More Government Money Won’t Stimulate Stocks: Experts
By Daniel at 8 July, 2009, 11:24 am
By: Jeff Cox, CNBC.com
A second round of economic stimulus would only steepen the government’s debt problems and likely do little to boost the stock market, financial experts say.
Reacting to an idea floated Tuesday by Laura D’Andrea Tyson, part of President Obama’s economic team, economists and market strategists said more stimulus is unnecessary and actually could threaten an economic recovery.
If enacted, the stimulus would come on top of the $787 billion rescue package launched in February, most of which has not reached the economy yet.
“We have enough stimulus in the pipeline. We just need to let the program roll out,” said Kurt Karl, chief economist at Swiss Re. “We’re on the way to recovery. It’s not as strong as we all hoped. It’s hard to say how strong it will be at this point, but I’d rather give it some time to wait and see.”
Indeed, opposition to more stimulus is focused mainly on the impact it would have on a crushing debt load that has already sent Treasurys prices plunging and made stock investors nervous. While economists generally aren’t fearful of inflation becoming a problem, another big issuance of government debt could change that forecast.
Moreover, the negative message that another stimulus would send could deter investors whose fragile collective psyche has kept the stock market locked in a range since the major indexes bounced off their March lows.
As talk escalated about another stimulus — House Majority Leader Rep. Stenny Hoyer said Congress needs to be “open” to talk of another measure — stocks fell more than 1 percent.
“Talk of a new stimulus plan is actually a confidence killer,” Joseph Battipaglia, market strategist for Stifel Nicolaus, told Reuters. “That would mean we’ve added a trillion dollars of debt without anything to show for it.”
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