Asia-Pacific News

The Great Debate: Bailout or Bankrupt?

Sara Grosse, CNBC Asia

The Obama Administration has unveiled a massive $787 billion stimulus package as part of its efforts to save the U.S. economy from a prolonged recession. This is in addition to separate rescue plans for the bank, auto and housing sectors.

The debate has been raging on for months whether the government should intervene in the economy or allow market forces to work things through. While some analysts feel that these stimulus measures are exactly what the struggling economy needs, there are others who see these huge bailouts as huge mistakes.

Stimulus Plans Delay the Inevitable

Daniel Frishberg, Chief Investment Strategist of is one such skeptic.  Frishberg is doubtful that government rescue plans will lift the economy out of a recession. He believes that free market principles should be left to play out on their own accord.

"What the market doesn’t like is all these attempts to get in the way of the cycles and stop us from making these necessary adjustments and corrections", Frishberg told CNBC Asia’s Squawkbox.

"Since we have started to do all this intervention a year or so ago, two years ago, with the idea that we can't tolerate the business cycle, we’ve gotten poorer and poorer.”

Frishberg sees supporting the auto-industry as a fruitless move with the government ending up buying cars "that nobody is going to buy."

Ethan Harris, co-head of US Economics Research Barclays Capital, on the other hand, is optimistic on the U.S. stimulus measures.

US Stimulus Plan Will Help Economy

Harris feels the key is to shock to the system. "The U.S. economy literally would slide into something akin to a Depression if we don’t get something that’s kind of a shock to the economy, shock it back to life", Harris told CNBC's Asia Squawkbox.

Harris thinks that industries, especially the banking system, must be rehabilitated in order to get the economy up and running again.

"If you are not creating jobs then you continue to get the losses in the banks, if you don’t have the banks lending, then the economy can’t function. It’s a cycle and you need to get all of these pieces together."

"There are two stages here. Throw lots of liquidity and get the economy to function. When the economy starts functioning, suck all that liquidity out. That’s the right policy", Harris adds.

These are just two opposing voices in the cacophony of those who are for or against the stimulus debate taking place in the U.S. and around the world.  

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The deluge of rescue packages and emergency spending from policymakers globally to support their deteriorating economies hasn't impressed investors though. If this week's stock performance is any indicator, it would seem markets worldwide have largely shrugged off these measures.