President Barack Obama went on the PR offensive against the members of Congress that are not supporting the stimulus package.
Appearing in his first prime time press conference, the President stated that, "And if there's anyone out there who still doesn't believe this constitutes a full-blown crisis, I suggest speaking to one of the millions of Americans whose lives have been turned upside-down because they don't know where their next paycheck is coming from."
Clearly, Obama was taking umbrage with comments over the weekend by Republican Alabama Senator Richard Shelby who said the stimulus plan was a "financial disaster."
The President kept up the harsh tone by saying, "Now, my administration inherited a deficit of over $1 trillion, but because we also inherited the most profound economic emergency since the Great Depression, doing little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence. Those are deficits that could turn a crisis into a catastrophe, and I refuse to let that happen."
Lastly, he had this to say for where the blame should lay for the crisis. "What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies based on shaky assets and because of the enormous leverage, where they had $1 worth of assets and they were betting $30 on that $1, what we had was a crisis in the financial system."
Couple with his speech earlier in the day from Elkhart, Indiana, the President pressed his case to get the Senate to bring their version of the stimulus plan to a vote and pass it. Last night on a procedural vote, the Senate passed a resolution to cut off debate by 61-36 with only 3 Republican Senators voting for it. Susan Collins, Olympia Snowe, and Arlen Specter gave the Democrats the victory and the stimulus bill is expected to pass today. The goal is for House and Senate conferees to come to an agreement and have a compromise bill on the President's desk for signing on (drum roll please) Presidents Day.
As I've been writing for some time, this is a short term positive long term negative for the economy.
However, the negative component rests with whether you believe the US government will address the massive hole in their finances or not. The President rightfully pointed out that he inherited a $1.2 trillion deficit and an economy in severe recession. And as he says, this bill is not perfect. These are true, but there are things that can be done to assure the markets and our kids that the government will do everything they can to correct the massive amount of debt that will be issued to pull us out of the crisis. Unfortunately, there was no discussion of "sunset" provisions in last night's press conference.
For the markets, the bond market is already extremely nervous over the issuance that is coming over the next two weeks. This week has $67 billion alone in auctions with $32 billion in 3yr notes on Feb 10, $21 billion in 10yr notes Feb 11, $14 billion in 30yr bonds Feb 12. Here's what the future looks like for Treasury borrowing needs: Q1 $493 billion and Q2 $165 billion. Already, the US 10 yr note yield has risen 100 basis points from the low in December.
What will help will be the US Federal Reserve buying the long end of the US Treasury market to keep rates from moving higher. Last night, Dallas Federal Reserve President Richard Fisher said, "The Federal Reserve must, of course, be very careful to avoid the perception that it is monetizing the explosion of fiscal deficits, as this would undermine confidence in our independence and raise serious doubts about our long-term commitment to price stability. This does not mean, however, that we should refrain from buying Treasuries in this time of crisis."
So we have a President warning the markets about dire consequences with no action on the stimulus plan. We have the Federal Reserve indicating they will help keep a cap on interest rates to ensure the massive debt generated by the stimulus & bank rescue plans don't force interest rates higher. In the short term, all is good. In the medium term, money supply will jump and put pressure on the US dollar. And someone has to find a way to pay for all this spending.
I guess the only sunset you can count on will be on the Bush tax cuts.