Monday, July 5, 2010

Stimulus Package Tank Reading Empty?

June 24th marked the end of Barack Obama’s economic stimulus package of $700 plus billion. With a weakening economy and an evident global economic downturn, this reality may spell bad news for many large organizations and states that benefited from the stimulus provided by Washington. Presently, the Obama administration is lobbying to inject another $266 billion of stimulus measures to stabilize and counter any possible deflationary pressures that could plague the US economy in the near future, however significant opposition within the federal government and from abroad stand against any possible measure.

The sovereign debt crisis in Europe has demonstrated the political price of any new borrowing to not only their respective governments but also in the United States and its major economic global partners. The recent “American jobs and Closing Tax Loopholes Act” presented by democratic leaders that contained $79 billion for unemployment benefits, health insurance subsidies for the unemployed, and state grants for Medicaid, reflects the negative sentiment of any new spending. The strong republican opposition limited the eventual sum of the bill to $34 billion for fear of the deficit spiraling out of control. And, with the recent primaries indicating strong voter antipathy, especially among republicans, for any increases in spending, deficits, or taxes there appears to be little room for any new measures to be passed this year.

Without any new stimulus the budgets of many American states will suffer dramatic economic deficits and probable budget cuts. California is one example where already appalling education standards, due to a lack of appropriate funding, are set to be cut even further as funding per pupil has dropped over 11% in the state, and that was with the aid of the stimulus program. Michigan is another example where since the collapse of the automakers unemployment has risen to a staggering 30%. Without the continuation of government aid and stimulus there appears to be little hope for the state to fund and promote the creation of new jobs and industries to revitalize their depressed economy.

Virtually every industry has shed jobs during the last 2 years and now that the stimulus money has run out there is a strong sentiment among economists that the American and Global Economy could plunge once again into another full recession, unfortunately proving those double-dip recession advocates correct. Regardless of whether a new stimulus package is passed or not, what remains clear is that something needs to be done to continue aiding state economies revive themselves and prevent more jobs from being lost. Whether it is the federal government injecting more liquidity into the system or creating new tax incentives to help fledging businesses stay profitable and not cut jobs, Barack Obama has many economic questions to ask and more to answer, and on-top of 2 wars and a disaster in the gulf, there seems little room for failure.

Information cited from the Economist Magazine and website.

Tom Rodelli
Research Analyst
Analyze Capital LLC

1 comment:

  1. A very nice informational post Mr. Rodelli. Which do you see as more effective for long term stable growth? Monetary Policy? Fiscal Policy? Or a combination of both?

    It seems to me what you may be alluding to is a repeat of 2009. Where everyone falls back on to relying on government bailouts along with unorthodox monetary policy such as QE or CE.

    Are you a support of a double dip to come?


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