Second stimulus needed? You betcha...

I am seeing this coming along since the first stimulus was passed by Congress back in February. The first stimulus was approved, and government became the provider of the last resort, propping up demand in the US economy. Three months passed, and we are seeing "green shoots" coming up everywhere like mushrooms after the rain. Despite that, unemployment is still nudging upward with a possibility of > 10% in the coming year, if not in 2009. Hence, the sudden whisper of a second stimulus to ensure the economic recovery would not wither.

Vice-president Biden has admitted the administration has misread the economy. That means the stimulus of $787 billion is not enough for the economic recovery. The financial and economic crisis has taken a hefty toll in terms of job losses, hence the first stimulus could not create jobs as fast as losing them. This is compounded by the higher savings rate, which stifle demand as people are prone to save money, rather than spending them.

Presently, Republicans are opposing any second stimulus measures, mostly concerned with the huge deficits this might engender. To me, they are trying to get political mileage out of this issue. They might not realize that down the road, the stimulus is needed to bridge the budget shortfall in states and municipalities. One good example is the state of California, where Sacramento has to issue IOUs to close its budget.

Of course no one wants to see the recovery to be dead by next year. On the other hand, people don't want to see higher deficits and interest rates as a result of a second stimulus. However, we cannot run the risk of the economy going the way of a roller coaster. The recovery should be a self-sustaining one. The Obama administration and Fed Reserve should make sure that would be the course in the coming years.