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"MORE people believe that Elvis Presley is alive than the US stimulus created jobs." That's the view of US Congressman Kevin McCarthy, a leader of the rightwing Tea Party movement.
His is one of many views in a debate about further fiscal stimulus for the US economy.
The questions are whether the $800bn fiscal stimulus plan worked or just got the US government deeper into debt; also whether former US president George Bush's tax cuts for the rich, which expire at the end of this year, should be extended.
In short, does the US need more stimulus or does it need to follow Europe into austerity?
The US unemployment rate certainly ratcheted up during the recession and is not falling convincingly yet. It reached a peak of 10.1% in October and has been fluctuating in a narrow range around 9.7% subsequently.
This would seem to suggest that the stimulus didn't work; however, its proponents suggest that the rate would have been even higher were it not for the Obama stimulus.
There are also reasons why the stimulus hasn't yet worked as envisaged - which don't support the claims that the whole idea is a bad one. The website The Market Oracle has run a column by Robert Prechter, saying the US government has been slow in disbursing funds.
He writes that as of August 9, only 23% of $288bn in tax cuts for individuals and businesses had been processed. In addition, 46%, or $230bn of the allocated $502bn in spending, still has to be disbursed.
If any evidence is needed that some parts of the stimulus were hugely successful in staving off – or postponing – disaster, it's the $8 000 tax credit for homebuyers, which CNN said brought buyers out in droves.
As the deadline for the end of the tax credit neared, people bought frantically, pushing up the data for new and existing home sales. This reversed dramatically once the tax credit expired. It has since been extended, but it was too late to prevent the home sales data for July (the latest available) from looking very gloomy.
Existing home sales fell 27.2% in July, twice as much as analysts had expected, to a seasonally adjusted annual rate of 3.83 million units – the lowest level since the National Association of Realtors started its tally in 1999.
US sales of new homes unexpectedly dropped in July to the lowest level on record, showing that even with cheaper prices and reduced borrowing costs the housing market is retreating.
The homebuyers' tax credit may have been extended, but it's only to end end-September. However, US President Barack Obama wants to push billions of dollars in new business tax incentives and spending on big construction projects through congress. He believes in more stimulus, not less.
'Odds for prolonged slump on the rise'
But Obama remains opposed to extending tax cuts for the wealthiest Americans, enacted under Bush. "The president's view is that we cannot afford to extend the tax cuts for those making more than $250 000 a year," a White House spokesperson said.
While one may balk at extending a tax cut for the rich, I think it is appropriate to maintain it, because tax cuts are a quicker way of affecting the economy than spending.
That has been the main problem with the stimulus plan – the fact that government spending takes a long time to get off the ground. Obama's new proposals for spending on construction, notably roads, may be laudable but will they get going in time to save the US economy from dismal growth?
The question might be moot anyway, as congress is unlikely to approve the new Obama measures. Even though the Republicans are in a minority, they are still able to block the necessary legislation. And with victories looming for Republicans in the mid-term elections, they are unlikely to cut Obama any slack.
The Republicans are dead set against further stimulus. But many Democrats have come round to the same view. They are worried about the effect on government finances, with the US budget deficit at around 9% of gross domestic product (GDP).
Nobel prize-winning economist Paul Krugman has warned that the US Congress' reluctance to stimulate the economy further evokes parallels to the second phase of the Great Depression, when President Roosevelt and the Federal Reserve slammed the brakes too hard, tipping the economy back into a slump.
The Daily Telegraph reports him as saying: "Many economists regard this turn to austerity as a huge mistake. It raises memories of 1937, but despite these warnings, the deficit hawks are prevailing. The odds of a prolonged slump are rising by the day."
I believe more stimulus is needed, as the US debt markets have shown that investors are far from worried about US government debt. There is scope for more stimulus.
But patience is also needed, because it takes time to work. The best approach is to emphasise tax cuts, if possible. But the US deficit hawks seem to have little appetite for further stimulus.
- Fin24.com
His is one of many views in a debate about further fiscal stimulus for the US economy.
The questions are whether the $800bn fiscal stimulus plan worked or just got the US government deeper into debt; also whether former US president George Bush's tax cuts for the rich, which expire at the end of this year, should be extended.
In short, does the US need more stimulus or does it need to follow Europe into austerity?
The US unemployment rate certainly ratcheted up during the recession and is not falling convincingly yet. It reached a peak of 10.1% in October and has been fluctuating in a narrow range around 9.7% subsequently.
This would seem to suggest that the stimulus didn't work; however, its proponents suggest that the rate would have been even higher were it not for the Obama stimulus.
There are also reasons why the stimulus hasn't yet worked as envisaged - which don't support the claims that the whole idea is a bad one. The website The Market Oracle has run a column by Robert Prechter, saying the US government has been slow in disbursing funds.
He writes that as of August 9, only 23% of $288bn in tax cuts for individuals and businesses had been processed. In addition, 46%, or $230bn of the allocated $502bn in spending, still has to be disbursed.
If any evidence is needed that some parts of the stimulus were hugely successful in staving off – or postponing – disaster, it's the $8 000 tax credit for homebuyers, which CNN said brought buyers out in droves.
As the deadline for the end of the tax credit neared, people bought frantically, pushing up the data for new and existing home sales. This reversed dramatically once the tax credit expired. It has since been extended, but it was too late to prevent the home sales data for July (the latest available) from looking very gloomy.
Existing home sales fell 27.2% in July, twice as much as analysts had expected, to a seasonally adjusted annual rate of 3.83 million units – the lowest level since the National Association of Realtors started its tally in 1999.
US sales of new homes unexpectedly dropped in July to the lowest level on record, showing that even with cheaper prices and reduced borrowing costs the housing market is retreating.
The homebuyers' tax credit may have been extended, but it's only to end end-September. However, US President Barack Obama wants to push billions of dollars in new business tax incentives and spending on big construction projects through congress. He believes in more stimulus, not less.
'Odds for prolonged slump on the rise'
But Obama remains opposed to extending tax cuts for the wealthiest Americans, enacted under Bush. "The president's view is that we cannot afford to extend the tax cuts for those making more than $250 000 a year," a White House spokesperson said.
While one may balk at extending a tax cut for the rich, I think it is appropriate to maintain it, because tax cuts are a quicker way of affecting the economy than spending.
That has been the main problem with the stimulus plan – the fact that government spending takes a long time to get off the ground. Obama's new proposals for spending on construction, notably roads, may be laudable but will they get going in time to save the US economy from dismal growth?
The question might be moot anyway, as congress is unlikely to approve the new Obama measures. Even though the Republicans are in a minority, they are still able to block the necessary legislation. And with victories looming for Republicans in the mid-term elections, they are unlikely to cut Obama any slack.
The Republicans are dead set against further stimulus. But many Democrats have come round to the same view. They are worried about the effect on government finances, with the US budget deficit at around 9% of gross domestic product (GDP).
Nobel prize-winning economist Paul Krugman has warned that the US Congress' reluctance to stimulate the economy further evokes parallels to the second phase of the Great Depression, when President Roosevelt and the Federal Reserve slammed the brakes too hard, tipping the economy back into a slump.
The Daily Telegraph reports him as saying: "Many economists regard this turn to austerity as a huge mistake. It raises memories of 1937, but despite these warnings, the deficit hawks are prevailing. The odds of a prolonged slump are rising by the day."
I believe more stimulus is needed, as the US debt markets have shown that investors are far from worried about US government debt. There is scope for more stimulus.
But patience is also needed, because it takes time to work. The best approach is to emphasise tax cuts, if possible. But the US deficit hawks seem to have little appetite for further stimulus.
- Fin24.com
