A Rose With a Different Name

750 Billion Dollars. All I think most people remember is that huge number and the debt implications it has and that everyone is crying wolf about now.

But in reality there were a duo of 750 billion dollar actions that took place at the end of 2008 and early 2009. The TARP bailout and the stimulus package. The former was a fund that was hoped to be repaid (with interest) and which provided an unprecented line of credit/liquidity to financial systems. The goal being to ensure that the foundation of the economy (banking and credit flow) did not collapse; otherwise, we'd all be bartering for eggs. Debt and credit is essential to the flow of an economy. As times are good, people take our excessive amounts as they are de-sensitized to the risk associated. As times are bad, the pendulum swings opposite and people increase savings and decrease debt/spending. This causes the flow of commerce to slow, unemployment to rise, and a vicious cleansing cycle to be incurred. The Fed Reserve and government's job (as lender of last resort) is to make sure that the restricted flow of credit/capital -- that that machine doesn't stop completely. And it appears to have done its job. Granted, the TARP funds were controversially used for non-financial institutions as well ... auto industries, housing components, etc. But it could easily be argued that these industries are credit facilitators as well, just not in the antiquated bank-only sense. For this, the TARP fund and its initiators deserve strong credit.

The true controversy arises out of the stimulus package. Does a stimulus package truly bridge the gap and substitute a short term amount of demand where no other private demand would exist, thereby keeping the economy afloat until demand (no matter how small) and confidence returns? Does a stimulus package have a multiplier affect, where every dollar spent creates 2 dollars worth of economic value? Is a stimulus package a waste of money with no long term effect and huge debt implications? Does a stimulus package simply rob later demand and steal it into the near term (as opposed to creating new, real demand)?

All question that may not be quantifiable. But this is the debate that existed at the core of answering the 2008/2009 economic collapse. It's a near classic debate between Keynes and Austrian economics. Austrian economics goes the opposite, libertarian route and says that government should restore the financial soundness and industry of a country but not meddle in demand issues.

And this is a most important debate because its one that is occuring yet again. As the economy begins to slow to below average growth and fears of a double dip recession are making salacious news stories, government must ask the question to intervene (some would say interfere) or not (and simply be satisfied that the credit markets are functioning no matter how slowly).

I doubt another 750 billion dollar rose will emerge but more targeted stimulus measures may be taken. From this writer's perspective, let's hope we don't end up with a whole bouquet.