TEXT OF COMMENTARY
KAI RYSSDAL: On that stimulus plan, Treasury Secretary Henry Paulson had breakfast with Congressional leaders today to start hashing out the details.
Commentator Robert Reich says whatever they do, it won’t be good enough.
ROBERT REICH: Even if the Fed’s rate cut was larger, it still wouldn’t be enough. And even if a stimulus package could be enacted soon, and focused on lower-income Americans who are more likely than the wealthy to spend any extra money, it still would be too little and too late.
You see, falling home prices are almost bound to trump whatever boost a rate cut or stimulus package might deliver. Homes are the biggest assets Americans own, their golden geese for retirement and piggy banks for home equity loans and refinancing. So as home prices fall, people not only feel poorer, they are poorer, and that means they can’t spend nearly as much, even if interest rates drop another half a percent or the government drops a few hundred dollars in their laps. And as consumption lags, companies have to reduce production and cut payrolls.
According to a recent estimate by Merrill-Lynch, the hit to consumer spending this year and next due to the housing slump will be $360 billion dollars. That’s more than double the size of the stimulus package the President or any leading Democrat is talking about.
How much worse can it get? Lots, the housing bubble pushed home prices up 20 to 40 percent above historic averages, relative to earnings and rents. Now that the bubble is bursting, expect prices to drop by roughly the same amount, and new home construction to contract. It plunged last month to its lowest point in more than 16 years.
A sensible stimulus, combined with Fed rate cuts can’t hurt, but they won’t be enough. As a practical matter, our only real hope for avoiding a recession or worse depends on more loans and investments from abroad, combined with export earnings as the dollar continues to weaken. In other words, as humbling as it may be to admit, we need the rest of the world to bail us out.
KAI RYSSDAL: Robert Reich used to be the Secretary of Labor for President Clinton. He’s a professor of public policy at the University of California Berkeley now.
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