The only way this package can be finaced is via the bond mkt which will increase interest rates and devalue the usd even more That's why maybe insto's have been buying the aussie$ because relative it was cheap compared to other currencies
From egoli www.egoli.com.au
ABN-AMRO: The Bush tax package in perspective Wednesday, January 08, 2003.
You have to put the Bush tax package into perspective. US$674bn sounds a lot, but that’s the cost over 10 years. The President estimates that it will cut taxes by $98bn this year, of which $70bn is personal tax cuts and another $20bn is the removal of the double-taxation of dividends. The first, obvious, point to note is that we’re talking about a $10tr economy, so a $100bn boost is around 1% of GDP.
That’s significant, but it doesn’t change the economic outlook – particularly given that by the June quarter last year the public sector was pumping a $275bn stimulus. Secondly, this package may not get the biggest bang for the buck in terms of shortterm stimulus. Tax cuts may be saved, reducing their short-term growth impact. Thirdly, remember the stiff headwinds that policy-makers now face.
The chart shows the extent of equity withdrawal from US real estate wealth. The September quarter data show another step up in withdrawals: households increased mortgage debt by an astounding $724bn (at an annual rate), of which only $274bn (in net terms) was invested back into real estate – implying equity withdrawal running at $450bn at an annual rate.
The chart shows the figures on a four quarter rolling sum basis, both in dollar terms and relative to household income. Now, not all this money is spent – much, presumably, is used to refinance other debts, or to invest in other financial assets. But as everyone recognises, this equity withdrawal – which is just another form of leveraging – has been critical to supporting US consumer spending.
If it halves over this year it would reduce the household sector’s cash flow by $160bn – more than offsetting the Bush tax package. In other words, this latest fiscal package is not large enough to prevent a meaningful slowing in US growth this year if US consumers become more cautious. Given consumers’ problems, that remains a very likely prospect.
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