Fed Fires $600 Billion Stimulus Shot

The Wall Street Journal

 

The Federal Reserve, in a dramatic effort to rev up a "disappointingly slow" economic recovery, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.

Many outside the Fed, and some inside, see the move as a 'Hail Mary' pass by Fed Chairman Ben Bernanke. He embraced highly unconventional policies during the financial crisis to ward off a financial-system collapse. But a year and a half later, he confronts an economy hobbled by high unemployment, a gridlocked political system and the threat of a Japan-like period of deflation, or a debilitating fall in consumer prices.

The Fed left open the possibility of doing more if growth and inflation don't perk up in the months ahead. The $75 billion a month in new purchases of Treasury debt come on top of $35 billion a month the Fed is expected to spend to replace mortgage bonds in its portfolio that are being retired.

The Dow Jones Industrial Average Wednesday continued a climb that began in August, when Mr. Bernanke signaled that a bond-buying program was possible. The index rose 26.41 points, or 0.24%, to a two-year high of 11215.13. Yields on 10-year notes, which have fallen from just under 3% in early August, finished the day at 2.62%. The value of the dollar has fallen in anticipation of a flood of new American currency hitting global financial markets.

These market reactions are seen inside the Fed as being stimulative to the economy. In addition to the impact of cheaper borrowing, higher stock prices could encourage households to spend more and businesses to invest more, and a weak dollar could make U.S. exports cheaper and thus easier to sell abroad.

"All of these things are part of what the Fed is trying to do, and I think it has been successful," said Laurence Kantor, head of research at Barclays Capital in New York.

The moves announced Wednesday were broadly in line with the expectations of economists, although some had expected total spending to be a bit less and to come more quickly.

There are immense unknowns and many risks.

In essence, the Fed now will print money to buy as much as $900 billion in U.S. government bonds through June—an amount roughly equal to the government's total projected borrowing needs over that period.

In normal times, a Fed spending spree on government bonds would be highly inflationary, because it would flood the economy with money and raise worries about too much government spending. The mere worry of too much inflation in financial markets could drive long-term interest rates higher and cause the Fed's program to backfire.
Prices in commodities markets have marched higher since late August. Crude-oil futures prices, for instance, have risen 15% since then, to $85 per barrel.

Michael Pence, a top Republican in the House of Representatives, said the Fed was taking an "incalculable risk."

Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, who described the move before the meeting as a "bargain with the devil," was the lone dissenter in a 10-1 vote of the Fed's policy committee. He said the risks of additional government bond purchases outweighed the benefits.

But Fed officials are betting that inflation is still being pushed strongly in the other direction because there is so much spare capacity in the economy—including an unemployment rate at 9.6%, a real-estate landscape littered with more than 14 million unoccupied homes, and manufacturers operating with 28% of their productive capacity going unused.

The latest economic data suggest the economy is expanding, but not at a very fast pace. Figures Wednesday from payroll firm Automatic Data Processing Inc. and consultancy Macroeconomic Advisers showed that companies added 43,000 private-sector jobs in October.

In a post-meeting statement, the Fed said it was acting to "promote a stronger pace of economic recovery" and to ensure that inflation, now running at around a 1% annual rate, moves toward the Fed's informal objective of 2%.

This is the Fed's second experiment with a big bond-buying program. Between January 2009 and March of this year, the central bank purchased roughly $1.7 trillion worth of government and mortgage bonds. That move also sparked worries about inflation, which so far hasn't materialized. The bond-buying program is known in some corners as quantitative easing.

"This approach eased financial conditions in the past and, so far, looks to be effective again," Mr. Bernanke said in an opinion piece scheduled to be published in Thursday's Washington Post.

By buying a lot of bonds and taking them off the market, the Fed expects to push up their prices and push down their yields. The Fed hopes that will result in lower interest rates for homeowners, consumers and businesses, which in turn will encourage more of them to borrow, spend and invest. The Fed figures it will also drive investors into stocks, corporate bonds and other riskier investments offering higher returns.

