Will the Recovery Plan Work?

The U.S. debt currently stands at a staggering $9.74 trillion, as of September 23 and, worse yet, $2.0 billion a day over the past year. This translates to $31,938 for each American. Now, you may think that fiscal spending should be more constrained, but the reality is that spending has been on the up.

 The problem is that the country faces a slowing economy, characterized by a weak housing market, declining consumer spending, and significant troubles in the financial sector. The government has already carried out a massive $161-billion economic stimulus program that is set to end in December, but appears to have had minimal success at best, as consumers are not spending and this means a jolt to economic growth.

 Now, the country is faced with trying to prevent a massive meltdown in the financial services sector, like what we saw during the U.S. Savings and Loan Crisis of the 1980s and 1990s, which required significant government help and capital infusion. The Bush administration is now looking at significant $700-billion financial bailout legislation aimed at dealing with the current crisis and that could offer some aid to homeowners. The key goal of the legislation would be the ability of the government to buy devalued assets from financial companies in trouble and help prevent the blockage in credit to these companies so that a turnaround could surface.

 While the concept appears to be workable, we question whether it would work given the condition of the housing market and its impact on financial firms. At the end of the day, the government will need some luck and hope that the economy begins to pull out from the current slowing in order for the legislation to have any significant impact.

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