Another day, another $300 bln. That’s the pricetag Congressional Democrats are putting on the next leg of stimulus bring that bill to a total $450 bln in calendar 2008 (if passed before the terms ends). That’s roughly 3.25% of GDP, on top of 5% for TARP and 1.5% for various mortgage rescue plans.
That’s an extraordinary amount of dough, but in many instances, it is dough that Europe is in no position to spend given their lack of a Federal government. Trying to coordinate fiscal stimulus across 15 countries would be even more difficult that the bank bailout framework, which was pulled off in near miraculous fashion. Given Europe’ slow rate of potential growth and its shrinking export outlook, stimulus may become necessary.
One upshot seems clear from all the turmoil in recent months. It may not be the new “financial architecture” that Europe so desperately wants, but it may be a more Federal Europe. The pendulum needs to swing to a more centralized pan-European government or back to a pre-euro state where individual states have control over monetary and fiscal policy. The present half-measure seem particularly untenable over the medium to long-term.
Bottom line, traders are betting that the US will be first into recession, and will very likely be first out.
