Others agree that the stimulus package won't work
When I first heard that the government was working on a comprehensive stimulus package to help pull the U.S. out of one of its worst recessions ever, I was hopeful that Washington would be able to help. Oh boy, I should have known better. I have blogged numerous times over the past month that the stimulus package, in its current form, will be very, very ineffective at preventing the U.S. economy from falling deeper into recession.
The package still contains a lot of pork, it contains only tiny one-time tax credits, it doesn't contain enough spending on infrastructure and many of the useful projects that it does contain won't start for years, it does nothing to lower mortgage rates, I could go on and on. Scroll back through some of my previous posts for more.
You can reply all you want about how Obama did the best that he could given the circumstances and that the package isn't bad. Hogwash. I could have come up with a better package in a couple of hours right here on my laptop in my pajamas. Washington hasn't changed one bit, yet.
I am so down on the bill and (Geithner's banking solution) that I did something that I almost never do in CAPS last week. I opened up a number of positions in ultrashorts (I could only fit four or five given my huge portfolio and the 200 pick cap). I even sold more of my economically sensitive dividend-paying common stock in real life and switched some of the funds to bonds. I have almost no doubt that we will seriously re-test and probably breach the market lows that we saw last year.
According to a recent survey of economists by Bloomberg, many economists agree with my assessment of the package: Obama’s Stimulus Not Enough to Stop Biggest GDP Drop Since 1946.
The consensus estimate is now that the U.S. GDP will drop by 2% in 2009. This is half a percentage point higher than what economists were forecasting last month. Even with the passage of the stimulus plan, economists are still predicting that the unemployment will surpass 8% through 2010 (I still personally believe that the watered down measure of unemployment that is reported by the BLS will hit low double digits before we're all said and done).
Economists are now estimating that there is only a 53% chance that the United States will escape this recession at some point in the next twelve months (down from an estimate of 55% last month). I personally believe that things won't stabilize until some time in 2010 and that recovery will be very slow.
Both parties, the Republicans and Democrats, in Congress and the Senate are a bunch of stooges. The only way for the government to pull us out of this mess now that an ineffective stimulus package has been created would be to intervene in a massive way and lower mortgage rates to 4% - putting a temporary floor under housing and more money into consumers' pockets, or to print so much money that the value of the dollar falls - making what little we export here in the U.S. more attractive to foreign countries and creating inflation that would prop up asset prices.
I am not necessarily advocating these things, both of these would likely either be either temporary fixes or have terrible side effects, but in my opinion now that the stimulus package can't be changed they are the only options left that will work.