Deeper Recession Prompts New Direction in Stimulus Debate
New York Times
July 7, 2009
Unemployment last month hit a twenty-six year high and American gross domestic product is falling swiftly. The White House, fearful of a political backlash due to the sagging economy, has finally determined its Plan B.
February's $787 billion stimulus plan was described by President Obama in February as "exactly what the economy needs right now." However, it appears that in some sectors of the overall economy, the stimulus plan is either too small or being counterproductive.
Take North Carolina, where $330 million in stimulus funds were dispersed to construct an addition to Interstate-40. The North Carolina Legislature earmarked funds for the task in 2008, planning to contract private companies. Instead, the 2009 stimulus money is strictly used to employ government employees. According to a Raleigh, N.C. economist, 12,000 private sector jobs in construction were lost due to the plan, while North Carolina and local municipalities are only hiring 6,000 for the new construction.
This comes when Obama adviser Laura Tyson has called for a second stimulus plan. Tyson stated that the economy is worse than previously anticipated. “We probably have already 2.5 million more job losses than anticipated.” Tyson told the Nomura Equity Forum Monday.
Tyson, among others in the Obama Administration, have been calling for a second stimulus package since May. Tyson is among those calling for the largest expenditures, some approaching $2 trillion in new spending in 2009 alone.
President Obama is currently favoring a smaller package, meant to be passed through Congress by the end of October. According to Lester Junge, PhD, an economic expert at Stanford University, this package will likely approximate $1.5 trillion.
"It's really a matter of economic growth." Junge said, "Without these new funds, the President is fearful of a massive depression. With Senator Franken being seated, the Democrats should be able to block any possible filibusters."
Unlike the first stimulus plan, which disbursed many funds to state governments, the plan currently in draft stages will be spent entirely by the federal government. While most of the money budgeted will go to public works, up to $30 billion may be spent on President Obama's "Community Action Committees." These organizations will bring together groups of citizens, especially those under 25, for community service and other similar activities, directed from the White House.
This addition to the federal deficit is concerning many outside the US, including China. The People's Republic is reportedly considering a deal to exchange over $1 trillion of holdings in American dollars to Euros by the end of this financial year.
The President has not finalized any plans for a new stimulus plan, but Press Secretary Robert Gibbs has stated that any decision will be announced to the nation by mid-September.
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