The Guest Blog

Busch: The Stimulating Pork Plan....


This week, President Obama heads to Capitol Hill to meet with Republicans over the administrations stimulus plan.

There have been questions raised over the timing of when the spending hits the economy and the types of spending included in the House bill.

Last week, the non-partisan Congressional Budget Office analysis of the spending stated that most of the discretionary or shovel ready projects would not impact the economy until 2010. This was the point I raised on Friday on CNBC .

The administration's answer to this issue is a letter.

OMB Director Peter Orzag said, "The Congressional Budget Office released an analysis of a component of the economic recovery proposal: that analysis, hover, did not assess the overall package. Our analysis indicates that at least 75 percent of the overall package (including its tax component and other spending provisions that were not analyzed by the Congressional Budget Office) will be spent over the next year and a half (the rest of fiscal year 2009 and fiscal year 2010)."

This was echoed by Larry Summers when he appeared on on Sunday. (Note the long pause he had when he was asked what advice he would give to parents for kids now going to school on how to pay for them.) Most importantly, he stated what I've been warning about for some time. When asked about repealing the Bush tax cuts he said, "I don't think there's any question they have to be repealed. The country can't afford them for the long run." When asked about raising rates during the current extreme recession he said, "....they expire at the end of next year, and they have to be allowed to expire."

The Republicans remain skeptical of the "non-stimulus" stimulus spending. House Republican leader John Boehner of Ohio said, "We presented President Obama with our ideas to jump start the economy through fast-acting tax relief — not slow-moving government spending programs." These "slow moving" or pork category includes many programs that have merit such as the $14 billion in Pell grants to college students or $2.1 billion for Head Start or $50 million for the Endowment of the Arts. However, these don't contribute to goal of stimulating the economy quickly nor do they create lasting new jobs.

Sunday WaPo agrees with an article called "Priming the Pump" "...some in Congress and the new administration apparently see the country's present recession as an opportunity to change the federal government's spending priorities more generally or simply to reward loyal political constituencies. This is understandable, given that the voters endorsed the Democratic Party and its priorities in November. But it's risky to make new, multiyear commitments in the middle of a crisis without debate over competing priorities -- and without paying for them through some means other than borrowing."

I think the point is that both Republicans and Democrats want a package that stimulates quickly and helps the economy.

It's risky enough to create a massive spending bill when the nation's finances are in a dire state. (The CBO estimated a $1.2 trillion deficit without the additional $350 billion from TARP and without the proposed $885 billion stimulus plan.) It's risky enough to issue a mountain of debt at the end of this year when every nation in the world is set to do the same. (See Germany's plan to double their budget deficit and maybe triple it.) It's risky enough to confuse our largest US dollar and debt holder by stating that they are manipulating their currency. (See the Sydney Morning Herald on the Chinese investing corporate savings and $2 trillion in "sovereign wealth into Australia.) How can a plan that has wasteful spending and long lag times be approved?

I continue to be concerned over this effectiveness of this spending plan and the timing of the stimulus.

The rubber meets the road later this year with the bond and currency markets react to the US government asking for $1.5-2.0 trillion in new debt.

    • Geithner's Tax Woes May 'Dog' Him At Treasury

This programming note: Andrew Busch will appear on CNBC's "The Call" Monday morning at 11am to discuss President Obama's stimulus plan.


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Andrew Busch

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Andrew B. Busch Global FX Strategist atBMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. here