Thursday, December 04, 2008
While the $50 billion economic stimulus package proposed during his presidential campaign now looks almost laughable after the events of the last few months, the size of the plan now thought to wind up on President Obama's desk come inauguration day is anything but.
As there are no real numbers to report since legislators have yet to sharpen their pencils and get to work, all that is available at the moment are informed guesses as to the total cost, and these estimates seem to grow by the day.
Some time ago, conventional wisdom had it that something in excess of $300 billion would be needed. Then Senator Charles Schumer (D-New York) got on one of those Sunday morning talk shows and cited $500 to $700 billion as a reasonable size - about five percent of GDP.
But, with the recession now believed to be of a longer duration than first thought, this seems to have morphed into $500 to $700 billion for each of the next two years bringing the total to at least 20-times the size of President-elect Obama's original figure.
And it could go even higher.
This report from Bloomberg fills in some of the details:
Calls for $1 Trillion Stimulus Package Grow as Economy TumblesYou mean consumption has yet to collapse?
By Rich Miller and Matt Benjamin
Dec. 4 (Bloomberg) -- The one thing that isn’t shrinking in the U.S. economy these days is the size of the stimulus package that financial experts say is needed to turn it around.
With automobile sales dropping, payrolls plunging and manufacturing contracting, economists from across the political spectrum are raising the ante on how much the government should lay out. Some are now calling for at least a $1 trillion boost.
Kenneth Rogoff, a Harvard University professor who was an adviser to Republican presidential candidate John McCain, and Joseph Stiglitz, a Nobel Prize winner who served in President Bill Clinton’s White House, are among those who say President- elect Barack Obama should push for a package of that size.
“They need a stimulus of $500-to-$600 billion a year for at least two years to counter what is going to be a collapse in consumption,” said Rogoff, a former chief economist at the International Monetary Fund.
That's a scary thought.
Well, actually, the scariest part of all is how this is going to get paid for. Surely, more than a few people already realize that, with what's going on around the rest of the world these days, it is unlikely that foreigners will plow another few trillion dollars into U.S. Treasuries in the years ahead in addition to financing all the debt that is rolling over.
At current yields?
Of course, credibly threatening to monetize this new debt would send interest rates soaring, which would then attract buyers from all over this Zero Interest Rate world.
Maybe that's the plan.