Economic stimulus, Part 2?

[Woodmonkey]

No one can remember the last time Congress enacted two major economic stimulus packages in one year. But 2008 may see a sequel to the $100 billion worth of checks that started filling individuals' bank accounts in early spring.

Democrats say they will proceed this fall with a "Son of Stimulus." Whether it materializes is questionable; President Bush currently opposes such a move, preferring to wait to see the full effect of the first stimulus package.

As for economists, some say it's a good idea, if done differently from Round 1, but many are skeptical that money can start to circulate through the economy quickly enough. One reason for their concern: Surveys are finding that a major chunk of the money already doled out is going into savings instead of spending.

The impetus for Congress, besides the election year, is a US economy that is not expected to show much change from its current weak conditions by the time lawmakers return from their August recess. The unemployment rate may be trending higher. Energy prices, one driver of inflation, are likely to remain relatively high at least until the end of hurricane season in late November. While new housing starts may be showing signs of stabilizing, home values could still be falling.

"Whether we have negative growth or not, the economy is barely positive, it is going nowhere," says Joel Naroff of Naroff Economic Advisors in Holland, Pa.

Some budget watchers say Congress is unlikely to act unless the economy is in crisis.

"There would have to be an unambiguous perceived need, such as a big stock market drop, a major bank failure, or something that would scare the members," says Stanley Collender, a budget expert and managing director at Qorvis Communications in Washington. "And it would have to be called a tax cut instead of a spending increase."

Some in Congress began weighing an additional spending package in February after Bill Gross, head of PIMCO, a mega-investment manager, suggested the need for a permanent $300 billion to $500 billion spending program.

"To provide a stable recovery path, government spending needs to fill the gap – not consumption," he wrote back then.

If Congress could agree on a second stimulus package, it's not clear how soon the benefits would actually start pulsing through the economy.

"Say they do pass a package in October," says Mr. Naroff. "The Treasury won't start sending out a set of checks until the beginning of next year, and they won't get spent until February, March, and April."

Some economists expect the economy will still be weak next year and in need of a boost.

"The downside risks are significant. Another well-timed and targeted stimulus package would be helpful," says Mark Zandi, chief economist at Moody's Economy. com.

Last week, House Speaker Nancy Pelosi, after meeting with economists, seemed to indicate any stimulus package would be aimed at lower- to middle-income Americans.

"Even though we believe the initial public rebates had a positive impact, it is certainly not enough to offset the rising prices in gasoline, in food, in fuel, in healthcare, in education … while the purchasing power of Americans' income has gone down," she said at a press conference.

Not all economists, however, are convinced that the tax rebate, as this year's handout was called, has been that effective.

University of Michigan economists Joel Slemrod and Matthew Shapiro are researching what taxpayers are doing with their checks – $600 per individual and $1,200 for couples filing jointly.

"So far, we're finding that 20 percent of the people say the rebate led them to spend more," says Dr. Slemrod, who teaches at the Stephen M. Ross School of Business. "That's about what we found for the tax rebates of 2001."

Data indicate a significant portion of the rebate checks is going into savings, Slemrod says. In May, the personal savings rate soared to 5 percent, up from 0.4 percent the month before.

"If you convert that to dollars, you see the jump in savings is about the same magnitude as the stimulus checks in May," he says.

The economist says he has a "wait-and-see" attitude about a second round of stimulus. "I'm not sure we would want to do a second dose the same [way] as the first dose," he says.

Mr. Zandi agrees on the need to try something different. He would consider a payroll-tax holiday for a period of time. This is an immediate cash benefit, particularly for small business and workers who don't earn enough to pay taxes, and is easily implemented, writes Zandi in an e-mail.

"The biggest perceived downside is that payroll-tax revenue goes into the Social Security Trust Fund," he writes, adding that this problem can be resolved by moving money from the general fund to the trust fund.

In addition, Zandi would consider a federal gasoline-tax holiday, an expansion of the food-stamp program, aid to state governments for their Medicaid bills, and maybe some infrastructure spending if a good list could be drawn up quickly.

"It would be all temporary, not permanent, and would run $50 billion to $100 billion," he says.

Economist Robert Gay of Fenwick Advisers in Rye, N.Y., says the economy may well need some form of fiscal stimulus. But the consumer should not be the targeted beneficiary, he argues. "Why not prime a pump that would continue to run?" he asks. One area of spending, he suggests, is alternative energy or improving the electric grid. "Go at the heart of the issue," he argues.

The Source

[Shooterman]

These clowns just do not understand that all they are doing is continuing to create more crap by continuing to slop the hogs. It is their excessive monetary schemes that have gotten us to this problem to start with.

[Snowden]

Originally Posted by Shooterman

These clowns just do not understand that all they are doing is continuing to create more crap by continuing to slop the hogs. It is their excessive monetary schemes that have gotten us to this problem to start with.

Amen!