US Economy: Another Stimulus Package?

By: CaraTan   Date: 21 October 2008

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CaraTan

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New York, 21 Oct. Discussions have begun for this year’s second stimulus package to help the ailing US economy.

In January of 2008, a $170 billion stimulus package was given out in the US to help prevent an economic downturn. About $100 billion of it was given to individual citizens who had filed taxes.

The stimulus package was meant to curb a recession by increasing spending – both from businesses and consumers. Now it appears that another one may be planned with the current slowdown and looming recession.

On Monday, US Federal Reserve Chairman Ben Bernanke said that Congress should consider passing another stimulus package.

“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," he said, speaking before the House Budget Committee.

As we reported in September, the January stimulus package was a key contributor to the then-expected 3.3% GDP growth figures. This number has since been revised to 2.8%.

Democrats have been backing a second stimulus package even before the financial crisis began. Their plans include more food stamps, more investment in infrastructure development and projects, extended unemployment benefits, and a requirement for a foreclosure moratorium.

Republicans are pushing for a different set of measures, with an emphasis on tax cuts instead of outright payments. Some of them include a decrease or suspension on capital gains taxes, and larger tax breaks for home buyers, in the slumping housing market.

Economically, the kind of stimulus that will be most impactful is one that creates long-term, sustainable benefits, like the creation of jobs, and a multiplying, knock-on effect of spending.

Bernanke's statement is likely to positively influence Congress. Brian Bethune, Global Insight’s chief US financial economist said, “Effectively, the Fed chairman is giving Congress a green light to go ahead with an additional fiscal stimulus package.”

House Speaker Nancy Pelosi, (D-Calif.) supported the bid. Her office released a comment saying, "Chairman Bernanke added his voice to the chorus of economists, experts and policymakers who insist that America needs a job-creating recovery package to get our economy back on track and to restore consumer and investor confidence.”

It was unclear whether the Bush administration backed the plan. White House spokeswoman Dana Perinio said, "I think we just need to wait and see. We're open to ideas and we'll take a look at what comes our way."

Ron Portobello, EconomyWatch.com


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