Bush's Stimulus Misses The Target
This past weekend, as most Americans celebrated the legacy of Dr.
Martin Luther King, Jr., markets all across
the world were experiencing precipitous declines. The fears of
a
recession "roiled
markets from Mumbai to Frankfurt
on Monday, puncturing the hopes of many investors that Europe and Asia
would be able to sidestep an American downturn." Witnessing the global
markets free fall, Federal Reserve Chairman Ben Bernanke took a sudden
and surprising action yesterday morning, announcing the single
deepest cut in the Fed's main
interest-rate target in more than two
decades. "The
unexpected decision came after a
rare, hastily called policy meeting
by
videoconference on Monday evening, and it reduced the Fed's benchmark
overnight lending rate by three-quarters of a percentage point, to 3.5
percent." U.S. News reports that, in private, Bernanke is
expressing fear that the United States is falling into a
recession
that "will
be much worse than he has
admitted to publicly." Last Friday,
President Bush announced a $145 billion economic stimulus package meant
to reassure the "health
of the broader economy."
The dramatic downturn in global
markets over the weekend, however, sent an umistakable message that
investors lacked
confidence in the President's "grasp
of the depth of the problem."
Center for American Progress Senior
Fellow Christian Weller writes that Bush's proposal "is not
targeted enough
to get the biggest bang for the buck from the sizeable spending
increase he proposed, and it does not include an answer to the threat
of sharply lower house prices."
THE
ECONOMY'S
WEAK UNDERPINNINGS: Meeting
with House Speaker Nancy Pelosi
(D-CA) and Senate Majority Leader Harry Reid (D-NV) yesterday,
Bush said that the current economy is "inherently
strong" and simply needs a
"boost." Ed Lazear, Bush's Chairman of
the Council of Economic Advisers, added, "The structure of the American
economy is
sound." In fact, such
happy talk overlooks the fundamental
weaknesses of the U.S. economy
-- a weak
labor market, large budget deficits, massive trade deficits,
low productivity
growth, and a nationwide
decline on house prices. The
Philadelphia Fed reported yesterday that the economies shrunk
in 23 states
-- including Ohio, Missouri, and Arizona -- last month and was stagnant
in
seven others.
For years, the Bush administration has been ignoring these structural
deficiencies and masking them with record
amounts of debt.
HOW
WE GOT HERE: Since
the beginning of the current business cycle in early 2001, family
incomes in the United States have not risen,
yet the costs for
important consumer items such as housing, health care, transportation,
energy, and food all climbed at often breathtaking speeds. To
afford
these necessities, families buried themselves in deeper and
deeper debt relative to
their income -- "at a rate more than four
times faster than that in the
1990s." Partly due to the Bush administration's laissez-faire,
deregulatory
approach to the markets, lenders
preyed off low-interest rates and
offered risky loans, financing them by borrowing heavily
overseas.
As a result, a vicious cycle of debt has resulted from the meltdown in
the housing
market, and the burgeoning
crisis has enveloped foreign
investors and markets.
HOW
WE GET OUT: Bush's plan to
get America out of its economic doldrums is to
offer tax
rebates and business tax cuts, a
package that fully or
partially excludes
an estimated 65
million taxpayers who would be
the most likely to spend the money
to
help our ailing economy. Business
lobbies are already trying to add
targeted tax cuts to the
stimulus
package.
But tax rebates alone are not good enough. What is needed instead is
some display
of economic competence from
the Bush administration and conservatives in Congress. The Center for
American Progress Action Fund has crafted a
proposed stimulus
package with a number of
components
targeted on spurring demand, including measures such as expanding
unemployment insurance, increasing food stamp benefits, and dealing
with rising energy costs. But above all, the plan notes, no stimulus
plan is complete
without solving the housing crisis: "Nothing policymakers could do in
2008 would be more important to the
economic prospects of American families and the national economy than
actions to stem
the decline of home values." As
part of this effort, "Congress
should create a refinancing
vehicle for creditworthy
homeowners who cannot refinance because they owe more than the house is
worth." House Financial Services COmmittee Chairman Barney Frank (D-MA)
has indicated his desire to "expand
availability of federally
insured mortgages for subprime
borrowers as part of the
economic-stimulus plan being negotiated
with the White House." Moreover, beyond a temporary stimulus, a
long-term plan is needed. The Center for American Progress has put
forward a
plan for the next administration
to transform America's economy
through clearn energy, innovation, and opportunity.
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