The Homa Files

Below is a summary of the proposed stimulus plan.

Ken’s Take: (1) No question but that a stimulus is needed to kick the economy back into gear (2) But, a stimulus should stimulate, not be used as a trojan horse to advance a socio-political agenda (3) the Dems made a mistake throwing everything — including the kitchen sink — into the plan — especially controversial stuff like abortion aid and global warming studies and  (4) the Dems make a mistake everyday letting Reid & Pelosi out in public to explain the plan (5) If I were a GOP rep, I’d vote no on the plan — it’s going to pass anyway — conspicuous benefits are unlikely (it’ll be more TARP-talk: “would have been worse without it) — so, let Obama-Reid-Pelosi own it (“we won – we write the laws now”)  — and let them get the credit in the unlikely event that it does work.

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Excerpted from WSJ, ” Doubts on Obama Plan Mount” & “Stimulus Bill Near $900 Billion”, Jan. 27, 2009 

The economic stimulus package proposed by Democratic House leaders totals $825 billion and includes three broad pieces: a $365.6 billion spending measure for such brick-and-mortar projects as highways and bridges; a $180 billion measure to boost jobless benefits and Medicaid, and a $275 billion tax-relief package, which includes a plan to give a $500 payroll tax holiday to all workers (a proposal from Mr. Obama’s presidential campaign).

The Congressional Budget Office estimates that $169 billion (~ 20%) of the $825 billion in stimulus will hit the economy before the end of September and that the bulk of it will show up in 2010 and 2011.

CBO also said that government borrowing prompted by enactment of the plan would add another $347 billion, pushing the estimated cost of the stimulus plan to more than $1 trillion, including interest.

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The estimates point to one of the challenges of formulating an effective plan. Tax cuts can be implemented quickly, but many economists think they wouldn’t stimulate much new spending because consumers and businesses are so keen on saving. Government spending would generate economic activity more quickly, but it is hard to ramp up right away.

The one thing that is certain to flow from the stimulus is a large increase in the federal debt. Large government budget deficits are showing signs of starting to nudge interest rates on government debt higher, from very low levels.

If that persists, it could eventually damp some of the stimulus-plan’s benefits. Higher government rates raise the cost of borrowing not only for the Treasury, but also for many private-sector borrowers, since corporate bonds and mortgage bonds are often benchmarked to Treasury yields.

Bond markets have been hit by a flood of new supply of Treasury debt in the past few weeks, a factor that some traders say has pushed up rates. The yield on a 10-year note hit 2.519% Tuesday, up from a little over 2.00% at the end of 2008.

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It’s projected that deficits in 2009 and 2010 will reach between 10% and 12% of gross domestic product, respectively, roughly double the previous peacetime records set in the Reagan years. It added that federal debt will soar from about 70% of GDP to more than 90% of GDP.

Economists say that the rise in debt will eventually lead to slower economic growth and diminished standards of living in the U.S.

Full article:
http://online.wsj.com/article/SB123311521129023245.html?mod=article-outset-box 

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This entry was posted on January 28, 2009 at 8:09 am and is filed under Financial Crisis, Gov't Spending, Government & Politics, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.