| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

Analysis/Comment Last Updated: Aug 23, 2010 - 8:24:15 PM


Dr. Peter Morici: US Stimulus Package, Interest Cuts should help but Crisis Continues
By Professor Peter Morici
Jan 25, 2008 - 7:41:48 AM

Email this article
 Printer friendly page
Peter Morici is an economist and professor at the Robert H. Smith School of Business at the University of Maryland. He is a recognized expert on international economics, industrial policy and macroeconomics. Prior to joining the university, he served as director of the Office of Economics at the US International Trade Commission.

The $150 billion dollar US stimulus package announced by the Bush Administration and Democratic leaders, coupled with interest rate cuts implemented by the Federal Reserve, should help avert an economic debacle but the danger of recession continues.

The subprime crisis has created a shortage of business loans and mortgages, and imposed massive losses on U.S. banks. These are sending housing prices down, drain consumer and business spending, and impose the risk of recession.
 
 Major U.S. banks have written down $100 billion in securities backed by defaulting adjustable rate mortgages and other questionable, creative mortgage products. Other losses are expected from auto loans, credit cards and home equity lines of credit—essentially second mortgages. Total U.S. bank losses should equal or exceed $150 billion and just about cancel out the benefits of stimulus package announced by the Administration and Congressional leaders.

Mortgages have been scarce. The bond market has only been willing accept securities backed by Fannie Mae and other federally chartered banks. Generally, these banks lend only to prime borrowers and in amounts less than $417,000. Jumbo loans and loans for purchasers who are less than prime have not been available, and this has been a terrible drag on the housing market.

As part of the stimulus package, this cap will be raised to as much as $625,000—depending on the average price in a metropolitan area. This will help restore the market for jumbo loans but will not completely restore the mortgage market. Loans for more expensive homes and loans for prospective homeowners who are not “prime,” but who are still reasonable credit risks, will remain difficult to obtain.
 
 Interest rate cuts announced earlier this week will also help by making resets on adjustable rate mortgages less painful and by lowering consumer borrowing rates for prime borrowers. However, many homeowners in trouble will remain distressed.

The absence of a bond market to securitize the largest jumbo mortgages and all but the best mortgages under $625,000 remains a serious problem for the housing market. The Treasury and Federal Reserve should take further steps to encourage banks to reform lending and underwriting practices to restore the confidence of investors in mortgage-backed securities, and in turn, to fully restore the markets for sound, mortgage-backed bonds. Only those steps will return the mortgage and housing industries to normal operations, and ensure full economic recovery.
 
The stimulus package and recent moves by the Federal Reserve reduce but do not eliminate the risk of recession. Full economic recovery requires fundamental, prompt banking reform.

Here are my forecasts for upcoming economic data.
 
 Forecast Previous
 Period/Result

 Week of January 28
 
 January 28
 New Home Sales - Dec 648K 647
 
 January 29
 Durable Goods Orders – Dec 0.5% -0.1
 Consumer Confidence – Jan 85.8 88.6
 
 January 30
 ADP Employment – Jan 40k 40
 
 GDP – Q4 (a) 1.1% 4.9
 GDP Deflator 2.5 1.0
 PCE Deflator 4.0 1.8
 Core Deflator 2.3 2.0
 
 FMOC 3.0% 3.5
 
 January 31
 Employment Cost Index - Q4 0.8% 0.8
 
 Personal Income – Dec 0.4% 0.4
 Personal Spending 0.2 1.1
 PCE Index 0.3 0.6
 Core PCE Index 0.2 0.2
 Real Personal Spending -0.1 0.5
 
 Chicago PMI – Jan 52 56.6
 Help Wanted Index - Dec 20 21
 
 Initial Jobless Claims 315k 301
 
 February 1
 Nonfarm Payrolls - Jan 40k 18
 Manufacturing Payrolls -20k -31
 Unemployment Rate 5.0% 5.0
 Average Work Week 33.7hrs 33.8
 Hourly Earnings 0.3% 0.4
 
