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Second Stimulus: Barack and a Hard Place

Posted by Larry Doyle on July 7, 2009 1:50 PM |

Does the United States economy need a second Stimulus Package? Can we afford to do it? Can we afford not to do it? What happened to the first one? Why hasn’t that package seemed to have a greater impact?

So many questions and seemingly so few concrete answers. The White House itself is sending out mixed messages on this topic. Add it all up and there is little doubt the U.S. economy is “between Barack and a hard place,” and neither looks all that appealing.

From my standpoint, the reason why we are at this juncture is ultimately due to the fact that the government, media, and financial industry have not fully explained the basic structural changes at work in our economy currently. That structural change centers on the fact that our economy is adjusting from running on excessive debt to operating on real savings and cash flow generated by real earnings. That adjustment takes time.

Obama has largely painted himself into a corner in regard to the economy and another stimulus package. What is surrounding Barack and team?

> The Wall Street Journal reports House Majority Leader Hoyer Signals More Stimulus May Be Needed. Steny is not exactly going out on a limb here, while clearly trying to curry favor with his constituents back home.

> Bloomberg highlights that Obama Adviser Says U.S. Should Mull Second Stimulus:

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama.

The current plan “will have a positive effect, but the real economy is a sicker patient,” Tyson said in a speech in Singapore today.

> The other side of the stimulus coin has real White House representation in the persons of Austan Goolsbee and Joe Biden, as Bloomberg reports:

Tyson’s comments contrast with remarks made two days ago by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said it was premature to discuss crafting another stimulus because the current measures have yet to fully take effect.

While Barack is catching it from all sides within his own party, the talk of green shoots has significantly subsided. From my standpoint, it seems rather obvious that the following are true:

1. the initial Stimulus Package was very poorly drafted with too much focus on advancement of the Democratic agenda at the expense of immediate economic relief.

2. as highlighted previously, the depth of our economic problems and the ongoing structural changes have never been properly defined. Talk of green shoots was a facade created by government funding and programs and promoted by a compliant media.

3. the administration currently has little economic flexibility given the size and scope of the other items on Obama’s agenda, specifically healthcare, cap and trade, education, and existing commitments to the banks.

4. the public at large clearly wants economic stimulus and job creation but is increasingly concerned about the enormous fiscal deficit.

If the first Stimulus Package could be rewritten to expedite the flow of funds that would be the optimal approach. Barring that, will Obama forsake part of his agenda to address more economic stimulus?

Barack and a hard place!!


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