Bernanke Says US Needs More Stimulation

In his testimony to Congress on Monday, Fed Chairman Ben Bernanke said, “consideration of a fiscal package by the Congress at this juncture seems appropriate” because of the “protracted slowdown” in the US economy. The White House is “open” to the idea. Members of Congress are likely to feel pressure as they campaign to do something. The question is not whether to stimulate the economy via legislation but how and when.

On the Democratic side, there are several ideas all likely to be lumped into a single package. This would include the extension of unemployment payouts, a boost in food stamp eligibility, and investment in infrastructure projects to get people back to work while simultaneously improving the basis of future American prosperity. Additionally, some Democrats are talking about a moratorium on foreclosures and increasing the loan limits for mortgages backed by Fannie Mae and Freddie Mac.

As usual, the GOP prefers tax breaks to direct payments. For example, they want a capital gains tax (who has had any capital gains in the last month or so?). They also want to make those toxic assets the Treasury will buy more attractive for resale by cutting tax rates on purchasers of said assets -- a backdoor discount of an already discounted instrument. Also, people who sell a second or third home should, according to the Republicans, be entitled to the same tax breaks as people selling their primary residence.

Chairman Bernanke also told Congress, “Any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak.”

If laid end to end all the economists in the world wouldn’t reach a conclusion. Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said any such package “would be most effective if it hit the economy when it was already on the cusp of an upturn, thereby creating more of a V-shaped recovery. As of today, we do not see any sign of recovery in the next few months.”

Of course, the aid from the government will not be driven by economics but by politics. The GOP may initially resist any lame-duck session of Congress to pass any package at all, but if they lose the election as badly as some suppose, such a session would be their last chance to influence the legislation at all. Expect a pre-Thanksgiving session.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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