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Wall Street Weekly | 07/10/2009 9:45 am

Stimulus Not Working? Let's Have More! by Liz Peek

If the stimulus spending isn’t working, does it make sense to make it bigger?
© Shutterstock

Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 7/6) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics.

Holy smoke! Now even the Pope is weighing in on financial regulation. In a rare encyclical, the Pontiff added his voice this week to those clamoring for economic overhaul. Come to think of it, maybe we could use some divine guidance.

The Big Debate underway is whether the United States needs a new stimulus program. This is idiotic. Whether you are a fan or foe of the monstrous $787 billion package pushed through Congress earlier this year, it is preposterous to assume that such an ungainly mishmash of programs could be implemented to any real effect in just a few months. Some $100 to $150 billion of the total has been committed to various projects, but only a portion of that has found its way into bank accounts. Moreover, if the stimulus spending isn’t working – does it make sense to make it bigger? No!

Anxiety about the stimulus package, and about the course of the economy, stems mainly from rising unemployment. The administration’s rosy outlook for stemming job losses proved unrealistic. (This should give some pause to those who buy into Obama’s projected "cost savings" from health-care reform or "green job creation" from cap-and-trade. These numbers, truly, are complete fiction. There is nothing I have found in either bill that would support such projections.)

While the labor situation does look gruesome, there are some encouraging signs. The four-week moving average of unemployment claims dropped in May by 53,000; normally a decline of 40,000 would signal the end of a recession. Continuing claims, though still high, appear to be peaking. The truth is that the numbers are so messed up by the auto industry bankruptcies that they are inconclusive. Data from the next two or three months will be much more telling.

While the signals are still mixed, there continue to be more positive than negative readings on the economy. Business confidence is improving, earnings estimates are moving slightly higher, the drop in consumer credit has slowed, house prices are stabilizing and manufacturing inventories are dropping. Moreover, two serious developing headwinds – rising oil prices and higher interest rates – have slumped from their recent highs.

The latter is good news and bad news, and points to just how delicate the current outlook remains. Oil prices and interest rates have backed down because growth prospects suddenly dimmed – dimmed precisely because oil prices and interest rates had increased. Investors, and policymakers, are in effect chasing their own tails. As oil prices zoomed higher in recent months, and as investors become concerned about projected budget deficits from our free-spending administration, consumers were hit with higher fuel costs and a drop in the opportunity to refinance their mortgages. This latter activity, as I’ve written before, has been far more stimulative than any program out of the Beltway.

The respite on interest rates may prove short-lived. The Federal Reserve has signaled that it is becoming less aggressive in its purchases of certain assets, including Treasuries, as it begins to unwind the buildup of its balance sheet. Some fear the Fed may be moving too quickly to rein in its largesse, but others correctly point out that moves to stimulate or restrict the economy almost always are overdone.

The Fed has to get this sort of push-pull just right, or it is possible that we could indeed fall back into recession. Joe Biden was blasted recently for admitting that the administration had "misread" the economy. Newsflash: this is tricky business, which is why many people, including myself, are aghast at the Obama team’s growing incursions into all sectors of commerce.

163 Reader Comments (so far…) Sign In or Register to comment

Libra Lady

Marjorie…not on obama’s term…that’s for sure!!!!

By Libra Lady on 07/10/2009 7:05 pm
phyllis Doyle Pepe
Obama said it takes time for the plan’s money "to get out the door" to pay for roads, bridges and other infrastructure projects that will create jobs "because we are committed to spending it in a way that is effective and transparent." I fear, however, that the unemployment situation, which is getting worse by the months, is going to prove a big impediment. As you know some economists called for a much larger stimulus while others claim we don’t need another one. One thing is for certain: The times, they is BAD
By phyllis Doyle Pepe on 07/11/2009 10:28 am
deber B

Meanwhile….

The same under-handed, transparency-defying, earmark-stuffing process that marked the porkulus beast is dominating every other pricey piece of legislation hurtling through the Democrat-led Congress. The Waxman-Markey “cap and trade” bill that passed the House two weeks ago contained bribes galore – including a $50 million hurricane research center for Florida Democrat Alan Grayson and a $3.5 billion economic development “sweetener” package for Ohio Democrat Marcy Kaptur. The current health care takeover proposals feature a crucial payoff to Big Labor – a golden exemption from any tax on union members’ generous health care benefits.

The friends and patrons of Obama may be making out like bandits. But for everyone else, the Democrats’ ideological bankruptcy comes at a nauseatingly steep price.

By deber B on 07/12/2009 5:57 am
deber B

Hope and Change for Pelosi….in the stimulus

The Washington Times reported this week that “as much as $16.1 million from the stimulus program is going to save the San Francisco Bay area habitat of, among other things, the endangered salt marsh harvest mouse” in House Speaker Nancy Pelosi’s backyard.

