10 February 2009

Obama: Spend Now or Face Catastrophe Later

Senate passes stimulus bill; next step is conference with the House

Senate Majority Leader Harry Reid talks to reporters after the Senate passed the stimulus bill.

By Karen Calabria
Special Correspondent

Washington — The U.S. Senate passed its version of an economic stimulus bill, one that would pump more than $800 billion into the U.S. economy through a combination of public spending and tax cuts.

The bill, which passed February 10 by a vote of 61 to 37, now must be reconciled with an earlier, different version passed by the House of Representatives. Congress hopes to achieve a compromise between the two bills quickly, in an effort to stimulate the economy by spending on infrastructure improvements, renewable energy projects and health care.

The House version includes more spending on education and federal aid to the state governments, while the Senate version includes more tax cuts. The price tags of the stimulus bills are close. (The Senate version costs $838 billion; the House version, $819 billion.)

Any final legislation likely to make its way to President Obama’s desk will straddle the differences between the two packages, but more closely resemble the House version, according to Gus Faucher, an analyst with Moody’s Economy.com.

The White House is hopeful that a compromise will emerge by the end of the week, before Congress breaks for a Washington’s Birthday recess February 16. President Barack Obama urged swift action and called on Congress to put aside partisan politics to avoid a downturn of catastrophic proportions.

“The plan is not perfect. No plan is,” Obama said, responding to critics February 9, the eve of Senate passage, during his first news conference as president. “But … doing a little or nothing at all will result in greater deficits, even greater job loss, even greater loss of income and even greater loss of confidence.”

On February 9 the president visited Elkhart, Indiana, where the unemployment rate is over 15 percent, and called for economic stimulus.

“There’s enough political pressure now … that will push a compromise out this week. If we wait too long, we’ll have lost the momentum and may see nothing at all,” said David Cross, president of the financial consulting firm Market Outlook.

But the results of the measure, once passed, are more difficult to predict. Because the current economic climate is unprecedented, analysts predict the benefits may be felt as early as three months from now or as late as 2010.

“We’re well past the point where anyone’s model works. It’s a big stab in the dark,” said Charles Morris, author of The Two Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash.

The U.S. stimulus package is just one of many being sponsored around the globe in an attempt to stem the sharp decline in worldwide economic growth, expected to fall from 3.5 percent in 2008 to 0.5 percent in 2009, according to a report released by the International Monetary Fund.

China announced a $585 billion spending-heavy stimulus package late last year, with funds tagged for infrastructure development, including low-income housing, electricity and water projects, and the creation of disaster-relief programs.

Germany, in addition to its contribution toward a European Union $259 billion stimulus package, has injected more than $104 billion into its economy, with greater emphasis on tax incentives than infrastructure spending.

Despite these and other initiatives, most countries are eagerly awaiting the passage of an American stimulus plan in hopes that the ripple effects will shore up their own economies.

“The American recovery is going to start before [anywhere else],” predicted Tu Packard, a senior economist with Moody’s Economy.com. “When it recovers, it will be like the locomotive that pulls the rest of the train with it.”