Wednesday, August 19, 2009

Sprott Asset Management: Beyond the Stimulus

Are you stimulated yet? We hope you are, because we've just witnessed the largest economic stimulus in the history of the world. Never before have so many government dollars been thrown at the economy to prevent a depression. When added together, the combined financial, monetary and fiscal stimuli in the US are more than the cost of the two World Wars and "The New Deal" combined.

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Although the stimulus has been fantastic for the stock market, it has generated very little benefit for "Main Street". To make matters worse, the effects of the stimulus packages have already started to wear off. To explain why, we must mention the American Recovery and Reinvestment Act of 2009 (ARRA), which was specifically directed at stimulating the real economy as opposed to "saving Wall Street". ARRA calls for a total spend of $787 billion, which breaks down into $287B in tax breaks, $192B in direct aid and $308B in discretionary spending. According to Christina Romer, a White House economic advisor, 70% of this stimulus will be spent by the end of September 2010.

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