The Fed normally would push down short-term interest rates when the economy is weak. But it has already pushed those rates to near zero, leaving it to resort to unconventional measures.

The planned bond buying, by Fed calculations, will have an economic impact roughly equivalent to cutting short-term interest rates by three-quarters of a percentage point.

The Fed will be buying bonds with maturities of as long as 30 years, but will concentrate its purchases in the five-year to six-year range. Some bond-market participants were disappointed with that decision because they wanted the Fed to focus on buying longer-term bonds. But doing so could leave the Fed more exposed to losses if interest rates rise.

There are other risks.

Critics say a weaker dollar isn't in U.S. interests, and that a swift decline in the value of the currency could drive up U.S. interest rates. Fed officials have seen the dollar's drop to date as being orderly and supportive of growth.

Some critics also argue that by purchasing government bonds, the Fed is taking pressure off the White House and Congress to address long-term deficit problems, but Mr. Bernanke is trying to avoid such political calculations.

U.S. trading partners, particularly in the developing world, openly worry that the Fed's money pumping is creating inflation in their own economies and a risk of asset-price bubbles. Fed officials say a strong U.S. economy is in everyone's interest.

In recent weeks, China, India, Australia and others have pushed their own interest rates higher to tamp down inflation forces. Authorities in Brazil and Thailand have imposed taxes on capital flooding into their economies to prevent an asset bubble. And Japanese authorities have intervened in currency markets to prevent the yen from appreciating too much against the dollar.

There is an alternate risk that officials wrestled with in their latest two-day meeting, which concluded before lunch Wednesday: They might not be doing enough.

Economists at the research firm Macroeconomic Advisers LLC calculated that even if the Fed purchases $1.5 trillion worth of Treasury bonds—which some economists say remains a distinct possibility—it would only bring the unemployment rate down by 0.2 percentage points by the end of 2011.

"This instrument doesn't give them a lot of power, especially on the scale which they're prepared to use," said Laurence Meyer, of Macroeconomic Advisers, after the decision.

For the Fed, it was a middle ground that emerged after months of internal debate about the costs and benefits of restarting the program.

Fed Will Buy $600 Billion in Debt, Hoping to Spur Growth

NY Times

The Federal Reserve, concerned about the slow recovery, announced a second, large purchase of Treasury bonds on Wednesday, an effort to spur economic growth by lowering long-term interest rates.
The Fed said it would buy an additional $600 billion in long-term Treasury securities by the end of June 2011, somewhat more than the $300 billion to $500 billion that many in the markets had expected.

The central bank said it would also continue its program, announced in August, of reinvesting proceeds from its mortgage-related holdings to buy Treasury debt. The Fed now expects to reinvest $250 billion to $300 billion under that program by the end of June, making the total asset purchases in the range of $850 billion to $900 billion.

That would just about double the $800 billion or so in Treasury debt currently on the Fed’s balance sheet.

While the Fed has been signaling that it would act to bolster the economy, the announcement was the first major policy move since the midterm elections, which gave Republicans control of the House and heightened the potential for gridlock on fiscal policy including tax cuts and spending to encourage job creation and growth.

In justifying its decision, the Fed noted that unemployment was high and inflation low, and judged that the recovery “has been disappointingly slow.”

The Federal Open Market Committee, which ended a two-day meeting on Wednesday, also left open the possibility of additional purchases.

“The committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability,” the committee said.

As expected, the Fed left the benchmark short-term interest rate — the federal funds rate, at which banks lend to one another overnight — at nearly zero, where it has been since December 2008. The committee’s vote was 9 to 1.

Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, dissented, as he has at every meeting this year. Mr. Hoenig “was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy,” the Fed said in a statement.

In a statement after the F.O.M.C. announcement, the New York Federal Reserve, which handles the bond purchases, said the purchases will include bonds ranging for less than 2 year to 30 years, with “an average duration of between 5 and 6 years.”

“The distribution of purchases could change if market conditions warrant,” the New York Fed said in a statement, “but such changes would be designed to not significantly alter the average duration of the assets purchased.”

