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Will the US stimulus package work?

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Will the US stimulus package work?


Heavily reliant on borrowing – analysts believe the slimmed down stimulus package passed by Congress is likely to reduce the severity of the recession without completely nullifying its impact.

Much depends on the response of individuals and government officials. Tax cuts averaging eight dollars, or 6.2 euros a week, will be effective only if people spend rather than save the extra income. Only a portion of the package will be spent this year, the bulk of the money will be spent in 2010. Infrastructure projects will have to be up and running quickly to make an impact on unemployment. Government borrowing will take the US budget deficit to over a trillion US dollars, that’s 776 billion euros. Businesses could capitalise on the tax deductions and incentives more quickly as they pay their taxes on a quarterly basis, freeing up cash flow for them to invest. But the question remains whether sufficient demand exists to justify any spending. As for transportation projects, money for those will come largely in the form of grants to States. Governors are looking for “shovel-ready” initiatives so hiring for the work can begin quickly, but that may be delayed by drawn-out procurement processes. The slump has already cost three milion jobs. Barack Obama believes the plan will save or create three and a half milion. Big US banks, including Morgan Chase and Citigroup, have decided not to proceed with home foreclosures for the time being giving vital breathing space for people struggling to pay their mortgages.

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