2 Views on the Future of the U.S. Economy

View 1:

• "There are going to be fewer stores, fewer factories, fewer financial services operations." - John E. Silvia, chief economist at Wachovia
  

• "There’s been no place to hide.” - Stuart Hoffman, chief economist at PNC Financial

View 2:

• "This country has never responded to a crisis by sitting on the sidelines and hoping for the best.” - President Obama

• "You’ve got to use this moment to retrain for jobs.”- Andrew Stettner, National Employment Law Project

These quotes, all from an NYT.com article today, clearly show the choice we have. We are at a fork in the road. The economists and financial pundits of the boom years never thought the good days would end. Now that recession winds are blowing, all that is offered is doom and gloom.

Others such as President Obama and Andrew Stettner are painting a different view. Which will you choose?

If you are wondering what today's 651,000 job loss #s means for you, it depends on your view of the world. A crisis offers opportunity to those who look for it. This is not the time to be thinking like the economists, now is the time to get retrained and benefit from the retooling that is going on in the American economy.

[chart from NYT.com]

Will the Stimulus Bill Create Jobs?

"Technology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant."

- Saul Hansell, Bits columns, New York Times

Saul's quote is from an article he wrote on whether the money going into rural broadband building as part of the $787 billion stimulus package will create jobs.

I think the answer depends on smart industrial policy - something the U.S. does not have and is the only industrial country that does not. It was not always the case.

U.S. industrial policy at one time built the telephone system, Social Security system, interstate highway system and Internet superhighway. It is also what the U.K. recently announced as part of "Digital Britain". And what France announced in bailing out its domestic car makers. The reason the U.S. doesn't have a smart industrial policy is because of almost 3 decades of unbridled free market economics also know as Reaganomics.

Free market economics as practiced by the U.S. is now dead. It has ruined the global economy thrown millions out of work and destroyed prosperity. All hope now rests on the Obama government or more accurately on Obama himself. His job is to convince Americans that a new way must be charted. It will not be easy. He is off to a good start.

As I'm writing this blog the U.S. stock market fell in intra-day trading to the 7200 level today. That's 7,000 points off the 14,165 all time high reached on October 9, 2007. Lot's of people have made money during this fall; their names end with with "Madoff" and "Stanford".

[See chart above.]

Speculators have existed from the days of the Silk Road. But today crooks and their accomplices have caused more harm to the lives of millions of people than any natural disaster. It doesn't have to be this way.

A smart policy about how to spend the $787 billion can direct money into job creation and arrest job loss. Governments as far away as France, China and Singapore know how to do this. Surely we can too.

The stimulus money can create jobs, but it needs a smarter more well-coordinated industrial policy to accompany it.

Obama Gets Real About Money for Homeowners

It's understandable if you were puzzled after reading the stories about the $787 billion stimulus bill signed into law by President Obama. You might have been thinking "where's the beef?"

Simply put, that plan is not for you. And by you I mean middle class Internet readers. The $787 billion plan is for folks who are in dire need of a safety net. They've lost their job, health care insurance and home. The $787 billion plan offers monetary help to the most vulnerable.

But today President Obama announced a new plan which applies to middle class, home-owning America. Today's $75 billion plan is intended to prevent home owners from sliding into foreclosure.

The plan has 3 components:

1) Get your home refinanced. If you are making payments on a home that is worth less than the value of the home, and the load is owned or guaranteed by Fannie Mae or Freddie Mac, you can get it refinanced.

Example: 30-year fixed rate mortgage of $207,000 with an
interest rate of 6.50% on a house worth $260,000 at the time. Today, $200,000 is remaining on the mortgage. But the value of that home has
fallen 15 percent to $221,000. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2) Stay in your home, stay out of foreclosure. The plan helps people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners.

Example: Household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400.

3) Stabilize the residential mortgage market. $200 billion of additional financial backing was announced for Fannie Mae and Freddie Mac so that they remain solvent.