Congressional Budget Office Reviews Stimulus Bill

[Gaspar]

That's exactly what we wanted.

The huge economic stimulus package that President Obama signed into law Tuesday will result in "lower wages" for American workers, according to the Congressional Budget Office (CBO).

Ok, help me out here, NOW the Congressional Budget Office (the economic advisory board to the President of The United States) is saying that this bill that the President signed before it could be analyzed thoroughly by the Congressional Budget Office (the economic advisory board to the President of The United States) will cause more damage to the economy?

And they go on to explain. . .

The analysis concludes that the stimulus will put downward pressure on Gross Domestic Product (GDP) and wages after 2014.

In its analysis, the CBO predicts that the American Recovery and Reinvestment Act will increase GDP through 2014. However, in the following years, "the legislation is estimated to reduce GDP by between 0 and 0.2 percent."

That decrease will not come from lack of employment, which the CBO predicts will increase by between 800,000 and 2.3 million jobs in the fourth quarter of 2009 and up to 3.6 million by the fourth quarter of 2010.

"The effect on employment is never estimated to be negative, despite lower GDP in later years, because CBO expects that the U.S. labor market will be at nearly full employment in the long run," the CBO report states.

But the analysis adds, "The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because capital stock is smaller."

A previous CBO report said that with interest on the debt, the recovery package will cost $1.1 trillion. The Feb. 11 analysis says, "To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital."

It continues, "In economic parlance, the debt would 'crowd out' private investment." The analysis further says that "crowding out is unlikely to occur in the short run under current conditions because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.

Perhaps President Obama will stop "Winging it" now?

716 hours in office and the largest spending bill in the history of the united states.

(please insert reference to GWB war spending in response to this post)

[cannon_fodder]

To play devil's advocate...

if we were going to blow $1,000,000,000,000 I'd rather blow it State side than in the Middle East.


More earnestly, the repercussions of massive government spending are fairly well known in Keynesian economics (as well known as economic theory is, anyway).  A short burst, and we pay for it later.  We pay for it in potential inflation, in the reduction of capital available for the private sector, in interest payments from the Federal Government, in potential debt problems at the Federal Level (we do not have unlimited credit), and in ways we may not foresee.  

Personally, the pitfalls of lower productivity (and thus decreased wages and GDP) didn't occur to me.  I haven't thought this out in it's entirety, so interesting tidbit.  Also worth noting that no matter where this money was spent - this would apparently be a result.  So it is the spending, not WHERE it is spent that is the issue.

Basically, both parties would have caused this result.

[Conan71]

Well, sounds like CBO and the FED are at odds as per the news the FED was pumping yesterday about higher u/e through 2011.  

FED says less jobs, CBO says more jobs, but our standard of living will be like the maquilladoras, eh?  So let's see here, lower wages, and that creates demand for what?  Cheap labor.  Where's our cheap labor pool?  Amnesty and open borders are coming next because we all know terrorism and the take-over by illegals is totally over-blown.

http://news.yahoo.com/s/ap/20090219/ap_on_bi_st_ma_re/wall_street

Seems like everytime Obama or Geither open their mouths, the market plunges.  Of course the tin foil hat crowd would have you believe the beating down of the markets is Mr. Soros' quid-pro-quo so he can short the Dow. []

[guido911]

quote:Originally posted by Conan71

Well, sounds like CBO and the FED are at odds as per the news the FED was pumping yesterday about higher u/e through 2011.  

FED says less jobs, CBO says more jobs, but our standard of living will be like the maquilladoras, eh?  So let's see here, lower wages, and that creates demand for what?  Cheap labor.  Where's our cheap labor pool?  Amnesty and open borders are coming next because we all know terrorism and the take-over by illegals is totally over-blown.

http://news.yahoo.com/s/ap/20090219/ap_on_bi_st_ma_re/wall_street

Seems like everytime Obama or Geither open their mouths, the market plunges.  Of course the tin foil hat crowd would have you believe the beating down of the markets is Mr. Soros' quid-pro-quo so he can short the Dow. []

At what point can we say "Obama's Fault." We have had the huge "stimulus" bill, salary caps on executive pay, talks of TARP II, and the mortgage bailout proposal--all on Obama's watch. Where has the market gone?

