As per the new administration $ 8 a week will help increase consumer spending as well as the reduced tax proposals. When the stimulus was released in 2001 and 2008, people concentrate on paying off their debts and saving the rest therefore, the stimulus does not achieve its goal of increasing consumer spending. The tax breaks are therefore necessary as Americans will be relieved as per the income they earn. The crash occurred when investors’ sensed depression was coming. Having nominal interest rates will not help much in the formulation of policies.
As much as there are policy lags, there is not much risk that the stimulus can lead to increased inflation. Economists therefore need to concentrate on creating policies that will supplement the monetary transmission mechanism models. Reddys, S. The wall street journal • Plan Tries Slow, Steady Stimulus to Revive Spending, February 17, 2009 11 The government needs to enhance the creation of infrastructure as this will aid in the creation of employment and the utilization of the existing resources and the measured GDP will not be affected.
In this way, government spending will be put into good use. This is what the stimulus package aims to achieve as it seeks to adjust the economy to full employment. This will entail partial or crowding out private spending so as to increase GDP as well. Analysts have also confirmed that the stimulus will increase GDP as the multiplier effect will change to enhance this. But with unemployment, it is difficult to target spending programs. Moreover, the spending infrastructure will mainly attract employed people to work in the areas that have been stimulated such as education, health and energy.
Fact remains that government spending and the tax package may propel the economy in the right direction as measured by GDP and employment rates. Becker-Posner-blog. On the Obama Stimulus, January 11, 2009 12 Debt does not necessarily have to be a burden as people my think the strategies being formulated by the new administration seek to pass the current debts faced by the country to future generations. The government deficit is attributed to the biggest tax cuts and government borrowing that were made, increased spending at the time and have cost the country a great deal.
That is why businesses have shut down, people have lost their jobs and there is not enough money to spend. Businesses as well as financial institutions have enormous debts that are not being repaid anytime soon. The private sector needs to get back on its feet so that the government will know the areas where they need to adjust themselves. As much as the people may see the government borrowing worsening the status of the economy, it is simply trying to create lasting programmes and support various sectors so that with time the country will get out of this financial crisis.
Pearlstein S. Debt Doesn’t Have to Be A Burden, Wall Street Journal, March 4, 2009 13 The Federal government financial system needs to change so that it can cope with the financial crisis. The government on the other hand stands firmly beside the banking system and that is why it is supporting its recovery so that they have the necessary capital and liquidity to be able to give out loans to people and businesses. To make this practicable they have established a capital Assistance Program.
But as a first step banks need to get capital from private sources as this will supplement was is being offered by the government. TARP will also aid in giving additional funds. All this will be necessary for the banks to support economic recovery. But there is a fear that through such initiatives, banks will be run by private institutions. Financial times Statement: Treasury, FDIC, OCC, OTS and the Federal Reserve Published: February 23 2009
Becker-Posner-blog. On the Obama Stimulus, January 11, 2009 Economist. com. Sound and fury over AIG, Mar 17th 2009 Economist. com: The ever-bleaker budget, March 20th2009 Financial times Statement: Treasury, FDIC, OCC, OTS and the Federal Reserve Published: February 23 2009 Glaeser E. L. Economix: The Case for Small-Government Egalitarianism, January 13, 2009 Guha K. The economy: All hands to pumps in bid for recovery, January 19 2009 Leonhardt, D. Economix. Do Tax Rebates Work? February 4, 2009 Mufson S.
The Washington times For Insight on Stimulus Battle, Look to the 30s For Left and Right, Issue Rekindles New Deal Debate Pearlstein S. Debt Doesn’t Have to Be A Burden, Wall Street Journal, March 4, 2009 Pedersen L. & Roubini N. A proposal to prevent wholesale financial failure, January 29 2009 Reddys, S. The wall street journal • Plan Tries Slow, Steady Stimulus to Revive Spending, February 17, 2009 Reinhardt U. E. Economix: Supply, Demand and Executive Pay, February 6, 2009 US economy in worst shape since 1982 By Krishna Guha in Washington Published: January 29 2009