WASHINGTON, Jan. 28, 2008 (Thomson Financial delivered by Newstex) -- A US president's last State of the Union speech is traditionally where he lays out what he hopes history will see as his legacy. There is little doubt George W Bush would like to claim tonight that the economy is stronger and more prosperous because of his policies, but that would be a tough sell.
Such a claim would simply lack credibility when the country is on the verge of a recession or--according to some economists and most of the public--already in one. But Bush can hardly ignore the economy either.
'He will confidently boast that he will sign into law a bipartisan agreement to legislate an economic stimulus package to counteract the effects from an economy rapidly headed downhill. The fiscal package will be the highlight of his message since it is the most prominent piece of legislation that (can be) enacted quickly and without partisan bickering,' said Brian Fabbri of BNP Paribas. (OOTC:BPRBF)
The stimulus package has to be Bush's focus because the economy has risen to the top of the pubic's worry list and because he's got to promote it heavily if it's to have any prospect of getting through Congress quickly. That's what makes his position so paradoxical.
'He's likely to focus a lot on the near-term challenges and not much on his legacy. He'll be saying his economic legacy is a strong one but on the other hand the economy is so weak we need to adopt a stimulus package,' said Kevin Hassett of the American Enterprise Institute (AEI)(and an economic adviser to Republican presidential candidate Senator John McCain of Arizona).
White House Press Secretary Dana Perino got a direct question on the Bush economic legacy this morning: 'Is the country better off now than it was seven years ago?'
She claimed that Bush wasn't even thinking about his legacy tonight. 'The president doesn't spend a lot of time thinking about that,' she said. 'Look, the president thinks his legacy will shake itself out when people look at the record and history will tell.'
At around 150 bln usd, the stimulus package is big, just over 1 pct of GDP. The intention is for it to be implemented quickly with the first checks going out to taxpayers by May.
'The personal tax rebates alone will be worth almost 100 bln usd, and it is hard to imagine throwing that kind of money at the economy and seeing no result,' according to Ian Shepherdson of High Frequency Economics.
The academic research on tax rebates in 2001 and 2003 showed that between one third and two thirds of the rebates were spent quickly. Now, 'the increased financial pressures on households mean that a greater proportion of the rebates this year will be saved or used to pay down debt,' said Shepherdson.
Mr. Bush has always portrayed himself as anti-deficit and there are some anti-spending initiatives to be included in the State of the Union speech. The cost of the stimulus package is likely to be left out. The Congressional Budget Office has said it's likely to add 75 bln usd to the Fiscal Year 2008 deficit and the same amount in FY 2009.
Merrill Lynch's (NYSE:MER) (OOTC:MERIZ) David Rosenberg, who believes the US is already in recession doesn't see much impact from the stimulus, even combined with Fed rate cuts. 'At the margin, the fact that we are seeing a more aggressive policy response is a positive, but in the overall scheme of things, it doesn't change the recession outlook, though it all may serve to dull the pain,' he said.
Leaving the impression that at least he's trying to dull economic the pain may be the best President Bush can hope for tonight.
wash/ajb
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