1. Passed in the Senate on February 10, 2009 61-37
2. Senate version includes $110 billion more in tax cuts
3. Cleared Republican hurdle in the Senate on a 61-36 vote¹
4. Ted Kennedy was present for voting³
5. The House of Representatives approved the bill on January 28, 2009⁴
6. February 9 approval stops a Republican filibuster
7. Three Republican senators joined 58 democrats to pass the hurdle
8. 2/3 of the plan devoted to government spending, 1/3 to tax cuts⁴
9. Republicans Susan Collins and Arlen Specter said they would break rank to pass bill³
10. Provides assistance to banks beyond that which is currently offered by TARP
11. Obama’s approval rating upon suggesting the stimulus: about 70%
12. Aims to double U.S. renewable energy capacity within 3 years⁵
13. Obama allegedly told Republican Senators they should back his bill because “I won”²
14. The previous stimulus package was approved in February 2008⁶
15. Package developed in coordination with other leading Democrats, including House Speaker Nancy Pelosi⁷
16. The 2008 stimulus package included tax cuts in the form of rebate checks⁶

Although the stimulus has now passed the house and senate it is striking how little Republican support it has received. No Republicans in the house voted for the stimulus and only 3 Republican Senators voted for it.

The big question is whether it will work. Investors seem to skeptical with the major stock indexes plunging about 4% today.

According to BusinessWeek:

Rosen, a professor at the University of California at Berkeley, told the Associated Press that the decline in housing prices is only about three-quarters complete, and the cumulative slump could reach 24% this year. To offset such a plunge, Rosen is proposing a foreclosure moratorium to help stabilize the economy. He said as many as 8 million homes could go into foreclosure in the next three years without government action, the AP reported. “I worry about the cumulative decline of all the job losses leading to a second wave of foreclosures. So we have to stop this downward spiral,” Rosen said.

The U.S. unemployment rate climbed to 7.2% in December, before all the job cuts that were announced so far this year. Although investors are grabbing up bargains (the sale of existing homes rose 6.5% in December) this is being countered by new home sales dropping to the lowest level on record.

However provisions in the economic stimulus package could prop up demand in the form of a tax credit for home buyers or a foreclosure moratorium as Rosen suggests.

Many economists are refraining from making predictions because there is no telling what may happen in the coming months and multiple factors make trying to time the market almost impossible. For many home owners, the only option is to just grit their teeth and wait out the storm.

Photo by respres

The proposal has sparked criticizim from groups such as the US Chamber of Commerce.

“If our goal is to create good-paying jobs at home by selling American-made goods and services overseas — where 95 percent of the world’s consumers live — then “Buy American” requirements don’t make sense. If we refuse to buy foreign-made goods, then our trading partners will refuse to buy from us. And since we are the world’s largest exporter, who will be hurt more?” said U.S. Chamber CEO Thomas Donahue in a statement.

There are good points on both side of the free trade debate, and we should definitely be concerned about making sure the stimulus works. My opinion is that it would send the wrong message to the rest of the world, when the Obama Administration said they want to renew America’s image in the world community. If the global economic crisis has taught us anything, it’s that we are all connected and we need the rest of the world to get through the economic downtown.

According to Torod Neptune, senior VP-global public affairs at Waggener Edstrom,

The new Congress has made it pretty clear they are going to introduce sweeping legislation in the areas of health care, financial reform and regulation of energy

-Interview in AdAge

I am predicting that the Obama administration will increase government incentives for producers of renewable energy such as solar panel manufacturers and utility companies. Government incentives have worked well in places like Germany which is the world leader of solar energy despite having a less that optimal climate.

There is also potential for health care companies if Obama proposes mandatory insurance coverage for children or increases medicaid eligibility.

Financial regulation may bring back confidence in the system, but even government agencies failed to recognize a billion dollar ponzi scheme that was right under their noses. Few people recognized the grave danger caused by reckless mortgage lending, so I’m not sure what type of regulation would have prevented the mess it caused. Increased financial regulation will likely help the auditing companies the most.

According to the WSJ:

But a close examination of Ms. Schapiro’s record as a regulator shows she has infrequently pursued tough action against big Wall Street firms.

During the past few years of Ms. Schapiro’s career as a regulator, which earns her over $3 million a year, enforcement fines against firms have plunged.

She was also head of the Financial Industry Regulatory Authority (FINRA), which has examined portions of Madoff’s firm for decades but failed to detect the largest Ponzi scheme in history. Not a very promising sign for the person who will run oversight of our fragile stock market which has lost trillions due partly to ineffective regulation.

President-elect Barack Obama and congressional Democrats are crafting a plan to offer about $300 billion of tax cuts to individuals and businesses…which would account for about 40% of a stimulus package that could reach $775 billion over two years.

Economists of all political stripes widely agree the checks sent out last spring were ineffective in stemming the economic slide, partly because many strapped consumers paid bills or saved the cash rather than spend it.

If the tax cut goes through it will result in more tax cuts in two years than George W. Bush’s tax cuts in 2001 that resulted in $174 billion in tax cuts. That is part of the reason why such a proposal is so surprising. It also shows a willingness of Obama to shift more to the middle and compromise with Republicans in congress.

