Will Stimulus Save the Economy? Economists Disagree
Economists differed on whether the stimulus package being debated on Capitol Hill will reverse US economic fortunes, with one market-watcher telling CNBC on Friday that it's still too early to make that call—and another declaring outright that the package won't work in its current form.
“Our view is that the stimulus package will be much less important to the eventual recovery of the economy than the financial rescue package,” said RBS Greenwich Capital Chief Economist Stephen Stanley. “The question is really whether what’s proposed next week is going to work, and the details have shifted every day, and we obviously don’t know what the administration has in mind, so we are going to have to wait and see on Monday.”
Watch the accompanying video for the full Stanley interview.
The administration of President Barack Obama underestimated how difficult it would be to get such a plan through Congress, Stanley said. Still, the market-watcher remained optimistic that the stimulus will be approved in some form or another.
“They’re definitely going to get something through. It feels like the Senate is going to lean a little bit more away from spending and more toward tax cuts,” Stanley said.
The original, almost $900 billion package had been a point of contention between Democrats and Republicans, who felt that it was unnecessarily wasteful. However, it's gaining more support as changes are made to the proposed legislation, including dropping plans for $200 million to fix up the National Mall and several million dollars allotted for family planning education.
See the conversation with Joe LaVorgna in the video below.
Chief U.S. Economist Joe LaVorgna of Deutsche Bank said the plan, which Treasury Secretary Tim Geithner is expected to debut on Monday, will not be the fix that the administration hopes it will be.
“Geithner’s plan is not doing anything to remove the troubled assets. They need to have about a trillion dollars to fund this thing and they are not coming with a trillion dollars,” LaVorgna said. “They have to take these assets, either nationalize the banks or get them off the balance sheets. You can’t do it in piecemeal fashion, its not going to work."