Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

The GOP's Masterplan: Obstruct, Smear, Lie, Repeat 

Politics / US Politics Sep 02, 2010 - 03:50 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleLast Tuesday, the nonpartisan Congressional Budget Office (CBO) released a report on the estimated impact of the American Recovery and Reinvestment Act (a.k.a.--Obama's $787 billion fiscal stimulus) The report provides conclusive evidence that the stimulus did exactly what it was designed to do and helped to avert another Great Depression. Here's a summary:


It raised real (inflation-adjusted) gross domestic product (GDP) by between 1.7 per cent and 4.5 per cent;

Lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points;

Increased the number of people employed by between 1.4 million and 3.3 million;

Increased the number of full-time-equivalent jobs by 2.0 million to 4.8 million compared with what would have occurred otherwise.

Naturally, the GOP  is up-in-arms over the report's findings.  In fact, House minority leader John Boehner launched a counterattack claiming that the stimulus "has gotten us nowhere" and that it was a sign of "government run amok."

  Boehner's "talking points" are part of a larger political strategy to mislead the public about the effects of the stimulus while assuming the mantle of fiscal conservatives. Keep in mind,  George W. Bush nearly doubled the national debt--from $5.4 trillion to $10.5 trillion--during his 8 years in office. If GOP leaders were really "thrifty minded" conservatives, as they pretend to be, they should have stopped Bush when they had the chance. Instead, they pumped out enough red ink to fill an ocean.

By the time the Republicans were swept from office in 2008, the economy was in freefall. Unemployment was rising at 750,000 per month, and all of the main economic indicators were plunging faster rate than after the Crash of '29. The only thing that kept the country from sliding into a full-blown depression, was massive doses of monetary and fiscal stimulus. And, while the hugely unpopular TARP handout merely distributed public funds to crooked banksters, Obama's fiscal stimulus did what it was designed to do.

Here's Boehner again: “We will not solve our fiscal challenges until we cut spending and have real economic growth....But we do not have the luxury of waiting months for the president to pick scapegoats for his failing ‘stimulus’ policies."

More nonsense. Cutting spending when the economy is still weak is the fast-track to recession as Ireland, Greece, Hungary, Latvia and Spain have all found out in recent months. Each one of these countries has tried to reduce deficits by slashing government spending, and they've all discovered the same thing; that spending cuts widen the output gap, increase unemployment, shrink growth, lower government revenues and, thus, increase the deficits. That's right; when government cuts spending, revenues shrink and deficits grow, the exact opposite of what one might expect. Additionally, these belt-tightening measures make it more expensive for struggling nations to borrow in the capital markets. Most of these countries are now facing painful downgrades that will make it more costly for them to procure funding to keep government operations going.

Here's an excerpt from an article by economist Gary Burtless titled "It could have been much worse", which explains how the stimulus helped the economy avoid a steeper decline:

"The tea leaves are clear: The Great Recession will not be a second Great Depression.....Any reasonable grader of the stimulus’s effects on driving recovery and combating joblessness would give the stimulus at least a B+.....

“Federal government programs and stimulus dollars cushioned the massive blow to private family incomes. Disposable income fell less than 1 percent after the start of the recession... Reduced federal taxes and increased government benefit payments, partly funded out of the stimulus package, have kept Americans’ spendable incomes from falling as fast as their private incomes. Household consumption fell in the recession, in spite of the massive swing in taxes and public transfers, but it only fell modestly. Americans were made cautious in their spending because of the drop in their personal wealth and fear of losing their jobs. But government benefits helped boost the spending of the unemployed, and lower taxes helped insulate middle class families from some of the effect of the drop in wealth.

“Could the administration and Congress have done better? (Yes, but) opposition to stimulus spending by conservatives in the Senate precluded a larger package. In fact, Congress passed a smaller stimulus than the one the president asked for. In retrospect, the package should also have included a much bigger allocation for new government capital spending—on roads, mass transit, public buildings, and environmental capital projects. This investment would directly provide jobs to workers in construction and capital goods manufacturing, industries hard hit by the recession....." ("It could have been much worse", Gary Burtless, Brookings Institute)

The Republicans succeeded in blocking a larger stimulus bill although some of the blame clearly belongs to Blue dog Democrats and Obama's feckless economics team. Even so, it could have been much worse as Burtless notes. Once the downward spiral of layoffs, debt-liquidation, falling asset prices and deflation begins, it is hard to reverse. It's much better to keep Pandora's Box bolted shut, than to unleash economic forces that can lead to widespread hardship and social unrest. Fortunately, those pitfalls have been (mostly) avoided, but we're not out of the woods yet. Rebuilding the economy will require a long-term commitment to expand the deficits until the private sector is back on its feet and able to spend again.   US households are still recovering from a decades-long credit binge; it will take time to repair the damage. That means the government must sustain its outlays until private sector retrenchment ends and the recovery takes hold.

Recent surveys show that more than 50 per cent of Americans think that the funds for Obama's stimulus were "wasted". Clearly, Republicans have been able to capitalize on the fact that activity hasn't returned to pre-crisis levels. But this is an impossibly high standard. The economy cannot return to the "frothy" bubble era without generating another gigantic credit bubble. And that's unlikely since the bubble depended on easy credit and gargantuan leveraging on the part of households and financial institutions. Those days are over, at least for now. The present sluggishness reflects the true state of the economy (the "new normal") without steroids. The government needs to ease the transition to slower growth by shoring up demand while the economy emerges from its postcrisis funk. That means more stimulus.

  Here's an excerpt from a recent post by Bill Mitchell who explains how large government deficits have been effectively used since WW2 to increase demand, lower unemployment,  and strengthen the middle class. The article is titled, "Fiscal policy Worked". Here's a clip:

"At the end of 2008 and into 2009, as the real sectors in our economies were starting to experience the aggregate demand collapses instigated by the banking crisis, most governments took steps to stop the meltdown from becoming the next Depression...After years of eschewing active fiscal policies, governments suddenly rediscovered the fiscal keyboard key and in varying magnitudes pushed fairly large expenditure injections into their economies....

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules