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December 12th, 2008

Federal Share of Economy Highest Since WWII

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The government’s increased-spending initiatives, aimed at shoring up various economic sectors, is predicted by analysts of “current and projected payments” to increase the federal share of U.S. economic activity to approximately 25%. Initiatives such as the $700 billion TARP program, the Fed’s planned purchase of $600 billion in GSE debt and mortgage backed securities, and the President-elect’s expansive stimulus package that could total another $700 billion, could all lead to the largest federal share of the economy unseen since World War II:

Economists warn that the fast pace of government spending could spell trouble in the future: slower economic growth, higher interest rates, and the likelihood that tax increases or spending cuts will be needed to tame a budget deficit headed toward a record $1 trillion. The government reported Wednesday that the deficit for the first two months of the 2009 fiscal year was more than $400 billion.

“That’s the opposite of what we’re trying to do to the economy,” says Maya MacGuineas, president of the non-partisan Committee for a Responsible Federal Budget. The government should boost spending, but “we have to do it really carefully,” she says.

“Excess government spending has been shown to reduce economic growth,” Riedl says. “The more money spent by politicians in government, the less spending is available for the private sector, which is the sector that usually creates more productivity.”

(Via The Kirk Report)

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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