Will The Obama’s New Stimulus Package Be Enough To Turn The Economy Around?
As President Obama takes office, all of Wall Street will be watching to see if his new proposed stimulus package will be enough to turn around a floundering economy. Estimated at somewhere around $850 billion, together with the second half of the bank rescue funds of TARP, they will try to stabilize a financial system that has been frozen since the fall.
Lending has ground to a halt as many financial institutions try to shore up capital because their balance sheets are filled with hard to value assets with the breakdown of securitization markets. As financial institutions continue to de-leverage themselves, the existing credit pool will continue to shrink.
The flow of credit needs to be re-established and a portion of the TARP funds is planned to be used to forestall rising foreclosures. The recovery of the housing market will be an essential first step for any turn around of the economy.
Consumer spending has taken a big hit as Americans’ confidence in the economy continues to wane. Once funds from the stimulus package reach the general public, spending should be propped up for a few months as was the case with the previous stimulus package.
Unemployment figures are also quickly becoming a major concern with the economy losing jobs for the twelfth straight month. Those figures would have skyrocketed were it not for the government rescue of the auto industry in December.
We haven’t seen this kind of government involvement in the economy since the Great Depression and despite the increasing similarities to a state run economy, there is widespread public support for the government’s actions. Many Americans have lost trust in the system and it will be up to the government to regain that trust.
