OBAMA ADVISER: 2ND STIMULUS NEEDED, FORGET INFLATION

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Alert: The United States should be planning for a possible second round of fiscal stimulus to further prop up the economy after the $787 billion rescue package launched in February, an adviser to President Barack Obama said.

"We should be planning on a contingency basis for a second round of stimulus," Laura D'Andrea Tyson, a member of the panel advising President Barack Obama on tackling the economic crisis. said on Tuesday.

Addressing a seminar in Singapore, Tyson said she felt the first round of stimulus aimed to prop up the economy had been slightly smaller than she would have liked and that a possible second round should be directed at infrastructure investment.

"The stimulus is performing close to expectations but not in timing," Tyson said, referring to the slow pace at which the first round of stimulus had been spent on the economy.

Tyson, who is a dean of the Haas School of Business at University of California, Berkeley and was also a White House economic adviser to former President Bill Clinton, said an additional factor affecting the stimulus was that the economy was in a far worse shape than the administration had estimated.

INFLATION NOT A CONCERN

Tyson dispelled concerns about the ballooning U.S. fiscal deficit that is estimated to hit nearly 10 percent of gross domestic product, and its possible inflationary consequences.

"The Federal Reserve is not going to allow the U.S. to inflate away its debt," she said.

Asked about the value of the dollar, Tyson said the market was wrong to be concerned about inflation in the U.S. economy, given the amount of slack in most industries.

"It is almost in no one's interest to have a sharply spiraling downward dollar," she said. The dollar ought to decline in the longer term on a trade-weighted basis but she did not anticipate a sharp and sudden decline.

Turning to the Federal Reserve's near-zero rates policy and credit easing, Tyson said inflationary expectations remained "well-grounded", giving policymakers room to pursue these expansionary policies.

She said she was also not worried about whether the Fed can exit such a policy. "The Federal Reserve has the ability to make rapid adjustments in its balance-sheet as necessary."

But Tyson said the combination of near-zero interest rates and heavy debt issuance would keep the U.S. yield curve steep. And, while the rate at which the economy was contracting had fallen, the latest jobs data showed the economy was still not stabilizing.

A Rasmussen Reports poll reveals that only 27 percent of voters support another economic stimulus package this year, while 60 percent oppose it.

"Public opposition to a second stimulus plan is explained in part by the mixed feelings voters have about the first plan: 31 percent say it has helped the economy, and 30 percent say it has hurt," Rasmussen said.

In another survey, pollster Doug Schoen found that 56 percent of respondents are opposed to the notion that government should spend money to stimulate the national economy even if it means increasing the budget deficit. Only 37 percent support that position.

These polls show that voters are deeply concerned about higher budget deficits created by government stimulus, Politico observes.

But several unions, including the AFL-CIO and the Service Employees International Union, plan to begin pressuring legislators for a jobs bill, saying the $787 billion stimulus package approved earlier this year wasn't large enough.

Calls for a new stimulus plan are being fueled by rising unemployment, which hit 9.5 percent in June, The Hill newspaper reported. Obama administration officials predicted in January that the unemployment rate would peak at 8 percent if a stimulus plan was passed.

House Minority Whip Eric Cantor, R-Va., who voted against the stimulus package, said Republicans could work with Democrats on a new stimulus plan if it includes significant tax cuts, in particular cuts targeted at small businesses and their employees.

But Vice President Joe Biden said on Sunday that the current stimulus plan needs more time to work. He told ABC News: "We misread just how bad the economy was, but we are now only about 120 days into the recovery package."

Nevertheless, 68 percent of likely voters surveyed by Rasmussen believe that Congress and the president will try to pass another stimulus package this year, while only 20 percent believe they will not, and 12 percent are not sure. (Newsmax)


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