation

comfortablycurt wrote: »

That plan would work, except I would prefer to spend my 100,000 on hookers and blow.:p

Using it to pay off outstanding debt is only going to go so far though, it still doesn't get industry rolling again, which is basically priority one.

Also, giving 100,000 to every person of age in the US would equal out to something more like 30 trillion dollars...lol...Which is a bit higher than the current bailout plan.;)

With the current plan divided between all tax paying Americans over the age of 18, it would equal out to roughly 4500 dollars per person. Sounds good to me though...I could use 4500 dollars right now. I could build a pretty badass HT setup, and still have the money left to build a badass 2-channel setup as well. :eek:;)

That plan would not work at all.

All it would do is drive up inflation for the consumer and remove a major capital base for the lending institutions while at the same time hobbling their ability to lend money and produce income through interest payments. Instead of having the bottom drop lower than expected and causing a recession or even a depression, that plan would kick the bottom out of the market completely and cause immense failure of the banking system.

Then we can all **** about how much it sucks having to pay $50 for toilet paper.

Bailouts are band aids until better times return. But the bailouts are necessary because if the companies that provide the jobs and services go away during the financial hard times, when the financial times do get better, there is no one to deliver the goods and services or jobs for that matter that are in demand.

What is really needed is lending practice reform. The best place to start that is in Congress and have those loonys repeal the legislation Al Gore and his band of Merry Dems put in place to "ensure EVERY American has an opportunity to realize the American Dream". The lending practices that legislation forced banks to do almost broke them in the 90's. What did they do to fix it? They let commercial banks make investments to raise more capital and they let investment banks lend money to, again, raise more capital. Then they let people borrow against it. When one dude, like Madoff does it, we call it a Ponzi Scheme. When the democrats in Congress do it, we call it "legislation...for the people. The people!" Well, the provided unprecedented growth that even the tech boom couldn't put the brakes on. It created the largest housing bubble in history and the P O P, pop. And here we are today.

comfortablycurt

Jstas wrote: »

That plan would not work at all.

All it would do is drive up inflation for the consumer and remove a major capital base for the lending institutions while at the same time hobbling their ability to lend money and produce income through interest payments. Instead of having the bottom drop lower than expected and causing a recession or even a depression, that plan would kick the bottom out of the market completely and cause immense failure of the banking system.

Then we can all **** about how much it sucks having to pay $50 for toilet paper.

Bailouts are band aids until better times return. But the bailouts are necessary because if the companies that provide the jobs and services go away during the financial hard times, when the financial times do get better, there is no one to deliver the goods and services or jobs for that matter that are in demand.

What is really needed is lending practice reform. The best place to start that is in Congress and have those loonys repeal the legislation Al Gore and his band of Merry Dems put in place to "ensure EVERY American has an opportunity to realize the American Dream". The lending practices that legislation forced banks to do almost broke them in the 90's. What did they do to fix it? They let commercial banks make investments to raise more capital and they let investment banks lend money to, again, raise more capital. Then they let people borrow against it. When one dude, like Madoff does it, we call it a Ponzi Scheme. When the democrats in Congress do it, we call it "legislation...for the people. The people!" Well, the provided unprecedented growth that even the tech boom couldn't put the brakes on. It created the largest housing bubble in history and the P O P, pop. And here we are today.

I agree with you actually. I never said that I thought that plan would work. I was just pointing out that if that money were to be divided between of age tax payers, we wouldn't each be getting 100,000 dollars. More like 4500. As you said, that plan would cause the market to bottom out and make inflation go crazy.

Refer to post number 2 for what I actually see to be a good idea.

fossy

MarKmarc,

I think it's a great plan.That would help so many people.

Motzart

Guy at work has the right idea!

Give every American $100,000.
With the stipulation that they pay off their house or buy a house....or buy a new Car/Truck and or pay off their credit debt.
Crisis solved......banks back in business......car makers back up to par.....economy back in the right direction.

Maybe it makes sense....maybe it don't.....just say'in.

.

schwarcw

The plan would never be acceptable to the party in office. The plan in principle benefits everyone the same since everyone's interest rate get's lowered. However, it would be viewed as favoring the rich since rich people own bigger homes, owe more money, so the plan would be viewed as favoring the rich because it saves them more money.

It's kind of like the flat tax. Everyone pays the same, but the rich make out because the poor would actually have to pay some tax.

Shame on you for suggesting such a plan!!!:rolleyes:

comfortablycurt

Motzart wrote: »

Guy at work has the right idea!

Give every American $100,000.
With the stipulation that they pay off their house or buy a house....or buy a new Car/Truck and or pay off their credit debt.
Crisis solved......banks back in business......car makers back up to par.....economy back in the right direction.

Maybe it makes sense....maybe it don't.....just say'in.

.

lol...As I said earlier, going by that plan, it would equal out to a total of more than 30 trillion dollars. Which is considerably higher than the (roughly) 800 billion figure were currently at. That figure divided between tax paying Americans, it would equal out to around 4500 dollars per person.

shack

comfortablycurt wrote:

lol...As I said earlier, going by that plan, it would equal out to a total of more than 30 trillion dollars. Which is considerably higher than the 800 billion figure were currently at.

Of course that would put everyone in the 25% tax bracket on the stimulus alone so there would be 75 trillion coming back into the treasury immediately.
Then if you consider it would immediately impact the M1 money supply on average 4-6 times over a two year period then there should be enough tax revenues to pay most of if back to no more than the $800 billion level rather quickly.

shack

Also, the plan would be ULTRA inflationary...and that would be a whole other economic issue that would be more difficult to rectify than the recession we are dealing with now. Take a look at any economic model and pump $300 Trillion into it in one move and watch what happens. It would not be pretty.

