Saturday, January 19, 2008

U.S. Treasury Secretary Henry Paulson Wants a Stimulus Plan Soon

I find it interesting that there was hardly any talk about a stimulus plan before Christmas (did not want to upset the shoppers), but since the first of the year it is a hot topic. The powers that be in Washington DC (and Wall Street) realize that the usual efforts of the Fed are both too slow and too ineffective at this point. Decreasing interest rates is not going to induce anyone to buy more clothes, electronics, etc. Therefore, the economic problems we face are passed your first line of defense – the money supply. Now the consumer has to be directly stimulated by giving them cash. Interesting that for all the fancy economic theories in the end we are Keynesian in our approach. My bet is that the stimulus package, whatever the form and however the government spins it, is too little too late. Basically, $150B of stimulus with $8T of consumer spending, just is not that big. Also what do you do is this does not work? From the online WSJ Economics blog:

U.S. Treasury Secretary Henry Paulson visited the morning talk shows to make the case for an economic stimulus plan being developed in Washington designed to get money into the U.S. economy this year.

Speaking about the stimulus plan on NBC’s “Today” program, Paulson said the long-term fundamentals of the U.S. economy are strong but said “the need here is this year, doing something this year as the economy is slowing that will make a difference.”

He said the economy is going to continue to grow slowly and the risks are to the down side. But Paulson said he believes economic relief can be delivered this year.

“I’ve been consulting at the president’s direction very actively with members of Congress, leaders on both sides [Republicans and Democrats] for the last couple of weeks, and I think we see a common objective here, a common need of doing something that’s going to be temporary, something that will be robust and simple and get money into the economy this year,” he added.
President Bush will offer broad outlines of the economic stimulus plan at 11:50 a.m. EST Friday. The plan won’t include an extension of Bush’s signature tax cuts, which expire in 2010.

Asked if tax rebates to individuals - reportedly one of the cornerstones to the stimulus plan - is an effective course, Paulson said, “the evidence from [the] 2001 [rebate] was that people spent between a third and two-thirds of the money and spent it quickly, so the lesson here is we need to move quickly and do something in enough size.”

Paulson, on ABC’s Good Morning America, also said he’s opposed to a moratorium on home foreclosures, saying he’s against that type of intervention. The Associated Press reported that Paulson also predicted that the administration and Congress can come together quickly to enact a package. Paulson said that the biggest part of the package should be focused on consumers, “getting money to them so they will spend it.”

On CBS’s “The Early Show,” Paulson said, “What [Bush] believes is that we’ve got to do something that is robust. It’s going to be temporary and get money into the economyquickly.”

Congressional aides said that the administration is examining providing rebates of up to $800 for individual taxpayers and $1,600 for families.

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