Momentum building in U.S. for new economy-boosting package

Tuesday 21st October, 04:00 AM JST

WASHINGTON —

Momentum is building for a fresh dose of economic stimulants to boost the country out of the doldrums, perhaps by putting more money in Americans’ pockets. The White House said Friday that President George W Bush was open to some sort of action after Federal Reserve Chairman Ben Bernanke warned the slump could drag on without the extra bracing tonic.

On Wall Street, stocks bolted higher, with the Dow Jones industrials rising by 413 points. Broader stock indexes also rose sharply, and some new signs appeared that credit conditions were thawing a bit.

The national economy, already wobbling, has been rocked by a trio of hard punches from the housing, credit and financial crises. With a recession widely seen as inevitable, if not already under way, the focus in Washington has shifted to the questions of how bad, how long and how to limit the pain.

There is increasing talk of a post-election special session calling Congress back to the Capitol. But urgency varies greatly according to who is talking and when.

“We’re continuing to have conversations with members of Congress, and we’re open to ideas that they would put forward ... that would stimulate the economy and help us pull out of this downturn faster,” White House press secretary Dana Perino said around noon Friday, shortly after Bernanke endorsed the need for a fresh and “significant” round of government action.

A couple of hours later, Bush seconded Perino’s remarks, but he also said in a more optimistic tone: “I have heard that people’s attitudes are beginning to change from a period of intense concerns—I would call it near panic—to being more relaxed.” He commented after a closed meeting with business leaders in Louisiana.

If congressional leaders and Bush, who has been cool to more federal stimulus spending given already exploding budget deficits, were to hash out an acceptable package, it would require a special session after the Nov. 4 elections.

If an agreement cannot be worked out, the effort probably would be taken up by the next Congress and the next president. Democrat Barack Obama has advocated strongly more government stimulus, while Republican John McCain is keeping his options open.

Rep Nancy Pelosi, speaker of the House of Representatives, and fellow congressional Democrats are pushing a package that could cost as much as $150 billion. Some economists have advised them in recent days, however, that to have a real impact, the total would have to be far larger, as much as $300 billion.

As part of that package, Democrats want to resurrect a $61 billion House-passed measure that included about $37 billion in public works spending, $6 billion to extend jobless benefits, $15 billion to help states to pay their Medicaid bills and $3 billion in food coupons to help the poor feed their families.

Democrats also are considering a second round of tax rebates to follow the $600 to $1,200 checks most individuals and couples got in the first half of this year. That money, which would go directly to consumers in hopes they would spend it, could push the package’s price tag much higher.

Unemployment, now at 6.1%, is expected to hit 7.5% or higher next year. And millions of Americans have been watching their retirement nest eggs and home values shrivel.

One-third of Americans are worried about losing their jobs, half fret they will be unable to keep up with mortgage and credit card payments, and seven in 10 are anxious that their stocks and retirement investments are losing value, according to an Associated Press-Yahoo News poll of likely voters released Monday.

Sen Charles Schumer, a leader of the Senate’s Democratic caucus, predicted Congress would return in November. “We couldn’t have gotten a better supporter for a stimulus package than Ben Bernanke,” Schumer said. “His support will change the stimulus from a possibility to a reality.”

Pelosi said, “I call on President Bush and congressional Republicans to once again heed Chairman Bernanke’s advice and, as they did in January, work with Democrats in Congress to enact a targeted, timely and fiscally responsible economic recovery and job-creation package.”

However, in a Friday interview with The Associated Press, Pelosi had said Congress is unlikely to approve a tax rebate before Bush leaves office, and she signaled that prospects were dim that Democrats would be able to strike a deal with the president on an economic aid package during a postelection session.

In February, Congress enacted a $168 billion stimulus package that included tax rebates for people and tax breaks for businesses. The rebate checks helped to lift economic growth in the second quarter of the year. After that, though, consumers cut back sharply and businesses have retrenched in turn.

“With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” Bernanke told the House Budget Committee on Monday. It marked the first time Bernanke endorsed the need for another round of economic stimulus.

The Fed chief, the United States’ central banker, suggested that Congress design the package to limit the longer-term affects on the government’s budget deficit, which hit a record in the recently ended budget year and is undoubtedly headed higher.

