Word: stimulus
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...Then a not-so-funny thing happened on the way to rebalancing: the worst economic crisis since the Great Depression. The Chinese response to sharp declines in manufacturing and exports has been cheered for its effectiveness. Government stimulus spending and loose credit powered the country's economy to an 8.9% growth rate in the third quarter, and the most recent Purchasing Manager's Index (PMI), a widely watched gauge of economic sentiment released on Oct. 30, rose for the eighth straight month. It now shows "sustained expansion in industrial activity," says Jing Ulrich, managing director at JPMorgan in Hong Kong...
...political back-and-forth on the stimulus bill is the ultimate in bunk, though, because it ignores most of the fiscal stimulus provided by Washington so far. Anytime the Federal Government spends more than it takes in, it creates fiscal stimulus. That stimulus (deficit) was $1.4 trillion for the just-ended fiscal year, up about $1 trillion from the year before. The stimulus bill accounted for just $200 billion of that increase, according to the Congressional Budget Office. Bailing out banks and other financial firms cost $245 billion. A $419 billion drop in tax receipts (due mainly to recession...
Unemployment has of course passed both those mileposts and is probably still rising. ("I have noticed," Bernstein says dryly.) This overshoot says more about the inadequacy of economic-forecasting models than about the efficacy of the stimulus. But the White House cites these same kinds of models in claiming that the stimulus added between 2 and 3 percentage points to economic growth in the second quarter and 3 points in the third quarter. This may be correct as far as general direction - my unscientific assessment (a.k.a. guess) is that it is - but the exact numbers are probably bunk. (Read...
...hear constant political debate about these other stimulus efforts? Presumably because they were the result of bipartisan legislation or were the doing of the nonpartisan Fed. That is to say, the Obama Administration can't take full credit for the bulk of the stimulus, and the Republicans can't disown it. So neither side talks much about it. Over the coming year these other forms of stimulus will - one hopes - be ratcheted back, while stimulus-bill spending will peak. At that point the great stimulus debate might actually start to matter. Until then, there's better football to be watched...
Read "What Happened to the Stimulus...