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Can the U.S. Afford Another Stimulus Package?

November 18th, 2009

I have previously predicted that the Obama administration will almost certainly push for a second stimulus package prior to the 2010 mid-term congressional elections. The upcoming White House  jobs summit, scheduled for December, is probably a set-up to create the PR context for promulgating a new instalment of the previous Economic Recovery Act.

In a recent op ed piece, NYU economist Nouriel Roubini warned that unless “bold action” (meaning more stimulus spending ) is taken, “the damage will be extensive and severe unless bold policy action is undertaken now.” He rightly fears that a continuing growth in the unemployment rate, which he believes will top out at 11% according to U3 measurements, will likely send the U.S. economy back into another recession, the feared “double dip” or W recessionary curve.

Of course, Roubini is correct. But as he himself has previously pointed out, the growing deficits and national debt of the United States in itself is a growing danger to the nation’s long-term economic future. With a staggering national debt, I do not believe the U.S. can absorb the additional debt load required to fund another stimulus package. Irrespective of fiscal realities, however, political expediency will undoubtedly triumph. Which means a new stimulus bill will be approved by Congress in 2010, a few hundred thousand temporary jobs may be created, but when the next banking crisis arises (and it will) a fiscal disaster will confront the U.S. economy, more than wiping out any small gains in employment that will result from allocating several hundred billion dollars of borrowed money for President Barack Obama’s version 2 of stimulus spending.



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