Image by Kaptain Krispy Kreme via Flickr
Posted May 3rd 2009 9:40AM by Peter Cohan
One of President Obama's accomplishments during his first 100 days was the passage of a $787 billion stimulus plan. I think the idea of economic stimulus makes sense when an economy is in the middle of a deflationary spiral. As I posted, that's when a drop in demand leads to excess productive capacity, causing companies to cut prices and fire workers, which in turn lowers demand as more workers -- whose consumer spending accounts for 70% of GDP growth -- have less to spend.
So far, only about 10% of the stimulus money has been doled out and it's not having much effect in counteracting this deflationary spiral. How so? First quarter GDP plunged 6.1% -- compared to a 6.3% decline in 2008's fourth quarter -- and the preliminary numbers are usually adjusted downward. The unemployment rate is expected to hit 8.9% in April from 8.5% in March.