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Once again, in this election cycle the real issue is the economy. Yes, “it’s the economy, stupid.” The economy is in real trouble at the high end and the very low end. If the government hadn’t acted to support bankers who had massive amounts of sub-prime mortgages on their books, the trouble would have spread to the rest of the economy as credit, most likely, would have become unavailable.

Before we can answer the question of which candidate has the better economic plan and track record, we first need to know what government has done to help create this crisis and what can government o to help the economy out of its troubles.

Most of the current crisis is a direct result of falling real estate values an the sub-prime mortgage mess. In a nutshell, housing prices started falling because of normal cycles exasperated by the trillions of dollars issued in sub-prime mortgages. Banks and other mortgage lenders have been pressured by HUD and the Government Supported Entities Fannie Mae and Freddie Mac to make more low income (bad credit risk) loans. The banks had no choice but to meet “quotas” and accept the fact that the loans were insured. HUD and Fannie and Freddie had this leverage because the latter two either bought the loans or insured them with the government backing them.

The reason they had this backing was because Democrats, Senator Chris Dodd, Congressman Barnie Frank, President Bill Clinton, Speaker Nancy Pelosi and others changed the rules to force more low income home loans. These same people blocked all efforts by President Bush and other Republicans to regulate Fannie and Freddie to reign in the abuses before they caused a financial explosion. We all know the result of the Democrats blocking efforts and inaction.

OK, we know how we got into this economic mess but what can government do to help the economy recover. The government has several tools it can use to help the economy.

1. The Federal Reserve can lower interest rates which lowers borrowing costs for corporations.
2. The Federal Reserve has other tools that allow it to make banks flush with cash to loan.
3. The government can put cash in the hands of taxpayers with rebates and lower taxes.
4. The government can make business more competitive worldwide by lowering taxes on businesses.
5. The government can create spending projects that pour money into businesses and create jobs.
6. The government can pass legislation to fix any regulatory problem that caused the economic crisis.

So, which candidate, Barack Obama or John McCain is offering better policies to make use of these tools to save our economy?

First, the Federal Reserve is independent of the political parties and presumably makes decisions without Presidential or Legislative interference. The Fed will lower interest rates when the economy is weakening and raise them as the economy starts to overheat or if inflation gets out of hand. The Fed also can put money into the banking system or take it out with its daily operations.

Congress and the President can issue tax rebates and lower taxes to spur economic growth. Rebates usually are aimed at individual spending and lower taxes work best at the business level so they can create new jobs. President Bush and Congress has already issued one round of tax rebates that gave the economy a summer pop. Taxpayer rebates are stop-gap measures and don’t last long. Care has to be taken not to over-stimulate the economy with rebates starting a yo-yo effect of economic boom and bust.

Barack Obama wants to greatly increase taxes on the business sector and give some of that money to the individual. While this may seem like a good idea, it is exactly the wrong thing to do. Over taxing the business sector, as was done in the Great Depression, only causes businesses to reduce spending, eliminate jobs and possibly close operations. Today, American businesses are taxed at the second highest level of any country. If business isn’t able to create jobs, the individual is going to be in trouble.

John McCain, on the other hand, wants to keep business taxes low and allow for job creation and expansion. It seems John McCain has the best plan on taxes and rebates. This is the most effective action a President and Congress can take.

The President and Congress can also create economic stimulus by creating projects and spending money that goes back into the economy. Unforetunately, Congress is already doing so much spending that further spending projects may have the opposite effect. Furthermore, already more than $1 Trillion Dollars is being dumped into the economy with the bailout and rescue packages it has already passed.

Obama would expand government and increase non-productive spending that would have little impact on economic growth but would require more tax revenues. Paying for these programs would delay if not derail completely an economic recovery.

McCain has said he will freeze government spending and veto any legislation infested with unaccountable pork spending and earmarks. McCain would be the more fiscally responsible of the two candidates and would be the most likely to do the right things in government to help the economy.

Government needs to fix the regulatory problem that pushed the economy to the precipice. Obama hasn’t tried or spoken out for more regulation of Fannie Mae and Freddie Mac that are at the heart of the current financial crisis. In fact, Obama supported the policies of these government backed institutions that got us into the crisis.

John McCain, has echoed the warnings from Alan Greenspan and others about the problems at Fannie and Freddie. He even co-authored legislation to fix the problems at these agencies but it was blocked by Obama and other Senate Democrats.

On November 4th it will be up to you to decide who is better for our economy. Think about these facts I’ve outlined and vote your conscience in the voting booth. Remember what we’re telling the candidates, “its the economy, stupid!”

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