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Even Walser

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  • $800 Billion: Too Much? Too Little? Yes. [View article]
    Caveat: This is analysis I performed when the stimulus package was roughly $888 billion. The numbers may not be 100% but the multiplier insight and returns should not change.

    According to CBO, individual category projections, averaged, the multiplier effect would be between 0.66% and 1.86% for each dollar of the federal stimulus. According to this analysis, the federal stimulus would stimulate economic growth equaling between $561 billion and $1,581 billion. Estimating that the multiplier effect is the average of these two numbers, than the stimulus would promote $1,071 billion of new growth. This represents a 26% return overall and an annualized return from the years of 2009 through 2011 of 9.34%. Based upon these numbers the federal stimulus appears to be a good investment, but is it?

    The federal stimulus will add an additional $888 billion dollars to the federal budget. The federal government currently runs a deficit, so in effect; the federal stimulus will add an additional $888 billion to the debt. The federal stimulus is not all appropriated in a single year. As such, the increase in deficit spending will occur over several years. In year 2009, the cost of the federal stimulus, will add $233 billion dollars to the deficit, bringing total deficit spending for 2009 to $1,573 billion dollars. This represents a total deficit of over 10% of GDP. The federal stimulus will add an addition $460 billion to the deficit bring the combined total to $1,303 billion dollars or slightly more than 9% of GDP, in year 2010. Things get better in 2011, but only slightly, as the federal stimulus adds an additional $141 billion in spending, bring the total budget deficit to an estimated $782 billion dollars or 5.3% of GDP. The years 2012 through 2019 see an additional $48.3 billion in federal stimulus related deficit spending. Even with record low interest rates on federal borrowing, the net interest on the $888 billion dollar stimulus is projected to cost $347 billion dollars by 2019. This brings the total real cost of the stimulus of $1,235 billion dollars. Taking my analysis assuming the average multiplier effect, into consideration, the net return on the stimulus is a negative 13.27% or an annualized loss of 1.32% from years 2009 through 2019. Based upon these narrow calculations, it appears that the federal stimulus will have a net negative effect on the long term economic health of the US.
    Feb 13, 2009. 08:51 PM | 8 Likes Like
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