Economic Stimulus Act Of 2008

Confessions of a Money Manager: Running out of gas can cost you dearly

Back in November, the Federal Reserve announced its intention to purchase $600 billion of treasury bonds over the next eight months, concentrated in the 5- to 6-year maturity range. This action was dubbed Quantitative Easing (QE). The first QE began in 2008 and totaled $1.7 trillion. Quantitative Easing was designed to increase the money supply, keep rates low and spur economic spending. At the time, we highlighted that inflation was not a short-term concern and that the risk-reward scenario for the stock market showed a near-term positive bias toward riskier assets. Our analysis was correct and inflation remained subdued while the market climbed 15 percent higher.

June 30, however, marks the end of the latest Quantitative Easing program, and many are wondering what will happen next. The recent economic numbers were weaker than expected and, in light of the already high debt levels, there does not appear to be any political will for further spending.

Federal Reserve Chairman Ben Bernanke, during his commentary at the International Monetary Conference on June 7, made no mention of a QE3. He only said that the recovery continues at a moderate pace and that growth will likely pick up in the second half of the year. This poses an interesting dilemma for those trying to read the tea leaves.

PIMCO co-founder Bill Gross said at the June 8 Morningstar Conference that the Fed will stop purchasing treasuries as expected and will instead strengthen their tone and language in order to keep yields low.

For years the economy has been running on high-octane G.A.S. (Government Assisted Stimulus). For an in-depth list of government stimulus programs, please see the list below.

As race enthusiasts know, running out of gas can cost you dearly. Last month, Dale Earnhardt Jr. ran out of gas a half-lap short of victory and ended the Coca-Cola 600 in 7th place. On the Indy circuit, Dario Franchitti had to slow down to reserve fuel during the Indy 500 and faded from 1st to 12th. Earlier in May, Franchitti was injured when he hit the wall after running out of gas during qualifying runs on pole day.

So with the G.A.S. tank now running low, what adjustments should investors consider in order to keep their portfolios going?

First, realize that pit stops are vital to racing. Slowing down and making minor adjustments during a race is necessary. Right now, these adjustments consist of keeping bond durations low (which makes them less sensitive to changes in interest rates), switching from longer dated treasuries to Treasury Inflation-Protected Securities (TIPS), foreign bonds, and higher yielding corporates. In equities, prefer more defensive areas of the market -- such as health care and consumer staples -- to the risker areas: small companies, financials, and retail stocks.

Tax Relief or Burden? The Pros and Cons of Stimulus Packages

Every time a recession looms or the economy starts to slow down, the government seeks to restore the economy through different stimulus plans. The recession of 2008 was one such case. When the mortgage crunch hit the economy, causing widespread panic with the sudden financial plunge, the government took immediate measure to stimulate the economy back to norm and to restore confidence in the economic market. President Bush signed the Economic Stimulus Act of 2008 that awarded low and middle income earning taxpayers with a stimulus rebate check of $300.00 for qualifying children and $600.00 for adults. Any qualifying taxpayer who did not receive the stimulus check was allowed to offset the stimulus amount against any outstanding tax liabilities.

The intent of the stimulus check was to induce spending into the economy in a hope of reviving it. Since the low and middle class income earners were expected to spend such funds received on goods and services, economists projected that they were the best bet to jump start a stalled economy. Increased spending would mean increase in demand, which would bring growth to manufacturing and create jobs by extension. However, the expected impact of the stimulus checks did not result in significant economic growth but instead, produced a $165.9 billion government deficit.

There were mixed reactions and proposals as to how to resolve the new crisis that had been created (the problem of the resulting deficit). The economy was slowing down again and the government had to take action again and fast. Ben Bernanke, the Chairman of the Federal Reserve advised that a second stimulus plan could be appropriate to keep the economy in momentum. However, lawmakers were divided on the stimulus plan with others suggested tax cuts instead.

Eventually, there was no second stimulus check in 2008, as anticipated by many. When the Obama Administration took over the White House, they set out various stimulus programs under the American Recovery and Reinvestment Act (ARRA) of 2009. Under the stimulus package, the recipients of the stimulus checks were retired citizens and disabled persons, who received $250.00. Besides the rebate checks to these qualifying group of people, the ARRA opted for tax breaks for the rest of the taxpayers. The Making Work Pay Tax Credit was extended to low and middle income earners, which provided some tax relief. Qualifying individuals received a credit of $400.00 and married couples that filed jointly received a credit of $800.00. The credit that was set to last through 2009 and 2010 lapsed and was replaced by the 2010 Payroll Tax Credit.

Economic Stimulus Act of 2008

Policies for Increasing Economic Growth and Employment in 2010 and 2011

The Economic Report of the President 2010, With the Annual Report of the Council of Economic Advisors

How to Pay Zero Taxes 2011, Your Guide to Every Tax Break the IRS Allows!

RIA's complete analysis of the Economic Stimulus Act of 2008, and the AMT Patch, Mortgage Relief, Energy, Technical Corrections, and other late 2007 tax acts, with code sections as amended and committee reports