Bernanke said the package also should include provisions “to help improve access to credit by consumers, home buyers, businesses and other borrowers.”

He also left the door open to further interest rate reductions by the Federal Reserve itself.

Fed policymakers meet next on Oct 28-29, and many economists believe they will again lower their key rate, now at 1.50%, to bolster the economy. Just a few weeks ago, the Fed and the world’s other major central banks joined forces to ratchet down rates, the first coordinated action of that kind in the Fed’s history.

There were some signs that credit problems were improving a bit. Bank-to-bank lending rates fell for a sixth straight day on Monday. Demand for U.S. Treasury bills, regarded as the world’s safest investment, lessened somewhat but remained relatively high in a sign that much fear remains in the markets.

Last week, the Treasury Department announced it would inject up to $250 billion in U.S. banks in return for partial ownership. So far this year, 15 banks have failed, including the largest U.S. bank failure in history, compared with three last year. And major Wall Street investment firms have been swallowed by other companies, have filed bankruptcy or have converted themselves into commercial banks to weather the financial storm.

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Associated Press Writers Julie Hirschfeld Davis, Andrew Taylor and Ben Feller contributed to this report.

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12 Comments

adaydream at 08:17 AM JST - 21st October

I'd rather see unemployment extended instead of another economic stimules package that just sends out checks to everybody.

No more give aways across the board.

There are a lot of people who have lost this jobs due to the economy of the states, jobs that went overseas and no jobs opening up. < :-)
sdmsec at 11:36 AM JST - 21st October

I've personally moved a fair amount of my investments into gold and commodities which will benefit in the long run from this insane printing and distribution of paper money.

However, as an American citizen it makes me sick to see them do it. I just know they will continue to crank the printing presses despite the fact that I wish they wouldn't. I think it's inevitable that serious inflation is going to occur - possibly hyper-inflation. Heaven help us if we get recession and inflation simultaneously.

Keynesian economics has proven itself a disaster, yet these central planners continue to believe they can control the markets.
skipthesong at 11:54 AM JST - 21st October

US government - hands off. none of you are business people. Let the market run naturally. People will lose their jobs, I say they should have saved and invested instead of using credit cards or buying houses they couldn't afford.

I've personally moved a fair amount of my investments into gold and commodities which will benefit in the long run" Yes, they will. Now, why didn't many more people do the same?

The government created this mess, we should bar them from putting their hands into it forever. central planners continue to believe they can control the markets."Worse than that is common folk actually believe they can and are demanding that they do.
sdmsec at 11:57 AM JST - 21st October

Skip,

Agreed, my friend. Hope your weathering this mess OK.
SezWho2 at 12:10 PM JST - 21st October

Of course central planners cannot control markets. Neither can free markets generate financial security for a society. A mix is required to achieve even an imperfect solution.

In regard to rushing to authorize a new tranche of spending to address the "crisis", I'd be in favor of waiting to see what the first dose actually has accomplished. Nonetheless, I'd be willing to allow that Bernanke probably has a better idea of how things work than I do.

Even so, if Bernanke is saying that the market has already completely discounted the first piece of legislation and this is where we still are, I feel like I'm watching an episode of House. I don't expect him to get it right the first time, or the second, or the third. And I can only hope that he has a sarcasm-inspired inspiration before all the poking and prodding does in fact kill the patient.
SezWho2 at 12:16 PM JST - 21st October

skipthesong,

A lot of other people did not move their investments into gold and commodities because they had no investments. People who cannot afford health insurance are not exactly swimming in investment capital. People who are trying to create a college fund for their children from a meager income have very little choice but to invest what little they have in more risky investments.
Betzee at 01:36 PM JST - 21st October

While I've taken a beating in the stock market, I feel I'm in much better shape that those who owe twice as much on a house than it will fetch in today's market. The real estate market has yet to bottom out where as most people feel the stock market has (knock on wood).

We've got to figure out how to pay for these stimuli packages. It won't be easy.
adaydream at 01:58 PM JST - 21st October

Isn't it interesting to hear the haves talking down at the have not so much.

I moved my investments into gold.

They should have saved more.

They might have saved more if they still had jobs, but they went to China.

