The implosion of the sub-prime lending market has lead to a dramatic downturn in the nation’s economy. Global investors panicked two weeks ago and Wall Street watched as stocks plummeted. The value of the U.S. dollar continues to fall and according to the Economist, “Across the globe, more than $5 trillion has disappeared from the value of public companies in the first three weeks of January. Many markets are 20% or more below their highs, the informal definition of a bear market.”
Unemployment rates are up, new home sales posted a record drop, and oil prices continue to skyrocket. As the economy struggles through the first month of 2008, many analysts worry that the country is headed into a deep recession. In response, the Federal Reserve swept in with the largest interest rate cuts in nearly twenty-five years and the White House proposed a $150 billion stimulus plan.
The plan favors putting cash into the hands of those most likely to spend this windfall on immediate needs. The Internal Revenue Service will issue $300 refund checks to individuals who earned up to $75K, and $600 to married couples with incomes under $150K with an additional payment of $300 per child. People who earned at least $3,000 last year but paid less than $300 in income taxes would receive a payment of $300. The package also includes one-time tax incentives for businesses to encourage investment in new equipment.
While many economists applauded Bush’s plan and were relieved by the interest rate cuts, others expressed major concerns. Democrats criticized the plan because it does not expand unemployment benefits or add food stamp money. They also lobbied unsuccessfully for increased aid to states. Republicans were disappointed that income tax cuts were not made permanent and wanted more breaks for businesses. Others criticized the plan for pushing the country further into debt and lacking long-term solutions. Some economists argued that interest rate cuts were a detrimental overreaction while others feel further cuts are necessary.
Although most economists see trouble on the horizon for the U.S. economy, some argue that government intervention will only make the problem worse. Is economic volatility the price we pay for having a dynamic, freewheeling economy? Can the White House’s plan provide a significant boost to the economy? Will the short-term measures lead the nation into deeper long-term problems? What impact will interest rate cuts have on the unstable market? Has action on the part of the federal government come too late? Is the nation still headed into a recession? How will the average American be affected?
For more informaiton, please contact Kristin Millikan at 312.422.5580.