[Conan71]

The media is revelling in doom and gloom right now.  Take everything down as low as possible now, then even mediocre results of all these initiatives in three years will make the Obama team look like a bunch of geniouses.

The set-up and campaign for '12 is already starting.

::Hands cannon_fodder his tinfoil hat back::

[we vs us]

So if the report thinks the stimulus package puts us at nearly full employment by 2014 (which actually evens out to 5% or lower unemployment rate), where will the downward pressure on wages come from?  

They seem to place the blame on reduced "capital stock," which seems to indicate that business will in general just have less money to pay people with.  I'm not sure I understand why that would be.  

At the same time, the idea that government debt could "crowd out" private investment seems weird, too. I'm not sure how that works.  The quote from Gaspar says "To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital." Which seems to say that people will keep their debt in government bonds and not in private investments, hence defunding business capital across the board (and hence keeping down wages).  

I'm not sure how much I buy that.  At some point during a recovery, the attractiveness of private investment is likely to increase as private companies rebound . . . especially as stocks rise again, and dividend payouts increase.  In other words, it's not a static situation.  Keeping capital gains taxes in the 15% range -- which, last time I checked, Obama wanted to do -- should theoretically encourage more investment, not less.  And, you know, if hoarding behavior persists to the point that the system is unbalanced (which the CBO report seems to rest its alarmism on), we can, in fact, rejigger policy as needed.

Oh, and PS, at some point in the near future, there will be at least $350 billion in TARP funds making their way into the general economy in the form of loans made by the banking and financial industries.  And as far as I can tell, THAT'S where the problem is going to be.  Having that much liquidity in the system might help sop up bad credit debt now, but at some point, it'll make its way back out into circulation.  And then?  Look out inflation!

[USRufnex]

geez... the guy has been president for one month..... you know, Bush was president for a good part of a year... yet you republican wingnuts decided to blame Clinton for 9/11... keep it up, hypocrits... the right wing is gonna look as attractive as the leftists were after four years of Reagan back in 1984....

[Conan71]

quote:Originally posted by we vs us

So if the report thinks the stimulus package puts us at nearly full employment by 2014 (which actually evens out to 5% or lower unemployment rate), where will the downward pressure on wages come from?  

They seem to place the blame on reduced "capital stock," which seems to indicate that business will in general just have less money to pay people with.  I'm not sure I understand why that would be.  

At the same time, the idea that government debt could "crowd out" private investment seems weird, too. I'm not sure how that works.  The quote from Gaspar says "To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt would tend to reduce the stock of productive private capital." Which seems to say that people will keep their debt in government bonds and not in private investments, hence defunding business capital across the board (and hence keeping down wages).  

I'm not sure how much I buy that.  At some point during a recovery, the attractiveness of private investment is likely to increase as private companies rebound . . . especially as stocks rise again, and dividend payouts increase.  In other words, it's not a static situation.  Keeping capital gains taxes in the 15% range -- which, last time I checked, Obama wanted to do -- should theoretically encourage more investment, not less.  And, you know, if hoarding behavior persists to the point that the system is unbalanced (which the CBO report seems to rest its alarmism on), we can, in fact, rejigger policy as needed.

Oh, and PS, at some point in the near future, there will be at least $350 billion in TARP funds making their way into the general economy in the form of loans made by the banking and financial industries.  And as far as I can tell, THAT'S where the problem is going to be.  Having that much liquidity in the system might help sop up bad credit debt now, but at some point, it'll make its way back out into circulation.  And then?  Look out inflation!