Their CEOs stole from their companies and they went under, but the CEO still got a parachute package.

They lost their jobs and can't afford house payments, since being off work for a year.

Most people don't know how it feels to have 2 months in savings, let alone a year. < :-)
skipthesong at 03:50 PM JST - 21st October

aday" Most people don't know how it feels to have 2 months in savings, let alone a year." Why do you say most?

sez: A lot of other people did not move their investments into gold and commodities because they had no investments." But, I am willing to bet, and I don't mean to come down hard on anyone, they have a nice car, got playstations, xboxes, ipods, wall to wall TVs, a car stereo you can hear from miles away, jewelry, high end clothes, etc..... and used their credit cards like water.

People who cannot afford health insurance are not exactly swimming in investment capital." No, if they aren't buying into insurances then they hve the cash to invest. I bypassed insurance for years before I got my own plan through my own business. " People who are trying to create a college fund for their children from a meager income have very little choice but to invest what little they have in more risky investments." Ok, now there is an area where I find myself getting angry. First of all, there are lots of free clinics in almost all states. Illegal aliens have no problem finding them. For college,
skipthesong at 05:38 PM JST - 21st October

For college,look, if you can't afford to go to Harvard, then don't just sit it out. Some community colleges go for as low as $15 per unit. Now, granted, it has become harder for college kids to find part time work as most restaurants, warehouses, etc.. have been preferring to hire illegals.
SezWho2 at 07:34 PM JST - 21st October

skipthesong,

In my town back in the states there is a large tract of land east of the divided state highway and north of town. The land is subdivided into tiny little lots on which sit small houses which can only be adequately described as crackerboxes. The cars are not nice. Most of the residents do not have credit cards. When they do their Christmas shopping at Walmart they bring their pay in $20 bills and try to cobble together a Christmas for their children with nice but cheap clothing, inexpensive electronics and what have you. They have no money to invest in insurance of any kind except perhaps a burial policy.

The women tend to the heavy or the rail thin, as do the men. There are no fitness centers or training programs on their horizons. Women and men alike are largely a hardscrabble lot that are proud and hardworking. They display the flag in their front lawns. They do not want to accept charity but they would like to take advantage of a tax system that recognizes their contributions to society. They are not stupid. They are aware of health care but they are also aware that the care they receive is second-rate at best, that it is offered with no joy and that it always comes with the calculation of whether they can spare the time to receive it without losing their income.

Get angry as much as you like. If I were inclined to get angry I would probably get angry at the stereotype of the working poor that you seem to be suggesting. In my town there is no community college that is easily accessible to many of the children of these families. There is a community college branch at which they may obtain an associates degree in two years if they study full time, can afford $3,000 a year and can find transportation to a destinationa about 25 miles one way. There is a state university that costs state residents about $7,000 a year--exclusive of room, board, books, fees and transportation as required.

My little town is a former industrial town with high unemployment. Meaningful jobs are few and far between and those who used to stamp metal, make gears and manufacture glass are lucky to find jobs in the service sector. They are happy to take the jobs that college students take elsewhere. Anyone working will need transportation.

I have been relatively fortunate. Our society really greased my skids and was forthcoming with second and even third chances for me. Nonetheless, in describing these folks to you, what I would most like you to know is that by and large these are people who work, most of them harder than me, and they are people who are not afraid of work. Even so, they really do not have anything approaching equality of opportunity. That's not the America I want for myself, for my child or for any future grandchildren. And I don't think that Americans who work hard should have to hang their heads in the presence of folks that drive Buicks.
adaydream at 09:57 PM JST - 21st October

skipthesong - Why do you say most?

Almost a million people have lost their jobs this year. That's almost 1 million lost jobs in one year.

Look at the number of home foreclosures.

Look at the companies going under.

The institutions for helping people are running out of food and services. They are going out for more money and food to place at their donation spots.

Then there is the daily news that tells us daily how people are suffering.

I haven't seen a single story or article about people having money to carry them on to their next job. I see plenty of stories about people who don't have a pot to pee in.

That's where I come from skipthesong.

I'm lucky that I retired last year. I have savings and a pension coming in and I still needed to get a part-time job to give me the extra money I need/want to get a few extras. < :-)