Stimulus I, Second Stimulus, Payroll Tax Reduction
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____________________________________________________________________________________________________________
July 15, 2009
Summer Schedule
Today’s Zinger:
Prosperity Is The Economic Warhead Of National Security
The Morning Briefing:
President Obama recently returned from his trip to Russia. While there are many differences that need to be discussed between our two nations, national defense continues to be of paramount importance. While the leaders of the two nations focused on missiles and warheads, the best mechanism for national security was not discussed. Economic prosperity. With economic prosperity comes security. Without it comes fear and the potential for hostilities and war. The United States is struggling through a prolonged recession. As a nation we must rebuild our economic strength. However, as a nation in transition, we are undertaking a redesign of our economy, not a rebuilding of the economy which carries with it greater risk.
The American consumer is asking, “Is it safe to come out yet?” Investors are asking, “Is it safe to invest again?” Retired Americans are asking, “Will I be okay?” The unemployed are asking, “When will I ever get a job and what am I to do to provide for my family?” There is fear and uncertainty in the economy. Even President Obama says that the recovery will be “long and difficult.”
Has our government’s leadership failed to adequately address this recession? Are we on a path similar to the 1990’s in Japan where the economy remained stagnant for an entire decade? What should we do now?
The solution to our economic woes carries with it more than economic security, it carries with it a mechanism for national security.
This weeks ZingerKing looks at the economic recovery and the risks we all face.
The Discussion:
The American economy appears to be teetering. There are small signs of stability with indications that this recovery will be long in the making. The economic future is anything but clear. Unemployment, a lagging indicator of the economy, is approaching 10%. Retail sales are down 9% from last year while construction spending continues to show weakness. However, durable good orders are beginning to rise and inventories continue to fall, both favorable signs for the future. Consumer spending rose .3% last month, however much of this was due to government transfer payments through higher unemployment checks and social programs.
So what are we to think about where this economy is heading? In order for the economy to improve, consumers need to continue to spend. The more we save the weaker the recovery, which is the paradox of consumer savings. But, is it safe to spend? Has the economy recovered sufficiently to risk spending rather than continuing to save for continued economic hardships? Has the Economic Stimulus Act of 2009 helped us turn the corner? It seems that there are more questions than answers.
In the first weeks of the Obama administration, Congress passed the largest single stimulus package in history. Despite massive spending, the American economy appears to be wavering . We are at a critical juncture in the economic recovery process. I see three options that could be considered to move the economy forward, but only one option that will mitigate the risk of the economy stagnating, or worse, falling back into further decline.
1) Wait and see if the Stimulus package approved earlier this year will turn the economy around.
2) Stimulus II. Craft a second stimulus bill that reduces payroll taxes.
3) Stimulus II with a modification to Stimulus I.
After much consideration, the Obama administration has decided to wait and see how Stimulus I plays out. With much of the early spending in Stimulus I on social and welfare programs, there has been little spending that would generate new jobs, and it is new jobs and lower unemployment that will be the only indicator that will provide the American consumer the confidence to open their wallets. However, the wait and see approach also means that if Stimulus I fails to meet its objectives, additional time will be needed to craft Stimulus II and realize the effects of a second stimulus package. Years could pass and the economy could well fall into a deepening recession.
The administration could craft Stimulus II now based on lower payroll taxes. Despite the political price of using a perceived Republican strategy of tax reductions, lower payroll taxes is equivalent to workers receiving a raise. A predictable and long term increase in disposable income generates greater consumer spending, an antidote to economic stagnation. However, with the amount of national debt already a concern, additional deficit spending could jeopardize our economic security. Not providing further stimulus could have a serious impact as well.
This brings me to the third option. If the administration would proceed with Stimulus II based on an across the board payroll tax reduction and combine it with potential reductions in Stimulus I as the economy recovers, we can begin to provide additional fuel to the economy with a safety value to deficit spending. This option provides the predictability of income through lower taxes with government spending as the added fuel for as long as needed. This approach also affords the opportunity for more sustained growth. We may experience temporary higher employment through Federal jobs programs, however these jobs will end when government funding ends unless these jobs create sustainable economic development. So far, the government programs have yet to focus on sustainability.
The Conclusion:
What the American economy needs now is real and measurable progress to instill confidence in the American consumer. President Obama can use his popularity to sustain the American public through an economic waiting game for some period of time, however if measurable results don’t show up soon, his popularity will fade. Stimulus II carries with it certain risks relative to national debt and a political price relative to the administration’s agenda, however, inaction could lead us into a deeper recession or a decade of stagnation that carries far greater risks.
Here is a link to The Washington Post with a good overview of where the money is going in Stimulus I.
Click here to access the article.
We will return next Wednesday,
Zinger
Have you Zinged someone lately? Please forward a link to a friend, family member or neighbor.
