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Battle Lines Form Over "Son of Economic Stimulus"

Economics / Economic Stimulus Jul 08, 2009 - 04:07 AM GMT

By: Mike_Shedlock


Best Financial Markets Analysis ArticleAlthough very little of the stimulus money approved by Congress has actually been spent, many are making the case for throwing still more money at the problem.

Let's kick off the discussion with a disingenuous comment by Paul McCulley at Pimco who states New Stimulus Plan Must Show Restraint.

Pacific Investment Management Co.’s Paul McCulley said if a second U.S. stimulus package is passed, it must be guided by longer-term fiscal responsibility.

“I have difficulty coming down table pounding saying we need another stimulus package, but if you put a pistol in my ear I would say yes,” McCulley said in an interview today with Bloomberg Radio from Pimco’s headquarters in Newport Beach, California. “But it has to be in the context of a plan, not just a platitude, but a plan for fiscal responsibility.”

How does McCulley determine "fiscal responsibility"? He doesn't say but I will: Any plan for fiscal responsibility would scrap the stimulus package in entirety. Instead McCulley issues a half-assed table-pounding proclamation for "Son of Stimulus" while attempting to straddle the fence pretending to be prudent.

Obama Adviser Says $787 billion Is “A Bit Too Small”

Please consider 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 package will have a more pronounced impact in the third and fourth quarters, she added, stressing that she was speaking for herself and not the administration.

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. The government is facing criticism that the first package was rolled out too slowly and failed to stop unemployment from soaring to the highest in almost 26 years.

Obama said last month that a second package isn’t needed yet, though he expects the jobless rate will exceed 10 percent this year.

Even Democrats have bemoaned the pace of the package’s implementation. House Majority Leader Steny Hoyer, a Maryland Democrat, said on “Fox News Sunday” June 5 that congressional Democrats are “disappointed” stimulus funds weren’t distributed faster.

“The money is just really starting to come out in more significant amounts now,” Tyson said. “The stimulus is performing close to expectations but not in timing.”

Tyson, 62, later told reporters that the U.S. can afford to pay for a second package, even as the fiscal deficit soars. She said the budget shortfall is “likely to be worse” than the equivalent of 12 percent of gross domestic product that the administration forecast for 2009 and the 8 percent to 9 percent it projected for next year.

How does one determine "a bit too small"? Can we have a definition please? If the money was not distributed on time, and the stimulus money takes time to work might not the stimulus be too big? Will any amount of stimulus work?

The questions go on and on, but Tyson and McCulley think the economy can be micro-managed back to health. They both need a history lesson about Russian Central Planners.

Is the Second Stimulus Door Open or Shut?

Inquiring minds are asking "Is the Second Stimulus Door Open or Shut?" It's a very good question too.

It just so happens that I have three definitive answers from ranking Democrats: one from Senate Majority Leader Harry Reid, one from House Democratic leader Steny Hoyer, and one from president Obama.

Senator Reid Slams Door on Second Stimulus

Please consider Reid Slams Door on Second Stimulus, as Obama Leaves Options Open.

Senate Majority Leader Harry Reid on Tuesday slammed the door on the idea of a second economic stimulus plan, even as President Obama suggested he's leaving the option on the table.

The Nevada senator said Americans are only just beginning to realize the benefits of the Obama administration's first stimulus bill, which passed in mid-February, and he stressed that only 10 percent of the $787 billion package has made it to the states.

"A little less than 90 percent still needs to be put out to the American people, and we're in the process of doing that. It's going to move more quickly now. As far as I'm concerned, there's no showing to me that another stimulus is needed," Reid said emphatically.

Obama Thinks In Terms Of Tables, Not Doors

When asked about the possibility of a sequel to the $787 billion stimulus, Obama left the door open -- as he did when asked about such legislation during his latest press conference two weeks ago.

"I don't take anything off the table when unemployment is close to 10 percent and a lot of Americans are hurting out there," Obama told FOX News Tuesday.

That's one definite door shut for Reid. Translating Obama's tables to doors I come up with a "definite maybe".

What about Hoyer?

Hoyer Leaves Open Possibility of Second U.S. Economic Stimulus

Switching back to doors and rounding out the trio of possibilities, Hoyer Leaves Open Possibility of Second U.S. Economic Stimulus.

