$50bn US micro-stimulus, $2tn for banks, $3tn for wars
Posted on 07 September 2010 with 3 comments from readers
President Obama’s $50 billion infrastructure spending plan spread over six years is not worthy of the name of stimulus for a $14 trillion economy. His administration has been far closer to the mark in coming up with $2 trillion to bailout the nation’s banks and will have to find $3 trillion for wars in Iraq and Afghanistan.
Even if the president follows up on Wednesday as expected with a $200 billion research and development plan this is not exactly in the league of Franklin D. Roosevelt and his New Deal. Where is the Home Owners’ Loan Corporation to facilitate nation-wide home lending and encourage uniform national appraisal methods?
No New Deal
To be fair the New Deal is a collective noun used to describe a whole series of ad hoc government emergency programs during the 1930s designed to bring unemployment down. Arguably it worked in bringing unempolyment down from 25 to 14 per cent but this level remained until the onset of the Second World War.
The broader measure of US unemployment is higher today. The problem with infrastructure schemes is that they take a long time to implement and even longer to deliver a pay back for the economy. Not that upgrading thousands of miles of road and railways and airport runways is without merit. Travelers in America have had a lot to grumble about for many years.
Yet does not the amount being spent on the new infrastructure plan show another side to the imbalances in the US economy. According to the Real Economy Project of the Center for Media and Democracy multiple federal agencies have disbursed $4.6 trillion dollars in supporting the financial sector since the meltdown in 2007-2008 and $2 trillion is still outstanding.
War bill
A congressional committee also estimated that $3 trillion would have to be found to pay for the wars in Afghanistan and Iraq by 2017. This is surely a way to spend money without having very much to show for it, apart from hopefully a safer world and a stable banking system, although neither outcome is guaranteed.
How great is the contrast with the rise of China where the micro sums go on the military and the big spending is for infrastructure and the banks are still a source of investment funds rather than a drain on the national economy.
It certainly seems very silly if Wall Street rallies on the president’s micro-stimulus. Surely the message ought to be that if that is all that is coming from the public purse this autumn then a double dip recession is a certainty.
3 Comments posted by readers:
Some big wheel from Standard Chartered was interviewed on CNBC Europe about seven hours ago. He said that since the US economy is slowing, expect a couple of trillion of QE, starting around the end of the year, from the Fed. He said he does not expect the US economy to go into a double dip. His bank forecasts a US growth rate of around 2.5 % for the next few years. That sounds a bit optimistic to me.
Now it’s back to Newstalk ZB’s continuing live coverage of the big New Zealand quake. The way some of the houses sunk into the liquified ground is amazing. It looks like grey volcanic ash, or fine grey sand. In some areas, every aftershock is causing more damage as the soil packs down and things shift. In some places along the fault, the ground has been displaced 4 meters.
As I’ve stated in prior posts on this web blog, I strongly believe that the US “Double Dip” is an absolute certainty, for many reasons.
Unequivocally, the two most important factors that will determine whether we “double dip or not” are:
1) US employment participation rate (e.g. akin to the unemployment rate, but more important!), and
2) Recovery of US real estate, both residential and commercial
No Jobs Drivers:
In the employment category, where are the “Jobs Drivers”? Traditionally this has always come from small businesses. But this time, small businesses are being driven out of existence. New and higher taxes, increased federal and state regulation, much higher costs for employee health care insurance, etc. As a former small business owner, it’s getting more and more difficult to simply survive, given this type of repression.
Real Estate Values are Declining Again:
This past summer, when residential home buying has traditionally been best, home sales have fallen to the slowest pace on record. Not a good sign! The noted economist David Rosenberg (one of the very few who have made accurate predictions over the past 2 years!) expects further declines in residential real estate value. On the commercial side, CRE values have dropped 11% in the second quarter of 2010. Go here for info:
http://www.bloomberg.com/news/2010-08-19/retail-spaces-lead-biggest-drop-in-u-s-commercial-property-prices-in-year.html
Double Dip is Already Baked in the Cake:
In a nutshell, high unemployment and falling real estate, coupled with another foreclosure surge guarantees further economic depression.
Ed Note: Don’t forget the impact of an overvalued dollar on exports – USD as a safe haven is not always a good thing…
Ed Note: Don’t forget the impact of an overvalued dollar on exports – USD as a safe haven is not always a good thing…
(applicable to my prior post!).
Good point, Peter!
In addition, the extent of “credit card” use in the US is declining rapidly; if folks don’t have the money in their checking accounts (i.e. to use debit cards), then consumer purchases decline. That is what we’re now seeing. For an interesting read on “Credit Card Use”, go here:
http://globaleconomicanalysis.blogspot.com/2010/09/consumers-shun-credit-cards-credit-card.html