After the latest round of unemployment figures, there is renewed buzz for another economic stimulus package. At this point it is just talk, but depending on how the first economic stimulus package pans out, and whether the price of oil comes down, we may see the talk turn to action sooner rather than later.
President Bush has expressed interest in more economic stimuli, but he wants to wait until we can see how the first round performs first. In addition, Bush has his hands full at the moment trying to get his tax cuts to become permanent, according to CNN. A couple of the plans being proposed in the Senate, though, are increasing unemployment benefits and a $300 billion FHA loan boost, according to CNN.
Those of you who are frequent readers of my blog probably know that I wasn’t a big fan of the first economic stimulus plan, and I’m certainly not in favor of another one. Without getting into a full on tirade about how irresponsible our government is, we are more than $9 trillion in debt, and we should not be going further in debt in order to “attempt” to artificially rouse our economy. Contrary to popular belief, we can’t keep borrowing or printing money indefinitely without recourse. We are walking on thin ice right now, and who knows when it is going to break--but the more weight we add, the higher the chance goes.
Ultimately, I expect we will see some sort of economic stimulus because I seriously doubt the first one is going to have the effect that Bush is hoping for. It was a poorly devised plan to begin with, and things are only getting worse for American consumers. When it gets a little closer to election time (assuming the economy doesn't miraculously get better) you can bet that Bush is going to put his best foot forward for the American public in order to attempt to gain support for the Republican presidential candidate: John McCain. He will propose some miracle plan--that is completely full of hot air--which he will claim will fix everything, and then dare the Democrats to shoot it down. As long as Bush does it right and positions it so that the American public agrees with it, then if the Democrats don’t vote it through they will look like the bad guys and then Obama will take the hit. By the time the public finds out that the net effect of this plan leaves us worse than where we started, it will be too late.
I don’t want to be pessimistic, but I have a hard time not being so when talking about our government right now. I hope that the government thinks twice about another stimulus plan, and actually takes into account our budgetary deficiencies, but when has that ever stopped them before? If you are wondering where I am, I’m heading out to get a wet suit, because the water under the ice looks awfully cold.
Several months ago the Bush administration came up with a great plan to fix the foreclosure problems plaguing the U.S.: The FHA Secure Loan. This loan was to be made available to homeowners who were having, or had, their variable interest rates adjusted and needed to refinance in order to keep making payments. So just how many people has the FHA Secure program helped avoid foreclosure since its inception?Try 3,000, according to an article from CNNMoney.
Though only 3,000 people have been saved from foreclosure, the FHA Secure program has become widely popular, with over 200,000 loans issued to date according to CNNMoney. While the program was meant to help people avoid foreclosure it has turned out to be a great program for people looking to refinance. The average homeowner refinancing with an FHA Secure loan is saving approximately $400 a month, according to the article.
Many of the people using the FHA Secure program could continue to make their payments without a problem, and additionally many of them even had other options for refinancing out of their existing mortgages. For a program that was meant to help prevent foreclosure, I’m just not sure how effective it is. It is certainly helping people save money, but when the time comes that the government has to start coming good on these guarantees, taxpayers are going to have to foot the bill. Lending out at high LTVs to high risk homeowners is not appealing to banks for a reason, so if we think we are going to avoid having to pay up when all is said and done, we are sadly mistaken.
In my mind if the government is trying to help those who are on the ropes (which I didn’t agree with in the first place), then they can do that, but they shouldn't also offer up resources to those who have other options. This program should be reserved for those who have nowhere else to turn, not those who are just looking to save 0.25 points over what the bank’s other loan program will offer them. Taxpayers shouldn’t have to front the bill when there are others willing and able to do so.
Over President Bush’s pleas to the contrary, the Senate almost unanimously (97 to 1) approved a measure that will halt the further purchase of strategic oil reserves. Since it was passed by such a large majority, the measure cannot be vetoed by the President, so it looks as if President Bush has lost this battle for good. "Why on earth should we be putting oil underground at a time of record high prices?" Sen. Byron Dorgan (D-N.D.), the measure's chief sponsor, argued in a LA Times article. Democrats have been calling for this action for quite some time, but more recently Republicans have taken their side on the argument as well. Considering how much oil has been going up, though, this hoarding of oil might prove to be one of President Bush’s best investment decisions yet.
Under President Bush’s guidance the government has been adding about 70,000 barrels of oil a day, in comparison to the approximately 21 million barrels of oil the U.S. consumes each day, according to the LA Times. Since the amount being hoarded is minimal compared to total usage, the impact of suspending further stockpiling won’t be that great, but some economists figure it could save consumers as much as 3 to 5 cents per gallon on gas, according to the LA Times.
