Economic Stimulus

Floor Speech

ECONOMIC STIMULUS -- (Senate - February 07, 2008)

BREAK IN TRANSCRIPT

Mr. GREGG. I wanted to rise briefly to express my concerns at the process as it presently stands here in the Senate. I am tempted to say: Wherefore art thou the stimulus package, because there is no reason there should not be action on it now.

I had some very serious reservations about this whole effort on the stimulus package. I believe very strongly that we need some sort of stimulus to this economy, that the economy is beginning to slow fairly dramatically, but that the present framework of the stimulus packages, as they were agreed to in the House and certainly the Senate Finance Committee, have very distinct flaws. But that does not mean we should not bring the packages up and vote on them. Last night we voted on the Finance package. It did not pass. It did not pass because it added $44 billion of additional money to an agreement which had already been reached between Speaker Pelosi, Republican Leader BOEHNER, and the administration, a bipartisan agreement which was reached with the tacit approval of the leadership of the Senate, as I understand it.

Although I was not intimately involved in the negotiations, my understanding is the way this proceeded was that the Senate basically said to the House--the Senate leadership in the sense of Senator Reid and Senator McConnell said to the administration and the House: You see if you can reach an agreement on this stimulus initiative. And the administration, in good faith, under the leadership of the Secretary of Treasury, negotiated with Speaker of the House PELOSI and with Congressman Boehner, and they reached an agreement. It was an agreement that involved very distinct compromises, compromises which basically reflected a classic political process where you basically put on the table your ideas, the other side puts on the table their ideas, then you work to the middle and come up with a concept that both sides can at least be comfortable with, even if they do not accept all of the details.

This package, as we all know, is a $150 billion package, the majority of which is a rebate, to people who pay taxes, of $600 to $1,200, and the balance of which is an incentive, especially to small businesses to go out and invest and as a result create hopefully more jobs and a more efficient economy.

When it got to the Senate, for reasons which I still do not understand, the Senate decided it wanted to assert some prerogative here, even though the Senate leadership had said: Let the House leadership and the administration do the basic negotiations. We got a package out of the Finance Committee which took a $450 billion package and increased it by $44 billion.

A lot of that package was basically baggage being thrown on a train leaving the station. It had clearly nothing to do with stimulating the economy over the short run. There were tax benefits for the coal industry, tax benefits for the wind industry; there were a whole variety of things that had nothing at all to do with stimulus. They simply were there due to the fact that certain groups around here had enough influence to be able to put their baggage on this train.

What we have to remember is every dollar that is being spent on the stimulus package is being borrowed from our children and our children's children, because we do not have a surplus now. We do not have money to rebate. I mean ``rebate'' is the wrong term. This is basically money being borrowed from our children being paid to us, people who are working today or people who are paying taxes today under the House package.

Then on the Senate package, it is another $44 billion of money being borrowed from our children and our children's children to be sent out the door today, for the purposes of different interest groups who have put their points forward.

The majority leader said we would take the Senate package or we take no package, which makes no sense at all. The House package was a bipartisan, negotiated package, which had the Speaker of the House, who nobody can accuse of being a conservative--she comes from San Francisco. I do not think she is a conservative--the Speaker of the House, and the majority leader, the Republican leader of the House, Mr. Boehner, whom nobody can accuse of being a liberal, comes from someplace in Ohio, but he has quite a track record around here, Mr. Boehner, of being a conservative of note.

They reached an agreement. It was not as though it was the Republicans saying, ``This is the package,'' or Democrats saying, ``This is the package.'' It was an agreement.

So when it came over here, yes, there might have been adjustments that needed to be made, but to add $44 billion to it and say: Take that $44 billion addition or leave it, makes no sense at all in the context of reaching some agreement quickly and moving it out the door.

In fact, Senator McConnell, I think, had the best idea. He said: Let's take the House package and add three things to it, three things that there seems to be consensus on around here: One was to make sure that seniors got a rebate so they could also participate in the stimulus initiative; two was to make sure that disabled veterans got a rebate so they could participate; and, three, to correct the technical error in the bill relative to illegal immigrants.

So Senator McConnell said: Let's do those three things; add them to the House package, send it to back to the House, the House has agreed to approve that, we will send it to the President, and we will be done quickly, which is the whole purpose here.

I am not arguing for the stimulus package. We know a stimulus of this nature, which is pure Keynesian economics, where you take money and you throw it at the economy without any sort of discretion on how the money is going to be used in order to produce long-term productive forces in the economy, which is simply saying to consumers: Here is the money, go out and spend it, hopefully that will raise the economy--we know under classic Keynesian approaches, which is what this stimulus package is, that the essence of that is to get it out the door, get those dollars into the consumers' hands quickly. So every day, every week of delay only aggravates the relative effectiveness of this stimulus exercise.

We also know that because of the way our Internal Revenue Service is structured, the earliest they are going to be able to get these rebate checks out the door, if we were to act today, this week, would probably be May, middle of May; more likely that they are going to get out in June and, according to the economists who testify around here and give us our counsel--for example, Dr. Orszag, head of the CBO, said that the impact of those dollars going out the door, those $600 or $1,200 rebates under the House bill will not be felt probably until the late third quarter of this year.

That is the fast track. Who knows what the late third quarter of this year will bring. I hope it will bring some turnaround in the economy. And certainly with monetary policy being changed in this country, where you are seeing significant reductions in the interest rates by the Fed, it is very likely we will see some uptick in our economy as we head into the third and fourth quarter of this year. I certainly hope that will occur; that the housing industry which has created this problem, as a result of having a housing bubble, will have begun to work its way through.

