Economy & Trade, Global, Global Geopolitics, Headlines, North America

ECONOMY: Bush to Sign Stimulus, G7 Declines Joint Action

Abid Aslam

WASHINGTON, Feb 10 2008 (IPS) - President George W. Bush is to launch a giant effort to pull the United States from the jaws of recession after failing to persuade partners in Europe and Japan to follow suit.

Bush said he would sign a168-billion-dollar stimulus package passed by Congress late last week.

"I want to thank the members [of Congress] for passing a good piece of legislation, which I will sign into law next week," he told the Conservative Political Action Conference, an annual gathering of right-wing lobbies here Friday.

Economic growth slowed to 0.6 percent in the fourth quarter of 2007, the government said last week. This was slower than population growth, estimated at 0.9 percent. Employers cut jobs in January for the first time in four years. The central bank acknowledged a rising risk of recession. Growing numbers of economists said one already has begun.

The U.S. stimulus package provides nearly 152 billion dollars in tax rebates and business incentives this year and more than 16 billion dollars&#39 worth in 2009. It is designed to spur consumer spending and corporate investment in new equipment.

On Saturday, finance chiefs from Washington&#39s partners in the Group of Seven (G7) rich countries – Britain, Canada, France, Germany, Italy and Japan – declined U.S. and International Monetary Fund appeals to pour public money into their economies even if this brought on swelling budget deficits.

"Each of us has taken actions, appropriate to our domestic circumstances, in the areas of liquidity provision, monetary policy, and fiscal policy," they said in a joint statement at the end of one-day talks in Tokyo.

"We will continue to watch developments closely and will continue to take appropriate actions, individually and collectively," they added.

Even before Saturday&#39s session, Britain, Germany and Japan in particular had spurned the idea they should worsen their public finances to fix problems made in the United States. They referred to artificially high real estate prices, runaway substandard mortgage lending, the shoddy bundling of these loans into securities, and the rash sums Wall Street firms bet on them.

Some might come to reconsider. The Bavarian affiliate of Germany&#39s ruling party already has broken ranks with Berlin and is debating the merits of using deficit spending as a cushion in case a U.S. recession takes a pronounced or prolonged toll on Europe&#39s largest economy.

The U.S. plan remains controversial at home.

The measure provides one-time tax rebates for more than 110 million households: Up to 600 dollars per individual and 1,200 dollars per couple, with an additional 300 dollars per child. Some 20 million elderly people, 250,000 disabled veterans, and others earning too little to pay income tax stand to receive 300 dollars each. Undocumented immigrants will be excluded.

The U.S. retailers&#39 lobby greeted the package with caution.

"Expanding the rebate cheques to include retirees and disabled veterans is a win-win strategy," said Steve Pfister, senior vice president at the National Retail Federation. "Retirees and veterans not only deserve a cheque but are also among those most likely to spend the rebates so that this money gets put to work in the economy right away."

Pfister&#39s comment appeared to reflect broader concern about how most consumers will use their refunds.

The International Council of Shopping Centres (ICSC) said last week that 43 percent of 1,000 U.S. consumers it surveyed said they would use the rebates to pay off debt, 26 percent said they would save the money, and only 24 percent said they would spend it.

"Consumers see this tax rebate programme similar to earlier ones and will act in a similar fashion using the lion&#39s share of the rebate money for debt relief," said Michael Niemira, chief economist and research director at the ICSC.

The non-governmental National Foundation for Credit Counseling has said that reducing debt and saving for the future will improve individuals&#39 financial health and, in the long run, put the economy on firmer footing. The plan&#39s intent, however, is for consumers to give the nation&#39s fortunes an immediate boost by splurging now.

The U.S. plan also will allow government-sponsored mortgage financiers and insurers to take on bigger loans.

This "will help consumers by providing important financing options and will help restart the securitisation market for higher-value loans," said Kieran Quinn, chairman of the Mortgage Bankers Association.

Some economists and regulators at the government&#39s Office of Federal Housing Enterprise Oversight opposed the measure. The move would transfer risk from the private sector to the state-backed enterprises and to the taxpayers who ultimately finance these, they said.

Dropped from the stimulus package were proposals to extend long-term unemployment benefits.

This could prove a major flaw, said Economy.com, a unit of the Moody&#39s credit rating group: Every dollar spent on extended unemployment benefits would have generated 1.64 dollars in increased economic activity.

By contrast, the plan&#39s main business tax incentive would generate only 27 cents of increased economic activity per dollar, it added.