Countercyclical fiscal policy in the U.S. is relatively rare. The one example of it from recent downturns—Jan 2008—illustrates how a lot of different policy makers were engaged relatively quickly
A quick rundown since this history is buried under the ensuing financial crisis
A quick rundown since this history is buried under the ensuing financial crisis
The BLS reports on Jan. 4 that the unemployment rate rose in December to 5% from 4.7%. Meantime, stocks begin to fall (around 12% through the month vs late December) as banks like Morgan Stanley announce Q4 writedowns forthcoming on mortgage-related investments.
Economists begin calling for fiscal stimulus (Example: blogs.wsj.com/economics/2008…) Bernanke does, too, in testimony before the budget committee on Thursday, Jan. 17
Then on Friday, Jan. 18, Bush calls for a $145 billion stimulus plan, consisting of mostly of tax rebates. He concedes that there is risk of a downturn.
Hank Paulson: "The short-term risks are clearly to the downside, and the potential cost of not acting has become too high."
Hank Paulson: "The short-term risks are clearly to the downside, and the potential cost of not acting has become too high."
On the next business day, Tuesday, Jan. 22, the Fed delivers an emergency 0.75 percentage point rate cut.
federalreserve.gov/newsevents/pre…
federalreserve.gov/newsevents/pre…
The FOMC met by phone on Jan. 9 but resisted cutting.
By Jan 22, Bernanke had seen enough: "There are times when events are just moving too fast for us to wait for the regular meeting. I know it is only a week away but seven trading days is a long time in financial markets."
By Jan 22, Bernanke had seen enough: "There are times when events are just moving too fast for us to wait for the regular meeting. I know it is only a week away but seven trading days is a long time in financial markets."
By Jan. 29, the House had passed its version of a stimulus bill. "The speed with which Washington hashed out the plan was driven mostly by the drumbeat of bad economic news." wsj.com/articles/SB120…
The Fed cut again on Jan. 30, at its regularly scheduled meeting, by 0.5 percentage point.
The Senate and House passed a reconciled version of a fiscal stimulus plan on Feb. 7, sending rebate checks of $300-$600 to individual taxpayers.
The Senate and House passed a reconciled version of a fiscal stimulus plan on Feb. 7, sending rebate checks of $300-$600 to individual taxpayers.
“The rebate program provided only a modest stimulus per dollar of rebate... Nonetheless, the rebates were so large and so quickly disbursed and the fraction spent was spent so rapidly that they had a non-trivial effect on aggregate spending” in Q2-Q3 blogs.wsj.com/economics/2009…