Economists disagree about how much the new round of debt purchases — a reprise of an initial, $1.7 trillion round that ended in March — will have on spurring consumer and corporate demand.

Lower long-term interest rates in theory should ripple through the markets, affecting other rates, like those of 30-year, fixed-rate mortgages. That could encourage homeowners to refinance into cheaper mortgages, though it would not help the millions of Americans facing foreclosure.

But there are several significant risks. The new actions are likely to further drive down the value of the dollar, which as fallen about 7.5 percent since June against the currencies of major trading partners. That could exacerbate the trade and exchange-rate tensions that have threatened to unravel cooperation among the world’s biggest economies.

Moreover, the Fed is exposing itself to the risk that the assets it has purchased, like the $1 trillion in mortgage-related securities on its balance sheets, could shrivel in value as interest rates rise. That could reduce the amount of money the central banks turns over to the Treasury each year, and expose the Fed — which has been attacked for failing to prevent the 2008 financial crisis — to further criticism.

And then there is a risk that the Fed’s action could be neutralized by a new Congress that has vowed to contract government spending, a core argument that led to the overwhelming Republican victory on Tuesday.

Mr. Obama, at a news conference on Wednesday, talked of compromise with the new Republican majority in the House. But he also cited China’s new high-speed trains and its advances in supercomputing to make the case that there are some areas where the United States needs to make investments, and insisted that the country would not shy away from those. “They are making investments, because they know those investments will pay off in the long term,” he said of the Chinese, seeming to suggest that the United States needs to do the same.

At the same moment, he reiterated that he would support continuing the Bush era tax cuts only for families earning less than $250,000 a year. “It is very important we’re not taking money out of the system from people who are most likely to spend that money,” Mr. Obama said at the news conference.

But he hinted at flexibility, saying he expected to sit down with the new Republican leadership to see “where we can move forward first of all in ways that can do no harm.”

Asked if he was willing to negotiate, he said, “Absolutely.”

Laurence H. Meyer, a former Fed governor who closely monitors the central bank, said the prospect of sustained fiscal gridlock had already pushed Mr. Bernanke to move.

“Bernanke has said that fiscal stimulus, accommodated by the Fed, is the single most powerful action the government can take for lowering the unemployment rate ,when short-term rates are already at zero,” Mr. Meyer said. “He has nearly pleaded with Congress for fiscal stimulus, but he can’t count on it. So he has to act as if that’s not going to happen. “

Mr. Meyer predicted: “The political drama is just beginning.”

Leonard J. Santow, an economic consultant, said he feared that the Fed was reacting to one mistake — the failure of fiscal policy — by adding another.

“Monetary policy is already unsustainably easy, and adding to the Fed’s generosity through more quantitative easing will do little to stimulate the economy,” Mr. Santow said. “The main problem is on the fiscal side and there is nothing wrong with the Fed chairman making budget recommendations and admitting there is not a great deal left for monetary policy to achieve when it comes to stimulating the economy.”

The Fed lowered short-term interest rates to nearly zero in December 2008, and subsequently bought $1.7 trillion in mortgage-backed securities and government securities, a program that was phased out last March.

Only months ago, the Fed was talking about returning to normal monetary policy and discussing the timetable for eventually raising interest rates and tightening the supply of credit, as it would normally do after a recession has ended.

But this recession and its painful aftermath have been anything but normal. Global financial markets were set back in the spring by the European debt crisis in Europe, and over several months, Fed officials gradually became convinced that their only option was to step back in again.

U.S. Economy Improving, More Stimulus Isn't the Answer, Rubin, O'Neill Say‏

Bloomberg

Robert Rubin

 

 

The U.S. economy will improve slowly and another round of fiscal stimulus likely wouldn’t be effective, former Treasury secretaries Paul O’Neill and Robert Rubin said.

