Markets and the Stimulus

Spending is stimulus, the president augues, but one has to be a true believer to ride the Keynesian test car all the way to a $1.75 trillion 2009 deficit. At 12 percent of gross domestic product, it doubles the previous post-war deficit high, 6 percent in 1983. That was when unemployment topped out at 10.8 percent; the Congressional Budget Office projects the jobless rate to go "only" to 9.2 percent in this recession. Last summer, President George W. Bush's projected $482 billion deficit was blasted by Democrats as profligate. Team Obama's first month added an increment larger than that entire amount...

Will the U.S. strategy work? Because we have never run peacetime deficits close to this size, predictions are tenuous. Keynesian models see a pickup in growth, but others forecast none. For its part, the CBO sees long-run fiscal costs with little short-term benefit...

The Obama administration has much to blame on its predecessor. But its own fiscal strategy is highly leveraged on a theory that has not scored well in previous runs. Markets are dubious that the "stimulus" will stimulate. And investors are losing patience with the federal fixes offered for the banking crisis. If the warning signs of the Dow are not heeded by policymakers, they will be by others.

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My thoughts: You can not spend yourself into prosperity.