Stimulus Projects for the Double Dip Recession

As fears mount that the United States is dipping into a double-dip recession and headed down the road of deflationary Japan, Federal Reserve Ben Bernanke tip-toed, tap-danced, and downright side-stepped these landmines during his testimony to the Senate today. The market still did not like what it heard, sold off nearly the instant the Semiannual Monetary Policy Report to the Congress began…and never looked back up.

For what it is worth, it seemed to me Bernanke said nothing new; he even insisted that deflation is not a threat even as unemployment rates stay higher for longer than originally forecast. However, given growing rumors that the Federal Reserve stands ready to throw more goodies at the market in the form of removing interest payments on reserves, nothing new became nothing good.

As we prepare to muddle through more doom and gloom of a potential double dip recession, I wanted to share some ideas for the next stimulus projects that are a departure from the last set of stimulants. These ideas are from a friend of mine who wanted to see these things done back in 2008. While he is far more optimistic about government’s ability to save the day, I like his proposals because they directly attack two large catalysts for deflation: unemployment and excessive housing inventory. I also wish ideas like these were implemented during the first round. At this point, I think the government is going to find it much harder, if not impossible, to fund additional significant stimulus without massive monetization of debt. If so, Big Ben and company might as well just put checks in the mail with minimum spending requirements. But I digress…

While I have edited his comments, the content remains intact:

“When this cookie started crumbling back in ’08, I was convinced that the government needed to start buying up abandoned/foreclosed homes at 50% of their outstanding mortgages. The government could then create public works projects to demolish these unneeded homes, recycle the debris, clean up the properties, plant grass and trees, and return ownership of the land to their municipalities. As part of the partnership, municipalities would agree to maintain these properties in good condition as conservation land for 10 years. Violation of the partnership would revert ownership back to the Federal government.”

My friend goes on to argue:

“These projects would create tens of thousands of jobs employing idled construction workers. Additionally, the plan would: support the collapsing housing market, take bad loans off bank balance sheets, and prevent the deterioration of neighborhoods blighted by foreclosures and all the associated negative domino effects.”

I am sure municipalities might protest the lost property tax revenue, but these revenues would be lost anyway as foreclosures mounted and remodifications failed to keep people in homes they simply cannot afford. At least under my friend’s plan, there exists the potential to support housing values and to preserve the rest of the property tax base.

Homebuilders may or may not fight such proposals, depending upon the relative availability of land in a given region. I imagine forcing land off the market would help the strong builders survive and weed out the weaker ones faster by depriving them of the ability to flood the market with housing inventory the minute demand seems to perk up.

I am positive that folks who think the government should do nothing but sit back and watch what happens will not like any aspect of this plan. The most extreme of these people will fear that this plan is actually a conspiracy by the Feds to take over the states and turn private property into communes. Regardless, I think my friend’s plan is 10x better than what we have already tried.

My friend also argued that unemployed construction workers should be put to work “restoring and enhancing our national park system.” I believe the Feds did allocate a small amount of money for such projects but certainly nothing on the scale of what was done during the 1930s. My friend is a bit of a tree-hugger, so his interests here do not surprise me. (=smiles=).

Finally, for an even more controversial proposal, he added that soldiers serving in Iraq and Afghanistan should be brought home to help police “…the porous parts of our borders, thereby addressing the biggest (perceived) illegal immigration issue while saving tens of billions/month maintaining them overseas, and more billions paid to dodgy security contractors.”

I am not sure whether he tossed that one in to get more conservative/right-wing “save our borders” support for his proposals, but I do not think the trick would work given the drawdown from our dual wars. The Obama administration already has longer-term plans in place to drawdown the troops over time, but I think under the existing plan, those soldiers get to rest, not move on to fight yet another contentious and controversial war!

Be careful out there!

Full disclosure: no positions

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