Obama-Pelosi Stimulus May Fail to Reignite Economy

President-elect Barack Obama and House Speaker Nancy Pelosi may throw as much as half a trillion dollars worth of stimulus at the economy — and have little or no growth to show for it.

The forces arrayed against recovery, including the credit contraction and cutbacks by consumers, are so powerful that they may overwhelm the record sums of spending and tax cuts being discussed in Washington. The only consolation, economists say, is that without the stimulus, things would be even worse.

By Rich Miller, Bloomberg

Speaker of the House Nancy Pelosi speaks during a news conference ...
Speaker of the House Nancy Pelosi speaks during a news conference on Capitol Hill.  Democrats in Congress Monday launched a new multi-billion dollar drive to save the US auto industry, but the White House warned against draining funds from a huge finance industry bailout.(AFP/Getty Images/File/Brendan Smialowski)

“It’s hard for me to imagine we’ll have a return to positive growth before the fourth quarter of 2009, even with a $500 billion stimulus,” says Barry Eichengreen, an economics professor at the University of California, Berkeley. He sees the unemployment rate rising to 9.5 percent in early 2010, from 6.5 percent now.

The first dose of fiscal medicine might come within weeks, following the return of Congress today for a lame-duck session, and would focus on stepped-up government spending. The balance, including a tax rebate, would come after Obama assumes the presidency in January.

Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, says the economy may contract 2 percent next year without a package of at least $300 billion. With it, “we could get growth pretty close to zero,” he adds. That would still be the worst result since 1991.

A `Bolder’ Approach

“The breadth and potential depth” of the crisis call for a “bolder” approach, Obama economic adviser Gene Sperling said in congressional testimony Nov. 13. A package costing $300 billion to $400 billion “should be the starting point….

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http://news.yahoo.com/s/bloomberg/20081117/pl_bloomberg/aez
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