Rubin, who served under Democratic President Bill Clinton, said the U.S. is “going to have slow and bumpy growth,” in a taped interview on CNN’s “Fareed Zakaria GPS” scheduled to air today. A “major second stimulus” might create uncertainty and undermine confidence, he said.

Companies are concerned about demand and won’t expand facilities and hire new employees until sales have improved, said O’Neill, who was Treasury secretary under Republican President George W. Bush.

“I think we are moving forward at a pretty gradual pace,” O’Neill said. “But I don’t think things are terrible.”

The world’s largest economy may be cooling in the second half of the year as a scarcity of jobs limits consumer spending. U.S. companies in July hired fewer workers than forecast, and economists in a Bloomberg News survey project the unemployment rate will be slow to recede after reaching a 26-year high of 10.1 percent in October 2009.

O’Neill, currently a senior adviser and consultant to New York-based Blackstone Group LP, said Democratic President Barack Obama could “make a huge difference” if he advocated tax overhaul, particularly something “simple” such as a value- added tax.

Bush Tax Cuts

The Obama administration has said it wants to let the Bush administration tax cuts expire for households earning more than $250,000 a year, while maintaining reductions for households earning less than that. The tax cuts, enacted in 2001 and 2003, expire on Dec. 31.

Treasury Secretary Timothy F. Geithner has said the government can’t afford to extend the reductions for the wealthiest Americans, as the tax breaks don’t pay for themselves in economic growth. Geithner, in a speech in Washington on Aug. 5, dismissed the “long-discredited idea” that tax cuts generate enough growth-related income to offset their fiscal impact, and said there is “absolutely no evidence to support it.”

Rubin said he’d immediately create an estate tax, increase taxes for upper-income Americans, leave in place the current middle-class tax rates “for a limited period” and try “over the next six months to put in place a very serious beginning of deficit reduction that would take effect at some specified time in the future.”

Vulnerable Economy

Rubin urged delaying the elimination of tax cuts on the middle class because of the “vulnerability” of the economy and the high unemployment rate.

The economy grew at a slower-than-projected 2.4 percent pace in the second quarter as consumer spending slowed and the trade deficit widened, government data showed on July 30.

Private payrolls that exclude government agencies rose by 71,000 in July after a June gain of 31,000 that was smaller than previously reported, according to Labor Department figures released in Washington Aug 6. Overall employment fell by 131,000, reflecting the dismissal of temporary census workers, and the jobless rate held at 9.5 percent.

The Clinton presidency, when 22.8 million jobs were created, “was a remarkable period” and the president “was terrific on economic policy,” Rubin said. The country is in a much different position now, he said in response to a question about how the U.S. could create jobs more rapidly.

Complex Issues

“Obama has done a lot, given the current circumstances in which he has been operating,” Rubin said. “But he now faces these enormously complex issues,” and “I think we’ve all got to try to find some way to help make the system work better.”

The weak July payrolls report intensified a debate among economists over whether Federal Reserve policy makers will take an incremental step this week toward providing more stimulus. U.S. central bankers said in June that additional monetary stimulus “might become appropriate” if the economic outlook “were to worsen appreciably.”

Federal Reserve Chairman Ben S. Bernanke last month said the central bank is prepared to take further policy actions if the economy “doesn’t continue to improve.” Bernanke said last month the Fed may at some point maintain stimulus by investing the proceeds from maturing bonds into U.S. Treasuries.

‘Perfect Quarter’ at Four U.S. Banks Shows Fed-Fueled Revival

Bloomberg / Business Week

 

 

Four of the largest U.S. banks, including Citigroup Inc., racked up perfect quarters in their trading businesses between January and March, underscoring how government support and less competition is fueling Wall Street’s revival.     Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc., the first, second and fifth-biggest U.S. banks by assets, all said in regulatory filings that they had zero days of trading losses in the first quarter. Citigroup Inc., the third-largest, doesn’t break out its daily trading revenue by quarter. It recorded a profit on each trading day, two people with knowledge of the results said.     “The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,” said Christopher Whalen, managing director of Torrance, California- based Institutional Risk Analytics. “It’s a transfer from savers to banks.”

