11/01/2009 A new dimension for governments to perform economic stimulus without resorting to lowering interest rates as the only means

Readers may find that in addition to helping curb further foreclosures, the proposed economic policy strategy in the previous blog post on how to apply SwapRent could be an excellent alternative way to finance further economic stimulus to restore economic prosperity through private sector’s participation without necessitating the use of any taxpayer’s money or incurring any debts for the federal government.

In the context of the current US situation, more active policy participation by both the federal and local governments may give the free market based institutional investors a higher degree of comfort to invest in those particular local communities out of their own will. By making investment through the new SwapRent transactions with existing and new property investors, these institutional investors will not only be able to help reduce defaults and foreclosures but also increase buying demand for properties in the local community through this much more cost effective new investment channel. The local economic prosperity could easily be restored without having to rely on any more federal handouts which are getting less and less dependable as federal government may itself be finding it more and more difficult to source newer financing soon.

Once the liquidity of the SwapRent transactions have been developed at REIDeX in each country around the globe, for the first time those federal governments in each country would then be able to perform economic stimulus without resorting to lowering interest rates only. The new dimension offered by the SwapRent contracts will allow the governments to increase or decrease the demand for real estate property by simply adjusting the aggregate availability of monthly cash flow subsidy used for sharing economic co-ownership with both residential and commercial property owners as provided by other free market based economic landlord investors from both domestic and foreign sources.

This could be a great more democratic way to create wealth at the grassroots level through enhancing home equities first in the local communities. As mentioned before, this value creation methodology would not be a repeat of the previous borrowing/lending abuse and over-leveraging induced property market bubble since most of the new owners of homes and investment properties through SwapRent transactions will be those who could truly afford to own without using inappropriate borrowing. This phenomenon could only be realized if this simple economic shared appreciation or shared equity concept were effectively and efficiently implemented through new methodology such as the SwapRent program as explained below.

The very obvious advantage of this new policy strategy is that the federal government could get to avoid blowing up asset bubbles again in many other asset classes or risking causing higher inflation further down the road. The problems could be clearly demonstrated by simply looking at what the near zero level interest rates policy adopted by the Federal Reserve has done to the US stock market, oil market, precious metal markets and all other commodity markets so far, let alone the political fallout of low interest rates to further polarize the rich and the poor in our nation. The elite minority Wall Street firms and major banks could get richer and richer from being the primary beneficiaries of low interest rates while the majority Main Street citizens are getting poorer and poorer as their homes are still getting foreclosed one after another at increasing speed.

Having a banking license and good connections could allow many Wall Street firms to borrow short-term money from the Fed at near zero cost, put them in longer-term higher yield treasury securities or the stock markets, go play golf for the rest of the day, expect a fat bonus at pay day and be called a trading genius. If it ever stops working then taxpayers would bail them out. How many Main Street homeowners whose home are getting foreclosed could have access to this money tree and get to enjoy the fruit of this artificially kept low interest rates like that? Even his credit union and his local community banks are all out of luck on this kind of special privileges.

A new non-interest rate based alternative policy tool such as the SwapRent rates to stimulate the economy that may benefit the average Main Street homeowners more directly than the low interest rates would do to the selected few Wall Street rich elites seems to make more and more not only economic but also political sense to our nation, now more than ever.

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