It is not hard to see that the motivations of many of these politicians is to get re-elected, but Bush doesn’t have that problem, so logic would say his only incentive is to do what is best for the country going forward. The main reason he gives for the stockpiling is energy security, which certainly has validity, yet I think it is proving to be an even better investment.
Here are some numbers to consider: Our national oil stockpile sits at approximately 702.7 million barrels, with an average price paid of $28.42 a barrel, according to the U.S. Department of Energy website. Since oil is more than $125 a barrel, that means that thanks to the policies upheld and pushed by Bush, we have created almost $68 billion of “oil equity,” so to speak. Considering many of the other dumb decisions Bush has made over the years, this might actually be one of his better ones, so let’s cut him a little slack. If the U.S. were now to release oil reserves to ease oil prices until we hit the stockpile point we would have been at had we listened to the previous Democratic oil outcries, we would be able to reduce gas prices by much more than the 3 to 5 cents we may see because of the current measure just passed by the Senate. So maybe there really is some method to Bush’s madness.
According to an economic forecasting survey conducted by The Wall Street Journal, 71 percent of the 51 economists polled believe that we are in a recession. This is in stark contrast to the economic poll done by The Wall Street Journal in December, in which only 38 percent of the economists thought the U.S. were even heading towards a recession. If 71 percent of that same pool of optimistic economists thinks that a recession has already arrived, then it is a safe bet that it has.
Let’s all take a minute to remember that recent, laughable announcement from our President Mr. George Bush stating that the U.S. was not facing a recession. Come on, George. At what data were you looking? I know that you have to keep a positive spin on things, but to flat out say that the possibility of recession was slim was simply lying to the American people.
Now that a majority of economists agree that we are in a recession, the next topic to debate is how bad it is going to be. According to the same survey, the economists put the odds of a deep recession at 48 percent. Looking at how overly optimistic the group has proven to be, it is safe to assume that the real odds are significantly higher The problems in the U.S. economy are so numerous that I must believe that the recession will be hard felt and that they won’t be fixed any time soon.
Investors who have not already begun preparing for a recession need to start now and ask themselves certain fundamental questions. During a full-on recession, job cuts are rampant. Do you have adequate savings to get you through in the event of a job loss? Plan for the worst, but hope that it doesn’t come to that. People must also evaluate their investments. The market is going to be very volatile during a recession. Are you properly diversified? Have you considered alternative investments? Many of these will greatly outperform stocks during a recession. For some investment ideas take a look at NuWire’s top 5 recession investments.
During a news conference yesterday, President Bush said that the country was not recession bound. It appears that everything is going to be okay, and we all can sleep better at night without fear of the scary recession monster.
I don’t know about you, but I’m just not getting that warm and fuzzy feeling. If you believe President Bush, and you feel good about the country’s economic future, then more power to you. I just don’t think I’m ready to drink that Kool-Aid quite yet.
I look at the economy and I still see major issues. Mr. Bush says that the economic stimulus package will be more than enough to fix what ails us, but I look at it and think “what a waste of tax payer money.” Of that $168 billion how much will actually end up back in the economy? 1/2? 1/3 or less? No one can know for certain, but I have a feeling it will not be nearly as much as the Bush clan is projecting.
What I do know is that inflation is running rampant, and it appears that the Fed isn’t going to do anything to slow it down for awhile. Even if Bush and Bernanke pull out all the stops to ward off recession, with what will we ultimately be left? Recession is a natural thing, it happens every once in awhile, and whether or not we want to, we are going to have to face it eventually. If we keep delaying it and delaying it, once it eventually comes it will only come harder. It would be great if we could avoid recession forever, but that only happens in Fantasy Land, and it is high time for President Bush and Bernanke to come back to reality. I know Bush is just trying to delay the recession until after the elections, but come on, man... your legacy is already ruined, and you’re only making it worse.
Meanwhile, investment-wise it pretty much comes down to this: If you believe that Bush and Bernanke have this thing under control, then you want to buy up dollar assets. If you don’t believe Bush and Bernanke are going to pull off a miracle, and are just setting us up for a harder fall, then you want to get out of the dollar.
After the latest round of unemployment figures, there is renewed buzz for another economic stimulus package. At this point it is just talk, but depending on how the first economic stimulus package pans out, and whether the price of oil comes down, we may see the talk turn to action sooner rather than later.