The trading results, which helped the banks report higher quarterly profit than analysts estimated even as unemployment stagnated at a 27-year high, came with a big assist from the Federal Reserve. The U.S. central bank helped lenders by holding short-term borrowing costs near zero, giving them a chance to profit by carrying even 10-year government notes that yielded an average of 3.70 percent last quarter.

Yield Curve

The gap between short-term interest rates, such as what banks may pay to borrow in interbank markets or on savings accounts, and longer-term rates, known as the yield curve, has been at record levels. The difference between yields on 2- and 10-year Treasuries yesterday touched 2.71 percentage points, near the all-time high of 2.94 percentage points set Feb. 18.

It’s an awkward moment for the largest banks to be reporting more profitable trading. President Barack Obama is seeking to prohibit banks from trading solely for their own profit, a proposal favored by Paul Volcker, the former Fed chairman who is now a White House adviser.

“The banks are getting while the getting is good because you have regulatory reform and the Volcker rule and possible bank taxes down the road,” said Matthew McCormick, a banking analyst at Bahl & Gaynor Inc. in Cincinnati, which manages about $2.8 billion including bank stocks. “It’s statistically improbable to have three firms batting 1,000 and also pitching a perfect game. You wonder why the rest of America has some suspicion about proprietary trading.”

‘Implausible’ Proprietary Model

Wells Fargo & Co., the No. 4 U.S. bank, doesn’t disclose how many days it had trading gains or losses, said John Shrewsberry, head of the bank’s securities and investment group. Bank of America declined to comment beyond its filing, according to spokesman Jerry Dubrowski. JPMorgan also wouldn’t comment, spokesman Joseph Evangelisti said. Fed spokesman David Skidmore didn’t reply to an e-mail left after regular office hours yesterday.

At Goldman Sachs, which is contesting a fraud lawsuit from the Securities and Exchange Commission tied to the sale of a mortgage-linked security in 2007, net revenue was $25 million or higher on each of the days it traded. The New York-based firm said it made more than $100 million on 35 of those days, or more than half the time.

The company’s fixed-income, currencies and commodities businesses and equities unit generate those returns by making markets for clients rather than betting the firm’s own money, Chief Operating Officer Gary Cohn said yesterday at a financial services conference in New York.

“There is often speculation that proprietary trading revenues drive our outperformance in these businesses,” Cohn said. “Over the last 12 months, we have only recorded 11 loss days. It is implausible that a proprietary-driven business model could be right 96 percent of the time.”

Less Competition

The demise of Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. also helped surviving banks, said Benjamin Wallace, an analyst at Grimes & Co. in Westborough, Massachusetts, which manages $900 million and holds shares of Bank of America and JPMorgan.

“It was like a perfect storm for the fixed income market where you had very low volatility, tightening spreads and a buyer of last resort in the Federal Reserve,” said Paul Miller an analyst at FBR Capital Markets in Arlington, Virginia. “Even if a trade was going against you, you could just dump it on the Fed very quickly.”

The trading-powered gains may not last. At the end of March, the Fed wound up a program in which it had bought $1.25 trillion of Fannie Mae, Freddie Mac and Ginnie Mae home-loan securities. The purchases had helped drive debt buyers from U.S. mortgage bonds with government-supported guarantees and into riskier debt, helping banks that were holding or trading it.

The European debt crisis this month drove many investors back to safer assets, hurting prices for debt such as corporate bonds and commercial mortgage securities.

“The high level of trading and securities gains in the first quarter of 2010 is not likely to continue throughout 2010,” JPMorgan said in its filing.

Massachusetts to have Second Round of Appliance Rebates

Business Week

 

 

Massachusetts officials said Friday that they will hold a second round of appliance rebates this summer after would-be participants crashed a computer server then drained the program of all its funding in 2 1/2 hours.

Environmental Affairs Secretary Ian Bowles said Friday the state will also fund all of more than 12,700 rebate reservations placed on a waiting list after Thursday's first-come, first-served free-for-all.