ZingerKing is Published on Monday, Wednesday and Friday of each week from September through June. In July and August ZingerKing will publish on Wednesday each week.
____________________________________________________________________________________________________________
July 15, 2009
Summer Schedule
Today’s Zinger:
Prosperity Is The Economic Warhead Of National Security
The Morning Briefing:
President Obama recently returned from his trip to Russia. While there are many differences that need to be discussed between our two nations, national defense continues to be of paramount importance. While the leaders of the two nations focused on missiles and warheads, the best mechanism for national security was not discussed. Economic prosperity. With economic prosperity comes security. Without it comes fear and the potential for hostilities and war. The United States is struggling through a prolonged recession. As a nation we must rebuild our economic strength. However, as a nation in transition, we are undertaking a redesign of our economy, not a rebuilding of the economy which carries with it greater risk.
The American consumer is asking, “Is it safe to come out yet?” Investors are asking, “Is it safe to invest again?” Retired Americans are asking, “Will I be okay?” The unemployed are asking, “When will I ever get a job and what am I to do to provide for my family?” There is fear and uncertainty in the economy. Even President Obama says that the recovery will be “long and difficult.”
Has our government’s leadership failed to adequately address this recession? Are we on a path similar to the 1990’s in Japan where the economy remained stagnant for an entire decade? What should we do now?
The solution to our economic woes carries with it more than economic security, it carries with it a mechanism for national security.
This weeks ZingerKing looks at the economic recovery and the risks we all face.
The Discussion:
The American economy appears to be teetering. There are small signs of stability with indications that this recovery will be long in the making. The economic future is anything but clear. Unemployment, a lagging indicator of the economy, is approaching 10%. Retail sales are down 9% from last year while construction spending continues to show weakness. However, durable good orders are beginning to rise and inventories continue to fall, both favorable signs for the future. Consumer spending rose .3% last month, however much of this was due to government transfer payments through higher unemployment checks and social programs.
So what are we to think about where this economy is heading? In order for the economy to improve, consumers need to continue to spend. The more we save the weaker the recovery, which is the paradox of consumer savings. But, is it safe to spend? Has the economy recovered sufficiently to risk spending rather than continuing to save for continued economic hardships? Has the Economic Stimulus Act of 2009 helped us turn the corner? It seems that there are more questions than answers.
In the first weeks of the Obama administration, Congress passed the largest single stimulus package in history. Despite massive spending, the American economy appears to be wavering . We are at a critical juncture in the economic recovery process. I see three options that could be considered to move the economy forward, but only one option that will mitigate the risk of the economy stagnating, or worse, falling back into further decline.
1) Wait and see if the Stimulus package approved earlier this year will turn the economy around.
2) Stimulus II. Craft a second stimulus bill that reduces payroll taxes.
3) Stimulus II with a modification to Stimulus I.
After much consideration, the Obama administration has decided to wait and see how Stimulus I plays out. With much of the early spending in Stimulus I on social and welfare programs, there has been little spending that would generate new jobs, and it is new jobs and lower unemployment that will be the only indicator that will provide the American consumer the confidence to open their wallets. However, the wait and see approach also means that if Stimulus I fails to meet its objectives, additional time will be needed to craft Stimulus II and realize the effects of a second stimulus package. Years could pass and the economy could well fall into a deepening recession.
The administration could craft Stimulus II now based on lower payroll taxes. Despite the political price of using a perceived Republican strategy of tax reductions, lower payroll taxes is equivalent to workers receiving a raise. A predictable and long term increase in disposable income generates greater consumer spending, an antidote to economic stagnation. However, with the amount of national debt already a concern, additional deficit spending could jeopardize our economic security. Not providing further stimulus could have a serious impact as well.
This brings me to the third option. If the administration would proceed with Stimulus II based on an across the board payroll tax reduction and combine it with potential reductions in Stimulus I as the economy recovers, we can begin to provide additional fuel to the economy with a safety value to deficit spending. This option provides the predictability of income through lower taxes with government spending as the added fuel for as long as needed. This approach also affords the opportunity for more sustained growth. We may experience temporary higher employment through Federal jobs programs, however these jobs will end when government funding ends unless these jobs create sustainable economic development. So far, the government programs have yet to focus on sustainability.
The Conclusion:
What the American economy needs now is real and measurable progress to instill confidence in the American consumer. President Obama can use his popularity to sustain the American public through an economic waiting game for some period of time, however if measurable results don’t show up soon, his popularity will fade. Stimulus II carries with it certain risks relative to national debt and a political price relative to the administration’s agenda, however, inaction could lead us into a deeper recession or a decade of stagnation that carries far greater risks.
Here is a link to The Washington Post with a good overview of where the money is going in Stimulus I.
Click here to access the article.
Zinger
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