I think we have to back this plan and get something going, I agree 100% with the theory that sometimes change requires that we compromise the way we look at ourselves. Too many people are being conservative about this matter and thinking only of themselves. We need to support this in a collective effort to better the lives and futures of our children.
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Priming the Economy
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(For numbers junkies, here's Collender's math. He starts with the Congressional Budget Office's latest 2009 estimate, $438 billion. He then adds $500 billion in stimulus, assuming that some of the stimulus will be spent in 2010. He also adds $100 billion unbudgeted so far for Iraq and Afghanistan, $80 billion for relief from the alternative minimum tax, and $250 billion for the Troubled Asset Relief Program. Note: The TARP figure involves highly technical accounting rules.)
Under some circumstances, the stimulus could backfire. One possible pitfall is that foreign and domestic investors in U.S. Treasury bonds might balk at buying so many more securities. To convince them, interest rates might have to rise, which might perversely worsen the crisis. There might even be a panicky flight from the dollar. So far, the opposite has happened. Scared investors have crowded into "safe" Treasuries and driven their interest rates to astonishing lows. Still, psychology has governed this unpredictable crisis; a sudden shift in sentiment isn't inconceivable.
Even if this unpleasant surprise and others don't materialize, the stimulus remains a stopgap. The present crisis represents a fundamental break in the recent pattern of American economic growth. For the past quarter-century, the economy has advanced on an ever-rising tide of personal borrowing that supported expanding purchases of consumer goods — contributing to U.S. trade deficits — and a housing boom. But lending became reckless, and many households overborrowed. In its simplest terms, the "stimulus" substitutes the federal government's superior credit for damaged private credit.
But this cannot continue indefinitely. Rapid increases in the federal debt — much faster than in recent years — would threaten a further loss of confidence that might prolong today's financial crisis or, someday, trigger a new one. A growing federal debt burden would also compound the problem of paying the staggering retirement costs of aging baby boomers. So: Neither rising household nor government debt provides a plausible foundation for future economic growth.
What the United States needs is export-led growth. The rub is that many other countries want that, too. Just as large U.S. trade deficits signified American overspending, large trade surpluses in China, Japan and other Asian countries signified their oversaving. In China, consumption spending is 35 percent of GDP, notes economist Nicholas Lardy of the Peterson Institute. That's half the American level.
The future of the U.S. economy depends on finding new sources of productive demand. That is partly a domestic exercise, but it also requires that other societies reduce their oversaving and reliance on exports. This is a tall order. Our fate is not entirely in our hands — or Barack Obama's.
© 2009
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