A more robust recovery in the general economy will help lift the mortgage industry out of its current abject depression.
Not raising taxes and substantial government stimulus are essential ingredients for boosting a tepid recovery and preventing it from falling back into a double dip recession. Almost miraculously, the stimulus President Obama has fashioned with his compromise with the Republicans should do both.
Granted, the extension of tax cuts to America’s wealthiest citizens isn’t very stimulative. And it isn’t right. Rewarding the rich when there is true economic pain in the country now and more to come (Social Security and Medicare reform most obviously) is immoral.
However, it is the bait by which President Obama has lured the Republicans into agreeing to a package with real stimulus potential. The payroll tax deduction is a wonderful way to stimulate the economy. The extension of unemployment benefits also assures extra spending. With business still keeping its hands in its pockets and consumer demand still down, a government stimulus is called for right now.
How can it be that Republicans, who vilified the first economic stimulus as wretched government excess, have signed on to this second one in droves so soon after an election which they won in stunning fashion by campaigning against deficit spending? Hundreds of billions of dollars will be added to the deficit. The truth is that there are two big-government parties in Washington.
Once the stimulus has had its positive effect and the economy is safely growing at a healthy clip again, it will become necessary to adopt some real cost-cutting measures that will hit all Americans. The temporary tax cuts for everyone should be allowed to expire and revert to levels that supported budget surpluses once upon a time. The payroll tax funding Social Security must be boosted above its present levels, and possibly to include all income. Spending must come down, in both domestic and military programs. What could happen if this does not happen?
The recent sharp runup in Treasury yields despite the Federal Reserve’s attempt to buy them down could be a precursor of things to come. According to marketwatchers like David Stockman, President Reagan’s OMB director, watch out if the world loses confidence in America’s willingness to be serious about deficit reduction and starts dumping our debt in earnest.
