Dennis' Mortgage Blog

Mortgage rates are at all time lows and home prices are down.  Refinance applications are 30% below last year's levels and purchase applications are down 15%.  Why?  Jobs.  The only factor that will stabilize housing markets across the country, which will lead to  higher local and state tax revenues, is getting the unemployment rate near 7%. 

GOP Presidential candidate Mitt Romney has his almost two hundred page plan, President Obama will give us his plan tomorrow night in the State of the Union over about 40 minutes.  We hear and read about what our politicians should do to stimulate the moribund economy and job growth from both sides.

Here is what I would do if I were in a position to influence government policy to stimulate the economy, encourage businesses to invest in growth and hire new workers.  It won't take forty minutes or two hundred pages.  This is based on my experience as a small business owner, my education with a degree in Economics and Political Studies and more than two decades working with families and discussing their financial situation in depth.

• Raise interest rates This is not something you would expect to hear from a mortgage professional but it is what we need.  Money is either being held as cash on company balance sheets or invested in non-producing assets like government bonds or gold.  Higher interest rates will move cash into productive investments and get money moving in our economy.  Moving money means business and business means jobs. Lower interest rates have done nothing to stimulate business investment and growth. 
• Stop "what government can do..." Instead look at what government should not do and that is to regulate for the purpose of regulating.  An entire new government bureaucracy has been set up with the sole purpose of increasing regulations, the Consumer Finance Protection Board.  This new agency has virtually Congressional oversight, a half billion dollar budget and get to make up their own rules.  A classic example of government creating more government for the purpose of governing.  Congress needs to look at what government is doing that is preventing businesses from expanding or operating and eliminate those programs, policies and/or departments.
• Repeal legislation Technically the recession ended in June 2009.  That means the economy was growing at that time.  Subsequent to that Congress passed and the President signed two major pieces of legislation that have created great uncertainty for businesses regarding their operating costs and their regulatory costs.  First was the healthcare legislation (ObamaCare), second was the financial services legislation (Dodd-Frank).  As a student of economics, politics and history I can think of no two pieces of legislation since the New Deal of Franklin Roosevelt that have so significantly changed the business landscape of America.  One of these pieces of legislation would have been challenging enough for businesses to understand and forecast for their business plans, having both however throws a blanket over all planning and has caused business owners to stand pat on their cash.  Repealing the legislation eliminates a lot of uncertainty and restores confidence in business owners as to the regulatory environment for the future.  The result will be investment in their businesses and hiring of new employees.
• Enough with the on the edge tax credits.  Part of Obama's actions to stimulate hiring has been tax credits to businesses for hiring new employees.  I can tell you that a $2500 tax credit is no incentive to take on a $35,000, $50,000 or $70,000 a year employee, especially given the costs and challenges of getting rid of said employee should they not work out or they cannot be afforded if revenue does not grow.  In California, Hollywood has been touted as proof of how major tax credits can create and retain jobs, which is in many ways ironic.  The only tax credits that work to stimulate investment and hiring are major credits on the bottom line, against all revenue and income not minor credits against a major expense.  Close the loopholes and lower the corporate tax rates and we will see some economic growth and hiring.  Most CEOs and small business owners have weighed in on this topic and stated such a move will save them money, not just in taxes but in accounting costs, and allow them more room to generate new jobs.
• Quit spending money.  For the past two to three years most of my clients refinancing have asked how they can pay off their mortgage sooner, how they can restructure debt and payments to eliminate debt.  Americans are saving money and paying off debt, it should come as no surprise that most of them have told Congress through their votes that they want Washington to do the same thing: save money and pay off debt.  Since January 2009 Washington has put over $4 trillion into the economy through deficit spending, it has not worked to create economic and job growth. Quite the contrary it has stifled growth as businesses hear our President and other elected officials talk about raising taxes to pay for their debts.  If Congress passes a budget that reduces government spending by 10-15%, eliminates funding for many regulatory agencies and lowers the deficit it is sending a message to the country and the world that we will not become Greece or other nations that are insolvent and requiring bailouts, not for our banks but for our nation.  This will stimulate economic investment and growth.

There is not complicated plan to stimulate our economy.  Get government out of micromanaging and regulating markets, get government out of taking profits in the form of more taxes and get government out of printing more money to create more government.  Do those simple steps and America's economy will grow, millions of Americans will get back to receiving regular paychecks, home values will stabilize and begin to grow, and tax revenues will grow. 

Shrinking government means many in government will lose their jobs; but better to lose ten thousand government jobs than ten thousand private sector jobs.  Ten thousand new private sector jobs will create several thousand more; ten thousand new public sector jobs will lose several thousand private sector jobs as taxes will have to be taken out of the private sector to pay for those government jobs. 

Enjoy the President's speech, I will be looking for anything new that has not been part of the political agenda since January 2009.  Something has to change because what has been occurring in Washington since January 2009 has only led to more unemployment and less economic growth.

If you agree forward this to your Congressional representative.