 

By deber B on 07/12/2009 5:58 am
Libra Lady
Deber…I just wish pelosi would take a walk through some non-profit agencies in our area who are helping the needy, the victims of rape, the children who have been abused, women of domestic violence and on and on….I think they are so much more important than her endangered salt marsh harvest mouse!!!  What our state alone could do with $16.1 million for non-profits would be amazing….priorities…oh my!!!!
By Libra Lady on 07/12/2009 4:51 pm
deber B
Unfortunately, the democrats feel that her state’s endangered salt marsh harvest mice are more important. Think what that money could do for those in urgent need right now. Just not in the cards it seems. America is waking up….and it’s about time.
By deber B on 07/12/2009 5:39 pm
Libra Lady
Deber…all I can say is, if they let these pet projects receive this non-sense money….even the golf courses were in the pork package to improve them….while our people in need sit with nothing and more and more benefits are taken away…soon they won’t even have a roof over their heads….but at least the mouse will be saved!!!
By Libra Lady on 07/12/2009 6:08 pm
deber B

Here’s what others have said:

“We’ve seen him in action for a bit more than six months. What we can say with confidence, now that we have the evidence of his actions, is that had he run on (a) transforming the U.S. economy by massive federal government intervention, (b) taking an owner’s stake in the automobile industry, (c) transforming the rules of America’s energy economy, (d) instituting a national health-care system - all of these simultaneously and in the centre of a financial meltdown - Barack Obama wouldn’t merely have lost the election, he wouldn’t have got as many votes as gnarly old Ross Perot did in an election long past… . Mr. Obama has taken the real crisis of the U.S.(and world) economy and used it as the screen and lever for a massive agenda of transformation, a transformation that calls for expenditures on a scale never before seen in the history of government on this planet.”

If Obama had told the truth during his campaign he would’ve lost the election.

By deber B on 07/12/2009 6:45 am
James the Game

A good commentary, Phyll. The truth is, no one on Earth knows exactly what to do, in terms of all the details. I agree with you about the bigger picture: more stimulus money should’ve been pumped into the economy. But I also believe a higher percentage of it should’ve been earmarked specifically - and unconditionally - to job-producing projects, such as essential infrastructure upgrades. Instead, much of it has gone to fill state budget holes, circumventing the very purpose of the stimulus in the first place.

Not that I believe the federal government should’ve turned its back on the reeling state governments. In Michigan, major and significant cutbacks are being made across the board, to the point of jeopardizing essential services to the people. But patching state budget holes with "stimulus" money is mixing apples with oranges. So now, more true stimulus loot is needed, for sure.

By James the Game on 07/11/2009 11:05 pm
Irish Eyes NY
Its July 31 and early fall is only a month away,keep dreaming!
By Irish Eyes NY on 07/31/2009 8:11 pm
S.J. Morgan

Maggie….how are college grants creating jobs?  Where are those students going to work when they finish?  Less than 10% of the money has been spent and more and more are losing their jobs daily.    It is NOT creating jobs!!!!  My area has a 14-20% ( depending on whether you count the self employed or those who have exhausted their claims.

There are no jobs to speak of ….no construction… Just because you do not see it does not mean it is not bad elsewhere.

Millions are trying to live on unemployment compensation and it does not pay all the bills…. 

Is anyone on this forum actually personally impacted except me!

By S.J. Morgan on 07/10/2009 1:04 pm
Maggie W

Here’s how it works, SJ.  Many jobs require a college degree, and those jobs usually pay more than minimum wage.  So, if more kids can get college degrees, perhaps we will have more doctors, engineers, nurses, teachers, architects, vetenarians, arson investigators,  scientists, advertising executives , etc.    After 5 1/2 years, Palin finally got a little degree in sports journalism which landed her a job on a radio station.

 Those jobs are not disppearing.  Getting a clue now?

I’m in Texas. There is new construction everywhere… housing and road.  I sat in traffic yesterday because new sewer lines were being laid and two lanes were shut off.  I estimate there were about 30 workers on that one job alone. 

By Maggie W on 07/10/2009 1:28 pm
S.J. Morgan

 

Maggie..those field may be hiring in yoru area.  My research shows that Texas has been impacted the LEAST on any state.

but they are not replacing the  millions of jobs for those who are unemployed now at a rate of 500k per month!! 

By S.J. Morgan on 07/10/2009 1:47 pm
Andrea Brandon

I’ve felt for a long time that we were flooding the market with college grads. I’m all for education, but not frivolously. Year after year the Dept of Labor publishes forecasts of the number of job openings for various occupations and it’s sobering to see the [high] supply and [low] demand for jobs that were once coveted. For example, many of the medical jobs are now being filled by foreigners, who are only partially trained in medicine in  the US. This is a problem in the UK.

All in all, I have to say that I feel it is a misstep to fund-up the college grant money. It’s almost like holding candy out to a kid and then yanking it away when he reaches for it. There are far too many kids [and their parents] who are in financial dungeons due to college loans. [Think Sallie Mae - lots of shady stuff goes on there.]  In the end you have kids going off to college for an education and graduating with great expectations and few job opportunities.

Will Pell Grants help? Depends. In 2007-2008 $4310 was the maximum award [contingent upon family income]. UC-Berkeley: $4874 for tuition and fees per semester. Doesn’t include room, board, meals, books…… And let’s remember that the Pell Grant is only eligible to those with family income <$50K. So, yes, for them the Pell Grant will help……but to what end? A college grad working in construction in Texas? [I mean no offense to construction workers.]

By Andrea Brandon on 07/10/2009 4:03 pm
Maggie W

I believe schools could do a far better job exposing good jobs that do not require a college degree.  We will always need plumbers, carpenters, hair dressers, dog grooomers, mail carriers, … and the list goes on .  All honorable jobs.  There are kids who do want that college degree but who wants to spend the next twenty years paying for it.  I recall while campaigning, Obama said he and his wife had just finsihed paying off their college loans.   

Whatever their goals for their futures , I just wish kids could believe those goals are attainable… whether it is going the college route or the vocational route.  Few things worse than believing you have no purpose in life or that you are not good at something.

By Maggie W on 07/10/2009 4:18 pm