Fighting recession has become a new kind of warfare
Five months into the economic crisis, experts predict a years-long recovery.
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So far, he gives the US administration response to the crisis, including both Bush and Obama officials, a "B+".Skip to next paragraph
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"I see a willingness on the part of our leaders to say, 'if this is not enough, we'll do more,' " says Sylla.
But there may be unintended consequences to such bold actions, as well. Look at Chrysler and GM, who have already received billions in government loans, and soon will be back in Washington for more.
The auto firms' restructuring plans are due to federal authorities on Feb. 17. The US will review them and judge whether they are realistic enough to earn Detroit's "tottering two" further taxpayer support.
The point is to see if the companies "are in a position where they're going to be viable businesses without government support over time," Geithner told the Senate.
The problem is that from a political standpoint the government may find it impossible now to back away from propping up the auto industry, says Michael Bordo, a professor of economics at Rutgers University in New Jersey.
"Once you've created these goodies it is very hard to break free of them," says Professor Bordo.
The administration may be doing its best to avoid using the word "nationalization," due to its negative political implications. But Geithner's presentation of the Obama team's new financial rescue plan has been criticized for its vagueness. The Dow Jones Index plunged 4.6 percent on Feb. 10, the day it was announced.
"They don't want to give the impression that clearing up the banks will take trillions, and that you almost have to give them a blank check to do it," says Bordo.
And the debt is indeed daunting. The total cost to the taxpayer of all the anti-recession actions taken by Washington in the last five months is yet unknown. Much will depend on such things as how the US handles any so-called "toxic assets" it takes off the hands of banks, to get credit flowing through the system again.
Numbers off the charts
Yet the potential liabilities incurred by the Federal Reserve, the Treasury, and the Federal Deposit Insurance Corp., added together, already equal $8.7 trillion, according to Sen. Richard Shelby (R) of Alabama. If you round the stimulus up to $1 trillion, you get a total possible cost of $9.7 trillion.
"Those numbers are large. But the ultimate risk to taxpayers is a small part of that," said Geithner in response to Senator Shelby's arithmetic.
The enemy the US ultimately may be fighting here might be, in Franklin Roosevelt's old phrase, "fear itself." The problem could be that banks, consumers, and industry may be paralyzed into inaction because we don't know the future, said Robert Shiller, a professor of economics at Yale, in a recent Council on Foreign Relations seminar on history and the financial crisis.
"What I think ... was damaged in the Great Depression and is damaged now is the sense that this is a good time for anything," said Professor Shiller.
Thus Washington's goal must be to restore confidence, said Shiller. Fiscal stimulus might not necessarily do that, he added. In Japan in the 1990s, fiscal stimulus worked for a while, but when it ended, people just hunkered down again, and the economy slumped into Japan's "lost decade."
In the end, one thing is certain: This all will end. That is NYU's Sylla's point of view, in any case – one that allows him to retain some measured calm about the current situation.
"My historical perspective shows me that every previous crisis did in fact come to a conclusion," he says.