Has The Economic Stimulus Failed?

I read an article in yesterday's USA Today about a survey of corporate CEO's, who were asked if they thought the economic stimulus had succeeded. Sixty percent said they thought it had failed to have the desired affect on the economy and only 23 % said it had been a success.

I've written before that in my opinion it has been a failure. While some banks were saved, at least in the short term and the automakers and AIG got some relief, where is the overall stimulus to the economy. Infrastructure benefited, but while infrastructure is in much need of repair and updating, I doubt we'll see much job creation there. So you have banks, automakers, an insurance company and infrastructure, none of which have created jobs in any great degree. Without job creation and the resultant increased consumer spending, the stimulus package has to be considered a failure. Would we have lost more jobs and been worse off without it, maybe and maybe not.

I believe that the money would have been better spent by sending out rebates to taxpayers. If the money had been put in the hands of taxpayers, it majority would have been spent, boosting the economy by keeping the money in circulation. The banks did not keep the money in circulation, they hoarded the money, paid out bonuses and tightened consumer and business credit, worsening the economic situation. When consumers spend, retailers benefit, they keep their employees working. Manufacturers benefit by increased orders and they keep their employees working. Government benefits by increased revenue through payroll and sales taxes, so they keep their employees working. The restaurant and other hospitality industries benefit because more people are working and have more to spend on their services. When the money is given to a limited group, ie. banks, insurance, infrastructure and automakers, only the people in those industries benefit. When it is given to taxpayers who spread the money around, everyone benefits. If the government gets any of the taxpayers money back from TARP, I believe they should seriously consider sending it out in the form of tax rebates to taxpayers and maybe we'll actually see some improvement in the economy. If not, with the job market still hemorrhaging jobs and consumer spending down, I believe we're looking at a slow and drawn out recovery at best.

A Second Stimulus?

While talk is circulating among top Democratic leaders about the possible need for a second stimulus plan, the Republicans are wasting no time putting Obama and the Democrats in the hot seat for lack of results from the original stimulus package. Personally, I've seen no improvements in the economy other than some stabilization in financials and the auto industry. I tend to agree with some who think that any further stimulus package should include payouts to taxpayers, legal citizens of the United States. If they want to get the economy moving, give the money to the people who will put it back in to the economy, i.e. consumers. The banks have horded stimulus money, while at the same time increasing the burden on the taxpayers through fee and interest rate increases. If you're not helping the cause, then you're hurting the cause. Charging more fees and higher interest rates while cutting charge limits is not going to get consumers spending again. I personally have stopped using credit cards entirely.

The real bottom line is, we are not going to see the economy improve until people go back to work. An unemployment rate of 9.5 % will continue to drag the economy down and now experts are saying it could go as high as 11 %. That's a great deal above the what Democrats predicted with the passage of the economic stimulus, so I think the Republicans and the American taxpayers are right to be throwing some hard questions towards the current administration.

Given all this, I think the stock market will remain down for the better part of this year and in to 2010. It does present some great buying opportunities, the price of good companies being down along with the bad. But it does call for investors to be very selective. As I mentioned in an earlier post, I've recently invested in Proshares TWQ fund, which shorts the Russell 3000 index, as a hedge against falling stock prices. I'm doing this on an experimental basis and while it is too soon judge overall effectiveness of this strategy, the price per share did go up as the overall market fell earlier this week. The real test will be its' effectiveness over a longer period of time. I'll keep the readers posted on how it's working out.