US Stimulus Results
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So the senate eventually passed the stimulus bill and we must now await with bated breath for its effects to take place. Of course, with the economy in the US bleeding jobs at an ever increasing rate, any form of firewall must be considered. However spending over $800 billion on top of the money already allocated to bank liquidity easing (was it $700 billion?) might be a step too far even for the USA.
The fear must now be that, even if the plan works and growth does return to the economy, future growth will be severely impacted and the ability to rise out of any downturns will be very restricted. The West is in danger of handing a lead weight to the prosperity of tomorrow.
Pictures of the Titan Atlas forever condemned to hold the celestial heavens come to mind. The piling of debt upon debt cannot surely be the correct solution. The Fed will now have to steer a very dangerous course indeed between, on the one hand, a Japanese style 20 years deflationary stagnation and on the other, the release of not just the inflation genie but also the hyper-inflationary djinn.
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As Simon Denham of Financial Spreads recently commented in his blog “To combine huge new spending with massive new tax cuts when investment liquidity is not exactly just lying around risks starving the corporate sector of the ability to tap into the capital markets. One of the dangers with such massive issuance is that it will cause a heavily positive yield curve in the US T-Bond markets. This could tempt the US Treasury into issuing shorter than usual term Bonds which might then mean a never ending tidal wave of new and expiring refinancing issuance”.
To add to the woes, China’s latest numbers make grim reading indeed. Exports continue to slide sharply with shipments were down 17% in January. Imports are dropping an almost unbelievable 21.3%. Money supply is somehow surging by 17% as the various state enterprises resort to the fiscal printing press to keep growth in place. Stories of a possible 40m unemployed concentrated in failing industrial centres will not help stability in a country that has become used to stellar growth.
Back to the US and President Obama is starting to get a bit of the doomster feel about him. Every time he speaks on the economy/stimulus package the futures markets react with a heavy fall. I hear that trading floors are almost tempted to start selling the moment they see him appear on Bloomberg TV.
"US Stimulus Results" last update by R Thomas, 20-Feb-2009
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