Predictions about the potential success of President Barack Obama’s jobs stimulus plan have come flooding in as commentators consider his $447 billion American Jobs Act proposal. Equally predictable has been the polarized response, with some saying Obama is on the right path and others saying he is way off base.
Schiff scoffed in a Friday comment, “More of the Same,” that while Obama was semantically savvy and never once mentioned the word “stimulus” in his hour-long speech on Thursday, the president’s new jobs plan is “merely another government stimulus program in disguise.”
“Like all previous stimuli, this round of borrowing and spending will act as an economic sedative rather than a stimulant,” warned the CEO of Euro Pacific Capital, based in Westport, Conn. “Running up the deficit in the short run will not grow the economy, but will merely dig it into a deeper hole. A year from now there will be even more unemployed Americans than there are today, likely resulting in additional deficit financed stimulus that will again make the situation worse.”
But according to Jim O’Neill (left), chairman of Goldman Sachs Asset Management, the GS Economics Department believes that the “larger than expected proposed fiscal stimulus” if implemented would take fiscal policy from a 1.5% of GDP reduction to a 0.5% stimulus.
“Put together with a clear bias to explore additional ways of monetary stimulus from the Fed, it is tough for me to see the big downside risks to the U.S. economy, at least cyclically,” O’Neill wrote in a Sunday comment, “Clear, But Controversial Steps In the U.S.”
Schiff pointed out that Obama claims his plan will be paid for with deficit reductions. But the plan offers no details about how this will be achieved, he said.
“Most likely he will make non-binding suggestions to future congresses to ‘pay’ for this spending by cutting budgets five to 10 years in the future,” Schiff wrote. “History is absolutely clear on one point: politicians never pass cuts promised by prior politicians. In other words … the check is in the mail. So I will make the fairly riskless assumption that the plan will be financed by deficit spending.”
O’Neill also sounded a note of skepticism by noting that the stimulus is being proposed by the very same country that was berating credit rating agencies at the start of August for regarding its fiscal stance as lacking in credibility.
“I raise this because one of the most interesting aspects of post-Obama market trading was how unenthusiastic the market response was,” O’Neill wrote. “Whether this is because investors doubt its effectiveness, doubt the likelihood of it being supported by Congress, because markets rose in advance on leaks of most of the content, or probably, in my view, bigger negative concerns elsewhere, it will no doubt have added to concerns of the U.S. contingent coming to Europe for the Marseille G7 meeting.”
The Group of Seven finance ministers and central bankers—representing the United States, Canada, Japan, Britain, France, Italy and Germany—met in Marseille, France, last Friday.
Read Obama Chides Congress as He Urges Passage of Jobs Act at AdvisorOne.com