Saturday, January 9, 2010

Do We Really Need More Stimulus?

I hear voices saying that if the unemployment rate is above 9.9% in February, then they'll support more Stimulus, but as of right now, the Fed and Admin are on the right path...

For reasons I've explained before, we are not likely to still be above 10% unemployment in February simply because January and February are always really low employment months, and so we'll get huge positive seasonal adjustment factors when, since we've already got so much unemployment, is not likely to hold this year.

What I'd like to know is, if the Fed does an extra $500 billion of QE now, and the labor market completely turns a corner the rest of January and February, what exactly do we lose? After all, if things start to get better quickly, they could just reverse that $500 billion, and then perhaps raise the Fed Funds rate if the economy gets really hot.

If we don't do anything, and the labor market continues to be weak or gets worse, on the other hand, that would be very bad.

I haven't heard why the risks are symmetric here...

Toss in all the budget cutting going on at the state and local level, the fact that stimulus will phase out over the 2nd half of the year, the ending of Fed purchases of MBS, and it all makes for a really slow recovery and finishing the year above 9% unemployment...

And a shit-beating for the Dems this fall.

So, yes, we need more stimulus.

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