Ugh, this is not good… former Clinton trade official and current member of the Obama administration’s economic advisory panel Laura Tyson said in Singapore today that the $787-billion plan Congress passed in February “will have a positive effect, but the real economy is a sicker patient.” She went on to say the plan turned out to be “a bit too small.” she said.
From Bloomberg News:
The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an outside adviser to President Barack Obama.House Majority Leader Steny Hoyer said today “we need to be open to whether or not we need additional action” on an economic stimulus. Speaking in Washington, he cautioned, though, that it is “too early” to assess whether the current stimulus plan is succeeding.
White House spokeswoman Jen Psaki sought to dampen talk of a second stimulus plan.
“We remain focused on putting thousands of Americans back to work through the implementation of the recovery act and any discussion of a second stimulus is premature at this point,” Psaki said in an e-mailed statement.
Tyson, in a speech in Singapore today, said the current plan “will have a positive effect, but the real economy is a sicker patient.” The package will have a more pronounced impact in the third and fourth quarters, she added, stressing that she was speaking for herself and not the administration.
That’s bad enough but it’s not the worst part of her remarks… CNBC’s Andy Busch points out Tyson’s more worrisome comments (emphasis mine):
If that comment by Tyson wasn’t disturbing enough, she went on to say that the US dollar ought to decline in the longer-term on a trade weighted basis. Tyson believes the US should focus on generating exports and that a lower US dollar would aid in this venture. While the FX markets ignored her commentary, I would wager that China and Russia did not. Given that she was speaking in Singapore and in their backyard, I would say they must feel their worst fears are getting confirmed.
First, she’s advocating expanding the fiscal deficit beyond it’s current distended fiscal bloat. Second, she saying the US should devalue its currency and therefore the value of the government bonds as well. For a foreign holder of US dollars and US government securities, could you have possibly said anything worse? Maybe, she could have said that the health care bill will put a 4% surcharge tax on wage earners over $200k. Oops, that’s what’s being floated by Congressional Democrats now.
As the summer wears on and discontent grows, I expect calls will be louder and louder for additional stimulus from Congressional Democrats to put more Americans to work. I also expect the bond market to become more volatile as the Congressional Budget Office calculates the effects of health care, energy, and the current spending on the deficit. If more Obama officials talk down the US dollar, we’ll create the risk of a fall exit that will neither create jobs nor boost the economy.
That about covers it. I’m not sure the the Obama Administration or the majority of Congressional Democrats want to push for a second stimulus this year… As the Wall Street Journal notes, “The Congressional Budget Office estimates that only 11% of the $308 billion of stimulus spending on discretionary programs will be spent in the current fiscal year, and only about half by the end of fiscal 2010.” They’re caught between a rock and hard place at the moment, they can’t argue on the one that the first stimulus hasn’t had a chance to fully kick in yet while at same arguing that we need more stimulus spending… And as Rasmussen Reports notes a strong majority (60%) oppose a second stimulus this year.