Economic forecasts are looking worse by the day… and Americans seem divided on relief efforts.
It wasn’t long ago that those with extra money on hand, if not simply the ability to obtain loans and purchase new property, stood to gain from lucrative “flipping” of real estate they bought. In the financial market today, things have changed significantly; those lucky enough to own secondary properties would do well simply to rent them to individuals who, like everyone else, realize the turmoil facing the housing market as recession woes continue to undermine investment, opportunities for growth, and perhaps most of all, the ability to find work in general.
The housing market has been in dire straits for years now already, and in times such as these, even government is changing its tune when it comes to subsidizing home ownership, changing focus more toward rental programs, rather than the “ownership society” touted by those in the past, namely by George W. Bush. The Washington Post pointed out recently that many lobbyists and others who traditionally champion affordable housing instead are now urging for government support of low-income rental housing, while federal support for housing altogether is seeing sharp criticism, especially among Republicans.
Though the present American economic situation certainly warrants changes to the system by which homes and living space are obtained, there are bigger underlying problems, such as general unemployment, for which subsidizing lower class housing provides few solutions. Rampant unemployment in the U.S. has resulted in less work for those requiring homes in the first place, and though pumping dollars into federal programs may aid the more immediate necessity of providing shelter for these people, in the long run the government can’t continue picking up the tab: people will eventually have to be able to work to provide for themselves. Hence, stimulus spending, which saw a recent continuance with the passage of a $26 billion spending package, has long been hoped to become the magic bullet for the Obama administration’s efforts to fend against the current recession and help improve the job situation. Money is pumped into the economy, saving jobs and spurring production in a market which doesn’t seem to sustain either of these well on its own.
All the while, the notion of continuing tax cuts for the upper-income Americans at the end of 2010 has seen criticism, since money saved by the taxpayers could be going to government for use in more stimulus, further calming the recession. However, the money Bush’s tax cuts saved upper-income earners–those with the ability to invest their savings–could also spur the economy without government having to do it for them. Actual savings, rather than the false likeness a “tight” monetary policy provides through artificial reduction of interest rates, help create a healthier, more transparent market for those wishing to invest, and in doing so, it is conducive to greater overall market stability in the long run.
The Fed, in addition to keeping interest rates low in the absence of actual savings, announced this week that they planned to purchase more government debt in the form of Treasuries, in order to monetize debt securities, hence creating a sort of window in fiscal policy where money can printed and allocated back to the government. Writing for CNBC, television host Larry Kudlow noted that “By itself, this is a modest move,” pointing out that in the long run the effects could still extend far beyond the actions presently at hand. “If recovery conditions continue to slow, the Fed could be more aggressive by monetizing more Treasury debt and expanding the balance sheet to print money. If it does that, the dollar will depreciate more,” which will inevitably cause inflation.
When inflation occurs like this, the end result amounts to even more taxation; in essence, as the dollar depreciates, workers perform the same amount of work at their jobs, but the dollars they are being paid will progressively have less value. In the long run, the lowest income workers who are forced to work for a set amount which, over time, is actually paying them less and less, will inevitably be hit the hardest.
Clearly, not everyone associated with the Federal Reserve advocates its present monetary policy, knowing the end result will likely leave us worse off than we’ve been for some time already. In a recent statement Kansas City Reserve Bank President Thomas Hoenig expressed concerns of his own, saying “To be clear, I am not advocating a tight monetary policy,” calling the Fed’s policy of zero interest rates during a period of modest growth “a dangerous gamble.” Though Chairman Ben Bernanke and the Fed continue to make promises that interest rates will remain “extraordinarily low,” there is obvious concern about what the long term results will be.
The private sector values having jobs that provide money and insure security for the shelter and goods needed for survival. Yet the government, though acting in desperation to protect these necessities, continues to undermine people’s ability to thrive by robbing them of precious wealth in ways most remain completely unaware of. As time wears on and as the U.S. economy slips further from stability, the ironic ineffectiveness of the very efforts being used to save us from total economic collapse will begin to be more apparent. By then, it will be next to impossible to continue hiding the reality of this vicious cycle from those affected by it… but all things considered, by then reality as we may know it in this country may be vastly different, too.
Image by Pedro Ribeiro Simões via Flickr.