How much fiscal stimulus is needed?
A.The fiscal multipliers are 1.5 for increased government spending, 1 for a tax cut and no effect for a tax rebate. So forget rebates and consider government spending to be the most effective approach. The stimulus package for states and localities has been discussed as something in the $500 billion range. However, it doesn’t make sense to spend that money on bridges to nowhere. It will take more than one year to spend the money effectively and efficiently. State and local spending projects will take time to develop and be approved. The projects could be roads and bridges, upgrades to the electrical grid, green-job projects, improved medical technology. Q4. What is the outlook for monetary policy and financial markets in the near term? A.With its December 16 statement, the FOMC could go on vacation for two years. But first they will monitor the management of the operations. There won’t be much to discuss after a couple more meetings. We can expect a deflationary environment for perhaps
