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Economic Stimulus: The Fed’s other hand-out

Posted April 2, 2008

Blogger’s Note: My tax advisor’s cover letter informed me that the amount of economic stimulus handouts our household qualified for was $0. Well, someone has to pay for it, eh? Millions of other U.S. households will be luckier. Households with kids stand to collect a few thousand dollars by mid-year. Plus, another big cash injection into the conomy is taking place almost unnoticed.

Remember last year, when analysts were glumly predicting an avalanche of further mortgage defaults as Adjustable-Rate Mortgages (ARMs) reset? Well, resetting they are. But guess what? Through February ARMs have been resetting all the way back to 6 percent as the Fed has slashed interest rates. Larry Kudlow does the math for you at creators.com.

by Lawrence Kudlow

Baltimore — (TFN): Right now, the so-called median home price is $196,000, roughly back to 2004 levels. And it’s still about 60 percent higher than 10 years ago. (Studies show homeowners generally don’t sell for about a decade, so I use 10 years as the comparison.)

But here’s where Gentle Ben comes in. A $196,000 home and a 10 percent equity down payment leaves $176,000 to be financed, perhaps with an adjustable-rate mortgage. And since the Fed slashed its target rate, and LIBOR rates dropped roughly in sync, the owner of this median-price home is now saving $300 a month compared to last summer, or about $3,600 a year.

That’s a big rebate from the Fed. It’s about three-times bigger than what Uncle Sam is promising. The official IRS notice says the average married couple filing jointly may get $1,200. But Fed head Bernanke is giving median homeowners $2,400 more than that amount. A lot better, right?

Find out exactly why Larry Kudlow thinks that those seeing the economic sky falling on their heads may not be looking at the whole picture. Just read the whole article here.

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