Tag Archives: stimulus

More Stimulus?

Paul Krugman feels we need a bigger stimulus package.

Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8 ½ million jobs in the hole.

And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?

Wait — there’s more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.

So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on. Do you remember the administration’s plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

I don’t know enough about macroeconomics to agree or disagree with him but I can’t help but wonder how much longer the United States can borrow and spend this amount of money without driving up interest rates.  I am assuming this will be a necessary evil but it does mean it will be a long and painful recovery. 

Related: Canadian Finance Minister Jim Flaherty says that Canada’s unemployment will continue rising until 2010.

Stimulus Packages From Around the World

Since all our countries (sans Germany) are offering stimulus packages these days, I thought I would see how they stack up against each other.  The American one is by far the biggesest while Iceland’s economy took the hardest hit.  Many economists believe a lot of the figures being announced involved a mixture of truly new money and recycling of existing commitments, so it remains hard to evaluate the impact.

Japan :: The Finance Ministry’s draft budget suggested a spending increase of 6.6 percent to 88.5 trillion yen ($990.9 billion) for the next fiscal year — the biggest ever figure in an initial proposal.  The world’s second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan’s economy to shrink this fiscal year and manage only flat growth the following year.  The budget proposal said general spending will rise to 51.7 trillion yen ($578.9 billion) in the year starting April, even though tax revenue is projected to fall 13.9 percent to 46.1 trillion yen ($516.2 billion).  As a result, Japan will see its primary budget deficit jump to more than 13 trillion yen ($145.6 billion) from 5 trillion yen ($56 billion) this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall. – Source: IHT

USA :: Well, according to some sources, to put the bailout dollar amounts into proper historical perspective.   The current Credit Crisis bailout is now the largest outlay In American history. Crunching the inflation adjusted numbers, we find the bailout has cost more than all of these big budget government expenditures – combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

Bailout Cost: $4.6165 trillion dollars.  Of that $4.6 trillion dollars, $1.6 billion went to U.S. bank executive bonuses.

Plus, many economists are predicting another $400 billion in stimulus money once Barack Obama comes to office in January.

Source: BoingBoing

European Union :: In comparison to the American bailout, it is pretty small at $260 billion (1.5% of GDP) but this is on top of IMF interventions in some nations and on top of national efforts as well.   The British government earlier this week announced it would provide a 20 billion pound ($30 billion) fiscal stimulus, centered on a 13-month reduction in the value-added tax charged on most goods and services to 15% from 17.5%.   Germany has announced a package it says will spur investments worth as much as 50 billion euros. France is also mulling measures.  – Source: Marketwatch  For what it is worth, the IMF doesn’t think $200 billion is enough money.

Iceland :: The good news is the small Icelandic economy which was devastated by the credit crunch is recovering according to the IMF.  The economy is still a mess with a $1 billion deficit and Iceland’s key interest rate is currently at 18 percent, the highest in Europe.  The IMF has already paid out some 827 million dollars to Reykjavik, and the rest will be paid out in eight intervals of 155 million dollars provided Iceland meets its quarterly IMF reviews. The government has meanwhile forecast that the public debt would increase from 29 percent of GDP at the end of 2007 to just over 100 percent of GDP at the end of 2009. The IMF said at the end of October it expected the island’s economy to contract by a massive 10 percent next year.  Check out the Financial Times for more indepth news on Iceland’s economy.

Canada :: $30 billion over the next four years.  The Prime Minister doesn’t want to spend that money but the political reality may force him.  While the Canadian banks are doing well, they are hoarding cash right now and not making loans to businesses who need them.  There is also some debate over on how to create the stimulus.

Russia :: The financial crisis is presenting Russia’s ruling elite with the most serious challenge to its power in a decade. The Kremlin has responded by offering a bailout package and economic stimulus measures between them worth over $200 billion.  Russia’s sovereign debt was downgraded by Standard & Poor’s for the first time in 10 years on Dec. 8, stocks have lost about 70 percent of their value since May, and the central bank has spent $160.3 billion in a bid to support the rouble. – Source: Reuters

China :: A stimulus package estimated at 4 trillion yuan (about 570 billion U.S. dollars) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure and transportation. Source: Xinhua

Argentina :: $3.8 in stimulus plus government intervention in pension funds and a $21 billion public works program – Source: New York Times

Australia :: 1% of GDP or $10 billion Source: Scoop