I like the idea, though, in that instead of just offering adjustable-rate mortgages, you can offer inflation-adjusted mortgages.
But I don't really see how it brings more money into the economy, per se.
boddi
On 12/3/05, lbo at hvgreens.org <lbo at hvgreens.org> wrote:
> For an idea on how to stimulate the economy for the purpose of achieving
> full employment (and also undermining the Fed's ability to throw the
> economy into a recession) check this out:
>
> http://www.sinceslicedbread.com/idea/14155
>
> Chuck,
> Ann Arbor, HVGreens
> (Sorry for the typos in the previous post, it's been a long day!)
>
> ---------------------------------------------------------------------------
>
> Flawed Mortgage Formula
>
> THE PROBLEM: the formula used to calculate mortgages harms the economy.
> HOW MY IDEA FIXES IT: Stepping the monthly payment amount on a mortgage by
> the expected annual inflation rate will keep housing more affordable but
> more importantly, stimulate the economy.
> HOW FIXING IT BENEFITS WORKING FAMILIES: Mortgage affordability will
> remain constant regardless of inflation which will also stimulate the
> economy.
>
> Background: the standard mortgage formula is:
>
> A = P(i)[(1+i)**N]/[(1+i)**N-1],
>
> where A = the payment per month, P = amount borrowed, i = interest rate
> per month, N = number of months and (1+i)**N is the quantity (1+i) raised
> to the Nth power. The formula should be changed to:
>
> A = P(i-g)[(1+i)**N]/[(1+i)**N - (1+g)**N)],
>
> where g is the rate of increase in monthly payments and everything else is
> the same as above. Using i = 6% = 0.005, g = 3% = 0.0025, P = 100,000 and
> N = 360, the standard monthy payment is $599.55 while with the new
> formula, the monthly payment is $422.25 to start, increasing by 0.25% per
> month.
>
>
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