Rumors are now allegedly “rampant” from Wall Street to main street that the president will use his executive powers to force FANNIE and FREDDIE to forgive underwater home mortgages:
3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery. (Emphasis mine)
The White House political team settled on a stimulus too small to keep unemployment under 9%. They did this because folks like Geithner showed them neat-looking PowerPoint slides. Congress gives no sign of taking up a new stimulus. This is probably the strongest move Obama has left — but it’s a good one.
First, because forgiving mortgage debt removes a lot of toxicity. Second, it also stimulates the economy in a very real way: less or no mortgage frees up lots of capital for consumption and investment, especially in the newest families of the middle class. Main street will like, it, and so will Wall Street. All those retailers will love it.
The consumer sector stays depressed without consumer confidence, which stays depressed without jobs growth. Today’s jobs news is anemic private sector jobs growth as the Census winds down and temporary workers go off the government payroll. Over 70% of the original stimulus money is spent, so the sooner the president gets around to making good economic news, the better.
