A Trillion Dollars: The Check Is In The Mail

January 7, 2009 by Douglas A. McIntyre

Old_carThe Obama team has owned up to the fact that aiding the crippled economy will put the US budget into a trillion dollar deficit. It has gone so far as to say that the spending could go beyond that this year.

All along the watch tower, analysts are looking and opining about whether the money will hit the economy too late, too soon, or just right.

No less of an economist Einstein than Paul Krugman makes the case that if the money is not dispatched quickly, perhaps over the next two months, it will be too late to prevent a "depression." The new administration has repeatedly said it needs a Congressional bailout bill signed by next month.

The analysts who want to admit that the solution to the problem is already coming too late are as scarce as hen’s teeth, but the case is strong anyway.

As the data pours in from late last year, it is apparent that the economy hit lower levels in the fourth quarter than most people believed it would reach in the trough of the recession–which was reckoned as coming at the middle of this year. Unemployment is probably near 8% even though December numbers may not show that. The number of academicians and Wall St. analysts who see unemployment at 10% or better later this year grows by the day.

No matter what the local realtor in his $600 suit says to clients, the housing market has much further to fall. Unemployment will make sure of that. The fear of spending money instead of saving it will reinforce the notion that buying a home is a good way to go broke.

The Obama plan is a long fuse with a short fuse attached. The infrastructure spending, pegged at $700 billion, based on who is doing the numbers, will take several quarters to make its way into the murky depths of rising joblessness. Getting programs for building the energy grid and broadband system up and running will require creating agencies and bringing people to work in industries for which they have limited skills to contribute.

The shorter fuse is the idea that tax relief may get the cash to businesses and consumers faster, but each has the new and pesky habit of squirreling the money away.

Nothing in the proposed program gets the average citizen into a shopping mall or car dealer. Nothing on the table pushes business to hire rapidly. Without the dual power of those two activities, the recession gets deeper and the money moving into the economy is dissipated into savings accounts and Treasuries that pay 1% interest. In an ironic way, if the stimulus package drives the purchase of Treasuries, the capital is round-tripped back to the government.

A dollar into American businesses has to be a dollar which is an incentive to hire. A dollar to consumers has to be a dollar that sharply cuts the cost of buying a house or a new car. None of the plans seem to be moving in those directions and that may put the bailout into a coma within a few short months.

Douglas A. McIntyre

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