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Does the US need more economic stimulus, or less?

The US barely generated any private sector jobs in May. Is the $787 billion economic stimulus not big enough, or is it not working at all?

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This view holds sway with many Republican lawmakers. And Europe's crisis over sovereign debt burdens has made Democrats wary of adding to federal deficits.

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"Markets are beginning to perceive that the large debt burdens in various countries worldwide could very well derail the global economic recovery," says a recent report by House Budget Committee Republicans. "The U.S. has not been immune to this turmoil, as the stock market has fallen 10 percent from its most recent peak."

When Mr. Bernanke testified to Congress on June 9, he faced repeated questions about how the US can avoid a Greece-style debt crisis – although some Democrats also asked him to talk about the risks of withdrawing stimulus too soon.

A year after the Recovery Act began, the new money from government hasn't translated into rising private-sector incomes. (When government transfers are left out, personal income fell last year and remains near its late-2009 low point.)

If some want more stimulus and others less, the prevailing view in Washington appears to be a middle one. That means no big cutbacks in federal spending right away, while any additional stimulus efforts could be small in scale.

Key arbiters of stimulus policy now are moderate Democrats in the Senate. On June 16, they sided with Republicans in a vote that effectively killed a bill designed to support the economy via business tax breaks, help for the long-term unemployed, and aid to states. That sent backers of the measure scurrying to scale back its cost, which by some estimates would have increased the federal deficit by about $80 billion over the next decade.

In early 2009, lawmakers could agree on a big stimulus. Since then, times have changed.

The word "stimulus" isn't wildly popular with voters, so new money is being considered in small chunks, and often with future spending cuts attached.

But by one tally, some $61 billion in stimulus add-ons have already been passed, and another $189 billion are under review. (The $787 billion cost of the original Recovery Act has also expanded to a current estimate of about $860 billion.)

"I'd sure feel better if we had a little more stimulus," says Gus Faucher of Moody's Econ­ in West Chester, Pa. But with federal deficits rising, he favors the kind of modest stimulus Congress is considering, plus steps to lay the groundwork for curbing deficits.

Right or wrong, that approach may fit the public mood. Jobs are the top concern, and one recent poll found a majority of Americans believe the stimulus has helped.

But Americans are also worried about unchecked deficit spending.

"We need to show that within a few years we're going to go clearly to a path where that debt-to-GDP ratio is stable," Bernanke told lawmakers. But for now, "the recovery is still pretty fragile and may need more assistance."


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