Romney Adviser: Kill Payroll Tax Cut

by Gerri Willis

Republican presidential candidate and former Massachusetts Governor Mitt Romney speaks at the Devine Millimet-Manchester Chamber of Commerce Forum in Manchester on the 18th of Nov.Mitt Romney's economic adviser Glenn Hubbard tells The Willis Report tonight that the economy will continue to suffer from "a rough and tumble year from events all over the world," but that the best stimulus for an anemic American economy is not a payroll tax cut.

"In the near term, the question is what is the most effective stimulus for our economy. I don't think it's a payroll tax cut," he said. "You can consider lower long-term payroll taxes, but that would have to be a part of tax reform."

When asked whether the U.S. should be counseling Europe on how to handle its debt problems, Hubbard, who is also the dean of Columbia Business School, said, "we don't have standing" to advise the continent on a problem afflicting the U.S. economy as well.

Hubbard continued to back his plan for a mass refinancing of homeowners who are current on their mortgage but underwater - that is they owe more than their home is worth. He said the program could pump an additional $70 billion into the economy and would be paid for by mortgage securities holders who are currently benefitting from homeowners inability to refinance. "There is no free lunch," he said.

Hubbard's long career as a financial policy maker included stints as deputy assistant secretary at the U.S. Treasury Department and a consultant to the Federal Reserve Board.

In terms of the European debt crisis, Hubbard had the following to say: "What the Europeans need to do are a handful of things," he said. "First, getting fiscal probity back in the periphery, second is to make sure the European Financial Stability Facility is large enough to wall off contagion, and third get support if those two things happen from the European Central Bank. If that does not happen, the Euro does stand a good chance of coming off the rails, particularly if Italy's troubles widen."

Hubbard says the chances of a double-dip recession for the country is modest but doesn't see very robust growth over the next year. "And, if we had a full-blown European financial crisis, it would definitely tip the likelihood more toward recession in the US."

Fed Drifting into Obama's Territory

by Gerri Willis

I spoke at the top of today's show about the need for leaders to stop using the terms "fixing" problems and "spending" money on them as interchangeable. But it happens all the time. As a matter of fact, the Wall Street Journal reports today that Federal Reserve officials are beginning to think about a new program to help the struggling housing market by cutting mortgage rates.

Now, the Fed doesn't directly control mortgage rates but it does influence them. In fact, Federal Reserve Chairman Ben Bernanke has been holding rates close to zero for three years - and mortgage rates have moved to 50-year lows - rising slightly only recently. None of that effort has paid off with a rising housing market yet - but the Fed may well double down on that policy.

To do that, the Fed would buy mortgage-backed securities -- the assets that nearly cratered the financial industry during the financial crisis. And that means it would print money or use its own reserves to buy them - both of which could cost us in the long run by raising inflation.

Look, I think there is widespread agreement that the factors standing in the way of a housing recovery aren't mortgage rates - after all, 30-year fixed rates stand at 4.18 percent - while a 15-year mortgage rate is just 3.47 - according to Bankrate.com. The real problem for a housing recovery is 9.1 percent unemployment.

Without jobs, consumers can't buy homes. No income, no loan.

And that's the other problem - qualifying for a loan these days is difficult - lenders want sparkling credit scores and solid employment histories. In other words, just as bank loan officers were loosey goosey during the housing boom they are incredibly strict in their terms now.

The Fed seems to be drifting into territory that the Obama Administration itself has failed at time and again. Whether you talk about HAMP or HARP or any one of a number of other programs - none of them have worked.

The main reason? Banks just haven't wanted to lend - regardless of the benefits or perks or muscle applied by the White House.

Ultimately, our housing market will have to shake off these doldrums on its own - work through the downdraft. More government spending and more federal promises aren't going to do it.

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