Economic Stimulus: How to spend $447 Billion U.S. Dollars

Since apparently all I can do good lately is just adding up numbers, let’s look at some figures on economic stimulus.

Cutting to the chase, here is a chart illustrating the funds for the “Emergency Economic Stabilization Act of 2008” a.k.a Bank Bailout (Bush era) and the “American Jobs Act” (Obama Era)… That is a significan amount of economic stimulus since 2008.

                                                                                                                                                                 *See footer

Let’s start by putting in a nutshell that the financial crisis was detonated by banks and financial institution providing good money to bad payers. Since around 2001 interest rates were been very low, this lead to easy credit, thus practically anyone requesting a credit would be granted with it. Ultimately, when people who shouldn’t had been given the money in the first place, fail to pay this mortgages and the whole system collapses.

Why? Because if banks take back those houses (foreclosures) there will be more available properties, and as supply and demand law works, the more houses available in the market, the lower their prices.  And since the greatest investment for an average person in a lifetime is buying a house, imagine if this investment suddenly “depreciates”. In other words, your neighbor failing to pay his mortgage can lead your property to lose value. And this is what happened in 2008 after years of cheap credit. Fixed assets such as houses are supposed to increase value over time, not the other way around. So you do the math…

So, are we in the same situation today than in 2008? the answer is no way Jose. Back then, the objective was to purchase toxic assets to reduce the uncertainty among markets about the remaining “good” assets, thus trying to maintain the value of houses. But the funny thing is that back then lawmakers couldn’t or didn’t wanted to realize that the problem was bigger than they thought.

According to Keynes theory, Governments should spend money when private sector can’t. So coming up today with a package that is lower than the initial one leads me to think that the situation today is less critical than three years ago. And of course it is not, at this point unemployment rates in the short and long terms seem disastrous.

One thing I know for sure is that Republicans will not agree with anything that Obama has to say, especially in the eve of Presidential elections. So what will happen with the “American Jobs Act” and the future of U.S. economy?

Well, I evidently don’t know, I’m a historian not a prophet…


* For the Cost per American ratio I calculated 304m people in 2008 vs. 306 in 2011 according to Google Public Data Explorer

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Mexican blogger living abroad and writing about experiences of traveling around México, Italy, India and Spain.

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