The goal would be to put more money in the pockets of consumers and revive consumer spending. However, since economists agree that the last stimulus checks were ineffective, there is a risk that people will save or pay down debt with their extra dollars which would do little good in reviving the economy.

If the economic crisis is not enough to deal with, check out this list of midnight regulations that Bush is in the progress of passing or has already passed in the eleventh hour. A few notable regulations include “Federally Funded Institutions Could Turn Down Abortion Request for Moral or Religious Reasons”, “EPA Lowers Air Quality Standards for Lead”,”EPA Lets Factory Farms Decide If They Need A Permit to Discharge Animal Waste into Waterways”, and “EPA May Allow Certain Hazardous Waste to be Used as Fuel”.

“Obama wants lenders to renegotiate loans for homeowners in default.”

“Obama has pledged to do more to head off foreclosures, and he may move to rid bank balance sheets of toxic mortgage assets.”

“Obama’s plan to raise capital gains and dividend taxes on high-end earners is likely to remain on the back burner.”

“Obama’s plans to lower the overall corporate rate from today’s 35% but also to end loopholes. He wants to revoke the rule that lets U.S. multinationals put off paying taxes on foreign income until they bring it home.”

While what people say is often different from what they do, we can make some pretty accurate predictions from what Obama is likely to do. As much as a trillion dollars will be spent on the stimulus in the next two years according to BusinessWeek which could speed up the recovery but also put the country deeper in debt which can lead to other problems. The housing sector should be helped more with the new administration compared to the current use of the bank bailout which is primarily going to banks rather than helping people facing foreclosures. Increased government investment in green technology will mean growth in that sector, while companies that use a lot of energy will likely face tougher regulation as it relates to carbon dioxide output. Since Obama appears to me more likely to spend the stimulus on infrastructure, green tech, healthcare reform, and schools, this may not lead to a boost in consumer confidence in the near term. Executives should take notice of the clues of what changes lie in store for the next four years, and start preparing for them now.

Image Source: Allison Harger

“I’d like to see it bigger.” Krugman said. “I understand that there’s difficulty in actually spending that much money, and I–they’re also afraid of the–of the T word. They’re afraid of a trillion dollar for the two-year number. But you know, the back of my envelope says it takes roughly 200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate. So you do the math and you say, you know, even these enormous numbers we’re hearing about are probably enough to mitigate but by no means to reverse the slump we’re heading into. So this is–you know, I–they’re thinking about it straight.”

While it may be hard to imagine another trillion dollars to be added onto our national debt, not spending enough may end up costing much more in the end and result in hundreds of billions wasted. There is also a concern that the stimulus will take too long to take effect if it is invested in infrastructure and clean energy. If the goal is for long term stability of the economy, then that might explain why they are not looking to spend as much right now. However, America may not be able to wait much longer for some good news.

“This is by far the worst I’ve seen in the 35 years I’ve been in business. It’s just gone right off the cliff. For retailers, I don’t think there’s going to be any Christmas to speak of. Some of our high-end retailers reported sales down 25%” said Fred Smith, CEO of FedEx.

“We’re preparing for nothing good until mid -2010. If things get uglier, it’s possible it won’t improve by then.” said Timothy Manganello, CEO of BorgWarner.

“Even if we start growing again, it’s not going to be a full-employment kind of growth. We’ll still see the misery index climb. It’ll take at least until 2010 to flush it out of the system” said Dennis Dammerman, the former vice-chairman, GE.

“We could certainly ask if Lehman really had to go down. It’s a tragedy to have let that company go. Saving it would have provided a little more confidence in the system. Its loss seemed to add to the anxiety on Wall Street- and moved it to Main Street. I think it contributed to our 6.5% unemployment rate, which could go to 10% plus.” says Robert Nardelli of Chrysler.

If their predictions are right we could be in for a long 2009. In the weekly Business Week cover story podcast, they pointed out that the job losses are feeding on each other. When people lose their jobs they stop spending, so the people who sell to them lose their jobs. Interestingly, they also point out that the unemployment rate is usually understated and it could be much higher. Black teenagers are already at over 30% unemployment and some economists predict this could go to 70%. Some of the most pessimistic economists are predicting as high as 5 million job losses by the time the economy hits bottom.

Business Week’s story Job Losses: Is the Panic Justified? had this to say about the end of the recession. “This job bust won’t last forever. There are forces at play that will eventually pull the economy out of its free fall. The key is smart government policy that sets politics aside. It must provide a combination of short-term consumer stimulus and long-term investments without stepping over the line into wasteful and innovation-stifling industrial policy”.

With a bank bailout that has had little effect on consumer and investor confidence, there is reason to be skeptical that more government spending will stop the momentum of the falling economy. Business Week columnist Peter Coy explained that Obama’s plan to “invest heavily in roads and bridges, energy efficiency, school buildings, broad-band networks, and electronic medical record-keeping” may be flawed. Some economists don’t think there are enough unemployed construction workers to do all the jobs envisioned by the Obama administration.

While company revenues will be hurt by unemployment consider yourself lucky if you are an executive or manager. According to Business Week, the unemployment rate for Management, business, and financial operations is just over 3% compared to 12% for construction and extraction occupations and 32% for black teenagers.