The Joplin Globe, Joplin, MO


May 2, 2012

Without stimulus, US might still be in recession, Fitch says

WASHINGTON — Without the unprecedented stimulus actions by the federal government triggered by the 2008 financial crisis, the Great Recession might still be going on, according to a study released Wednesday by Fitch Ratings.

But those actions came with a price — soaring budget deficits and rock-bottom interest rates that hurt savers, the study said.

The actions by policymakers in Washington — including the $700 billion bailout fund, the $831 billion stimulus package and the Federal Reserve’s near-zero interest rates — continued to boost the nation’s total economic output by more than 4 percent annually two and three years after the end of the Great Recession in mid-2009, the study said.

The boost from those policies helped the U.S. gross domestic product increase 3 percent in 2010 and 1.7 percent last year, “implying that the U.S. might still be mired in a recession absent this stimulus,” concluded the study, done in conjunction with Oxford Economics.

The U.S. economy would have seen little or no growth in the two years after the recession technically ended in June 2009 without the policies, the study found. And the stimulus actions appear “to have significantly softened the severity of the decline” in GDP in the year immediately after the recession.

Though the Fed’s monetary policy actions were helpful, fiscal stimulus by Congress and the White House “had the strongest positive impact on consumption during the recent recovery,” the study said.

The conclusions mirror findings in February by the Congressional Budget Office and a 2010 study by economists Mark Zandi and Alan Blinder about the positive economic effect of the $831 billion stimulus package known as the American Recovery and Reinvestment Act.

Republicans have been highly critical of the package, a mix of tax cuts and government spending that did not keep unemployment rate from peaking at 8 percent, as projected by Obama administration officials. Unemployment rose to 10 percent in October 2009 and has remained above 8 percent since then.

The Fitch analysis looked more broadly at all federal stimulus policies, such as the large-scale asset purchases by the Fed. And although the study said the stimulus policies “appeared to have achieved their intended effect,” it warned that the actions have come with negative consequences.

“The very high deficits of the last few years have led to unprecedented levels of government indebtedness, which will weigh on the federal government for years and require contraction in spending,” Fitch said. “Furthermore, while low rates clearly benefit borrowers, at the same time, they hurt savers.”

The government’s huge budget deficits increase the pressure on policymakers to wind down the stimulus actions, the study said.

The deficits, and the inability of the Obama administration and lawmakers to make deep enough cuts in a deal last summer to raise the debt ceiling, led Standard & Poor’s to downgrade the U.S. credit rating.

Fitch has also been concerned about soaring U.S. government debt, but reaffirmed its AAA credit rating for the U.S. in August in the wake of the debt-ceiling deal.


Text Only

In an effort to curb prostitution, St. Louis police are targeting, and perhaps humiliating, the "johns" who use the services. Postcards mailed to the homes of those charged with trying to pick up prostitutes will offer a reminder about spreading sexually transmitted diseases, along with listing the court date. Do you think this is a good approach?

A. Yes.
N. No.
     View Results
Twitter Updates
Follow us on twitter
NDN Video
Tributes Mark Boston Bombing Anniversary Raw: Kan. Shooting Suspect Faces Judge US Supports Ukraine's Efforts to Calm Tensions Suspect in Kansas Shootings Faces Murder Charges Ukraine: Military Recaptures Eastern Airport Raw: Storm Topples RVs Near Miss. Gulf Coast NASA Showcases Lunar Eclipse Pistorius Cries During Final Cross-Examination The Boston Marathon Bombing: One Year Later Michael Phelps Set to Come Out of Retirement First Women Move to Army Platoon Artillery Jobs Sex Offenders Charged in Serial Killings Police: Woman Stored Dead Babies in Garage OC Serial Murder Suspects May Have More Victims Family: 2 Shot in Head at Kan. Jewish Center Raw: Horse Jumping Inspires 'Bunny Hop' After Attack, Officials Kill 5 Bears in Florida Popular Science Honors Year's Top Inventions ND Oil Boom Attracting Drug Traffickers