Those on the waiting list will be notified by e-mail or mail in about one week explaining how to claim their rebate. The deadlines for buying appliances and submitting paperwork have been extended by one week to aid those customers on the waiting list, officials said.

The rebates totaled up to $250 for dishwashers, $200 for refrigerators, $175 for clothes washers and $50 for freezers. Many manufacturers and retailers were also offering add-on rebates of their own, dramatically lowering product costs.

Thursday's rebate program, designed to encourage consumers to trade in energy-sucking appliances for more miserly ones, was funded with federal stimulus dollars.

The $5.5 million in rebates will help replace about 26,556 dishwashers, refrigerators, ovens, clothes washers and freezers, Bowles said.

Money for the summer rebate program will come from state funds including the auction of carbon allowances under the Regional Greenhouse Gas Initiative and existing utility company funds for state energy efficiency programs.

Those awarded rebates Thursday and those placed on the waiting list must buy their kitchen appliances by May 12 and have their old inefficient ones picked up for recycling by June 26.

$30 Billion Of TARP Money May Go To Small Businesses

New Mexico Business Weekly

Small businesses could receive $30 billion from federal bank bailout funds, the U.S. Treasury Department said Wednesday.

While large banks have been eager to exit the Troubled Asset Relief Program, the Treasury is worried that many community banks never entered the program, not wanting to be subject to the conditions that came with the funds. As community banks are a key source of lending to small businesses, federal officials believe community banks' rejection of TARP is one of the factors keeping credit from flowing more freely.

From President Barack Obama on down, government officials have been gently stepping up pressure on banks to increase lending, saying that higher lending is needed to sustain the economic recovery.

No final decision on TARP money for small businesses has been reached, how many and which businesses might qualify, or how small businesses might apply for funds.

In New Mexico, Trinity Capital Corp. of Los Alamos — the parent company of Los Alamos National Bank — received a $36 million TARP investment in March, and Santa Fe-based Century Financial Services Corp. received a $10 million TARP investment in June.

House Passes $174 Billion Jobs Plan

MSNBC

President Barack Obama's Democratic allies in the House Wednesday muscled through a year-end plan to create jobs, mixing about $50 billion for public works projects with another almost $50 billion for cash-strapped state and local governments.

The unemployed would get continued benefits. But conspicuously absent from the plan were Obama's recently announced initiatives to give Social Security recipients $250 payments, a tax credit for small businesses that create jobs and a program awarding tax credits to people who make their homes more energy efficient.

Not a single Republican voted for the plan, which passed on a 217-212 vote after House Speaker Nancy Pelosi, D-Calif., worked the floor for an hour before it passed. The measure now goes to the Senate, which won't consider the measure until next year and which generally has a smaller appetite for such deficit-financed economic stimulus measures.

Given increasing anxiety among Democrats over massive budget deficits and the party's poor marks with voters for its free-spending ways, the measure could face a tough road. Almost 40 Democrats voted against the plan, mostly moderates and junior members elected from swing districts.

According to documents released by Democrats, the measure would cost $154 billion. But there's also another $20 billion from the federal treasury to keep the highway trust fund afloat.

The measure blends a familiar mix of money for highway, transit and water projects and aid to help communities retain teachers and firefighters. There's also $41 billion for a six-month extension of more generous unemployment benefits and $12 billion to renew health insurance subsidies.

Many of the ideas are renewals of programs started in February's $787 billion economic stimulus bill, which has earned mixed reviews from the public as unemployment has hit 10 percent.

The idea behind the "Jobs for Main Street Act" was to enact fast-acting steps that would quickly boost employment. The bill also reflects concerns among rank-and-file Democrats that the original stimulus measure didn't have enough money for infrastructure projects.

But infrastructure spending is notoriously slow to spend out as projects need to be planned and can require a lengthy contracting process. Most of the so-called shovel ready projects have already been funded.

According to the Congressional Budget Office, less than half of the $39 billion in the measure for transportation and housing projects would be spent over the next decade, with just $1.7 billion being spent through next September.

