Tuesday, February 10, 2009

Stimulus showdown in Washington

Business Times - 11 Feb 2009


COMMENTARY Stimulus showdown in Washington

IN CASE you have been gripped by a sense of nostalgia for the high political drama of the 2008 US presidential race, the current fight in Washington over the economic stimulus plan being promoted by the Obama administration - and challenged by Republicans - could provide you with at least some temporary relief.

No one seriously doubts that President Barack Obama is going to win the current fight over the fate of the proposed US$800 billion government spending and tax cut plan. The US House of Representatives has already approved the earlier Democratic version of the stimulus plan legislation without any support from Republicans.

And the Senate is expected to approve a watered-down version of the House bill totalling about US$827 billion, and that would consist of about 60 per cent spending and 40 per cent tax. The bill is being supported by 58 Democratic and Independent Senators joined by a small group of moderate Republicans.

But President Obama, who was hoping to enlist the support of more Republicans, has been trying to boost public support for his plan by engaging in election-style campaigning around the country and by holding his first news conference on prime-time national television on Monday evening.

To put it in simple terms, Republicans want a smaller stimulus package that is targeted less on government spending and more on tax cuts, which is exactly the opposite of what Democrats want. Mr Obama and the Democrats are clamouring for a very ambitious federal programme, dubbed the New-New Deal, that calls for huge emergency spending on construction projects and other programmes that would create jobs as well as a large increase in spending on education, health and welfare.

Negotiators representing the House and the Senate now would have to reconcile the House and Senate bills into legislation that would be signed into law by President Obama. The president and his aides are hoping that the president's boosting of his programme with campaign-style events, including public appearances in Elkhart, Indiana and Fort Myers, Florida - two towns that have experienced double-digit unemployment rates - would put pressure on more Republicans to support a bigger stimulus package. Speaking yesterday in Elkhart, Indiana, President Obama said that America was facing 'an economic crisis as deep and as dire as any since the Great Depression', stressing that 'we can't afford to wait. We can't wait to see and hope for the best.' He predicted that the plan would help jump-start the economy and create close to four million new jobs.

The White House is pushing for a vote on the final version of the stimulus package before the end of the week.

It is hoping that the momentum will allow Mr Obama to press for Congressional approval of the administration's second leg of his economic programmes: the plans to spend the second half of the US$350 billion of the TARP (Troubled Asset Relief Program) money on stabilising the US financial system.

There is not much enthusiasm among both Republican and Democratic lawmakers for TARP and for the idea of extending more government-backed financial assistance to Wall Street.

But US Treasury Secretary Timothy Geithner and other Obama administration officials are insisting that they need to spend the second half of the TARP funds, and that the rescue plan that they prepared would help loosen the credit markets that provide the loans for consumers and businesses, and would permit them to deal in an effective way with one of the major problems facing financial institutions: the so-called toxic assets.

While President Obama and the Democrats have argued that the stimulus package would help reduce unemployment, Republicans have countered by suggesting that much of the new spending would go to wasteful government programmes and would raise the government deficit to dangerous levels.


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