Why am I not stimulated? - Trade Only Today

Why am I not stimulated?

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I want to encourage you with good news about the federal stimulus package passed in the U.S. House yesterday. I want to, but I can’t!

My hopes had been that President Obama’s team would come up with a sound plan and Congress would act responsibly. However, in effect, the plan is nothing more than a jumbled mess of a few likely ineffective short-term stimulus ideas and massive long-term spending plans that won’t help our current economic problems now.

Apparently they just don’t get it in Washington, do they? These, and only these, should be the points of the stimulus package: (1) immediate jobs creation through major tax breaks and financial incentives for businesses, and (2) major spending only that directly and immediately stimulates the economy, not years down the road. I mean, spending for basic research, or special education programs, or home weatherization, or new grass on Capitol Mall may be worthy but they have little to do with stimulus and the only people hoodwinked into thinking they do are the politicians who stuff this into such a critical bill!

Why, even the Congressional Budget Office (CBO) has said, for example, that less than 50 percent of the money for infrastructure would be spent by October, 2010. So much for immediate stimulation.

Now, in the “news-I-like” department, the CBO “Budget and Economic Outlook Report for 2009-2019” predicts an end to the current recession in the third quarter of 2009, albeit the recovery will be slower than normal due tight credit, continued stresses on housing and a reduction in household spending due to the large declines in wealth experienced in 2008.

However, the CBO forecasts much of that negative might be offset with an $800 billion stimulus package, increases in discretionary income from lower gasoline prices and lower mortgage payments as people refinance during 2009.

Of course, there is a price for all this. The CBO projects a $1.186 trillion deficit for 2009. That number is so big -- equal to about 8.3 percent of U.S. GDP -- that it's hard for someone like me to fathom. It certainly makes last year's $455 billion deficit look like a lawn party. But here’s a scary thought . . . the CBO estimate does not include any stimulus package. So, when the $825 Billion package passes, the ultimate budget deficit for ’09 will blow past $2 trillion! The stimulus better work this time!

Is such enormous red ink a problem that will soon go away? Sorry, says the CBO Report. It projects red ink as far as the eye can see. But, there are two scenarios that could bail us out of this black hole of debt:

First, the Obama administration AND Congress could really clamp down on spending from now on to halt the tide of red ink. Or, second, the stimulus plan could be so well crafted that it would offset all the credit, real estate, and economic problems, and result in windfall tax receipts in the future.

Looking at the two scenarios above, I think we’d have a better chance of selling cell phones to scuba divers!

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