Economist's Commentary: September 29, 2008

Quick Take on the Economy: September 29, 2008

By Lawrence Yun, NAR Chief Economist

The House of Representative is scheduled to vote on the $700 to $750 billion package to allow the Treasury to buy up troubled loans from financial institutions. The Senate will take it up this Wednesday.
Despite the obvious need for passage, my Washington contacts say it will be a very close call with a lot of arm-twisting currently occurring.
If the bill does not pass then it is possible, though not a certainty, that the economy will freeze up. Massive short-term financing could quickly dry up. Some companies will have a hard time managing their working capital, such as cutting checks to employees or paying vendors. There could also be a loss of confidence in the financial system with "runs" on the bank despite FDIC backing.
Aside from market stabilization, there is a potential for a huge gain for taxpayers by passing this bill if done right.
A better communication from the White House and lawmakers in favor of the bill, including from Presidential candidates, should be that a good part of any positive gains to the Treasury over time from this package will be returned to taxpayers with a refund check. There should also be a change in the language from a 'bailout' to 'investment' to better reflect what the package would do.

The aggregate personal income in the U.S. rose 0.5 percent in August. From a year ago, total income is up 4.6 percent.
But consumers were hesitant to spend this money. Personal consumption did not change. The U.S. savings rate was only 1 percent in August.
A cut back in consumer spending after accounting for general inflation reduces the GDP outlook for the next two quarters.

If the $750 billion package does not go through, there could be many unpleasant surprises.
The economy is slowing further, meaning even a higher unemployment rate by the year end.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

Comments? Questions? E-mail NAR Research.

NAR members, learn how you can add this commentary to your Web site, blog, or newsletter. Read more >