Democrats claimed $75 billion of the measure is "paid for" with unused money from the Wall St. bailout. Republicans countered that the bill is really financed with red ink since the bailout money would otherwise revert to the Treasury to lower the deficit.

Republicans branded the new bill "Son of Stimulus" and were withering in their assessments.

"More spending, more debt. Same lousy policies that haven't produced jobs all year," said House Minority Leader John Boehner, R-Ohio.

Democrats also say that economists largely credit the earlier stimulus measure for the fledgling economic recovery and the improving unemployment picture.

"The situation is worse than we thought and getting better more slowly than we hoped but it's clearly getting better," said Rep. Barney Frank, D-Mass.

Democrats said that the measure would prevent a double-dip recession by giving state and local governments $23 billion to retain teachers and lesser amounts to keep firefighters and police officers. And it would help prevent tax increases by state governments by giving them $23.5 billion for the Medicaid program for the poor and disabled.

Republicans also distributed a chart showing that roughly half the money goes into accounts brimming with cash from the earlier stimulus bill.

"The agencies are awash with money coming through the pipeline," said Rep. Jerry Lewis, R-Calif.

But Appropriations Committee Chairman David Obey, D-Wis., countered that most of the earlier stimulus money has been committed if not actually spent.

The measure also includes money for Amtrak construction, school renovation and job training. There's also $1.1 billion for part-time college jobs, summer employment for low-income teenagers and money for workers in national parks and forests.

The bill also allows very poor people with as little as no income to claim a $1,000-per-child tax credit in what Republicans charged was simply a welfare payment to 16 million poor families.

The bill also would extend federal surface transportation programs through the end of next September.

Democratic leaders had to scramble to find the votes for the measure, which came up right after the House approved a $290 billion increase in the government's ability to borrow. That 218-214 vote reflected unhappiness by moderate Democrats about adding to the nation's red ink.

Stimulus Analysis Offers Up Confusing Numbers

USA Today

The federal government sent Bob Bray $26,174 in stimulus aid to fix a fence and replace the roofs on public Dallas apartments near Blooming Grove, Texas, a town of fewer than 900 people outside Dallas. He hired five roofers and an inspector to do the job.

But the number of jobs he reported to the government looked very different — 450 jobs.

"Oh, no," said Bray, who runs the local public housing authority part-time with his wife, Linda, when asked about the discrepancy. He said that he told the government that he had created six jobs but that a federal official told him that wasn't right. So he reported the number of hours the roofers worked instead. The Department of Housing and Urban Development caught the mistake, but he couldn't fix it before the jobs figures were published. "The money was great, but the reports are really confusing," he said. "I've been fighting with it for over a month and a half."

The administration reported Friday that stimulus recipients reported having created or saved 640,329 jobs this year, a figure it said buttressed its contention that the $787 billion package has had a significant economic impact. The jobs total is based on reports of more than 130,000 recipients of stimulus grants and contracts filed with the federal government.

Obama's senior adviser for the stimulus, Ed DeSeve, said last week that officials had "scrubbed" those reports for three weeks before they were released Friday, though he said some would still have errors.

USA TODAY reviewed the reports to determine the number of jobs created or saved per stimulus dollar. The review found 14 recipients that reported saving or creating more than 100 jobs for less than $1,500 per job — suggesting they overreported the number of jobs. Those included:

•The police department in Plymouth, Conn., claimed in its report that a $15,355 grant used to buy new computers had created or saved 108 jobs. The department had 22 law enforcement officers last year, according to the FBI. Mayor Vincent Festa said that the town has resorted to "counting paper clips" to save money but that it had no plans to lay off any of its police officers, even without the stimulus. He said he could not explain the report, and the town's police chief did not return telephone calls Monday.

