A Proposal For Real Economic Stimulus

I am no economist, but seeing the proposed economic stimulus package coming out of Washington, I feel just as well qualified the "experts" to suggest a couple of alternatives:

A national freeze on credit card interest rates at no more than 14%. It's time to put an end to this 27% and 30% loan sharking nonsense by major credit card companies like Bank of America and Chase. The Fed cuts interest rates, yet credit card rates skyrocket, even for consumers who have never missed a payment.

When a credit card rate jumps from say 14% to 27.99%, not only does the debt become more expensive, but the minimum payment also increases significantly. For those who are getting hit with these high rates, any tax rebate they get will quickly be gobbled up by higher interest charges and larger minimum payments.

Because credit card companies have used their leverage to wipe out consumer protection at the state level, a nationwide cap is the only way to return some sanity to the credit card industry. Make it temporary if we must, but a credit card interest rate cap would give millions of Americans much needed breathing room so they can spend money -- on things like gasoline and groceries.

Allow home loans to be modified in bankruptcy. "Bankruptcy law is wildly off-kilter in how it treats homeownership," warned former HUD Secretary Jack Kemp in an LA Times editorial. He echoes the opinions of many consumer advocates who have been supporting this legislative change. Virtually any type of loan – except the loan for the home you live in  -- can be modified when necessary in a Chapter 13 bankruptcy plan. This gives consumers time to work things out and get back on track, and helps ensure their Chapter 13 plans succeed. Flexibility for bankruptcy judges to modify mortgages (including ones with abusive terms) means fewer foreclosures, and helps in the effort to stabilize home prices. We can't let the "success" of purely voluntary industry initiatives derail this sane proposal.

It appears, though, that our government is going to let us go further into hock to give us back some of our own money, in the hopes that we all go on a shopping spree and forget our money worries for a few moments. If it takes us the next thirty years to pay back our debts at 25%, so what? This is America, after all.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Comments

[Emily]

Great ideas!

[Gerri Detweiler]

To follow up, I just read this great post by Mommy Millionaire Kim Lavine and thought it is a must-read:

http://www.websitetoolbox.com/tool/post/mommymillionaire/vpost?id=2455964

In part, she says: "Giving consumers money to spend to stimulate the economy is like feeding your kid chocolate doughnuts for dinner. Sure, there’ll be a rush of energy for about a half an hour as they go running around the house, jumping on the couches and chasing the cat with a spatula while knocking over plants, but then you’ll spend the next eight hours cleaning up with a headache while you listen to that same child complain about a bellyache throughout the night as their eyes glow red staring at the TV, because they can’t fall asleep."

[chitown]

A cap on private student loan interest would be nice too.

[Nancy Castleman]

Great ideas, Gerri! I'd like to also see government money go into repairing the infrastructures around the USA and doing more of the community service projects that were so effective in the Great Depression. It'd be great if our government encouraged those efforts rather than consumer spending.

[Jim ~ mydebtblog.com]

I really like the idea of a cap rate credit card companies can go up to. The only thing is if they all had to do this, which would be everyone's rate for every card. Even though it makes it easier on people with high rates, those with good rates may also lose them.

Not that I like the idea of turning down money, I don't agree with how they're going about doing it. If you pay taxes, you get money back, unless you make too much money, yours has to go to someone who doesn't pay as much in taxes or children. Borrowing more money to give it out and tell everyone to spend it isn't going to make the economy grow. We need more drastic measures like reducing/eliminating foreign aide and cutting spending, just like everyone else has to do when money is tight. Reductions in the national budget by 18B and then turning around to hand out 30B to Africa, where does 12B come from?

[Charles Dzuba]

Raising credit card interest rates should prevent some card holders from spending money they don't have, not buying products they don't need and a forced lesson learned to start saving money and take some responsibility for their actions!