RSS Feed MenuLooks like those TARP dollars will be repaid almost in full. Good news.
But now Democrats in Congress are planning to spend them on something else. This is the much-discussed second stimulus, following on the disappointing first.
Here is John Makin’s analysis of what went wrong in round 1:
G7 economies and asset markets have, for the most part, stopped hemorrhaging. Tourniquets have been applied and refreshed and have largely staunched the bleeding. Yet the patient–the economy–has lost a great deal of blood, especially in the United States, and huge transfusions of monetary stimulus and badly administered fiscal stimulus are keeping it stable. As we move toward 2010, the effect of the transfusions will be wearing off at a time when not much additional medication is likely to be available.
Avoiding a premature exit from stimulus, which would be driven by wishful thinking about the sustainability of the U.S. economic recovery, while avoiding misguided policy measures tied to the path of the dollar exchange rate will be the keys to sustaining recovery. To state the obvious, “defending” a weakening dollar would require a sharp tightening of monetary policy–raising short-term interest rates–at a time when inflation is falling and output growth is far short of potential. That would be the equivalent of ripping the blood transfusion tubes out of a weak patient’s arm. While the negative federal funds rate implied by the Taylor Rule could moderate during the second half of 2009, when growth will probably turn out to average 2.5 percent, it could well reverse again sharply in 2010 as growth slips back below 1 or 2 percent and year-over-year core inflation drifts toward zero.
U.S. private sector demand is weak, as households retrench in the face of falling incomes and a lack of available credit and as firms hold off on capital spending and hiring to contain costs. Given those circumstances, a well-designed fiscal stimulus could have been helpful. A $650 billion one-year payroll tax holiday would have supported spending by increasing take-home pay for U.S. workers while supporting employment by reducing the payroll tax on hiring labor. Instead, the Obama administration has chosen to spend nearly $800 billion on pork-barrel measures and ad hoc nonsense such as “cash for clunkers” and one-time tax credits for first-time home buyers.
The “clunkers” and home-buyer subsidies are, of course, popular with auto producers and home builders who absorb most of their benefits by adjusting prices offered to buyers with incentives from highly touted programs, but the impact is fleeting. U.S. auto sales jumped to an annual rate of 14.1 million units in August only to collapse to a 9.2-million-unit rate in September, with further weakness likely to be reported for October. The brief rise in new home sales during July and August has already begun to fade as the $8,000 tax credit for first-time home buyers is set to expire at the end of November. With regard to the home buyers’ tax credit, no one seems to recall that the housing bubble, and with it the widespread purchase of ultimately unaffordable homes by low-income buyers, was created by such artificial incentives. Why then are more such incentives a good idea at this time? The answer, for both auto- and home-buying subsidies is their political popularity and the cynical members of Congress willing to press for them in the name of good policy. Presidents are supposed to resist such counterproductive measures, but our president always goes along, saying they are good for “working Americans.”
RioRancho // Dec 7, 2009 at 10:00 am
You quote says “U.S. auto sales jumped to an annual rate of 14.1 million units in August only to collapse to a 9.2-million-unit rate in September, with further weakness likely to be reported for October.”
Well, out here in the real word not only are the October numbers already in, but so are the ones for November. Last month car sales were reported at 10.9 million vehicles, up from a year ago, and up from October’s tally of 10.46 million.
September was indeed a bad month for car sales (coming right after the expiration of Cash for Clunkers) but October and November were not just better – they were the best months this year, ex- the 2 “Cash for Clunkers” months of July and August.
In other words, the notion that the only thing that “cash for clunkers” did was borrow sales from the future, and we would have sub-9 million car sales a month for the foreseeable future, is yet another doomer myth.
John Makin is either not qualified to be a commentator or he is pretending an inconvenient fact doesn’t exit – a form of lying in my book.
cpanza // Dec 7, 2009 at 10:41 am
David,
Does the fact that the TARP money will soon be entirely repaid mean that TARP was a success? I remember hearing many pundits at the time claiming that this TARP money was going down a black hole never to be seen again. Clearly that didn’t happen.
BarryS // Dec 7, 2009 at 11:19 am
Hilarious -
In another sign that the Tea Party movement could cause electoral headaches for the GOP, a new poll shows the new conservative brand doing better than the Republican party on a three-way generic ballot.
In a three-way Generic Ballot test, a telephone survey finds Democrats attracting 36% of the vote. The Tea Party candidate picks up 23%, and Republicans finish third at 18%. Another 22% are undecided.
Carney // Dec 7, 2009 at 11:39 am
BarryS, wouldn’t you be gloating also if the GOP were trouncing the Tea Party Party in a poll, as a sign that conservative activism is unpopular? Regardless of the evidence, your conclusion is the same.
sinz54 // Dec 7, 2009 at 11:57 am
Carney:
“BarryS” will be doing a lot less gloating after the November 2010 elections. My guess is that the day after the election, nearly all of the Dem posters will have fled from here.
BarryS // Dec 7, 2009 at 1:15 pm
“BarryS” will be doing a lot less gloating after the November 2010 elections. My guess is that the day after the election, nearly all of the Dem posters will have fled from here.
I fully expect the Dems to loose seats in 2010. It’s history and that will not change. How many, who knows. It will be an anti incumbent election so it’s hard to predict. What I do know is that the GOP is not exactly wildly popular, and that they at present have no real platform of ideas to stand on. We will see.
I guess it all depends on if the Dems have passed a good Health bill and mainly if the economy continues it’s upward path.
BarryS // Dec 7, 2009 at 1:15 pm
Carney // Dec 7, 2009 at 11:39 am
BarryS, wouldn’t you be gloating also if the GOP were trouncing the Tea Party Party in a poll, as a sign that conservative activism is unpopular? Regardless of the evidence, your conclusion is the same.
Absolutely!
balconesfault // Dec 7, 2009 at 1:24 pm
BarryS I fully expect the Dems to loose seats in 2010.
I would add … “if the GOP learned the right lessons from NY-23.”
sinz54 // Dec 8, 2009 at 9:36 am
balconesfault: “if the GOP learned the right lessons from NY-23.”
Actually, the GOP has digested the lesson of NJ:
You can win even in a deep Blue state–IF you stop talking about social issues (and defy the Dem opponent to raise them first), and focus only on pocketbook personal economic issues.
In NJ, social conservatives already knew that Christie was one of them, so he didn’t have to talk about social issues which would frighten away moderates.
That’s a good winning formula nationally.
All The Carp About The Tarp « Around The Sphere // Dec 8, 2009 at 1:13 pm
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