But in any event, we know that to delay this further, so we push these stimulus events, such as giving people $600 to go out and spend, farther and farther into the year, potentially into the Christmas season or into next year, is not going to address the underlying problem, which is the next two to three quarters, which look as if they are going to be extremely soft, potentially extraordinarily soft relative to economic activity.

So action should be taken now. What has been suggested here to accomplish action--it is a very reasonable suggestion--is to take the House package, which was negotiated between the Speaker of the House, the Republican leader in the House, and Secretary Paulson, add to it the two or three things which there is consensus on over here, which is the payment to seniors, payment to veterans, and correcting the illegal immigration language, and passing it, and then move forward.

If you accept this concept that we should do this sort of Keynesian stimulus event, that is what we should do. I must, as a matter of disclosure, say I have serious reservations about not only--I think the Senate package is terribly irresponsible, because it adds $44 billion to an agreed-to bipartisan agreement, but I also have problems with the underlying package. Because, for me, I believe we do need to stimulate the economy, but I think we need to focus the dollars on the problem, and the problem is the credit lockdown that is occurring generally in the economy but that is specifically being driven by the housing market problems. We know that for the last few years there has been an expansion in lending in the housing arena which was not supported by the underlying collateral or by the ability of people who were getting these loans to pay those loans under the terms of those loans. These were called subprime loans.

What happened was people were attracted into buying a house, which had been built on speculation, and they were attracted in on an interest rate on the mortgage on that house which was very low, with the understanding that 2 or 3 years later that mortgage rate would jump fairly considerably.

Well, unfortunately in many instances what happened here was, we built a lot of housing stock that could not be purchased, or if it was purchased, it was being purchased at costs which were below the real value of production, and on top of that, we were saying to people who did not have the incomes necessary to support the higher interest rate which was going to hit them in 2 or 3 years, the 2 or 3 years being now: You take the loan, we will worry about that later.

Well, the ``later'' is today. The bubble is bursting. People are being put under extreme stress because many people who bought these homes cannot afford the increase on what is known as their ARM, their adjustable rate mortgage.

It is severe. In parts of this country it is extremely severe--in Florida, Arizona, California. What is happening is you see a classic bubble where as the housing market starts to contract, lending generally starts to contract. Lenders who have these housing loans on their books, or who have sold these housing loans and cannot figure out how to get out of their contracts, are now trying to figure out how to get their books in order, to rebuild their capital and restructure themselves.

As a result, good loans in other areas that are being repaid are starting to be chilled, as is new lending. Consequently, the entire economy starts to lock up because it is hard to get loans for anything, especially in distressed housing areas. The people who have these loans and live in these homes are finding themselves under the pressure of foreclosure. In many instances, these people are hard-working Americans who can pay a reasonable rate, but because the adjustment is not reasonable--it is very high under ARM agreements--they are not able to meet the obligations of the mortgage. So we should be focusing our efforts on that part of the economy.

I congratulate the Secretary of the Treasury because he has tried to do that both through jawboning, the lending community, and by setting up the new HOPE proposal which has put a big chunk of money out there, over $100 billion, the purpose of which is to help people restructure those loans so that people who can make their payments under the original loan agreement or something near to the original loan agreement, because they have good jobs and they can make their interest payments, aren't forced out of their homes as a result of a jump in their mortgage rate. Progress is being made there. Over 370,000 people have been helped.

But the problem is so large that that is not necessarily going to stabilize the market and free up the lending machines in America. So additional things should be done. For example, Senator Isakson of Georgia has suggested we have a one-time focused tax credit given to people who buy one of these homes in the inventory within the next year and that the home has been produced during this period of excess production and allow that to incentivize people to go back in the market and start to get this market going again. That is what we need to do.

There are other ideas. The expansion of the FHA is an idea which--I don't quite understand why we haven't seen that bill come back to the Senate. It is in conference. It should be done soon. Increasing the lending limits on Freddie Mac and Fannie Mae is a dangerous step unless it is coupled with reforms necessary to make sure Freddie Mac and Fannie Mae have the underlying capital to support an expansion, but it is certainly something that should be considered. There are initiatives that could be focused much more in a targeted way and would actually do something to correct the problem and would, in the long and short run, from my viewpoint, have a much better effect on the economy.

In addition, if we are going to try to stimulate the economy through classic Keynesian activity, I am not too excited about that, but we ought to put it on the productive side so we actually create a more efficient economy that is more productive and, therefore, capable of producing more jobs as we move into the future. Our problem may be that we don't have enough jobs as we move into the future. The way you get around that is to create an attitude in the marketplace so people are willing to go out and invest, take risks, be entrepreneurs, and create more jobs. There are ways to do that other than just giving people $600 to go out and spend arbitrarily, which they may spend on a product that is not even manufactured in the United States, in which case there has been no stimulus to the economy. If somebody buys a TV made in China with their $600, that has no stimulus effect on our economy because the dollars end up in China.

It is important to understand that all this money comes from our children. We don't have a surplus to fund this stimulus package. Therefore, when we do stimulate, we need to do it in a much more focused way which is going to strengthen our economy and is going to address the underlying problem of the credit lockup which has been fed by the housing bubble. I hope we will take that up first. But, obviously, we will not take that approach. There is a significant majority that is going to support a stimulus package which is Keynesian based. So be it. But if we are going to do it, let's do it in the way which causes the least harm. The way to do that is to get it out the door quickly, have it be the package which essentially left the House, and not have the Senate throw in another $44 billion which we have to borrow from our children on top.

Those are my concerns. I appreciate the courtesy of the Chair.

I yield the floor.

BREAK IN TRANSCRIPT

Source