I thought the gov't was complaining that the TARP funds weren't making it into the economy.  Or are we talking about TARPII, or TARPIII at some point later this year?

One great big elephant in the room that seems to be getting ignored is the caustic effect of rampant commodity costs up to July, then the sudden fall-out to about 25% to 50% depending on the commodity.  

Consumers and businesses got artificially sucked dry with those inflationary pressures, now the sudden drop has apparently killed a lot of hedge plans.  A lot of companies took a beating on the way up and a lot are taking it on the way down.  

It's amazing to see the difference in bottom lines in energy stocks in the last six months.  This means a lot of exploration and development projects are being shelved, orders are getting cancelled and support and infrastructure companies for the oil patch who were going great guns a year ago are laying people off and shuttering plants.  Same can be said for a lot of industries heavily reliant on raw commodity goods.

Here's part of the the psychology that's driving investors out of stocks:

If a publicly-held company BK's, shareholders are often left holding the bag.  In a depressed business environment, assets are seldom going to bring enough to repay shareholders a portion of their investment in the stock.  There are a lot of baby-boomers holding stock funds and individual shares who are scared ****-less right now who have seen their retirement accounts shrivel up in the last year.  There are no sacred cows on the stock market right now, virtually everything is eating a big ****-burger.  Contraction of stock prices is accepted at this point, it's trying to find stocks that will shrink the least and offer survival and the the best long-term potential returns that people want to find.  But with daily assaults of bad news on earnings and general economic gloom, it's hard to get anyone excited about investing in equity markets.

Other part is, a lot of people have thought the market had bottomed, but it keeps finding ways to go lower and that's starting to spook a lot of people who really thought it was as bad as it could get.

Stocks become worth less and the borrowing power of a company dries up with that.  Capital expenditures get put off or cancelled and it ripples throughout the economy.  Oil and natural gas projects are getting tabled right and left.  That's when this area will finally feel the pinch later this year.

What have we witnessed the gov't doing?  Promising to make companies and individuals whole.  Invest in government debt because the gov't won't leave you holding the bag.  Government will just keep printing more money and make everyone whole, right?  The gov't wants to come in and spend the money now and update our infrastructure.  I can't argue that we are in needs of updates and infrastructure is, IMO, an expected part of gov't.  We are reasonibly sure we will get our end product out of gov't.  We are much more sure we will get back our investment in the gov't, it's much more questionable about private enterprize.

There's some great rewards awaiting those who are willing to venture into the market right now.  However, there's always the chance the Dow could still collapse to 5000.  Unlikely, but there is that chance.  No one would have figured it would be almost half it's all-time high in just over a year and a half, so anything seems possible at this point.

It takes a fairly sophisticated investor who has time to pay attention to the market to short stocks and make money.  IMO, shorts aren't helping the market either.  As long as there is incentive to make money by shorting stocks, that will drive money away from equity markets as well.  Perhaps the SEC or DOC should step in and come up with some limits on shorts for the time being.

[guido911]

quote:Originally posted by USRufnex

geez... the guy has been president for one month..... you know, Bush was president for a good part of a year... yet you republican wingnuts decided to blame Clinton for 9/11... keep it up, hypocrits... the right wing is gonna look as attractive as the leftists were after four years of Reagan back in 1984....

When are you going to stop spooning with Obama? Really, I think you love with this guy and its starting to creep me out a little.

[Conan71]

quote:Originally posted by guido911

quote:Originally posted by USRufnex

geez... the guy has been president for one month..... you know, Bush was president for a good part of a year... yet you republican wingnuts decided to blame Clinton for 9/11... keep it up, hypocrits... the right wing is gonna look as attractive as the leftists were after four years of Reagan back in 1984....

When are you going to stop spooning with Obama? Really, I think you love with this guy and its starting to creep me out a little.

It started on an ell train in 1994 when Obama was a community organizer, I think...

It's kind of a triangle with Dick Lugar.