Jan.18, 2008 12:55 pm
President George W. Bush has proposed a stimulus package of 1 % of the US GDP amounting to some 140 billion dollars.The third quarter estimate of the GDP by the bureau of statistics was 13.97 trillion dollars.
This is a good decision on his part that hopefully will be agreed to by the Democrats. The President's package includes tax rebates that hopefully disproportionately target the moderate and lower end of the income scale as well incentives for business to undertake necessary job producing investments. It is not clear whether money will be made available for infrastructure investment or whether that will be announced in a separate proposal given the capital works nature of the investments.
If implemented swiftly the stimulus should help although it may not be quite large enough to accomplish all that is needed.For the moment the stock markets have not reacted favourably with some analysts seeing the package as too small. Time will tell. But it is an excellent start and Bush deserves credit for recognizing the size of the problem and his willingness to use Keynesian measures. He should also be wary of those members of the Federal Open Market Committee like Dr. Jeff Lacker of the Reserve Bank of Virginia who are warning that overall inflation is rising too quickly and may need to be addressed in the immediate future with rises in rates.Lacker accepts the need for lower rates for the moment but his willingness to publicly announce in a speech that rate rises may be required in 2008 because of overall as opposed to core inflation rate increases is not helpful in the current circumstances.Better that he should have kept this view to himself for the time being.
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