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Nations Plan More than $1 Trillion in Stimulus Spending

Will a global “New Deal” boost consumer spending?
By Katherine Lewis, America.gov
 
Posted: December 12, 2008
China’s top economic body is accelerating infrastructure projects such as work being done on the Beijing-Shanghai Express Railway.
Washington — Governments around the globe are taking steps to encourage consumer spending and economic expansion.

Through increasing public spending, offering tax breaks and bolstering consumer confidence, they hope to bring a quick end to economic recessions many countries are experiencing and thereby restore world economic growth.

First on the agenda: combating the largest quarterly drop in U.S. consumer spending since 1980. (See “World Economy Turns on U.S. Consumer Behavior, and It Is Changing.”)

“The fastest way to move the economy forward is to get consumer spending to jump,” said David Cross, president of the business consulting firm Market Outlook. “It immediately translates into more business investment, more hiring, and a restoration of confidence in the system.”

To boost consumer spending, the U.S. Congress in February approved a $168 billion package, including income-tax rebates, and the Bush administration in November announced that up to $800 billion will be spent by the Federal Reserve, the U.S. central bank, to encourage loans for education, cars and real estate. (This is money not included in a $700 billion rescue plan for the financial sector — the Emergency Economic Stabilization Act of 2008, signed into law October 3.)

But the United States and other governments are looking beyond short-term stimulus toward programs that will lay the groundwork for sustained growth. U.S. congressional leaders and President-elect Obama’s economic team are developing a package that may be worth more than $500 billion and would likely include infrastructure projects and other investments aimed at job creation and long-term economic expansion.

People walk through New York's Times Square after the Federal Reserve announced plans to provide $800 billion to thaw consumer lending.

“Spending on infrastructure and health care makes perfect sense,” said Charles Morris, author of The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. “The consumer is so tapped out.”

At the recent financial summit in Washington, leaders of the G20 nations agreed to stimulate their economies and work together to avoid a prolonged global recession. The notion is that, in tandem, countries can create a sort of global New Deal, recalling the spending program of U.S. President Franklin D. Roosevelt in 1933, which created jobs and helped bring an end to the Great Depression.

Even the International Monetary Fund, which typically promotes fiscal restraint and debt reduction, has called on governments to boost spending by 2 percent of gross domestic product.

“Practically every country in Europe has instituted a stimulus package, either directly through coordinated tax cuts and interest rate cuts or through intervention in the financial markets,” Cross told America.gov.

The European Union is considering a proposal worth more than $250 billion to encourage growth. Britain and Spain have proposed $30 billion and $14 billion stimulus packages, respectively. In November, China announced a $586 billion plan to boost domestic consumer spending over two years.

In a recent public address, French President Nicolas Sarkozy said it is time for massive investment in infrastructure, education and innovation. “The government will put 175 billion euro [$226 billion] of direct investment into economic activity over three years," Sarkozy said, according to a French government Web site. “Alongside investment in universities, research and the environment, we are going to invest heavily in the digital economy, which will be the driver of future growth, along with clean technologies.”

A United Nations report released December 1 recommends massive, coordinated stimulus packages to prevent a worldwide economic meltdown. A recent World Bank report on weathering the financial crisis concurs.

“The costs of investing both in social programs and economic activities can seem daunting for many governments now short on cash,” said Danny Leipziger, a specialist on economic management for the World Bank, in a statement on the bank’s Web site. “But the future cost of not taking action can be much higher than the savings from inaction.”



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