The Obama Administration is “celebrating” the fifth anniversary of the “Stimulus” bill the $800 billion “shot in the arm” of borrowed Federal funds to, well, “stimulate” economic growth. I said at the time that it was the right thing to do as did most economicsts. However, the “stimulus” fell far short of the dramatic recovery it was supposed to generate. Many argued that we should have followed with more such jolts to the economy. However, the Federal Reserve was doing this with its “quantitative easing” or “QE” that injected far more Federal funds into the economy which were also borrowed. The difference being that stimulus funds came from government debt being issued while the “QE” came from buying that debt. Complex, well just remember that “one man’s debt is another’s asset,” and in this case one agency’s debt, the Treasury, became the Feds asset.
No matter how the Feds did it, stimulus or QE, it has become obvious that they did not create the strong recovery we have seen after past recessions, depressions, crashes and other sharp declines. The recovery has been slow and painful. And we have not yet returned to the level we enjoyed in 2007 nor do we see it happening in the near future. I have argued continuously that we need to go back to the drawing board and invent some new devices. So far the Administration has only come up with more of the same.
In strak contrast we have recently seen the AIG insurance company pay back the last amounts it obtained under the “TARP” program with considerable interest. Not only did the TARP program vanquish the deadly downward spiral in our financial system of late 2008 it paid for itself and earned the Feds a profit. I pointed out at the time that it was perhaps the most ingeneous program ever created by the Feds, imagine, a Fed handout that in the end not only does the job it was designed to do, but also earned the Feds a profit. One could even argue that the Feds operating like a for profit business may be the best way for it to handle all matters.
I am amazed that the administration has not taken more lessons from the TARP to use in stimulating economic growth. It certainly was a better example of how to do the job than was the “Stimulus.”