James Pethokoukis

Politics and policy from inside Washington

Obama and a second stimulus package

Jun 23, 2009 18:15 UTC

Actually, it would the third stimulus, counting the one from Bush. The president at his new conference this afternoon:

QUESTION: Do you think you need a second stimulus package?

MR. OBAMA: Well, not yet, because I think it’s important to see how the economy evolves and how effective the first stimulus is. I think it’s fair to say that, keep in mind the stimulus package was the first thing we did, and we did it a couple of weeks after inauguration.

At that point, nobody understood what the depths of this recession were going to look like. If you recall, it was only significantly later that we suddenly get a report that the economy had tanked. And so it’s not surprising, then, that we missed the mark in terms of our estimates of where unemployment would go.

I think it’s pretty clear now that unemployment will end up going over 10 percent, if you just look at the pattern, because of the fact that even after employers and businesses start investing again and start hiring again, typically it takes a while for that employment number to catch up with economic recovery. And we’re still not at actual recovery yet.

So I anticipate that this is going to be a — a difficult — difficult year, a difficult period.

QUESTION: What’s the high-water mark, then, for unemployment?

MR. OBAMA: I — I am not suggesting that I have a crystal ball, since I — since you just threw back at us our last prognosis, let’s not — let’s not engage in another one.


MR. OBAMA: But — but — but what I am saying is that here are some things I know for certain: In the absence of the stimulus, I think our recession would be much worse. It would have declined. Without the Recovery Act, we know for a fact that states, for example, would have laid off a lot more teachers, a lot more police officers. and a lot more firefighters.

Every single one of those individuals whose jobs were saved as a consequence, they are still making their mortgage payments. They are still shopping.

So we know that the Recovery Act has had an impact.

Now, what we also know is this was the worst recession since the Great Depression. And — and people are going through a very tough time right now. And I don’t expect them to be satisfied.

I mean, one thing that — you know, as I sometimes glance at the various news outlets represented here, I know that, you know, there is sometimes reporting of, “Oh, the administration’s worried out this,” or “their poll numbers are going down there,” or this is.

Look, the American people have a right to feel like this is a tough time right now. What’s incredible to me is how resilient the American people have been and how they are still more optimistic than — than the facts alone would justify. Because this is a tough, tough period.

And I don’t feel satisfied with the progress that we’ve made. We’ve got to get our Recovery Act money out faster. We’ve got to make sure that the programs that we put in place are working the way they’re supposed to.

I think, for example, our mortgage program has actually helped to modify mortgages for a lot of people, but it hasn’t been keeping pace with all the foreclosures that are taking place.

I get letters every day from people who say, “You know, I appreciate that you put out this mortgage program, but the bank is still not letting me modify my mortgage, and I’m about to lose my home.”

And then I’ve got to call my staff and team and find out, you know, why isn’t it working for these folks and can we adjust it, can we tweak it, can we make it more aggressive?

This is — this is a very, very difficult process. And what I’ve got to do is to make sure that we’re focused both on the short term — how can we provide families immediate relief and jump-start the economy as quickly as possible — and I’ve got to keep my eye on the long term.

And the long term is making sure that by reforming our health care system, by passing serious energy legislation that makes us a clean-energy economy, by revamping our education system, by finally getting the financial regulatory reforms in place that are necessary for the 21st century, by doing all those things we’ve got a foundation for long-term economic growth and we don’t end up having to juice up the economy artificially through the kinds of bubble strategies that helped to get us in the situation that we’re in today.


1930s New Deal policies did not work then and won’t work now. High fixed wages and price controls in conjunction with rationing during World War II allowed for vast savings to be accrued in the U.S.. After the war people could by cars with cash and in some cases homes.

I am not advocating another war. However a massive works project producing solar panels, electric generators, natural gas conversion kits for automobiles would be a start. Getting people off the grid would translate into reduced power grid improvement. At the same time a public works project developing Geo thermal power generation is paramount. Once an excess energy infrastructure and personal savings by the middle class has been built, economic restrictions can be lifted.

There is every reason to believe a free market economy can prosper again. The essential component will be to limit the use and need for credit.

Posted by Anubis | Report as abusive

Yes, there are still some mustard seeds out there …

Jun 23, 2009 17:58 UTC

Mike Darda of MKM Partners spys some of them:

1) The ratio of leading to coincident indicators is up nearly 5% since bottoming in October, a magnitude not seen outside of economic recoveries going back to 1960.

2) Similarly, the most sensitive credit market indicators (interest-rate swap spreads, LIBOR spreads, etc.) have barely budged in recent weeks despite the sagging equity market. Indeed, the TED spread has now fallen below the historical median. At the same time, corporate bond yields continue to fall, a strong recovery signal.

3) As we’ve pointed out before, the corporate bond market was probably the most powerful leading indicator of recession, depression and recovery during the 1930s.

4) What about the plunging money multiplier and collapsing monetary velocity? The credit markets tend to lead changes in measured velocity, and now suggest the worst of that decline is behind us. In any case, money is a leading indicator while nominal GDP (which is the numerator of the velocity equation) is a coincident indicator.

The next Fed chairman will be …

Jun 23, 2009 16:35 UTC

Looking for a short list of replacements for Ben Bernanke for Federal Reserve chairman? You can start with Larry Summers, Alan Blinder, Janet Yellen (with a bullet!), Roger Ferguson, Donald Kohn, Robert Rubin (I am going broad here!), Donald Kohn. And how about tossing in the old Greenspan replacement short list: Glenn Hubbard, Martin Feldstein. Kohn was on that one, too. Any more suggestions???


Larry Kudlow for Fed Chairman!

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Good news, bad news

Jun 23, 2009 16:04 UTC

Hey, this is good:

The quarterly CEO Economic Outlook Index rebounded to 18.5 in the second quarter from a record low of negative 5 in the first quarter.

But this isn’t:

But it was still the third-lowest reading in the survey’s six-year history. A reading below 50 means CEOs expect economic contraction rather than growth.

The CBO takes away, the CBO gives

Jun 23, 2009 14:26 UTC

Just as a Congressional Budget Office estimate of the cost of healthcare reform ($1.6 trillion over ten years) threw a spanner into the works of that effort, a CBO study of cap-and-trade costs ($175 year in 2020) may have given some oomph to the energy plan which is coming to the floor fo the House. Still, the Senate is going to be a quagmire …