Jstas

shack wrote: »

Also, the plan would be ULTRA inflationary...and that would be a whole other economic issue that would be more difficult to rectify than the recession we are dealing with now. Take a look at any economic model and pump $300 Trillion into it in one move and watch what happens. It would not be pretty.

Ed Zachary

$50 toilet paper, my man, $50 toilet paper.

tonyb

Let me get this straight......some of you believe that Uncle Sam should take on all the bad debt you racked up.....so that your free to spend untill your debt hits crisis levels again?? Is this what I am hearing??

BlueFox

Motzart wrote: »

Guy at work has the right idea!

Give every American $100,000.
With the stipulation that they pay off their house or buy a house....or buy a new Car/Truck and or pay off their credit debt.
Crisis solved......banks back in business......car makers back up to par.....economy back in the right direction.

Maybe it makes sense....maybe it don't.....just say'in.

.

So people who paid off their mortage early, payed cash for their car, and are debt free get screwed.

SKsolutions

Someone mentioned this earlier, and was probably wondering more specifically why the banking de/regulations like Glass-Stegall, and Gramm-Leach-Baily Act were repealed, and legislated respectively. "Irresponsible" they say. People also wonder why subprime loans had to happen. No one in there right mind would be so stupid. . . right? Well, there is a reason. An economic one. It's more than this, but to put it simply/quickly-

Our current monetary system and thus economy only work when there is an ever increasing amount of debt. Because all dollars in existence are loaned out (debt based money), the money supply is approximately equal to the principle on all the loans/dollars owed to the banks/Fed that lent them. There are, however, no dollars in the supply to pay the interest on the 'loan', only the principle, so we have to increase the debt to create new money to pay it. This shortage can also be bridged by printing money (monetary inflation), which is still creates a debt owed by the .gov (supposedly us) to the Fed, again with interest. When this is done, not only do we have to pay it back with interest, we have the hidden tax of having our labors and assets debased by the inflation.

If we don't fund the crooks on Wall St., they won't be able to further expand the debt, upon which the whole scheme is dependent, and the bottom drops out. CNova was right on the money in Post#12. "Owing more, and owning less" If we don't take back the right of controlling our own money, there will come a day when the remaining banks decide to simultaneously raise the rates and call in the debt. The money supply will be contracted creating near universal default. The banks, like JPMorgan will do what they've always done, buy everything up for pennies on the dollar. . . then rent it back to you.
Some think it's crazy talk. . 'that could never happen'. They forget, it already has. The situation I described was not unlike what caused the Great Depression.

cnh

Complex thread, no real solutions that aren't painful. Everyone has to share in the loss.

Massive transfer of imaginary wealth taking place globally. Capital was in flight for the last decade or so. Manufacturing fled as well, some braniacs on Wall Street, the guys that benefit from capital/labor flight thought US could SURVIVE as a service economy...can anyone say India?

As long as Americans think they can continue to live as we have without realizing that we HAVE been LIVING on CREDIT! Banks are irrelevant. Bailout this bailout that. None of that will work.

Want a painful solution. DEVALUE AMERICA! Reduce the 'value' of everything American--all real estate Half-price or less, all labor half-or less. All currency half-or less.

Cut everything in half, or a quarter if necessary. Cause massive economic suffering to everyone including the wealthy for a year or two and then watch the world, especially Chinese and Indian markets 'reset'. Then, guess what, jobs reappear, investment reappears, lending reappears and our real DEBT is halved?

Now as looney as this sounds...think about it in GLOBAL terms. What is the problem for the U.S., i.e. the standard of living is not based on REAL VALUE! So the American standard of living is inflationary and we need to REDUCE INFLATION!

I'm not an economist and I approve this message. China must be quaking in its Mao boots!

cnh

tonyb

Here's a novel concept....have the gov. keep their grubby paws out of it and let the free market do what it does best....make money,and jobs.Government never solves problems,they only add to it while grabbing some dough for themselves and getting bigger and bigger.I don't think alot of people understand what our national debt means,who we owe that money to.To cover that national debt,you have to sell treasury bonds to cover it,China has a huge chunk of our ****,Russia too.Now say you want to spend a trillion,like they do now,you have to get someone to buy bonds to cover it.Here's the kicker,what if nobody buys them? Both China and Russia have bad economies right now.Add interest on to that trillion too.Want to see the dollar's worth hit rock bottom?? Do you think we can attract foreign investors this way? Do you think speculation in the currency markets will drive it even lower?Whats all this mean?? Inflation and higher taxes.We can always just print it too......with the same results only we won't have interest on it.Another scenario?? What if China decides to sell all those bonds,trillions worth....see where I'm heading? Having that kind of leverage over us,do ya think it might influence policy,trade agreements?Ever wonder why we leave China and Russia alone? House of cards my friends.This stimulus,a trillion+,isn't the end,they will come back for more,possibly another trillion+.They haven't even tackled the housing collapse yet.After all,if the housing collapse contributed to the bad economy,why wouldn't you address that problem in a stimulus bill?Well,enough of my late night rant,I just have a sick feeling,knowing we are about to sell our childrens future for the next decade or so.

Motzart

BlueFox wrote: »

So people who paid off their mortgage early, payed cash for their car, and are debt free get screwed.

NO it's for everyone!
If a person fits in the category you mention....which VERY FEW do!
Maybe a home improvement...addition to the house or such.

Idea is to use it for a meaningful purpose to stimulate the economy.

Motzart

Bottom line is if some thing isn't done REAL SOON.....we are looking at 1929 again....maybe worse!