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The Spiral Down

7 August 2010 No Comment

Absolutely amazing WSJ article discussing a possible “free stimulus” that the Administration has in mind.  Consider such a move the same as the Administration essentially going “all-in” with their strategy.  If the bet hits, the country continues; if it doesn’t, well, you don’t want to know.

Here’s the overview of this free stimulus:

A wire service put out the story that Wall Street was abuzz that the Administration might lower Fannie Mae’s and Freddie Mac’s mortgage refinancing standards or trim mortgage balances for homeowners, thereby putting billions of dollars overnight into the pockets of benefiting consumers, thereby producing a “free stimulus,” estimated by one Morgan Stanley analyst at $46 billion. And this stimulus “spending” would be achieved without a moment spent passing it through the Congressional appropriations process. A “slam dunk stimulus” is how the overheated Morgan Stanley commentator described it.

The key in the above paragraph is the following: “achieved without a moment spent passing it through the Congressional appropriations process.” – Essentially, a back-door stimulus that doesn’t have to go through the painful process of getting legislation passed, doesn’t have to get a bunch of time in the media, and doesn’t result in Democrats getting their name’s attached to another stimulus bill during the upcoming elections. Genius right?

The author explains this in the following way:

But with many vulnerable Democrats in Congress disinclined to campaign for re-election on yet more federal spending, naturally the political sophisticates on Wall Street would believe that the ever-clever Obama White House might design a back-door stimulus. A cynic might suggest the reason Fannie and Freddie were kept outside the financial reform bill was so they could be used as an in-house Appropriations Committee.

The Spiral Down

Look, this is just a rumor for now.  But, in my opinion, this is just the beginning.  The people in power know more than anyone else how weak the economy is.  Just the fact that this stuff is flying around as options proves that they are scared about the economy.  Because the word “stimulus” is now poison in terms of voters, look for more of this kind of intervention to go through back-door channels in an attempt to keep it out of the public eye.  More stimulus, more QE, more everything is in the pipeline heading our way.  They are committed and they will not admit their errors.  They will push on no matter what the end-game is.  We’re officially in the spiral down.

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