Government must find a solution for the crisis

Sighing and weeping will not help America out of this mess. It is necessary to look back at the past not to accuse and make charges but to learn lessons that will help the economy get back on its feet.

The undeniable fact is when the demand in the private sector is weak then the federal government has to step in as the last help. If this is not done the falling demand starts off in cyclical order a negative downward spiral that is self-propelling.

There starts off a chain of no demand for nearly everything from goods to services and these results in joblessness leading to even worse conditions.

Hence when the banks and the entire economy began to wobble in 2008 the Bush government answered with the $700 billion bailout and the stimulus package of $168 billion. The banks were still wobbly when Obama took over office and the economy was in a downward curve.

Unemployment was high, consumer spending less and credit availability low. The Obama government did the right thing to continue along the same lines with bailout and increased the stimulus package to $787 billion. It was done with negligible support from the Republicans.

Job losses were slowed down thanks to the stimulus and activity kicked off during the 3rd quarter of the previous year. The economy inched up by 2.2% – annual rate. In the 4th quarter it read 5.7% – turn around that few thought would have been possible one year previously. But unless there is generation of new jobs that would spur on consumer spending and revenue coming into the tax coffers the situation continues to be grim with the states facing huge budget deficits. The impact of the stimulus will start fading from this year.

In his budget Obama recently suggested the spending of $266 billion towards tax credits for new investments that would create new jobs and for extending unemployment benefit. But the Republicans in the Senate are pouting and sulking about this big bill. Their argument is that the deficit should be lessened. Their attitude is making the Democrats trim down the bill in the hope of securing the support of the Republicans.

But the message should be loud and clear from them and the White House that a lengthy recession or another recession would do greater damage than increasing the budget deficit at this point of time. The undeniable lesson from the 1930s Great Depression is that recovery is hampered if budget deficits are reduced when the economy is fragile.

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