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Feature: Federal Stimulus Impact on Iowa

posted on February 12, 2009 at 5:17 PM

More eyes than normal these days are watching the stock market for some clue to the future.  For its part the market has generally traded downward on light volumes.  Investor interest is tepid at best.  Economic numbers remain less than encouraging.

While investors seem to be sitting on the sidelines, the new Obama administration and the Democrat-controlled congress is spending a lot of political capital to develop and enact a two-pronged jump start to the economy.

The President spent much of the week pushing for quick passage of a stimulus package.  He took his 76% approval rating into Republican enclaves that have been hit hard by the financial crisis.  

For its part the Senate did pass its version of a stimulus plan.  And the measure was quickly reconciled with a House version by a joint House-Senate conference committee.  The end result is a 789 billion dollar package that is more modest than either chamber has proposed. The measure is likely to be sent to the President before next week.

While congress wrestled with the stimulus legislation… Treasury secretary Tim Geithner was revealing his $2-trillion plan to resuscitate the nation’s banking system.

The Treasury plan is intended to stabilize banks, and return them to the function of financing consumers and businesses.

Weighing heavily on the banking system and the economy is an enormous amount of so-called “toxic” assets like unpaid sub-prime loans, bundles of such loans sold to investment banks as “collateralized debt obligations” and financial instruments sometimes known as Credit Default swaps, intended to insure against default.  

Banks continue to hold onto the bad debt for fear the market will pay nothing forit.  But, as they near their legal lending limits, because of all the bad debt they’re currently carrying as “assets”, they are unable to make new loans.  Like a flushed nerf ball, the toxic dregs are plugging up the nation’s financial plumbing.  

Despite the pledge that the public would be able to track Treasury’s efforts on a website, "coming soon", the promise of transparency failed to impress a market that wanted more details.  Tuesday’s stock market closed down sharply.   

Despite an unemployment rate well under the national level, a state government debt load that is near the lowest in the nation, and a still prospering farm sector, Iowa is not immune from national economic trends. 

The flow of state tax revenues has fallen as Iowa’s manufacturing, construction and financial sectors have suffered downturns. State agencies are scrambling to finish the current fiscal year in the black and lawmakers are slicing next year’s budget to ensure it will balance in 2010. 

The Democrat controlled legislature is likely to approve Governor Culver’s 700 million dollar Rebuild Iowa initiative. Proponents say the effort, financed through bonds backed by gambling revenues, will jump start the state’s economy by building a list of durable public assets. 



Tags: Barack Obama construction development economy government Iowa money stimulus


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