Tags: feldstein | Stimulus | Doom | Economy

Feldstein: End of Stimulus May Doom Economy

By    |   Friday, 08 Jan 2010 12:31 PM

The U.S. economic rebound may fizzle this year, as fiscal stimulus winds down, says Harvard economist Martin Feldstein.

Government spending surged last year after Congress passed the $787 billion stimulus package.

Tax benefits granted for auto and home purchases also buoyed the economy.

“These forms of stimulus will be missing in 2010, creating a serious cloud over the near-term economic outlook,” Feldstein, chairman of President Reagan’s Council of Economic Advisers, said at a recent economic conference.

He outlined several areas of concern, Bloomberg reported.

“It will be difficult to have a robust recovery as long as the residential and commercial real-estate markets are depressed and local banks around the country restrict their lending (because of default risk),” Feldstein said.

The huge budget deficits created by the fiscal stimulus also will hurt the economy, Feldstein says.

The deficit totaled $1.42 trillion in the year ended Sept. 30.

Numbers like that could lead to pressure for higher taxes, another negative for the economy, Feldstein said.

“The thing that I worry about is a value-added tax, which would be passed through in the form of higher prices.”

Consumer debt also will limit economic gains, experts say.

“Households are going to use any wealth accumulation to pay down debt,” David Resler, chief economist at Nomura Securities, told CNBC.

“That's going to be a continuing strain on the economy.”

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The U.S. economic rebound may fizzle this year, as fiscal stimulus winds down, says Harvard economist Martin Feldstein. Government spending surged last year after Congress passed the $787 billion stimulus package. Tax benefits granted for auto and home purchases also...
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2010-31-08
Friday, 08 Jan 2010 12:31 PM
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