Friday, February 13, 2009

Stimulus Aims Two-Phase Jolt at Fading U.S. Economy

This blog is brought to you by Stimulus:

Stimulis: Because all economies have performance issues:

- certain side effects, including lack of response to stimulis may occur if economy over stimulated for periods exceeding 8 years. Should displacia lasting longer than a decade occur, please consult an economist who understands math and ignore everyone trained in the ways of Freidman or Keynes.

Stimulis – “Because central bankers can’t get enough of your money!”

Annoying, isn't it?
Stimulus Aims Two-Phase Jolt at Fading U.S. Economy

By Matthew Benjamin

Feb. 13 (Bloomberg) -- The stimulus plan emerging from Congress may jolt the U.S. economy in successive waves: relief to cash-strapped consumers, businesses and states, then a job- creating lift from spending on roads, utilities and public transit.

While the package will take time to have an impact, and unemployment is likely to keep rising for months, it will start returning the U.S. toward growth by the end of the year, economists said.

Jobs Turnaround
“The hope is, with the stimulus, that we actually stop losing jobs by the end of this year,” said Josh Bivens, of the Economic Policy Institute, a Washington research group aligned with labor unions.

The House of Representatives is scheduled to vote today on the $789 billion stimulus plan that President Barack Obama has said he wants to sign by Feb. 16.

The bill contains a $400 tax reduction for individuals and $800 for families for this year and next, according to House Speaker Nancy Pelosi’s office. Workers will see the relief in the form of a smaller amount of income taxes withheld from their paychecks.

“We can basically change those withholding tables very quickly so people will immediately see some more money going into their bank accounts,” Christina Romer, chairwoman of the White House’s Council of Economic Advisers, said in an interview yesterday on Bloomberg Television.

New Method
Many economists argue that such a delivery method, untested in previous stimulus packages, will be more effective at increasing demand because consumers will be less inclined to save the money or use it to pay debt.

“There is an argument from behavioral economics that people react differently to big lump sums versus these smaller increases in take-home pay they’ll get every paycheck,” said Joel Slemrod, an economist at the University of Michigan in Ann Arbor and an expert on tax policy.

Some economists argue that temporary tax cuts do little to help growth because consumers only alter spending habits based on income changes they believe are permanent. To get them to spend more, the argument goes, tax rates must be lowered for good.

“Temporary tax cuts don’t make people work any harder or get businesses to hire extra workers,” said Chris Edwards, director of tax policy studies at the free-market Cato Institute in Washington. “They don’t change marginal incentives for productive activities.”

Aid to States
Still, other provisions in the bill will have larger, more measurable effects.

One is money for states, most of which are facing budget deficits. Forty-two states and the District of Columbia have mid- year shortfalls totaling $51 billion this year and projected shortfalls of $94 billion for fiscal 2010, according to the Center on Budget and Policy Priorities in Washington.

Because most states have balanced-budget requirements and plunging tax revenue because of the recession, “they’re in terrible shape,” said Iris Lav, who studies state budget issues at the CBPP. Since the crisis began, 38 states have made or planned workforce cuts, Lav said.

“It’s dire; the things they were going to cut is unbelievable,” she said.

The stimulus bill contains about $54 billion to help states with expenses. That may keep layoffs from happening, Bivens said. “Even if money doesn’t get to a state right away, the promise of it can allow them to avoid some job cuts,” he said.

Jobless Benefits
The plan has more than $60 billion to increase unemployment benefits and a boost to food-stamp programs, housing assistance programs and other aid for the hardest-hit Americans.

Funding such programs is particularly effective, said Alan Blinder, a Princeton economist and former vice chairman of the Federal Reserve. “These are hand-to-mouth consumers. If you put cash in their hands they’re going to spend it right away,” he said.

The legislation includes $29 billion for highway construction projects; $16 billion for investments in public transit; $7 billion to expand access to broadband; and $11 billion to renovate the nation’s electrical grid. The measure also would provide $5 billion to weatherize low-income homes and $4.5 billion to make federal buildings more energy efficient.

If the aid to states and consumers and the government spending all have the desired effect, there could be 3.5 million additional jobs in the U.S. economy by the fourth quarter of 2010, according to Fair’s model.

All bets are off if credit markets stay frozen, the economists said.

Treasury Secretary Timothy Geithner outlined a plan earlier this week to help remove illiquid assets clogging banks’ balance sheets and restart lending. It’s far from clear that the plan, which investors criticized as short on details, will work.

“We’re fighting a two-front war,” Blinder said. The economy and the financial system need help in tandem because “if we don’t do both, we’re cooked,” he said.
We’re cooked alright. This entire article leaves me shaking my head in disbelief. This “stimulus” is going to save jobs? How? Unemployment is going to stop rising by the end of the year? Why?

Are these the same people who didn’t see the underlying math and the resultant effects? You bet they are. And Obama is now the biggest cheerleader of further wasteful deficit spending there is. I’ve been embarrassed by the bad math for quite some time. Now Obama is embarrassing all Americans and himself by talking about creating 3 or 4 million jobs. What nonsense.
D'oh! Caterpillar CEO Contradicts President on Whether Stimulus Will Allow Him to Re-Hire Laid Off Workers

February 12, 2009 6:16 PM

EAST PEORIA, ILL. -- President Obama today repeated the claim we asked about yesterday at the press briefing that Jim Owens, the CEO of Caterpillar, Inc., "said that if Congress passes our plan, this company will be able to rehire some of the folks who were just laid off."

Caterpillar announced 22,000 layoffs last month.

But after the president left the event, Owens said the exact opposite.

Asked if the stimulus package would be able to stop the 22,000 layoffs or not, Owens said, "I think realistically no. The truth is we're going to have more layoffs before we start hiring again"

"It is going to take some time before that stimulus bill" means re-hiring, he said.

DOH! Obama says one thing, and the CEO of Caterpillar says the exact opposite – that’s quite a show…

You can HOPE all you want that huge deficit spending will create or save jobs, but I would contend that’s only possible in a closed system that is not already debt saturated. In a debt saturated economy, money is hoarded or used to pay down debt, not to assume more debt.

The ultimate result of government deficit spending will be a further loss of jobs as the burdens of debt, taxes, and ultimately higher future interest rates will kill future growth.

All future income has already been pulled from the future into the here and now. Once that happens, there’s no pleasant way out – math demands that something give.

I know that everyone doesn’t want to hear that and you want a way out.

There are two ways out: If you wish to keep the present system, which I certainly don’t, then you must force the people/bankers who assumed the risk to default on their debts. Clearing the current debt will allow the system to add more debt in the future so that we can do it all again. Does that sound terrific? I thought not.

How about the other way out? We change the entire system into something more sustainable? That’s completely possible, but people just aren’t desperate enough to act… YET. They will be, when we’re at the Bottom of the 'C'...

The ultimate solution will involve dispensing with central bankers, revisiting the Constitution of the United States, setting goals for society that move it towards a common goal, downsizing government/military, and removing the corporate influence from the system. In other words, we’re not even close, but it’s coming… sooner than most people believe.