Plan Announced to Stimulate China's Economy

The economy goes sour because of what Chairman Greenspan referred to as “froth in thehousing market”and things get surreal. Suddenly an administration that has embraced Friedmanite market principles has gotten all Keynesian on us. Today's compromise (someone caved) between the the Prez and Democratic leaders in Congress calls for pumping $150 billion of stimulus (that's hot) into the economy. The hope is that this action in the form of tax rebates for average Joes and tax incentives for business will prevent the economy from taking a recessionary nose dive this year.

The good news is that all operations in Iraq will be suspended for one year to pay for the economic bailout. Okay that's actually not the case. Per the Washington Post story the plan would require increased borrowing and will increase the deficit by that $150 billion amount proposed.

Here is the proposed flow of funds from the plan:

1. Government borrows $150 billion from creditors like China.
2. Government spends money on rebates and tax incentives.
3. Businesses use tax incentives to buy equipment to manufacture goods in their Chinese factories.
4. Citizens go to Walmart and spend money on crap made in Chinese factories.
5. Feds pay creditors like China increasing interest on borrowings as value of dollar declines
6. Policy makers in D.C declare important election year victory.

The Prez has already mentioned that often repeated theme of Bushonomics, the miracle of unending tax cuts in his speech today

Importantly, this package recognizes that lowering taxes is a powerful and efficient way to help consumers and businesses. I've always believed that allowing people to keep more of their own money and to use it as they see fit is the best way to help our economy grow.

I'm still waiting for Ron Paul's response to this stuff. For more coverage on the plan check out Paul Krugman's Blog.