•The Southwest Georgia Community Action Council, which employs about 500 people in its Head Start preschool program, reported creating or saving 935 jobs with about $1.3 million in funding. Beverly Wise, the group's fiscal officer, said she followed the advice of federal officials to come up with the number. "I thought it was high," Wise said of the number she reported, adding that the process was confusing. The group is using its stimulus money to give a 1.84% pay raise to its employees and pay for other needs such as playground equipment and training for the teachers who serve 2,300 low-income children.

•Teach for America, which helps place recent graduates in teaching jobs in urban and rural districts, reported that a $2 million grant created or saved 1,425 jobs. Spokeswoman Kerci Marcello Stroud said officials used that money to pay part of the salaries of 125 employees; a separate $6 million allowed it to expand the training program to include 1,300 more graduates.

Liz Oxhorn, a spokeswoman for the White House stimulus effort, said the reports give "the American people one of the best looks ever at real-time information about a major initiative" and the reporting "allows people to find any mistakes, as it should — which will help us correct them promptly."

More Entrepreneurs Exploring Options With SBA Loans
Story from the Wichita Eagle

Slowly but surely, the impact of the federal stimulus package on small businesses and lenders is unfolding.

And the net effect so far has been a significantly increased interest in U.S. Small Business Administration-backed loans by borrowers and lenders.

Calls to the SBA's Wichita district office have increased about 50 percent, to 100 a week, since the Recovery Act became law Feb. 17, district director Wayne Bell said Friday.

Nationally, loan volume for SBA's two most popular loans is up 25 percent since mid-March. Local bankers and SBA officials don't have specific figures, but they say SBA business is on the upswing.

"We're seeing a lot more interest and getting more outside inquires," said Doug Neff, executive vice president for commercial banking at Commerce Bank.

More than half of the $730 million in the Recovery Act funding has been targeted to make it easier for small businesses to borrow.

In addition, all SBA fees that borrowers have had to pay have been eliminated through Dec. 31. Typically, those fees amount to 2 to 3 ½ percent of the loan, Bell said.

Banks have also had a renewed interest in making SBA loans after two key incentives out of the Recovery Act were announced in March:

• The SBA increased its guarantee to 90 percent from 75 percent on most loans up to $2 million.

• Maximum guarantee on surety bonds for small businesses competing for public construction and service contracts more than doubled to $5 million from $2 million.

Karen Mills, the SBA's new director, said 1,200 banks across the country have recently returned to making SBA loans and others are participating for the first time. Most of those banks are on the coasts, where there have been greater lending woes.

Local bankers and SBA officials said the Midwest and Kansas in particular didn't experience those kinds of extremes, so the swing in banks jumping on board in this area isn't nearly as great.

But Brenda Murray, a business development specialist with the SBA's Wichita office, said, "I am hearing from bankers I haven't talked to in a long time. Between the 90 percent guarantee and the surety increase, banks are motivated to look at things they wouldn't normally do."

None of the new programs has caught the attention of small business owners more than the announcement earlier this week that SBA will start guaranteeing interest-free, payment-deferred catch-up loans of up to $35,000.

Applications for those loans won't be taken until June 15, but lenders and the SBA office have already been getting a rush of calls from potential borrowers.

Unfortunately both lenders and local SBA officials won't receive all the final details of the program until June 8.

"Everyone is trying to figure this out right now," Neff said.

They are known as America's Recovery Capital loans, or ARC loans. As suggested by the name, they are designed to help small businesses recover and not invest in expansion.

Bell said the loans are specifically designed for business having a cash flow problem. In fact, the loans can only be used for existing business debt, such as loan payments, account payables, mortgages and a company credit card.

Repayment doesn't begin until 12 months after the final loan disbursement and borrowers have up to five years to pay it off.

The SBA will pay the lenders the interest on the loans. Bell said the interest will probably be a point or two above the prime rate.

"It'll be something reasonable," Bell said."... Right now, we don't know all the details."

Applications for the ARC loans are made directly to the lenders.

"The SBA has decided the economy is a disaster nationally," said Scott Soderstrom, the small-business lending officer at Intrust Bank. "They figure lenders can critique the applicants faster than they can, which is true."