 Construction Spending – Dec -0.5% 0.1
 
 ISM Index – Jan 49.0 47.7
 ISM Prices 67.0 48.0
 
 Mich Cons Sentiment - Jan (r) 78.5 80.5
 
 Auto Sales - Jan 16.0m 16.27*
 Car Sales 7.65 7.82*
 Truck Sales 8.25 8.44*
 *SAAR as published by Motor Intelligence
 
 Week of February 4
 
 February 4
 Factory Orders - Dec 0.4% 1.5
 Factor Shipments 0.5 1.5
 Durable Goods Orders 0.5 -0.1
 Nondurable Goods Orders 0.2 3.0
 
 February 5
 ISM Services – Jan 52.9 53.9
 ISM Prices 71.7 72.7
 
 February 6
 Productivity – Q4 (p) 2.0% 6.3
 Unit Labor Cost 2.0 -2.0
 
 February 7
 Pending Home Sales – Dec 87.6 87.6
 Consumer Credit – Dec $8.0b 15.4
 
 February 8
 Wholesale Inventories – Dec 0.4% 0.6

 

Peter Morici,

Professor,Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

 

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

Related Articles
Related Articles


© Copyright 2010 by Finfacts.com

Top of Page

Analysis/Comment
Latest Headlines
Disastrous 44-year War on Drugs and ignoring the evidence
HSBC & Tax Evasion: France/ Belgium issued criminal charges; UK/ Ireland nothing
Analysis: Germany world's top surplus economy; UK tops deficit ranks
Facts do not always change minds - can even entrench misinformed
Finfacts changes from 2015
Facts of 2014: Guinness not Irish; 110 people own 35% of Russia's wealth
In defence of dissent and Ireland's nattering nabobs of negativism
Dreams of European Growth: France and Italy facing pre-euro economic problems
Globalization's new normal needs permanent underclass - Part 1
MH17 and Gaza: who is responsible?
Israel vs Palestine: Colonization set for major expansion
Aviva Ireland's 'fund' runs dry and life cover to die for
We wish Martin Shanahan - new IDA Ireland chief - well but...
Ireland as an Organised Hypocrisy is in lots of company
Dr Peter Morici: Friday’s US jobs report won’t alter Fed plans to raise interest rates
Own Goal: Could FIFA have picked worse World Cup hosts?
Ireland: Spin and spending will not save bewildered Coalition
Irish Government parties set for 2-year vote buying spending spree
European Parliament: Vote No. 1 for Diarmuid O'Flynn in Ireland South
Dr Peter Morici: US April jobs report may show 215,000 added in April
Dr Peter Morici: Hardly time to call Obamacare a success
Celtic Tiger RIP: Change in conservative Ireland six years after crash
Dr Peter Morici: Five things to know about the Fed’s obsession with inflation
In age of acronym/ Google, Trinity to rebrand as 'Trinity College, the University of Dublin’
Hoeness case part of ‘painful’ change for Swiss bankers
Dr Peter Morici: The Cold War was only on vacation
Dr Peter Morici: US economy drags on Obama's approval ratings; Don’t look for changes in Washington
Dr Peter Morici: Bitcoin debacle shatters the myth of virtual money
Dr Peter Morici: US Tax Reform: Eliminate the income tax and IRS altogether
Wealth threatens the simple life in Gstaad, Switzerland
Irish journalists get cash payouts over 'homophobic' defamation claim
Irish academics get lavish pension top-ups as private pensions struggle
Dr Peter Morici: Inequality is President Obama’s highest priority, but solutions are naive
The Finfacts Troika: Better times ahead and a hangover to forget?
Dr Peter Morici: Volcker Rule arrives with the hidden jewel in Dodd-Frank financial reforms
Ireland's toothless fiscal watchdog threatens to bark
Analysis: Germany's current account surplus - - Part 2
The end of western affluence?
Bono's hypocrisy on Africa, corporate tax avoidance in Ireland
France like Ireland is run for the benefit of the old