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Posts Tagged ‘Fiscal Stimulus’

Paul Krugman, who won the Nobel Prize in economics this year, speaks about the state of our economy at the National Press Club.

Here’s the best part of his hour long speech:

Start around the 4 minute mark, and follow through until the end – this is the part of his speech where he breaks away from his notes and speaks about the practicality of a bailout package.

Some fun facts from the speech:

  • The Multiplier Effect of government spending is $1.50 for every dollar of fiscal stimulus; if we had a bailout package of $850 billion, the effect on the real economy would be $1.275 trillion.
  • GDP needs to grow by 2% in order to eliminate 1% of unemployment; the real effect of the stimulus package would be around 9% of our GDP (1.275/14), eliminating 4.5% unemployment…Krugman estimates that unemployment will be around 9-10% by year end. Therefore, on the surface, this stimulus would set the U.S. off into a world of full employment, but we must consider how quickly we can spend the money (which believe it or not, is the hard part).
  • Finally, we’veĀ  concluded that infrastructure would be one of the best targets of fiscal spending (besides technology). However, estimates show that there are only $150 billion worth of “shovel ready” jobs, or projects which can be started in 6 months (at the earliest). This means we will have to get creative in our methods of spending – green collar jobs, fix bridges, retrofit buildings, upgrade our electrical grid from AC to DC (which would allow our electrical lines to go under water, allowing us to build wind farms in the middle of the Atlantic Ocean).

Hat-tip to Paul for the video.

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Halt trading – give these computer drone traders a vacation, and let them come back to reality. Let congress vote on the future of General Motors, Ford, and Chrysler; whatever the result may be, let it settle without any trading.

If they choose to let the Big 3 file bankruptcy, they should facilitate it such that the American Autos have temporary access to a credit line. This would allow them to carry on business as usual without closing their doors; as they try to keep creditors away, they can straighten out their business model and break the unions, all while preventing a Chapter 7 bankruptcy – which would lead to liquidation and 100,000 jobs lost.

From here – during the halted trading – the SEC should reinstate the uptick rule, which should temper the volatility going forward (as we saw, banning short selling on Financials is NOT the answer…as soon as it is lifted? Bombs away!)

There should be nothing hindering any of the above actions, except the bureaucratic nature of our government, which we no longer have time for at this juncture.

While we’re at it, we might as well consider an interest rate cut, as it should at least have a placebo effect on the markets…the reason I say that is the effective Federal Funds interest rate has been well below the targeted 1% for quite some time:

effective-fed-funds

As for Barack Obama, he should take preliminary action in appointing some cabinet members; get an all-star team of financial geniuses for a special committee – Buffett, Summers, Volker, Soros, Roubini – some of the smartest people in the world live in this country, and their talent should be utilized.

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