From the FINANCIAL TIMES:
Senior economic advisers to Barack Obama, the then US president-elect, turned away from a supersized fiscal stimulus because they doubted its practicality, according to a December 2008 internal memo.
Mr Summers told the president that it would be hard to spend more than $300bn on government investment and anything above that would have to come from transfers to the states and tax cuts. He also said that a giant stimulus of more than $1,000bn aimed at rapidly reducing the unemployment rate “would likely not accomplish the goal because of the impact it would have on markets”.
The memo sheds new light on a long-running controversy about whether the 2009 stimulus – which became the $787bn American Recovery and Reinvestment Act – failed to keep unemployment below 9 per cent because it was too small. It suggests that Mr Obama’s economic advisers recognised that the economy needed a bigger boost, but did not think they could design one and feared a backlash from bond markets…
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