The House’s second-ranking Democrat left open the possibility of a second U.S. economic stimulus program, while Senate leaders and an aide to President Barack Obama questioned the need for one.

“We need to be open to whether or not we need additional action” to stimulate the U.S. economy, House Democratic leader Steny Hoyer told reporters today in Washington.

Hoyer cautioned that “it is certainly too early” to assess whether the $787 billion stimulus Congress enacted in February is working or needs to be augmented. “In fact, we believe it is working” because many people otherwise would have lost their jobs if Congress hadn’t passed the stimulus, said Hoyer of Maryland.

Seeking Clarity

Inquiring minds are seeking more clarity. And once again I am happy to oblige. From the above article...

White House spokeswoman Jen Psaki sought to dampen talk of a second stimulus plan.

“We remain focused on putting thousands of Americans back to work through the implementation of the recovery act and any discussion of a second stimulus is premature at this point,” Psaki said in an e-mailed statement.

Don't Ask Don't Tell

Borrowing a concept from the military, the White House spokeswoman does not even want to talk about it. However as noted above, Obama advisor Laura Tyson was willing to speak for herself and concluded $787 billion was “a bit too small.”

This might be a bit confusing were it not for the clarity provided by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said "it was premature to discuss crafting another stimulus" thereby giving further credence to the "don't ask don't tell" camp.

Now that we have that perfectly clear, let's tune into what other have to say.

No Education In Second Kick Of A Mule

Senate Republican leader Mitch McConnell of Kentucky mocked the idea of another stimulus plan. He called it “mind-boggling” and a worse idea than the previous one, which he said “has been demonstrably proven to have failed.” He added, “There is no education in the second kick of a mule.”

Green Shoots Planted

Contrasting the lack of confidence by Senate Republican leader Mitch McConnell, Senator Reid, like Ben Bernanke is seeing green.

Paraphrasing Federal Reserve Chairmen Ben Bernanke’s comments in March about an economic recovery, Reid said crops have “been planted, the shoots are now appearing above the ground.”

From Tables To Plllars

In an interview today with ABC News, Obama questioned the value of another stimulus package, urging lawmakers to “make sure” that “pillars of long-term economic growth get put in place.”

Note that Obama does not discount anything to Fox News but questions the value of a second stimulus to ABC News. I take this as a consistent "maybe, maybe not" kind of answer with the "maybe" going to Fox News and the "maybe not" going to ABC.

What's In A Name?

Some very important issues still have not been decided, such as the name for these plans.

Connecticut Representative John Larson said the stimulus should been called an “economic stabilization.” He called for more spending on transportation infrastructure “to put the country back to work.”

Passing The Buck

Still other sheep cannot decide the issue for themselves and are willing to go along with whatever the lead sheep says or does.

The Senate’s second-ranking Democrat, Dick Durbin of Illinois, said he would leave any decision on the need for a fiscal stimulus to “the president’s evaluation.”

If you think that covers all the bases you are wrong. Clever readers might be asking if there are any votes for "probably". Indeed there are.

"Probably Needed"

Rhode Island Senator Sheldon Whitehouse, a Democrat whose home state has a 12 percent jobless rate, told that a second stimulus is “probably needed.” Action by Congress would “probably take place towards the end of the year,” Whitehouse said.

Note how Whitehouse (and probably the White House as well) is totally committed to "probably". Not only does Whitehouse think a second stimulus is "probably needed", he also feels a vote on the second stimulus will “probably take place towards the end of the year.”

With great sadness I note there were no votes for "probably not".

No Amount of Stimulus Will Work

If your mind was not made up before, hopefully the above has convinced you what Austrian economists already know No Amount of Stimulus Can Possibly Work.

Unfortunately, no matter how senseless a second stimulus would be (and it truly would be senseless), if Obama decides "Son of Stimulus" is needed, Congressional democrats will most likely all start sounding like "Bah-Bah" Durbin.

However, no one will want to call it "Economic Stimulus Two" so the bill will end up with a name like the "Economic Stabilization And Putting The Country Back To Work Program.”

It will do nothing but waste money.

By Mike "Mish" Shedlock

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

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