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Feb 18 2014

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Team Obama Fairy Tales on ’09 Stimulus

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Time Does Not Make it Less a Failure...

Time Does Not Make it Less a Failure…

You would think that given the delicate political environment that the President currently finds himself, down in the polls and lacking the trust of the American people, that reviving a divisive political/policy argument would not be a first choice for image rehabilitation.

But you would be wrong.

At the end of the day Team Obama, it seems, simply cannot help itself.

“President Barack Obama marked the five-year anniversary of a controversial economic stimulus plan by releasing a report on Monday saying that government spending averted a second Great Depression.”

Epic bunkum, pure and simple.  And given the serial false promises by the Administration since, particularly on health care, it remains vital to correct the record as Team Obama attempts an jaw- dropping white wash of a failed policy. In this instance, one need only compare the time lines between the financial crisis and Stimulus approval/disbursement to see the hollowness of the White House argument.

On September 20, 2010, the National Bureau of Economic Research (NBER) announced that the “Great Recession,” which officially began in December 2007, had ended.

In June 2009.

Here are the corresponding quarterly data on Gross Domestic Product (GDP):

2008

QI   -2.7

Q2 +2.0

Q3  -2.0

Q4  -8.3

2009

Q1  -5.4

Q2  -.04

Q3 +1.3

Q4 +3.9

2010

Q1  +1.6

Q2  +3.9

Q3  +2.8

Q4  +2.8

To summarize, early 2008 was the tipping point for the ultimate impact of the collapse of the credit and housing bubbles in the 3rd and 4th quarters of 2008. By the numbers, the worst of the recession ended in the 4th quarter of 2008, with progressively more mild losses in the first and second quarters of 2009 and a return to increasing, positive growth by June-September 2009 and beyond.

Now, let’s correlate those numbers with public policy at the time.

NBER states that the recession started in December 2007. On January 18, 2008, President George W. Bush called for a package of tax incentives to revive the economy, in what was seen at the time as some troublesome indicators. The Democratic Congress moved quickly and approved $162 billion package in February, with rebate checks going out to citizens in April 2008. That action would track with the uptick in growth for the second quarter.

When the bottom fell out during the financial panic in September 2008, the Bush administration proposed, and the Democratic Congress approved, the controversial $700 billion TARP program to restore solvency to the financial sector. Those monies were obligated immediately and through the fourth quarter, with the largest tranches committed before January 2009. That action, in conjunction with unprecedented efforts by the Federal Reserve, stabilized the credit markets at home and abroad.

Two facts emerge. In hindsight, President Bush’s stewardship of the economy in 2008 was far more proactive and timely in the face of crisis than he or his Administration have been given credit for. And second, the worst of the Great Recession was already over before President Obama was sworn in.

Which places the spotlight on President Obama’s first and really only economic response to the recession, the American Recovery & Reinvestment Act (ARRA) or the Stimulus. $862 billion in federal spending, the largest single appropriations bill in American history; more money approved in a single day than the (then) six-year American financial commitment to fight the Iraq War altogether.

ARRA became law on February 17 2009. Between the bill’s approval  and the end of the end of Q3 in September ’09, barely $36 billion had been disbursed according to www.recovery.gov.  Only $18 billion was disbursed in the Q4, for a total of $54 billion for 2009.

The US GDP in 2009 was roughly 14.4 trillion.  Even in recession, the US economy was putting out nearly $40 billion a day . With that benchmark, Stimulus spending for 2009 equaled less than 33 hours of economic growth. In contrast to this feeble amount, the organic economy expanded by 1.3 percent in the 3rd quarter of 2009 and 3.9 percent in the 4th quarter.

The unavoidable conclusion is that the Obama administration’s signature economic policy of the first term was ill-timed and completely missed the mark, wasting gargantuan sums in fanciful pursuits, but having negligible impact on what was otherwise organic economic growth that would be part of the business cycle after such a significant downturn.

Indeed, a smarter question, five years after the Stimulus, with continued, tentative growth, would be to ask what policies/actions the government has taken that inhibit growth – and the jobs it creates – from returning to the historical levels that followed previous recessions, most prominently the 1983 Reagan recovery.

If anyone deserves credit for preventing a second Great Depression, it was Ben Bernanke and George W. Bush. Only through a combination of  the Federal Reserve’s emergency intervention and for White House leadership to propose the approval and implementation of the politically toxic  but economically essential TARP program (the bank lending portion of which was repaid with interest) was catastrophe averted. Programs that were established and running when President Obama assumed stewardship of the nation.

The White House can continue to spin fairy tales – but the numbers speak for themselves. Fool me once, shame on you. Fool me twice, shame on me.

Remember that in November when you go to the polls.

 

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