Not to say I know what the heck I am talking about, but didn't I say that we needed a bigger boat?
That Obama's first Stimulus was woefully inadequate?
That it was $2-3 Trillion Short?
That is didn't attack the prime cause of the credit problem?
http://tradersutra.blogspot.com/2009/02/obamas-stimulas-package.html
Now there is talk of more stimulus no doubt to prop up failed banking institutions like Bank Of America.
Why the stimulus talk at this moment? Why cant Obama, Romer, Geithner, and other inner circle members just let the banks earn their way out of this mess? They were doing such a nice job fraudulently inflating 1st QTR Earnings weren't they?
This is why:
In the weeks just before Obama took office, his inner circle of advisers alerted to him that there was hope for the economy coming out of the recession by the 3rd qtr, that a quick economic stimulus package would help assist this.
To convince Obama and make the case for a stimulus package they released their economic forecast for the next few years. "Without the stimulus", they saw the unemployment rate then 7.2% rising above 8% in 2009 and peaking at 9% next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year. We all know that was smoke and mirrors, because the jobless rate is currently 9.5% and rising. The Obama brain trust missed the number by only 2.5 million lost jobs, they all must moonlight at Bank Of America on the weekends.
Why were they so off?
Did the Stimulus Fail?
Has the economy deteriorated further in spite of the stimulus?
Most people say the later, I think its a combination. The stimulus at the heart of the matter was not enough. We needed 2-3 Trillion in Stimulus to make a dent in what was lost during the credit meltdown, so in that regard it failed. It also failed because it gave failed banks a lifeline, when the cord should have been cut. But in the greater picture, the first stimulus averted sure credit/economic disaster, but its long term impact will be minor. Thus the need for Stimulus 2.
What the Obama crew misdiagnosed was the following:
That the glaring problem with the economy was lost jobs, and how that propagates to housing and rising loan delinquencies.
How in the world can these "supposed smartest of the smartest" get it wrong, the basic problem? The 2.5 Million job gap?
This gap is just far too large to be explained by the stimulus. No stimulus package could have come close to preventing 2.5 million job losses over six months.
For starters, a stimulus package doesn’t affect the job market immediately because most employers don’t hire or fire workers as soon as they sense their business shifting. That’s why economists refer to employment as a lagging indicator.
When private economists began analyzing various stimulus proposals in January, they said that none would have a major effect on the jobless rate until the end of the year. By June, the effect would be only a few tenths of a percentage point, which translates into several hundred thousand jobs.
The stimulus that passed may in fact be having an impact of roughly this scale. Consumer spending, after plummeting late last year, is up slightly this year, despite a continuing rise in the savings rate. This combination suggests that spending would still be falling if not for the tax cuts in the stimulus.
So the Stimulus is trying to do the job for what its worth, but the economy is not.
I am not blaming Obama and his people for missing this, although they relied on the same forecasting models that had completely failed to see the crisis coming.
These models, which are also used by Wall Street and various research firms, do a decent job most of the time. But they are notoriously bad at forecasting turning points because they are based on an assumption that the recent past will more or less repeat itself.
Clearly, recent economic history is not going to repeat itself. It included two huge asset bubbles, first in stocks and then in real estate. The models came to treat those bubbles and the additional consumer spending they caused as the new normal. When asset prices began falling, the models couldn’t keep up, with either the pace of declines or the economic damage they were causing.
The Obama Brain trust believed the same models that AIG was using to blow up the CDS Market.
A week ago - Christina Romer, a senior Obama economist stated to the Financial Times:
http://www.ft.com/cms/s/0/2cb7a6a8-641a-11de-a818-00144feabdc0.html
It’s hard not to look back on the last six months and worry that the administration is still underestimating the severity of the situation.
Credit has been zapped out of the economy. Consumers are leveraged to the hilt, yet the ones that make the decisions are clueless to whats actually happening.
The larger point is that, even if the optimists are right this time, the economy is not going to feel remotely healthy anytime soon. Since jobs (and incomes) are a lagging indicator, the unemployment rate will probably surpass 10% this year and remain above 10% well into next year. Long after the experts say the economy has turned, it is going to feel pretty bad.
So get ready for episode 2 of "As the Stimulus Turns".
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