I’m hearing a lot of talk these days about stimulus packages to pep up the economy. For example, this:
WASHINGTON – President Bush is putting together his first public call for a “robust” emergency fiscal stimulus bill to get cash quickly into the pockets of consumers and jump-start a sagging economy, his treasury secretary said Friday.
Bush planned to lay out his position later in the day, but he wasn’t expected to go into specifics. Press secretary Dana Perino said Bush would demand that any package be effective, simple and temporary — mirroring calls by Democratic lawmakers for a “timely, targeted and temporary” stimulus measure.
Taxpayers could receive rebates of up to $800 for individuals and $1,600 for married couples under a White House plan. Although lawmakers were considering smaller rebate checks and more money for food stamp recipients and the unemployed, Bush told congressional leaders that he favors income tax rebates for people and tax breaks for business investment.
Frankly, I’m skeptical about stimulus packages whose intent is to boost consumer spending, particularly on relatively low price tag items. While such a program might have some small effect on the U. S. economy it strikes me that such a program would actually do more to stimulate the economy in China where a lot of the stuff that would be bought is made.
Is whatever problem we have with the economy due to a lack of cash or a lack of confidence? Are cash and confidence fungible? For example, there’s this:
Jan. 18 (Bloomberg) — MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show.
Prices for contracts that pay investors if Armonk, New York- based MBIA or New York-based Ambac can’t meet their debt obligations imply a 73 percent chance the companies will default in the next five years, according to a JPMorgan Chase & Co. valuation model.
Ambac shares plunged 52 percent yesterday and rose 11 percent today to $6.94 in early trading on news the company was scrapping a plan to raise equity. MBIA dropped 31 percent yesterday and rose 0.9 percent in early trading today to $9.30. Credit-default swaps on the companies, which rise as confidence erodes, are trading at record highs.
“In this market, a downgrade could mean the beginning of that company’s eventual collapse,” said Matt Fabian, an analyst with Municipal Market Advisors in Westport, Connecticut. While Fabian said he still expects the companies to keep their rankings, he said he has grown “much more anxious.”
The bond insurers place their AAA stamp on $2.4 trillion of debt sold by thousands of municipalities across the country, as well as subprime-mortgage securities. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg.
It seems to me that increased consumer spending won’t have a great deal of impact on that kind of problem.
I’m in favor of action but I think the action that’s necessary is of a rather different sort. I think the problem we’ve got in the U. S. is insufficient domestic business spending not insufficient consumer spending. Too many companies are doing their investment in China and India, not enough in the U. S.
Although I think that sort of targeted stimulus would be quite difficult to craft, I think it would have the desired results i.e., if businesses were hiring more Americans and expanding U. S. operations, people would have more confidence that their livelihoods were secure and that in turn might result in a little more spending.
Meanwhile, have you ever noticed the nearly irresistible temptation that election years provide for politicians to dole some of their tax dollars back to the taxpayers? Or, more specifically in this case, doling tax payers’ tax dollars out to voters, many of whom aren’t paying a great deal in taxes.
