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.

US Stimulus and the new bank bailout 'most' likely would NOT work

As we are getting nearer to the Stimulus passage as well as a new bank bailout, I am fully convinced about 2 things:

1) The Stimulus plan is smaller than expected, and it is a hodge-podge of ideas, with not much specifics. Worse of all, it doesn't even have a coherent theme in it. The new administration just wanted to have bipartisan support, and succumbed to demands from all sides. Furthermore Nobel laureate Krugman has ranted about it in his blog yesterday.
My prediction is that even though the bill is signed this month, a lot of work projects would begin without a system to monitor its progress. After a few months, if unemployment still hovers or exceeds present level, and the economy has not shown any signs of life, then the world markets will slide to the abyss once again. We could have Stimulus II & III then, but it would be too late.

2) The new bank bailout plan, I believe, is still work in progress, without much clarity and certainty. We should expect the status quo to remain; American taxpayers getting hosed, and trash assets still marked at preposterous level. There is talk that "mark-to-market" would be suspended. I believe this is an act of desperation from the govt, so that they could delay the inevitable. What is it? That the bank stocks would go to zilch(0) eventually, since the financial losses have trumped the market capitalization of all banks combined. The tricky part, how much the govt needs to pay for the bad assets when the 'bad' bank is created? We will find out soon. Looks like nationalization is the only viable alternative left, although vested interests are totally against it.