Economist explains how bailout plan will affect average person


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Many people are wondering if the so-called bailout will work. Today we talked with a Utah economist who thinks the deal will help but will take some time.

Kelly Matthews, an economist with Wells Fargo, said, "We'll have to work our way through this. There's no silver bullet, no magic answer. But it certainly gives us some hope."

We've heard how each taxpayer could pay $2,300 in this bailout, but it's not as if you're gonna get a bill in the mail or your taxes will rocket up next week. Matthews explains how it could affect you.

Economist explains how bailout plan will affect average person

Think of the economy like a trickling faucet. It is working, just not as well as it should. So with the bailout plan, the government would dump money, build consumer confidence and theoretically get the system flowing again.

"The taxpayers are not going to be on the hook for a full $700 billion, it's just that we need some of that money right now to restore confidence," Mathews said.

Economist explains how bailout plan will affect average person

So when you hear that you've got to fork out $2,300, Matthews says, "That doesn't make any sense to me because it's very possible that over a period of time that the taxpayers may not even lose money in this situation."

Those bad mortgages the government would buy could increase in value over time, possibly yielding profits. But in a worst case scenario, there could be layoffs, inflation, and Americans could find it tougher to get credit.

"There might be the necessity of some down payment where there didn't need to be any before. There would clearly be more careful expectations of what your credit number would be," Matthews said.

Matthews has kept a constant eye on the financial pages and TV networks, keeping up on the latest news on the financial situation. He believes the plan, if ultimately signed into law by the president, will light a fire under the economy.

"It's intended, through a complicated but fair process, to be able to remove those depressed price securities off of bank balance sheets so they can begin to borrow and lend in a free-flowing situation," he said.

Simply put, it keeps the money moving, and that's good. If the money flow stops or slows significantly, it can create a domino effect for the economy.

"The credit that would enable your business, maybe where you work or where you are buying or selling your products, would not have the liquidity in order to continue to buy their inventory or make their monthly payments," Matthews said.

Matthews believes it may take a year or more for the economy to shift into a higher gear. He says the new president will play a key role.

"As soon as we understand who the new administration is going to be, the first order of business has to be to begin to change this situation so that it won't happen again," he said.

It's a big Band-Aid for a big problem, but Matthews said something "had to be done."

E-mail: kmccord@ksl.com
gkennedy@ksl.com

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Keith McCord and Gene Kennedy

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