Track the Stimulus looks to provide clarity on the economic stimulus plans launched by federal and local governments to re-ignite the economy. While in 2008 most government efforts were directed towards regaining a modicum of stability in the financial markets, in 2009 the Obama administration has implemented programs directed towards stimulating demand and creating (preventing the elimination) of jobs in the broader economy.
Track the Stimulus details where these investments are made, what jobs are being created and where, and attempts to measure whether these programs are achieving what they sought to achieve whether it is creating jobs, lowering the cost of borrowing to banks and corporations, etc.
The America Recovery and Reinvestment Act
The H.R. 1, American Recovery and Reinvestment Act of 2009, the Obama plan for some, is one of the key pillars of the economic stimulus plan - the President signed the bill into law on February 17, 2009, and implementation started soon after that. The $787.2 billion economic stimulus plan is the largest fiscal injection into an ailing economy in history. It calls for $308 billion in discretionary spending, $288 billion in tax credits and incentives for individuals and $192 billion in direct aid to states, unemployed and for the adoption of health care IT.
Through a combination of tax cuts, direct investments in a variety of sectors including infrastructure, energy, science and education and help to the unemployed and to the states, the economic stimulus plan looks to alleviate if not stop the decline in economic activity that started in late 2007. Since the recession started in December 2007, close to 7.8 million jobs have been shed across most sectors of the economy.
Funding under the bill has already started flowing to state and local entities, and most federal government agencies have announced solicitations/request for proposals for grants supported by stimulus spending.
The White House provided an update on the governments estimates on the impact of the stimulus package. It indicates that as of October 30, 2009:
- $207.3 billion have already been paid out (the $ have reached the final recipient)
$83.8 billion in tax rebates/relief to individuals and corporations;
$52.1 billion in discretionary grants, contracts and loans; and
$71.4 billion in entitlement programs (e.g. unemployment benefits, food stamps, etc.)
- Of the $275 billion in discretionary grants, contracts and loans, $158.7 billion (58% of total) have already been awarded (the $ have been already assigned to projects, but they may not have been paid out yet)
This spending is estimated to have helped create or saved between 640,000 and 1.1 million jobs and increase real GDP between 2 and 3 percentage points. If these estimates are accurate, it means that the ARRA prevented larger job losses and overall economic activity would have fallen much more than the 1% decrease experienced in the second quarter.
The Financial Stability Plan aka The Troubled Assets Purchase Plan (TARP)The credit crunch that started in July 2007 and became progressively worse to culminate in mid September into a full blown liquidity crisis has caused a sharp contraction in economic activity. In early October, at the request of the Treasury, Congress passed the TARP to provide liquidity to the banking system and avoid a full blown meltdown of the credit markets. In that respect the TARP, and concurrent efforts by the Fed worked as the credit markets have thawed. By March 2009, the government has allocated most of the $700 billion that Congress approved for the program. The TARP is the second pillar of the economic stimulus plans put forward by the Obama team. There are still many headwinds and credit is still very restricted at the bank level, and has all but stopped in many of the securitized markets that had provided a large level of the liquidity to the economy before the current contraction - Fed and Treasury are working towards bringing normalcy to the securitization markets through the
TALF . The "
Financial Stability Plan" (TARP II if you will) is the Obama administration's strategy to heal the credit markets. It calls for:
- A "Capital Assistance Program" that mandates that large banks undergo stress tests; if found capital deficient, it provides for bridge financing to capitalize the institution until private capital comes back to the market;
- A public-private fund to acquire the toxic assets (mostly mortgage related) that are at the center of the crisis through financing provided by the TARP, the FDIC and the Fed;
- A "Homeowner Affordability and Stability Plan" that provides a mechanism to help "responsible" homeowners facing difficulties do to the financial crisis and the reduction in home prices;
- A "Consumer and Business Lending Initiative", grounded on the TALF, one of the Fed's initiatives, it provides for lending to reignite the asset-backed securities markets on consumer, and business loans. The Fed estimated that these markets provided about 25% of the overall lending in the credit markets prior to its shuttering in October.
The Homeowner Affordability and Stability Plan (HASP) AKA the Making Home Affordable Plan
Housing has been at the epicenter of the crisis, and as such providing a resolution to the problems faced by homeowners is paramount if the economic stimulus plans put forward are to be successful. The Homeowner Affordability and Stability Plan intends to tackle this important dimension of the crisis. It will help people refinance their mortgages when they are not eligible because of decreases in the value of their residences. It also calls for a $75 billion "housing stability initiative" to help 3-4 million "responsible homeowners" avoid foreclosure (well the "responsible" part is probably open to discussion) by reducing payments on their loans through subsidies by Treasury (through the TARP) and the lenders; it also encourages banks to reduce principal on the mortgages of people in trouble, and asks for bankruptcy lawyers to be able to modify mortgages (cram-down type of solution). Finally, the government will inject funds through the Treasury to Fannie Mae and Freddie Mac to keep mortgage rates low.
In addition to lowering its benchmark interest rates, the Federal Reserve has displayed a great amount of innovation while fighting to keep credit markets from seizing up. A whole alphabet soup of programs have been introduced to help struggling financial institutions keep lending. These programs for the most part provide liquidity to depository institutions and primary dealers facing difficulties and short-term liquidity strains to continue operating normally and providing lending to consumers and businesses. Perhaps the most far reaching of those is the "Term Asset-Backed Securities Loan Facility" (TALF), which is targeted to provide liquidity into the markets for consumer and small business lending, and which opens the Fed's window to most kinds of financial institutions including hedge funds and provides them with a cheap source of capital to fund high-quality consumer lending.
In early 2008, Congress and then President Bush passed a $168 billion tax reimbursement to stimulate spending - it did not work out quite as expected as many people decided to keep the money they received, rather than spend it. In the face of deteriorating economic conditions, several initiatives were introduced by Congress, states the FDIC, and other government agencies to extend unemployment benefits, facilitate workouts of existing mortgages, etc.