Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

What’s Next | February 7, 2009

It was reported yesterday that the Senate is likely to approve a pared down, $780b version of the stimulus package on Tuesday. But the stimulus is not the end of the process, not even close. If you consider the Pauslon TARP plan to be the first move made by the federal government to stem the economic downturn, and the stimulus package the second, there are still many steps to go.

Bloomberg is reporting that the IMF has declared the world’s advanced economies have entered a “depression”:

Advanced economies are already in a “depression” and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

This comes back to what I wrote yesterday. There needs to be a restoration of confidence in our financial system before the economy can recover. Without action, there can be no such restoration. The market is too damaged and weighed down by the housing and unemployment crises to simply fix itself.

Monday will be an interesting day. Tim Geithner will be introducing a new plan to inject fresh capital into the banking system and deal with the bad assets sitting on their balance sheets. Meanwhile, nine banks have already closed this year, and analysts are expecting many more to follow. This also explains the urgency felt by Obama and many in his administration to insert the federal government in the process.

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4 Comments »

  1. I read the congressional version of the bill (as much as I could get through) and it was problematic. It stunk. It was laden with pork and completely disparate. At the end of it, other than spending a bunch of money, the bill doesn’t accomplish much, and what it does accomplish will occur slowly.

    Better to just transfer the money to the people (about 10K a family with just this proposed stimulus alone); Americans are profligate spenders, the money would be in the system quick. I for one would use it to put a down payment on a Dodge Challenger, for starters. . .

    Comment by wilsonrofishing — February 7, 2009 @ 8:41 pm

  2. I don’t think I necessarily disagree with your first paragraph. I’d like to see much more investment in our infrastructure, even if the projects won’t be “shovel-ready” for 24-36 months.

    However, I do disgaree with your second paragraph. Americans are not spending nearly as profligately as we used to (to borrow your description). In fact, the savings rate has jumped nearly 3% over this time last year. It’s one of the main problems prolonging this recession. Americans were spending when they should have been saving. And now we’re saving when we need to be spending.

    Comment by Ryan — February 7, 2009 @ 8:45 pm

  3. Ryan,

    forgive the snarkiness in my previous comment, I simply find this bill incredibly problematic.

    I really thought that the President, following a Keynesian model, would introduce a bill that would do two things:
    1. Effectively spend a trillion dollars on long term infrastructure projects.

    2. Choose a project of scope and scale that dramatically alters America for the better.

    Think of how different America is now due to the Interstate system. That’s what I thought we had coming. If we were going to spend a trillion to stimulate the economy, I’d hoped the long term benefit would be energy independence, or a shift from gas to electric transportation.

    Instead we have a bill (two actually, for now)that is so disjointed that large portions of the allotted funds will only indirectly be inserted into the economy, and some in ways that will not impact the current recession. This is like that crappy highway bill from a few years back, only bigger.

    A stimulus bill with “no smoking” provisions in it, is that what Keynes had in mind back in the day?

    Comment by wilsonrofishing — February 7, 2009 @ 9:48 pm

  4. Personally speaking, I think you’re right Wilson. It would have been brilliant to see a bill that really focused on long-term infrastructure projects. Unfortunately, we haven’t gotten that, and I think that’s because of a variety of reasons.

    First, Obama and his team need to take some blame for trying to do a capture-all grab bag of programs instead of potentially splitting the bill up into short-term and long-term stimulus components and then having those bills debated on their own merits.

    Second, the Republicans need to take some blame because they were up in arms about the money not being spent quickly enough and not being focused enough on programs that would create jobs right now.

    Unfortunately, this is our legislative process at work. Messy, disjointed, and full of additions, addendums and at times, loads of crap.

    Comment by Ryan — February 7, 2009 @ 10:33 pm


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